BAGHDAD – Iraq and China are set to revive a $1.2 billion oil deal that was canceled after the 2003 U.S.-led invasion, the Iraq's oil ministry said Sunday.

An initial agreement with China is expected to be signed at the end of August to develop the billion-barrel Ahdab oil field south of Baghdad, the ministry said in a statement.

“Iraq and China are keen to show their cooperation by finalizing an agreement on developing the Ahdab oil field,” it said.

The announcement came after a meeting between Iraqi Oil Minister Hussain al-Shahristani and China's ambassador to Baghdad.

No further details were released, but if the deal is signed it will be the first Saddam Hussein-era oil deal to be honored by the new Iraqi regime.

In 1997, Saddam's government signed an agreement with the state-owned China National Petroleum Corp., despite United Nations sanctions that barred direct dealings with Iraq's oil industry.

The two countries restarted talks in October 2006.

The field is located near Wasit province, about 100 miles southeast of Baghdad, and could produce an estimated 115,000 barrels a day. Wasit has been the scene of sporadic attacks since the U.S.-led invasion in 2003.

Iraq sits on more than 115 billion barrels of oil but decades of wars, U.N. sanctions, violence and sabotage have battered its oil industry.

As security improves, Iraq is trying to bring in foreign companies to help increase crude output from the current 2.5 million barrels a day to 3 million barrels a day by the end of 2008, and 4.5 million barrels a day by the end of 2013.

A number of companies say they signed deals with Saddam's regime and demand that those be honored, or the countries involved be given priority on new agreements.

The ministry has consistently denied giving any advantage to companies with which Saddam signed deals, instead insisting that oil and gas fields and exploration blocks will be offered up for bids.