CAIRN Energy has suffered a reverse after the giant Norwegian Oil fund sold shares in the company on ethical grounds following a stinging attack on its activity in the contested Western Sahara area.

The ethics council which advises the fund recommended Edinburgh-based Cairn Energy and its US partner, Kosmos Energy, should be excluded from its portfolio because they “contribute to serious violations of fundamental ethical norms through their hydrocarbon exploration offshore Western Sahara on behalf of Moroccan authorities”.

The council said it was reasonable to assume that exploration activity could cause the situation to deteriorate in the former Spanish colony of Western Sahara, where the Polisario Front has been leading opposition to Moroccan rule since 1975.

The bank that manages the fund has excluded more than 100 companies from the portfolio.

The comments provide a stinging rebuke for Cairn, which entered the Western Sahara region in 2013 in the hope of making big finds in an area where there had been little exploration activity.

While the well it drilled on the Cap Boujdour permit in 2014 was dry Cairn still believes there is potential in the area.

However, the move into Wesern Sahara took Cairn into controversial territory.

With some governments recognizing the Saharan Arab Democratic Republic declared by Polisario, activists demanded that Cairn and Kosmos should withdraw from the area.

In 2015 Cairn dropped plans to explore off the Mediterranean island of Ibiza after facing opposition from celebrities including Kate Moss and from some locals.

Led by chief executive Simon Thomson, Cairn has no plans to drill more wells on the Cap Boujdour licence but has maintained dialogue with the Norwegian ethics council about the Western Sahara for two years.

After making its name with bumper finds in a desert area of India under founder Sir Bill Gammell, Cairn believes it has shown that oil and gas exploration activity can benefit poor areas such as Western Sahara.

However the oil fund’s decision to sell what was a relatively small holding in Cairn sends a clear signal that it has not been not been persuaded.

Cairn said it was disappointed by the fund’s decision.

In a statement it said: “Cairn has always acted in accordance with international law which states that responsible exploration offshore Western Sahara, a UN designated non-self-governing territory, can occur in parallel with the UN-led discussion on the region’s future.

“As a company with a strong commitment to corporate social responsibility and local community consultation across our global operations, and as a signatory to the UN Global Compact, Cairn’s priority is to maintain transparency around all our activities and to comply with all international laws and regulations.”

A Kosmos spokesperson said: “The Council’s decision fails to recognize that people in Western Sahara – whom we have met in hundreds of face to face conversations – want the economic opportunities that come from increased foreign investment.”

The spokesperson added: “The Council’s assertion that our activities represent a ‘serious violation of fundamental ethical norms’ is totally at odds with our activities there and remains unexplained even after we requested clarification.”

Shares in Cairn Energy closed up 0.30p at 188p.