Cairn prepares for historic oil exploration in Greenland

CAIRN Energy will this week set the scene for its historic first move into Greenland, a campaign which is set to make it one of the world's most closely-watched oil companies.

Scotland's largest oil explorer is due to update the market this Thursday on its progress in 2009 but attention will focus on any clue about its expectations for its activities in the summer.

Greenland, a largely autonomous dependency of Denmark, began opening itself up to exploration in 2007. One of a handful of companies drawn in by the attractive initial frontier terms on offer, Cairn is the smallest firm to win exploration rights in the area and is set to be the first to drill.

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Several major explorers are poised to drill in Greenland in 2011 but Cairn has surprised the market by securing two rigs since mid-December, allowing it to drill this year.

A short operating window because of ice flows will mean the rigs will give Cairn scope to drill just four wells, but Royal Bank of Scotland analyst Phil Corbett still expects it to be one of the most eagerly-anticipated exploration campaigns in the world this year.

While no oil has been discovered in Greenland, its proximity to the North Sea and Canada – both major oil producing regions – led Cairn's head of exploration Mike Watts to predict it would be "almost impossible" for it not to hide a working hydrocarbon system.

Analysts have forecast that while the chances of success may be only 10-15 per cent, if Cairn does hit oil it is likely to be on a major scale, potentially doubling its 4.7 billion value, or more.

Deutsche Bank's Jonathan Copus has been basing his valuations of Greenland using a 15 per cent chance that Cairn will find a 450 million barrel discovery, but admitted in a recent note that even this may be conservative.

Hard technical detail and prospect sizes that Cairn provides from its seismic testing may be limited this week.

Greenland is currently preparing to allocate more exploration licences for areas to the north of previous rounds. Cairn, which is seeking more exploration rights, may not want to hand key data to its rivals.

Al Stanton at Royal Bank of Canada admitted that there was growing excitement about the campaign. "You have to assume that they wouldn't be going up there unless they were hopeful of making discoveries," he said.

The trading statement coincides with full-year results for Cairn India, of which the Scots group retains a majority stake. The period saw Cairn India's historic first production from the Rajasthan desert. Cairn is set to announce this week that construction of its 580km pipeline has been completed, with safety testing now under way.