A group led by Russian oil firm Lukoil won a bid for a key oil block in the second day of Iraq's energy auction after tough service contract terms led to disappointing bidding on 12 new oil and gas fields for the Opec member nation.     

The lukewarm response to Iraq's fourth energy auction - only three blocks out of 12 were awarded - is a setback for its plans to rapidly expand its huge oil and gas reserves and compete with regional powerhouse Saudi Arabia.    

Lukoil and partner Inpex Corporation of Japan won the deal for the 5,500 sq km Block 10 in Muthanna and Dhi Qar provinces in the south in an auction Iraq had expected would attract more investors.     

A bid from Pakistan Petroleum also won gas Block 8 in Diyala and Wasit provinces in eastern Iraq. Four other blocks, and two from the first day that were re-offered, received no bids.     

The second day of bidding followed a sluggish start to the auction on Wednesday when only one block was taken by Kuwait Energy, four other blocks got no bids and another deal failed after companies rejected the government offer.     

Iraq had hoped the auction would spur the expansion of its energy sector after years of war and sanctions, but the government said it would shortly open a fifth round with more new oil and gas blocks up for auction.     

'We will start preparations in the next few months to start a 5th exploration bidding round. The round will include 10 to 15 new blocks,' Oil Minister Abdul Kareem Luaibi told reporters. 

Oil giants such as Exxon Mobil and BP have already signed major deals to develop oilfields in Iraq, which has the world's fourth-largest oil reserves and the tenth largest gas reserves.      

But Baghdad's tough service contract terms and a boom in natural gas and gas finds elsewhere crimped investor interest, especially from the oil majors, for the 4th bidding round.      

Iraq is offering foreign companies less attractive service agreements - where they are paid a fee - rather than production-sharing deals that allow them to profit jointly from the output.      

A boom in unconventional gas production in North America has boosted world supplies, while a surge in Australian exports, gas finds in east Africa, and China's own gas potential also combine to make trickier prospects such as Iraq less attractive.

Bidding at the auction was decided according to the remuneration fees offered, with the lowest bids winning blocks.         

Violence in Iraq has eased since the height of the war, though security remains a concern, especially in more remote areas where some of the auctioned gas blocks are located.     

Companies entering new deals also weighed risks from Iraq's continued political instability against the potential gas and crude developments on offer in the bidding, which are mostly in western and central Iraq.     

Oil explorers who won blocks will immediately be able to extract gas discovered at their sites, but the Iraqi government has retained the option to pay compensation to companies to keep crude in the ground to help boost its reserves. – Reuters