Cairn Energy has announced it has found oil in its controversial drilling off the coast of Greenland.

The Scottish company said yesterday oil has been “observed intermittently” at the Alpha-1S1 well in Baffin Bay Basin, part of the ‘Sigguk Block’ of oil exploration west of Greenland.

However, the T8-1 well which was the cause of much excitement last month has been abandoned as suggestions of oil there failed to turn into a commercially exploitable discovery. The cost of this well – $84.2 million even before it is ‘demobilised’ – will be written off by the company.

“The presence of both oil and gas confirms an active, working petroleum system in the basin and is extremely encouraging at this very early stage of our exploration campaign for the Sigguk block and the entire area,” said Bill Gammell, chief executive of Cairn (press release).

Reception has not been wholly positive on the markets. Although Cairn’s shares are up slightly, FinnCap analyst Will Arnstein bemoaned the “absence of a commercial discovery” while Canaccord Genuity called the $84.2m write-off “a disappointing result, even if there is reason for long-term optimism” (Wall Street Journal).

The news has gone down well in Greenland, where Minister for Industry and Mineral Resources Ove Karl Berthelsen, said, “This is another encouraging result of the off-shore drilling programme.”

It is not likely to play so well with environmental groups, which have stepped up their campaigns against Arctic and deepwater drilling in the wake of the Deepwater Horizon disaster. Yesterday Greenpeace activists occupied a Chevron vessel due to set off for drilling work near the Shetlands.

Image: Cairn’s Stena Forth Drillship / Cairn Energy