"The ongoing well data from this first set of wells in the Shouyang Block is beyond our expectations," said Michael McElwrath, CEO and President of Far East Energy. "We have seen the high gas content that we anticipated, but the permeability appears to be much higher than expected."
McElwrath added, "As CBM experts know, high permeability is a desirable quality for long-term gas production. Although it requires a longer period of dewatering, high permeability in conjunction with high gas content and sufficient pressure generally results in higher gas production rates sustainable over a longer period of time. Based upon our preliminary data, we believe that wells drilled in this high permeability/high gas area should yield strong results."
Far East Energy began drilling its fourth horizontal well, FCC HZ04 in the Shouyang Block of its Shanxi Province project in early September 2006. The Company has determined that FCC HZ04 should be drilled to approximately 800 meters in the coal seam, based on experience with the first three horizontal wells. Far East Energy believes that the high permeability (20 to 100 millidarcies) and gas content (450 to 600 standard cubic feet per ton of coal) indicated in the No. 15 coal seam should make significant gas production possible with shorter horizontal laterals. FCC HZ04 is being drilled adjacent to the FCC HZ01 and FCC HZ03 wells in order to speed up dewatering of earlier wells. Far East Energy anticipates this fourth horizontal well may produce gas flow commensurate with the preliminary indications of high gas content and permeability measured in the Company's early wells.
Far East Energy has acquired 20 to 25 kilometers of 2D seismic data in the Qinnan Block of the Shanxi Province project. The data is being processed and the Company expects to drill a slim hole with the objective of identifying the optimum location in the Qinnan Block for a future horizontal well in the No. 3 coal seam, which appears to be thicker than other coal seams in the Qinnan Block and has been the target of significant drilling activity to the south by other operators.
The Company is finalizing the well plan to contract for the drilling of its first horizontal well in the Yunnan project, which it expects to begin later this year. As previously announced, the Company plans to drill this well, the FCY LC-03, to satisfy the exploration requirements of Phase II of the Enhong-Laochang Production Sharing Contract. That phase requires the drilling of a horizontal well with at least two radials in the well. This well will target the Nos. 7 and 8 coal seams, which in the Yunnan project acreage are thicker than other prospective coal seams.
China Acreage Overview
The Shouyang and Qinnan Blocks are part of the 4,280 square kilometer (1,057,650 acres) coalbed methane (CBM) project in Shanxi Province that Far East holds under farmouts from ConocoPhillips. Including its 1,073 square kilometer project in Yunnan Province, the coalbed methane concessions of Far East Energy contain a land mass slightly larger than the State of Delaware.
Based in Houston, Texas, with offices in Beijing, Kunming, and Taiyuan City, China, Far East Energy Corporation is focused on the acquisition of, and exploration for, coalbed methane in China through its agreements with ConocoPhillips and China United Coalbed Methane Company, Ltd. (CUCBM).
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