Afghanistan has agreed to sign a deal with a state-owned Chinese oil company for oil exploration and extraction.

President Hamid Karzai's office announced Monday China National Petroleum Corporation will work with Afghan company Watan Group to develop three oil fields in northern Afghanistan.

The area is estimated to hold around 87 million barrels of oil.

Afghanistan's natural resources could theoretically generate billions of dollars in tax revenue. But extraction of these resources faces massive hurdles due to ongoing instability, poor infrastructure and endemic corruption.