Arctic Oil: Even at $100M a Pop and Nothing to Show, Cairn Energy Will Be Back
Cairn Energy's high profile Arctic drilling program offshore Greenland has produced nothing except a $185 million writedown in costs after the UK company abandoned two wells and suspended another one this year. But Cairn said this week it will be back next summer, if its gets the OK from the Greenland government, despite its failure this year and the $100 million per hole price tag.
Cairn's commitment is certainly troubling for environmentalists, who warn that a spill in an isolated region with cold, stormy seas would be difficult to contain and likely disastrous for wildlife. Greenpeace activists -- probably the most vocal opponents to drilling in the Arctic -- breached a security perimeter and scaled one of Cairn's rigs in September in hopes of derailing the oil company's plans.
But Cairn, and the dozen of so companies lining up behind it, aren't going away. The lure of Arctic oil is too strong and the easy-to-access crude, which is located primarily in OPEC countries like Saudi Arabia, isn't available to oil majors and independent producers.
The potential of oil and gas in the Arctic pushed CEO Bill Gammell to make Greenland its top priority. It's now undergoing a restructuring that will include selling off a large stake in its Indian subsidiary Cairn India and leave Greenland as its primary focus. And the company is prepared to spend big -- $1 billion through 2012 -- to find crude and gas.
Oil companies have always held a keen interest in the Arctic, specifically offshore Alaska, where ConocoPhillips (COP) and Shell (RDS) have been trying to expand for several years. U.S. Geological Survey estimates that the area offshore Greenland could hold 50 billion barrels of oil equivalent and greater access to the region, thanks to warming temperatures, have lured several companies to the area. Exxon (XOM) and Chevron (CVX) have acquired licenses to drill in the region, according to the WSJ. So far, Cairn has been the first to drill offshore Greenland.
Whether Cairn's drilling program will produce results remains to be seen. (Cairn did find hydrocarbons in its exploration wells, they were just too small to be commercially viable.) Cairn's leaders have proven they have the patience -- not to mention comfort with risk -- to see the drilling program through. It took seven years for Cairn to achieve commercial success in India, Gammell told the WSJ earlier this year.
Photo from Cairn Energy
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