Investors hoping to cash in on an oil boom off the vast, untapped coast of Greenland were dealt a blow yesterday after Cairn Energy said that, around $1bn (£636m) and eight exploration wells later, it had failed to make a commercially viable discovery in the region.
The FTSE 100-listed oil and gas prospector, which drilled three wells in its quest to find resources off the coast of Greenland last year, said it had plugged and abandoned the final two wells in its five-well exploration campaign for 2011. The region is mostly unexplored and, counting Cairn's contribution, has seen the drilling of only 14 exploration wells to date, five of which were drilled in the 1970s.
Putting a brave face on the announcement, the chief executive, Simon Thomson, said that although the company had not made a commercial find, "the first phase of Cairn's exploration programme in Greenland has encountered oil and gas shows across multiple basins and now reservoir-quality sands" in its Atammik exploration area, one of the 11 Greenland exploration blocks covering about 102,000 square kilometres in which it has an interest.
"Whilst we have yet to make a commercial discovery, we remain encouraged that all of the ingredients for success are in evidence," he added, signalling the company's determination to press on with efforts to find resources in the region.
Besides the financial toll, the campaign has also brought controversy, with Cairn facing protests from Greenpeace earlier this year.
Yesterday, the oil firm's announcement led to weakness in its shares, which were down by nearly 1 per cent at the end of the day, ending up on the FTSE 100 loser board while the blue-chip index turned sharply higher.
The focus now is expected to be on the completion of Cairn's deal to sell a large chunk of its Indian business to Vedanta Resources, and on the oil group's efforts to rope in partners for future operations in Greenland.
Beyond the stock market, City analysts also expressed disappointment at yesterday's release, with oil-sector analysts at Evolution Securities saying that Mr Thomson's comments at the end of Cairn's update sounded "a bit like [the Chancellor of the Exchequer] George Osborne trying to put a brave face on the economic outlook".
Investec analyst Angus McPhail said the business, whose shares are down by around 35 per cent since the start of the year, "probably needs to refocus on another area", while his Canaccord Adams counterpart Richard Slape warned that, when it came to the search for partners, "people are going to question why Cairn is seeking to farm out after drilling a bunch of dry holes rather than 18 months ago". "They will find somebody to come in [but] it may not be on such good terms as they would have got before," Mr Slape added.