LONDON (AP) — BP PLC said yesterday that it signed a major exploration and production agreement with Libya's National Oil Company.In a statement, Group Chief Executive Tony Hayward said the deal was worth at least $900 million ([EURO]666 million), adding it was "BP's single biggest exploration commitment."

The deal was signed on the coastal city of Sirte, where British Prime Minister Tony Blair and Libyan leader Moammar Gadhafi met for talks — as the two countries hope to improve relations.

"Our agreement is the start of an enduring, long-term and mutually beneficial partnership with Libya," Hayward said.

"With its potentially large resources of gas, favourable geographic location and improving investment climate, Libya has an enormous opportunity to be a source of cleaner energy for the world."

The deal brings BP back to Libya for the first time in over 30 years and represents a clear sign that the once internationally maligned country has recovered its reputation.

Blair said BP's decision to return to Libya for the first time since 1974 — when the country's oil industry was nationalised — showed the commercial relationship between Britain and Libya was "simply going now from strength to strength".

"A few years back Britain and Libya could never have had this relationship," Blair said, speaking in the desert scrubland outside a tent where he had a two hour meeting with Gadhafi.

Libya's proven oil reserves are the ninth largest in the world, while vast areas remain unsurveyed for new deposits.

Since the country emerged from international isolation by agreeing to scrap its secret nuclear weapons programme and compensate victims of terrorist attacks, Western firms have rushed to sign exploration deals.

Blair's efforts to bring Gadhafi into the international fold in 2004 were initially met with discomfort in Britain, amid memories of the Lockerbie air disaster, when Libyan agents brought down a Pan Am airliner over Scotland in 1988, killing 270.

Libya has since made good on a 2003 promise to turn its back on its weapons of mass destruction program and played a positive role in pan-African initiatives, Blair said.

"This is a change of benefit to Libya and Britain and the wider region," he said.

He said that if all the exploration reached its full potential the deal could be worth $26 billion eventually — making it one of the BP's biggest contracts.