The Chinguetti project will have 11 offshore wells

The Australian firm's decision to go ahead with production is a boost for one of the world's poorest states.

Woodside expects to extract 75,000 barrels of oil a day from Chinguetti, starting production in March 2006.

Woodside said the field could account for 12% of its annual revenue by 2008; its shares rose 2.5% in Sydney.

Mauritania is mostly desert, half its population depends on agriculture and many of them are nomadic herders.

Life expectancy is just 51 years, child mortality high and less than half of Mauritanians finish primary school, according to the World Bank.

'Busiest drill'

Chinguetti was discovered in 2001, and has proven and probable reserves of about 120 million barrels of oil.

Woodside, which started life as a small exploration firm in the mid-1950s, has a 53.85% controlling stake in the project.

Woodside chief operating officer Keith Spence said the terms of the deal with the Mauritanian government, which remain confidential, were "fair, reflecting the need to support and encourage an emerging oil province in deepwater West Africa".

The Chinguetti development will include six production wells, four water injection wells, and a gas injector well, attached to a permanently moored floating production, storage and offloading vessel situated in about 800 metres of water.

Mr Spence said Chinguetti would be the first production field Woodside would operate outside Australia.

"This is the busiest drill campaign for any one area in the company's history," he said.

He added: "Natural decline in field production is expected, and, depending in field performance, a second phase of drilling in Chinguetti is planned in the second (or) third year of production. The field life is expected to be eight years,.

That second phase could cost another $150m he said.