A “supergiant” oilfield under the streets of suburban Baghdad is being prepared to go under the hammer in an Iraqi government auction next month.

The East Baghdad oilfield is believed to contain 8.1 billion barrels of crude — more than twice the level of reserves left in the North Sea. It is one of ten oilfields and one gasfield that the Iraqi Government is likely to offer in a second round of bidding from December 11.

Iraq is in talks about developing the fields after BP, Britain’s biggest company, and CNPC, its Chinese partner, yesterday formally signed Iraq’s first big new oil deal since the United States-led invasion of 2003.

The two companies sealed a development contract for the Rumaila oilfield near Basra, one of the world’s biggest. Tony Hayward, BP’s chief executive, said that BP and CNPC would invest about $15 billion (£9.1 billion) in the oilfield: “It is a very significant undertaking.” BP has a deep knowledge of the field’s geology dating back to its discovery of Rumaila in 1953.

The East Baghdad field has attracted interest from a string of international oil companies, including Japan Petroleum Exploration Company (Japex), which projected that it could pump 400,000 barrels per day (bpd) from it, enough to satisfy about 10 per cent of Japanese oil demand. The field, which has been starved of investment for decades, produces only 17,000 bpd.

However, Samuel Ciszuk, Middle East oil analyst at IHS Global Insight, said that some companies were reluctant to invest because of its proximity to Baghdad, a city of seven million people that has suffered some of the worst violence in Iraq since the war to remove Saddam Hussein from power. “The location is more unstable, which means that the security issue has definitely tempered appetite,” he said. “It’s less attractive than some of the bigger fields further south.”

Discovered in 1976, the 11km-wide field stretches for about 65km from the north to the southeast of the Iraqi capital. While parts of it lie beneath relatively underpopulated areas, a central chunk straddles the Shia quarter of Sadr City, the stronghold of Moqtada al-Sadr, the radical cleric. For several years after 2003 Sadr City was convulsed by fighting and it remains a volatile area.

Mr Ciszuk said that foreign investment was on the brink of transforming Iraq’s oil sector. He said that if only three of Iraq’s oilfields — Zubair, West Qurna and Rumaila — achieved production targets, the country’s total production could rise from 2.5 million to seven million bpd within seven years.

The other nine oilfields on offer include Majnoon, with 12.6 billion barrels, and West Qurna, where there are 12.9 billion barrels of oil in place.

At Rumaila, BP and CNPC plan to raise production from about one million bpd to 2.85 million bpd from 2015. The companies will be paid fees of $2 a barrel earned on the additional oil production.

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