The agreement is for around 100 mln cubic feet of gas per day from the Summail field in the Dohuk licence.
Gas produced will be sold on a take-or-pay basis for the duration of the Production Sharing Contract (PSC) or until deliveries reach one trillion cubic feet.
The price of gas will range between $3 and $4 per thousand cubic feet over the life of the contract.
Nechirvan Barzani, the Prime Minister of the Kurdistan Regional Government, and Dr Ashti Hawrami, the Minister of Natural Resources, were both signatories to the deal.
The gas will help displace diesel currently used to generate electricity in a 500 MW power plant in the city of Dohuk, 40km from the Summail field.
Bijan Mossavar-Rahmani, DNO International's executive chairman, said: "We are pleased to be the first to sign a commercial gas sales agreement with a state buyer in Kurdistan.
"Development of Summail is a win-win as we contribute to lowering fuel costs in local power generation while growing and diversifying the company's production and revenue base."
Tony Hayward, Genel's chief executive added: "The signing of the first domestic gas sales agreement in Kurdistan is a significant milestone in the development of the gas industry in the Kurdistan Region of Iraq and the first step in Genel's gas monetisation strategy."
DNO expects first gas from Summail-1 in January 2014. A second well, Summail-2, will spud in the fourth quarter of thsi year while the Summail-3 well is scheduled for 2014.
Norwegian firm DNO International holds 40% and operates Dohuk.Genel has another 40% and the Kurdistan Regional Government the remaining 20%.