History
Far East Energy spent fourteen years and mostly shareholders' money chasing Chinese coalbed methane, never reached commercial production, and collapsed into Chapter 7 liquidation in 2015 owing about $123 million.
2002-2004: Contracts and first wells
Far East Energy set out to find coalbed methane, gas held in coal seams, in China. In June 2002 it signed a joint venture with Panjiang Coal-Electricity to capture gas from six working coal mines over 120 square kilometres, agreeing to pay $3.3 million over three years. In January 2003 China's commerce ministry ratified its production sharing contract with state partner CUCBM, covering 1,072 square kilometres at Enhong and Laochang in Yunnan. Drilling of the first exploration wells there began in November 2003.
The company also bought a US asset. Under a deal dated 31 December 2002 it acquired Newark Valley Oil & Gas from North American Oil and Gas for 1.6 million restricted shares and $600,000 in instalments, gaining about 147,535 net acres of undeveloped Montana rights. The filing reporting the deal said the financial statements would follow later.
2004-2005: Missed deadlines and a restructure
In December 2004 the company had to renegotiate its farmout agreements with Phillips China on the Qinnan and Shouyang blocks, buying more time to finish its work. It was the first of many missed drilling deadlines. The same week, overseas investors put in $10.25 million for units of two shares plus a warrant, money meant for horizontal drilling in 2005. In January 2005 the escrow backing its drilling obligations was restated, and would grow by $1.6 million to $2.6 million if the first horizontal well was late.
In February 2005 it sold the Montana leases and royalties for $1.135 million, leaving a pure bet on China. In June shareholders approved moving the China business into a Bermuda subsidiary, Far East Energy (Bermuda), Ltd. In September it raised $10.9 million selling 12.1 million shares, and in October CUCBM agreed to extend the Yunnan exploration deadline to June 2007.
2006-2008: New deadlines and a World Bank investor
Another private placement followed in July 2006, raising $8.94 million from 6.6 million shares at about $1.35. In April 2007 three agreements extended the exploration periods on Shouyang, Qinnan and Yunnan, and China's commerce ministry approved all three in June.
In August 2007 the International Finance Corporation, the World Bank's private-sector arm, bought $15 million of stock, 11.5 million shares plus warrants at $2.61. In March 2008 the company appointed Phil Christian, a BP operations manager, as president and chief operating officer of the Bermuda subsidiary to get the wells drilled.
2009-2011: Falling prices and a rolled note
In March 2009 Arrow Energy paid $10 million for an exchangeable note from the Bermuda subsidiary plus warrants over 7.4 million shares, and was to receive 75.25% of the company's rights in Qinnan. In August 2009 Beijing extended the Shouyang and Yunnan exploration periods to June 2011.
Then the raisings came quickly at falling prices: units at $2.12 for five shares and a warrant in December 2009 (roughly 42 cents a share), $0.43 a share in March 2010, and in August 2010 Macquarie placed 105.5 million shares at $0.33, roughly doubling the share count. In June 2010 a gas sales contract for Shouyang gas was signed between CUCBM and a Shanxi provincial gas group, the first firm route to market. In March 2011 shares sold at $0.5025 through Religare, a higher price than the last. That month Arrow's note, now held by Dart Energy, fell due and could not be repaid, so maturity was pushed to September 2011.
2011-2013: Bank debt and the 13% notes
In December 2011 Standard Chartered provided a $25 million facility to the Bermuda subsidiary, guaranteed by the parent, for Shouyang costs. The initial term was nine months. In 2012 the company handed back the Enhong block, keeping the 483 square kilometre Laochang block, and Shouyang's exploration period was extended to June 2015.
Unable to repay at maturity, the company won short deferrals from the bank in November and December 2012 while it arranged a refinancing. In January 2013 it raised $60 million of senior secured notes with warrants, paying 13% in cash or 14.5% in more notes, due January 2016. In December 2013 CUCBM extended Shouyang exploration to June 2016, but only in return for a commitment to drill at least 39 more wells.
2014-2015: Month-by-month reprieves and liquidation
From November 2014 the bank deferred interest as well as principal, and extended the loan again and again, often a month or less at a time, thirteen extensions in all. In 2015 the company took unsecured working capital loans of $1.4 million (February), $4 million (April) and another $4 million (June). In September a $16.3 million facility was arranged, $8.8 million of it used to repay those three loans. In October Standard Chartered sold its position to the same lender group, which extended maturity to March 2016.
On 10 November 2015 Far East Energy filed for Chapter 7 liquidation after failing to sell or restructure itself, placing its assets in a trustee's hands. The filing defaulted about $123 million of debt: $23.2 million on the bank facility, $10.8 million on the working capital loans and $89.1 million on the notes. Both remaining officers ceased to hold office, and the company ended without commercial production.
Written from the 46 story beats below (2002 to 10 Nov 2015), which come from the company's own announcements and filings.