Operations

FEEC Operations | Project Summary | China Overview

FAR EAST ENERGY’S PROJECTS

Through its coalbed methane (CBM) projects in China, Far East Energy can exploit total gas-in-place estimated to be 18.3 to 24.9 trillion cubic feet (Tcf). By 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 Tcf to 12.2 Tcf depending upon CUCBM participation).

Far East’s partner is China United Coalbed Methane Company (CUCBM). China United is China’s leading coalbed methane company.

The FEEC properties are world class in size and potential.
The Far East projects potentially contain recoverable CBM resources of 9.2 Tcf to 12.5 Tcf.

• Shanxi 6.55 – 9.8 TCF of recoverable CBM resources
• Enhong 1.10 TCF of recoverable CBM resources
• Laochang 1.55 TCF of recoverable CBM resources


ConocoPhillips has extensive and encouraging information on the Shanxi project. Enhong and Laochang, Far East Energy’s other CBM projects have had extensive coal exploration with drill holes mapping out two excellent CBM prospects. Between these two projects, 1,561 drill holes have been completed, 30 technical reports written, 21 core analyses completed and over 300 other reports on gas concentrations.

The bottom line from a technical and economic viewpoint on these three properties is very encouraging:

Shanxi Project – Far East partnering with CUCBM

• 1,057,638 acres
• Approximately 20 billion tons of coal reserves
• Estimated 13.1 to 19.6 trillion cu. ft. of total gas-in-place, with potentially 6.55 to 9.8 Tcf of 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 could sustain an estimated 3000 horizontal gas wells. It could be one of the largest CBM projects in the world.

Far East is a 66.5% owner of this project with ConocoPhillips participating on an overriding royalty basis.

Core recovery tests by ConocoPhillips indicate high levels of cleating (a very good sign) and friability (brittle and fragmented coal) and the tests also show good gas content.

Far East has drilled five horizontal wells in the Shouyang Block. We are dewatering these wells, and the HZ01 and HZ03 both have continuous gas flow.

Far East Energy recently acquired approximately 26 kilometers of 2D seismic data in the Qinnan Block located in the southern portion of the Shanxi Province. The data has been processed and a vertical well has been completed with the objective of evaluating the No. 3 coal seam. The No. 3 seam appears to be substantially thicker than other coal seams in the Qinnan Block and has been the target of significant drilling activity to the south of the Company’s acreage by other operators.  CUCBM agreed in principle recently to extend the exploration period of the Qinnan PSC by two years, to June 30, 2009, once Far East Energy begins drilling a horizontal well or equivalent vertical wells in the Qinnan block, subject to final approval of the MOC. Far East Energy plans to initiate drilling a horizontal well or equivalent vertical wells in the Qinnan block prior to June 1, 2007.

Far East Energy Shouyang CBM Well FCC-HZ01.

The gas content and permeability in Far East’s initial wells in the Shouyang Block are very high based on well data obtained to date. High permeability allows gas to move with greater ease through the coal and from greater distances to the well, and can result in prolific wells similar to those in America’s San Juan Basin or Australia’s Fairview Field. However, high permeability also means that water can move to the well from greater distances and it will take longer to dewater. The key to capitalizing upon the advantages offered by high permeability and high gas content, and to achieving maximum production at the earliest possible date, is to drill a pattern of additional wells as rapidly as possible in the focus area.

The Fairview Field in Australia is a very productive field that may be a good analog to what we have discovered in our Shouyang focus area. There, because wells were steadily drilled in a pattern around the first Fairview Field wells, dewatering was enhanced and wells that initially had low flow rates due to the lengthy dewatering period, steadily ramped up to significantly higher gas production rates sustained over many years. Of course, until we achieve sustained production from our wells, we cannot be sure if their performance will mirror that of the Fairview Field.

The Yunnan Coal Geological Bureau and ConocoPhillips have accumulated substantial data addressing three of the four most important factors for successful CBM production in the Far East projects: size of the coal deposit, gas content and thickness of the coal seams are all favorable. For the fourth factor, permeability, the technical information and preliminary tests indicate high permeability in the Shouyang Block while the Qinnan Block and Enhong-Laochang data suggests a tighter coal formation in different coal seams.

The gas content and permeability in Far East’s initial wells in the Shouyang Block is very high based on well data obtained to date. High permeability allows gas to move with greater ease through the coal and from greater distances to the well, and can result in prolific wells similar to those in America’s San Juan Basin or Australia’s Fairview Field.  However, high permeability also means that water can move to the well from greater distances and it will take longer to dewater.  The key to capitalizing upon the advantages offered by high permeability and high gas content, and to achieving maximum production at the earliest possible date, is to drill a pattern of additional wells as rapidly as possible in the focus area.

Far East plans to use horizontal drilling technology ("HDT") to enhance the value of its properties in China. HDT has been shown to have a positive impact on CBM development in the United States, particularly in Arkoma and Appalachia. The advantages of HDT are in the ability to stay in the desired zone, control over the direction of the wellbore, limited fluid invasion in the formation, less surface facilities, well productivity exceeding that of vertical well capacity, ability to add additional zones with confidence and less formation damage due to less pressure drop. Although the cost of a horizontal well is expected to exceed the cost of a vertical well, Far East believes that the overall benefits are worth the higher cost per well.