About FEEC

About FEEC

OUR BEGINNINGS

FEEC began operations on December 31, 2001. The company's early efforts focused on the evaluation of domestic and global opportunities to develop natural gas and coalbed methane (CBM) natural gas properties.

Upon the completion of substantial examination and due diligence for CBM opportunities, FEEC, on January 25, 2002, entered into two Product Sharing Contracts (PSCs) with China United Coalbed Methane Company, Ltd. (CUCBM), which has exclusive authority over all coalbed methane gas in China. FEEC and CUCBM will jointly explore, develop, produce and sell CBM in a total area of 1,073 square kilometers, in the Enhong and Laochang areas of Yunnan Province, People's Republic of China. It is estimated by the Yunnan Provincial Coal Geological Bureau that the joint venture area contains total gas-in-place in excess of 5.3 trillion cubic feet (Tcf) of methane gas. FEEC has the right to earn a minimum of 60% interest in the joint venture (with CUCBM having the election to participate and share in costs and production up to 40%).

On June 17, 2003, FEEC acquired its preeminent holdings, obtaining two farmout agreements from ConocoPhillips China Inc., covering over one million acres in the Shanxi Province of Northern China.

Based on estimates by ConocoPhillips China Inc. (Phillips) and Yunnan Provincial Coal Geology Bureau all of FEEC's project areas in China combined potentially contain 21.3 Tcf to 29.2 Tcf of original gas-in-place. This estimate includes the estimate by NSAI of OGIP in the Shouyang PSC. We received final approval of the farmout agreements from the Ministry of Commerce in China in March 2004 and we are now proceeding with drilling and development programs.

See our corporate timeline for more information

SHANXI PROVINCE – SHOUYANG AND QINNAN

In June 2003, we entered into two farmout and assignment agreements with Phillips pursuant to which we acquired a 40% net undivided interest from Phillips in two PSCs between Phillips and CUCBM for the Shanxi Province (Shanxi Agreements). The Shanxi Agreements cover a total of 1,057,650 acres. The project area covered by the first PSC is located in the Shouyang Block of the Shanxi Province (northern block near Taiyuan City encompassing approximately 485,000 acres), which we refer to as the Shouyang PSC. The project area covered by the second PSC is located in the Qinnan Block of the Shanxi Province (southern block near Jincheng and Quinshui encompassing approximately 572,000 acres), which we refer to as the Qinnan PSC. The assignment agreements and related amendments to the farmout agreements substituted us for Phillips as the principal party and operator for the projects under the PSCs. These agreements were approved by CUCBM on March 15, 2004, and ratified by the People’s Republic of China's Ministry of Commerce (MOC) on March 22, 2004.

Shouyang PSC

We are the operator under a PSC entered into with CUCBM to develop the Shouyang Block in the Shanxi Province. The term of the Shouyang PSC consists of an exploration period, a development period and a production period. During the exploration period, we hold a 100% participating interest in the properties, and we must bear all exploration costs for discovering and evaluating CBM-bearing areas. If any CBM field is discovered, the development costs for that CBM field will be borne by us and CUCBM in proportion to the respective participating interests. At that time, we will recover that share of the up-front exploration costs allocable to our Chinese partner through a gradual cost recovery mechanism. The exploration period is divided into three phases called Phase I, Phase II and Phase III. We have completed our Phase I, Phase II and Phase III work program obligations under the PSC, and continue pilot development and exploration activities in Phase III until we transfer into the development period. During the third quarter of 2009, the MOC approved a modification agreement to extend Phase III of the exploration period for the Shouyang PSC to June 30, 2011.

Qinnan PSC

We are the operator under a PSC with China National Petroleum Company ("CNPC"), the successor to CUCBM, to develop the Qinnan Block in the Shanxi Province. The term of the Qinnan PSC consists of an exploration period, a development period and a production period. During the exploration period, we hold a 100% participating interest in the properties, and we must bear all exploration costs for discovering and evaluating CBM-bearing areas. If any CBM field is discovered, the development costs for that CBM field will be borne by us and CUCBM in proportion to the respective participating interests. At that time, we will recover that share of the up-front exploration costs allocable to our Chinese partner through a gradual cost recovery mechanism. The exploration period is divided into three phases called Phase I, Phase II and Phase III. We have completed our Phase I, Phase II and Phase III work program obligations under the PSC, and continue pilot development and exploration activities in Phase III until we transfer into the development period.

Although the Qinnan PSC does not expire until July 31, 2032, the stated date for expiration of the exploration period for the Qinnan PSC occurred on June 30, 2009. We are continuing to pursue an extension of the exploration period of the Qinnan PSC, but we cannot be optimistic at this time. The Company believes the underlying exploration period should be extended due to events beyond its reasonable control, namely the lengthy transfer of rights taking place from CUCBM to CNPC. At CNPC's request, we have provided certain operational and financial information about our Company to assist them in the decision making process as to whether to recognize an extension of the exploration period in Qinnan. In January 2011, we received a formal notice from CNPC that it has purportedly received all Chinese approvals with respect to the transfer and has requested we execute a modification agreement to confirm CNPC as our Chinese partner company for the Qinnan PSC. Currently, the modification agreement is under review and discussion. Additionally, in connection with obtaining this extension or a new PSC, we may be required to commit to certain expenditures or to modify the terms or respective ownership interests and/or acreage in the applicable PSC. However, if we are unable to secure sufficient funds to commit to these expenditures, it may adversely affect our ability to extend the Qinnan PSC.

YUNNAN PROVINCE

On January 25, 2002, we entered into a PSC with CUCBM to develop two areas in the Yunnan Province: (1) the Enhong area, which covers approximately 145,198 acres and (2) the Laochang area, which covers approximately 119,772 acres. We are the operator under the PSC. The term of the PSC with CUCBM consists of an exploration period, a development period and a production period. The exploration period is divided into two phases, Phase I and Phase II. We have completed Phase I and are operating in Phase II. During the third quarter of 2009 the MOC approved a modification agreement to extend Phase II of the exploration period for the Enhong-Laochang PSC to June 30, 2011. Following completion of Phase II of the exploration period, we may elect to continue the PSC and conduct development and production operations on any CBM discoveries. The development period as to any CBM field in the Enhong-Laochang project will begin after the approval of a development plan submitted by us with respect to that field by the State Council of the People's Republic of China and confirmed by CUCBM. The production period as to any CBM field in the Enhong-Laochang project will begin after the date of commencement of commercial production of that CBM field. Our agreement with CUCBM expires on January 1, 2033.

Photo of a rig
Map of the Shanxi Province
Map of the Yunnan Province

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