Far East Energy Announces MofCom Approval for Shouyang Block Extension, Certification of Chinese Reserves and Additional Borrowing Capacity Under Standard Chartered Bank Credit Facility

HOUSTON, July 9, 2012 /PRNewswire/ -- Far East Energy Corporation (OTCBB: FEEC) announced today that the Modification Agreement extending the exploration period of its Production Sharing Contract (PSC) for coalbed methane (CBM) in the Shouyang Block in Shanxi Province has received formal approval from the Ministry of Commerce (MofCom) of the People's Republic of China (PRC).

Among other provisions, the Modification Agreement with China United Coalbed Methane Corporation (CUCBM) provides a four-year extension of the exploration period for approximately 297,415 acres (approximately 1203.6 square kilometers) until June 30, 2015, and a two-year extension for approximately 121,080 acres (approximately 490 square kilometers) until June 30, 2013.

Michael R. McElwrath, CEO and President, said, "We are tremendously pleased to have received MofCom's formal approval of the Modification Agreement, especially the provision that extends the exploration period for the most prospective acreage by four years. We believe that a four-year extension of the exploration period is unprecedented in the PRC (the customary period is two years) and attribute this to our diligent and successful efforts in exploring the Shouyang Block and establishing the existence of high gas content and high permeability coal seams. We engaged in extensive negotiations to obtain the four-year extension for our most prospective acreage, which was well worth the wait because we viewed the four years to be of paramount importance in enhancing our ability to retain the best acreage for the remaining 20 years of the PSC with an aggressive exploration program."

McElwrath continued, "We have drilled twenty appraisal wells covering every area of the block except the southwestern quadrant, which is very deep and for which we accepted a two-year extension. The results from our appraisal wells indicate that the Shouyang Block contains an extensive area of coal seams that are both extremely high in gas content and high in permeability. With additional drilling of exploratory and appraisal wells during the four-year extension period, we believe we will have sufficient wells to retain all or most of what may be the most highly prospective CBM acreage in China. Our partner in the Shouyang Block, CUCBM, has pioneered CBM exploration in China and been an exceptional partner through the years. With additional backing by CNOOC and the significant demand for natural gas in the nearby metropolitan area of Taiyuan City and elsewhere, CUCBM has become even more supportive as together we open a new chapter in CBM development."

As a result of MofCom's approval of the Modification Agreement, the remaining amount of the $25 million Standard Chartered Bank loan facility is available for borrowing subject to the terms of the facility agreement.

Far East Energy also announced that the Chinese Ministry of Land Resources (MLR) recently certified Chinese proved reserves for an approximately 100 square kilometer area (approximately 24,710 acres) in the Shouyang Block, which covers its 1H Pilot Area and a westward extension thereof. As previously announced, CUCBM and Far East exercised rights under the PSC to apportion participating and operating interests in this area. CUCBM elected to forego its participation rights in approximately 65 square kilometers (approximately 16,060 acres) in this area. Far East elected to forego its rights in approximately 35 square kilometers (approximately 8,650 acres) of the area, and CUCBM may proceed independently at its sole risk to develop that 35 square kilometers. The 65 square kilometer area in which CUCBM will not participate contains all of the wells in the 1H Pilot Area and the planned expansion thereof.

"The certification of Chinese reserves is another very significant development because this is the foundation for development and approval of an Overall Development Plan (ODP) for the area," said McElwrath. "An approved ODP will allow us to retain the right to produce this acreage for the full duration of the PSC, which runs until 2032. With a four year-extension of the exploration period on our prime acreage now secured and additional borrowing capacity under our credit facility, our strategy is to rapidly develop the existing Chinese reserves area to enhance our production and revenues, while also drilling a sufficient number of appraisal wells across the Shouyang Block to establish multiple additional reserves areas, which should allow us to retain the acreage to the end of the PSC term."

McElwrath concluded, "China promises to be the fastest growing market for natural gas in the world over the next decade, and while domestic supplies of conventional gas may be limited, it has enormous, largely untapped resources of unconventional gas. Beyond the potential of the Shouyang Block itself, Far East Energy is also uniquely positioned as one of the few foreign operators with a pipeline agreement in place to take its gas to market with favorable pricing. This multi-year approval from MofCom, coupled with certification of Chinese reserves by the MLR, now positions Far East Energy to move forward with great confidence."

Far East Energy Corporation

Based in Houston, Texas, with offices in Beijing, and Taiyuan City, China, Far East Energy Corporation is focused on coalbed methane exploration and development in China.

Statements contained in this press release that state the intentions, hopes, estimates, 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: the preliminary nature of well data, including permeability and gas content; there can be no assurance as to the volume of gas that is ultimately produced or sold from our wells; the fracture stimulation program may not be successful in increasing gas volumes; due to limitations under Chinese law, we may have only limited rights to enforce the gas sales agreement between Shanxi Province Guoxin Energy Development Group Limited and CUCBM, to which we are an express beneficiary; additional wells may not be drilled, or if drilled may not be timely; additional pipelines and gathering systems needed to transport our gas may not be constructed, or if constructed may not be timely, or their routes may differ from those anticipated; the pipeline and local distribution/compressed natural gas companies may decline to purchase or take our gas, or we may not be able to enforce our rights under definitive agreements with pipelines; conflicts with coal mining operations or coordination of our exploration and production activities with mining activities could adversely impact or add significant costs to our operations; our inability to comply with certain quarterly financial covenants, periodic information requirements (including periodic updates on strategic transactions and refinancing plans), satisfy certain continuing representations, or remedy a material adverse effect to our business or to certain other conditions could result in an early termination of the credit facility and require immediate repayment of all outstanding amounts thereunder; our lack of operating history; limited and potentially inadequate management of our cash resources; risk and uncertainties associated with exploration, development and production of coalbed methane; our inability to extract or sell all or a substantial portion of our reserves and other resources; we may not satisfy requirements for the listing of our securities on a securities exchange; expropriation and other risks associated with foreign operations; disruptions in capital markets affecting fundraising; matters affecting the energy industry generally; lack of availability of oil and gas field goods and services; environmental risks; drilling and production risks; changes in laws or regulations affecting our operations, as well as other risks described in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and subsequent filings with the Securities and Exchange Commission. Statements contained in this press release speak only as of the date hereof. We assume no obligation to update any of these statements.