China’s United Energy is to buy Kuwait Energy, transforming the firm into a mid-sized player in Iraq and adding to the middle kingdom's Mesopotamian presence.

Hong Kong-based United Energy Group (UEG) this week entered a “transaction agreement” to pay $651mn for all shares in Kuwait Energy (KEC)—a Bahrain-headquartered privately-held firm whose financial struggles have hampered development of its promising portfolio.

The deal would be UEG’s second largest...