ConocoPhillips & Far East Energy Team Up on CBM Project

Far East Energy Corporation has entered into a memorandum of understanding with ConocoPhillips to acquire a minimum of 40% interest in ConocoPhillips' coalbed methane (CBM) projects in the Qinshui Basin of the Qinnan and Shouyang areas of the Shanxi Province, Peoples Republic of China. The two projects are to be jointly explored and developed by both companies.

The two projects cover an area of 4,280 square kilometers (1,057,638 acres). ConocoPhillips drilled three wells in late 2002. Far East Energy is committing to fracture stimulate and production test these 3 wells and drill an additional 3 new wells. CBM gas in place resource potential in the area is estimated to be 16-25 trillion cubic feet.

The 4,000-kilometer West-East gas pipeline currently under construction will run across the southern part of the Qinnan block. These project areas are located 300 kilometers southwest of Beijing and are within 150-200 kilometers of existing pipelines. A recent market study by ConocoPhillips for the project areas concludes favorable CBM market conditions.

Bill Jackson, president & COO stated, "We believe that this partnership between ConocoPhillips and Far East Energy will benefit the shareholders of both organizations. Together, our teams have substantial expertise in coalbed methane development and long-standing track records in China. We look forward to a mutually rewarding relationship with ConocoPhillips and our Chinese partners in the years to come."

As of 2002, China's natural gas production accounted for only 2% of its energy consumption. China has set forth a strategic mandate to increase natural gas production to 8% of its energy consumption by the year 2010. To achieve this, the State Council of the Peoples Republic of China has budgeted to spend over $8 billion. Far East Energy is among companies like ConocoPhillips, ChevronTexaco, BP and Burlington Resources to assist China in meeting its strategic mandate of CBM and conventional natural gas production and use.

Furthermore, Shell, ExxonMobil and Russia's Gazprom have entered into an agreement with PetroChina to build a 4,000-kilometer pipeline from the Tarim basin in far northwest Xinjiang Uygar Autonomous Region to Shanghai on the eastern seaboard. The cost of the project is estimated to be $US 8.9 billion, with $US 5.6 billion for the pipeline construction and $US 3.3 billion for other upstream developments. The project is rated to deliver 12 billion cubic meters (425 billion cubic feet) of gas annually for at least 45 years. PetroChina's guideline price averages $US 4.41/mcf, with delivery to the end point at Shanghai at $US 4.62/mcf. This and the recent pipeline building activities show China's commitment to natural gas at or above current world market prices.