Cairn cash call a hint of fast move in Greenland

CAIRN Energy has signalled that it may bring forward a drilling programme in Greenland after a surprise £116 million cash-raising exercise.

Scotland's largest oil company placed more than 6.5 million shares with institutional investors yesterday, a move it said would be used to create "headroom" for new opportunities if exploration costs fall.

Edinburgh-based Cairn was granted major exploration rights in Greenland – a new frontier for oil explorers – last year.

Experts have predicted that, while extracting oil from the arctic region will be challenging, the rewards could be massive.

While Cairn has not committed to any extension to its exploration programme, a spokesman for the firm indicated that there was a chance that drilling in Greenland, planned for 2011, could be brought forward to next summer.

The price of oil has fallen by more than two thirds from records hit last July and, combined with smaller oil companies struggling to raise debt, exploration levels are falling sharply. This is expected to lead to a sharp fall in the price of oil services costs because of a lack of demand, prompting some larger companies to step up plans to take advantage.

Speaking from Delhi, Cairn's spokesman said: "If you looked at what it might have cost to drill in Greenland a year ago, you might have been looking at $100 million for two wells, now it might cost $60m.

"We're now moving to a different ball park; we've said we're looking at 2011 but if we want to move that forward to next year we've got to start moving sharpish. This gives us the opportunity to take this forward."

While Cairn has completed seismic testing on more than 10,000sq km off the coast of Greenland, it has not given any details of what it has found, saying only that it believes it is a "material opportunity".

Last week Exxon Mobil, which also has major exploration rights in Greenland, said it was aiming to bring forward its first wells in Greenland by a year to 2011.

Yesterday's share placement was a surprise, after Cairn said in January that it was adequately funded for all of its short-term needs, most importantly covering the cost of a 580km pipeline to deliver oil from its vast Indian fields to coastal refineries.

It insisted yesterday that this was still the case, and the cash would only be used to extend its programme.

Cairn's spokesman said the cash could also be used in India, which may trigger further exploration or additional branches added to its pipeline from Rajasthan to coastal Gujarat to supply other refineries.

The shares were snapped up by institutional investors from book-runners Merrill Lynch and Hoare Govett, before 1pm yesterday at 1,775p a share – a 5.1 per cent discount to the opening level.

Cairn's shares fell as much as 8 per cent in early trading, but recovered to close down 4 per cent at 1,796p, with existing shareholders' stakes diluted slightly.