Cairn Energy Accused of Risking Safety

on Sep 3, 2012

Cairn Energy (LON:CNE), a British oil and gas exploration and development company, has been accused of “taking leave of its senses” after trying to water down a costly safety rule for its controversial exploration drilling in the seas off Greenland, The Times reported on Monday (September 3).

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Cairn Energy’s chief executive Simon Thomson said that the requirement for a back-up drilling rig to prevent oil spills in the event of a blow-out is unnecessary for the company’s next drills in Greenland, projected for 2014. According to the Edinburgh-based oil explorer, this requirement would almost double the cost of the operation without aiding significantly in its safety. “It may well be that you could have a single rig,” Mr Thomson said. “That would reduce costs. The industry is in discussions with the Government. We would be absolutely focused on safety still,” he stated.

The policy requiring oil companies to use two drilling installations was adopted by the Greenland Government following the events of April 2010 when oil gushed uncontrollably following an explosion on BP’s (LON:BP) Deepwater Horizon drilling rig in the Gulf of Mexico . It took over a week for a second rig to be towed to the scene and environmentalists fear it would take far longer to find one to plug a similar spill in remote Greenland. Now Cairn Energy is suggesting that the second drilling rig be excluded as a requirement from Greenland governmental policy. Despite the company’s calls, Jørn Skov Nielsen, deputy of industry, labour and mineral resources for Greenland, refused to consider a change in the safety policy.

!m[](/uploads/story/318/thumbs/pic1_inline.png)A spokesman for Greenpeace even said that Cairn Energy was showing a “reckless disregard for safety”, adding that, “Cairn is suggesting cutting safety corners in an already weak regulatory regime before drilling in the most hostile, technically challenging environment on the planet. Investors must be wondering if the company’s taken leave of its senses.”

Separately from Cairn Energy’s safety rule issue, the oil explorer has recently reported a sharp drop in profit due to income depletion from discontinued operations for the six months ended 30 June 2012. Cairn said in a results statement that its earnings after taxation had slumped to $37.1 million (£23.3 million) in the six months to June, compared with $371.5 million (£233.7 million) in the same period last year. On the back of the disappointing first-half results, CEO Simon Thomson voiced his commitment to offering investors an exposure to capital growth through rebuilding a more diversified exploration portfolio across multiple geographies.

Thompson’s statement to shareholders continued: “Cairn is actively rebalancing its portfolio to deliver exploration led growth. With a strong balance sheet and the foundations for sustainable revenue generation in the coming years principally set, management attention and operational effort is focused on building a series of material exploration positions in prospective and fiscally attractive areas in order to offer investors exposure to capital growth potential through future transformational exploration.”


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