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Cairn Plans Further Greenland Exploration

LONDON—Cairn Energy PLC said Tuesday it has contracted two vessels to drill up to four oil and gas exploration wells this year offshore Greenland, following the drilling of three wells in summer 2010 which provided mixed results.

Cairn said in a statement the two dynamically positioned drill ships operated by Ocean Rig UDW Inc. are "state of the art" and demonstrate the company's focus on safety. Its drilling operations last year drew protest from environmental group Greenpeace, which says drilling shouldn't be allowed in the fragile Arctic environment.

More detail about the location of the wells will be provided in Cairn's next operational update Jan. 27, the company said. Cairn has expressed optimism for Greenland after its first drilling campaign in the little-explored country last summer, although investors were less convinced.

Cairn's Deputy Chief Executive Mike Watts previously described the discovery of traces of oil and gas in two of three wells as a "royal flush," despite the fact that no hydrocarbons were discovered in commercial quantities.

Investors reacted to the failure to make a commercial discovery by selling off the company's shares. Cairn dropped more than 6% Oct. 26 after the company announced its third and final 2010 exploration well was dry.

Cairn is demonstrating it remains committed to its Greenland plans, despite investor doubts, said brokerage Collins Stewart in a research note.

"The important thing is the confirmation that the 2011 drilling program should be at least of the same order of magnitude to 2010, in contrast to some views in the market," Collins Stewart said. "We would expect further drilling activity on the Sigguk Block to investigate the oil shows found in the Alpha-1 well."
Interest in the oil potential of Greenland remains strong. The government of Greenland awarded new exploration licenses to seven international energy companies in November, including Cairn, amid what it described as fierce competition for access.

To provide immediate liquidity to finance the drilling campaign, Cairn also said Tuesday it entered into a $900 million stand-by secured revolving debt facility with Standard Chartered Bank, Bank of Scotland PLC, Credit Agricole Corporate and Investment Bank, HSBC Bank PLC and Societe Generale.

Cairn is awaiting regulatory approval to sell up to 60% of Cairn India Ltd. for as much as $8.5 billion to London-listed mining conglomerate Vedanta Resources PLC. It plans to return the majority of that cash to shareholders and plough the rest back in to Greenland exploration. The Indian government says it expects to make a final decision on whether to approve the deal by the end of March.
Write to James Herron at james.herron@dowjones.com

 
 
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