CAIRN Energy appears to have returned to form after making an oil discovery off Senegal, which it described as an important event for the West African country.

The Edinburgh-based company said initial estimates suggest the find could contain as much as 2.5 billion barrels of oil.

While further work will be required to determine how much oil could be recovered, analysts said the results were very encouraging.

Shares in the company rose 10 per cent in early trading on the London Stock Exchange on news of the find, adding around £110m to Cairn's stock market worth.

The success will provide some vindication for the strategy followed by Cairn under chief executive Simon Thomson, who said the results underlined the potential of the waters off Senegal.

"The oil discovered in the FAN-1 prospect is an important event for Senegal," said Mr Thomson.

He added: "We have encountered a very substantial oil bearing interval which may have significant potential as a standalone discovery.

"Furthermore, this result materially upgrades the prospectivity of the block with a proven petroleum system and a number of ... prospects established."

The find on the Sangomar Deep block follows a challenging period for Cairn, which hit the big time after making bumper finds in India under its founder Sir Bill Gammell.

Cairn has become embroiled in a tax dispute in India which has put a strain on its finances.

The company has suffered exploration setbacks in recent years.

It has spent more than $1 billion exploring off Greenland without making a commercial find. Results from drilling off Morocco have been unspectacular.

In August Cairn announced plans to shed an unspecified number of jobs in Edinburgh to cut costs. The company acquired the acreage in Morocco and Senegal under Mr Thomson's plan to balance potentially transformational drilling in such relatively under-explored areas with lower-risk activity in the North Sea. The deal that took Cairn into Senegal may prove to have been an astute move by Mr Thomson, who succeeded Sir Bill in 2011.

Cairn acquired a 65 per cent stake in three blocks off Senegal, including Sangomar Deep, from Australia's FAR in March last year in exchange for funding a well and paying around £7m associated costs.

Months later Cairn sold 25 per cent interests in the blocks to US giant ConoccoPhillips, reducing its share of any exploration and development costs.

Cairn noted initial estimates of oil in place for the FAN-1 well range from 250 million barrels to 2.5 billion barrels, with a median of 950 million barrels.

Mark Wilson, an analyst at Cairn's joint house broker, Jefferies, said for the first well in a previously undrilled basin to find oil-bearing rock and to recover a number of samples of crude was "an extremely positive result".

In a note to clients Mr Wilson said only 20 per cent to 30 per cent of the oil in FAN-1 may be recoverable. But, he added: "We'd have taken this result before the match!"

Cairn said work is already underway with partners on the well to plan follow-up activity, targeted for 2015 onwards.

The company has been making progress with plans to bring the giant Catcher and Kraken fields in the North Sea onstream with partners.

Cairn sold a controlling stake in its former subsidiary in India to Vedanta Resources for $5.4bn in 2011 and returned $3.5bn to shareholders. It has been prevented from selling the remaining 10 per cent stake in Cairn India, valued at $1bn, pending resolution of the tax dispute in the country.

Shares in Cairn Energy closed up 3.6p, or two per cent, at 183.5p, increasing its market capitalisation by £20m to around £1.06bn.

FAN-1 was drilled in 1,400 metres of water 60 miles off Senegal. It penetrated around three miles beneath the seabed.

Cairn has a 40 per cent interest, ConocoPhillips has 35 per cent, FAR 15 per cent and Senegal's national oil company 10 per cent.