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Cairn prepared to gamble $1.2bn on Greenland oil drill

The man who led Cairn Energy’s hugely successful hunt for oil in India said it had made a great start to its drilling campaign in Greenland, on which it might gamble $1.2 billion (£756 million).

“It’s about as good an outcome as we could have expected in our first season of drilling,” Mike Watts, Cairn’s exploration director, told an industry conference.

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“If we were playing poker, and we got two types of gas and two types of oil, we’d have a royal flush, and that’s what we’ve got in Greenland,” he added.

Mr Watts’s comments reiterate the company view that the results of the first two wells that Cairn has drilled have provided grounds for confidence that it will succeed in its hunt for oil and gas off Greenland.

Neither of the wells off west Greenland saw Cairn make a commercial find. However, Cairn found traces of oil or gas with both wells.

Last month, the company said the second well had observed oil over a 400m section below the seabed. This meant Cairn had made the first ever oil find off Greenland.

In August, Cairn said the first well it drilled off Greenland had found traces of gas in thin sands. The company wrote off the $84m cost of that well.

It is expected to update on the results of the third well in the campaign at the end of this month.

Mr Watts said Cairn could spend around $1.2bn on a multi-year campaign that will feature 10 to 12 wells.

Given the huge size of the acreage that the company controls, Cairn will face a formidable challenge.

Even if it does not make a commercial find, Cairn will amass a huge amount of valuable information on an under-explored area that forms one of the last frontiers for the industry. The consultancy Wood Mackenzie estimates that Greenland may contain more than 20 billion barrels oil and gas.

The data could be attractive to other firms. Analysts at Deutsche Bank said there is intense interest in the country.

Cairn should have no problems funding the campaign. The proposed sale of the bulk of the firm’s holding in its Indian subsidiary to Vedanta Resources should generate up to $8.5bn. Cairn Energy will retain a minority stake in the cash-generative Indian business.

Cairn Energy expects the stake sale to complete in the first quarter of 2011.

Shareholders in Cairn Energy will meet in Edinburgh today to vote on the planned disposal.

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