Cheer as Cairn strikes first oil off Greenland

Published on Monday 20 September 2010 21:23

Investors yesterday welcomed news that Cairn Energy, the Edinburgh-based explorer, had struck oil for the first time off the coast of Greenland.

• Sir Bill Gammell: "The presence of oil and gas is extremely encouraging"

Shares in the group led the FTSE-100 leaders' board for much of the day amid hopes the find could lead to a major discovery.

Cairn said it had found evidence of both oil and gas from drilling in Baffin Bay between Greenland and Canada.

Although the company stressed the find did not confirm the presence of a large oil reservoir and further exploration was needed, shares in the company closed up 9.7p, or 2.3 per cent, at 436.5p, valuing it at some 6.1 billion.

Cairn founder and chief executive Sir Bill Gammell said: "The presence of both oil and gas confirms an active, working petroleum system in the basin and is extremely encouraging at this very early stage of our exploration campaign."

The news offset an earlier announcement that the firm had abandoned another well off Greenland. It is writing off 54.3 million in costs after revealing the well was not a "commercial discovery".

In yesterday's update, Cairn said oil had been discovered "intermittently" in another well, which has so far reached depths of more than 4,300 metres.

The oil samples have been analysed by two independent UK laboratories, which confirmed two oil types.

It said that further tests were now being carried out on various samples and the well was being deepened.

Phil Corbett, an analyst from Royal Bank of Scotland, Cairn's house broker, said: "I see this as a positive result in the context of the longer-term exploration story offshore Greenland."

Brokers at Numis Securities, meanwhile, maintained their "hold" recommendation on the shares but said the current price would offer "material upside" of more than 80 per cent if a commercially-viable oil discovery was made.

They added they believed Cairn is unlikely to be able to complete a four-well exploration programme in the current Arctic drilling weather window.

The Baffin Bay basin is a similar size to the North Sea, but the oil industry has only recently revisited the region for the first time since the 1970s, when explorations were unsuccessful.

Cairn has about 200 people working in Greenland and has been drilling in the area 110 miles off Disko Island in west Greenland since July. The group has to deal with icebergs in the region and has previously said that its crew encountered an average of two or three icebergs a day coming within a 15.5-mile radius of the drilling units.

Cairn is the operator of the Sigguk block where the wells are being drilled with joint venture partners, Nunaoil and Petronas.

The Greenland exploration has come under fire from campaigners and the company has had to fend off Greenpeace activists who scaled a Cairn rig in the region earlier this month in protest at the drilling operations.

Cairn also announced yesterday that a general meeting for shareholders will be held on 7 October over the proposed part sale of its shareholding in offshoot Cairn India to Vedanta. Funds raised from the disposal will be partially spent on exploration in Greenland.