Far East Energy (OTCBB: FEEC) is a coalbed methane exploration company based in Houston, Texas, focused on exploration and development in China. Marking 17 of 18 appraisal wells recording high gas content and potential, FEEC drilled an additional three successful appraisal wells located significant distances (ranging from 13.7 miles to 21 .7 miles) from the 1H Pilot Area in the Shouyang Block.

The SYS-05 appraisal well was drilled 21.7 miles southeast and revealed higher gas content than any well drilled by the Company to date in the Shouyang Block, testing at a final average of 935 scf per ton (dry ash free). The well is currently producing 2180m3 (77 Mcf) per day, after peaking at 2915m3 (103 Mcf) per day. The P18 appraisal well was drilled 13.7 miles east and recently began producing gas. This well peaked at over 2831m3 (100 Mcf) per day and tested at a rate of over 2265m3 (80 Mcf) per day for a ten day period with a surface flowing pressure of 40 psi. The well is currently producing about 1132m3 (40 Mcf) per day.  The SYS-02 appraisal well was drilled 12.4 miles south and has been producing since May 2011. FEEC reported the gas content at 635 scf per ton (dry ash free) with a permeability estimated to exceed 100 millidarcies.

OAG360 Comments

Modeling $6.50 per Mcf gas and assuming 80 acre spacing, FEEC believes its Shouyang Vertical Well program could yield rates of return near 80% with return on investments of 11 to 1. Subject to approval by CUCBM, FEEC believes it can have between 200 and 250 wells drilled, or drilling and completing by the end of 2012.

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Chinese Coalbed Methane Market:

The market for natural gas in China supports FEEC’s plans for coalbed methane development since FEEC has a 20 year gas pipeline sales agreement in place in Shouyang and wellhead prices averaging between $6.45 per Mcf to $7.34 per Mcf. FEEC’s recent successful appraisal well results continue to complement the management team’s belief in the future potential of production coalbed methane in China. We will watch closely as FEEC continues to de-risk its large acreage position on the Shouyang block.

FEEC has three production sharing contracts (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.

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