HOUSTON, Sept. 15, 2014 /PRNewswire/ -- Far East Energy Corporation (OTCBB: FEEC), the U.S. listed company that operates the Shouyang Coalbed Methane (CBM) Production Sharing Contract (PSC) in Shanxi Province, People's Republic of China, welcomes the recent announcement by the National Development and Reform Commission (NDRC) to raise city-gate gas prices by 20% for base volume non-residential customers.
China Raises City-gate Gas Prices
Effective September 1, 2014, city-gate natural gas prices for base volumes rose by RMB 0.4/cubic meter (equivalent to $1.83 per Mcf), or approximately 20%. These increases affect non-residential buyers only, such as industrial consumers and bulk buyers. In July 2013, the NDRC introduced a new pricing structure to bring its domestic natural gas prices closer to the cost of imports in order to not only encourage higher domestic output but to address pollution problems as well. A similar price hike of RMB 0.4/cubic meter announced in July of 2013 allowed the Company to successfully negotiate a 42% increase in the wellhead gas price received for its gas.
Far East Energy Corporation expects to enter into a new round of gas price negotiations before the end of 2014 at which time management would expect to secure another increase in gas prices for future gas sales.
Commenting, CEO Michael McElwrath said, "We welcome this increase because it should translate into significantly higher pricing for our gas. And we believe that gas prices in China will maintain their upward trend, hopefully providing an ongoing opportunity for significant annual enhancement to the price we receive at the wellhead. The Chinese government is committed to improving the environment, and supporting the use of more domestic gas is an integral part of their strategy. Even with this rise in gas pricing, gas prices remain significantly below those of competing fuels, such as fuel oil and diesel - both of which are far more polluting than cleaner burning natural gas, so there is ample room for the government to provide further increases in the coming years."
Production, Sales and Drilling Update
Gas production from the Shouyang PSC remained consistent during July and August at roughly 1.92 million cubic feet per day, mirroring production rates seen in May and June after wells were shut-in for various reasons including Area B wells shut-in due to distance from the production area and certain Area A gel-frac wells shut-in because they were not tied in to the gathering system. However, partially as a result of production increases from gathered wells in the production area and also improved efficiencies across the summer, sales have increased from an average of 1.4 million cubic feet per day in May to 1.55 million cubic feet per day thus far in September. Drilling has also begun on the P8 replacement well with CUCBM, which committed to fund the drilling of a replacement well in the northeast portion of Area B pursuant to the terms of the April 26, 2012 Modification Agreement of the Shouyang PSC. Management worked with CUCBM on the design and planning of the P8 replacement well (designated FCC-SYE01), and the well has now been spudded with drilling underway.
Extension of Facility Maturity
The maturity date of the bridge facility with SCB has been extended to October 31, 2014, from the previous maturity date of September 15, 2014. Commenting, CFO Jennifer Whitley said "This added extension of the facility underlines SCB's ongoing support as we further our discussions with various third parties." The Company will advise shareholders as appropriate, as developments progress.
Far East Energy Corporation
Based in Houston, Texas, with offices in Beijing, 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, including that the amendment to the PSC may not be entered into or if entered into may not be on the same terms as originally agreed upon by the parties. 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, 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.
