Far East Energy Corporation released the results of an independent coalbed methane reservoir simulation study conducted over the past four months by Advanced Resources International, Inc. ("ARI"), of Houston, Texas, for the Shouyang Block, Qinshui Basin, Shanxi Province, China. The report concludes that "based upon model predictions of reservoir pressure, dewatering of the #15 coal seam has been occurring and is approaching the estimated desorption pressure within the pilot area." The desorption pressure is the point at which pressure is lowered sufficiently for gas to be released from the coal matrix.
The report also indicates the potential for favorable gas recoveries from either vertical or horizontal wells. Using standardized assumptions of gas recoveries over 20 years at the median case (50% probability), ARI's simulations show recoveries of 3.4 to 5.3 billion cubic feet (Bcf) from horizontal wells spaced at 250 and 550 acres, respectively. Using the same assumptions, the report estimates gas recoveries from individual vertical wells of .5 to 1.2 Bcf per well based on wells spaced at 40 and 160 acres, respectively. These recoveries are for simulated wells and are not necessarily indicative of actual results to be expected from the Company's existing wells, many of which suffered formation damage during drilling operations.
ARI's simulations show theoretical peak gas production rates of between 2.3 and 5 million cubic feet per day (MMcfd) for a 900-meter long horizontal well drilled on 400-acre spacing. These rates are also above the projected gas production rates of 1 to 2 MMcfd projected for future horizontal wells by Netherland Sewell in June 2007. The ARI data includes information gathered from additional wells drilled subsequent to the Netherland Sewell report. The ARI simulations show peak production rates of .3 to .5 MMcfd from vertical wells drilled on 80-acre spacing.
"This is great news," said Michael R. McElwrath, CEO and President of Far East. "We certainly hope we are approaching the estimated desorption pressure, and the potential values for both peak daily production per well and for ultimate gas recovery per well indicate significant upside for the project. We are gratified that this four-month long analysis by ARI, which is based upon the data from new wells and upon much more information than was available to Netherland Sewell, has resulted in an optimistic analysis."
The ARI simulations also continue to reflect high permeability ranging from 80 to 120 millidarcies, and very high gas content of approximately 500 standard cubic feet (scf) per ton. As Netherland Sewell previously noted, "CBM reservoirs with higher permeability have the ability to outperform CBM reservoirs with lower permeability if the coal can be adequately dewatered. Higher permeability allows wells to maintain their production rates for longer time periods enabling higher gas recoveries from wider spaced wells in shorter periods of time."
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