Houston-based Far East Energy Corp. said Tuesday that it has entered into a letter of intent with American Oil & Gas Inc. to acquire its Newark Valley Oil & Gas Inc. subsidiary. Under the tax-free reorganization, Far East will acquire Newark’s natural gas interests in northeast Montana. The deal was effective Nov. 9.

Located in the Bowdoin Dome shallow gas prospect, the acquired property consists of approximately 129,000 net acres with a recoverable natural gas potential of 225 Bcf. Drilling is slated for early next year. The acquisition will primarily be a stock transaction, with nominal cash committed.

“This is an exciting project for Far East Energy and its shareholders,” said Lal Gondi, Far East’s CEO. “The acquisition of Newark Valley Oil & Gas will allow us to gain a quicker path to revenues and maintain our continued pursuit of building shareholder value through the acquisition and development of attractive natural gas assets managed by a world-class management team.”

The Bowdoin Dome has produced 250 Bcf from 1,200 wells (avg. 200 MMcf/well). The U.S. Geological Survey estimates total gas resources in excess of 500 Bcf for the field. Far East said the producing analogy for field extension comes from the Medicine Hat/Southeast. Alberta shallow gas fields in Canada where reserves greater than 2.5 Tcf have been established from equivalent-age shallow sands.

“In my opinion, the acquisition of Newark Valley Oil & Gas is considered a low-risk opportunity and provides the potential for favorable production and distribution to market,” said Joe Cooper, Far East’s vice president of CBM [coalbed methane] Operations. “We will have excellent access to nearby pipelines with available capacity where we expect demand for gas will continue to grow.”

Far East rationalized the acquisition because gas demand continues to rise. The company pointed to the Energy Information Administration’s (EIA) “Advance Summary 2001 U.S. Reserve Report,” which stated that even though gas reserves rose 3.4% in 2001, the reserves-to-production ratio for gas is forecasted at 9.3 years.

“With this acquisition, we are now in a position to obtain production revenues in 2003,” said Bill A. Jackson, Far East’s president. “The accelerated revenue attributed to this acquisition along with our growing presence in China provide both a strong foundation and great opportunity for continued growth of Far East Energy and position us as a leader in coalbed methane and natural gas developments on a global basis. We look forward to working with our U.S. and Chinese partners, and are eager to help meet the demand for CBM and natural gas in those regions.”

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