Far East Energy Says Shouyang PSC Gas Sales in 1Q 2014 Rise 73% YOY
Far East Energy Corporation, the U.S. listed company that operates the Shouyang Coalbed Methane (CBM) Production Sharing Contract (PSC) in China's Shanxi Province disclosed Thursday that it has filed its results for the quarter ending March 31 on Form 10-Q with the SEC. The company also announced the release of an updated independent engineering report prepared by Resource Investment Strategy Consultants (RISC), as of Dec. 31, 2013. The reserves estimates in the updated RISC report were prepared in accordance with the standards recognized by the Society of Petroleum Engineers (SPE) in the Petroleum Resources Management System (PRMS).
Gas sales volumes in the first quarter of 2014 were up 73 percent compared to the same period in 2013, following the multi-well drilling and fracing program completed during 2013. At the same time, and as previously announced, the gas contract price for 2014 has increased following negotiation with our off-taker, Shanxi Provincial Guoxin. For first quarter 2014, the company received a gas price averaging the equivalent of $8.90/MMcf (million cubic feet), up 38 percent from the same period in 2013. The actual base price paid for our gas prior to subsidies rose by 42 percent on Jan. 1, from CNY 1.2 per cubic meter to CNY 1.7 per cubic meter. As a result of these two factors, operating revenue in 1Q 2014 was up 138 percent compared to the same period in 2013.
Commenting, CEO and President Michael McElwrath said, “It’s rewarding to see that the work put into the Shouyang Block in 2013 drilling and fracing new wells has resulted in a significant increase in production and revenues during the first quarter of 2014.”
Separately, the company has released an updated reserves report conforming to the PRMS standards as defined by the SPE engineers and prepared by RISC, as of Dec. 31, 2013. The updated report indicates that the estimated future net cash flow, on an NPV10 basis, for the 2P (Proved plus Probable) reserves has increased to $2.85 billion, up 39 percent from the figure at Dec. 31, 2012, reflecting an 104 percent increase in the Proved Developed reserves category. Reserves have been upgraded from the Proved Undeveloped category to the Proved Developed category, to leave overall 1P and 2P reserves at similar levels, of 301 Bcf (billion cubic feet) and 439 Bcf, respectively.
- Proved: 67.5 Bcf (SEC Net Reserves); $167.3 million (NPV 10*), 301.0 Bcf (PRMS Net Reserves), $1.6 billion (NPV 10)
- Proved + Probable: 439.9 Bcf (SEC Net Reserves); $1.4 billion (NPV 10*), 439.1 Bcf (PRMS Net Reserves), $2.8 billion (NPV 10)
- Proved + Probable + Possible: 549.3 Bcf (SEC Net Reserves); $2.0 billion (NPV 10*), 547.7 Bcf (PRMS Net Reserves), $3.8 billion (NPV 10)
* The standardized measure of discounted future net cash flows of SEC proved gas reserves is $151.8 million
In March 2014, RISC had released its reserve report prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The primary difference in the two reports is in regard to the calculation of proved reserves. The PRMS guidelines allow for more Proved Undeveloped locations to be assigned (that would otherwise be assigned as Probable reserves under the rules and regulations of the SEC) when an area is known to have certain geologic connectivity in a region. This difference is particularly relevant to CBM projects where the coal seam characteristics are well known.
CEO Michael McElwrath said, “Our development drilling in 2013 and our 42 percent increase in gas price are both reflected in this report, which continues to underscore the value of our Shouyang project.”
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