Far East Energy Announces Commencement of the 2013 Drilling Program and 2012 Results
HOUSTON, March 18, 2013 /PRNewswire/ — Far East Energy Corporation (OTCBB: FEEC) announced today that its 2013 Shouyang Block drilling campaign is underway, now that the Chinese National Lunar New Year holiday has ended and as weather conditions improve in Shanxi Province.
Two drilling rigs are already operating on location in the Shouyang Block and additional rigs have been mobilized and are expected to begin drilling operations within the next three weeks.
The 2013 drilling program is initially targeted at (i) drilling 70 wells in the core 1H Pilot Production Area to accelerate the drive toward rising gas production and sales levels; and, (ii) an additional 25 appraisal wells across the block, in an effort to further identify the most prospective undeveloped sections of the block.
CEO Michael R. McElwrath stated “Far East has started 2013 in great shape and now has the funding in place to carry out a comprehensive drilling program on the Shouyang Block. We have rigs already in place and, as weather conditions improve, more rigs will be added; in fact, our contractors are already moving new rigs onto the block.”
With the Chinese Ministry of Land and Resources (MLR) having certified the Company’s coalbed methane (CBM) resources as to its core 99.8 km(2) acreage under the Shouyang PSC (in June 2012); the Company is now in the process of preparing the overall development plan (ODP) application for submission. The ODP application is expected to be submitted early in the second half of 2013.
The Company has also released its YE 2012 results, with the filing of its Form 10-K, which reveal an 85% increase in gas sales volumes in 2012 compared to 2011, as more wells were connected to the gas gathering, compression and transmission system. The 2012 total sales volume net to Far East was 260,424 Mcf. The Company receives an average price of $6.43/Mcf of gas sold, including the various government and provincial subsidies.
The YE 2012 results also include an updated and revised Reserves report (to SEC standards) prepared by the independent consulting firm, RISC Advisory Consultants. This report stated year-end December 2012 net proved reserves of 51.3 MMscf and net probable reserves at 392.4 MMscf.
The standardized measure of discounted future net cash flows for proved oil and gas reserves and the NPV10% valuation for proved reserves is $40.4 million, while the combined 2P (proved and probable) NPV10% valuation for these reserves is $816.1 million. Adding in the NPV10% value of the possible reserves would take the total 3P value to $1.2 billion.
Mike McElwrath continued “The Company’s fracing operations and tying in wells to the gathering system have yielded a significant increase in gas sales during 2012 compared to 2011, despite only limited well drilling activity due to the funding delay related to our late Chinese Ministry of Commerce approval. I believe that the revised and updated RISC valuation for the Company’s interest in the Shouyang Block underlines the value of the Company’s Shouyang Block CBM gas resource. We look forward to a strong operating year on the Shouyang Block project.”
Additional Information Regarding Estimates of Reserves
NPV10% and the standardized measure of discounted future net cash flows do not purport to be, nor should they be interpreted to present, the fair value of the coalbed methane reserves of the Shouyang project. An estimate of fair value would take into account, among other things, the recovery of reserves not presently classified as proved, the value of unproved properties, and consideration of expected future economic and operating conditions.
Estimated future production of Proved Reserves and estimated future production and development costs of Proved Reserves are based on current costs and economic conditions. Future income tax expenses are computed using the appropriate year-end statutory tax rates applied to the future pre-tax net cash flows from proved coalbed methane reserves, less the tax basis of Far East Energy. All wellhead prices are held flat over the forecast period for all reserve categories. The estimated future net cash flows are then discounted at a rate of 10%.
NPV10% for proved reserves may be considered a non-GAAP financial measure as defined by the SEC and is derived from the standardized measure of discounted future net cash flows for proved reserves, which is the most directly comparable US GAAP financial measure. NPV10% is computed on the same basis as the standardized measure of discounted future net cash flows for proved reserves but without deducting future income taxes. As of December 31, 2012, our estimated discounted future income taxes were $0 and, accordingly, our standardized measure of after-tax discounted future net cash flows for Proved Reserves was also $40.4 million. We believe NPV10% is a useful measure for investors for evaluating the relative monetary significance of our coalbed methane properties. We further believe investors may utilize our NPV10% as a basis for comparison of the relative size and value of our proved reserves to other companies because many factors that are unique to each individual company impact the amount of future income taxes to be paid. Our management uses this measure when assessing the potential return on investment related to our coalbed methane properties and acquisitions. However, NPV10%is not a substitute for the standardized measure of discounted future net cash flows. Our NPV10% and the standardized measure of discounted future net cash flows do not purport to present the fair value of our proved coalbed methane gas reserves.
NPV10% for probable and possible reserve amounts above represent the present value of estimated future revenues to be generated from the production of probable or possible reserves, calculated net of estimated lease operating expenses, production taxes and future development costs, using costs as of the date of estimation without future escalation and using 12-month average prices, without giving effect to non-property related expenses such as general and administrative expenses, debt service and depreciation, depletion and amortization, or future income taxes and discounted using an annual discount rate of 10%. With respect to NPV10% amounts for probable or possible reserves, there do not exist any directly comparable US GAAP measures, and such amounts do not purport to present the fair value of our probable and possible reserves.
It is not intended that NPV10% or the FASB’s standardized measure of discounted future net cash flows for proved reserves represent the fair market value of Far East Energy’s proved, probable or possible reserves. Far East Energy cautions that the disclosures shown above are based on estimates of proved, probable or possible reserve quantities and future production schedules which are inherently imprecise and subject to revision, and the 10% discount rate is arbitrary. In addition, costs and prices as of the measurement date are used in the determinations, and no value may be assigned to probable or possible reserves. Estimates of economically recoverable coalbed methane reserves and of future net revenues are based upon a number of variable factors and assumptions, all of which are to some degree subjective and may vary considerably from actual results. Therefore, actual production, revenues, development and operating expenditures may not occur as estimated. The reserve data are estimates only, are subject to many uncertainties and are based on data gained from production histories and on assumptions as to geologic formations and other matters. Actual quantities of coalbed methane may differ materially from the amounts estimated.
Far East Energy Corporation
Based in Houston, Texas, with offices in Beijing, and Taiyuan City, China, Far East Energy Corporation is focused on coalbed methane exploration and development in China.
Statements contained in this press release that state the intentions, hopes, estimates, 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 1933, 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; there can be no assurance as to the volume of gas that is ultimately produced or sold from our wells; the fracture stimulation and drilling programs may not be successful in increasing gas volumes; due to limitations under Chinese law, we may have only limited rights to enforce the gas sales agreement between Shanxi Province Guoxin Energy Development Group Limited and China United Coalbed Methane Corporation (“CUCBM”), to which we are an express beneficiary; additional wells may not be drilled, or if drilled may not be timely; additional pipelines and gathering systems needed to transport our gas may not be constructed, or if constructed may not be timely, or their routes may differ from those anticipated; the pipeline and local distribution/compressed natural gas companies may decline to purchase or take our gas, or we may not be able to enforce our rights under definitive agreements with pipelines; conflicts with coal mining operations or coordination of our exploration and production activities with mining activities could adversely impact or add significant costs to our operations; our lack of operating history; limited and potentially inadequate management of our cash resources; risk and uncertainties associated with exploration, development and production of coalbed methane; our inability to extract or sell all or a substantial portion of our reserves and other resources; we may not satisfy requirements for listing our securities on a securities exchange; expropriation and other risks associated with foreign operations; disruptions in capital markets affecting fundraising; matters affecting the energy industry generally; lack of availability of oil and gas field goods and services; environmental risks; drilling and production risks; changes in laws or regulations affecting our operations, as well as other risks described in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and subsequent filings with the Securities and Exchange Commission.
SOURCE Far East Energy Corporation