Cairn shares on the slide after latest Greenland drilling blow

No oil was found in the exploration well, the first of four that the Edinburgh-based group plans to drill in the Arctic circle this summer, although the firm stressed it was "encouraged" by finding "oil-prone source rocks".

Nearly 1.2bn, or 20 per cent, has been wiped off Cairn's market value since the start of July - including 250m following yesterday's 5 per cent fall in its share price - as markets become more cautious over its drilling.

Deputy chief executive Mike Watts described the exploration wells as "pinpricks in big areas".

He added: "We may not be lucky and it may be the next round of operators that do the drilling, but I think somebody will be finding commercial amounts of hydrocarbons off the coast of Greenland."

Only ten exploration wells have been drilled off the coast of Greenland, including "LF7-1" and three others abandoned by Cairn after last summer's expedition.

Big oil companies - including US trio Exxon Mobil, ConocoPhillips and Chevron, as well as London-listed Shell - have all bought up acreage surrounding the Danish autonomous island and are closely watching the Scottish firm's progress.

Cairn has courted controversy with its Arctic programme, drawing the ire of environmental groups, including Greenpeace, which has boarded its drilling rig and occupied its head office dressed as polar bears.

Greenpeace campaigner Ben Ayliffe branded the Scottish explorer as a "cowboy" outfit, adding: "Cairn Energy took a multi-million dollar gamble with the fragile Arctic environment and came up with nothing. This should be a lesson to other oil companies, like Shell, which are eyeing up new ventures among the icebergs in the far north.

"What was already an unattractive investment now looks even riskier."

Citi analyst Alejandro Demichelis said there was "still plenty to play for", despite the LF7-1 setback. He added: "Whilst the news is disappointing, the fact that the cuttings confirmed the presence of oil-source rock provides encouraging signs."

But Investec analyst Angus McPhail warned: "It's a binary game; you either have success or you don't and, at the moment, they're not having success, and that's being discounted into the share price."

McPhail described Cairn's strategy as a "one gun-shot approach in one region", compared with rivals such as Tullow Oil, which has spread its drilling over several areas.He admitted it was still early days for Cairn in Greenland and up to 20 wells might be needed to find oil.

Watts defended his strategy, saying: "Everything we're doing is in Greenland, but I can't stress enough that these are separate basins, and each one we've drilled has been the first well in the basin."

Shares closed down 17.9p at 334.8p, valuing Cairn at 4.7bn.