Under the contract - which will run for 20 years - CNOOC will also buy 5% of BG's interest in the reserves and resources of certain tenements in the Walloons Fairway of the Surat Basin, Queensland.

The Chinese major will become a 10% equity investor in one of the two liquefaction trains which will form the first phase of the QCLNG development.

The two companies - which have been partners in offshore exploration in China since 2006 - have also agreed to jointly participate in a consortium formed to construct two LNG ships in China.

BG chief executive Frank Chapman said the agreement was another milestone in the development of the QCLNG project.

"It builds on an already strong and productive relationship established with CNOOC. We look forward to working with our CNOOC partners as we drive forward our plans to establish QCLNG in the vanguard of a new world-class LNG industry in Eastern Australia," he said.

THE QCLNG project is being developed by Queensland Gas Company, a BG business, and will use coal seam gas as feedstock to produce 7.5MMtpa of LNG under the first phase of development.

BG said QGC was making good progress with the project, with upstream exploration, appraisal and development activities advancing and front-end engineering and design work underway.

Final investment decision for the project, which has total planned capacity of up to 12MMtpa, is expected in 2010 with first shipments in 2014.

BG and CNOOC expect to complete negotiations and execute fully-termed transaction documents before BG's final investment decision.

The agreement is conditional on government and regulatory approvals.