Far East Energy Corp. has negotiated an agreement with its partner, China United Coal Bed Methane and Shanxi Provincial Guoxin to sell all production of coalbed methane (CBM) from the contract area covered by the Shouyang Production Sharing Contract. Far East will gfet 1.55 Rmb per cubic meter of gas, including new Chinese government subsidies, which equates to roughly $6.55 per Mcf.

Michael R. McElwrath, CEO and president of Far East Energy noted that the gas price is about 35% higher than the $4.80 per Mcf currently in the US. "This is one of the advantages of producing CBM in China, and we are pleased to sign a gas sales contract with a pipeline that has the capacity to take up to 40 to 50 million cubic feet per day of our Shouyang gas," he said.

The GSA is a 20-year agreement that provides that SPG is required to purchase all gas produced from the Shouyang Block up to 300,000 cubic meters (10,584,000 cubic feet) per day of CBM gas on a take-or-pay basis with any quantities above such amount to be negotiated pursuant to a separate agreement. 

Gas sales are expected to commence upon completion of Far East's in-field gathering system, which will interconnect with SPG's 18-inch diameter line in Shanxi Province that is currently under construction and is scheduled to be completed by September or October 2010.

"We have pursued this gas sales contract tenaciously, but have also been incredibly fortunate," said McElwrath. "Our great good fortune arose from the circumstance that SPG was already routing a pipeline between Yuxian and Jinzhong passing very near our Shouyang Pilot Development; and then was sufficiently hungry for gas to be willing to build a short connecting line at its expense. SPG was also willing to commit to take all volumes that we produce (or pay for any gas not taken)."

"Furthermore," continued McElwrath, "it is remarkable that we can move straight from early-stage gas production to pipeline sales. In China, first gas must nearly always be sold as compressed natural gas (CNG)."

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.