Far East Energy Accelerates Drilling Onshore China

Far East Energy has commenced a robust winter drilling program in response to the rapid increase in gas production from its Shouyang Block in Shanxi Province, China that occurred in late November and December of last year.

Far East will finance the drilling program with the net proceeds of the approximately $4.5 million registered direct offering closed in December 2009. The goal of the program is to accelerate the dewatering in the 1H Pilot Area to lower the pressure and increase the amount of gas being produced in the Shouyang Block. As previously disclosed, Far East is in discussions with three separate third parties regarding the potential off-take and sale of gas produced from the area. Far East believes it could initiate gas sales by the third quarter of 2010. 

The focus of the winter drilling program is the drilling and fracturing of eight wells by early March. The five drilling rigs being utilized are now fully operational with the first of the wells having been spudded in December. Of the eight wells, seven will expand the 1H Pilot Area to the west and one parameter well will be drilled approximately four kilometers outside of the 1H Pilot Area to the west in order to obtain further information regarding the geographic extent of the high permeability/high gas content area. In addition, the existing P4 parameter well will be fractured and the production from the #15 seam of the P2 parameter well will be temporarily suspended to accommodate the fracturing of the #9 seam using the same wellbore.

"Winter is quite harsh in Shanxi Province, so December, January and February are normally months when companies cease drilling operations and evaluate results," said Michael McElwrath, CEO of Far East. "Temperatures have been as low as -17C (-5F), but instead of staying dormant, we have designed a workable drilling program and chosen to drill through the extreme conditions because we are enthusiastic about the ramp up in gas production and felt that those results call for us to do everything possible to maintain such positive momentum."

Garry Ward, Senior Vice President of Engineering, added, "The rapid increase in production that we experienced at the end of last year has indicated the capability of the highly permeable #15 coal seam. Although this increase is very positive, we believe that we have not yet seen the full capacity that is often associated with a coal seam that has the permeability of the #15 coal seam in the 1H Pilot Area. The winter drilling program is designed to begin to exploit this rise in gas production by increasing our water withdrawals and significantly enhancing gas production in 2010 as we seek to move this project toward gas sales and project financing."