The Shanxi project in full development could sustain an estimated
3,000 horizontal gas wells, giving it the potential to become
one of the largest CBM projects in the world.
In October 2003, FEEC began drilling its first gas well on the Enhong-Laochang
coalbed methane (CBM) blocks in the Yunnan Province of southern
The Yunnan Provincial Coal Geology Bureau (YNCGB) estimates the
264,863 acres (1,072.32 sq km) covered by the Far East Energy Production
Sharing Contract (PSC) contain 5.3 trillion cubic feet (Tcf) of total gas-in-place, which would
be world-class. This is based on data gathered from 1,561 coal exploration
drill holes and more than 30 technical reports by this bureau and
other geological teams over the past 30 years.
The Far East Energy Enhong-Laochang PSC covers relationship in which
Far East Energy has a 60% working interest, with the remaining 40%
owned by China United Coalbed Methane Corporation, Ltd. (CUCBM),
a corporation given exclusive authority by the State Council of
China to enter into joint venture agreements with foreign enterprises
to develop CBM in China.
In addition to the two production sharing contracts with CUCBM,
on March 19, 2003, we entered into a Memorandum of Understanding
(“MOU”) with a ConocoPhillips subsidiary, Phillips China
Inc., which sets forth the terms and conditions of an agreement
for our acquisition of a net undivided forty percent (40%) of Phillips’
seventy percent (70%) interest in both the Shouyang PSC (near Taiyuan
City) and the Qinnan PSC (near Jincheng and Qinshui). On July 17,
2003, we signed two Farmout Agreements with Phillips on the Qinnan
and Shouyang CBM blocks in Shanxi Province, P.R.C. and also signed
an Assignment Agreement on the two blocks. These agreements formalized
our acquisition of an undivided forty percent (40%) working interest
from Phillips’ (70%) interest, with CUCBM retaining the remaining
thirty percent (30%). The Assignment Agreement and appropriate amendments
to the PSCs, substituting Far East Energy for Phillips China as
the principal party and Operator was approved by CUCBM on March 15,
2004 and final ratification was received from the PRC’s Ministry
of Commerce on March 22, 2004.
The Farmout Agreements require that
we fracture, stimulate and production test one exploration well
that was drilled by Phillips China, and pay 100% of the cost for
this test. Upon the completion of the fracing and
testing, we have elected to extend into the second phase of exploration
with the commitment to drill two horizontal wells in the Shouyang block with a targeted 4,000 meters in coal seams per well. In the event
we decide to extend into the second phase, we will be responsible
for 100% of the costs of exploration and the drilling of the phase
two horizontal well. In the event we successfully complete the second
phase, Phillips China will have the option to elect to either retain
its net undivided thirty percent (30%) participating interest, or
take a five percent (5%) overriding royalty interest (“ORRI”)
on the contractor’s overall Participating Interest share under
the PSCs. The ORRI will be capped at five percent (5%) of the current
contractor’s seventy percent (70%) Participating Interest,
or a three and a half percent (3.5%) ORRI on a one hundred percent
(100%) interest basis. After the second phase, CUCBM will also have
the option to elect to participate as a working interest partner
for anywhere from a net undivided participating interest of zero
to thirty percent (30%). We will later recover the other working
interest participants’ share of our exploration costs if they
elect to participate after the successful completion of Phase Two.
Based on estimates by ConocoPhillips and Yunnan Provincial Coal
Geology Bureau the project areas potentially contain 18.3 Tcf to
24.9 Tcf of total gas-in-place. Using an internal estimated recovery rate
of 50%, recoverable CBM resources are potentially 9.2 Tcf to 12.5
Tcf (FEEC’s share is 4.8 Tcf to 6.9 Tcf depending upon CUCBM
and ConocoPhillips participation).
Enhong & Laochang – Far East partnering with
United Coalbed Methane
• 264,863 acres of property (159,000 to 265,000 acres depending
upon CUCBM participation)
• 5.3 trillion cu. ft. of total gas-in-place with potentially
2.65 tcf of recoverable CBM resources.
• 50%-65% recovery possible
• 11-13 mineable coal seams
• 55-62 feet thickness of coal beds
• 60% interest for FEEC
Far East Energy could potentially place hundreds of horizontal wells
on each of the two blocks. Tests show the amount of gas per ton
of coal is 200 to 500 cu.
Shanxi Project – Far East partnering with ConocoPhillips and
• Estimated 13.1 to 19.6 trillion cu. ft. of total gas-in-place
with potentially 6.55 to 9.8 tcf recoverable CBM resources
• 50%-65% recovery possible
• 60 feet of total coalbed thickness
• Four seams average 9 feet thick each
• 40% - 70% interest potential for FEEC
The Shanxi project in full development could sustain an estimated 3000
horizontal gas wells. It could be one of the largest CBM projects
in the world.
Far East could be a 66.5% owner of this project if ConocoPhillips
decides to participate on an overriding royalty basis. Alternatively Far East would retain a 40% interest if ConocoPhilips elects to participate
but would only have to put up 40% of the development costs.
The core recovery tests by ConocoPhillips indicate huge levels of cleating
(a very good sign) and friability (brittle and fragmented coal)
suggesting high permeability and the tests also show good gas content.