Cairn Energy is back. This week Cairn announced plans to restart its hunt for oil in the tarai and increased its investment in Nepal. The Edinburgh-based Cairn Energy said assuming a "continued improvement in the political climate" in Nepal it expected to be able to start seismic studies on its exploration licences in the country early next year, 2008.

The announcements breathe life into a process that has been stalled for two years, since the Scottish firm halted its hunt for black gold in the tarai after King Gyanendra's takeover. The company was awarded rights to explore five blocks covering 35,000 sq km in the tarai in 2004.

Last week, Cairn said it would negotiate with the government in Kathmandu to restart activity under the 2004 contracts. The company signalled its continuing confidence in the prospect of Nepal containing meaningful reserves of oil and gas by acquiring rights to two more blocks from US corporation Texana. Cairn chief executive Sir Bill Gammell said the company had also reached an agreement to acquire control over more exploration acreage.

However, even if the political situation remains favourable, Cairn could not expect to start pumping oil in Nepal for years. Seismic studies would be used to identify which areas, if any, might contain hydrocarbons. The company would then complete costly exploration drilling to pin down deposits and try to estimate whether they are big enough to develop commercially. Installing equipment to pump oil and gas out of the ground, process the output and ship it to market would add months or years to the process.

Cairn hit the big time in the oil business in 2004, when it found billions of barrels of oil in Rajasthan, India.