* CEO to chairman step-up flouts governance guidance
* Legal, commercial director Simon Thomson becomes new CEO
* Cairn says change not related to Greenland, India problems
* Shares drop 2 pct
(Adds analyst comment, updates shares)
By Tom Bergin
LONDON, June 16 (Reuters) - UK-based oil explorer Cairn Energy (CNE.L), battling challenges to two major projects in Greenland and India, said its chief executive would step up into the chairman role amid a sweeping board shake-up.
The company said on Thursday that Bill Gammell, who founded the company, would move into the chairman role, leaving the CEO post to be filled by Simon Thomson, the current legal and commercial director.
The UK corporate governance code frowns upon the practice of chief executives stepping into chairman jobs, which can make it hard for new CEOs to challenge their predecessors' decisions.
Cairn said it had consulted major shareholders and said they were comfortable with the decision. Jonathan Copus, oil analyst at Deutsche Bank, said the move would reinvigorate the board.
"We view today's news to be a positive step forward for Cairn's future," he said in a research note.
However, one analyst who asked not to be named noted that the new CEO was an unknown quantity, unlike the widely respected deputy CEO, Mike Watts.
Some shareholders had expected Watts, author of the group's exploration success, to take over from Gammell when he moved out of the CEO job. Instead Watts retains his current position.
"I'm not sure the new CEO is that well known in the City. He doesn't have the profile of the others," the analyst said.
Cairn's shares were down 2.0 percent by 1025 GMT, underperforming a 1.3 percent slide in the STOXX Europe 600 Oil and Gas index .SXEP.
Cairn is battling to complete two major undertakings. Its exploration plan in Greenland, aimed at opening up a new oil province with potentially billions of barrels, has been interrupted repeatedly by environmental campaigners.
In addition Cairn's planned sale of most of its stake in its Indian subsidiary, Cairn India (CAIL.NS), to Vedanta Resources (VED.L) has also been delayed due to challenges from the government, which wants to extract higher taxes in return for approving the sale.
India's cabinet on Thursday steered clear of discussing the transaction, as it had been expected to, further delaying what could be one of the largest deals in the Indian oil and gas sector. [ID: nL3E7HG0TS]
A spokesman said Gammell, who will retain executive authority with respect to the Vedanta deal, had been mulling an end to his long tenure for some time and that the move was unrelated to any other issues.
Malcolm Thoms, 55, chief operating officer, and Philip Tracy, 61 group engineering and operations director, will stand down from the board, as will outgoing chairman Norman Murray.
Finance director Jann Brown will become managing director.
Gammell, a childhood friend of former U.S. President George W. Bush who also went to school with former British Prime Minister, Tony Blair, built the multi-billion dollar exploration business from scratch. A former rugby international player for Scotland, he has become one of the most respected figures in the British oil industry. (Editing by Sophie Walker and Will Waterman)