Far East Energy Announces a 32% Increase in SEC Proved Reserves; Production in the First Quarter of 2014 Up 96% Compared to the Same Period in 2013; Standard Chartered Bank Provides a Further 3 Month Extension of the Existing Facility; Form 10K Filed March 31, 2014

HOUSTON, April 1, 2014 /PRNewswire/ -- Far East Energy Corporation (OTCBB:FEEC), the U.S. listed company that operates the Shouyang Block Coalbed Methane (CBM) Production Sharing Contract (PSC) in Shanxi Province, People's Republic of China is pleased to announce that the maturity date of the existing bridge facility with Standard Chartered Bank (SCB) has been extended to July 15, 2014, from the previous date of April 15, 2014. 

In connection with the release of its 2013 results, the Company announced the results of its updated SEC reserve report prepared by the independent petroleum engineers, Resource Investment Strategy Consultants ("RISC").  As of December 31, 2013, the Company had estimated net proved gas reserves of 67.5 billion cubic feet ("Bcf"), an increase of 32% over last year's net proved gas reserves of 51.3 Bcf.  This increase reflects the results of the 2013 drilling program, specifically in the 1H Pilot Area, which is the core gas production zone for the Company and, hence, provides the ability to upgrade reserves to the Proved from the Probable category. The increased reserve figures, together with the higher gas prices now being received (2014 price of approximately $9 per thousand cubic feet) have combined to drive an increase in the value of the block.  The net present value of future cash flows discounted at 10% ("NPV10") for the Proved and Probable (2P) reserves is now $1.4 billion (up 73% compared to the same period last year).

Commenting, CEO Mike McElwrath said, "It is gratifying that the work that went in on the Shouyang Block during 2013 has resulted in a significant increase to SEC Proved reserves.  I think it's also important to remember that these reserves are still based on the evaluation of only a portion of the block, which implies significant upside potential for our reserves."

As a result of the 2013 drilling and fracing program, gas production from Shouyang has risen significantly in recent months.  During the first quarter of 2014, FEEC produced a total of 175.5MMcf of gas, up 96% compared to the same period in 2013. 

The 2013 Form 10-K has been filed with the SEC, is available on our web site, and includes the following relating to our reserves:

The Year End 2013 Reserve Report prepared by RISC, evaluates, as of December 31, 2013, the estimated proved, probable and possible coalbed methane gas reserves attributable to the three (3) target coal seams (#3, #9 and #15) in Far East Energy's Shouyang Block, Shanxi Province, PRC.

The reserve estimates have been prepared in accordance with definitions and regulations of the U.S. Securities and Exchange Commission (SEC) and the FASB Accounting Standards Codification Topic 932, Extractive Industries-Oil and Gas with the exclusion of future income tax and Chinese VAT. RISC's estimates of Proved, Probable and Possible follow:


  Net Reserves

         Future Net Revenue $ Million

            Category

     MMscf

      Undiscounted

     10% Discount

            Total Proved

67,501

343.5

167.3

            Total Probable

372,418

2,254.8

1,242.9

            Total Possible

109,378

873.3

563.1

     Notes:

  • Totals may differ due to rounding
  • Gas volumes are expressed in units of million standard cubic feet at reference conditions of 60 degrees F and 14.696 psia
  • Net Gas Reserves are net of CUCBM participating interest and COP revenue interest

The standardized measure of discounted future net cash flows for proved oil and gas reserves is $151.8 million and the NPV10 valuation for proved reserves is $167.3 million, while the combined 2P (proved and probable) NPV10 valuation for these reserves is $1.4 billion.  Adding in the NPV10 value of the possible reserves would take the total 3P value to $2.0 billion

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, 2013, our estimated discounted future income taxes were $15.5 million and, accordingly, our standardized measure of after-tax discounted future net cash flows for Proved Reserves was $151.8 million whereas our NPV10 was $167.3 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 contracted prices and 12-month average exchange rate, 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, 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.

SOURCE Far East Energy Corporation



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