CAIRN Energy pleased analysts with a positive update on the latest drilling in its controversial programme off Greenland where it has recently suffered a string of reverses.
The Edinburgh-based company said a well drilled about 125 miles west of the island territory had found good quality reservoir sands in an area where there were shows of oil and gas.
The AT7-1 well has not made a commercial find so far but analysts said the discovery of reservoir sands was good news for Cairn. While the company encountered traces of oil and gas off Greenland last year, this is the first time it has found a sign of the kind of reservoir from which hydrocarbons could be produced.
Cairn drilled three costly dry wells off Greenland in the summer, at a cost of around $100 million (£62.5m) each.
“The news on the AT7-1 well is clearly encouraging and the most positive well result to date (even if it does not turn out to be a discovery) having encountered thick, good quality reservoir sands for the first time,” Richard Rose, analyst at Oriel Securities, said.
Analysts at joint house broker Bank of America Merrill Lynch said they believed encountering reservoir sands was “testament to Cairn’s improving understanding of Greenland”.
Cairn will deepen the AT7-1 well towards the planned total depth but must stop drilling by the end of November to comply with regulations governing exploration off Greenland.
Cairn’s campaign has been criticised by Greenpeace, which claims that drilling off Greenland entails big risks for the environment. However, Cairn has said it is operating under some of the most stringent global standards.
The company said another well that it is drilling off Greenland, AT2-1, has encountered “minor hydrocarbon shows”.
It will spend the next few weeks interpreting the results of the well.
Cairn said it will update on progress and spell out the implications of the results at the end of the drilling programme.
But investors may face a long wait to see if the company can repeat the success it enjoyed in India. Cairn made a series of huge finds in the country from 2004 under the leadership of Sir Bill Gammell. The former Scotland rugby international swapped the chief executive’s role for the chairmanship in July.
After taking over as chief executive, Simon Thomson said Cairn may try to farm out stakes in its Greenland acreage next year.
The company has spent around $1bn (£621m) in the first two years of drilling off Greenland, including $600m (£373m) on this year’s campaign.
The Bank of America Merrill Lynch analysts told clients: “There is still significant work ahead for Cairn and we would not be surprised to see new 3D seismic studies on the block next year before additional drilling takes place.”
Shares in Cairn Energy rose 5% in early trading but lost ground later. They closed up 0.9p at 289p. Shares traded at 436p in May, before the start of this year’s drilling campaign.
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