Iraq has agreed with oil majors to build a multi-billion-dollar oil field water injection plant in the south of the country, after disagreement over costs that suspended the project for months, a senior Iraqi official said Wednesday.

Exxon Mobil Corp. (XOM) was picked on behalf of foreign oil firms to lead the mega water-injection project, needed to boost crude oil production rates from Iraq 's southern oil fields.

International oil companies have expressed willingness to set up the common water injection project, and include U.K. super major BP PLC (BP), Russia's OAO Lukoil Holding (LUKOY), Italy's ENI SpA (E) and U.K.-Dutch oil major Royal Dutch Shell PLC (RDSA), which is expected to join in later.

"The two (Iraq and oil firms) have advanced toward reaching agreement and we have passed the heads of agreement (phase) into the FEED (Front End Engineering and Design) phase," Thamer Ghadhban, the top energy advisor to the Iraqi Prime Minister said on the sideline of an Iraqi energy conference in Istanbul held by the London-based CWC Group.

Foreign companies had suggested the cost would be a little more than $3 billion to build the first stage of the project, which is designed to process 4 million barrels of water a day, Iraqi oil officials had said.

The Oil Ministry's figures were much lower than those estimated by the oil companies, Ghadhban said.

To overcome differences over costs, Iraq has suggested starting a FEED study aimed at establishing an accurate costs for the project, Ghadhban said.

"It has been decided that they ( Iraq and foreign companies) will work together to build the project," he said.

Last month, Nihad Mous, head of the ministry's State Company for Oil Projects, said the main issue delaying the project was that BP wanted costs of the water injection project to be reimbursed when production in these fields reached a 10% increase over their base line before the development process. The ministry wants to start paying back when 20% increase in output was reached.

"Of course an oil company wants to be paid early and of course the oil ministry thinks otherwise. I do not at all see these as stumbling blocks," Ghadhban said.

The water injection project aims to provide water to maintain reservoir pressure to fields such as Rumaila, West Qurna Phase 1 and 2, and Zubair and Majnoon in southern Iraq .

Iraq has signed a series of deals with oil majors to develop its largest oil fields and is seeking to boost production as the country pulls back from years of war and economic sanctions.

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