Signing of Extension Agreement for Yunnan CBM

Source: 1/9/2012, Location: Asia

Far East Energy Corporation announced the signing of a Modification Agreement extending the exploration period of its Production Sharing Contract in Yunnan Province. The Modification Agreement signed by Far East Energy (Bermuda), Ltd. (Far East Energy) and China United Coal Bed Methane Corporation (CUCBM) will now be forwarded to the Ministry of Commerce (MofCom) of the People’s Republic of China for formal approval.

Under the terms of the Modification Agreement between Far East Energy and CUCBM, Far East will relinquish the Enhong Block while retaining the 483 square kilometer (119,340 acres) Laochang Block, which it considers to hold much greater potential. Far East has drilled eleven wells in the Laochang Block, compared to three in the Enhong Block, and large portions of Enhong were considered to be marginal or non-prospective.

Commenting on the successful conclusion of the Modification Agreement, Michael McElwrath, CEO and President of Far East Energy Corporation, stated, “This is an excellent resolution for Yunnan. For the past several years, as we focused our attention on validating Shouyang as the premier, or one of the premier CBM Blocks in China, due to its uniquely high permeability and pipeline access, we have endeavored to determine the potential of our Yunnan blocks. After reviewing the results of the three exploration wells in the Enhong Block and eleven in the Laochang Block, as well as considering the very difficult topography in Enhong, we have concluded that the Laochang Block has superior potential, and have elected to focus all Yunnan activities there.”

McElwrath continued, “Over the space of the last two weeks, China has unveiled a goal to triple CBM production by 2015; has declared that it will further liberalize well-head prices for CBM; and has stated that it is also discussing increasing CBM subsidies for producers from the current level of 0.2 yuan up to 0.5 yuan per cubic meter, which, if enacted, would increase the total for which gas produced by Far East may be sold to approximately $7.85, inclusive of government subsidies. Just at this point in time, Far East has signed these extensions for Shouyang and Yunnan and is ideally positioned to capitalize on the increasing emphasis upon unconventional gas in China.”

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