Far East Energy to Perform First Frac Test at Shanxi

Far East Energy has brought into the company during the first half of 2004 approximately $6.0 million in net cash proceeds from equity placements and the exercise of outstanding warrants. These proceeds are being used in the performance of Phase 1 work requirements on Far East Energy's Yunnan and Shanxi Province projects.

Contract Signed for Hydraulic Fracture Test of Shanxi Well for September

Far East Energy signed a contract with a service company on September 4, 2004 to perform a hydraulic fracture test in September on one of the wells drilled previously by ConocoPhillips on its acreage in the Qinnan Block located in the Shanxi Province of China. The Shanxi contract area covers approximately 1,058,000 acres and comprises the acreage under the farmout agreement between the company and ConocoPhillips with partner, CUCBM. This test of a vertical well drilled by ConocoPhillips will be accomplished by fracturing one of the coal seams encountered in the initial drilling. The dewatering process on this well should last several months with the company monitoring for gas and water production generated after the fracture process.

Contracts Revised to Drill First Horizontal Wells

Discussions with Far East Energy's partner, CUCBM, have resulted in a revised plan to utilize horizontal drilling to explore and develop the coalbed methane resources in the company's two project areas in the Yunnan and Shanxi Provinces. These horizontal wells will be among the first horizontal wells drilled in China for coalbed methane exploration. The revised terms of the project in the Yunnan Province allow the company to drill one horizontal well after testing two of its three vertical wells to satisfy the Phase 1 work program. The revised Shanxi Province project, under farmout from ConocoPhillips, requires the company to satisfy the Phase 1 requirements to test two of the three wells previously drilled by ConocoPhillips, and then to enter Phase 2 with the commitment to drill one horizontal well in that project acreage.

"As in any oil or gas project, selection of the best location for drilling, and application of the most efficient technology can be the keys to success," said Michael McElwrath, Chairman and CEO of Far East Energy.

"In selecting our well locations, drilling and completion technologies, Garry Ward, our Sr. VP Engineering, and Alex Yang, the Sr. VP Exploration & Production, have applied not only their own considerable acumen, but have also been able to actively engage the expertise of our Board, among whom are numbered a former Sr. VP of ConocoPhillips, a former Senior Exploration Geophysicist for Exxon and Saudi Aramco, a VP of drilling technology leader Maurer Technology, and a former U.S. Department of Energy Deputy Assistant Secretary of Energy for Natural Gas and Petroleum Technology. The independent board members are serving as a critical planning resource as we determine the best technical methods to unlock the potential value for these coalbed methane projects."