Far East Energy Announces Strategic Relationship and Total Funding of up to $63
Million
HOUSTON, Mar. 16 /PRNewswire-AsiaNet/ --
Far East Energy Corporation (OTC Bulletin Board: FEEC) announced the
formation of a strategic alliance with Arrow Energy International Pte Ltd.
("Arrow"), the Singapore-based international arm of Arrow Energy Ltd., a large
Australian coalbed methane ("CBM") producer. As part of the strategic alliance,
under a farm-out agreement, Arrow will pay Far East US $8 million in cash, and
Far East will assign to Arrow a 75.25% share of Far East's participating interest
in the Qinnan Production Sharing Contract ("PSC") to develop CBM resources in the
Shanxi province of China. The farm-out agreement is subject to certain
conditions precedent, including approval by appropriate Chinese authorities.
Arrow will become the operator under the Qinnan PSC and fund all exploration
costs during the exploration period, including Far East's remaining 24.75%
participating interest, until Arrow has incurred up to US $30.0 million of total
spending on exploration. If the Chinese authorities ultimately approve an
Overall Development Plan ("ODP") for development of all, or a portion of, the
block, Arrow will pay Far East a bonus of US $8 million.
Initially, it is intended that a 2009 exploration program of US $6 million be
submitted for approval by the relevant Chinese authorities. Far East and Arrow
believe this work program will aggressively accelerate the parties' understanding
of the potential of the Qinnan Block.
Additionally, as part of the strategic alliance, Arrow will immediately
acquire an exchangeable note from Far East for US $10 million, which will
automatically be exchanged for Far East common stock at an exchange price of US
$0.475 per share upon the approval of the Qinnan farm-out agreement by the
Chinese authorities and the satisfaction of certain other conditions. Upon
exchange of the note, Arrow will own approximately 21.05 million shares of Far
East common stock (representing approximately 11.54% of then outstanding shares)
and will become the company's largest shareholder. If the conditions under the
farm-out agreement are not satisfied by October 15, 2009 or a mutually agreed
later date, then the note will remain outstanding and mature in March 2011. In
addition, as part of the strategic alliance, Far East issued warrants to Arrow to
purchase up to 7.42 million shares of Far East common stock at an exercise price
of US $1.00 per share. The warrants are for a term of 18 months and can be
exercised at any time following the approval of the Qinnan farm-out agreement.
"This transaction successfully culminates a strategy announced several months
ago targeted at consummating a strategic transaction that would bring us the
required capital to advance exploration of our significant holdings in China,
while at the same time securing additional technical resources," said Michael R.
McElwrath, CEO of Far East Energy. "Arrow's known expertise in coalbed methane
and its financial strength should enable aggressive exploitation of the great
potential of our 572,000 acre (2,300 square kilometers) Qinnan Block. In turn,
that will allow Far East to focus on achieving production from our 484,000 acre
(1,900 square kilometers) Shouyang Block, which we continue to consider to be a
significant potential prospect for China's CBM industry. Arrow's financing of
exploration costs in the Qinnan Block is anticipated to facilitate more rapid
exploration than we could do alone. Perhaps more importantly, Arrow's human and
financial resources in CBM exploration and development should enhance overall
development of China's CBM resources, making them an important partner."
McElwrath continued, "We are extremely pleased that, in a difficult financial
market, we have been able to secure funding while minimizing stockholder
dilution. If we receive Chinese approval of an ODP for Qinnan, the potential
value to Far East of the strategic alliance will be up to approximately US $63.4
million including all fixed and contingent cash payments to be made to Far East,
Arrow's funding of up to US $30 million of exploration costs, and the optional
exercise of Arrow's warrants. We look forward to working with Arrow to create an
alliance that should become a significant force in the development of coalbed
methane resources."
Arrow Energy Chief Executive Officer, Nick Davies, said, "I am very pleased
that we have been able to reach this agreement with FEEC. The Qinnan block
represents, in Arrow's view, one of the best prospects for near-term commercial
CBM production in China, and we expect Qinnan to become a material project within
the Arrow portfolio. We look forward to working with FEEC and our Chinese
partners at CUCBM and PetroChina on this exciting project. This is an important
step in the strategic expansion of Arrow into international markets."
More information on these transactions can be obtained in a Form 8-K to be
filed by Far East with the Securities and Exchange Commission without cost at the
Internet website maintained by the Securities and Exchange Commission at
Far East Energy Corporation
Based in Houston, Texas, with offices in Beijing, Kunming, and Taiyuan City,
China, Far East Energy Corporation is focused on CBM exploration and development
in China through its agreements with ConocoPhillips and China United Coalbed
Methane Company, Ltd.
Arrow Energy Ltd
Arrow Energy Ltd. is an emerging global leader in coal seam gas development
with an expanding business presence throughout eastern Australia, China, India,
Vietnam and Indonesia. Arrow has access to more than 80,000 km2 (approximately
20.35 million acres) of coal seam gas in Australia. Arrow Energy International
is a subsidiary of Arrow, owned 90% by Arrow and 10% by Shell Exploration Company
B.V., a subsidiary of Royal Dutch Shell PLC. Arrow is listed on the Australia
Stock Exchange (ASX code AOE).
Statements contained in this press release that state the intentions, hopes,
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. 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: certain of the proposed transactions with
Arrow may not close on a timely basis or at all, including due to a failure to
satisfy closing conditions or otherwise; the anticipated benefits to us of the
transactions with Arrow may not be realized; the final amounts received from
Arrow may be different than anticipated; the preliminary nature of well data,
including permeability and gas content, and commercial viability of the wells;
risk and uncertainties associated with exploration, development and production of
oil and gas; drilling and production risks; our lack of operating history;
limited and potentially inadequate cash resources; expropriation and other risks
associated with foreign operations; anticipated pipeline construction and
transportation of gas; matters affecting the oil and gas industry generally; lack
of availability of oil and gas field goods and services; environmental risks;
changes in laws or regulations affecting our operations, as well as other risks
described in our Annual Report on Form 10-K and subsequent filings with the
Securities and Exchange Commission.
SOURCE: Far East Energy Corporation
CONTACT: David Nahmias of Far East Energy Corporation,
+1-901-218-7770,
dnahmias@fareastenergy.com
(FEEC AOE.AX)
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