Far East Energy Spuds Third Well in China


Far East Energy Enhong Project
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Far East Energy commenced drilling operations for its third coalbed methane gas well in China, spudding the FCY-EH01 well on March 16, 2004. The well is located on Far East's Enhong Block in Yunnan Province near Shang Sheshui Village.

This is the third of five exploration wells which are expected to be drilled and completed by the early summer of 2004. Assuming these wells are successful, Far East Energy will then drill eight pilot wells for test production before entering the development stage for the property. The FCY-LC01 is expected to drill to a total depth of 470 meters (1504 feet). Targeted coal seams and their buried depths are: the #9 coal seam (295m), #14/15 seams (335 m), #21(409m), and the #23 coal seam (423m).

Far East's first test well, the (FCY-LC01) in Laochang block, Yunnan Province, China, drilled to a total depth of 825 meters (2,722 feet), penetrated 15 mineable coal seams with a total thickness of 29.40 meters (97 feet), and revealed four targeted major coal seams with a total thickness of 16.30 meters (54 feet), all within an interval of about 110 meters (363 feet), favorable for fracturing and production of CBM. The coring of the coal samples showed an unusually high recovery rate of 94.8%. Testing results on the core indicated a gas content of approximately 650 cubic feet per ton of coal. By comparison, some of the more prolific CBM basins in the United States have lower gas contents, such as the San Juan Basin in New Mexico, which has gas content of 300-700 cubic feet per ton of coal, and the Black Warrior Basin in Alabama, which has gas content of 250-500 cubic feet per ton of coal.

Far East's second well, the FCY-EH02 was drilled in the Enhong Block to a depth of 420 meters (1344 feet) and yielded estimated gas content based on preliminary desorption results of approximately 10 cubic meters per ton of coal or about 350 cubic feet per ton of coal. That result was in line with projections for the Enhong Block, which estimated a gas content of 200 to 400 cubic feet per ton of coal.

"Our exploration program is proceeding according to plan," said Michael McElwrath, Chairman and CEO of Far East Energy. "We are extremely pleased with the results of our fist two wells, and certainly hope that the results of well number three will continue to verify the projections of high gas content in our holdings. The strong potential of the Enhong and Laochang Projects, coupled with our Dragon Project being pursued in partnership with ConocoPhillips in Shanxi Province in North China, will hopefully result in Far East Energy becoming a major player in the exploration and development of natural gas in China. We are already the third largest holder of coalbed methane production sharing contracts in China, and the task before us now is to convert what we believe to be tremendous potential into reality."

The Yunnan Provincial Coal Geology Bureau (YNCGB) estimates that the 264,863 acres (1,072.32 sq km) covered by the Far East Energy Production Sharing Contracts (PSC) in Yunnan contain 5.24 trillion cubic feet (Tcf) or 148.3 billion cubic meters (BCM) of CBM resources (original gas in place). This is based on data gathered from 1,561 coal exploration drill holes and more than 30 technical reports by this bureau and other government owned geological teams in the past 30 years.

The Far East Energy Enhong-Laochang Production Sharing Contract (PSC) covers a 30-year 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. At present, there is no pipeline in the vicinity of Far East's project areas in Yunnan Province, and marketing the Yunnan gas will require a pipeline or a liquefied natural gas (LNG) facility. Successful development and production from a sufficient number of wells will be required to attract a pipeline or LNG plant.

In northern China's Shanxi Province, Far East Energy has signed a farmout agreement with ConocoPhillips for two PSCs covering 4280 square kilometers (1,059,650 acres) with CUCBM again being the Chinese partner. The lower-end projection for gas-in-place in the area covered by the Shanxi PSCs, based upon data gathered by ConocoPhillips, is 13.096 trillion cubic feet. The West-to- East Pipeline to Shanghai runs very close to the southern portion of the Shanxi Project and the Shanjing II Pipeline to Beijing is approximately 40 kilometers from Far East's northern block in Shanxi. Far East thus hopes to be a major provider of gas to China's two largest cities.

"There is much discussion that the greatest single impediment to China maintaining its unprecedented economic growth is a potential shortfall in energy supply. Couple that with China's stated desire to increase natural gas utilization four-fold by 2010 in order to minimize a serious air pollution problem, and we think that we are in the right sector at the right time," said McElwrath. 3. Stone Energy High Bidder on Eight Block in Lease Sale 190 Stone Energy participated in the Outer Continental Shelf Sale 190 held by the Minerals Management Service (MMS) in New Orleans. The Company was the apparent high bidder on eight of nine bids submitted. The new leases are subject to a review process by the MMS before they can be awarded. The lease bonuses for the eight apparent high bids totaled approximately $15.5 million and represent 100% working interests. Additionally, two of the leases are in deep water and a majority of the remaining leases have deep shelf prospects.

James H. Stone, Chairman of the Board, said, "We are very pleased with our success in the lease sale. The new leases will be important additions to our growing prospect inventory."

The lease bonuses for the eight apparent high bids totaled approximately $15.5 million and represent 100% working interests. Additionally, two of the leases are in deep water and a majority of the remaining leases have deep shelf prospects.

James H. Stone, Chairman of the Board, said, "We are very pleased with our success in the lease sale. The new leases will be important additions to our growing prospect inventory."
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