Far East Energy Corporation , the U.S. listed company that operates the Shouyang Coalbed Methane (CBM) Production Sharing Contract (PSC) in Shanxi Province, People’s Republic of China, is pleased to update investors on production and its strategic process.
Gas production has settled in at 1.93 MMcf/d, sitting steady at that level for the past two months. Gas production from the Shouyang CBM PSC averaged 1.93 MMcf/d in May 2014, compared to 2.1 MMcf/d in April and 2.2 MMcf/d in March. Thus far in June 2014, production has averaged 1.93 MMcf/d.
As the Company has previously stated, the intention of the drilling campaign completed late last year was to produce the wells at a conservative pace in order to maximize the zone of desorption around each wellbore so as to maximize ultimate production from the field. With production growing by almost 300% since last November and having maintained this general level of production for almost five months now, the Company is pleased with the results of the drilling program.
In conjunction with the review of the results of the 2013 drilling program, certain wells have been identified to be strategically shut in, and, during the second quarter, 41 wells in total have been shut-in for either one of the two following possible reasons:
First, 12 wells have been shut-in in Area B, the Company’s appraisal/exploration area. The wells shut-in in this area have already provided sufficient test data and do not yet contribute to gas sales due to their location, as they are not yet connected to the gas gathering system.
Second, 29 wells have been shut-in in Area A, the Company’s production/gas sales area. In this grouping of wells there is a sub-set which lies outside the main pattern of dewatering activity. These wells have good completions and have demonstrated significant dewatering capability.
However, due to their location, they do not contribute meaningfully to dewatering the main pattern, will not produce gas for quite some time and are not tied in to the sales line. These wells will be returned to production as the pattern expands in their nearby vicinity. Concurrent to the expanded development, the gathering and sales system will be extended to accept sales gas from these wells.
The other sub-set of wells in Area A being shut-in are the poorer performing wells from the 2011 drilling and fracing campaign. These wells were part of a gel based fracing campaign which has subsequently proved to be ineffective in our particular coal seam. These wells will be scheduled for remedial work involving re-fracturing using different and appropriate formulations of proppant, fluid and rates.
Shutting-in these groups of wells fits with the Company’s operational and financial plans, as areas serviced by the wells are not contributing to core sales production, but are still incurring operating expenses. Hence, the shut-in wells account for the slight decline in average daily production figures seen in recent months; however, at the same time daily sales gas volumes have continued to increase each month through May and into June.
“Sales production levels have continued to increase with production being sold and delivered in accordance with the terms of the company’s Gas Sales Agreement. Shutting in these targeted wells will significantly reduce our operating costs without reducing our sales. As we proceed toward full development of Shouyang, we continue to make the operations more efficient,” said CEO Michael McElwrath.
The Company continues in discussions with third parties and is working closely with its financial advisors to evaluate and negotiate an outcome, which could take the form of a farmout or an outright sale of the Company. Due to these discussions, the Company has enacted a blackout period, which precludes management and insiders from trading in shares of the Company during such a period. This will allow the Company’s board members to consider an event or events that may occur that are material and known only to the directors and/or certain executives. The Company will terminate the blackout period when events warrant.
The Company is mindful of its shareholders and the investments they have made in the Company, and the Company is committed to advising shareholders at appropriate times as developments progress.