Far East Energy Reveals Results from 2nd CBM Well in China

Far East Energy reports the results of its second coalbed methane (CBM) gas exploration well (FCY-EH02) in the Enhong Block, in Yunnan Province, China. The well was spudded on January 18, 2004, and reached its total depth of 420 meters (1344 feet) on February 18, and preliminary test results are good.

"This is now the second well that has yielded results equaling or bettering the gas content that was projected for our Enhong and Laochang Blocks," said Michael McElwrath, Chairman of Far East Energy. "We are very pleased that the strong projections for gas content are thus far being verified."

A total of 15 coal seams with a thickness 0.5m and above were penetrated during the drilling of the well, with a total thickness of 16.7 meters (53.44 feet), a good result. The total thickness of the coal seams targeted for potential production was 6.6 meters, with a solid recovery rate of 70%. Estimated gas content based on the preliminary desorption results is approximately 10 cubic meters per ton of coal or about 350 cubic feet per ton of coal. This is right in line with the projections for the Enhong Block, which estimate a gas content of 200 to 400 cubic feet per ton of coal. By way of comparison, the well-known Black Warrior Basin in the United States has gas contents ranging from 250 to 500 cubic feet per ton of coal.

Dr. Alex Yang, Far East's Senior Vice President for Exploration and Production stated, "We are very encouraged by these preliminary results because this well is considerably shallower than our first well in the Laochang Block (420 meters as compared to 825 meters) and when you test at shallower depths, you expect the gas content to be lower than at deeper depths. This gas content is right on the higher end of the projected range for Enhong."

Tun Aye Sai, Senior Vice President for China Operations noted, "We drilled this well some 40 kilometers distant from our first well (which had an unusually high gas content of around 650 cubic feet per ton of coal), hoping that we would find that the projected gas content for the area would hold up at this considerable distance from our first well. We are quite happy to see the results for a shallow well coming in right in the middle of the 200 to 400 cubic feet per ton of coal projected."

The Far East Energy Enhong-Laochang Production Sharing Contract (PSC) covers 1072 square kilometers (265,400 acres) for a 30-year term 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 also 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 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.