OIL Search has signed a production-sharing contract in Iraq for an area that has the potential to contain 250 million barrels of oil.
The area, the 632 square kilometre Shakal block, is on trend with the Pulkhana oil field, which has proven reserves of around 300 million barrels of oil.
In a deal the Kurdistan Regional Government, OIl Search will drill two wells to test the Shakal structure in mid-late 2008.
Under the contract, the Papua New Guinea-focused company has a seven year exploration period and a 20 year extendable production period.
Oil Search has an 18.75 per cent stake in the venture and a 15 per cent revenue interest.
"Kurdistan is one of the few places left in the world where independent oil companies can capture material exploration positions with large reserve potential and on satisfactory commercial terms," managing director Peter Botten said in a statement today.
"The region is lightly explored and contains some of the most prospective geology in the world.
"Although Iraq is clearly a high-risk area, the Kurdistan region is regarded as relatively stable from a business and security risk perspective with increasing foreign investment occurring as a consequence."
Oil Search is active in Iraq already through a 20 per cent shareholding in a company that holds 50 per cent in the Bina Bawi production sharing contract.
Mr Botten said the two contracts potentially would make a material contribution to the company's production prior to the expected commencement of the PNG liquefied natural gas project in 2013/14.
Shares in Oil Search were six cents higher at $5.80