Exxon Mobil (XOM) is readying for new challenges in Iraq as the U.S. troops complete their withdrawal from Iraq. Oil majors operating in Iraq are looking to beef up security by hiring additional personnel in case the security situation worsens. The companies are central to the local government's plans of ramping up production over the next few years. Exxon is also venturing into Kurdistan, in part driven by better security situation in the northern part of Iraq. British company British Petroleum (BP) had to temporarily halt production in southern Rumaila fields after the pipeline network in the area was hit by an explosion.

We have a $93 price estimate for Exxon Mobil, a 15% premium over its current market price.

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Production ramp up

As per the contracts signed between major oil explorers and the Iraqi government in 2009, production is expected to be raised to 6.8 million barrels per day (Mb/d) by 2017 in the three major southern oilfields of West Qurna, Rumaila and Zubair in Iraq. The three fields will see a combined investment of $100 billion, of which, the West Qurna region, which is being developed by Exxon, will receive $50 billion.

Political instability and weak security have shunned investments into the country and have forced oil companies to hire additional protection from western security firms, in addition to the cover provided by the local police and army, as the companies' infrastructure have been targeted by insurgency in the past.

The development of Iraqi fields is important for firms to replace their aging resources.

In a recent statement, Iraqi Prime Minister Nouri al-Maliki promised protection to oil companies, and ascertained that the government would not withdraw the West Qurna contract awarded to Exxon for its foray into Kurdistan.

Northern region attractive

Better security conditions and the willingness of the Kurdish Regional Government (KRG) to negotiate production sharing contracts are attracting oil companies to sign exploration contracts in the northern regions of Iraq, much to the displeasure of deputy prime minister Hussein al-Shahristani, who has staunchly opposed KRG's plans. Constrained by the strict terms of technical service contracts offered by the central government, Exxon has followed smaller oil explorers to negotiate development contracts with the KRG.