HOUSTON, October 26 /PRNewswire/ -- Far East Energy Corporation announced today that a Letter of Intent has been signed for the sale of gas produced from its Shouyang Project. This agreement was signed on October 16, 2009, by the Chinese partner of Far East, China United Coalbed Methane Co. Ltd. (CUCBM) and Shanxi International Energy Co. Ltd. Under the terms of the Production Sharing Contract covering the Shouyang Block, gas produced by Far East and its partner, CUCBM, is sold by CUCBM on behalf of Far East. Shanxi International Energy Co. Ltd intends to transport gas produced from the Far East Shouyang block through a pipeline that it will build directly to the area of Far East's current Shouyang gas production. It will then sell this gas to downstream users.
This is excellent news, said Michael R. McElwrath, CEO and President of Far East, and it came quicker than we had hoped for. For quite some time we have had a three-phased gas sales strategy, planning to sell our first gas as compressed natural gas (CNG). Then, as gas volumes grew, we would also begin to sell gas into pipelines within Shanxi Province, and then ultimately, when volumes were too big to be absorbed by the CNG and provincial market, we would move gas into the large trunklines to Beijing and Shanghai. This clearly indicates our ability to sell into the provincial network and its early advent is a really pleasant development. We will also continue with our plans to sell a portion of our gas as CNG, and thus, two of the three phases will become realities.
Far East also announced that it has seen a rapid rise in gas production from its P2 parameter well some 7 kilometers distant from its 1H Pilot Area in Shouyang. Previously, on September 8, Far East announced that the P2 parameter well, which was drilled to test the production characteristics and potential of an area approximately seven kilometers away from the 1H Pilot Area, had started producing gas from the #15 coal seam, the same seam that is highly permeable in the 1H Pilot Area and from which most of the current production is derived. Moreover, core from the #9 seam in the P2 parameter well had revealed very promising gas data. Over the past 48 hours production from the P2 has more than tripled, rising from 16 to 17 Mcf per day to between 53 and 60 Mcf per day.
It is still too early to tell with certainty what this means, said Garry Ward, Senior Vice President of Engineering for Far East. We will watch this production carefully over the coming weeks to see how this production holds up, as it would be a very positive development to have significant production from the #15 seam at a distance of seven kilometers from the 1H Pilot Area.
Parameter wells are wells drilled at some distance from the current pilot area with the objective of determining whether these distant areas also look prospective. The P2 Well began producing gas within 60 days of being put on production which seemed to indicate high gas saturation in the #15 coal seam in this area. Core analysis of the #9 coal seam in this well indicates that the #9 seam is almost completely saturated at this location with a gas content of approximately 450 standard cubic feet per ton (scf/ton). The #15 coal seam has a gas content of approximately 490 scf/ton and is 75 to 80% gas saturated. A saturated coal seam, such as the #9 coal seam appears to be in this area, contains the maximum amount of gas that can exist in the coal based upon the reservoir temperature and pressure. In a saturated condition, the coal seam does not need to be dewatered to begin producing gas. This eliminates much of the delay in the start of gas production that is associated with dewatering. The significant increase in gas production seems to indicate that the #15 seam is also highly saturated in the area of the P2 Well.
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.
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 gas produced at our wells may not increase to commercially viable quantities or may decrease; certain of the proposed transactions with Arrow 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 Arrow may not be realized; the final amounts received by us from Arrow may be different than anticipated; Chinese Ministry of Commerce (MOFCOM) may not approve the extensions of the Qinnan Production Sharing Contract (Qinnan PSC) on a timely basis or at all; PetroChina or MOFCOM may require certain changes to the terms and conditions of the Qinnan PSC in conjunction with their approval of any extension; our lack of operating history; limited and potentially inadequate management of our cash resources; risk and uncertainties associated with exploration, development and production of CBM; expropriation and other risks associated with foreign operations; disruptions in capital markets effecting 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 Annual Report on Form 10-K for 2008 and subsequent filings with the Securities and Exchange Commission.
SOURCE: Far East Energy Corporation
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