Far East Energy Corp., fareastenergy.com – the Houston-based energy developer with offices in Beijing, Kunming and Taiyuan, and a focus on coalbed methane (NYSE:CBM) in China, announced the successful completion of negotiations for a gas sale agreement (GSA) with partner China United Coal Bed Methane Corporation (CUCBM) and Shanxi Provincial Guoxin Energy Development Group Co., Ltd. (NYSE:SPG).
The GSA calls for the sale of all CBM from the Shouyang Production Sharing Contract area (the Shouyang Block) at RMB1.5 per cubic meter (which includes all extant Chinese government subsidies), or $6.55 per Mcf (Mcf = 1,000 cubic feet).
President and CEO of FEEC, Michael R. McElwrath, was “thrilled” at this 35% over US market price ($4.80 per Mcf), and called such an opportunity one of the advantages of producing CBM in China, noting the 40-50 million cubic feet per day capacity of the contract-associated pipeline.
The 20-year GSA further stipulates required uptake by SPG of all gas produced by the Shouyang Block to a maximum of 300k cubic meters (10.584M cubic feet) per day on a take-or-pay basis with excess negotiated via side agreements.
This represents a significant additional opportunity for FEEC and CUCBM to negotiate new contracts for gas above the maximum figure of 10.584M cubic feet per day.
The GSA has no minimum delivery obligations but does stipulate that any and all production up to the daily maximum be provided.
Pending completion of the Company’s in-field gathering system, which will tie into SPG’s 18-inch Shanxi Province line (scheduled for Sep-Oct 2010 completion), the Company will begin selling gas.
McElwrath called the opportunity fortuitous due to SPG’s current routing of a pipeline between Yuxian and Jinzhong (right near the Company’s Shouyang Pilot Development), and noted FEEC’s relentless pursuit of this lucrative contract, which has the gas-hungry SPG even agreeing to build the short connection line at its expense.
McElwrath was elated that SPG has committed to buying all the gas produced (or pay for any gas not taken), noting how remarkable it is to be able to go from early-stage gas production to pipeline sales like this, and said he was looking forward to a “long and mutually beneficial relationship with SPG”, praising them for their exemplary infrastructure and timely construction capacity.
The GSA was signed according to customary Chinese practice with FEEC partner CUCBM as seller and SPG as purchaser. This GSA constitutes an agreement in accordance with the PSC mandating that all production from the Shouyang Block be jointly marketed and sold by FEEC and CUCBM.
McElwrath praised CUCBM as an ideal partner in China and called their leadership “visionary”, noting how they played a key role in securing this incredible contract, and how their tireless efforts have resulted in the negotiation of outstanding terms which will benefit the Company’s shareholders tremendously.
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