Cairn’s $600 Million Greenland Oil Campaign Ends in Failure

What do oil companies do with all their profits? Why, they search for more places to drill for oil...which costs money and sometimes ends in failure.

From Bloomberg: Cairn’s $600 Million Greenland Oil Campaign Ends in Failure

Cairnergy Plc (CNE) ended this year’s $600 million drilling program off Greenland after the biggest exploration campaign attempted in the Arctic island’s waters failed to make a viable discovery.

The AT7-1 well, which had encountered traces of oil and gas, has been plugged and abandoned, the Edinburgh-based company said today in a statement. The AT2-1 well, the last of five drilled this year, was also abandoned after reporting only “minor hydrocarbon shows.” The company will evaluate its program next year and seek partners for investment.

“Effectively these are write-offs, though there were some encouraging signs,” said Richard Rose, an oil analyst at Oriel Securities Ltd. “That’s the end of the program. Rigs are going to disappear, and we won’t see any drilling there next year.”

Cairn’s eight-well program, spread over two years, was one of the industry’s most advanced efforts to find oil in Arctic waters and drew protests from activists who said it risked damaging a pristine environment. Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Royal Dutch Shell Plc (RDSA) and Statoil ASA (STL) hold licenses to explore off Greenland, an autonomous Danish territory of 56,000 people.

Cairn fell 1 percent to 272.3 pence in London as of the 4:30 p.m. close. The shares are down 35 percent this year.

The unsuccessful Greenland campaign may raise concern that the company, which also has exploration licenses in Spain, may need to find a new focus after it agreed to sell a majority interest in its Indian business to Vedanta Resources (VED) Plc last year. The company has been waiting for more than a year to get approval for the deal.
‘Ingredients for Success’

“The first phase of Cairn’s exploration program in Greenland has encountered oil and gas shows across multiple basins and now reservoir-quality sands in the Atammik block,” Chief Executive Officer Simon Thomson said in a statement. “Whilst we have yet to make a commercial discovery we remain encouraged that all of the ingredients for success are in evidence.”

Greenland’s oil and gas resources may total 50 billion barrels, according to the U.S. Geological survey. That’s more than the U.S.’s proven crude reserves.
Polar Bears

Cairn said it had spent $573 million this year on the unsuccessful Greenland campaign as of the end of September, before the last two wells were completed. The company drilled three exploration wells in 2010. Mike Watts, head of exploration, said in January that Cairn was prepared to spend up to $1.2 billion in Greenland on 10 to 12 wells.

About 20 Greenpeace activists were arrested in July after storming Cairn’s Edinburgh office dressed as polar bears. In August, Greenland’s government said it will publish the company’s contingency plan for an oil spill.

“However the company tries to spin this, Cairn’s Greenland misadventures have been an unmitigated disaster from day one,” Greenpeace said in a statement. “The incredible technical, economic and environmental risks of operating in the Arctic simply aren’t worth it.”