Royal Dutch Shell and Malaysia's Petronas on Friday won the rights to develop one of the world's largest remaining untapped oilfields as Iraq staged its second auction of oil contracts since the 2003 U.S. invasion.

The companies proposed a fee of just $1.39 per barrel and pledged to increase output from the supergiant Majnoon field to 1.8 million barrels per day, more than double what Iraq had expected. The fee was below what Iraq was willing to pay.

We announce that the consortium of Shell and Petronas have won (the contract) to develop Majnoon, and the fee is less than the Oil Ministry specified, Iraqi Oil Minister Hussain al-Shahristani said at the heavily-protected auction.

French oil major Total , partnered with China's CNPC, also bid and was likely to have been disappointed at losing a field it sought to develop under ousted dictator Saddam Hussein. As some consolation, it had a stake in a CNPC-led consortium that won the rights to the smaller Halfaya oilfield.

Iraq is offering 10 oilfields over two days in a rare opportunity for oil firms, from Western majors to Chinese and Indian state-owned giants, to gain access to plentiful and cheap to pump Middle East oil reserves.

Despite the anticipation, no one bid for one of the supergiants, the 8.1-billion barrel East Baghdad field, part of which lies under the sprawling Sadr City slum in the Iraqi capital. Baghdad is still wracked by periodic bombings and oil executives considered it unsafe to invest in the field.

The deals have the potential to lift Iraqi oil output to levels which would rival that of top oil producers Saudi Arabia and Russia, and could rattle the geopolitical power balance in the Middle East.

TIGHT SECURITY

Baghdad desperately needs the billions of dollars of revenue these and other deals would generate to rebuild after decades of war, international sanctions and years of neglect and sabotage.

Competition had been expected to be fierce as the second auction since the invasion includes the last of Iraq's supergiant fields - reservoirs holding 5 billion barrels or more. They are among the last untapped fields of their size in the world. Collectively, the fields on offer hold about as much oil as all that held by OPEC-member Libya.

Executives from the world's top oil companies braved security threats to bid in Baghdad. Forty-four companies were expected to send top-level representatives. They include Exxon Mobil , Royal Dutch Shell , BP , Chevron and Total .

A series of car bombs killed 112 people in the capital on Tuesday, police said, a bloody reminder of the dangers oil firms would face in deploying staff across the country.

Iraqi army helicopters buzzed overhead while convoys of armored SUVs carrying the oil executives hidden behind tinted windows raced through town to the auction.

Iraqi police trucks and squads of police dressed in commando gear deployed at dawn to line the streets leading to the Oil Ministry, blocking off many side roads.

Crowds of uniformed police and army personnel milled around at the ministry next to Iraq army Humvees and police pickup trucks. The auction, which was being held in a large auditorium, did not start on time.

With 12.6 billion barrels of reserves, Majnoon in relatively stable southern Iraq is one of the largest untapped oilfields left on earth.

Halfaya, with 4.1 billion barrels of reserves, was won by a consortium made up of CNPC, Total and Petronas. They proposed a fee of $1.40 per barrel and a plateau production target of 535,000 barrels per day.

Also on the block were a cluster known as the Eastern Fields in volatile Diyala province, and Qayara, a reservoir in the northern province of Nineveh, where Sunni Islamist insurgents like al Qaeda are still on the prowl and Kurd-Arab disputes have led to considerable tension.

No bids were received for the Eastern Fields and Shahristani said the Iraqi Oil Ministry would develop them on its own.

(Writing by Simon Webb and Michael Christie; Editing by James Jukwey)