The Alpha-1S1 well has so far reached a depth of 4,358 meters, and has found "gas shows in silty and volcanic sections over several hundreds of meters," Cairn said in a statement.
Oil has also been found intermittently for the first time in the current drilling campaign, and analysis in UK laboratories has shown there are two oil types present of different origins.
"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 Cairn CEO Bill Gammell.
The well is now being deepened, Cairn said.
In August, Cairn announced gas shows with another well being drilled simultaneously on the same block, T8-1.
That well has now been plugged and abandoned, and as the discovery was not deemed to be commercial the company has written off the $84.2 million cost of the drilling.
The Alpha and T8-1 wells are the first ever drilled in the Baffin Bay basin, which is similar in size to the North Sea.
Cairn has now started drilling a third well, T4-1, more than 100 km north of the first two wells, and has already reached a depth of 1,900 meters.
Cairn is the operator of the Sigguk block with a 77.5% stake. Malaysia's Petronas has a 10% stake, while Greenland's Nunaoil has a 12.5% stake which is being carried by its partners during the exploration phase.
Analysts at Credit Suisse said the discovery of oil shows was encouraging but noted that the company was running out of time to complete the two wells currently being drilled before the end of the drilling window it has agreed with the Greenlandic government on October 1.
"Cairn is very much drilling against the clock to complete operations on both of its active exploration wells," the analysts said in a note.
The company had originally hoped to drill four wells on the block this summer, but Credit Suisse said there was now "no chance" of the fourth being drilled.
The company's work offshore Greenland has been the target of protests by environmental campaigners Greenpeace, whose activists occupied one of Cairn's rigs in August, forcing the company to suspend drilling at both the Alpha and T8-1 sites for a few days.
Cairn shares were trading 2.6% higher at GBP4.38 ($6.81) in London at 0845 GMT, up 11.2 pence from Monday's closing price.
China Chemical Weekly: http://news.chemnet.com/en/detail-1411716.html
