Cairn's rig move takes it step closer to Greenland exploration

Published on Thursday 8 October 2009 21:28

CAIRN Energy has contracted a United States broker to find it a rig for its high-risk Greenland exploration programme.

The Edinburgh-based group has taken a major exploration position around the island and hopes to begin drilling in 2011.

Deputy chief executive Mike Watts told the Royal Bank of Canada oil and gas conference that a broker from Houston, Texas, had been retained to find a rig for the campaign.

The hostile conditions in the seas around Greenland mean specialist drilling rigs are required, with an expected hire cost of about $1 million (620,000) a day. Cairn hopes to secure a rig early next year.

Despite the costs, Watts said Cairn was increasingly bullish about the prospects for its Greenland programme.

While no oil has been found there – and no wells drilled since the 1970s – Watts said it was, from a geological perspective, "almost impossible" for the area not to contain hydrocarbons, and seismic testing had boosted his confidence. He said: "I've never been involved in a project where the more data you get, the more confident you become."

The enthusiasm appears to be rubbing off on investors. Watts said that last month, one of its top-five shareholders had told Cairn not to dilute its position in Greenland simply to prove its value to the market.

"He said, 'We do not want you to do any transaction in Greenland just to demonstrate to analysts that you can put a value on Greenland. If you believe in it, take it as far as you can'," Watts recalled.

Cairn expects to fund its exploration in Greenland from the cash flows from its Indian business, which are expected to be some $2 billion (1.25bn) a year from 2011.

Watts said yesterday that this level of cash flow would allow Cairn to invest in developing its Indian assets, fund its Greenland campaign and potentially pay more special dividends.

"We kind of built the business in a way where we can have our cake and eat it," he said.