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Operations
FEEC Operations | Project Summary | China Overview
FEEC OPERATIONS
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 Michael
McElwrath, CEO of Far East Energy Corporation (right), delivers
comments to Chinese TV news media at historic horizontal drilling
ceremony on June 10th 2005 with China United Coalbed Methane
Corporation, Ltd. (CUCBM) executives at the (FCC-HZ01) drilling
site in Shanxi Province, China. |
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CHINA
In October 2003, FEEC began drilling its first gas well on the Enhong-Laochang
coalbed methane (CBM) blocks in the Yunnan Province of southern
China.
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. These
calculations are based on data gathered from 1,561 coal exploration
drill holes and more than 30 technical reports by YNCGB 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 Company, 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.
 “East meets West”: Far East Energy CEO, Michael McElwrath and China United Coalbed Methane Corporation (CUCBM) VP, Lin Jianhao, at the Far East Energy FCC-HZ01 CBM well site.
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In addition to the two PSCs 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 FEEC 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.
Phillips China has elected to 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 third 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 YNCGB 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 5.9 to 12.2 Tcf, depending upon CUCBM participation).
Enhong & Laochang – FEEC partnering with
CUCBM
• 264,863 acres of property (159,000 to 265,000 acres depending
upon CUCBM participation)
• Estimated 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
 FEEC
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 – FEEC partnering with CUCBM
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1,057,638 acres
• 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
• 66.5% interest potential for FEEC
The Shanxi project in full development has the potential to become
one of the largest CBM projects in the world.
The core recovery tests by ConocoPhillips indicate significant levels of cleating (fractures in the coal) and friability (brittle and fragmented coal) suggesting high permeability and the tests also show good gas content.
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