Far East Energy Corporation (OTC BB: FEEC) announced July 25, 2011 the results of an independent engineering report prepared by Netherland, Sewell & Associates, Inc (NSAI) updating the company’s coalbed methane (CBM) net contingent resource potential and associated net contingent cash flows from the resource.
NSAI’s report reviewed and updated FEEC’s coalbed methane Original Gas-in-Place (OGIP) for coal seams 3, 9 and 15 in the Shouyang Block (see map below) located in Shanxi Province, China. The results are as follows (2010 net contingent resource figures are in parenthesis): a Best Estimate OGIP of 8.6 (7.0) Tcf, a Low Estimate of 6.7 (5.4) Tcf and a High Estimate of 10.4 (8.5) Tcf.
The NSAI report gives a boost to Far East’s reserves in the Shouyang Block, where the company is engaged with China United Coalbed Methane Company Ltd. (CUCBM) in a Product Sharing Agreement covering 1,057,638 acres. FEEC is the operator in the agreement, with a minimum 66.5% working interest (CUCBM has the option to participate in up to 33.5% of production).
For readers not too familiar with Far East, the company has three PSC’s in Shanxi and Yunnan Provinces across 1.3 million acres in China. Simply looking at the northern portion of the Shouyang Block , Far East believes the area could support more than 2,500 wells. During 2010, FEEC completed 26 wells in the country, and estimates drilling between 75 and 90 wells during 2011.
FEEC May Benefit from Chinese CBM Subsidies: In other good news for Far East, the Chinese government has developed a program to subsidize the production of CBM in China. If the program is executed, FEEC will be able to sell its Chinese CBM production to China for $7.23 per Mcf (at June 30, 2011 exchange rate), a $2.59 premium over the July 20, 2011 Henry Hub U.S. natural gas price. According to BP’s 2010 World Statistical Report, China produced approximately 8.26 Bcf/d of natural gas during 2010, an increase of 6.4% from 2009 levels.
Separately, Royal Dutch Shell (NYSE: RDS.B) Chief Executive Officer Peter Voser in an interview with CNBC Asia on July 27 sees Shell’s opportunity in China to be a major opportunity for the company’s future growth. “But if you look at external estimates, China is mostly going to be bigger than what we have seen in U.S. and Canada. Therefore this is a great prospect for us in the future.” Ron Andrews, President of Shell U.S. Trading Company will be the luncheon speaker on August 15, 2011 at EnerCom’s The Oil & Gas Conference® 16, www.theoilandgasconference.com.
Australia has been the target of many coal seam project deals over the last few years. Like China, the country holds viable attractive natural gas resources for companies looking to export LNG. On March 21, 2010, Arrow Energy (ASX: AOE) announced plans to sell 100% of its shares to Shell Energy Holdings Australia Ltd.(Shell) and PetroChina International Investment Company Ltd. (Petrochina) for US$3.2 billion, or A$4.70 (US$4.31) cash per share.
Shell has made several gas-oriented acquisitions over the previous five years: February 2008 leasehold acquisition of the leases offshore northern Alaska, with an East Resources, a Marcellus operator, on March 28, 2010; A$2 billion, 8% stake in Chevron’s (NYSE: CVX) Wheatstone LNG / natural gas project offshore northwest Australia; in 2010 the company assimilated some 1.3 million acres prospective for tight gas in north America. Said Vosser about the go-forward, natural gas strategy at Shell: “We are enhancing our world-wide Upstream portfolio for profitable growth, through exploration and focused acquisitions, and through divestment of non-core positions. These acreage additions form part of an on-going strategy, which also includes divestments, with an objective to grow and to upgrade the quality of Shell’s North America tight gas portfolio. The opportunity now is to consolidate our tight gas portfolio, divest from non-core positions across North America, and to invest for profitable growth, by deploying Shell’s technology and capabilities on a large scale.”
Buy low, sell high. A strategy that is missed by many.