The contract will grant Oil Search a seven-year exploration period and a 20-year extendable production period.
The Shakal Block is in the southeastern fairway of the Zagros Ford belt of Kurdistan and is directly southeast of the Pukhana Field, which has proven reserves of around 300 billion barrels of oil.
Oil Search said surface geology, digital terrain models and topography indicate the Pulkhana structure could extend into the Shakal block.
The company estimates the block could contain mean unrisked recoverable reserves of some 250 million barrels, either in a separate structure or as a continuation of Pulkhana.
Some 200km of 2D seismic has been acquired over the structure and two exploration wells are planned to test Shakal in mid to late 2008.
Oil Search managing director Peter Botten said the region is lightly explored and contains prospective geology with relatively low sub-surface risk.
"Kurdistan is one of the few places left in the world where independent oil companies can capture material exploration positions with large reserve potential and on satisfactory commercial terms," he said.
Oil search said a comprehensive risk assessment of the area had been carried out and although Iraq was a high-risk area, the Kurdistan region was relatively stable from a business and security perspective.
"To date, our experience in the Bina Bawi PSC confirms that the business environment in Kurdistan, encompassing operations, logistics, regulatory framework and law and order, is manageable," Oil Search said.
Oil Search said its Kurdistan Shakal and Bina Bawi production-sharing contracts - the latter going back to 2006 - form the basis of developing a niche position in Iraq's emerging oil and gas industry.
Stakeholdings in the Shakal PSC include the operator, Prime, with a 45% working interest and 36% revenue interest; Oil Search with an 18.75% working interest and 15% revenue interest; and Petoil with an 11.25% working interest and 9% revenue interest.
The KRG holds a 20% revenue interest, while the remaining 25% working interest and 20% revenue interest will be from a yet to be announced third party.
Oil Search has a 20% interest in the Bina Bawi EPSA operator, A&T Petroleum, which had a 50% stake in the Bina Bawa-1 well that last reported no material activity in 2007.