ExxonMobil Corporation (XOM), in a controversial move, has inked a deal with Kurdistan Regional Government (KRG) to search for oil and gas in its resource-rich semi-autonomous region, according to a report.
Per the deal, ExxonMobil will explore hydrocarbons in the six blocks within the region. Iraq’s central government has been made aware of this move.
ExxonMobil is the first super major so far to have taken the risk of entering Kurdistan. Most companies steer away from the region to avoid criticism from Baghdad. Kurdistan is believed to hold an estimated 45 billion barrels of oil and nearly 200,000 billion cubic feet of gas.
The deals previously signed by other U.S. players like Hess Corporation (HES) and Marathon Oil Corporation (MRO) to explore in Kurdistan have been tagged as illegal by Baghdad.
ExxonMobil was also the first U.S. consortium to re-enter Iraq after almost three decades in 2009 to develop the West Qurna field. The current deal puts ExxonMobil’s 2.825 million barrel per day project in West Qurna at risk, should Baghdad maintain its blacklist on companies that contract with the KRG.
However, ExxonMobil is favorably positioned to take advantage of the rising exports from Kurdistan, which has been long affected by the differences in views regarding revenue sharing. The much-awaited new hydrocarbons law, which is expected to be finalized by the year-end, would definitely uplift the sentiment on the company.
Given its large base, achieving growth in oil and natural gas production has been a challenge for ExxonMobil over the past several years. With the established oil-producing regions of Europe and North America well beyond their prime, the search for growth has pushed the company into riskier regions.
ExxonMobil holds a Zacks# 3 Rank, which is equivalent to a Hold rating for a period of one to three months. We maintain a Neutral rating on the stock for the long term.
