Today Cairn Energy published the latest operational update for its risky oil drilling off Greenland and the news, at least for the wildcat oil company, was far from good.
The company has been forced to plug and abandon its well in the deep water Lady Franklin block in the Davis Strait, a major setback for Cairn and the rest of the oil industry who see the melting ice caps as a business opportunity.
It has also temporarily abandoned the well at the Atammik site to move operations further north and open up two new drill sites, whilst still refusing to make its near-mythical oil spill response plan public.
Its share price has taken a hammering, falling over five per cent today and 13 per cent in the last month. Somehow Chief Executive Simon Thomson remains “encouraged” by the news, saying he “continues to be optimistic” about prospects this year, but analysts have been scathing.
One said it “increases the uncertainty for Cairn,” another called it “clearly a negative”, while a third claimed “it’s hard to see how this result won’t impact sentiment towards the remainder of the 2011 program”.
Cairn is taking a multi-million dollar gamble with the fragile Arctic environment and has come up with nothing. This should be a lesson to other oil companies, like Shell, who are eyeing up new ventures among the icebergs in the far north. What was already an unattractive investment now looks even riskier, not least when a new report exposed how difficult a clean up operation off Greenland would be.
The report, written for the National Energy Board of Canada, concludes that sorting out an oil spill in the Davis Strait would likely be delayed by extreme conditions and that any operations would be much less effective than in other, less remote places. [pdf]
It found that even if a spill happened in high summer between July and August there would still only be a one-in-three chance that clean up methods could be successfully used.
Cairn’s latest setback in Greenland is further evidence that chasing oil in the frozen north is a bad idea. Rather than dangerous drilling for oil in the vulnerable Arctic we should be extracting oil from car companies like Volkswagen by forcing them to make more efficient cars.