* Says encouraged by indications of oil-prone rocks
* Starts drilling another well on Napariaq block
* Sees farm-out deal funding Greenland exploration next year
* Confident hyrdrocarbons will be discovered off Greenland
* Shares down 5.4 pct
(Adds deputy CEO comments, updates shares)
By Sarah Young
LONDON, Aug 3 British oil explorer Cairn Energy
said it found no oil in a well off the coast of
Greenland, denting investor and industry hopes that a new
multibillion barrel basin is waiting to be found just inside the
The company, whose focus on Greenland has intensified since
a deal to reduce its stake in its Indian unit, said on Wednesday
that despite the fact that the LF7-1 well did not find oil,
indications of oil-prone rocks were encouraging.
Cairn will spend $600 million this year drilling a total of
four wells in its attempt to open up a new oil province in the
little-explored Arctic territory.
Bigger rivals such as Exxon Mobil , the world's
largest non-government-controlled oil company by market
capitalisation, have also acquired exploration acreage in
Greenland and are waiting to drill.
Shares in the company traded down 5.4 percent at 333.9 pence
at 0947 GMT, paring earlier losses of as much as 6 percent as
they hit their lowest level for 18 months, and underperforming
the European index of oil and gas stocks , which was 1.8
"It's a binary game; you either have success or you don't,
and at the moment, they're not having success, and that's being
discounted into the share price," said Investec analyst Angus
McPhail, describing Cairn's strategy as a "one gun-shot approach
in one region".
Rival oil firm Tullow Oil , for example, is
undertaking exploration across a number of different regions,
while Cairn is chiefly focused on Greenland.
McPhail said it was still early days for Cairn in Greenland,
and added up to 20 wells could be needed to find oil.
"These are pin pricks in big areas," was how deputy chief
executive Mike Watts described each well being drilled in
"Everything we're doing is in the country Greenland, but I
can't stress enough (that these are) separate basins, and each
one we've drilled has been the first well in the basin."
By the end of this drilling period, Cairn will have spent
just over $1 billion on exploring Greenland, said Watts, adding
that it did not plan to spend any further money on the Arctic as
it hopes to be carried by future partners.
"Further activity in Greenland, we hope to fund from
farm-outs as they come next year," said Watts.
"We're building an inventory of data second to none in the
industry, and when we put it all together I am sure we'll have
something appealing for players next year."
As well as Exxon, U.S.-based ConocoPhillips and
Chevron and Europe's biggest oil company Royal Dutch
Shell (RDSa.L) also own acreage in Greenland and could all be
possible partners for Cairn.
Watts said he remained confident on Greenland's potential as
a future oil province despite the setback on the LF7-1 well.
"We may not be lucky, and it may be the next round of
operators that do the drilling, but I think somebody will be
finding commercial amounts of hydrocarbons off the coast of
Cairn said it had started drilling another well, the Delta-1
well on the Napariaq block, which is located 110 kilometres away
from a well it drilled in 2010 and which had oil and gas shows.
Cairn must complete the drilling of all four wells during a
narrow summer window for operations which closes in October when
icy weather sets in.
Exploration in the region has sparked protests from
environmental groups who object to drilling for oil in the
pristine Arctic, and Cairn has had its activities interrupted by
protesters numerous times.
(Additional reporting by Tom Bergin; Editing by Rhys Jones and