Exhibit 10.01
Xxxxxxxx China Inc.
000 X. Xxxxx Xxxxxxx Xx.
Xxxxxxx, Xxxxx 00000
December 17, 2004
Xx. Xxxxxxx X. XxXxxxxxx
Chairman & CEO
Far East Energy Corporation
000 X. Xxx Xxxxxxx Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Re: Qinnan PSC - Second Amendment to Farmout Agreement between Xxxxxxxx China
Inc. ("PCI") and Far East Energy Corporation ("FEEC")
Dear Xx. XxXxxxxxx:
The purpose of this second amendment agreement ("Second Amendment") is to modify
some of the terms and conditions of the Farmout Agreement for the Qinnan PSC
that was executed by and between PCI and FEEC on June 17, 2003, as amended on
December 15, 2003 (the "Qinnan Farmout Agreement").
The capitalized terms used in this Second Amendment that are not otherwise
defined herein shall have the same meaning assigned to them in the Qinnan
Farmout Agreement and the Qinnan PSC.
1. The term of this Second Amendment shall commence on the date first written
above and shall terminate on the same date on which the Qinnan Farmout Agreement
terminates.
2. FEEC has informed PCI that it has obtained CUCBM's agreement to extend the
term of phase one of the exploration period until January 31, 2005, and that, if
FEEC commits to enter into phase two of the exploration period, phase two will
be extended until December 31, 2005. FEEC hereby undertakes to provide PCI with
written evidence of such extensions.
3. As a consequence of FEEC's desire to modify its obligations under the Qinnan
Farmout Agreement in phase one and FEEC's preference to drill horizontal xxxxx
in lieu of vertical xxxxx in phase two, the parties have agreed to a modified
work program as outlined in Attachment A and as further described as follows:
a. Phase two will consist of drilling two (2) horizontal xxxxx, for which
FEEC shall (i) perform all of the necessary engineering work and (ii)
use its best commercial efforts to drill each well to 4,000 meters of
horizontal drilling in coal seam with a minimum requirement of 2,000
meters drilled in coal seam per well;
b. Phase three will consist of drilling one (1) horizontal well with FEEC
attempting to drill such well to 4,000 meters of horizontal drilling
in coal seam; and
c. The total work commitment for FEEC in phases two and three will
consist of a combined total of 12,000 meters of horizontal drilling in
coal seam for the three (3) xxxxx combined.
4. Article 6.4 of the Qinnan Farmout Agreement shall be amended to read as
follows:
"6.4 (a) FEEC shall provide PCI with a performance guarantee covering
all aspects of FEEC's performance during the first phase and the second phase of
the exploration period under the PSC, the Shouyang PSC, this Agreement and the
Shouyang Farmout Agreement, which guarantee shall take the form of an escrow
account that will be opened at a bank that is acceptable to PCI, in its sole
opinion. The escrow account for the first phase of the exploration period shall
be for a total of $1,000,000, covering costs incurred under Articles 6.5 and 6.8
below, which
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shall be opened within thirty (30) days after the Approval Date, and shall
remain open through January 31, 2005, unless FEEC extends into the second phase
of the exploration period, in which case the escrow account shall remain open
until December 31, 2005. In the event FEEC exercises the option to extend into
the second phase of the exploration period of the PSC as contemplated in Article
6.6 below, the amount required to be held in the escrow account shall continue
to be $1,000,000, to cover the costs to be incurred under Articles 6.6 and 6.8
below until June 30, 2005. In the event that FEEC has not completed the drilling
of the first horizontal well under phase two by June 30, 2005, then FEEC shall
increase the escrow account to $2,600,000 to cover the costs to be incurred
under Articles 6.6 and 6.8 below.
(b) In the event that FEEC does extend into the second phase of the
exploration period, notwithstanding the requirement to increase the amount of
the escrow account to $2,600,000 on June 30, 2005, subject to certain events
described in Article 6.4(a) above, FEEC shall have the right, each time subject
to the prior written consent of PCI, to drawdown amounts required to fund
operations in the second phase after June 30, 2005. Each such drawdown shall not
exceed $250,000."
5. Article 6.5 is hereby amended by rewriting it as follows: "In phase one, FEEC
shall and shall perform fracture stimulation and production testing of one (1)
well (QN 002) in the eastern portion of the Qinnan Block."
6. Article 6.6 is hereby amended by rewriting the third sentence as follows:
"The minimum work commitment for the second phase requires the drilling and
testing of two (2) horizontal xxxxx, for which FEEC shall (i) perform all of the
necessary engineering work and (ii) use its best commercial efforts to drill a
minimum of 4,000 meters of horizontal drilling in coal seam per well, in either
the Qinnan Block or the Shouyang Block. While FEEC shall (i) perform all of the
necessary engineering work and (ii) use its best commercial efforts to drill
each of these xxxxx to 4,000 meters of horizontal drilling in coal seam, PCI
agrees that FEEC may drill less than 4,000 meters horizontally if technical
problems are encountered as long as the total horizontal drilling is at least
2,000 meters per well."
7. The parties agree to immediately enter into negotiations with CUCBM regarding
the corresponding required amendments to the Qinnan PSC and Shouyang PSC.
8. This Second Amendment constitutes an amendment to the Qinnan Farmout
Agreement. Neither Party may make any press releases or other public disclosures
of the existence or the contents of this Second Amendment without the prior
written consent of the other Party, except that either party may disclosure
limited amounts of information as required by applicable laws and regulations
and as may be required by financial institutions and stock exchanges.
9. This Second Amendment shall be construed and interpreted in accordance with
the laws of the State of Texas, U.S.A., except those laws that would apply the
laws of another jurisdiction. Any dispute between the Parties arising out of or
relating to this Second Amendment, which cannot be settled amicably by the
Parties, shall be submitted to arbitration in accordance with the provisions of
Article 12 of the Qinnan Farmout Agreement.
10. This Second Amendment shall inure to the benefit of and be binding upon the
successors and assigns of the Parties.
11. Except as otherwise provided in this Second Amendment, the Qinnan Farmout
Agreement shall remain unaltered and in full force and effect.
If the foregoing accurately reflects your understanding of this Second
Amendment, please indicate your acceptance by signing and dating this letter
agreement in the space provided below and return one executed copy to PCI.
Sincerely yours,
XXXXXXXX CHINA INC.
By: /s/ X. X. Xxxx
-----------------------------------
Name: X. X. Xxxx
Title: Vice President
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AGREED TO AND ACCEPTED
this 17th day of December, 2004
FAR EAST ENERGY CORPORATION
By: /s/ Xxxxxxx X. XxXxxxxxx
-----------------------------------
Name: Xxxxxxx X. XxXxxxxxx
Title: Chairman & CEO
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Attachment A
Summary of Farmout Requirements vs. Revised JMC Work Commitments -- (000's)
Farmout Original Revised PSC
Commitment Work Obligation
---------- ---------------
PHASE I
Frac and test the 3
Qinnan xxxxx $1,125
Frac and test one
Qinnan well (QN-002) $375
Escrow Required ($1 million)
PHASE II-
Drill and test 3 vertical
Xxxxx $1,050
------
Drill and test 2 horizontal
Xxxxx (minimum 4,000 meters) $2,600
------
(Either Qinnan or Shouyang Block)
Escrow Required ($2.6 million)
TOTAL COST ESTIMATES
PRIOR TO PCI ELECTION $2,175 $2,975
PHASE III --
Drill 12 vertical pilot xxxxx $3,600*
Drill and test one horizontal well $1,300
(Either Qinnan or Shouyang Block)
* Based on PSC estimates of original plan for the pilot project.
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