Cairn in search for partner after two more failed wells

Cairn Energy has come under pressure to find a partner to help push forward its controversial drilling campaign off the coast of Greenland after it failed to find oil in two more wells.

Shares in the Edinburgh-based explorer closed down 1 per cent at 272.3p, despite a rising market and having fallen 6 per cent earlier in the day. They have lost about 40 per cent of their value since the start of the year when the group launched its £400 million drilling programme.

Cairn has since had to plug and abandon a total of five wells and analysts yesterday predicted that the firm would not start drilling again until it has found a business partner to help back a new campaign.

Cairn chief executive Simon Thomson vowed to press on with the drilling in 2012 despite the setbacks, stressing that the firm was “encouraged” by the results so far. He said it was pursuing “active farm-out discussions for selected areas”.

Thomson said: “Whilst we have yet to make a commercial discovery, we remain encouraged that all of the ingredients for success are in evidence.”

Mark Wilson, an analyst at brokerage Macquarie Capital Europe, said it was his view that “Cairn will not pursue further drilling in Greenland until a suitable farm-in partner has been secured”.

Analysts at Evolution Securities said Thomson’s optimism was putting on a “brave face”. The analysts wrote: “As the 2011 Greenland programme comes to an unsuccessful conclusion, the CEO of Cairn’s quotes at the end of the press release sound a bit like George Osborne trying to put a brave face on the economic outlook! No doubt the 2012 programme will be headed by the words ‘farm out!’”

Meanwhile, the group is awaiting final approval for the sale of its 40 per cent stake in Cairn India to mining giant Vedanta Resources.

Sources close to Cairn Energy said the board expected an announcement to be made “sooner rather than later”, while analysts said the deal could be finally agreed by the end of the year.

The $9.6 billion (£5.7bn) agreement to sell a majority share in the Indian oil and gas producer was announced in August 2010, but it became mired in a dispute with the government of India and the state oil company over revenues. The board of Oil and Natural Gas Corp agreed to give the deal a “no-objection certificate” in September after Cairn made concessions on royalties.

Wilson at Macquarie noted that the agreement with the government had yet to be formally signed but that the firm was “optimistic that the deal could complete” by the end of the year.

He said the completion of the deal would yield Cairn a further $4bn in cash, and that $2.4bn would be distributed to shareholders.

In its drilling update, Cairn said it had plugged and abandoned two wells on its Atammik block, west of Nuuk, the capital of Greenland. It is currently running a 3D seismic programme to survey blocks in Baffin Bay and southern Greenland, with potential drilling in western Greenland also in the pipeline for subsequent years.

Cairn shut its Delta-1 and Gamma-1 wells in September while its first well to be drilled this year, LF7-1, was plugged in August.

Earlier this year, Greenpeace activists stormed the drilling platform and in June occupied Cairn’s offices in Edinburgh in protest at the programme.

Greenpeace senior campaigner Vicky Wyatt said: “Cairn Energy has spent over $1bn drilling in the icy waters of the world’s last great natural frontier and has absolutely nothing to show for it. Investors must see that they’ve backed the wrong horse.”