Cairn gears up for more Greenland drilling with deal for two rigs

Published on Tuesday 4 January 2011 15:03

CAIRN Energy announced a significant step forward in its hunt for oil in Greenland yesterday, securing two rigs for its Arctic drilling campaign this year.

The Edinburgh-based company said it had contracted the "state of the art" drilling vessels to drill up to four wells in the region.

Cairn also announced it had secured a stand-by debt facility of 575 million to provide liquidity to enable the rig agreements to be struck. Funding has been pledged by Bank of Scotland, Standard Chartered, Crdit Agricole, HSBC and Socit Gnrale.

Chief executive Sir Bill Gammell said: "By contracting two vessels for the Greenland exploration programme Cairn has increased operational capability and flexibility and continues to demonstrate its focus on safety. We look forward to drilling up to four exploration wells offshore Greenland during 2011."

Cairn said it would give further details on its drilling plans as part of its operational update scheduled for 27 January.

Shares in Cairn reacted positively to the news, gaining 11.6p, or 2.76 per cent, to 431.6p.

Richard Rose, an analyst at Oriel, said the announcement allayed concerns that Cairn would struggle to secure rigs for the campaign, which be believes could start as soon as April.

Gordon Gray at Collins Stewart said he expected estimates for Cairn's net asset value to rise in the weeks ahead as more details of its drilling programme emerge. He pointed out that most analyst estimates of Cairn's value were based on the company's stake in Cairn India and included little for the value of the Greenland acreage.

"We see considerable upside to our own and consensus net asset value estimates once this detail is forthcoming," he said.

Gray said the company remained one of his top picks in the sector, with a target price of 485p.

Cairn, along with joint venture partners Nunaoil and Petronas, began drilling in an area 110 miles off Disko Island in west Greenland last July.

In October it announced it had abandoned two of its three exploration wells at the end of the Arctic exploration season and wrote off 117m in costs.At the time Gammell stressed that Cairn's Greenland ambitions were "a marathon, not a sprint", with any of the firm's planned drills there having a 7 to 10 per cent chance of finding recoverable oil.

Vedanta Resources' 5.4bn offer for most of Cairn's stake in Cairn India is widely expected to gain Indian government approval in the first quarter of this year.

Cairn India has grown to be the country's fourth largest oil and gas producer with current production running at 125,000 barrels of oil per day, or 17 per cent of India's oil production.

Earlier this month Cairn announced its withdrawal from Bangladesh - the country which helped its transformation into one of the UK's biggest companies - as the group focuses on its drilling programme in Greenland.