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Message: Far East Energy Announces Progress of Winter Drilling Program;
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Far East Energy Announces Progress of Winter Drilling Program;

posted on Feb 18, 10 06:30AM

HOUSTON, Feb. 18 /PRNewswire-FirstCall/ -- Far East Energy Corporation (OTC Bulletin Board:FEEC.ob - News) announced today it has achieved significant progress in its winter drilling program, designed to increase gas production from its Shouyang 1H Pilot Area in anticipation of gas sales in the second half of 2010. Specifically, the Company has completed five of the initially planned eight total wells to be drilled in the program. The sixth well is presently underway. Wells seven and eight, as well as three new wells, will spud in early March (after Chinese New Year) and be completed in early April, thus fully utilizing the five available rigs, and bringing to eleven the number of wells planned to be completed by April. Of these eleven wells, nine will be program wells drilled in the 1H Pilot Area intended to expand the field to the west and increase the amount of gas being produced in preparation for anticipated gas sales in the second half of 2010; while two are parameter wells drilled several kilometers to the west and southwest to obtain further information regarding the geographic extent of the high permeability/high gas content area.

The company also announced plans to rapidly begin producing these wells, including a fracture stimulation program of ten wells to be fractured in early March, and six to eight wells in late April. Most will be fractured using improved methods developed by FEEC during its 2009 Work Program, including the use of resin-coated sand to improve the stability and durability of the fracs.

Current plans call for five rigs to commence five more wells in April and early May, with the emphasis increasingly shifting to drilling parameter wells at four to six kilometer intervals to the west, south, and east with the goal of demonstrating that there is a very large area of the Shouyang block that contains high gas content as well as good-to-exceptional permeability. Of the five wells to be spudded in April and early May, four will be parameter wells seeking to ascertain how much of the northern area of the Shouyang Block shares the same rare combination of high permeability and high gas content discovered in the 1H pilot Area.

It is rare to find high permeability and high gas content together in the same coal. The San Juan Basin, is generally considered the most prolifically producing CBM basin in the world, and is an example of what can happen when high perm and high gas content are found in combination along with synergistic geologic and hydrologic controls.

"If our parameter wells continue to show good-to-excellent permeability in combination with high gas content, that will go a long way toward defining the value proposition for our company," said Garry Ward, Senior Vice President of Engineering.

To date, the 1H area pilot wells, as well as parameter wells drilled at intervals of four to six kilometers to the south and to the west of the 1H Pilot Area have revealed estimated permeability ranging from 10 millidarcies (md) to over 100md. Permeability in the 2H area, about 4 kilometers south of the 1H Pilot Area, appears to be around 60 md. In the P2 area, about 6 kilometers west of the 1H, the permeability appears to be between 20 and 40 md; while in the P3 well, about 6 kilometers southwest of the 1H area, the permeability appears to be about 10 to 20 md, This range of permeability is not unlike the San Juan Basin where permeability is generally high ranging from 20 to 40 millidarcies, but can be as much as 65 to 75 md (initial permeability before matrix shrinkage) in the "fairway". Thus, we believe that the estimated high permeability in the 1H Pilot Area and in the parameter wells, combined with high gas content throughout, preliminarily indicates an area of very promising gas productivity potential, particularly relative to typical permeability rates in China.

Far East is in discussions with three separate parties (two pipelines and one CNG company) regarding the potential off-take and sale of gas produced from the 1H Pilot Area. All gas sales will be negotiated by Far East and its partner, China United Coalbed Methane (CUCBM). The two pipeline companies are planning to lay lines of approximately 18 inches in diameter near the Shouyang 1H Pilot Area. An 18-inch line would have the capacity to transport between 30 and 50 million cubic feet of gas per day from Shouyang to the provincial capital (Taiyuan) or other destinations. These developments could enable Far East to initiate gas sales as early as the third quarter of 2010.

"In my estimation, if a pipeline is built within close proximity to us, this is the best of all possible worlds. It could accelerate the date of first gas sales and enhance our ability to sell larger volumes of gas, which means we could soon have a long-term sales contract, revenues, and be moving towards long-term project financing ," said Michael R. McElwrath, CEO of Far East.

As soon as a gas sales agreement is signed, Far East anticipates entering into early stage discussions and planning for long-term project finance.

"We have a number of milestones to reach and check off before we will qualify for long-term project finance," said McElwrath. "However, we have checked off commercial production, and could soon check a gas off-take agreement off the list. Then, hopefully, we will check off gas sales and revenues in the third quarter. We will, of course, have to reach positive cash flow status and sufficient reserves, but we can see the path clearly now, and that is gratifying."

Annual Meeting of Stockholders Announced

Far East also announced today that its 2010 Annual Meeting of Stockholders will be held on December 9, 2010, at 10:00 a.m., local time, at the Crowne Plaza North Greenspoint, 425 N. Sam Houston Parkway E.,Houston, Texas. The Board of Directors has established Thursday, October 28, 2010, as the record date for determining stockholders of record entitled to notice of, and to vote at, the 2010 Annual Meeting of Stockholders.

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 pipelines mentioned may not be constructed, or if constructed may not be timely, or their routes may differ from those mentioned; the pipeline and local distribution/CNG companies may decline to purchase or take our gas, or the timing of any definitive agreement may take longer than anticipated and the terms may not as advantageous as expected; the gas produced at our wells may not increase to commercially viable quantities or may decrease; we may have insufficient capital to fund the planned drilling or to develop the Shouyang field; the high permeability and high gas content may not be as widespread as anticipated; weather may significantly delay the planned drilling program; wells may be damaged or adversely impacted during the production process, resulting in decreases in the amount of gas produced, or that can be produced; certain proposed transactions with 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 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.

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