Exxon Complicates US-Iraq Politics if it Pursues Mega Deal in Kurdistan

U.S. based oil major Exxon Mobil (NYSE:XOM) may be looking to acquire Kurdistan focused Gulf Keystone Petroleum, according to the British newspaper The Independent. ^[1] While neither of the companies commented on the news, the development indicates Exxon’s deepening interest in the semi-autonomous region of Iraq. Kurdistan is believed to hold around 40 billion barrels of oil, and the Kurdish Regional Governments’s (KRG) willingness to negotiate lucrative production sharing contracts is attracting large explorers to start exploration there. ^[2] Competing oil major Chevron (NYSE:CVX) is also rumored to be in negotiations with the KRG to start operations in the future. (See: Chevron Looking for Kurdistan Oil Deal Despite Iraq’s Objections)

We have a $93 price estimate for Exxon Mobil which is at  a 15% premium to its current market price.

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$11 billion takeover

Exxon is considering bidding for Gulf Keystone at 800 pence per share which values the firm at $10.9 billion. ^[1] Gulf Keystone shares closed at 165 pence last week indicating that Exxon is willing to pay a significant premium for the company’s operations as it has made some large finds in the Kurdish region over the recent past, making it an attractive takeover opportunity. According to The Independent, Gulf Keystone is not willing to accept a bid at the 800 pence level.

Gulf Keystone has operations in the Shaikan block which is estimated to hold between 8 to 13.4 billion barrels of oil. ^[3] The company started sale of the crude extracted from its exploration operations and is selling between 1,500 to 2,000 barrels of crude a day. The Iraqi’s central government has long opposed contracts signed with the KRG and has called them illegal, which deterred oil majors from signing up early on. The KRG in response has offered these explorers more attractive production sharing terms. Players like Heritage oil have struck multi-billion barrel finds in Kurdistan since they moved in around 2007. ^[2] Players also perceive the region to be safer than the rest of the country.

Last month, Exxon became the first oil major to sign exploration contracts with the KRG putting pressure on the central government to straighten out its policy on oil resources. Kurdistan is perceived as one of the last remaining frontiers for large oil finds making it an important target for oil majors as their oil output has been declining over the past few quarters.

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1. Exxon mulls $10.9 billion approach for Gulf Keystone: report, Reuters [↩] [↩]
2. Kurdistan: Safe and Secure, with Billion Barrel Prospects, GeoExPro [↩] [↩]
3. Gulf Keystone Petroleum provides operational update in Kurdistan, OilVoice [↩]