Cairn's India drilling extended

Cairn's recent finds have been some of the biggest in the world

Edinburgh-based oil firm Cairn Energy has had a key exploration agreement in India extended by 18 months.

Cairn said that the extra time should allow it to close in on new crude oil deposits in its most valuable fields.

About 80% of Cairn's stock market value is based on oil deposits in Rajasthan, for which it started hunting in 1995.

India is one of the world's largest importers of crude and is working with firms such as Cairn to develop its oil industry and feed its booming economy.

Vast tract

The new exploration area covers 2,884 square kilometres (1,154 square miles), and is estimated to contain between 35 million and 70 million barrels of crude oil.

India currently imports about 2 million barrels per day (bpd) of oil, Cairn said, adding it aimed to provide about 150,000 bpd.

We are delighted to have secured this extension Cairn boss Bill Gammell Check Cairn's share price

Cairn said it was in talks about exploration in the southern area of Rajasthan, and the company made six new discoveries in the area last year.

Its biggest discovery in Rajasthan is the southern Mangala field, which is estimated to hold 1.07 billion barrels.

"We are delighted to have secured this extension in Rajasthan, which allows us to continue to carry out a comprehensive evaluation prior to agreeing a long term development area," chief executive Bill Gammell said in a statement.

Mike Watts, Cairn's director of exploration and new business, said that while the company was very optimistic about its South-Asian business, there were always risks attached to drilling for oil.

The company's shares lost 18% in one day last year after investors were disappointed by drilling results from fields to the north of Rajasthan.

Mr Watts said that Cairn has had its finds assessed by independent auditors and pointed to the fact that the company has had a one in three success rate when drilling for oil in the region.

He continued that this was probably the last chance Cairn would have to extend its contract and the firm was looking to sign more long-term development agreements that would run until 2041.

Cairn shares climbed 1.7% to 1,322 pence during early trading in London.