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LONDON – Oil explorer Cairn Energy said a well in Greenland found evidence of oil proving a working hydrocarbon system, sending its shares up on hopes of a big discovery in the frontier territory, Reuters reported.

Cairn said on Tuesday its Alpha-1S1 well in Baffin Bay, the sea between Greenland and Canada, observed oil over a 400-metre section and encountered gas but did not confirm the presence of an oil reservoir.

Greenland, a self-governing territory of Denmark, is one of the world's largest under-explored frontier areas, according to consultancy Wood Mackenzie, which estimated there could be over 20 billion barrels of oil equivalent in the country.

"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," Cairn Chief Executive Bill Gammell said.

Cairn shares, which had fallen by 8 percent since August when the company's first Greenland well disappointed investors by only finding small quantities of gas, were up 3 percent to 439.5 pence by 1113 GMT, making it the top riser among London-listed blue chips.

"I see this as a positive result in the context of the longer-term exploration story offshore Greenland and I think the ... share price before this morning did not actually reflect any of that upside," said Phil Corbett, analyst from Royal Bank of Scotland, Cairn's house broker.

Cairn, in the process of selling a majority stake in its Cairn India unit to Vedanta Resources for up to $8.5 billion, also said on Tuesday it posted a letter to shareholders regarding the sale.

Funds raised from the disposal, awaiting approval from Indian regulators and expected in the next month, will be partially spent on exploration in Greenland, said Cairn in August.

The Alpha well was now being deepened, Cairn said, adding drilling at its third well, T4-1, in Greenland was ahead of schedule. It said the first well, T8-1, was plugged after failing to result in a commercial discovery.

Analysts at brokerage Numis said it was unlikely Cairn would be able to complete a fourth Greenland well which it had planned to fit into this year's Arctic drilling weather window.

Cairn's Greenland drilling campaign in the Arctic region where, up until this year a well had not been drilled for a decade, has drawn the ire of environmentalists.