British energy giant BP has signed a deal with Baghdad on an oilfield at the heart of a dispute between the central government and Kurdish authorities in northern Iraq, officials said Wednesday.
The agreement calls for the company to carry out surveys at the Kirkuk oilfield but could eventually lead to it working to increase the field's production.
Iraq's autonomous Kurdish region swiftly condemned the deal.
Developing the field is part of Iraqi efforts to boost oil output in order to fund much-needed reconstruction.
But Baghdad and Iraqi Kurdistan are locked in a dispute over a swathe of disputed territory in north Iraq, as well as issues related to the apportioning of energy contracts to foreign firms and revenue sharing.
"The contract includes surveying the oilfield ... The company must carry out the survey over 18 months," a senior official in Iraq's state-owned North Oil Company, which manages the Kirkuk field, told AFP.
"After submitting its report and confirming the possibility of raising the production of the oilfield, then a service contract would be signed for 20 years."
The official, who declined to be identified, said that under the terms of the potential service contract, BP would receive US$2 for each barrel of oil extracted.
"In case of a failure to reach an agreement on the service contract, the oil ministry will pay the company's dues."
The official said the deal was finalised at a meeting in Baghdad on Tuesday between a BP executive, Iraq's deputy prime minister responsible for energy affairs, Hussein al-Shahristani, and the governor of Kirkuk province.
The Kirkuk field currently produces 270,000 barrels of oil per day and, the official said, is expected to produce 500,000 bpd in three years.
A spokesman for BP in London, meanwhile, only told AFP: "I can confirm we do have a letter of intent."
Iraq and BP had been locked in negotiations on the oilfield for more than a year, having originally signed an initial deal in March 2012 to boost output at the field.
A spokesman for Kurdistan's natural resources ministry, however, slammed the deal.
"The KRG (Kurdistan Region Government) rejects any deal that contravenes the constitution and harms Iraq's interests," the spokesman said in an e-mailed statement.
"No company will be permitted to work in any part of the disputed territories including Kirkuk without formal approval and involvement of the KRG."
The dispute over oil is one of several between the central government and Kurdish authorities, who want to incorporate a swathe of land into their autonomous region over the central government's objections.
The federal and regional governments also disagree over the apportioning of oil revenues, and Baghdad has been angered by the Kurdish region signing contracts with foreign energy firms without its approval.
Diplomats and officials say the dispute over territory in particular is one of the main long-term threats to Iraq's stability.