Concerns over terms of Rumaila field contract as war-torn state opens up rights to huge energy assets for first time in 40 years

A BP-led consortium has won the rights to develop Iraq's largest oil field after an exhaustive tender process that opens the brittle state's huge gas and oil assets to foreign exploration for the first time in almost 40 years.

BP and its Chinese partner CNPC clinched a deal to join an Iraqi state-owned enterprise to develop the Rumaila field in Iraq's south – the largest of the country's six giant oil sites.

Rumaila's reserves are estimated at close to 18bn barrels. Under the terms of the 20-year contract, BP and CNPC have six years to increase production at Rumaila to a minimum output target of 2.85m barrels per day.

Iraq's oil minister, Hussein al-Shahristani, said BP and CNPC had agreed to be paid $2 (£1.21) per barrel if they reached the target — significantly less than their asking price of $3.99 per barrel.

However, the company later claimed it was satisfied with the deal. Analysts said Rumaila was the most attractive of the eight contracts on offer in the auction.

BP's offer was the only one accepted by the Iraqis. The other bids were rejected because they sought more profit than the oil ministry was prepared to give away.

Analysts said that many of the oil companies involved in the bidding believed they would struggle to break even under the terms on offer.

Samuel Ciszuk, from Global Insight, said the auction was a "flop", blaming the Iraqis for overestimating how much oil companies were prepared to risk for a slice of its oil fields. "The Iraqis thought that interest would be so big that oil companies would come in no matter the price."

It is not clear whether the Iraqis will lower their demands to secure takers for the seven remaining contracts in the first licensing round. Iraqi public opinion is very hostile to the idea of foreign companies profiting from its oil, limiting the government's room for manoeuvre.

"We are happy to be awarded this contract and look forward to working with the Iraqi government in the future," said Michael Daly, BP vice-president of exploration and new business development.

The much anticipated licensing round offers access to six giant and super-giant oil fields and two gas fields. Iraq has total oil reserves of 115bn barrels, placing it near the top of the global list of known verifiable undeveloped reserves. Just under 40% is up for grabs in the landmark auction.

The televised bidding, launched today at Baghdad's al-Rasheed hotel, marked the first time since 1972 that foreign energy companies had been allowed to consolidate their influence in Iraq. Its oil reserves were nationalised seven years before Saddam Hussein seized power in 1979 and all foreign companies expelled.

Since the fall of Hussein six years ago, they have returned to make inroads, but have until now not been allowed to stake a claim for exploration rights.

Even now, the process is proving cumbersome, with disputes over the fixed price companies would receive clouding the bidding. All deals have to be joint ventures with state-owned companies, primarily the South Oil Company, which runs the vast fields in and around Basra, and the North Oil Company, which governs the Kurdish north of Iraq.

The process has attracted offers from 31 firms including European and American heavyweights Exxon Mobil and Shell. China is leading an Asian surge, with its privatised companies keen to seize on the state's insatiable demand for old energy. Indian, South Korean and Indonesian representatives are also in town.

The hard bargain being driven by Iraq came amid a concession by prime minister Nouri al-Maliki that allowing joint private ventures into the heavily protected Iraqi oil industry would bail out the country's desperately underfunded economy.

Maliki admitted Iraq needed the money to rebuild the economy after three decades of dictatorship, wars and sanctions, which have left a society deprived of most essential services – including oil infrastructure. "These contracts are needed for the reconstruction of Iraq," he said. "They are for the benefit of Iraqis and the companies."