HOUSTON, October 4, 2010 /PRNewswire/ -- Far East Energy Corporation announced today that its second-half 2010 drilling program for the Shouyang Block commenced recently with three wells, the 34D, 40V, and the 11D having been spudded in the past week. The drilling program is planned to consist of approximately 60 wells drilled during the remainder of 2010 through the summer of 2011. Currently, 51 of these wells are planned to be drilled in the 1H Pilot Area to accelerate gas production and maximize gas sales, projected to begin by year-end 2010. In addition to these pilot area wells, 9 parameter wells will be drilled to continue to extend the testing of the #3, #9 and #15 coal seams across a broad area of the northern half (approximately 242,000 acres or 980 square kilometers) of the Shouyang Block with primary exploration in the #15 coal seam.
Far East also announced that it is presently finishing a 10 well fracture stimulation program comprised of fracing 6 already-drilled wells in the 1H Pilot Area and 4 parameter wells located as much as 16km west of the 1H Pilot Area. Fracing the 6 pilot wells should further increase production in the 1H Pilot Area, and Far East continues to target gas volumes of 2 million cubic feet per day by year-end, which would double the production announced in late August.
In order to execute the planned drilling program, Far East will utilize as many as eight drilling rigs simultaneously which should allow completion of the drilling program in the summer of 2011. Based upon the response to our last drilling program and the rapid ramp-up in production that we announced in August, we have designed an aggressive drilling program with the target of doubling production by year-end, said Michael R. McElwrath, CEO and President. We will focus first and foremost upon rapidly increasing production, with roughly eighty-five percent of the new wells drilled in the 1H Pilot Area. But we will continue drilling parameter wells that will hopefully continue to expand the size of the area determined to contain high gas content and high permeability across the northern portion of our Block because we want the potential to be clear.
Far East also confirmed that the construction of the Shouyang gas gathering system is underway and is currently on schedule to be completed and commissioned by year-end. At that time flaring will cease, and gas can be delivered for sale. Shanxi Gas Gathering, a subsidiary of Shanxi Provincial Guoxin Energy Development Group Co., Ltd., is managing the gathering system's completion.
We were proud to be the first western company to obtain a CBM gas sales agreement with a pipeline, said McElwrath, and we will be even more proud to be the first to sell gas into a pipeline as China begins to transition from a CBM transportation system comprised mainly of compressed natural gas (CNG) - which distinctly limits the volumes of gas which can be transported to market - to a rapidly developing pipeline infrastructure. This gives us a distinct market advantage in the sense of being able to potentially market very large volumes of gas.
Far East Energy will soon commence the process of obtaining Chinese reserve certification with the objective of completing this process in the second quarter of 2011. Far East Energy has already started the process of evaluating resources and SEC reserves. The engineering firm of Netherland Sewell and Associates, Inc. (NSAI) has been engaged to complete a report on the overall resource base in the Shouyang Block in the coming weeks (two categories of resources, Contingent and Prospective), to be determined under the guidelines of the Society of Petroleum Engineers), and to complete a report on SEC reserves in the Shouyang Block as of December 31, 2010.
Mr. McElwrath commented, We have been very busy in the second and third quarters of 2010 moving this project toward commercial production and development. The recent capital raise of US$32.5 million of net proceeds has been instrumental in accelerating our plans for gas sales and our potential for gas reserves by year end. Our relationship with Shanxi Gas Gathering has proven to be a great benefit in accelerating our progress toward gas sales and we are very excited at the prospect of beginning to generate revenue from our Shouyang Block in December 2010.
Garry R. Ward, Senior Vice President - Engineering, commented, Our program of parameter wells has been generating very good information regarding the recurring high permeability and high gas content of the #15 coal seam all the way out to the western edge of the Shouyang Block. Our recent drilling of new parameter wells is designed to expand our knowledge of reservoir quality in the northern 240,000 acres of the Shouyang Block. In addition to the parameter wells, our pilot wells have been showing good gas production and we are excited at the prospect of accelerating our immediate gas production through the addition of the most recent fracture stimulated wells. We are continuing to refine our completion procedures to lower our drilling costs and improve our gas production.
Additionally, Far East commented that it will fracture stimulate 5 wells in the Laochang Block in Yunnan to test two coal seams for production. This fracture stimulation and production testing work will commence in October.
Far East Energy Corporation
Based in Houston, Texas, with offices in Beijing, Kunming, and Taiyuan City, China, Far East Energy Corporation is focused on CBM exploration and development in China.
Statements contained in this press release that state the intentions, hopes, beliefs, anticipations, expectations or predictions of the future of Far East Energy Corporation and its management are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. It is important to note that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ materially from those projected in such forward-looking statements include: there can be no assurance as to the volume of gas that is ultimately produced or sold from our wells; due to limitations under Chinese law, we may have only limited rights to enforce the gas sales agreement between Shanxi Province Guoxin Energy Development Group Limited and China United Coalbed Methane Corporation, Ltd., to which we are an express beneficiary; pipelines and gathering systems needed to transport our gas may not be constructed, or if constructed may not be timely, or their routes may differ from those anticipated; certain of the proposed transactions with Dart Energy(formerly Arrow Energy) may not close on a timely basis or at all, including due to a failure to satisfy closing conditions or otherwise; the anticipated benefits to us of the transactions with Dart may not be realized; the final amounts received by us from Dart may be different than anticipated; Dart may exercise its right to terminate the Farmout Agreement at any time; the Chinese Ministry of Commerce (MOC) may not approve the extension of the Qinnan PSC on a timely basis or at all; our Chinese partner companies or the MOC may require certain changes to the terms and conditions of our PSC in conjunction with their approval of any extension of the Qinnan PSC; our lack of operating history; limited and potentially inadequate management of our cash resources; the pipelines currently under consideration may not be constructed, or if constructed may not be timely, or their routes may differ from those currently anticipated; risk and uncertainties associated with exploration, development and production of coalbed methane; expropriation and other risks associated with foreign operations; disruptions in capital markets affecting fundraising; matters affecting the energy industry generally; lack of availability of oil and gas field goods and services; environmental risks; drilling and production risks; changes in laws or regulations affecting our operations, as well as other risks described in our 2009 Annual Report and subsequent filings with the SEC.
SOURCE: Far East Energy Corporation
CONTACT: Bruce Huff, +1-832-598-0470, email@example.com, or DavidNahmias, +1-901-218-7770, firstname.lastname@example.org, or Catherine Gay,+1-832-598-0470, email@example.com, all of Far East Energy Corporation