HOUSTON, March 14, 2012 /PRNewswire/ -- Far East Energy Corporation (OTCBB:FEEC) has filed its annual report on Form 10-K for the year ended December 31, 2011 and announced the results of its first independent SEC reserve report issued by RISC Operations Pty Ltd ("RISC") evaluating, as of December 31, 2011, the estimated proved, probable and possible coalbed methane gas reserves attributable to the three (3) target coal seams (#3, #9 and #15) in Far East Energy's 409,282 acre (1656.3 square kilometers) Shouyang Block, situated in Shanxi Province, China.
The Proved Reserves set forth in this report are attributable to approximately to 13,360 acres. The Probable and Possible Reserves set forth in this report are attributable to approximately to 85,502 acres, inclusive of the proved locations.
Commenting on the results of the report, Michael R. McElwrath, CEO and President of Far East Energy, stated: "Obviously, we are very pleased with these numbers. A major milestone has been achieved. 2011 was an exceptional year for Far East Energy with appraisal wells located in distant areas of our Shouyang Block showing significant potential, and the stage is set for a strong year in 2012."
The full text of the RISC report may be found on the website of Far East Energy atwww.fareastenergy.com. The estimates in the RISC report were prepared in accordance with the definitions and regulations of the U.S. Securities and Exchange Commission and the FASB Accounting Standards Codification Topic 932, Extractive Industries-Oil and Gas with the exclusion of future income tax and Chinese VAT.
Additional Information Regarding Estimates of Reserves
Pre-Tax PV10 and the standardized measure of discounted future net cash flows do not purport to be, nor should they be interpreted to present, the fair value of the coalbed methane reserves of the Shouyang project. An estimate of fair value would take into account, among other things, the recovery of reserves not presently classified as proved, the value of unproved properties, and consideration of expected future economic and operating conditions.
Estimated future production of Proved Reserves and estimated future production and development costs of Proved Reserves are based on current costs and economic conditions. Future income tax expenses are computed using the appropriate year-end statutory tax rates applied to the future pre-tax net cash flows from proved coalbed methane reserves, less the tax basis of Far East Energy. All wellhead prices are held flat over the forecast period for all reserve categories. The estimated future net cash flows are then discounted at a rate of 10%.
Pre-Tax PV10 for Proved Reserves may be considered a non-GAAP financial measure as defined by the SEC and is derived from the standardized measure of discounted future net cash flows for proved reserves, which is the most directly comparable US GAAP financial measure. Pre-Tax PV10 is computed on the same basis as the standardized measure of discounted future net cash flows for proved reserves but without deducting future income taxes. As of December 31, 2011, our discounted future income taxes were $2.8 million and our standardized measure of after-tax discounted future net cash flows for Proved Reserves was $62.6 million. We believe Pre-Tax PV10 is a useful measure for investors for evaluating the relative monetary significance of our coalbed methane properties. We further believe investors may utilize our Pre-Tax PV10 as a basis for comparison of the relative size and value of our Proved Reserves to other companies because many factors that are unique to each individual company impact the amount of future income taxes to be paid. Our management uses this measure when assessing the potential return on investment related to our coalbed methane properties and acquisitions. However Pre-Tax PV10 is not a substitute for the standardized measure of discounted future net cash flows. Our Pre-Tax PV10 and the standardized measure of discounted future net cash flows do not purport to present the fair value of our proved coalbed methane gas reserves.
Pre-Tax PV10 for Probable and Possible Reserve amounts above represent the present value of estimated future revenues to be generated from the production of Probable or Possible Reserves, calculated net of estimated lease operating expenses, production taxes and future development costs, using costs as of the date of estimation without future escalation and using 12-month average prices, without giving effect to non-property related expenses such as general and administrative expenses, debt service and depreciation, depletion and amortization, or future income taxes and discounted using an annual discount rate of 10%. With respect to Pre-Tax PV10 amounts for Probable or Possible Reserves, there do not exist any directly comparable US GAAP measures, and such amounts do not purport to present the fair value of our Probable and Possible Reserves.
It is not intended that Pre-Tax PV10 or the FASB's standardized measure of discounted future net cash flows for Proved Reserves represent the fair market value of Far East Energy's Proved, Probable or Possible Reserves. Far East Energy cautions that the disclosures shown above are based on estimates of Proved, Probable or Possible Reserve quantities and future production schedules which are inherently imprecise and subject to revision, and the 10% discount rate is arbitrary. In addition, costs and prices as of the measurement date are used in the determinations, and no value may be assigned to Probable or Possible Reserves. Estimates of economically recoverable coalbed methane reserves and of future net revenues are based upon a number of variable factors and assumptions, all of which are to some degree subjective and may vary considerably from actual results. Therefore, actual production, revenues, development and operating expenditures may not occur as estimated. The reserve data are estimates only, are subject to many uncertainties and are based on data gained from production histories and on assumptions as to geologic formations and other matters. Actual quantities of coalbed methane may differ materially from the amounts estimated.
Far East Energy Corporation
Based in Houston, Texas, with offices in Beijing, Kunming, and Taiyuan City, China, Far East Energy Corporation is focused on coalbed methane exploration and development in China. For additional information please visit, www.fareastenergy.com.
SOURCE Far East Energy Corporation
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