BP said it plans to drill approximately 300 wells during a 15-year program outlined for the Khazzan field.
The company said the field should have a peak production capacity of around 1 billion cubic feet of natural gas per day.
"Today's signing is an important step in the Sultanate of Oman's plans to meet growing demand for energy over the coming decades and to contribute to economic development in Oman," Omani Oil and Gas Minister Mohammed al-Rumhy said in a statement.
BP said the first deliveries of natural gas from the project are expected by 2017.
The government of Oman last week announced it reached an agreement with French energy company Total to explore the oil potential in the deep waters off Oman's coast.
Total has a minority stake in existing oil and liquefied natural gas projects in Oman. The company's production level in 2012 in Oman was around 3,700 barrels of oil equivalent.
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