Far East Energy Announces China Operations Update and Future Drilling Plans

Far East Energy Announces China Operations Update and Future Drilling Plans

Wednesday, August 23rd 2006

Far East Energy Corporation announced that it has signed a contract to begin drilling its fourth horizontal well in the Shouyang Block of its Shanxi project in early September 2006. This next well, the FCC HZ04, will be drilled horizontally with a total target length in the No. 15 coal seam of approximately 800 meters. The well will be drilled adjacent to the FCC HZ01 and FCC HZ03 wells so that maximum synergies can be achieved between the respective dewatering processes of each of these wells.

The company believes that the high permeability and gas content indicated in this area in the No. 15 coal seam, should make significant gas production possible with shorter horizontal laterals and that has led to the conclusion that the FCC HZ04 should be drilled to only approximately 800 meters in the coal seam. The fourth horizontal well is being strategically placed to enhance dewatering, and future wells are planned to be drilled in a pattern that progressively dewaters the area and hopefully produces gas flow commensurate with the preliminary indications of high gas content and high permeability measured in the company’s early wells.

Permeability in the area of the FCC HZ01, appears much better than expected and at an estimated at 20 to 100 millidarcies, is some 40 to 300 times greater than the 0.3 to 0.5 millidarcies originally projected. For reference purposes, the permeability generally attributed to the prolific San Juan Basin of the United States is 25 millidarcies. Far East Energy continues the dewatering process on the FCC HZ01, the FCC HZ02, and the FCC HZ03 wells, located in the Shouyang Block of the Shanxi project. The company is also performing periodic workover procedures as necessary to maximize the results from each of those wells. The company believes that dewatering is taking longer than anticipated due to the much higher than estimated permeability in the area. Permeability measures the ease with which a gas or liquid can flow through rock or a similar medium and is one of many reservoir and geological characteristics on which the productivity potential of a well depends. Therefore, reservoirs with high permeability have a higher propensity for strong water and gas production than less permeable reservoirs.

Desorption analysis on the gas content of the No.15 coal seam in the area of the company’s first three wells produced coal gas content results between 450 to 600 standard cubic feet (scf) per ton, compared to the generally estimated range of 400 to 500 scf per ton for the San Juan Basin — a basin known for high gas content and production rates.

“We are pleased to sign a contract to begin drilling our fourth horizontal well in the Shouyang block,” stated Michael McElwrath, CEO and President of Far East Energy. “The dewatering of the FCC HZ01, FCC HZ02 and FCC HZ03 wells is very encouraging, as the preliminary data continues to indicate high gas content, high coal thickness, and much higher permeability than initially estimated. This high permeability, high gas content and our desire to build a grouping of wells for production purposes are the reasons we are locating our fourth horizontal well, the FCC HZ04, in very close proximity to the FCC HZ01 and the FCC HZ03 wells. Further, Chinese authorities have recently announced plans to construct a 1,080 mile long provincial pipeline network within the Shanxi Province, with branches traversing our acreage, which we hope will hasten the creation of a production unit in the Shouyang Block.”

Over the next two months, Far East Energy plans to shoot 20 to 25 kilometers of 2D seismic and drill a slim hole with the objective of identifying the optimum location for a future horizontal well in the No. 3 coal seam in the Qinnan Block of the Shanxi Project. The No. 3 coal seam was selected because it appears to be thicker than other coal seams in the Qinnan Block and has been the target of significant drilling activity to the south of the Qinnan Block by other operators.

Far East Energy also plans to negotiate a contract for the drilling of its first horizontal well in the Yunnan project, which it expects to begin later this year. The company plans to drill this well, the LC-03, to satisfy the exploration requirements of Phase II of the Enhong-Laochang Production Sharing Contract. That phase requires the drilling of a horizontal well with at least two radials in the well. This well will target the Nos. 7 and 8 coal seams, which in the Yunnan project acreage are thicker than other prospective coal seams.

The Shouyang and Qinnan Blocks are part of the 4,280 square kilometer (1,057,650 acres) coalbed methane (CBM) project in Shanxi Province that Far East holds under farmouts from ConocoPhillips. Including its 1,073 square kilometer project in Yunnan Province, the coalbed methane concessions of Far East Energy contain a land mass slightly larger than the State of Delaware.

Based in Houston, Texas, with offices in Beijing, Kunming, and Taiyuan City, China, Far East Energy Corporation is focused on the acquisition of, and exploration for, coalbed methane in China through its agreements with ConocoPhillips and China United Coalbed Methane Company, Ltd. (CUCBM).

Statements contained in this press release that state the intentions, hopes, beliefs, anticipations, expectations or predictions of the future of Far East Energy Corporation and its management are forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. It is important to note that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ materially from those projected in such forward-looking statements include: the preliminary nature of well data, including permeability and gas content, and commercial viability of the wells; risk and uncertainties associated with exploration, development and production of oil and gas; drilling and production risks; our lack of operating history; limited and potentially inadequate cash resources; expropriation and other risks associated with foreign operations; anticipated pipeline construction and transportation of gas; matters affecting the oil and gas industry generally; lack of availability of oil and gas field goods and services; environmental risks; changes in laws or regulations affecting our operations, as well as other risks described in our Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission.


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Source: Far East Energy

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