Far East Energy Corp (FEEC) may be a company to keep an eye on right now. Its shares have moved higher by more than 50% over the past few weeks, propelled by volume well over the norm and backed by news that indicates additional growth and maybe bigger news may be pending.
The management team for Far East Energy is based in the United States, but the company holds very significant interests and has product sharing agreements relating to three of China’s largest coalbed methane (CBM) fields. Coalbed methane is a type of natural gas that is extracted from - you guessed it - coalbeds and burns significantly cleaner than coal, an important factor to consider as Far East looks to take advantage of the huge - and still growing - energy demands of the Chinese population.
China has already taken over the top spot in energy consumption from the United States and is not only looking to grow its domestic energy resources, but to do so while trending towards cleaner energy, too. Coalbed methane allows the country to accomplish both goals, as it is estimated that China holds the world's largest reserves of CBM, according to statements made in a recent company presentation.
In what should be considered very big news for the company - and what could be the fuel behind the recent share price run - Far East announced earlier this month that the Ministry of Commerce (MofCom) of the People’s Republic of China (PRC) has approved the extension of the company's existing agreement in relation to its contracts, most notably the portion that authorizes a four year extension on the exploration period for FEEC.
Michael R. McElwrath, CEO and President of Far East Energy noted the following in an early-July press release announcing the news:
"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. 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."
Also resulting from the MofCom approval is the availability of the remaining amount of a $25 million Standard Chartered Bank loan facility.
Another solid preparatory note is that the company has already secured a 20 year gas sales contract and is thought to be the first foreign CBM operator in China to secure the pipeline access for development on the scale of which Far East Energy is planning.
Volume has tapered off a bit this week, following some very heavy trading sessions, but with the business plan evolving according to plan and with big news emerging in terms of the extension of the exploratory period granted Far East Energy, this could be a hot one to watch during the coming weeks and months.
With the valuation of the CBM reserves that Far East and its partners may be sitting on, it's highly likely that this company could become the acquisition target of a big player in the oil and gas industry. Should such a scenario take shape, it's also likely that any sale would be valued at a much higher market cap than where FEEC currently trades.
The global trend is shifting towards cleaner-burning gas and the trend in China is to utilize more domestic oil and gas resources. Far East Energy sits right in the middle of both trends and could be positioned to capitalize.
One to watch. Also keep an eye on both Capstone Turbine (CPST) and FuelCell Energy (FCEL) in the cleaner-energy sector. Both are trading for prices that have historically shown to be decent buys, and both have demonstrated positive trends towards profitability that has investors believing that another rebound could be in store.
Disclosure: No position, but may take a long position within the next 72-hours.
Contact VFC's Stock House: vfc@vfcsstockhouse.com
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