HOUSTON, April 8 /PRNewswire/ --
Far East Energy Corporation (OTC Bulletin Board: FEEC) announced today that it has achieved critical desorption pressure (CDP) in a portion of the 1H Pilot Area in its Shouyang Block in Shanxi Province, China. Gas production in the Shouyang Block has been increasing almost daily since January 1, rising almost 300% in the past three months. Production for the 1H area is now over 200,000 cubic feet, or 200 Mcf, per day. Far East believes that the quantity of gas being produced in the field is sufficient to begin discussions with its Chinese partner, China United Coalbed Methane Company (CUCBM), regarding a gas marketing agreement that would allow Far East to jointly market its gas with CUCBM through a gas sales facility. Far East believes that any initial gas sales facility would initially be a compressed natural gas (CNG) facility and would likely have a capacity of 1 to 3 million cubic feet per day. This sales facility would be constructed to allow for growth in the event the area of desorption grows and more gas is produced and gathered for sale.
Two wells in the IH Pilot Area are currently producing over 50 Mcf per day, with a third well producing approximately 40 Mcf per day. These three wells appear to meet the definitions for Chinese reserves qualification, provided they maintain sufficient production levels until an official certification can be obtained. Far East does note that, as in any oil and gas exploration activity, certain events could cause reductions in the amount of gas being produced from these three wells and/or could cause production from the overall area to decline.
This is the news we have been anxiously awaiting, said Michael R. McElwrath, CEO of Far East. Reaching CDP removes any doubt that the coals in the Pilot Area can be dewatered; and CDP must be reached to produce gas. More importantly, now that we have achieved production in excess of 200 Mcf per day, we can enter into discussions with CUCBM concerning gas sales and revenue generation. This is an important step toward achieving our overall development plan for this area.
McElwrath continued, As more of the Pilot Area reaches CDP, we believe we will see additional wells begin to produce nice volumes of gas. We plan to commence three deviated wells in the 1H Pilot Area within the next few weeks. These wells should increase water production and, hopefully, maximize gas production from the 1H Pilot Area. Once those three wells are completed, we intend to begin expanding the spacing between subsequent wells. As the dewatered area and well spacing expand, the same high permeability that originally allowed water to flow from long distances to our wells, should begin to allow gas to flow from long distances to our wells. This should allow us to capitalize on the typical advantages of high permeability, namely, drilling fewer wells, producing more gas per well, and maintaining higher production rates for longer periods of time than in a lower permeability area, all of which should result in superior economics.
In March of 2008, Far East released the results of an independent coalbed methane reservoir simulation study of the Pilot Area of the Shouyang Block, conducted over a four month period by Advanced Resources International, Inc. (ARI), of Houston, Texas. At that time, ARI concluded that ...based upon model predictions of reservoir pressure, dewatering of the #15 coal seam has been occurring and is approaching the estimated desorption pressure within the pilot area. While actual results are likely to vary, ARI's simulations showed theoretical peak gas production rates of between 2.3 and 5 million cubic feet per day (MMcfd) for a 900-meter long horizontal well drilled on 400-acre spacing, and peak production rates of 300,000 to 500,000 cubic feet per day from vertical wells drilled on 80-acre spacing.
After completing the planned drilling in the 1H Pilot Area, Far East plans to drill parameter wells in distinct areas of the Shouyang Block, each of which will be several kilometers from the 1H Pilot Area. These wells will be tested and evaluated with the goal of identifying one or more new areas suitable for another concentrated pilot well program. For obvious reasons, with gas now flowing from the Pilot Area, we are anxious to determine whether our area of high permeability and high gas content extends across a broad swath of the Shouyang Block, said McElwrath.
About 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 through its agreements with ConocoPhillips and China United Coalbed Methane Company, Ltd. (CUCBM).
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: the preliminary nature of well data, including permeability and gas content, and commercial viability of the wells; risk and uncertainties associated with exploration, development and production of oil and gas; drilling and production risks; the gas produced at our wells may not increase to commercially viable quantities or may decrease; our lack of operating history; limited and potentially inadequate cash resources; expropriation and other risks associated with foreign operations; anticipated pipeline construction and transportation of gas; matters affecting the oil and gas industry generally; lack of availability of oil and gas field goods and services; environmental risks; changes in laws or regulations affecting our operations, as well as other risks described in our Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission.