Initiating Date: 12-07-05
Initiating Price: $1.50
18-24 Month Price Target: $3.00
Far East Energy Corporation (NASDAQ BB:FEEC) is a Houston Texas based energy development company "formed to acquire explore, develop, and produce, oil and gas, with heavy emphasis on coalbed methane ("CBM"), which has emerged as a lower cost/lower risk/higher return resource". In addition to its headquarters in Houston, the company maintains satellite offices in Beijing, China, Taiyuan City, Shanxi Province, China and Kunming, Yunnan Province, China.
"Far East Energy began operations on December 31, 2001. The company's early efforts focused on the evaluation of domestic and global opportunities to develop natural gas and coalbed methane natural gas properties. Upon the completion of substantial examination and due diligence for CBM opportunities, FEEC, on January 25, 2002, entered into two Product Sharing Contracts with China United Coalbed Methane Corporation, Ltd. ("CUCBM"), which has exclusive authority over all CBM gas in China. FEEC and CUCBM will jointly explore, develop, produce and sell CBM via operations concentrated in approximately 1,057,000 acres in the Shanxi Province in Northern China, as well as in 265,000 acres in the Yunnan
Province in Southern China. The company received final approval of the farmout agreements from the Ministry of Commerce in China, in March 2004 and is now proceeding with testing and drilling programs." Along with China United Coalbed Methane Company on both prorperties, ConocoPhillips (NYSE:COP) is also a partner with FEEC in the Shanxi province.
Over the past 18 months, the company has drilled a handful of wells in the aforementioned farmouts, which when combined with information from previous developers has resulted in some highly positive data sets. Moreover, throughout the year, the company has raised over $30 million worth of equity capital to further the company's development, principally the drilling of additional wells in China.
In my view the strength of the FEEC story lies in the convergence of a handful of notions. These include, the evolution of China's political environment leading to broad implications for foreign investment in the country, the rapid growth in China's underlying economy resulting in significant increases in its overall energy needs, the negative impact of the country's breakneck growth in terms of environmental and other issues, the existance of vast domestic CBM reserves in-country, technological advances that make CBM exploitation more viable and a host of others. In this report, I have attempted to delineate these notions as well as their relationships to each other and more specifically to FEEC. Again the convergence of these issue, and my perception of how FEEC fits in the middle of them is the basis for my enthusiasm for the company.
DISCLAIMER STATEMENT
The information contained in this report has been written by David Lavigne of EdgeWater Research Partners LLC ("Edgewater") and has been derived from sources considered reliable, but cannot be guaranteed by us. Edgewater and Lavigne are not aware of any material conflict of interest known at the time of the publication of this report. Financial projections and estimates herein represent our independent analysis based upon information in conjunction with the Company's publicly available financial statements. Edgewater and Lavigne may maintain positions in the securities referenced, which may change at any time without notice. Edgewater does not receive fees, warrants or any other compensation from issuers in connection with its research. It does however, encourage issuers and it representatives to subscribe to Edgewater's research, and from time to time, issuers and or their representatives may also purchase individual copies of Edgewater's research products. Edgewater and Lavigne may own options, rights or warrants to purchase any of the securities of the Company. This report is for informational purposes only and is not to be construed as specific investment advice or recommendations, nor as an offer to sell or a solicitation of an offer to buy any securities. The securities referenced are speculative in nature and may not be suitable for your specific investment objective. For specific investment advice or recommendations, please consult with your investment representative.
