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Morocco dry well setback for Cairn Energy

CAIRN Energy has suffered another setback after a well targeting a big prospect off Morocco proved to be dry.

BETTER TIMES: Cairn Energy's Simon Thomson and Mike Watts at the Mangala terminal in India, where the firm made bumper finds. PIcture: Cairn Energy
BETTER TIMES: Cairn Energy's Simon Thomson and Mike Watts at the Mangala terminal in India, where the firm made bumper finds. PIcture: Cairn Energy

Edinburgh-based Cairn said the JM 1 well off the North African country had been plugged and abandoned without testing after reaching the target depth around four kilometres below the seabed.

The well was drilled in an area that Cairn had estimated contained 70 million barrels of oil.

Cairn's partners in the well include the Genel Energy business run by Tony Hayward, who was chief executive of BP when the oil and gas giant had a disastrous spill in the Gulf of Mexico in 2010.

Cairn said the JM 1 well on the Juby Maritime block confirmed the presence of heavy oil where a find was made in 1968. This lies above where Cairn hoped to make a fresh discovery.

However, the results of drilling on the Middle Jurassic target will be a disappointment for Cairn.

In December, Cairn said the first well it drilled off Morocco did not find the reservoirs it had targeted, although it had confirmed a deep water hydrocarbon system. The setbacks may increase the pressure on the company to deliver more success with the drill bit.

The results of the two wells Cairn plans to drill off Senegal in coming weeks will be studied closely.

Chief executive Simon Thomson could face questions when the company announces its annual results today.

Renowned for making bumper finds in India, the company entered Morocco under his plans to build a balanced portfolio.

This combines potentially transformational exploration in under-explored areas like offshore Morocco with lower risk activity in the North Sea. The company acquired acreage in Morocco through the £414m purchase of Nautical Petroleum in 2012.

This was funded using some of the $5.5bn (£3.3bn) Cairn raised by selling a controlling stake in its former subsidiary in India to Vedanta in 2011.

Cairn has spent around $1bn exploring off Greenland without making a commercial find.

Shares in Cairn Energy closed down 0.4p yesterday, at 196.5p.

They traded at around 300p in April last year.

In a note about Genel Energy, Will Forbes, analyst at Edison Investment Research, described news that the JM 1 well had been plugged and abandoned as unfortunate.

He added: "We remain cautious on Morocco."

But analysts at Investec noted that the partners still appeared to believe it may be viable to develop the original heavy oil find, given the Moroccan tax terms.

Cairn made its first big find in Rajasthan in 2004 with the 16th well it drilled in the Indian state.

The drilling programme was planned by Cairn Energy's exploration chief Mike Watts.

The company has enjoyed success in the North Sea, where it built a big position though the acquisition of Nautical and the £280m takeover of Agora Oil and Gas in 2012.

It made the Skarfjell find off Norway two weeks after buying Agora.

Cairn has a 25% stake in the giant Kraken heavy oil find off Shetland, which Enquest hopes to bring onstream in 2017. It could use cash generated from production to fund exploration and development work in other areas.

Cairn said evaluation of information gathered by the JM 1 well continues.

Today's results announcement is the last Cairn will make under the chairmanship of Sir Bill Gammell, who founded the firm in 1989 and was succeeded as chief executive by Mr Thomson in summer 2011.

Sir Bill will retire from the board following the general meeting on May 15. Non-executive director Ian Tyler will become chairman.

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