Cairn Encouraged by Gas Find Offshore Greenland

LONDON (Dow Jones Newswires), Aug. 24, 2010

Cairn struck a cautiously optimistic tone about the prospects for its oil exploration offshore Greenland, saying Tuesday it had discovered an uncommercial volume of natural gas in its first well, T8-1, which is being drilled by the Stena Forth drillship. The company also said it found hints of further hydrocarbon resources in the area.

"I am encouraged that we have early indications of a working hydrocarbon system with our first well in Greenland, confirming our belief in the exploration potential," said Cairn Chief Executive Bill Gammell.

Cairn remains committed to a multiyear drilling program in the region, Gammell said. "We are drilling in a basin the size of the North Sea and in a block the size of the Niger Delta. It's a marathon, not a sprint," he told reporters on a conference call.

There are high expectations in the oil industry that Cairn's drilling campaign will prove Greenland to be a major new resource area. Exploration there is also increasingly important for Cairn's future after the company decided to sell the bulk of its stake in Cairn India to mining company Vedanta Resources for up to $8.48 billion.

Cairn's gas find doesn't have commercial potential, said the company's deputy CEO and exploration director Mike Watts. However, the type of gas found is often associated with oil or condensate, so it is encouraging, he added.

But analysts at Bernstein Research said that even if Cairn were to find larger volumes of gas off Greenland, commercial development would be doubtful. An Arctic liquefied natural gas project similar to Norway's Snoehvit would be possible, but, "given that both European and the U.S. gas markets are oversupplied at the moment, this is a long shot," Bernstein Research added.

However, given the size of the unexplored area, Cairn is "fortunate to have avoided the worst case scenario of no reservoir rocks, no hydrocarbons," Bernstein said.

Panmure Gordon analyst Peter Hitchens said it is still very early days. "There is still lots of drilling to be done. Exploration wells, particularly in new areas, rarely are successful until there is more data," he said.

The company has two rigs drilling wells offshore Greenland and plans to drill four wells in total this summer, although there are doubts that the fourth well can be completed before the end of the drilling season in September.

These plans have already drawn protest from Greenpeace, whose ship the Esperanza sailed close to one of Cairn's rigs Monday.

"Cairn has refused to publish a comprehensive plan for how it would deal with a spill from the platform," Greenpeace said in a statement. "A blowout in a scenario where a relief well cannot be completed in the same drilling season could lead to oil gushing until at least next spring."

Cairn is taking every precaution to ensure drilling is safe, said Watts.

"We have got extensive well control and risk management in place. We designed the well to minimize the risk of any uncontrollable influx" of the type that caused the blowout in BP's Macondo well in the Gulf of Mexico, Watts added.

Cairn rebutted claims by Greenpeace that in the event of an accident in Greenland, similar to BP's three-month-long oil spill in the Gulf of Mexico, it would be unable to cap a blowout before the end of the summer drilling season.

"It isn't true to suggest we don't have the capability or time to drill a relief well," said Gammell. Cairn has two rigs on the scene, one of which could be diverted rapidly to drill a relief well within a month, said Gammell.

Copyright (c) 2010 Dow Jones & Company, Inc.

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