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"A big deal was hammered out on Wednesday between the two countries to jointly produce natural gas in Iran," the Iranian diplomat revealed on condition of anonymity.
He said more details on the agreement still needed endorsement from the ambassador.
According to Iran Daily, the National Iranian Oil Company and China National Offshore Oil Corp (CNOOC) signed a memorandum of understanding on the development of the North Pars gas field on Wednesday.
The field contains an estimated 80 trillion cubic feet of natural gas, according to the paper.
The project involves an investment of more than US$16 billion, of which US$11 billion will be spent on the downstream segment and the rest on the upstream segment.
According to the preliminary agreement, gas from the field will be liquefied and divided equally between the two companies.
The project is expected to take eight years to bear fruit, Iran Daily reported.
CNOOC would not confirm the deal yesterday, only saying the firm has been in touch with its Iranian counterpart on such a project for a long time.