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Cairn drops 9% on Greenland well failure, as FTSE fades after early Chinese lift

Cairn Energy has put a lot of store by its controversial search for oil in Greenland, and so far it has failed to deliver.

The company – which recently sold the bulk of its Indian business to Vedanta Resources – has admitted its latest well in Greenland had failed to find oil or gas, the second disappointment so far. The Gamma-1 well in the north of its licence area came up dry, and a second well, Delta-1, had also failed to find any indications of hydrocarbons so far, although drilling was continuing.

Environmentalists, who had disrupted drilling earlier this year in protest against exploring the remote region, will be applauding but shareholders have taken the news hard. Cairn’s shares are down 27.7p at 284.8p, a near 9% decline which makes them the biggest faller in the FTSE 100. Phil Corbett at RBS said:

These are high risk wells, but the results will be seen as disappointing by the market, and there will invariably be a read across made from Tullow’s Zaedyus success last Friday. In particular, the key takeaway from both the Gamma and Delta wells is that it is unlikely that Cairn will prove the existence of a reservoir quality rock in the Disko area. This matters, as we believe it will be a crucial factor if Cairn wants to achieve good terms on any farm-out in 2012. In other words, we believe it’s looking increasingly likely that Cairn will have to fund a portion of any 2012 Greenland drilling campaign.

Early gains on talk that China might buy Italian bonds and give some relief to the troubled Eurozone soon fizzled out. With key EU meetings over the crisis this week, and continuing worries that Germany is planning for a Greek default which would cause chaos in the market and among banks, the FTSE 100 has fallen 37.04 points to 5092.58.

Inmarsat led the risers, up another 7.4p at 484p. On Monday it was supported by talk of investors switching out of rival SES Global after Citigroup downgraded the latter. Vague takeover speculation seemed to be dented by news Inmarsat had bought 42,000 shares for cancellation, something it would not do if it knew of any corporate action.

Mitchells & Butlers added another 9.9p to 245.5p in the wake of Joe Lewis confirming City rumours of a possible takeover bid, albeit at a low ball price of 230p and well down on Monday’s rumoured level. M&B immediately rejected the offer as significantly undervaluing the business. Simon French at Panmure Gordon said:

This is a highly unusual and opportunistic offer and undervalues the company on the basis of our 285p target price. However, it would appear that M&B is now ‘in-play’, the independent directors need to find a white knight and Joe Lewis will be king maker; we reiterate our hold recommendation. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds