Cairn has made four discoveries this year in neighbouring India.

Shares in the company have tripled this year after a series of successful strikes in north western India.

"We believe Nepal has many of the fundamental geological elements required," said CEO Bill Gammell.

So far, only limited seismic surveys have been carried out, and no wells have been drilled yet.

The work will start in earnest in September, once the monsoon season ends.

The five new exploration areas are located within Nepal's Terai plains, about 300 kilometres from Delhi at the closest point.

As part of the deal, Cairn has relinquished exploration rights for over 2,700 square kilometres of designated national park and wildlife areas.

This, it said, was in line with company policy of sparing World Heritage Sites or those areas deemed environmentally sensitive.

Shares in Cairn were quoted 5 pence higher, or 0.36%, at 1413p at 0915 GMT.