Oil company Aminex is taking a lot of risks to invest in North Korea but says it is a worthwhile bet because the secretive state could be sitting on billions of barrels of oil.

Aminex has signed an exclusive deal with the North Korean government - which is currently at odds with the United States and United Nations because of its nuclear programme - to get exclusive onshore and offshore exploration rights.

The company plans to invest up to $10 million (€7.65 million) over the next two-and-a-half years, shrugging off the risks of uncertain reserves estimates, political worries and the failure of several other Western companies to convert agreements to production.

That is a lot of money for a company with a market capitalisation of just $21 million, but chief executive Mr Brian Hall hopes success in the last Stalinist state will transform his firm.

"I'm very optimistic. I think it could be the making of us," he said in an interview yesterday.

Little hard data has been published about North Korea's oil reserves but some geologists believe the oil fields of China's Bohai basin, which official Chinese media has said may contain reserves of around 66 billion barrels of oil equivalent, could extend into Pyongyang's waters.

North Korea has claimed reserves of up to 10 billion tonnes (73 billion barrels) of high-grade oil, according to one pro-Pyongyang news website. The figure would give it some of the largest reserves outside the Middle East.

Mr Hall's estimates are more modest at between four and five billion barrels of recoverable reserves, but he still envisages a country that may have bigger reserves than the UK or Indonesia.

"You're looking at billions of barrels, not hundreds of millions or tens of millions, so you're looking at a serious oil country," he said.

Aminex is currently working with a North Korean technological institute to interpret existing data and identify the best areas for further seismic surveys. It does not expect drilling to begin until 2008.

One of the key uncertainties surrounding the Aminex deal is who would get the oil. North Korea faces a desperate energy shortage. It used to receive subsidised US heavy fuel oil after it agreed in 1994 to freeze certain nuclear research. But the United States stopped the shipments in 2002 after it said North Korea admitted it had retained a nuclear weapons programme.

Record oil prices this year added to its chronic economic woes. The government hopes indigenous supplies might solve the energy problems. But Aminex, which also has operations in Tanzania and the US, needs to export oil to make money, and Mr Hall said the right to export oil was the single most important issue yet to be agreed with the government.

The company is working with the newly formed oil ministry to come up with a new petroleum law that would stipulate this right and other protections for investors.

Soco International, the last Western oil firm to drill for oil in North Korea, said the lack of a legal framework was only part of the problem with doing business in North Korea.

"Not only is the infrastructure not there, but an approach to business is not there... I don't think they're accustomed to compromise," said Soco chief financial officer, Mr Roger Cagle.

Another problem facing Aminex is a boundary dispute with China. Seismologists working on behalf of Malaysia's Petronas were prevented from doing surveys off North Korea's west coast last summer by a blockade of Chinese fishing boats, according to an industry source close to the situation.

Mr Hall said he was aware of the lack of an agreed maritime boundary but that even the most conservative estimate of where a boundary should lie left open plenty of opportunities.

A risk could also arise if the US were to bar companies from doing business in North Korea.