ExxonMobil (XOM) may be looking to acquire Kurdistan-focused Gulf Keystone Petroleum, according to The Independent,a British newspaper. 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 Government's (KRG) willingness to negotiate lucrative production-sharing contracts is attracting large companies to start exploration there. Competing oil giant Chevron (CVX) is also rumored to be in negotiations with the KRG to begin operations in the future.

Exxon is considering bidding 800 pence per share for the London-listed Gulf Keystone, which values the company at $10.9 billion. Gulf Keystone shares closed at 165 pence last week, indicating that Exxon is willing to pay a significant premium for its operations. GKP has made some large finds in the Kurdish region over the recent past, making it an attractive takeover opportunity. According toThe 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 and 13.4 billion barrels of oil. The company started sale of the crude extracted from its exploration operations and is selling between 1,500 and 2,000 barrels a day.

The Iraqi's central government has long opposed contracts signed with the KRG and has called them illegal, which deterred major oil companies from signing up early on. In response, KRG 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. Some oil companies 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 companies as their output has been declining over the past few quarters.

We have a $93 price estimate for Exxon Mobil, which is at a 15% premium to its current market price. Click here for our full analysis of Exxon Mobil.

See also: Chevron looking for Kurdistan oil deal despite Iraq's objections