"There is a natural gas exploration deal worth $900m," Shokri Ghanem, the chairman of Libya"s state owned National Oil Corporation (NOC), told reporters.

He noted that the agreement had been negotiated and had not been the result of a bidding round, the intensely competitive route most international energy companies have had to take to get back into Libya following the end of Western sanctions.

Ghanem added that the deal gave BP the right to drill a total of 17 wells in the offshore Gulf of Sirte basin and the onshore Ghadames basin.

The move, the result of up to two years of talks and a cherished project of former BP chief John Browne, is BP"s most significant Libya initiative since its assets there were nationalised by Libyan leader Muammar Gaddafi in 1971.

The company said in January it was in talks with Libya on exploration and development opportunities that could lead to multi-billion dollar investment in the former outcast state.

Many foreign oil company interests in Libya were nationalised in the 1970s. Others pulled out when the United States imposed sanctions in 1986.

Ghanem was speaking as outgoing British Prime Minister Tony Blair arrived in Libya at the start of a tour of Africa.

Blair"s office had earlier said that BP would announce it was returning to Libya in a move that it said recognised a warming of relations between London and Tripoli.

Libya has attracted considerable interest from international oil companies since 2004, when the United States and European Union eased sanctions following Libya"s agreement not to pursue nuclear, chemical and biological weapons.

Many of the sanctions were imposed on Libya for the 1988 bombing of a Pan Am airliner over Scotland, which killed all 259 people aboard the Boeing 747 jumbo jet and 11 residents of the town of Lockerbie.

The template for BP"s push into Libya appears to have be an agreement cut by rival Royal Dutch Shell Plc in 2005, which gave the Anglo-Dutch firm the right to explore for gas in five blocks in the highly prospective Sirte Basin, partly in return for upgrading an existing liquefied natural gas (LNG) plant and possibly building a new plant.

BP, which first became involved in Libya almost half a century ago, discovered the giant Sarir field in the Sirte Basin in 1961, marking the start of a rapid expansion of the north African country"s oil sector. BP and US firm Hunt Oil each had a 50 per cent stake in the field.

PIN/Reuters