Far East Energy Corp. (FEEC.OB) is focused on coalbed methane (CBM) exploration and development in China through its agreements with ConocoPhillips (NYSE: COP) and China United Coalbed Methane Company. Coalbed methane, a form of natural gas, is a clean-burning fuel that the People's Republic of China plans to use to supply part of its enormous energy needs.
Several of the energy giants, including Royal Dutch Shell, Chevron Corp. and ConocoPhillips, are acquiring CBM exploration rights in China to boost their flagging reserves, and investors should take notice of this. "The conventional source of oil and natural gas is getting harder to find. So as companies seek out unconventional sources of gas, coal bed methane is one of the most viable," said John Harris, director of global LNG at Cambridge Energy Research Associates (CERA) based in Beijing. The Chinese government hopes that by 2010, methane gas production from CBM and CMM will reach 10 billion cubic meters.
Two months ago, when the stock was trading at around 80 cents a share, the company announced the results of an independent review that concluded that the No. 15 coal seam contains high permeability of 100 millidarcies, the gas content of the Shouyang Block is on the high end of CBM fields, and that potential gas rates of 1 million to 2 million cubic feet per day are possible in future horizontal wells. After the news, the stock flew to $0.99 on over 2 million traded shares, but has since then declined below its all time low of $0.38.
Yesterday, the company released an even more significant press release reporting several material events including that they have completed their first horizontal well in the Quinnan Block, the commencement of a short-reach horizontal well, as well as the completion of one deviated well, and the commencement of a second well. However, perhaps the most important part of the press release followed with CEO Michael R. McElwrath's statements:
"As we believe that we are almost done with the "heavy lifting" and are nearing the critical desorption pressure at the Shouyang Block, it is time for us to open up a new front. Moreover, our first horizontal well in the Qinnan Block confirms that horizontal wells can be drilled at a low cost in the area. We engaged a Chinese company on a turnkey contract to drill this well at a total cost of approximately US$1.3 million. Based on these drilling costs and other results in the area, we believe the Qinnan Block could potentially provide very attractive rates of return."
He continued, "Overall, we have significantly ramped up our drilling operations. Immediately prior to completing the Qinnan horizontal well, we had six rigs drilling simultaneously. As we speak, we have two rigs drilling two deviated wells in Yunnan Province, one rig drilling a parameter well in Qinnan to identify further prospective areas, and three rigs operating in the Shouyang Block. We expect the horizontal well underway in Shouyang, along with the deviated well being drilled there and the one recently completed to further shorten the time it takes to reach the critical desorption pressure at the Shouyang Block. Therefore, we have begun preliminary discussions regarding off-take alternatives for potential gas from the Shouyang Block as well as construction of a compressed natural gas facility to process gas."
For those who do not know the story of this company, there has been a lot of "preparing for production." The company has produced little so far and financed much of its operations through the issuance of stock. Of course this has been harmful to shareholders with the stock declining 86% from its high in 2006. But if this is the turning point towards profitability, the rewards could be enormous!
We've already given you over a page's worth of material to read, but feel that it is necessary you also take special notice of the abnormally high volume today. More than 2.6 Million shares traded today at a price range of .34-.38 equaling to a dollar value of nearly $1,000,000. Nine of the trades that came in today accounted for approximately 45% of the volume! The two largest trades at 200,000 shares apiece were valued between $74,000 and $76,000. The last few times there was this much volume at an all-time low, the stock ran 160%, 113%, 69% and 104.5% respectively!
http://www.breakoutinvestments.com/?q=node/477
$0.36 (08/20/08)
