CAIRN ENERGY (LSE:CNE)

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Greenland disappointment sends Cairn plummeting

Oil supermajor Cairn Energy (CNE) became the worst-performing FTSE 100 stock on Wednesday after two Greenland wells which it hoped would open up a new oil province proved uncommercial.

Wells AT7-1 and AT2-1 in the Atammik Block, South Ungava Area, have been plugged and abandoned after failing to make a commercial discovery.

The AT7-1 well encountered a 113-metre gross interval with 53 metres of net reservoir quality sands of Cretaceous age, but severe mud losses and poor hole conditions hampered the full evaluation of this interval, the company said.

A modular dynamic tester programme recovered fluid samples to surface, but they revealed only mud filtrate and failed to establish hydrocarbons.

Meanwhile, the AT2-1 well, the fifth in the 2011 exploration drilling campaign, reached a total depth of 4,847 metres in Cretaceous sediments having encountered minor hydrocarbon shows.

The news sent the company's shares down by almost 5% in morning trading to 261.50p.

Chief executive Simon Thomson said: "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 the Atammik block. Whilst we have yet to make a commercial discovery we remain encouraged that all of the ingredients for success are in evidence."

A 3D seismic programme covering 1,500 square kilometres acquired on the Pitu block in Baffin Bay is currently being processed, with fully migrated results expected next year.

Looking to 2012, Cairn Energy said further evaluation will be undertaken to review and assess the exploration programme over the last two years as active farm-out discussions over select areas continue for future operations in Greenland. An additional 3D seismic survey over the Lady Franklin and Atammik region is under consideration for 2012 with the potential for further drilling in the West Greenland basins in subsequent years.

Analysts at Evolution Securities said: "As the 2011 Greenland programme comes to an unsuccessful conclusion, the CEO of Cairn's quotes sound a bit like George Osborne trying to put a brave face on the economic outlook! No doubt the 2012 programme will be headed by the words 'farm out!'. The Vedanta deal - which underpins the valuation of Cairn through its stake in Cairn India, could get sorted by year end - but in the absence of drilling news until the 2012 summer season the shares look mired."

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