BAGHDAD -- Iraq on Tuesday finalized a deal with a British-Chinese consortium to develop its biggest oil field, a deal marking a milestone moment in the OPEC nation's push to lure foreign investors sorely needed to revamp its battered oil sector.

The 20-year contract signed by Iraqi Oil Minister Hussain al-Shahristani and executives from British oil giant BP PLC and China's CNPC gives the two companies development rights to the 17.8 billion barrel Rumaila field in Iraq, home to the world's third largest proven oil reserves.

The deal marks a key step forward for Iraq, which has been struggling to attract foreign firms whose cash and expertise is badly needed to rebuild an oil sector where the effect of years of sanctions and neglect have only been amplified by sabotage and violence following the 2003 U.S.-led invasion to topple Saddam Hussein.

Al-Shahristani said contracts, such as the one signed Tuesday and others pending, are a significant step forward for a country that had previously used its oil wealth as a way to boost its military.

"With these contracts Iraq has begun a new period of construction," he said. "With this great step, we will attract big companies and investors in Iraq."

Rumaila -- located in the oil rich south -- was the only one awarded in the June licensing round, where a total of eight oil and two gas fields were on offer. The poor showing in the auction -- the first such event to be held in Iraq in over 30 years -- was a blow to officials in the country where oil accounts for about 95 percent of Iraq's revenues.

Since the 2003 invasion, Iraq has been struggling to boost output, which currently stands at about 2.4 million barrels per day.

Developing fields like Rumaila is crucial to raising overall output for Iraq.

"The incremental this project brings to Iraq is tremendous," said Samuel Ciszuk, an energy analyst with the London-based IHS Global Insight. While Monday's agreement makes the largest oil deal struck in Iraq "in many, many decades," Ciszuk said it also shows the "extraordinary opportunities there are in Iraq."

BP and CNPC are targeting output of 2.85 million barrels per day from the field -- roughly triple the current 1 million barrel per day output. For their efforts, they will be paid $2 per barrel of crude they produce during the 20 year contract, which can be extended by another five years.

Tuesday's deal is also symbolic for BP, marking its first foray back to the country since Iraq nationalized its oil sector in the 1970s, booting the British oil giant and other Western companies out.

BP's chief executive, Tony Hayward, hailed the contract as the start of a new era for both the company and Iraq, and described it as a "very significant undertaking for BP."

The deal is also the second which CNPC has reached in Iraq since the invasion -- an agreement reflecting energy hungry China's push to fuel its growing economy. CNPC last year struck a $3 billion deal to develop the al-Ahdab oil field in southern Iraq.

Under the terms of the Rumaila deal, BP will hold 38 percent stake in the venture to CNPC's 37 percent. The rest is held by Iraq's State Oil Marketing Organization, SOMO.

With Rumaila the only success story of the June auction, Iraqi oil officials revisited some of the bids submitted by other companies. The change of heart led to four consortiums accepting the country's terms.

On Monday, a consortium led by Italy's Eni SpA signed an initial agreement to develop the prized 4.1 billion barrel Zubair oil field, which lies near Rumaila. The consortium, which includes the U.S.'s Occidental Petroleum Corp. and South Korea's KOGAS, aim to boost output to 1.1 million barrels per day within seven years, up from the current 200,000 barrels per day.

Three other consortiums are competing to develop the 8.6 billion barrel West Qurna Stage 1 in the south.

One is led by Russia's Lukoil and U.S. giant ConocoPhilips, another by Exxon Mobil and Royal Dutch Shell while the third is led by CNPC.

The winner will be announced in the next few days, al-Shahristani has said.

According to al-Shahristani, the combined project output from Rumaila, West Qurna Stage I and Zubair will exceed 6 million barrels a day in six to seven years, with the companies expected to invest a total of about $100 billion in the projects.

All three projects -- Rumaila, Zubair and West Qurna Stage 1 -- are "super giant projects with no match in size anywhere else in the world," Ciszuk said.

"There are still considerable risks and many question marks in Iraq," Ciszuk added, citing the absence of legislation governing natural resources and political uncertainty ahead of January's parliamentary elections.

However, Ciszuk said "companies agreeing to these deals are convinced it's a good time to go in now, since they won't invest too much until the balance of power (in Iraq) will be clearer."

Iraq is planning a second bidding round on Dec. 11-12. Forty-five international oil companies will compete for development right for 10 oil projects.

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Associated Press Writer Barbara Surk in Baghdad contributed to this report.