UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ________________________

Commission File Number 0-32455

Far East Energy Corporation

(Exact Name of Registrant as Specified in Its Charter)

Nevada	88-0459590
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
333 N. Sam Houston Parkway East, Suite 230, Houston, Texas	77060
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (832) 598-0470

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered under 12(g) of the Exchange Act: Common stock (par value $0.001 per share)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes o  No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ   No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):  Large accelerated filer o    Accelerated filer  þ    Non-accelerated filer o   Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes o No þ

The aggregate market value of the voting common stock, par value $0.001 per share, held by non-affiliates of the registrant was approximately $72,405,000 as of June 30, 2013 (based on $0.21 per share, the last price of the common stock as reported on the OTC Bulletin Board on such date). For purposes of the foregoing calculation only, all directors, executive officers and 10% beneficial owners have been deemed affiliates.

The number of shares of common stock, par value $0.001 per share, outstanding as of February 28, 2014 was 346,029,370.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for the 2014 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K.

FAR EAST ENERGY CORPORATION

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	35
Item 2.	Properties	36
Item 3.	Legal Proceedings	41
Item 4.	Mine Safety Disclosure	41
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	42
Item 6.	Selected Financial Data	44
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	60
Item 8.	Financial Statements and Supplementary Data	61
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	93
Item 9A.	Controls and Procedures	93
Item 9B.	Other Information	93
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	94
Item 11.	Executive Compensation	94
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	94
Item 13.	Certain Relationships and Related Transactions and Director Independence	95
Item 14.	Principal Accountant Fees and Services	95
PART IV
Item 15.	Exhibits and Financial Statement Schedules	96
	SIGNATURES

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PART I

ITEM 1. BUSINESS

We were incorporated in Nevada on February 4, 2000. In January 2002, we renamed our company Far East Energy Corporation and changed our focus to exploring, developing, producing and selling coalbed methane gas ("CBM"). Throughout this Annual Report on Form 10-K, the terms "Far East Energy," "Far East," "we," "the Company," "us," "our" and "our company" refer to Far East Energy Corporation and its subsidiaries. References to FEEB refer to Far East Energy (Bermuda), Ltd., our principal operating subsidiary. References to "China" and "PRC" are references to the People's Republic of China. References to the "MofCom" are references to the Chinese Ministry of Commerce, the principal regulatory authority with oversight responsibility for our production sharing contracts. References to the "MLR" are references to the Chinese Ministry of Land and Resources, the principal regulatory authority for the exploration, development and production of oil and gas resources in China. References to "CUCBM" are references to China United Coalbed Methane Company, Ltd, and references to "CNPC" are references to China National Petroleum Company. Throughout this Annual Report on Form 10-K, we use the term "our Chinese partner company" when referring to CUCBM or CNPC/PetroChina, as applicable. Currently, the operations of our company and its subsidiaries concentrate on CBM exploration and development in the Shanxi Province in northern China and Yunnan Province in southern China. Our goal is to become a recognized leader in CBM property acquisition, exploration, development and production in China. Our principal headquarters office is located at 333 North Sam Houston Parkway East, Suite 230, Houston, Texas 77060. Our main office in China is located in Beijing.

We are a party to three production sharing contracts ("PSCs") in China, under which we were granted the right to explore and potentially develop the 288,569 acre (1,167.8 square kilometers) Shouyang Block in Shanxi Province (the "Shouyang PSC"), the Laochang Area, which totals 119,327 acres (482.9 square kilometers ) in Yunnan Province (the "Yunnan PSC") and the 573,000 acre (2,318.8 square kilometers ) Qinnan Block also in Shanxi Province (the "Qinnan PSC").

 As of December 31, 2013, we had estimated net proved gas reserves of 67.5 billion cubic feet (“Bcf”) with an associated standardized measure of our future net cash flows of proved reserves, discounted at 10 percent per annum of $151.8 million. This represents an increase of 32% over the net proved gas reserves of 51.3 Bcf as of December 31, 2012. As of December 31, 2013, total net probable reserves were estimated to be 372.4 Bcf.

In 2013, we accelerated our work to explore for and develop CBM production on our Shouyang PSC. Forty five production wells and 25 appraisal wells were drilled to total depth, with 9 of those appraisal wells fracture stimulated (fraced). Of these 45 production wells and 9 fraced appraisal wells, 53 wells had production facilities installed and were producing water and/or gas.  At the peak of our drilling activity, in the month of June 2013, our contractors had 30 drilling rigs operating on the Shouyang Block.

Gas sales volume, net to the Company, was 231.8 million cubic feet (“MMcf”) for the year ended December 31, 2013, representing a decrease of 28 MMcf, or 12%, as compared to the same period for the prior year. This decrease is partially attributable to intermittent interruptions from the power supply to our pumps and compressors as the province engaged in upgrades to the regional power infrastructure in the first several months of 2013. Gas sales volume, net to the Company, was 26.0 MMcf for the month of December 2013, an increase of 271% compared to the month of June 2013, and gas sales volume has risen to 35.1 MMcf for the month of February 2014.  Due to increased operating efficiencies, lease operating expense per productive well in Shouyang decreased 41% during 2013 compared to 2012.

We believe that good environmental, social, health and safety performance is an integral part of our business success. We conduct our business with respect and care for our employees, contractors, communities, and the environments in which we operate. We continued to employ numerous safety precautions to ensure the safety of our employees and independent contractors. We also seek to conduct our operations in accordance with various laws and regulations concerning the environment, occupational safety and health.  Our goal is zero harm to people and the environment while creating value for our shareholders as well as for China, including the regions and communities within which we operate. Our commitment to these principles is demonstrated by the fact that we have had no recorded lost-time accidents in over nine years and no major environmental incidents. We have a commitment to being good corporate citizens of China, striving to emphasize and utilize very high levels of Chinese content in

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personnel, services, and equipment; and we have achieved very high percentages of Chinese content in each category.

As provided to date, the exploration period of Area A (approximately 15,988 acres or 64.7 square kilometers) of the Shouyang PSC does not expire; while the Exploration Period of Area B (approximately 272,581 acres or 1,103.1 square kilometers) of the Shouyang PSC does not expire until June 30, 2016.  Pursuant to the provisions of the Fifth Modification Agreement of the Shouyang PSC, the exploration period for Area A will automatically be extended on the original expiration date of June 30, 2015, as we have submitted a report detailing CBM resources to CUCBM that reasonably complies with the Chinese CBM resource standards.  The report was submitted in connection with the development of an overall development plan and such report was subsequently approved and certifications were received from all requisite levels of the MLR. Additionally, we relinquished 121,255 acres (approximately 490.7 square kilometers) known as Area C in June 2013.  See “Shouyang PSC” below for further discussion.

On June 12, 2010, CUCBM and Shanxi Province Guoxin Energy Development Group Limited ("SPG") executed the Shouyang Project Coalbed Methane Purchase and Sales Contract (the "Gas Sales Agreement"), to which we are an express beneficiary, to sell CBM produced in the CBM field governed by the Shouyang PSC. Pursuant to the Gas Sales Agreement, SPG is initially required to purchase up to 300,000 cubic meters (10.584 MMcf) per day of CBM (the "Daily Volume Limit") produced at the Shouyang Block on a take-or-pay basis, with the purchase of any quantities above such amount to be negotiated pursuant to a separate agreement.  The term of the Gas Sales Agreement is 20 years.  The price received from SPG for CBM under the Gas Sales Agreement was 1.20 Chinese Renminbi (“RMB”) per cubic meter (or $5.56 per thousand cubic feet (“Mcf”), inclusive of $0.63 for value-added tax (“VAT”) and $0.08 for provincial taxes, based on the December 31, 2013 currency exchange rate, before any applicable subsidies). Additionally, the Chinese government and Shanxi provincial authorities enacted subsidies equal to 0.20 RMB and 0.05 RMB per cubic meter, respectively, for a total of 0.25 RMB per cubic meter. The price received by CUCBM and FEEB, including subsidies for gas sales, was 1.45 RMB per cubic meter. The total price received was $6.55 per Mcf after taxes.  Effective January 1, 2014, the contract price is 1.7 RMB per cubic meter, and the price received by CUCBM and FEEB, including subsidies for gas sales, is 1.95 RMB per cubic meter. The total price received is approximately $9.04 per Mcf after taxes, based on the December 31, 2013 exchange rate.  One hundred percent (100%) of the Company’s production is sold to SPG.

The per day sales volumes for each year in the two-year period ended December 31, 2013 were below the Daily Volume Limit. Gas sales volume, net to the Company, during 2013 was 231.8 MMcf compared to 260.4 MMcf in 2012. See "Shouyang PSC" below.

The exploration period of the Yunnan PSC expired on December 31, 2013. See "Yunnan PSC" below for further discussion.

The exploration period under the Qinnan PSC expired on June 30, 2009, and we cannot continue our exploration activities in the Qinnan block without an extension of the exploration period or a new PSC. We are continuing to pursue an extension of the exploration period of the Qinnan PSC, and are currently engaged in discussions with PetroChina on this matter, but we cannot be optimistic at this time. We believe the underlying exploration period should be extended due to events beyond our reasonable control, namely the lengthy transfer of rights taking place from CUCBM to CNPC. See "Qinnan PSC" below for further discussion of our efforts to secure an extension of the exploration period for the Qinnan PSC.

On November 28, 2011, FEEB entered into a Facility Agreement, as borrower, with Standard Chartered Bank ("SCB"), as lender, and the Company, as guarantor (the "Facility Agreement"). The Facility Agreement provided for a $25 million credit facility to be used for project costs with respect to the Shouyang Area in Shanxi Province, China (the “Shouyang Area”), finance costs and other general corporate purposes approved by SCB.  The Facility Agreement had an initial 9-month term and was subsequently extended. At December 31, 2013, the Facility Agreement was drawn in full.

On January 14, 2013, the Company sold senior secured notes of FEEB (the "Notes") and warrants to purchase common stock of FEEC (the "Warrants") to certain institutional investors for $60,000,000 of gross proceeds in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the

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"Securities Act") pursuant to Section 4(a)(2) thereof and Regulation S thereunder (the "Private Placement"). The Private Placement closed on January 15, 2013.

On January 15, 2013, the Company entered into the Fifth Amendment to the Facility Agreement (the "Fifth Amendment"), to provide for the extension of the maturity date of the Facility Agreement until January 15, 2014. The Fifth Amendment was subject to the repayment of $4.125 million of the outstanding principal amount and the repayment of $0.7 million of capitalized interest under the Facility Agreement. The total amount of outstanding principal and capitalized interest under the Facility Agreement prior to the repayment of such amount was $25.8 million (which included $125,000 borrowed on January 11, 2013). In addition, accrued interest, amendment fees and certain transaction expenses were paid at closing out of the gross proceeds of the Private Placement.  After taking into account the amounts paid pursuant to the Fifth Amendment and transaction fees and expenses incurred in connection with the Fifth Amendment and the Private Placement, the net proceeds to the Company of the Private Placement were $52.0 million.

On December 31, 2013, the Company entered into the Sixth Amendment to the Facility Agreement (the "Sixth Amendment") to extend the maturity date of the Facility Agreement from January 15, 2014 to April 15, 2014.  The Sixth Amendment requires the Company to pay interest under the Facility Agreement on a monthly basis rather than on a quarterly basis.

On March 31, 2014, the Company entered into the Extension Agreement to the Facility Agreement (the “Extension Agreement”) to extend the maturity date of the Facility Agreement from April 15, 2014 to July 15, 2014.  The Extension Agreement contains certain customary representations, warranties, releases and confirmations.

Coalbed Methane Gas and Attributes of Coalbed Methane Resources

Coalbed methane gas is a type of natural gas found in coal seams of various types of coal. As coal is formed, large quantities of natural gas are generated and adsorbed on the internal surface area of the coal. CBM exploration and production involves drilling into a known coal deposit and extracting the natural gas that is contained in the coal. A coal seam is often saturated with water, with methane gas being held in the coal by water pressure. To produce CBM from coalbeds, water must first be pumped from the seam in order to reduce the water pressure that holds the gas in the seam. This process is called dewatering. When the water pressure is reduced, the gas adsorbed on the coal is released and diffuses through the fractures, or cleats, contained in the coal seam. Gas flows to the wellbore through the cleat system as well as any of the other cracks, crevices and fractures found in the coalbed. Dewatering volumes decrease as peak CBM production is reached.

The productivity potential of a well depends on many reservoir and geological characteristics, including permeability of the coal, thickness and depth of the coalbed, the coal ranking of the coalbed, gas content and other factors. We consider these factors, as well as isotherm tests conducted on core samples, the amount of dewatering required of a well and a number of other factors, are relevant when determining where to target development of CBM.

Permeability. CBM production requires that the coal have sufficient permeability. Permeability is the ability of a substance to allow another substance to pass through it.  Permeability in coal is primarily created by naturally occurring fractures, which are commonly referred to as cleats. Permeability is largely based upon how many cleats the coal has and how close they are to each other. The more cleats the coal has, the better the coal's permeability and the greater the opportunity to retrieve the adsorbed CBM. Tectonic fracturing and artificial fracture stimulation can also contribute greatly to permeability. Reservoirs with high permeability have a higher propensity for strong gas production than less permeable reservoirs. The same permeability that can contribute to strong gas production also initially allows more water to flow through the coal. Thus, coal seams with higher permeability often take significantly longer time to dewater than lower permeability coal seams. Once sufficient water is produced, higher permeability normally allows wells to maintain higher production rates for longer periods and enables higher gas recoveries with fewer wells.  Our coal seams are stated to range from 10 to 300 millidarcies and to average 50 millidarcies across the Shouyang Block, which is considered to be high permeability.

Thickness. The thickness of the coal seam is a key factor in CBM production. A coal seam with otherwise unacceptably low permeability could produce commercial quantities of gas if the coal seam has sufficient thickness. In such a case, the gas would flow out slowly, but because the coal seam is thick, more of the gas would be produced since there is a large area from which to collect the CBM. A coal seam with high permeability and high thickness would allow for higher production rates for longer periods to flow from a large area.

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Depth. The depth of the coal seam is also a significant factor in the productivity potential of a well. Where the coal, and thus the methane gas, lies at shallow depths, wells are generally easier to drill and less expensive to complete. With greater depth, increased pressure closes cleats in the coal, which reduces permeability and the ability of the CBM to move through and out of the coal. On the other hand, if a coal seam is not buried deep enough, there may not have been sufficient water pressure to hold the gas in place and through geologic time the gas may have escaped from the coal.  However, both deep and shallow coal seams can produce significant CBM quantities, especially where high permeability, thickness and gas content are characteristics present.

Coal Ranking. Methane gas is contained in all ranks of coal. Most CBM is contained in the highest rank coal, which is called anthracite. Unfortunately, anthracite often has very low permeability. Semi-anthracite coal typically has lower quantities of CBM than anthracite coal, but may contain significant cleats as well, making it more permeable. The coalbeds found in our Shouyang Block project are semi-anthracite coal that have a favorable cleat structure, and thus high permeability.

The next lesser coal rank is bituminous coal that contains less CBM per ton than the anthracite and semi-anthracite coal but usually has a good cleat structure, allowing for better permeability.  The coalbeds found in the Laochang Area have bituminous and semi-anthracite coal.

Dewatering. Water must be removed from the coal seams to decrease reservoir pressure and release the gas to produce methane gas from coalbeds. After the detachment of gas molecules from the coal surface, or desorption, occurs, the gas diffuses through the coalbed's cleats and fractures toward the wellbore. Substantial dewatering of the coalbed is required initially. Water production declines as methane gas production increases. The required time period for dewatering of a well may generally range in length from a few weeks to as many as several years depending on the attributes of the coal seam.

Coalbed Methane in the People's Republic of China

China is the world's largest coal producing country and has substantial CBM resources located within its coalfields. Because most of China's CBM is found at shallow depths, it is easier to drill and complete CBM wells than the deeper wells that are generally required for other forms of natural resource exploration. China's mining operations release billions of cubic meters of methane gas into the environment each year because much of the country's CBM resources remain undeveloped. This results in serious pollution and wastes CBM, which could be recovered prior to mining.

Our business strategy is to acquire, explore, develop, produce and sell CBM in China. Due to its demonstrated high permeability and high gas content coals, our main operational focus will remain on the Shouyang Block in Shanxi Province. A low percentage of CBM fields worldwide demonstrate both high permeability and high gas content, but of those few CBM fields with both high permeability and high gas content, nearly all are considered large producers.  China is currently the world's second largest user of petroleum and one of the largest importers of oil and, to a lesser extent, gas, in the world. China's energy needs have grown rapidly in the past 20 years, fueled in part by its tremendous economic growth during that period. The growth in demand for energy in China is projected to outpace the rest of the world over the next decade. As a result of China's increasing energy needs, the Chinese government has, in recent years, focused great attention on the development of energy sources, including CBM. To increase CBM production, the State Council, the chief administrative body of the PRC, created CUCBM in 1996. The State Council granted CUCBM rights to contract with foreign corporations for the exploration, development and production of CBM in China. In 2008, one of the major stakeholders of CUCBM, CNPC began the process to contract directly with foreign corporations to work on CBM projects instead of working through CUCBM. The Chinese government has provided incentives to stimulate the development of CBM, including enacting a Chinese government subsidy of 0.2 RMB per cubic meter and a Shanxi provincial subsidy of 0.05 RMB per cubic meter, exempting CBM development from import duties and import-related duties (See Encouraged and Restricted B of the Guidance Catalog of Industries for Foreign Investments, specific measures executed in accordance with No. 1602 Document issued by the State Administration of Customs in 1997) and reducing VAT for CBM projects with foreign companies compared to 13% VAT for conventional gas companies (See Interim Regulations of the People's Republic of China on Value Added Tax (November 10, 2008, Article 2)). For more information on the laws, regulations and regulatory bodies that affect our business, see "Regulations Impacting Our Business" below. Zhang Huangsheng, Head of the Research Institute at the State Administration of Coal Mine Safety, stated in November

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2012 that China plans to raise the government subsidy to 0.6 RMB per cubic meter (or $2.78 per Mcf based on the December 31, 2013 exchange rate).

Drilling and Hydraulic Fracturing Technologies

Vertical, deviated and horizontal drilling technologies have each yielded successful results in CBM applications. Vertical wells are the cheapest and most straightforward wells to drill and complete, but each vertical well requires a dedicated surface location. A horizontal well potentially allows a wellbore to be in contact with hundreds or thousands of feet of coal because the drill bit is redirected from a downward angle to a horizontal plane and tracks along the same plane as the coalbed, thereby exposing more coal to the wellbore. Deviated wells are used to access down hole locations that are not accessible with a vertical wellbore. Deviated wells are slightly more expensive and complicated to drill and complete than vertical wells. However, they are drilled from an existing well pad and location. Utilizing an existing well location allows more than one well to be drilled from the same pad, consequently reducing land and pad construction costs, as well as reducing operating expenses on a per well average and also reducing the environmental impact.  We now typically use a combination of vertical wells and slightly deviated wells in order to minimize the land drilling pad that is necessary. The combination has resulted from a series of various drilling and completion methods that have been used to identify the most effective methods for the Shouyang Block. We are also considering the utilization of single lateral horizontal wells targeted at a length of approximately 1000 meters in the coal seam in our 2014 drilling program.

Hydraulic fracturing technology has been utilized in CBM exploration and development for many years. The technique fractures a formation by pumping fluid, in most cases water or water with a viscosifying agent, into the formation at a high enough pressure to open the formation to allow a proppant, such as sand, to be pumped into the formation. This act of opening the formation and pumping in a propping agent allows better communication between the wellbore and the formation. This is often necessary in formations where permeability immediately around the wellbore is found to be reduced after drilling, thus lessening the ability of gas to enter the wellbore and be produced.  Fracing allows access to undamaged coals beyond the near wellbore area of damage.

Our Holdings and Activities in the People's Republic of China

Overview. In June 2003, we entered into two amendments to certain farmout agreements and assignment agreements with Phillips China, Inc., a subsidiary of ConocoPhillips ("Phillips"), pursuant to which we acquired a 40% net undivided interest from Phillips in the Shouyang and Qinnan PSCs between Phillips and CUCBM for Shanxi Province. CUCBM is a joint venture between China National Coal Group Corp. and China National Offshore Oil Corporation ("CNOOC"), both Chinese state-owned entities. The assignment agreements and related amendments to the farmout agreements substituted us for Phillips as the principal party and operator for the projects under the PSCs. These assignment agreements were approved by CUCBM on March 15, 2004, and ratified by the MofCom on March 22, 2004. The term of each of the Shouyang PSC and Qinnan PSC consists of an exploration period, a development period and a production period. The exploration period is divided into three phases called Phase I, Phase II, and Phase III. Pursuant to the farmout agreements with Phillips, Phillips retained a participation interest of 30% with a right to convert such interest to a revenue interest. Upon our election to enter Phase III of the exploration periods in the Shouyang PSC in June of 2006, Phillips elected to convey its remaining 30% participating interest to us and to receive an interest of 5% of revenues from production from our participating interest, not to exceed 3.5% of the total participating interest.

On January 25, 2002, we entered into the Yunnan PSC with CUCBM to develop two areas in Yunnan Province: (1) the Enhong area, which covers approximately 145,198 acres (587.6 square kilometers), and (2) the Laochang area, which covers approximately 119,327 acres (482.9 square kilometers ).  We have been evaluating this acreage with a minimal exploratory drilling program, and while we believe the acreage to have potential, we have chosen to focus our capital and resources upon the high permeability/high gas content acreage in Shouyang.  The Company and CUCBM have begun discussions that will likely result in the relinquishment of all of the Yunnan acreage covered by the PSC.  The Company expects that any such relinquishment of the PSC will be formalized during the second quarter of 2014.

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Acreage in the People's Republic of China

In connection with the modification agreement agreed to with CUCBM and approved by the MofCom, the amount of acreage subject to the PSCs has been reduced with the Enhong Area of the Yunnan PSC relinquished altogether. The following table summarizes the acreage subject to our PSCs in China as of December 31, 2013, as well as the net acreage that will remain available for exploration and production under the PSCs pursuant to our respective participating interest share under the PSCs as modified and as approved by the MofCom:

	Acreage
	Gross (1)			Net (2)
China:
Shouyang Block, Shanxi Province		288,569			206,795
Area A		15,988	(3)		15,988
Area B		272,581	(4)		190,807
Qinnan Block, Shanxi Province (5)		573,000			401,100
Laochang Area, Yunnan Province		119,327	(6)		71,596

(1) Acreage reflects the PSC amendments to date for the Shouyang and Yunnan Blocks after receiving necessary governmental approvals and our agreement to allow CUCBM to proceed at its sole risk with a 100% participation interest as to 8,673 acres (35.1 square kilometers) in the Shouyang Block.

(2) In the Shouyang Block, the Chinese partner company has the option to receive up to a 30% participating interest share in Areas A and B within thirty (30) days of receipt of notice of Chinese certification of CBM resources in a particular CBM field. CUCBM did not elect to take any participating interest in Area A of the Shouyang Block, and thus we are entitled to a 100% participating interest share in Area A (subject to the Phillips 3.5% revenue interest). CUCBM will not have to make any election on Area B until such time as we obtain Chinese certification as to CBM resources in such area. In the Yunnan Block, CUCBM has the right to accept up to a 40% participating interest share within thirty (30) days of receipt of notice of Chinese certifications of CBM resources in a particular CBM field; however, the Company and CUCBM have begun discussions that will likely result in the relinquishment of all of the Yunnan acreage covered by the PSC.  The Company expects that any such relinquishment of the PSC will be formalized during the second quarter of 2014. As of the date of this report, CUCBM has not elected to take a participating interest in any CBM field but the net acreage is presented as if CUCBM had made such election.

(3) As provided to date, the exploration period of Area A (approximately 15,988 acres or 64.7 square kilometers) of the Shouyang PSC does not expire.  Pursuant to the provisions of the Fifth Modification Agreement of the Shouyang PSC, the exploration period for Area A will automatically be extended on the original expiration date of June 30, 2015, as we have submitted a report detailing CBM resources to CUCBM that reasonably complies with the Chinese CBM resource standards.  The report was submitted in connection with the development of an overall development plan and such report was subsequently approved and certifications were received from all requisite levels of the MLR.

(4) As modified and agreed to date, unless extended or amended, the exploration periods for Area B will expire on June 30, 2016. However, we may retain acreage under a variety of scenarios without further consents or approvals, including areas for which a report as to CBM resources has been submitted by us to CUCBM that reasonably complies with the Chinese CBM standards in connection with the process to compile an overall development plan.

(5) Currently, the exploration period under the Qinnan PSC has technically expired, and we are pursuing claims that we are entitled to an extension of the exploration period due to a force majeure event in accordance with the terms of the Qinnan PSC. If and when our claims are resolved and a modification agreement is entered into with respect to the Qinnan PSC, the Chinese partner company may elect to take a participating interest share of up to 30%. If we are not successful in making such claims, the exploration period will be deemed to have expired, and we

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will no longer have authority to drill and pursue exploration activities on the Qinnan Block.  We are currently engaged in discussions with PetroChina on this matter.

(6) The exploration period under the Yunnan PSC expired on December 31, 2013 and was not amended or extended. We have been evaluating this acreage with a minimal exploratory drilling program, and while we believe the acreage to have potential, we have chosen to focus our capital and resources upon the high permeability/high gas content acreage in Shouyang.  The Company and CUCBM have begun discussions that will likely result in the relinquishment of all of the Yunnan acreage covered by the PSC.  The Company expects that any such relinquishment of the PSC will be formalized during the second quarter of 2014.

As with any energy exploration and production company, we continuously review our acreage holdings in order to optimize those holdings. We may, from time to time and as circumstances dictate, decide to relinquish all or part of any of our blocks that we deem non-prospective or sub-optimal in order to optimize our acreage holdings and/or preserve cash resources.

Drilling Activity

For the years ended December 31, 2013, 2012 and 2011, the following table shows wells drilled and reached total depth in the Shouyang Block:

	2013				2012				2011
	Gross		Net (1)		Gross		Net (1)		Gross		Net (1)
Exploratory wells		25.0		17.5		-		-		3.0		2.1
Development wells		45.0		45.0		4.0		4.0		32.0		31.1

(1) In the Shouyang Block, CUCBM has the option to receive up to a 30% participating interest share in Areas A and B within thirty (30) days of receipt of notice of Chinese certification of CBM resources in a particular CBM field. CUCBM elected not to take any participating interest in Area A of the Shouyang Block. Net wells are presented as if CUCBM elected to take its full participating interest under the Shouyang PSC as modified to date with respect to such wells on the dates indicated.

There were no wells drilled in the Qinnan and Yunnan Blocks during the years 2013, 2012 and 2011.

As of January 31, 2014, there were a total of 117 gross and 108.5 net productive wells, after giving effect to CUCBM's right to make participating elections in the Shouyang Block as if made on such date. Additionally, since inception through the end of January 2014, one well has been abandoned in the Shouyang Block.

Production, Sales, Prices and Expenses

Our gas sales commenced in March 2011.  The following table sets forth information regarding our net sales volumes, average sales prices received and production costs for the years ended December 31, 2013 and 2012, respectively.

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	2013		2012		2011
Gas sales volume, net (Mcf)(1)		231,815		260,424		140,887
Gas sales, net (in thousands)	$	1,108	$	1,219	$	653
Average Gas Sales Price, net of taxes (per Mcf)	$	4.78	$	4.68	$	4.63
PRC National and Provincial Subsidies (per Mcf)		1.14		1.13		1.12
VAT Refund (per Mcf)		0.63		0.62		0.61
Total Gas Sales and Other Revenues (per Mcf)	$	6.55	$	6.43	$	6.36
Production Costs (per Mcf) (2) (3)	$	23.40	$	19.69	$	27.49

⁽¹⁾ Prior to July 1, 2012, to compensate CUCBM for its services as collection agent under the Gas Sales Agreement, Far East agreed to share approximately 7.5% of revenue with CUCBM prior to any exercise of its right to elect to participate in a portion of the Shouyang Block. Starting July 1, 2012, this agreement terminated, and we are receiving 100% of revenue (subject to the Phillips 3.5% revenue interest).

⁽²⁾ Includes certain items which were denominated in RMB and were converted into U.S. Dollars by using the exchange rate as of the date of invoice.

⁽³⁾ Production costs per Mcf are computed as total lease operating expenses divided by the total gas sold; therefore the production costs are currently high for several key reasons: (i) certain wells are dewatering and are not yet tied into the gathering system and therefore there are no gas sales to offset the production costs; (ii) given that the CBM fields currently subject to production are characterized by high permeability, there is a longer dewatering period and thus a longer production period before significant gas volumes ramp up to more profitable gas sales volumes; and (iii) the processing and compression facilities are presently oversized for the current gas sales volume. As the sales volumes ramp and the reservoir matures, the facilities are expected to operate more efficiently. All these factors should significantly lower the production costs expressed as $/Mcf sold as the drilling program is implemented.

Shouyang PSC

As noted above, we are a party of the Shouyang PSC with CUCBM, which provides for an operating interest in approximately 288,569 acres (1,167.8 square kilometers) in the Shanxi Province, which includes approximately 15,988 acres, or approximately 64.7 square kilometers, (Area A) in the 1H Pilot Area for which the CBM resources have been certified by the MLR to support the request for a long-term development license and in which we hold a 100% participation interest.

In exchange for CUCBM’s election to forego its participation rights to the approximately 15,988 acres, or approximately 64.7 square kilometers comprising Area A, that have received MLR certification, in April 2012 we elected to forgo our rights to approximately 8,673 acres (35.1 square kilometers) of the original Shouyang PSC, which had also been certified by the MLR, allowing CUCBM to proceed independently at its sole risk to develop this area. We believe that this is an advantageous arrangement for us because it provides us with a 100% participating interest (subject to a net 3.5% revenue interest held by Phillips) in the approximately 15,988 acres (approximately 64.7 square kilometer) area, which contains all of the wells in the 1H Pilot Area (the area of our current CBM sales) and the planned expansion thereof. We relinquished 121,255 acres (approximately 490.7 square kilometers) in June 2013.  With respect to the remaining approximately 272,581 acres (1,103.1 square kilometers), CUCBM maintains the right to elect up to a 30% participating interest upon completion of certain milestones, and we retain the remaining participating interest in the contract area, subject to the 3.5% revenue interest held by Phillips.

The P8 well was a well drilled on a portion of the Shouyang Block which we relinquished in April 2008. Under the terms of the April 26, 2012 Fifth Modification Agreement, this well will be replaced by CUCBM pursuant to an agreement whereby CUCBM has agreed to drill an appraisal well which shall include the expenses associated with coring, fracturing and other testing on our behalf in Area B in a location as determined by FEEB, nearby the P8 well and to the same coal seam as the P8 well.

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During the exploration period, FEEB, as operator, must complete at least the minimum work program and seek commercial deposits of CBM that can be developed in commercially paying quantities. Under the Shouyang PSC, as modified to date, we are required to conduct pilot testing to obtain information necessary to prepare an application for an overall development plan to submit as part of the application for a long-term development license for a particular CBM field or area within the Shouyang Block.

The preparation of an overall development plan to be submitted jointly with CUCBM as part of the application for a long-term development license requires adequate CBM resources certified to the applicable standard by the MLR, as well as technical, commercial, environmental, health and safety plans demonstrating how the CBM field will be developed for the exploitation of CBM resources located therein.

The key certification required to be granted by the MLR is that the identified development area contains verifiable/recoverable CBM resources that can be extracted in a commercially economic manner to the standards and guidelines set forth in the Specifications for Coalbed Methane Resources/Reserves (DZ/T0216-2010) (the “CBM Specifications”) promulgated by the MLR.  This certification was obtained from the MLR in June 2012, and covered an area 99.8 square kilometers in the Nanyanzhu area of the northern Shouyang Block. This 99.8 square kilometers is comprised of the approximately 64.7 square kilometers comprising Area A, and the approximately 35.1 square kilometers of the original Shouyang PSC, in which we had elected to forgo our rights in favor of CUCBM to allow CUCBM to proceed independently at its sole risk to develop.

The first step in the certification process was to engage a Chinese company licensed by the MLR to compile reports as to CBM resources in accordance with MLR requirements. The licensed Chinese vendor estimated CBM resources subject to certain conditions and assumptions specified in the CBM Specifications with respect to well spacing, the types of wells emphasized in the estimation of resources, the level of output of individual wells and the method of determining such output. Such an estimation of CBM resources at the necessary level is conducted only on blocks containing wells achieving a minimum standard of production for the CBM resources claimed for a time period of at least three months.

Upon completion of a preliminary draft of the report, a group of independent CBM experts reviewed the report and provided comments to the licensed Chinese vendor. Our Chinese partner company then submitted the report to the Petroleum Reserve Office of the MLR. The report was approved by the Petroleum Reserve Office of the MLR and submitted to the Reserve Review and Exam Office of the MLR for further review and certification. After review and resolution of questions or comments, the CBM resources were then certified by the Reserve Review and Exam Office of the MLR to the requisite levels under the CBM Specifications, at which point work commenced on the application process for a long-term development license for the identified development area (an “Overall Development Plan” or “ODP”).

As noted above, we obtained our first certification from the MLR in June 2012 as to the 99.8 square kilometer area described above.  We have been in the process of preparing an application for a long-term development license for the area. We are also evaluating additional acreage for future MLR certification. After several revisions, the final draft of the Nanyanzhu ODP was finished and an internal review was completed. An external expert review was held on March 27, 2014, and the ODP passed review of the required external experts, and the expert group will recommend that the relevant parties approve the ODP. Now, during April, this draft ODP report should be submitted to the National Development and Reform Commission ("NDRC") to receive a “Road Pass ODP.” The Road Pass ODP is anticipated to be awarded near the end of June, 2014, allowing FEEB to apply for permits and approvals from local government bureaus in land use, grid power supply, environment protection, land reclamation, and safety. Vendors of six third parties have been engaged to compile supplementary reports needed to obtain various permits from local government bureaus that are required by the ODP process.  All of these permits and approvals, as well as the ODP report, will be submitted to NDRC again approximately by the first quarter of 2015. The Company expects to receive formal ODP approval by the end of June, 2015.

The development period as to any CBM field covered by the Shouyang PSC will begin after the approval of the overall development plan for any such CBM field. As discussed above, CUCBM has agreed to waive its right to any participating interest share in approximately 15,988 acres (approximately 64.7 square kilometers) of the Shouyang Block and it has not currently elected to exercise its option to receive a 30% participating interest in any other CBM

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field that is developed in the Shouyang Block. Thus, Far East will be entitled to a 100% participating interest share in the entirety of its 1H Pilot Area (subject to Phillips 3.5% revenue interest).

The production period as to any CBM field covered by the Shouyang PSC project will begin after the date of commencement of commercial production of that CBM field, which should occur upon the completion of the overall development plan for such CBM field. Any CBM produced and marketed prior to the approval of an overall development plan is deemed to occur during the development period, and production is to be distributed in accordance with the parties participating interests in such CBM field. Provided we remain in compliance with the requirements under the Shouyang PSC, it allows production to continue on a CBM field until the earlier of the end of the useful life of the field or June 30, 2032, unless extended or otherwise amended. The Shouyang PSC expires on July 1, 2032 unless extended.

We have fulfilled our previous obligations under the exploration period of the original Shouyang PSC. We have also met the requirement of drilling 25 additional wells in the non-MLR certified area by June 30, 2013 and spending at least $11.0 million.  On December 6, 2013, CUCBM extended the exploration period of the portion of the Shouyang Block identified as Area B until June 30, 2016, and we agreed that we will drill at least 39 additional wells in Area B by June 30, 2016.  The aforementioned amounts are based on the currency exchange rate between the U.S. Dollar and the RMB as of December 31, 2013.  This will be the subject of a formal Modification Agreement to be entered into by CUCBM and FEEB in  the near future.

On June 12, 2010, CUCBM and SPG executed the Gas Sales Agreement through which CBM produced at the Shouyang Block is sold. Pursuant to the Gas Sales Agreement, for which we are an express beneficiary, SPG is initially required to purchase up to the Daily Volume Limit of CBM produced on the Shouyang Block on a take-or-pay basis, with the purchase of any quantities above such amount to be negotiated pursuant to a separate agreement. The Gas Sales Agreement obligates SPG to commit to having demand capacity to accept up to at least 1 million cubic meters (approximately 35 MMcf) of CBM per day from the Shouyang Block by 2015 but does not obligate FEEB or CUCBM to sell gas in excess of the Daily Volume Limit. The term of the Gas Sales Agreement is 20 years.

In September 2011, SPG completed the construction of additional gathering lines in the 1H Pilot Area. These gathering lines are used to transport produced gas to the regional pipeline for sales. Currently, we have 95 wells connected to the gathering lines in the 1H Pilot Area.  Gas sales volume, net to the Company, during 2013 was 231.8 MMcf compared to 260.4 MMcf in 2012.

Effective January 1, 2014, the contract price is 1.7 RMB per cubic meter (or $7.88 per Mcf based on the December 31, 2013 currency exchange rate.) The price received from SPG for CBM under the Gas Sales Agreement was 1.20 RMB per cubic meter (or $5.56 per Mcf, inclusive of $0.63 for VAT and $0.08 for provincial taxes, based on the December 31, 2013 exchange rate, before any applicable subsidies) until June 12, 2011 and thereafter the price was subject to change based on the parties' agreement in accordance with market economic principles. The VAT portion of the sales price is refundable to the Company. The Gas Sales Agreement also provides for price adjustments in accordance with changes to the published Chinese national natural gas price and annual price adjustments based on the parties’ mutual agreement. If the parties do not agree on a new price, the then-current price shall continue in effect and either party may seek to resolve any pricing dispute pursuant to arbitration.

Additionally, the Chinese government and Shanxi provincial authorities enacted subsidies equal to 0.20 RMB and 0.05 RMB per cubic meter, respectively, for a total of 0.25 RMB per cubic meter. The price received by CUCBM and FEEB, including subsidies for gas sales, was 1.45 RMB per cubic meter. The total price received was $6.55 per Mcf after taxes.  Effective January 1, 2014, the price received by CUCBM and FEEB, including subsidies for gas sales, is 1.95 RMB per cubic meter. The total price received is approximately $9.04 per Mcf after taxes, based on the December 31, 2013 exchange rate.

Work programs are being carried out to achieve three primary goals: (i) to expand the producing area in the 1H Pilot Area to increase gas production, (ii) to determine the optimal development approach in order to minimize costs and maximize CBM recovery and (iii) to add appraisal wells, spaced at intervals of several kilometers across the entire Shouyang Block to help delineate the geographic extent of the high permeability and high gas content coals located in the area. We refer to an “appraisal well” as a CBM well drilled outside of the 1H Pilot Area to determine

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the physical extent of commercially attractive parameters of the coal (such as high gas content, high permeability and good coal thickness), as well as to contribute to the identification of reserves.

We believe that the addition of production wells in the 1H Pilot Area will increase production and the addition of appraisal wells throughout the Shouyang Block could add substantially to proved and probable reserves. The following discussion regarding our drilling activity involves the drilling of wells that constitute “exploratory wells,” as such term is defined in Rule 4-10(a)(13) of Regulation S-X.

The $60 million of Notes issued in the first quarter of 2013 provided full funding for our 2013 drilling program, and during the same quarter the Company reviewed requested technical analyses commissioned from third party engineering firms to ascertain both optimal drilling locations for the 2013 drilling program, as well as optimal fracing designs. The results of these technical analyses were incorporated into the drilling and completion program.

During 2013, 74 wells were spudded 27 of which were appraisal wells and 47 of which were development wells. Additionally, from inception of the Shouyang PSC through January 31, 2014, one well has been abandoned in the Shouyang Block.

FEEC operates the Shouyang drilling program using the most efficient and environmentally responsible methods available in China. In its execution, the Company has elected to pursue pad drilling operations placing as many as 5 wells on one location, thus creating a small footprint. This saves important agricultural lands, reduces infrastructure loads, lowers manpower requirements and lightens our impact on the environment. While this approach places additional burdens on the orchestration of drilling, fracturing and completion operations and could introduce minor delays, these factors are mitigated by our ability to batch wells for the fracturing operations. Through careful cooperation between our fracturing service company, logistics department, and local suppliers, the Company is able to maintain a fracture treatment program of up to one well per day for extended periods.

As of January 31, 2014, 61 development wells and 9 appraisal wells have been fracture stimulated. As additional wells are drilled, they will be steadily added to the fracing program.

The gross and net number of productive wells in the Shouyang Block as of January 31, 2014, after giving effect to CUCBM’s right to make participating elections in the Shouyang Block as if made on such date, was 117 and 108.5, respectively. Of these 117 wells, 100 are wells drilled in the initial 1H Pilot Area to expand the field to the west and 17 are appraisal wells. In addition to these wells, there are wells in various stages of drilling and fracing operations as noted above.

A number of appraisal wells have been drilled to the west, south and east of the 1H Pilot Area, which is adjacent to the northern boundary of the Shouyang Block, with the goal of providing data to support the full extent of the northern portion of the Shouyang Block that contains high gas content as well as good permeability characteristics.

Through the drilling of the appraisal wells we seek to determine what portion of the Shouyang Block shares the same rare combination of high permeability and high gas content as discovered in the 1H Pilot Area. The wells drilled to the west, east and south of the 1H Pilot Area have revealed both high gas content and high permeability. The drilling and subsequent production testing of a number of these wells demonstrate that permeability and the potential for significant gas production extend into these portions of the block. Most significantly, the SYS05 well in the southeastern portion of the block and approximately 35 kilometer southeast of the 1H Pilot Area was successfully production tested at a rate exceeding MLR certification requirements.

Provided we remain in compliance with the requirements under the Shouyang PSC, the Shouyang PSC allows production to continue on a CBM field until the earlier of the end of the useful life of the field or June 30, 2032, unless such term is extended or otherwise amended.

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The following table reflects the range of permeability determined in the Shouyang Block:

	Permeability Range	Number of Wells
Well Area	(Millidarcies - mD)	In this Range
1H Pilot Area	80-100	1H Pilot Area Wells
Appraisal/ Exploration Wells	200-300	1
Appraisal/ Exploration Wells	100-199	3
Appraisal/ Exploration Wells	50-99	4
Appraisal/ Exploration Wells	10-49	14

With permeabilities ranging from 10 millidarcies to 300 millidarcies, the No. 15 coal seam in the expanded areas tested contains areas of high permeability coupled with high gas content.

Minimum Exploration Expenditure. Under the Shouyang PSC, we have committed to satisfy certain annual minimum exploration expenditure requirements. Our minimum exploration expenditure requirement for each block is based on the minimum exploration expenditure requirements established by the MLR, subject to such additional commitments as may appear in any PSC modification agreements. The MLR sets its requirements by applying a minimum expenditure per acre to the total acreage encompassed by each PSC. As a result and also taking into consideration the aforementioned June 2013 acreage relinquishment, the minimum exploration expenditure requirement for 2013 and the minimum exploration expenditure under the Shouyang PSC for each yearly period after 2013 are approximately $2.4 million and $1.9 million, respectively, based on the currency exchange rate as of December 31, 2013. Any portion of the exploration expenditures that exceeds the current year’s minimum exploration expenditure requirement cannot be carried forward for the satisfaction of the subsequent year’s minimum requirement.  In 2013, we met the annual minimum exploration expenditure requirement under the Shouyang PSC. We also met the requirement of drilling 25 additional wells in the non-MLR certified area by June 30, 2013 and spending at least $11.0 million. On December 6, 2013, we extended the exploration period of the portion of the Shouyang Block identified as Area B until June 30, 2016, and agreed that we will drill at least 39 additional wells in Area B by June 30, 2016. The aforementioned amounts are based on the currency exchange rate between the U.S. Dollar and the RMB as of December 31, 2013.

Related Payments. Under the Shouyang PSC, we are required to make the following yearly payments to CUCBM. The annual payments are based on the currency exchange rate between the U.S. Dollar and the Chinese RMB as of December 31, 2013. As indicated below, certain amounts may change from year to year.

Annual Payments	Shouyang PSC
Exploration Period
Salary and Benefit
2014	$	327,095
2013		305,169
Exploration Permit Fee		114,968
Training Fee		60,000
Assistance Fee		50,000
Development & Production Period
Signature Fee (1)		150,000
Training Fee		150,000
Assistance Fee		120,000

(1)  Due within 30 days after first approval of the overall development plan following the exploration period.

Yunnan PSC. As noted above, we were a party to the Yunnan PSC with CUCBM, which provided for an operating interest in approximately 119,327 acres (482.9 square kilometers) in the Laochang Area. CUCBM had the right to accept up to a 40% participating interest within thirty (30) days of receipt of notice of Chinese certifications of CBM

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resources in a particular CBM field. The exploration period expired on December 31, 2013 and was not amended or extended. Following expiration of the exploration period, we had the right to elect to continue the process of trying to convert portions of the Laochang Area into MLR certified areas in order to transition these areas into the process for a long-term development license and the development period for certain areas. Any acreage that was not at or past the stage of submittal of a technical report to CUCBM that reasonably met the criteria for MLR certification would be relinquished unless the parties otherwise agree.  The Company and CUCBM have begun discussions that will likely result in the relinquishment of all of the Yunnan acreage covered by the PSC.  The Company expects that any such relinquishment of the PSC will be formalized during the second quarter of 2014.

Minimum Exploration Expenditure. Under the Yunnan PSC, we committed to satisfy certain annual minimum exploration expenditure requirements. Our minimum exploration expenditure requirements for the blocks subject to the Yunnan PSC were modified pursuant to our negotiated agreement to extend the Yunnan PSC exploration period. Under applicable MLR rules for minimum expenditure requirements, the annual minimum exploration expenditure requirement for the Yunnan PSC was approximately $1.8 million (10,720,000 RMB) before the modification but reduced to $0.8 million with relinquishment of acreage, based on the currency exchange rate between the U.S. Dollar and the RMB as of December 31, 2013. As of December 31, 2013, we had carried forward from 2012 excess exploration expenditures of $1.2 million and incurred an additional $0.9 million of expenditures during 2013 toward the satisfaction of MLR requirement.

These requirements under the Yunnan PSC are denominated in RMB and, therefore, are subject to fluctuations in the currency exchange rate between the U.S. Dollar and the RMB. Under the Yunnan PSC, we were required to pay certain fees totaling $0.4 million for the year of 2013. These fees included assistance fees, training fees, fees for CBM exploration rights and salaries and benefits. If we terminate the Yunnan PSC and there exists an unfulfilled balance of the minimum exploration work commitment, we will be required to pay the balance to CUCBM.

Related Payments. Pursuant to the terms of the Yunnan PSC, we have paid CUCBM signature fees totaling $350,000 since the inception of the Yunnan PSC. Under the Yunnan PSC, we are required to make the following yearly payments to CUCBM. The annual payments are based on the currency exchange rate between the U.S. Dollar and the Chinese RMB as of December 31, 2013. As indicated below, certain amounts may change from year to year.

Annual Payments	Yunnan PSC
Exploration Period
Salary and Benefit
2014	$	316,245
2013		298,344
Exploration Permit Fee		38,329
Training Fee		45,000
Assistance Fee		45,000
Development & Production Period
Training Fee		80,000
Assistance Fee		80,000

Qinnan PSC. The exploration period of the Qinnan PSC in Shanxi Province expired on June 30, 2009, and we cannot continue our exploration activities in the Qinnan Block without an extension of the exploration period or a new PSC. We are continuing to pursue an extension of the exploration period of the Qinnan PSC, but we cannot predict the outcome at this time. We believe that the underlying exploration period should be extended due to events beyond our reasonable control, namely the lengthy transfer of rights taking place from CUCBM to CNPC. At our Chinese partner company’s request, we have provided certain operational and financial information to assist them in the decision making process regarding whether to recognize an extension of the exploration period in Qinnan. PetroChina, CNPC’s wholly-owned subsidiary, has completed an accounting audit pursuant to the Qinnan PSC of our expenditures for 2007 and 2008. We have also provided to PetroChina, at their request, our work plan for 2010 for Qinnan. In January 2011, we received a formal notice from CNPC that it has purportedly received all Chinese

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approvals with respect to the transfer of CUCBM’s interest to it, and subsequently to PetroChina. CNPC also requested we execute a modification agreement to confirm PetroChina as our Chinese partner company for the Qinnan PSC. In negotiations with CUCBM and PetroChina related to this request, we have endeavored to negotiate an assignment agreement that would reflect the transfer of interest to CNPC while CNPC and PetroChina would acknowledge delays that were incurred by virtue of us not having, for an extended period of time, an official Chinese partner company that had the capacity or authority under the Qinnan PSC to work with us. Because of the inability to hold a formal joint management committee (“JMC”) meeting or to have the effective involvement of our Chinese partner company, we believe that our efforts to continue CBM operations in the Qinnan Block have been materially hindered. Technically, the exploration period under the Qinnan PSC expired on June 30, 2009; however, we have maintained the position that the doctrine of force majeure under the Qinnan PSC entitled us to an extension of the exploration period. We continue to discuss this situation with CUCBM and PetroChina, and as recently as January 2012, have submitted a notice of force majeure in accordance with the Qinnan PSC. There can be no assurance that we will be successful in extending the exploration period of the Qinnan PSC or that a new PSC will be granted. Additionally, in connection with obtaining this extension or a new PSC, we may be required to commit to certain expenditures or to modify the terms or respective ownership interests and/or acreage in the applicable PSC.

Under the Qinnan PSC, we have committed to satisfy certain annual minimum exploration expenditure requirements. As with the Shouyang PSC, our minimum expenditure requirement is based on the minimum exploration expenditure requirements of CNPC established by the MLR. The MLR sets its requirements by applying a minimum expenditure per square kilometer to the total acreage encompassed by each PSC. The annual minimum exploration expenditure requirement under the Qinnan PSC is approximately $3.8 million in the aggregate based on the currency exchange rate between the U.S. Dollar and the RMB as of December 31, 2013. These expenditure requirements are denominated in the RMB and, therefore, are subject to fluctuations in the currency exchange rate between the U.S. Dollar and the RMB. Under the Qinnan PSC, we are also required to pay certain fees totaling $0.4 million annually. These fees include assistance fees, training fees, fees for CBM exploration rights and salaries and benefits. Because the stated expiration date for the exploration period for the Qinnan PSC occurred on June 30, 2009, and we have not yet received an extension, we have halted activities associated with the Qinnan Block pending receipt of the requested extension. Accordingly, we ceased to accrue for the $0.4 million annual fees effective January 1, 2013. We believe the $1.9 million amount accrued is sufficient to cover any obligation related to the fees should the extension be granted.

Marketing and Transportation of Our CBM in China

The marketability of any gas production depends, in part, upon the availability, proximity and capacity of pipelines, gas gathering systems and processing facilities.

Pipelines in Shanxi Province.  Currently, two national trunk lines, one to Beijing and one to Shanghai, traverse China in proximity to our Shanxi Province projects.  Additionally, there are two intra-provincial pipelines that pass within 1 to 2 kilometers of our 1H pilot Area.

Under the Gas Sales Agreement, SPG began to purchase gas from the Shouyang Block after the completion its pipeline in March 2011.  The pipeline runs from the Shanjing II pipeline (which runs from Ordos Basin to Beijing) to within 1 kilometer of our initial 1H Pilot Area in the Shouyang Block and then on to the Taiyuan area. The connecting pipeline is complete, and we have installed an in-field gathering system and compression facilities to increase the gas pressure to the level required for delivery.

A competing pipeline company, Shanxi International Energy Company ("Shanxi International"), built a second pipeline to the initial 1H Pilot Area. The pipeline was laid with a purported capacity of 50 million cubic feet per day, extending east from Taiyuan, passing through the 1H Pilot Area, and then turning south and southeast to the city of Heshun and Changzhi.

As of January 2013, the second pipeline was completed and connected with the Yu (lin)-Ji(Nan) Pipeline operated by SinoPec, with annual capacity of approximately 2 billion cubic meters. It has been commissioned, but some stations along the trunk line are still under construction and we believe that it is not yet fully operational.

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There is no assurance that any of the existing pipelines we might desire to connect to in the future will have sufficient capacity available to meet our requirements or the costs of using such pipelines would be economical. Additionally, after the expiration of the Gas Sales Agreement with SPG, there is no assurance that we will be able to use the existing pipeline on terms acceptable to us or at all, as the PRC does not require that open access to pipeline infrastructure be allowed.

Compressed Natural Gas. If we have initial commercial production of CBM from our Qinnan and Yunnan projects, then, prior to the point at which production reaches pipeline quantities, we could potentially begin to market the CBM produced to local markets as compressed natural gas (“CNG”). CNG is an alternative to the construction of a pipeline or liquefied natural gas (“LNG”) facility and is especially appropriate for early stage gas production where gas volumes are lower. We may determine to pursue CNG facilities in order to earn revenues from any early production of CBM. Production of CNG would require the installation of a CNG facility, which would likely be constructed and paid for by the purchaser of our gas production.

Pipelines in Yunnan Province. Because there are no pipelines currently in the immediate vicinity of the Yunnan Province projects, our ability to sell CBM produced on these projects to communities outside the general area is contingent upon a gas pipeline, compressed natural gas facility or other offtake vehicle being built within close proximity to our project area. CNPC has undertaken a pipeline construction project, with support from the Yunnan provincial government, to extend the Myanmar-China natural gas pipeline to pass through the city of Kunming, then move eastward through the city of Qujing, and finally on to Guizhou Province in the east. We believe that the construction, which would lay pipelines closer to our projects in the Yunnan Block, would help reduce the costs for CBM offtake from our projects and increase our ability to eventually deliver gas to consumers. The diameter of the pipeline is 1,016 mm, and the designed capacity for natural gas is 12 billion cubic meters per year. The Myanmar-China pipeline was completed in the middle of October 2013. The pipeline runs about 60 kilometers north of the northern boundary of the Laochang sub-block.

Our Competition

The energy industry is highly competitive in all of its phases. Competition is particularly intense with respect to the acquisition of desirable producing properties, the acquisition of CBM prospects suitable for enhanced production efforts, the hiring of experienced personnel and the marketing of resources. Our competitors in CBM acquisition, development, and production in China include major integrated oil and gas companies and substantial independent energy companies, many of which possess greater financial and other resources than us.

Safety and Health Matters

We employ numerous safety precautions and emergency response plans designed specifically for our exploration activities in China to ensure the safety of our employees and independent contractors. We have maintained a strong safety record, which includes no recorded lost-time accidents in over nine years and no major environmental incidents. We also conduct our operations in accordance with various laws and regulations concerning occupational safety and health. As protection against operating hazards and environmental risks, we maintain insurance coverage against some, but not all, potential injuries and losses. In addition, we require service providers we engage to maintain similar insurance coverage.

Regulations Impacting Our Business

Our operations are subject to numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations require the acquisition of a permit before drilling commences; restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities; limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; impose substantial liabilities for any pollution resulting from our operation and limit our discretion in marketing any production.

The exploration and production of CBM in China is regulated by and affected by the policies of multiple administrative bodies including the NDRC, the MofCom, the MLR, CNPC and CUCBM. The Mineral Resources

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Law and the related regulations are the primary source of law governing the exploration and production of coalbed methane in China.

The NDRC is responsible for the development and strategic upgrade of key industries in China, including the CBM industry. Policy making decisions of the NDRC could, therefore, affect our company. Additionally, the MofCom has many policy setting functions and, through its Foreign Investment Administration (the "FIA"), the MofCom is directly responsible for foreign investment in China. Our PSCs and the subsequent amendments to those contracts were, and continue to be, subject to approval of the MofCom. Within the FIA, the Service Trade Division also regulates the public utilities in urban areas, various pipeline networks, transportation and CBM exploration and production and, therefore, the division's policies, rules and regulations could affect our future strategy and operations for transportation and distribution of any CBM production.

The rules and regulations of the MLR and, in particular, CUCBM, directly affect the CBM industry in China as well as our operations. The MLR is the principal authority regulating the CBM industry in China. It has authority over the designation of land for exploration, the approval of geological reserve reports, the review and granting of licenses for exploration and production and the administration of the registration and assignment of exploration and production licenses.

This partnership relationship is administered and delineated in whole or part through the PSC. In the PSCs, our Chinese partner company represents that it has full authority to contract with foreign investors for the purpose of exploring and producing CBM. Because only a Chinese party can hold an exploration license for CBM, the Chinese partner applies to the MLR for the exploration licenses on behalf of foreign investors. In operating under each PSC, our primary interaction with the Chinese government is with our Chinese partner and the JMC that administers our PSC. Each PSC has its own JMC. The JMC consists of members of our management team and representatives of our Chinese partner company and it meets on a periodic basis to, among other things, discuss and make decisions concerning our exploration and development progress and plans, including budgets and capital expenditure commitments. Under the terms of the PSCs, we must obtain the Chinese partner company's consent to certain actions, including the transfer of any rights under the PSCs. Additionally, the PSCs authorize us to sell CBM directly into the market but our marketing efforts may be limited by certain Chinese regulations that require companies to have a permit not generally available to foreign companies to sell gas in certain Chinese localities.

Our Employees

As of February 28, 2014, we had 24 employees in China and 7 employees in the United States for a total of 31 employees, all of whom were employed by us on a full-time basis.

Our Website

Our website can be found at www.fareastenergy.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed with or furnished to the U.S. Securities and Exchange Commission ("SEC"), pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, can be accessed free of charge by linking directly from our website under the "Investor Relations - SEC Filings" caption to the SEC's Edgar Database. These filings will be available as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not part of this report.

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ITEM 1A. RISK FACTORS

Forward-Looking Statements

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21B of the Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "project," "expect," "consider" and similar expressions, as they relate to us, are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although we believe that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that the actual results or developments we anticipate will be realized or, even if substantially realized, that they will have the expected effects on our business or operations. Actual results could differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ materially from those projected in such forward-looking statements include: the preliminary nature of well data, including permeability and gas content; there can be no assurance as to the volume of gas that is ultimately produced or sold from our wells; the fracture stimulation program may not be successful in increasing gas volumes; due to limitations under Chinese law, we may have only limited rights to enforce the Gas Sales Agreement, to which we are an express beneficiary; additional wells may not be drilled, or if drilled may not be timely; additional pipelines and gathering systems needed to transport our gas may not be constructed, or if constructed may not be timely, or their routes may differ from those anticipated; the pipeline and local distribution/compressed natural gas companies may decline to purchase or take our gas (although the Gas Sales Agreement with the pipeline is a "take or pay" contract), or we may not be able to enforce our rights under definitive agreements with pipelines; conflicts with coal mining operations or coordination of our exploration and production activities with mining activities could adversely impact or add significant costs to our operations; the MofCom may not approve on a timely basis or at all, the extension of the Qinnan PSC or, if so, on commercially advantageous terms; our Chinese partner companies or the MofCom may require certain changes to the terms and conditions of the Shouyang or Yunnan PSCs in conjunction with their approval of any extension of the exploration period, including reductions in acreage or a reduction in the term of the extension for the exploration period; our lack of operating history; limited and potentially inadequate management of our cash resources; risk and uncertainties associated with exploration, development and production of CBM; our inability to extract or sell all or a substantial portion of our estimated CBM resources; we may not satisfy requirements for listing our securities on a securities exchange; expropriation and other risks associated with foreign operations; disruptions in capital markets affecting fundraising; matters affecting the energy industry generally; lack of availability of oil and gas field goods and services; environmental risks; drilling and production risks; changes in laws or regulations affecting our operations, as well as other risks described in our filings with the SEC.

When you consider these forward-looking statements, you should keep in mind these risk factors and the other cautionary statements in this report. Our forward-looking statements speak only as of the date made. All subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. We assume no obligation to update any of these statements.

Additional risks include among others, the following:

Risks Relating to Our Business

We must obtain additional capital in order to continue our operations.

We are not able to predict exactly when we will recognize significant revenues. We expect to experience operating losses and negative cash flow until production levels in the Shouyang Block increase sufficiently, which will require the drilling and completion of a significant number of productive wells.

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Management will continue to seek to secure additional capital to continue operations, repay the Facility Agreement on or before its maturity date and to meet future expenditure requirements necessary to retain our rights under our PSCs. In connection therewith, management must either seek to secure additional capital by exploring potential strategic relationships or transactions involving one or more of our PSCs, such as a joint venture, farmout, merger, acquisition or sale of some or all of our assets or obtain debt, reserve based, project or equity-related financing. However, there can be no assurance that we will be successful in entering into any strategic relationship or transaction, securing capital or raising funds through debt, reserve based, project or equity-related financing. In addition, the terms and conditions of any potential strategic relationship or transaction or of any debt, reserve based, project or equity-related financing are uncertain and we cannot predict the timing, structure or other terms and conditions or the consideration that may be paid with respect to any transaction or offering of securities and whether the consideration will meet or exceed our offering price. Due to certain factors, an offering of our common stock is likely not a viable alternative at this time, but a non-convertible preferred stock offering might be possible under certain circumstances. Under certain circumstances, the structure of a strategic transaction may require the approval of the Chinese authorities, which could delay closing or make the consummation of a transaction more difficult or impossible. In particular, any transfer of our rights under any PSC will require the approval of our Chinese partner company. There can be no assurance that the Chinese authorities will provide the approvals necessary for a transaction or transfer. The global financial crisis created liquidity problems for many companies and financial institutions, and international capital markets have stagnated, especially in Europe. A continuing downturn in these markets could impair our ability to obtain, or may increase our costs associated with obtaining, additional funds through the sale of our securities or otherwise. The crisis has created a difficult environment in which to negotiate and consummate a transaction. In addition, the terms and conditions of any potential strategic relationship or transaction or of any debt, reserves based, project or equity related financing are uncertain and we cannot predict the timing, structure or other terms and conditions of any such arrangements or the consideration that may be paid with respect to any transaction or offering of securities and whether the consideration will meet or exceed our offering price.

If our operating requirements or drilling obligations materially change from those currently planned, we may require more capital than currently anticipated or may be required to secure capital earlier than anticipated. For example, it is possible that the MLR or one of our Chinese partner companies could seek to, among other things, force us to relinquish acreage, increase our capital expenditures or accelerate our drilling program. If we are unable to commit to the expenditures or accelerate our drilling and dewatering efforts, it may adversely affect our ability to extend the terms of our PSCs. If we fail to obtain the necessary funds to complete our exploration activities under our PSCs, and we cannot obtain extensions to the requirements under our PSCs, we would not be able to successfully complete our exploration and development activities and we may lose rights under our PSCs or we may have to limit the acreage used in the Shouyang Block.

We may not be able to continue as a going concern.

Our independent registered public accounting firm has issued a going concern opinion indicating that our operating losses, working capital deficit and inability to generate sufficient revenues, cause substantial doubt about our ability to continue as a going concern, and that there is uncertainty as to whether we have the capability to continue our operations without additional funding.  If we are unable to obtain necessary funding, we may be forced to cease business operations, sell assets and/or seek protection under applicable bankruptcy laws.  Any such inability to continue as a going concern could have a material adverse effect on our business, results of operation and financial condition.    If we are not able to continue as a going concern, it is possible that holders of our common stock could lose all of their investment.

We have a limited source of revenue.

We will not generate material revenues from our existing properties until we have successfully completed exploration and development, and started meaningful production of CBM. Although we have had some sales under the Gas Sales Agreement since early in the first quarter of 2011, we are not able to predict exactly when we will recognize significant revenues. Although SPG has completed its pipeline, which runs within 2 kilometers of our 1H Pilot Area and is being used to transport CBM sold pursuant to the Gas Sales Agreement and in-field gathering system and compression equipment were connected to the pipeline in early January 2011, we have not yet achieved significant production in the Shouyang Block. Our ability to realize significant revenues from any producing wells

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may be impaired until production increases significantly in the Shouyang Block and additional pipelines or facilities are built out or arrangements are made to deliver a higher level of production to market.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our debt obligations.

As of December 31, 2013, on a consolidated basis, we had total senior secured indebtedness outstanding of approximately $89.6 million, consisting of $68.6 million aggregate principal amount of the Notes due 2016 and approximately $21.0 million aggregate principal amount under the Facility Agreement with SCB plus related accrued interest on such amounts due on April 15, 2014. The Notes and the Facility Agreement are cross-defaulted against one another. Subject to the restrictions in the Indenture and in the Facility Agreement, we may incur additional indebtedness. In addition, the Notes provide for paid in kind interest, which will add to the aggregate principal amount outstanding on each interest payment date in which we are required or elect to pay paid in kind interest. Our high level of indebtedness could have important consequences for an investment in us and significant effects on our business. For example, our level of indebtedness and the terms of our debt agreements may:

• make it more difficult for us to satisfy our financial obligations under our indebtedness and our contractual and commercial commitments and increase the risk that we may default on our debt obligations or be unable to repay our debt obligations on or before their respective maturity dates;

• prevent us from raising the funds necessary to repurchase Notes tendered to us if there is a change of control or in connection with an excess cash flow offer, asset sale offer or insurance proceeds offer, in each case, pursuant to the terms of the Indenture, which would constitute a default under the Indenture governing the Notes;

• require us to use a substantial portion of our cash flow from operations or from additional indebtedness or equity capital raises to pay interest and principal on the Facility Agreement and the Notes, which would reduce the funds available for working capital, capital expenditures and other general corporate purposes;

• limit our ability to obtain additional financing for additional drilling, working capital, capital expenditures, acquisitions and other investments, or general corporate purposes, which may limit our ability to execute our business strategy;

• heighten our vulnerability to downturns in our business, our industry or in the general economy and restrict us from exploiting business opportunities or making acquisitions;

• place us at a competitive disadvantage compared to those of our competitors that may have proportionately less debt;

• limit management’s discretion in operating our business; and

• limit our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate or the general economy.

Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial indebtedness.

Our ability to make scheduled payments of debt principal and interest or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.  We may not generate sufficient cash flows from operations in the future to both service our debt and make necessary capital expenditures.  If we are unable to generate such cash flows, we may be required to adopt one or more alternatives, such as reducing or delaying capital expenditures, selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.  In the absence of such cash flows, we

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could have substantial liquidity problems and might be required to sell material assets or operations in attempt to meet our debt service and other obligations.  Any proceeds we do receive from asset sales may not be adequate to meet our debt service obligations then due.  Our ability to refinance our indebtedness would depend upon the conditions in the capital markets and our financial condition at such time.  We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations and have an adverse effect on our financial condition.  If we fail to comply with the covenants in the Indenture governing the Notes or the Facility Agreement or pay the Facility Agreement in full or extend the maturity date of the Facility Agreement by April 15, 2014, it could lead to an event of default and the acceleration of the maturity of all outstanding debt under our Facility Agreement, as well as a cross default and acceleration of maturity under the Indenture governing the Notes, and we may be forced to seek relief through a filing under the CCAA and Chapter 11 or Chapter 15 of the U.S. Bankruptcy Code (or an involuntary petition for bankruptcy may be filed against us).

If we file for bankruptcy protection, or if an involuntary petition for bankruptcy is filed against us, our business and operations will be subject to certain risks.  A bankruptcy filing by or against us would subject our business to certain risks, including but not limited to, the following:

• a bankruptcy filing by or against us may adversely affect our business prospects, including our ability to continue to obtain and maintain the contracts necessary to operate our business on competitive terms;

• a bankruptcy filing by or against us may cause an event of default under the Indenture governing the Notes;

• certain provisions in our operating agreements may be triggered such that we would be deemed to have resigned as operator or the agreements may be terminated by the other party;

• we may be unable to retain and motivate key executives and employees through the process of reorganization, and we may have difficulty attracting new employees;

• there can be no assurance that we will be able to successfully develop, prosecute, confirm and consummate one or more plans of reorganization that are acceptable to the bankruptcy court and our creditors, equity holders and other parties in interest; and

• the value of our common stock could be reduced as a result of a bankruptcy filing.

We are in the exploration and development phase of our PSCs and have substantial capital requirements that, if not met, will hinder our ability to continue as a going concern.

We face significant challenges, expenses and difficulties as we seek to explore, develop and produce CBM. The development of our projects in China will require that we obtain funding to satisfy very significant expenditures for exploration and development of these projects, if they are to be successful. We will also require resources to fund significant capital expenditures for exploration and development activities in future periods. In this regard, CUCBM or CNPC could seek to renegotiate our PSCs to, among other things, increase our expenditures or accelerate our drilling program beyond the minimum contractual requirements under our PSCs. Our success will depend on our ability to secure additional capital to fund our capital expenditures until such time as revenues are sufficient to fund our activities. If we cannot obtain adequate capital, or do not have sufficient revenue to fund our activities, and we cannot obtain extensions to the requirements under our PSCs, we will not be able to successfully complete our exploration and development activities, and we may lose rights under our PSCs. This would materially and adversely affect our business, financial condition and results of operations.

The development of CBM properties involves substantial risks, and we cannot assure that our exploration and drilling efforts will be successful.

The business of exploring for and, to a lesser extent, developing and operating CBM properties involves a high degree of business and financial risk that even a combination of experience, knowledge and careful evaluation may not be able to overcome. The selection of prospects for CBM drilling, the drilling, ownership and operation of CBM

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wells and the ownership of interests in CBM properties are highly speculative. We cannot always predict whether any of our wells will produce commercial quantities of CBM.

Drilling for CBM may involve unprofitable efforts from, among other things, wells that are productive but do not produce CBM in sufficient quantities or quality to realize enough net revenues to return a profit after drilling, operating and other costs. In the oil and gas industry, the cost of drilling, completing and operating wells is often uncertain, and cost overruns are common. Our drilling operations may be curtailed, delayed or canceled as a result of numerous factors, many of which are beyond our control, including but not limited to uncooperative inhabitants, title problems, weather conditions, compliance with governmental requirements and shortages or delays in the delivery of equipment and services. In addition, other factors such as permeability, structural characteristics of the coal, or the quality or quantity of water that must be produced, may hinder, restrict or even make production impractical or impossible.

Drilling and completion decisions generally are based on subjective judgments and assumptions that are speculative. We may drill wells that, although productive, do not produce CBM in economic quantities. It is impossible to predict with certainty the production potential of a particular property or well. Furthermore, the successful completion of a well does not ensure a profitable return on the investment. A variety of geological, operational, or market-related factors, including, but not limited to, unusual or unexpected geological formations, pressures, equipment failures or accidents, fires, explosions, blowouts, cratering, pollution and other environmental risks, shortages or delays in the availability of drilling rigs and the delivery of equipment, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well, or otherwise prevent a property or well from being profitable. We contract with drilling companies to drill certain of our wells in China, and we face the risk that the other party may not perform, which may delay our drilling program. A productive well may also become uneconomical in the event excessive water or other deleterious substances are encountered, which impair or prevent the production of natural gas from the well. In addition, production from any well may be unmarketable if it is contaminated with water or other deleterious substances. We cannot assure that wells drilled by us will be productive or, even if productive, will produce CBM in economic quantities so that we will recover all or any portion of our investment. In the event we are not successful, we may be required to write off some or all of the capitalized well costs on our financial statements.

Sales of CBM produced at our Shouyang Block under the Gas Sales Agreement are our only source of revenues, and these revenues are not currently significant.

We will not generate material revenues from our existing properties until we have successfully completed exploration and development and increased production of CBM. Although we have commenced sales under the Gas Sales Agreement, we are not able to predict exactly when we will recognize significant revenues.  Gas sales volume, net to the Company, during 2013 was 231.8 MMcf compared to 260.4 MMcf in 2012.  Additionally, no facilities exist to transport or process CBM near our Yunnan Province projects. Our ability to realize significant revenues from any producing wells in Yunnan may be impaired until additional pipelines or CNG facilities are built out or arrangements are made to deliver our production to market.

We are an early stage company and thus have a limited operating history for the purpose of evaluation of our performance and prospects.

We have been engaged principally in developing and implementing strategic operating and exploration plans, raising capital, hiring personnel, entering into contracts, acquiring rights to explore, develop, produce and sell CBM, and drilling, testing and completing exploratory wells. As an early stage company, we have limited operating experience in the distribution and marketing of CBM in China. We have limited operating history upon which you can evaluate our performance and prospects. In addition, we cannot forecast operating expenses based on our historical results, and our ability to accurately forecast future revenues is limited. As a result of our limited operating history, we are more susceptible to business risks, including the risk of unforeseen capital requirements, failure to establish business relationships, and competitive disadvantages against larger and more established companies.

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We have a history of losses and expect to incur losses in the foreseeable future. If we do not achieve profitability, our financial condition and our ability to make interest payments in respect of the Notes will suffer.

As of December 31, 2013, we have minimal revenues from the sale of CBM. Although we have commenced sales under the Gas Sales Agreement, we expect to continue to experience operating losses and negative cash flow for the foreseeable future. We must secure additional capital and/or generate sufficient revenues to fund anticipated drilling, exploration and operation costs and to achieve and maintain positive net income. We cannot guarantee that we will ever generate sufficient revenues to achieve positive net income, which would negatively impact our ability to make interest payments in respect of the notes. If we do achieve positive net income, we cannot assure you that we will be able to sustain or increase profitability in the future.

We must complete multiple additional CBM wells on our Shanxi Province and Yunnan Province projects before we can significantly increase production in Shanxi and commence production in Yunnan.

As of January 31, 2014, after giving effect to the modification of the Shouyang PSC in 2012, we have drilled to total depth 5 horizontal production wells, 31 vertical production wells, 81 deviated production wells, and 40 appraisal wells in the Shouyang Block. As of January 31, 2014, we have drilled to total depth 2 horizontal wells and 5 vertical wells in the Qinnan Block.

While subject to periodic maintenance, we have achieved continuous gas production in some of our wells, but there can be no assurance that mechanical events may not affect production from time to time. We have entered into the Gas Sales Agreement for the purchase and sale of up to the Daily Volume Limit of CBM produced at our Shouyang Block. We plan to continue to dewater existing wells and drill additional wells in the initial 1H Pilot Area to increase production. At this early stage, the volumes being produced while dewatering are still relatively small, and the data obtained is not yet sufficient to be able to project the peak gas production volume or to be able to conclude whether the wells will produce up to the Daily Volume Limit under the Gas Sales Agreement. None of the wells we have drilled to date in Yunnan or Qinnan are currently producing CBM as they are undergoing or will undergo dewatering and production testing. We are analyzing and evaluating drilling data obtained in an effort to determine how many additional wells we have to drill in order to begin production of commercial volumes in Qinnan and Yunnan; and, in Shouyang, while commercial production has been achieved, we desire to drill additional wells to increase production. We cannot make any assurances that we will have the resources to drill enough additional wells in the Shanxi and Yunnan Provinces to significantly increase production in the areas. As a result, even though we may have producing properties in the region, we may not be in a position to derive positive cash flow from operations from such wells. Actual production may vary materially from preliminary test results. Actual production from the wells may be at recovery rates and gas quality materially different than our first indications.

We are dependent on our key personnel and may not be able to hire and retain key employees to fully implement our business strategy.

Our success will depend largely on our senior management, which includes our executive officers. As we grow our business, we must attract, retain and integrate additional experienced managers, geoscientists and engineers in order to successfully operate and grow our businesses. The number of available, qualified personnel in the oil and gas industry to fill these positions may be limited. Our inability to attract, retain and integrate these additional personnel or the loss of the services of any of our senior executives or key employees could delay or prevent us from fully implementing our business strategy and could significantly and negatively affect our business.

We are not diversified, and we concentrate on one industry.

Our business strategy concentrates on exploration and development of CBM in China. There is an inherent risk in not having a diverse base of properties in exploration and development, because we will not have alternate sources of revenue if we are not successful with our current exploration and development activities. As we will invest substantially all of our assets in this market, we may be more affected by any single adverse economic, political or regulatory event than a more diversified entity. Our failure in the exploration and development of our CBM property rights in China would have a material adverse effect on our business.

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We may have difficulty managing growth in our business.

Because of our small size and the relatively large scale of operations required for our business to yield revenue, growth in accordance with our business plan, if achieved, will place a significant strain on our financial, technical, operational and management resources. As we expand our activities and increase the number of projects we are evaluating or in which we participate, there will be substantially more demands on these resources. Further, we may be required to respond to any expansion of our activities in a relatively short period of time in order to meet the demands created by the expansion of these activities, the growth of our business and our drilling objectives. The failure to timely upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the recruitment and retention of experienced managers, geoscientists and engineers, could have a material adverse effect on our business, financial condition and results of operations and our ability to timely execute our business plan. If we are unable to implement these actions in a timely manner, our results and the growth of our business may be adversely affected.

Certain social activist and other institutional investors have divested PetroChina securities because of its operations in various countries subject to U.S. export and asset controls, and our relationship with CNPC, its parent company, may adversely affect our reputation with such investors.

CNPC, our Chinese partner company in the Qinnan PSC, has operations in various countries subject to U.S. export or asset controls. We depend on CNPC, as the holder of the exploration license for CBM, to allow us to operate our Qinnan Block (in the event the exploration period in the Qinnan Block is extended). We are aware of certain organizational and investor efforts to persuade PetroChina, the reporting subsidiary of CNPC in the U.S., to end its business contacts, direct or indirect, with certain countries, including Iran and Sudan, and that investors have divested PetroChina's securities because of such ties. Iran and Sudan have been designated by the U.S. as state sponsors of terrorism. To date, we have detected no adverse investor sentiment regarding our contractual relationship with CNPC, no reluctance to invest because of such relationship and no desire or intent to divest our securities because of such relationship. Nevertheless, in light of the aforementioned organizational and investor efforts regarding PetroChina, we may suffer an adverse impact on our reputation as a result of our relationship with CNPC.

We may be unable to continue to perform our obligations under our PSCs sufficiently or at all, which may have a material and adverse effect on our business, financial condition, results of operations and prospects.

Each of our PSCs for the CBM blocks contains requirements on the performance of the foreign contractors and operators, such as quality of services, timeframe of development plan and minimum capital expenditures. In the event that we are unable to obtain sufficient funding to continue with the development in accordance with the timeframe prescribed in the relevant PSCs, or any failure or undue delay by our subcontractors or service providers to deliver the products or services that meet the quality requirements under the PSCs, we may not sufficiently perform our obligations under the PSCs, which may have a material and adverse effect on our business, financial condition, results of operations and prospects.

If we fail to maintain a continued good working relationship with our Chinese partner companies, our business, financial condition and results of operations may be materially and adversely affected.

Our business operations are based on the PSCs between us and our Chinese partner companies. The success of our business and such growth depend to a significant extent on our working relationship with our Chinese partner companies. However, we cannot assure you that we will be able to maintain a good working relationship with such partners. For instance, if we experience any material disagreement with our Chinese partner companies in the interpretations of any of the terms of the PSCs, or if we fail to comply with the terms of the PSCs in a timely manner or at all, our working relationship with our Chinese partner companies may be adversely affected. Furthermore, we may have disagreements over payment with our Chinese partner companies from time to time. If any Chinese partner company terminates a PSC, fails to perform under a PSC or decides not to enter into any new PSC with us, we cannot assure you that we will be able to secure a new production sharing arrangement in a timely manner or at all. In addition, any failure or undue delay by our Chinese partner companies to comply with the terms of any of the PSCs, or its unwillingness to cooperate with us for any reason, may also have a material adverse impact on the success of our operations.  Under the Gas Sales Agreement with SPG, to which, for reasons related to PRC

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regulatory restrictions, we are a third party beneficiary, CUCBM acts as our collection agent and is required to remit the proceeds to us.  We have experienced delays in the past and may experience delays in the future in collecting certain accounts receivable from CUCBM because of delays in reconciling certain administrative procedures among Shanxi provincial authorities, CUCBM and SPG.

Our Chinese partner companies control, to a significant extent, the volume of our net production through their status as our sole agent for sales of CBM and the influence they have over the management of the three CBM blocks through the respective JMCs. If our net production or sales of CBM decreases or if collections and remittances of accounts receivable are impaired, our business, financial condition and results of operations may be materially and adversely affected.

Under the terms of our PSCs, all assets purchased, installed and constructed under the PSCs will eventually become the property of our Chinese partner companies, which could have a material adverse effect on our ability to satisfy our obligations.

Under the terms of the PSCs and in compliance with PRC law, all of the assets purchased, installed and constructed under the PSCs will change ownership after the earlier of (i) full recovery by the foreign contractors of their development costs or (ii) expiration of the PSCs. Before either of these occurrences, we and our Chinese partner companies jointly control the assets under the PSCs and neither we nor our Chinese partner companies can dispose of assets at our or their sole discretion. The ownership of assets during this period is not explicitly defined in the PSCs. After either of these occurrences, our Chinese partner companies will own all of the assets purchased, installed or constructed under the PSCs. Our assets under the PSCs therefore are not under our sole control and may not be available for sale, transfer, encumbrance or other disposition by us without our Chinese partner companies' approval or at all, which could have a material adverse effect on our ability to satisfy our obligations to our creditors and our shareholders.

We must obtain an extension for our Qinnan PSC to continue our operations in the Qinnan Area in Shanxi Province.

The exploration period of the Qinnan PSC in Shanxi Province expired on June 30, 2009, and we cannot continue our exploration activities in the Qinnan Block without an extension or a new PSC. We are continuing to pursue an extension of the exploration period of the Qinnan PSC and have asserted claims of force majeure pursuant to the terms of the Qinnan PSC, but we cannot predict the outcome at this time. We believe that the underlying exploration period should be extended due to events beyond our reasonable control, namely the lengthy transfer of rights taking place from CUCBM to CNPC's wholly owned subsidiary PetroChina. At CNPC's request, we have provided certain operational and financial information to assist them in the decision making process as to whether to recognize an extension of the exploration period in Qinnan. PetroChina, CNPC’s wholly-owned subsidiary, has completed an accounting audit pursuant to the Qinnan PSC of our expenditures for 2007 and 2008. We have also provided to CNPC at their request our work plan for 2010 for Qinnan. In January 2011, we received a formal notice from CNPC that it has purportedly received all Chinese approvals with respect to the transfer and has requested that we execute a modification agreement to confirm PetroChina as our Chinese partner company for the Qinnan PSC, as a direct assignee from CNPC. In negotiations with CUCBM and PetroChina related to this request, we have endeavored to negotiate an assignment agreement that would reflect the transfer of interest to CNPC, while CNPC and/or PetroChina would acknowledge delays that were incurred by virtue of the issuer not having, for an extended period of time, an official Chinese partner that had the capacity or authority under the Qinnan PSC to work with us. Because of the inability to hold a formal JMC meeting or to have the effective involvement of our Chinese partner company, we believe that our efforts to continue CBM operations in the Qinnan Block have been materially hindered. We continue to discuss this situation with CUCBM and PetroChina, and as recently as January 2012 have submitted a notice of force majeure in accordance with the Qinnan PSC. There has been no formal acknowledgment of our claim of force majeure or our efforts to finalize the transfer agreement from CUCBM to PetroChina. There can be no assurance that we will be successful in extending the exploration period of the Qinnan PSC or that a new PSC will be granted, and we cannot be optimistic at this time. Additionally, in connection with obtaining this extension or a new PSC, we may be required to commit to certain expenditures or to modify the terms or respective ownership interests and/or acreage in the applicable PSC. However, if we are unable to secure sufficient funds to commit to these expenditures, it may adversely affect our ability to extend the Qinnan PSC.

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Lingering disruptions in national and international investment and credit markets or fraud or embezzlement of funds at the financial institutions which hold our assets may adversely affect our business, financial condition and results of operation.

Lingering disruptions in the global financial system have continued to depress capital market activities, limit availability of credit, tighten lending standards and cause higher interest rates and costs of capital. Although the global financial system has stabilized to a certain extent, market conditions may continue or worsen. We can make no assurances that we will be able to obtain additional equity or debt financing to fund our anticipated drilling, exploration and operation costs on terms that are acceptable to us or at all. In the absence of capital obtained through a strategic relationship or transaction with one or more interested companies, or through an equity or debt financing, our ability to operate and to meet our obligations under our PSCs would be impaired, which would have a material adverse effect on our business, financial condition and results of operation and may affect our ability to continue as a going concern.

Our cash and cash equivalents are liquid investments with original maturities of three months or less at the time of purchase. We maintain the cash and cash equivalents with reputable major financial institutions in deposit accounts and U.S. government securities money market accounts. Deposits with these institutions exceed the Federal Deposit Insurance Corporation's insurance limits or similar limits in foreign jurisdictions. If one or more of these institutions are unable to honor our withdrawal requests or redeem our shares in our deposit or money market accounts as a result of the institution's financial condition, fraud, embezzlement or otherwise, it could have an adverse effect on our business, financial condition and results of operations. We are not engaged in any foreign currency hedging activities.

Computer security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of business, we collect and store sensitive data, including intellectual property, our proprietary business information, information about our customers, suppliers and business partners, and personally identifiable information about employees in our computer data centers and on our networks.  The secure processing, maintenance and transmission of this information is critical to our operations.  Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.  Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.  Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information and regulatory penalties, as well as disrupt our operations and damage our reputation, which could adversely affect our business.

We will continue to depend on a few customers if we increase our gas production.

Although we have begun sales under the Gas Sales Agreement, we are not able to predict exactly when we will recognize significant revenues from our gas production or the volumes of gas that may be sold under that agreement. With respect to the other PSCs and potential gas sales from the Shouyang PSC in excess of the Daily Volume Limit to be sold under the Gas Sales Agreement, when selling our gas production there may be only a small number of entities we or our Chinese partner companies can contract with which will purchase any gas we may produce. Losing any such potential contract or client would have a material negative impact on our business.

Our business depends on transportation and other facilities owned by others. Any limitation in the availability of those facilities would interfere with our ability to market the CBM we produce.

The marketability of our CBM production depends in part on the availability, proximity and capacity of pipeline and other systems owned by third parties. The amount of CBM that can be produced and sold is subject to curtailment in certain circumstances, such as pipeline interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage to the gathering or transportation system, or lack of contracted capacity on such systems. The curtailments arising from these and similar circumstances may last from a few days to several months. In many cases, we are provided only with limited, if any, notice as to when these circumstances will arise and their duration.

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In addition, some of our wells are drilled in locations that are not serviced by gathering and transportation pipelines, or the gathering and transportation pipelines in the area may not have sufficient capacity to transport the additional production. As a result, we may not be able to sell the CBM production from these wells until the necessary gathering and transportation systems are constructed. Any significant curtailment in gathering system or pipeline capacity, or significant delay in the construction of necessary gathering and transportation facilities, would have an adverse effect on our business.

Risks Relating to Our Operations in China

No facilities presently exist to transport or process CBM near our Yunnan Province project, and, although a pipeline connects to our Shouyang Block, we have limited rights under Chinese law to enforce SPG's obligations under the Gas Sales Agreement, which governs that pipeline.

The marketability of any CBM production depends, in part, upon the availability, proximity and capacity of pipelines, gas gathering systems and processing facilities. We may transport our CBM through pipelines or by compressing or liquefying the CBM for transportation.

Pipelines in Shanxi Province. Currently, two national trunklines, one to Beijing and one to Shanghai, traverse China in proximity to our Shanxi Province projects. Additionally, there are two intra-provincial pipelines that pass within 1 to 2 kilometers of our 1H Pilot Area. Under the Gas Sales Agreement, SPG has begun to purchase gas from the Shouyang Block after the completion of the pipeline, which runs from the Shanjing II pipeline (which runs from Western China to Beijing) to within 2 kilometers of our initial 1H Pilot Area in the Shouyang Block, and then on to the Taiyuan area. The connecting pipeline is complete, and we have installed an in-field gathering system and compression facilities to increase the gas pressure to the level required for delivery. Gas sales began shortly after completion of the gathering system and compression facilities. Although we are express beneficiaries of the Gas Sales Agreement, we may have limited rights under Chinese law to enforce SPG's obligations under the agreement without the cooperation of CUCBM. We cannot guarantee the volumes of gas that may be sold under the Gas Sales Agreement. Costs associated with the Shouyang PSC as well as proceeds and subsidies from gas sales under the Gas Sales Agreement are allocated between us and CUCBM in accordance with our participating interest. There can be no assurance that such government subsidies will continue or that they will be paid in a timely manner upon commencement of gas sales.

The exploration period of the Qinnan PSC in Shanxi Province technically expired on June 30, 2009, and we cannot continue our exploration activities in the Qinnan block without an extension or a new PSC. If we are successful in obtaining an extension of the Qinnan PSC, as to which we are not optimistic, or a recognition by our Chinese partner company that the period should automatically be extended for some period of time, CNG facilities or pipelines to connect our projects to larger pipelines may need to be built to market any CBM that may be produced. There is no assurance that any of the existing pipelines we might desire to connect to in the future will have sufficient capacity available to meet our requirements or the costs of using such pipelines would be economical for our PSCs. Additionally, there is no assurance that after the expiration of the Gas Sales Agreement we will be able to use its pipeline, or the other existing pipelines on terms acceptable to us or at all, as China does not require that open access to pipeline infrastructure be allowed.

Compressed Natural Gas. If we have initial commercial production of CBM from our Qinnan and Yunnan projects, then, prior to the point at which production reaches pipeline quantities, we could potentially begin to market the CBM produced to local markets as CNG. CNG is an alternative to the construction of a pipeline or LNG facility and is especially appropriate for early stage gas production where gas volumes are lower. We may determine to pursue CNG facilities in order to earn revenues from any early production of CBM. Production of CNG would require the installation of a CNG facility, which would likely be constructed and paid for by the purchaser of our gas production.

Pipelines in Yunnan Province. Because there are no pipelines currently in the immediate vicinity of the Yunnan Province projects, our ability to sell CBM produced on these projects to communities outside the general area is  contingent upon a gas pipeline, compressed natural gas facility or other offtake vehicle being built within close proximity to our project area. CNPC has undertaken a pipeline construction project, with support from the Yunnan

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provincial government, to extend the Myanmar-China natural gas pipeline to pass through the city of Kunming, then move eastward through the city of Qujing, and finally on to Guizhou Province in the east. We believe that the construction, which would lay pipelines closer to our projects in the Yunnan Block, would help reduce the costs for CBM offtake from our projects and increase our ability to eventually deliver gas to consumers. The diameter of the pipeline is 1016 mm, and the designed capacity for natural gas is 12 billion cubic meters per year. The Myanmar-China pipeline was completed in the middle of October 2013. The pipeline runs about 60 kilometers north of the northern boundary of the Laochang sub-block.

Substantially all of our assets and operations are located in China.

Substantially all of our assets and operations are located in China. Accordingly, our business is subject to a significant extent to the economic, political, and legal developments in China. China is a developing country and has only a limited history of trade practices as a nation. We are subject to the laws, rules, regulations, and political authority of the government of China. We may encounter material problems while doing business in China, such as interactions with the Chinese government and uncertain foreign legal precedent pertaining to developing CBM and enforcing rights under our PSCs and other agreements governed by Chinese law in China. Risks inherent in international operations also include, but are not limited to, the following:

• global economic conditions;

• local currency instability;

• inflation;

• the risk of realizing economic currency exchange losses when transactions are completed in currencies other than U.S. dollars;

• the ability to repatriate earnings under existing exchange control laws; and

• political unrest.

Changes in domestic and foreign import and export laws and tariffs can also materially impact international operations. In addition, foreign operations involve political, as well as economic risks, including:

• nationalization;

· expropriation;

· contract renegotiations;

• trade protection;

• changes in diplomatic and trade relations between United States and China;

• government intervention and price fixing in certain markets; and

• changes in laws resulting from governmental changes.

Additionally, CUCBM and CNPC are subject to rules and regulations of China and the jurisdiction or influence of other governmental agencies in China that may adversely affect their ability to perform under our PSCs as well as our rights in our PSCs with them. These rules and regulations may affect our rights under our PSCs by potentially limiting, renegotiating or precluding us from exploring and developing the full acreage provided for and may also affect the opportunities and obligations under our PSCs. CUCBM and CNPC could seek, among other things, to

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increase our expenditures or accelerate our drilling program beyond the minimum contractual requirements under our PSCs. We must comply with certain procedural requirements under our PSCs with CUCBM in order to obtain the reimbursement of costs incurred under the PSCs. We cannot assure you that we will recover, or that CUCBM will approve reimbursement of, all costs incurred under the PSCs, which could adversely impact our business, financial conditions and results of operations. In the event of a dispute, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in the United States. We may also be hindered or prevented from enforcing our rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity.

If we fail to obtain or maintain all required licenses, permits and approvals, or if we are required to take actions to obtain such licenses, permits and approvals which are time-consuming or costly, our business operations and development plans may be materially and adversely affected.

CBM operations such as ours are subject to a significant number of licenses, permits and approvals in the PRC, such as those relating to environmental protection and work safety. In particular, our projects and any expansion plans are subject to extensive governmental review and approval. Our ability to continue to conduct our existing operations and to successfully implement our expansion strategies is dependent upon our obtaining, maintaining and renewing, where necessary, the relevant regulatory approvals under PRC law. We are also dependent on our Chinese partner companies' ability to obtain governmental approvals and licenses. These approvals include, but are not limited to, environmental approvals, workplace safety approvals, land use rights and approvals from the State Administration of Foreign Exchange. If we or our Chinese partner companies fail to obtain or renew such approvals on a timely basis or at all, we may be subject to fines, ordered to take corrective measures, or subject to other administrative penalties. We may even be prohibited from continuing or expanding our operations due to such failure to obtain or renew such approvals, and we may have to expend considerable time and costs in order to sustain our business.

Our right and ability to continue to occupy and use the land and buildings under each of the PSCs for our long- term use may be uncertain.

Although we have entered into lease agreements with local village committees and other landowners that legally own or have rights to occupy the land which we occupy and use pursuant to the PSCs for our exploration and production activities, we still face certain risks that are inherent to such leasing arrangements. The lessor under any one of these leases may breach its obligations under the relevant lease agreement, or the lease may be terminated due to a breach by the lessor of any PRC law or regulation in exercising its leasing rights under the relevant lease agreement. The leases may also be terminated as a result of a compulsory purchase or acquisition of land by the PRC government. Furthermore, our existing lease agreements are for a term of as little as one year or less and there is no assurance that we will be able to renew them upon expiry on the same terms or those commercially acceptable to us, or at all. Moreover, the relevant lessors have not provided us with the relevant title certificates or documents evidencing that they have the requisite titles or rights to lease the properties to us. Such title documents include land use rights certificates and building ownership certificates. The validity of our leases in respect of these properties may be subject to legal challenge. Our right as occupier of such properties may be adversely affected as a result of the absence of legal title. There can be no assurance that third parties will not seek to assert their ownership rights or rights of possession against these lessors or challenge our leases in the future, or that they will not initiate any legal proceedings against us with respect to our use of such properties. Any of the foregoing will affect our ability to use the land parcels, as we may be subject to fines and/or ordered to take corrective measures, or be temporarily prohibited from using any of these parcels of land for our exploration, production or related activities, which would have an adverse impact on our expansion plans and our future profitability.

PRC regulations may limit our activities and adversely affect our business operations.

Our operations, like those of other CBM companies operating in China, are subject to extensive regulations and control by the PRC government. Although the PRC government has been gradually liberalizing its regulations of the oil and gas industry in recent years, it continues to exercise a certain degree of control over this industry by, among other measures, licensing the right to explore and produce crude oil, assessing and imposing taxes and fees payable in respect of CBM produced and setting safety, environmental and quality standards. These regulations and controls, including any future changes in tax rules or policies, may affect material aspects of our operations and profitability,

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which may in turn constrain our ability to implement our business strategies, to develop or expand our business operations or to maximize our profitability. For example, the PRC Ministry of Finance has indicated that they are considering enacting a resource tax reform plan, which may include changing the current taxation on extraction of natural resources, but the details of such plan is still unknown. We cannot assure you that the resource tax reform plan or any other future changes in applicable regulations, if enacted, will not have a material adverse effect on our business.

Uncertainties with respect to the PRC legal system could limit the protections available to you and us.

The PRC legal system is a civil law system based on written statutes. Unlike in common law systems, prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since many laws, rules and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to us. For example, we may have to resort to administrative and court proceedings to enforce the legal protections that we enjoy either by law or contract.

Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of PRC administrative and court proceedings and the level of legal protection we enjoy in China as compared to more developed legal systems. These uncertainties may impede our ability to enforce our contracts with CUCBM, our service providers and suppliers. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operations. Accordingly, we cannot predict the effect of future developments in the PRC legal system, particularly with regard to the oil and gas industry in China, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us and other foreign investors, including you. In addition, any litigation in China may be protracted and result in substantial costs and diversion of our resources and management attention.

Certain facts and statistics in this report relating to the PRC economy and the CBM industry in the PRC are derived from various governmental official publications and may not be fully reliable.

Certain facts and statistics in this report relating to the PRC, the PRC economy, the CBM industry and other related sectors of the PRC are derived from various governmental official publications. However, we cannot guarantee the quality or reliability of such governmental official publications. While we have taken reasonable care to ensure that the facts and statistics presented are accurately reproduced and extracted from such governmental official publications, they have not been independently verified by us, the initial purchasers, or any of its or our affiliates or advisors. We therefore make no representation as to the accuracy of such facts and statistics from governmental official publications, which may not be consistent with other information compiled within or outside the PRC.

Possibly due to inadequate or ineffective collection methods or discrepancies between governmental official publications and market practice and other problems, the official statistics in this report relating to the PRC economy and CBM and natural gas industry and other related sectors in the PRC may be inaccurate, or may not be comparable to statistics produced for other economies, and thus should not be unduly relied upon. Furthermore, we cannot assure you that they are stated or compiled on the same basis or with the same degree of accuracy, as may be the case in other countries. In all cases, investors should give consideration as to how much weight or importance they should attach to or place on such official facts or official statistics.

We are exposed to foreign currency risk.

In July 2005, the Chinese government began to permit the RMB to float against the U.S. Dollar. All of our costs to operate our Chinese offices are paid in RMB. Our exploration costs in China may be incurred, and our revenues may be generated, under contracts denominated in RMB or U.S. Dollars. If the value of the U.S. Dollar falls in relation to the RMB, the cost to us of funding our Chinese operations would rise because more U.S. Dollars would

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be required to fund the same expenditures in RMB. Conversely, if the value of the U.S. Dollar rises in relation to the RMB, the change in exchange rates would decrease our U.S. Dollar cost to fund operations in China. Similarly, devaluation of RMB relative to the U.S. Dollar can reduce the U.S. Dollar value of our local cash flow and local net income.

To date, we have not engaged in hedging activities to hedge our foreign currency exposure. In the future, we may enter into hedging instruments to manage our foreign currency exchange risk or continue to be subject to exchange rate risk. However, we may not be successful in reducing foreign currency exchange risks, and as a result, we may from time to time experience losses resulting from fluctuations in the value of the RMB.

Inflation may adversely affect our financial condition and results of operations.

Although inflation has not materially impacted our operations in the recent past, increased inflation in China or the U.S. could have a negative impact on our operating and general and administrative expenses, as these costs could increase. In recent years, we have increased our use of Chinese suppliers, including drilling contractors, that are paid in RMB. In the future, inflation in China may result in higher minimum expenditure requirements under our PSCs if CUCBM adjusts these requirements for inflation. A material increase in these costs as a result of inflation could adversely affect our operations and, if there are material changes in our costs, we may seek to raise more funds earlier than anticipated.

We are exposed to the effects of general economic and political conditions in China.

Our present and any future CBM sales could be adversely affected by a sustained economic recession in China. As our operations and end user markets are primarily in China, a sustained economic recession in that country could result in lower demand or lower prices for the natural gas to be produced by us. Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could materially and adversely affect our business.  Any disruptions in the global financial system may adversely impact China's growth rates.

Risks Related to the Oil and Gas Industry

The volatility of natural gas and oil prices could harm our business.

Our future revenues, profitability and growth as well as the carrying value of our oil and gas properties depend to a large degree on prevailing oil and gas prices. Our ability to borrow additional funds and to obtain additional equity funding on attractive terms also substantially depends upon oil and gas prices. Prices for oil and gas are subject to large fluctuations in response to relatively minor changes in the supply and demand for oil and gas, uncertainties within the market and a variety of other factors beyond our control. These factors include weather conditions in China, the condition of the Chinese economy, the activities of the Organization of Petroleum Exporting Countries, governmental regulation, including deregulation of the natural gas market, political stability in the Middle East and elsewhere, the foreign supply of oil and gas, the price of foreign imports and the availability of alternative fuel sources. Prices for oil and natural gas have been and are likely to remain extremely unstable. The Chinese government has recently adopted a new policy with a view to de-regulating the natural gas market. On December 26, 2011, the National Development and Reform Commission issued the Notice on the Trial Reform of Natural Gas Pricing Mechanism in Guangdong and Guangxi (the "Notice") as a first step effort to de-regulate China's gas pricing regime. Under the Notice, Guangdong and Guangxi have been selected to implement the new pricing scheme as a pilot program and if this pilot program works well, it will likely be implemented across the country. Pursuant to the Notice, the benchmark price is the ex-factory gas price in the Shanghai market. In calculating the benchmark price, the price of two types of alternative resources, oil and LNG, is taken into account. The ex-factory gas price to be adopted in Guangdong and Guangxi should be calculated by reference to the Shanghai benchmark price. The Notice sets a ceiling for the ex-factory price for Guangdong and Guangxi, being 2.74 RMB cubic meters (roughly equivalent to US $12.69 McF) in Guangdong and 2.57 RMB cubic meters (roughly equivalent to US $11.91 McF) in Guangxi based on the December 31, 2013 exchange rate. Under such ceilings, the suppliers and purchasers are free to negotiate and determine the actual purchase price. The Notice further sets out that the ex-factory price for unconventional gas such as shale gas and CBM will be set according to the market demand. Also in December 2011, the National Development and Reform Commission and the National Resources Bureau jointly issued the Twelfth

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Five-Year Plan for Coal-Bed Methane Development and Usage, which lays down the Chinese government's focus on the development of CBM projects in 2015-2020.

We may not be able to successfully compete with rival companies.

The energy industry is highly competitive in all its phases. Competition is particularly intense with respect to the acquisition of CBM prospects suitable for enhanced production efforts, and the hiring of experienced personnel. Our competitors in CBM acquisition, development, and production include major integrated oil and gas companies in addition to substantial independent energy companies. Many of these competitors possess and employ financial and personnel resources substantially greater than those that are available to us and may be able to pay more for desirable producing properties and prospects and to define, evaluate, bid for, and purchase a greater number of producing properties and prospects than we can. Our financial or personnel resources to generate revenues in the future will depend on our ability to select and acquire suitable producing properties and prospects in competition with these companies.

The production and producing life of wells is uncertain and production will decline over time.

If any well becomes commercially productive, it will not be possible to predict the life and production of that well. The actual producing lives could differ from those anticipated. Sufficient CBM may not be produced for us to receive a profit or even to recover our initial investment. In addition, production from our CBM wells will decline over time, and does not indicate any consistent level of future production.

The CBM reserve data in this report are only estimates and the actual production, revenues and expenditures with respect to our net reserves may differ materially from these estimates.

The CBM reserve estimates are important data to us for making future development and production plans and estimation of our expected recovery of operating costs incurred and profit-sharing oil. The CBM reserve data in this report are only estimates. The reliability of reserve estimates depends on the following factors, some of which are beyond our control and may fluctuate or prove to be incorrect over time:

• the quality and quantity of technical and economic data;

• the prevailing gas prices applicable to our net production;

• the production performance of the reservoirs;

• estimation of future costs;

• extensive engineering judgments; and

• consistency in the PRC government's gas policies.

There are numerous uncertainties inherent in estimating quantities of proved CBM reserves, and in the timing of development expenditures and the projection of future rates of production. Adverse changes in economic conditions may render it uneconomical to develop certain reserves. Our actual production, revenues, taxes and fees payable and development and operating expenditures with respect to our net reserves may likely vary from these estimates. Results of drilling, testing and production after the date of the estimates may require substantial upward or downward revisions in our reserve data. Our actual production, revenues and expenditures with respect to our net reserves may differ materially from these estimates because of these revisions.

We may suffer losses or incur liability for events as the operator of a property or as to which we have chosen not to obtain insurance.

Our operations are subject to hazards and risks inherent in producing and transporting oil and natural gas, such as fires, natural disasters, explosions, pipeline ruptures, spills, and acts of terrorism, all of which can result in the loss

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of hydrocarbons, environmental pollution, personal injury claims and other damage to our properties and others. The occurrence of any of these events could result in the following:

• substantial losses due to injury and loss of life;

• severe damage to and destruction of property, natural resources and equipment;

• pollution and other environmental damage;

• clean-up responsibilities; and

• regulatory investigation and penalties and suspension of operations.

As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. The occurrence of an event that is not covered, or not fully covered, by insurance could have a material adverse effect on our business, financial condition and results of operations.

Environmental hazards and liabilities may adversely affect us and result in liability.

There are numerous natural hazards involved in the drilling of CBM wells, including unexpected or unusual formations, pressures, and blowouts and involving possible damages to property and third parties, surface damages, bodily injuries, damage to and loss of equipment, reservoir damage and loss of reserves. We could also be liable for environmental damages caused by previous property owners. As a result, substantial liabilities to third parties or governmental entities may be incurred which could have a material adverse effect on our financial condition and results of operations.

We maintain insurance coverage for our operations in amounts we deem appropriate, but we do not believe that insurance coverage for environmental damages that occur over time, or complete coverage for sudden and accidental environmental damages, is available at a reasonable cost. Accordingly, we may be subject to liability or may lose the privilege to continue exploration or production activities upon substantial portions of our properties if certain environmental damages occur. The insurance coverage we do maintain may also be insufficient. In that event, our assets would be utilized to pay personal injury and property damage claims and the costs of controlling blowouts or replacing destroyed equipment rather than for additional drilling activities.

We face substantial governmental regulation and environmental risks.

Our business is subject to various laws and regulations that may be changed from time to time in response to economic or political conditions. Matters subject to regulation include the following:

• discharge permits for drilling operations;

• drilling bonds;

• reports concerning operations;

• the spacing of wells;

• unitization and pooling of properties;

• taxation; and

• environmental protection.

Regulatory agencies may also impose price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve oil and gas.

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We are subject to environmental regulation that can materially and adversely affect the timing and cost of our operations.

Our exploration and proposed production activities are subject to certain laws and regulations relating to environmental quality and pollution control. Our operations in China are governed by our PSCs and the Shanxi farmout agreements. We are subject to the laws, decrees, regulations and standards on environmental protection and safety promulgated by the Chinese government. Various government laws and regulations concerning the discharge of incidental materials into the environment, the generation, storage, transportation and disposal of waste or otherwise relating to the protection of public health, natural resources, wildlife and the environment, affect our current exploration efforts and future development, processing and production operations and the costs related to them. These regulations require us to obtain environmental permits to conduct seismic acquisition, drilling or construction activities. Such regulations also typically include requirements to develop emergency response plans, waste management plans, environmental plans and spill contingency plans.

Existing environmental laws and regulations may be revised or new laws and regulations may be adopted or become applicable to us. Revised or additional laws and regulations that result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from insurance or our customers, could have a material adverse effect on our business, financial condition or results of operations.

The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oil field services could adversely affect our ability to execute our exploration and exploitation plans on a timely basis and within our budget.

Shortages or the high costs of drilling rigs, equipment, supplies or personnel could delay or adversely affect our exploration and development operations, which could have a material adverse effect on our business, financial condition or results of operations. If the unavailability or high cost of rigs, equipment, supplies or personnel were particularly severe in China, we could be materially and adversely affected.

We may be affected by climate change and market or regulatory responses to climate change.

Climate change, including the impact of global warming, could have a material adverse effect on our results of operations, financial condition and liquidity.  Restrictions, caps, taxes or other controls on emissions of greenhouse gases, including exhaust from generators, engines and flaring of excess natural gas, could significantly increase operating costs.  Restrictions on emissions could also affect our customers that use oil and gas to produce energy or that manufacture or produce goods that consume significant amounts of energy or burn fossil fuels, including chemical producers, farmers and food producers, and automakers and other manufacturers.  Significant cost increases, government regulation, or changes of consumer preferences for goods or services relating to alternative sources of energy or emissions reductions could materially affect the markets for the oil and gas commodities, which in turn could have a material adverse effect on our results of operations, financial condition and liquidity.  Government incentives encouraging the use of alternative sources of energy could also affect certain of our oil and gas commodity purchasers and the markets for certain of the commodities in an unpredictable manner, including, for example, the impacts of ethanol incentives on farming and ethanol producers and tax credits for wind turbine and solar power generation.  Finally, we could face increased costs related to defending and resolving legal claims and other litigation related to climate change and the alleged impact of our operations on climate change.  Any of these factors, individually or in operation with one or more of the other factors, or other unforeseen impacts of climate change could reduce the demand for oil and gas commodities and have a material adverse effect on our results of operations, financial condition and liquidity.

Risks Relating to our Securities

There are a substantial number of shares of our common stock underlying outstanding warrants and options as well as shares of our common stock that cannot currently be traded without restriction but which may become eligible for trading in the future. We cannot predict the effect future sales of our common stock will have on the market price of our common stock.

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On February 28, 2014, we had 500 million shares of common stock authorized, of which approximately 346.0 million shares of common stock were issued and outstanding. As of February 28, 2014, of the issued and outstanding shares, 4.5 million, or 1.3%, were "restricted stock" subject to resale restrictions. These shares of restricted stock will be available for trading in the future, so long as all the requirements of Rule 144, promulgated under the Securities Act are met or if such shares are registered for resale. Additionally, as of February 28, 2014, we had another 80.7 million shares of common stock subject to options and warrants, which may be issued in the future upon exercise of the applicable options and warrants.

We cannot predict the effect, if any, that future sales of our common stock will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of common stock, such as the outstanding securities registered or to be registered on registration statements, or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.

We are currently prohibited from paying dividends on our common stock.

We have not paid dividends on our common stock, and the Indenture currently prohibits us from paying dividends in the future. Consequently, it is uncertain when, if ever, we will declare dividends to our common stockholders. Investors in our common stock may not derive any profits from their investment in us for the foreseeable future, other than through any price appreciation of our common stock that may occur.

The price of our common stock could be volatile.

The market price of our common stock will likely fluctuate significantly in response to the following factors, some of which are beyond our control:

• variations in our quarterly operating results;

• changes in market valuations of oil and gas companies;

• announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

• failure to extend the terms of our production sharing contracts;

• additions or departures of key personnel;

• future sales of our common stock;

• stock market price and volume fluctuations attributable to inconsistent trading volume levels of our common stock;

• commencement of or involvement in litigation;

• domestic and worldwide supplies and prices of and demand for natural gas and oil;

• political conditions in natural gas and oil producing regions;

• the success of our operating strategy;

• war and acts of terrorism;

• changes in expectations of our future financial performance, or changes in financial estimates, if any, of public market analysts;

• general economic trends;

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• conditions generally affecting the oil and natural gas industry;

• changes in and compliance with environmental and other governmental rules and regulations;

• our liquidity; and

• our ability to obtain or raise additional funds.

In addition, the trading volume of our common stock is relatively small, and the market for our common stock may not be able to efficiently accommodate significant trades on any given day. As a result, sizable trades of our common stock may cause volatility in the market price of our common stock to a greater extent than in more actively traded securities. These broad fluctuations may adversely affect the market price of our common stock.

Trading in our common stock is limited and sporadic, and a significant market for our common stock may not develop.

Our common stock is currently eligible for trading only on the OTC Bulletin Board. While there currently exists a limited and sporadic public trading market for our common stock, the price paid for our common stock and the amount of common stock traded are volatile. We cannot assure or guarantee you that the trading market for our common stock will improve or develop further, and as a result, the liquidity of our common stock may be reduced and you may not recover any of your investment.

We may issue additional equity securities without the consent of stockholders. The issuance of any additional equity securities would further dilute our stockholders.

Our board of directors has the authority, without further action by the stockholders, to issue up to 500 million shares of preferred stock in one or more series and to designate the rights, preferences, privileges and restrictions of each series. We also have 500 million shares of common stock authorized under our charter documents, of which approximately 346.0 million shares were issued and outstanding as of February 28, 2014. The issuance of preferred stock and this right is currently subject to restrictions under our senior secured notes, we may need to do so in the future in connection with capital raising transactions. In addition, we may issue additional shares of common stock or other equity securities, including securities convertible into shares of common stock, in connection with capital raising activities. The issuance of additional common stock, including the effect of certain anti-dilution adjustments in certain of our outstanding warrants, would also have a dilutive impact on our stockholders' ownership interest in our company.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

Acreage

The following table summarizes the acreage subject to our PSCs in China as of December 31, 2013, as well as the net acreage that will remain available for exploration and production under the PSCs pursuant to our respective participating interest share under the PSCs as modified and as approved by the MofCom:

	Acreage
	Gross (1)			Net (2)
China:
Shouyang Block, Shanxi Province		288,569			206,795
Area A		15,988	(3)		15,988
Area B		272,581	(4)		190,807
Qinnan Block, Shanxi Province (5)		573,000			401,100
Laochang Area, Yunnan Province		119,327	(6)		71,596

(1) Acreage reflects the PSC amendments to date for the Shouyang and Yunnan Blocks after receiving necessary governmental approvals and our agreement to allow CUCBM to proceed at its sole risk with a 100% participation interest as to 8,673 acres (35.1 square kilometers) in the Shouyang Block.

(2) In the Shouyang Block, the Chinese partner company has the option to receive up to a 30% participating interest share in Areas A and B within thirty (30) days of receipt of notice of Chinese certification of CBM resources in a particular CBM field. CUCBM did not elect to take any participating interest in Area A of the Shouyang Block, and thus we are entitled to a 100% participating interest share (subject to the Phillips 3.5% revenue interest). CUCBM will not have to make any election on Area B until such time as we obtain Chinese certifications as to CBM resources in such area. In the Yunnan Block, CUCBM has the right to accept up to a 40% participating interest share within thirty (30) days of receipt of notice of Chinese certifications of CBM resources in a particular CBM field; however, the Company and CUCBM have begun discussions that will likely result in the relinquishment of all of the Yunnan acreage covered by the PSC.  The Company expects that any such relinquishment of the PSC will be formalized during the second quarter of 2014. As of the date of this report, CUCBM has not elected to take a participating interest in any CBM field but the net acreage is presented as if CUCBM had made such election.

(3) As provided to date, the exploration period of Area A (approximately 15,988 acres or 64.7 square kilometers) of the Shouyang PSC does not expire.  Pursuant to the provisions of the Fifth Modification Agreement of the Shouyang PSC, the exploration period for Area A will automatically be extended on the original expiration date of June 30, 2015, as we have submitted a report detailing CBM resources to CUCBM that reasonably complies with the Chinese CBM resource standards.  This report was submitted in connection with the development of an overall development plan and such report was subsequently approved and certifications were received from all requisite levels of the MLR..

(4) As modified and agreed to date, unless extended or amended, the exploration period for Area B will expire on June 30, 2016. However, we may retain acreage under a variety of scenarios without further consents or approvals, including areas for which a report as to CBM resources has been submitted by us to CUCBM that reasonably complies with the Chinese CBM resource standards in connection with the process to compile an overall development plan.

(5) Currently, the exploration period under the Qinnan PSC has technically expired, and we are pursuing claims that we are entitled to an extension of the exploration period due to a force majeure event in accordance with the terms of the Qinnan PSC. If and when our claims are resolved and a modification agreement is entered into with respect to the Qinnan PSC, the Chinese partner company may elect to take a participating interest share of up to 30%. If we are not successful in making such claims, the exploration period will be deemed to have expired, and we will no longer

36

have authority to drill and pursue exploration activities on the Qinnan Block.  We are currently engaged in discussions with PetroChina on this matter.

(6) The exploration period under the Yunnan PSC expired on December 31, 2013 and was not amended or extended. We have been evaluating this acreage with a minimal exploratory drilling program, and while we believe the acreage to have potential, we have chosen to focus our capital and resources upon the high permeability/high gas content acreage in Shouyang.  The Company and CUCBM have begun discussions that will likely result in the relinquishment of all of the Yunnan acreage covered by the PSC.  The Company expects that any such relinquishment of the PSC will be formalized during the second quarter of 2014.

For further discussion of our interests in these properties, see the discussion of our production sharing contracts and farmout agreements under "Shouyang PSC" and "Yunnan PSC" contained in Item 1, Business.

Reserves

As of December 31, 2013, all of our gas reserves are attributable to properties in China.  A summary of our gas reserves as of December 31, 2013 is as follows:

	Natural Gas
	Gross Reserves			Net Reserves
	(MMscf)			(MMscf)
Proved reserves
Developed		14,985			13,993
Undeveloped		60,043			53,507
Total proved		75,028			67,501	(1)
Probable reserves
Developed		4,970			4,752
Undeveloped		540,798			367,665
Total probable reserves		545,767	(1)		372,418	(1)
Possible reserves
Developed		4,706			4,499
Undeveloped		164,820			104,880
Total possible reserves		169,526			109,378	(1)

⁽¹⁾Numbers may not total due to rounding differences.

The gas price used is $8.89 per Mcf in accordance with the gas sales agreement and Chinese government subsidies.  The US dollar price is based on the contract price received, relevant subsidies and the average of the US dollar-RMB exchange rate on the first day of each month in 2013.

Preparation of Reserves Estimates

Internal Controls over Reserve Estimate. Our policies regarding internal controls over reserve estimates require reserves to be in compliance with the SEC definitions and guidance for reserves to be prepared by an independent reservoir engineer. Our geologist and other technical staff as well as our financial and accounting staff gathered technical information, financial data, ownership interests, production data and other information.  This information is reviewed by our Chief Executive Officer and Chief Financial Officer to ensure accuracy and completeness of the data provided by technical staff to the independent reservoir engineer.

Financial data is obtained from the Company's accounting records, which are subject to external quarterly reviews, annual audits and their own set of internal controls over financial reporting. All current financial data such

37

as lease operating expenses are updated in the reserve database and then analyzed to ensure that they have been entered accurately and that all updates are complete. Once the reserve database has been entirely updated with current information, and all relevant technical support material has been assembled, the Company's independent engineering firm, Resource Investment Strategy Consultants ("RISC") meets with the Company's technical personnel to review field performance and future development plans.  Following these reviews the reserve database and supporting data is furnished to RISC so that they can prepare their independent reserve estimates and final report.  Access to the Company's reserve database is restricted to specific members of the engineering department.

Qualifications of Technical Persons and Internal Controls Over Reserves Estimation Process. Our estimated proved reserve information as of December 31, 2013 included in this Annual Report on Form 10-K was prepared by our independent petroleum consultant, RISC, in accordance with definitions and guidelines established by the SEC. The scope and results of their procedures are summarized in a letter included as an exhibit to this Annual Report on Form 10-K. RISC is a resource industry consulting firm that has provided consulting services to some of the largest energy companies in the world.

Technologies used to determine Proved Reserve Estimate. A variety of technologies were used to estimate the proved reserves. The principal methodologies employed are decline curve analysis, numerical and analytical material balance models that have been historically matched to producing wells, analysis of coal thickness, density and depth from drilling and wire line log evaluation, echometer and down hole pressure sensors to estimate the reservoir pressure from water levels in pumping wells, gas content measurements from desorption and adsorption tests performed on core samples of coal taken from wells drilled in the field, permeability estimates from transient well test analysis carried out on wells drilled in the field and analogue performance from wells within the field. Seismic data use was limited to identifying structural trends and regional dips, but was not used to predict the presence, continuity or thickness of the reservoir.

Proved reserves are as defined by SEC Rule 4-10(a)(22) of Regulation S-X. Proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. The term "reasonable certainty" implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. To achieve reasonable certainty, our independent petroleum consultant employed technologies that have been demonstrated to yield results with consistency and repeatability. The technologies and economic data used in the estimation of our proved reserves include, but are not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information and property ownership interests. The accuracy of the estimates of our reserves is a function of:

· the quality and quantity of available data and the engineering and geological interpretation of that data;

· estimates regarding the amount and timing of future operating costs, severance taxes, development costs and workovers, all of which may vary considerably from actual results;

· the accuracy of various mandated economic assumptions such as the future prices of oil and natural gas; and

· the judgment of the persons preparing the estimates.

Because these estimates depend on many assumptions, any or all of which may differ substantially from actual results, reserve estimates may be different from the quantities of oil and natural gas that are ultimately recovered.

Uncertainties are inherent in estimating quantities of proved reserves, including many factors beyond our control. Reserve engineering is a process of estimating subsurface accumulations of oil and gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and its interpretation. As a result, estimates by different engineers often vary, sometimes significantly. In addition to the physical factors such as the results of drilling, testing, and production subsequent to the date of an estimate, economic factors such as changes in commodity prices or development and production expenses, may require revision of such estimates. Accordingly, oil and gas quantities ultimately recovered will vary from reserve estimates.

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See Part I, Item 1A-"Risk Factors," for a description of some of the risks and uncertainties associated with our business and reserves.

Probable reserves. Probable reserves are as defined by SEC Rule 4-10(a)(18) of Regulation S-X. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered. Estimates of probable developed and undeveloped reserves are inherently imprecise. When producing an estimate of the amount of CBM that is recoverable from a particular coalbed, an estimated quantity of probable reserves is an estimate that is as likely as not to be achieved. Estimates of probable reserves are also subject to revision based on production history, results of additional exploration and development and price changes.

We use deterministic methods to estimate probable reserve quantities, and when deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. Probable reserves may be assigned to areas adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves estimates also include potential incremental quantities associated with increased recovery of the coalbed methane gas arising from the use of the best estimate of volumetric parameters (thickness, gas content, desorption pressure and permeability) compared to a combination of these parameters that resulted in the low estimate of recovery estimated for proved reserves.

Possible reserves. Possible reserves are as defined by SEC Rule 4-10(a)(17) of Regulation S-X. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. Estimates of possible developed and undeveloped reserves are also inherently imprecise. When producing an estimate of the amount of CBM that is recoverable from a particular coalbed, an estimated quantity of possible reserves is an estimate that might be achieved, but only under more favorable circumstances than are likely. Estimates of possible reserves are also subject to revision based on production history, results of additional exploration and development and price changes. We use deterministic methods to estimate possible reserve quantities, and when deterministic methods are used to estimate possible reserve quantities, the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves where data control and interpretations of available data are progressively less certain. Possible reserves also include incremental quantities associated with increased recovery of the coalbed methane gas arising from the use of a combination of volumetric parameters (thickness, gas content, desorption pressure and permeability) that resulted in a high estimate of recovery compared to the best estimate values assumed for probable reserves.

All of our oil and natural gas reserves are located in China. We engaged RISC to prepare all of our gas reserve estimates and the estimated future net revenue to be derived from our properties. The independent engineers' estimates were prepared by the use of standard geological and engineering methods generally recognized by the petroleum industry. The reserve estimates represent our net revenue interest in our properties. We selected RISC in part due to their extensive experience in the region.

FEEC's operations may be subject to various levels of governmental controls and regulations. These controls and regulations may include, but may not be limited to, matters relating to land tenure and leasing, the legal rights to produce hydrocarbons including the granting, extension or termination of production sharing contracts, the fiscal terms of various production sharing contracts, drilling and production practices, environmental protection, marketing and pricing policies, royalties, government subsidies or incentives, various taxes and levies including income tax and are subject to change from time to time. Such changes in governmental regulations and policies may cause the volumes of CBM actually recovered from a proved area and the amounts of revenue actually received from CBM produced in a proved area to differ significantly from the estimated amount of proved reserves set forth in this report.

Proved Undeveloped Reserves (PUDs)

At December 31, 2013, our estimated proved undeveloped (PUD) reserves were approximately 53.5 Bcf, a 11.9 Bcf net increase over the previous year's estimate of 41.6 Bcf. The increase is largely due to extensions related to the development of new locations totaling 12.9 Bcf of undeveloped reserves. As of December 31, 2013,

39

100% of our PUD reserves are less than five years old. The following details the changes in proved undeveloped reserves for 2013 (MMcf):

Beginning proved undeveloped reserves, beginning of the year	41,568
Undeveloped reserves transferred to developed	(4,939	)
Revisions	4,000
Purchases	-
Divestitures	-
Extensions and discoveries	12,878
Ending proved undeveloped reserves, end of year	53,507

Production, Sales, Prices and Expenses

Our gas sales commenced in March 2011.  The following table sets forth information regarding the production and sales volumes, average sales prices received and production costs for the years ended December 31, 2013 and 2012, respectively.

	2013		2012		2011
Gas sales volume, net (Mcf)(1)		231,815		260,424		140,887
Gas sales, net (in thousands)	$	1,108	$	1,219	$	653
Average Gas Sales Price, net of taxes (per Mcf)	$	4.78	$	4.68	$	4.63
PRC National and Provincial Subsidies (per Mcf)		1.14		1.13		1.12
VAT Refund (per Mcf)		0.63		0.62		0.61
Total Gas Sales and Other Revenues (per Mcf)	$	6.55	$	6.43	$	6.36
Production Costs (per Mcf) (2) (3)	$	23.40	$	19.69	$	27.49

⁽¹⁾ Prior to July 1, 2012, to compensate CUCBM for its services as collection agent under the Gas Sales Agreement, Far East agreed to share approximately 7.5% of revenue with CUCBM prior to any exercise of its right to elect to participate in a portion of the Shouyang Block. Starting July 1, 2012, this agreement terminated, and we are receiving 100% of revenue (subject to the Phillips 3.5% revenue interest).

⁽²⁾ Includes certain items which were denominated in RMB and were converted into U.S. Dollars by using the exchange rate as of the date of invoice.

⁽³⁾ Production costs per Mcf are computed as total lease operating expenses divided by the total gas sold; therefore the production costs are currently high for several key reasons: (i) certain wells are dewatering and are not yet tied into the gathering system and therefore there are no gas sales to offset the production costs; (ii) given that the CBM fields currently subject to production are characterized by high permeability, there is a longer dewatering period and thus a longer production period before significant gas volumes ramp up to more profitable gas sales volumes; and (iii) the processing and compression facilities are presently oversized for the current gas sales volume. As the sales volumes ramp and the reservoir matures, the facilities are expected to operate more efficiently. All these factors should significantly lower the production costs expressed as $/Mcf sold as the drilling program is implemented.

Other Properties

Our principal office is located at 333 N. Sam Houston Parkway East, Suite 230, Houston, Texas 77060. The principal office consists of approximately 4,750 square feet under lease at December 31, 2013.  We also maintain offices under lease in Beijing of the People's Republic of China.

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ITEM 3. LEGAL PROCEEDINGS

We have no knowledge of any pending or threatened material litigation, settlement of litigation, or other material claim involving us.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

Our common stock is not listed for trading on a registered exchange. Shares of our common stock are traded over the counter and quoted on the OTC Bulletin Board under the symbol "FEEC." The OTC Bulletin Board provides information to professional market makers who match sellers with buyers. The high and low bid quotations of our common stock presented below includes intra-day trading prices. These quotations represent inter-dealer prices, without retail mark-up, mark-down, or commissions, and may not represent actual transactions.

	High		Low
2013
First Quarter	$	0.13	$	0.04
Second Quarter	$	0.25	$	0.04
Third Quarter	$	0.22	$	0.09
Fourth Quarter	$	0.14	$	0.08
2012
First Quarter	$	0.35	$	0.20
Second Quarter	$	0.26	$	0.15
Third Quarter	$	0.30	$	0.12
Fourth Quarter	$	0.17	$	0.04

On February 28, 2014, we had 346.0 million shares of common stock outstanding and approximately 100 stockholders of record.

We currently intend to retain all future earnings to fund the development and growth of our business. We have not paid dividends on our common stock, and the Indenture currently prohibits us from paying dividends in the future. We did not repurchase any of our equity securities in 2013 and have not adopted a stock repurchase program.

Stock Performance Graph

The following graph compares the performance of the Company's common stock with that of the S&P 500 Index and the Dow Jones Oil & Gas Index. The graph sets forth the cumulative total stockholder return, which assumes reinvestment of dividends, of a $100 investment on December 31, 2008 in the Company's common stock, the S&P 500 Index and the Dow Jones Oil & Gas Index.

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		2008		2009		2010		2011		2012		2013
Far East Energy Corp	Cum $		100.00		262.86		400.00		120.00		34.29		80.00
S&P 500 Index - Total Returns	Cum $		100.00		126.46		145.51		148.59		172.37		228.19
Dow Jones US Oil & Gas Index	Cum $		100.00		117.26		140.36		146.13		153.01		193.01

The information included under this section entitled "Stock Performance Graph" is deemed not to be "soliciting material" or "filed" with the SEC, is not subject to the liabilities of Section 18 of the Exchange Act, and shall not be deemed incorporated by reference into any of the filings previously made or made in the future by our company under the Exchange Act or the Securities Act, except to the extent the Company specifically incorporates any such information into a document that is filed.

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ITEM 6. SELECTED FINANCIAL DATA

(In Thousands, Except Per Share Data)

	As of and for the Years Ended December 31,
	2013			2012			2011			2010			2009
Operating Results Data
Operating revenues:
Sales of gas	$	1,108		$	1,219		$	653		$	-		$	-
Other, net		478			425			205			-			-
Total operating revenue		1,586			1,644			858			-			-
Operating expenses:
Exploration costs (1)		4,968			5,604			5,967			5,117			4,501
Leasehold operating expense		5,425			5,129			3,873			2,314			1,864
General and administrative		10,531			11,434			9,701			7,076			6,327
Depreciation, depletion and amortization		2,091			1,890			1,045			224			182
Total operating expenses		23,015			24,057			20,586			14,731			12,874
Operating loss		(21,429	)		(22,413	)		(19,728	)		(14,731	)		(12,874	)
Other income (expense):
Interest expense		(11,755	)		(4,756	)		(678	)		(1,135	)		(863	)
Interest income		3			13			6			5			5
Gain (loss) on sale of assets		(13	)		3			(1	)		(1	)		(5	)
Foreign currency exchange loss		(816	)		(7	)		(844	)		(311	)		(18	)
Total other income (expense)		(12,581	)		(4,747	)		(1,517	)		(1,442	)		(881	)
Loss before income taxes		(34,010	)		(27,160	)		(21,245	)		(16,173	)		(13,755	)
Income taxes		-			-			-			-			-
Net loss	$	(34,010	)	$	(27,160	)	$	(21,245	)	$	(16,173	)	$	(13,755	)
Earnings per share: Basic and diluted	$	(0.10	)	$	(0.08	)	$	(0.06	)	$	(0.07	)	$	(0.08	)
Financial Position Data
Total assets	$	125,112		$	75,082		$	95,813		$	79,256		$	42,404
Total liabilities		129,480			48,955			43,571			30,134			14,734
Secured notes payable		68,626			-			-			-			-
Stockholders' equity		(4,368	)		26,127			52,242			49,122			27,670

(1) For additional information on our Exploration costs, see Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies" and Note 7 to the consolidated financial statements.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes and all of the other information contained elsewhere in this report. The terms "we," "us," "our," “the Company” and "our company" refer to Far East Energy Corporation and its subsidiaries, unless the context suggests otherwise. The term "FEEB" refers to Far East Energy (Bermuda), Ltd., a wholly-owned subsidiary, which conducts substantially all of our operations in China.

Overview. We are a party to the Shouyang production sharing contract as revised which covers the 288,569 acre (1,167.8 square kilometers) Shouyang Block in Shanxi Province (the "Shouyang PSC"). As of December 31, 2013, we had estimated net proved gas reserves of 67.5 billion cubic feet (“Bcf”) with an associated standardized measure of our future net cash flows of proved reserves, discounted at 10 percent per annum of $151.8 million. This represents an increase of 32% over the net proved gas reserves of 51.3 Bcf as of December 31, 2012. As of December 31, 2013, total net probable reserves were estimated to be 372.4 Bcf.

The proved reserves are attributable to approximately 13,732 gross acres (approximately 55.6 square kilometers). The probable and possible reserves are attributable to approximately 85,428 gross acres (approximately 345.7 square kilometers), which includes the Shouyang Block proved reserve locations. This combined acreage with proved, probable and possible reserves represents only approximately 29% and 41%, respectively, of our total gross and net acreage of the Shouyang Block.

In 2013, we accelerated our work to explore for and develop CBM production on our Shouyang PSC. Forty five production wells and 25 appraisal wells were drilled to total depth, with 9 of those appraisal wells fracture stimulated (fraced). Of these 45 production wells and 9 fraced appraisal wells, 53 wells had production facilities installed and were producing water and/or gas.  At the peak of our drilling activity, in the month of June 2013, our contractors had 30 drilling rigs operating on the Shouyang Block.

Gas sales volume, net to the Company, was 231.8 million cubic feet (“MMcf”) for the year ended December 31, 2013, representing a decrease of 28 MMcf, or 12%, as compared to the same period a year ago. This decrease is partially attributable to intermittent interruptions from the power supply to our pumps and compressors as the province engaged in upgrades to the regional power infrastructure in the first several months of 2013. Gas sales volume, net to the Company, was 26.0 MMcf for the month of December 2013, an increase of 271% compared to the month of June 2013, and gas sales volume has risen to 35.1 MMcf for the month of February 2014.  Due to increased operating efficiencies, lease operating expense per productive well in Shouyang decreased 41% during 2013 compared to 2012.

We believe that good environmental, social, health and safety performance is an integral part of our business success. We conduct our business with respect and care for our employees, contractors, communities, and the environments in which we operate. We continued to employ numerous safety precautions to ensure the safety of our employees and independent contractors. We also seek to conduct our operations in accordance with various laws and regulations concerning the environment, occupational safety and health.  Our goal is zero harm to people and the environment while creating value for our shareholders as well as for China, including the regions and communities within which we operate. Our commitment to these principles is demonstrated by the fact that we have had no recorded lost-time accidents in over nine years and no major environmental incidents. We have a commitment to being good corporate citizens of China, striving to emphasize and utilize very high levels of Chinese content in personnel, services, and equipment; and we have achieved very high percentages of Chinese content in each category.

On November 28, 2011, FEEB entered into a Facility Agreement, as borrower, with Standard Chartered Bank ("SCB"), as lender, and the Company, as guarantor (the "Facility Agreement"). The Facility Agreement provided for a $25 million credit facility to be used for project costs with respect to the Shouyang area in Shanxi Province, China (the “Shouyang Area”), finance costs and other general corporate purposes approved by SCB.  The Facility Agreement had an initial 9-month term and was subsequently extended. At December 31, 2013, the Facility Agreement was drawn in full.

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On January 14, 2013, the Company sold senior secured notes of FEEB (the "Notes") and warrants to purchase common stock of FEEC (the "Warrants") to certain institutional investors for $60,000,000 of gross proceeds in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") pursuant to Section 4(a)(2) thereof and Regulation S thereunder (the "Private Placement"). The Private Placement closed on January 15, 2013.

On January 15, 2013, the Company entered into the Fifth Amendment to the Facility Agreement (the "Fifth Amendment") to provide for the extension of the maturity date of the Facility Agreement until January 15, 2014. The Fifth Amendment was subject to the repayment of $4.125 million of the outstanding principal amount and the repayment of $0.7 million of capitalized interest under the Facility Agreement. The total amount of outstanding principal and capitalized interest under the Facility Agreement prior to the repayment of such amount was $25.8 million (which included $125,000 borrowed on January 11, 2013). In addition, accrued interest, amendment fees and certain transaction expenses were paid at closing out of the gross proceeds of the Private Placement.  As of January 15, 2013, the amount remaining owed under the Facility Agreement was $21.0 million. After taking into account the amounts paid pursuant to the Fifth Amendment and transaction fees and expenses incurred in connection with the Fifth Amendment and the Private Placement, the net proceeds to the Company of the Private Placement were $52.0 million.

On July 1, 2013, the Company issued $3,987,501 aggregate principal amount of senior notes for the paid in kind interest that was due on June 30, 2013. On December 30, 2013, the Company issued $4,639,095 aggregate principal amount of senior notes for the paid in kind interest that was due on December 30, 2013.

On December 31, 2013, the Company entered into the Sixth Amendment to the Facility Agreement (the "Sixth Amendment"), to extend the maturity date of the Facility Agreement from January 15, 2014 to April 15, 2014.  The Sixth Amendment requires the Company to pay interest under the Facility Agreement on a monthly basis rather than a quarterly basis.

On March 31, 2014, the Company entered into the Extension Agreement to the Facility Agreement (the “Extension Agreement”) to extend the maturity date of the Facility Agreement from April 15, 2014 to July 15, 2014.  The Extension Agreement contains certain customary representations, warranties, releases and confirmations.

To secure additional capital for future work programs and to repay the Facility Agreement on or before its maturity date, management must either explore potential strategic relationships or transactions involving one or more of our PSCs, such as a joint venture, farmout, merger, acquisition or sale of some or all of our assets or obtain additional debt, reserve based, project or equity-related financing. However, there can be no assurance that we will be successful in entering into any strategic relationship or transaction, securing capital or raising funds through additional debt, reserve based, project or equity-related financing. In addition, the terms and conditions of any potential strategic relationship or transaction or of any debt, reserve based, project or equity-related financing are uncertain, and we cannot predict the timing, structure or other terms and conditions or the consideration that may be paid with respect to any transaction or offering of securities and whether the consideration will meet or exceed our offering price. Due to certain factors, an offering of our common stock is likely not a viable alternative at this time, but a non-convertible preferred stock offering might be possible under certain circumstances. Under certain circumstances, the structure of a strategic transaction may require the approval of the Chinese authorities, which could delay closing or make the consummation of a transaction more difficult. There can be no assurance that the Chinese authorities will provide the approvals necessary for a transaction or transfer. There can be no guarantee of future capital acquisition, fundraising or exploration success.

Although we believe the results of our exploration activities in the Shanxi Province to date have been favorable, we will need to complete more wells to achieve commercial viability, which will require additional capital expenditures. Our current and future work programs for our PSCs will depend on our ability to raise additional capital to fund our exploration activities. Our current work programs are described below.

In addition to the Shouyang PSC, we are also party to PSCs covering the 573,000 acre (2,318.8 square kilometers) Qinnan Block also in Shanxi Province (the "Qinnan PSC"), and the Laochang area, which totals 119,327 acres (482.9 square kilometers ), in Yunnan Province (the "Yunnan PSC"). For further discussion of our interests in these properties and drilling activities, see the discussion of our production sharing contracts under "Shouyang PSC," "Qinnan PSC" and "Yunnan PSC" contained in Item 1, Business.

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Our Ability To Continue as a Going Concern

Our independent registered public accounting firm has issued its report in connection with the audit of our financial statements for the years ended December 31, 2013 and 2012, which included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern. Our financial statements as of December 31, 2013 have been prepared under the assumption that we will continue as a going concern. If we are not able to continue as a going concern, it is possible that holders of our common stock could lose all of their investment. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Results of Operations

Year Ended 2013 compared to Year Ended 2012

The following table sets forth the natural gas sales data net to our company for the years ended December 31, 2013 and 2012:

	Year Ended December 31,
	2013		2012
Natural Gas
Sale Volumes, net (Mcf)		231,815		260,424
Per Day Volumes, net (Mcf per day)		635		712
Average Sale Price, net of taxes (per Mcf)	$	4.78	$	4.68
PRC Subsidies & VAT (per Mcf)		1.77		1.75
Total Gas Sales and Other Revenues (per Mcf)	$	6.55	$	6.43
Natural Gas Sales, net (in thousands)	$	1,108	$	1,219

Sale volumes for the year ended December 31, 2013, net to Far East, decreased 28 MMcf, or 12%, as compared to the same period a year ago.  This decrease is partially attributable to intermittent interruptions from the power supply to our pumps and compressors as the Shanxi Province engaged in upgrades to the regional power infrastructure in the first several months of 2013.

The table below sets out major components of our expenditures for the years ended December 31, 2013 and 2012 (in thousands):

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	2013		2012
Additions to Oil and Gas Properties (capitalized)
- Shouyang Block, Shanxi Province (1)	$	33,049	$	3,890
Exploration Expenditures (expensed)
- Shouyang Block, Shanxi Province		4,213		4,028
- Qinnan Block, Shanxi Province		26		456
- Laochang Block, Yunnan Province		729		1,120
- Total		4,968		5,604
Lease Operating Expenditures (expensed)
- Shouyang Block, Shanxi Province		5,425		5,129
- Qinnan Block, Shanxi Province		-		-
- Total		5,425		5,129
Total Capital and Operating Expenditures	$	43,442	$	14,623
General and Administrative Expenses	$	10,531	$	11,434

(1) Capitalized in the Consolidated Balance Sheets.

The table below sets out the operating expenses in the Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2013 and 2012 (in thousands):

					Increase			%
	2013		2012		(Decrease)			Change
Lease operating expense	$	5,425	$	5,129	$	296			6	%
Exploration costs		4,968		5,604		(636	)		-11	%
General and administrative		10,531		11,434		(903	)		-8	%
Depreciation, depletion and amortization		2,091		1,890		201			11	%
Total	$	23,015	$	24,057	$	(1,042	)		-4	%

Oil and gas exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether they have discovered proved commercial reserves.  For further discussion of our accounting policies, see "Critical Accounting Policies—Accounting for Oil and Gas Properties" below.

The table below sets out the components of lease operating expense ("LOE") for the years ended December 31, 2013 and December 31, 2012 (in thousands):

	Year ended December 31,
	2013		2012
Pumping Related Costs	$	3,654	$	3,389
Compression		736		724
Workovers		538		558
Supervision		497		458
Total	$	5,425	$	5,129

LOE for 2013 and 2012 was comprised of costs pertaining to the production and dewatering efforts in the Shouyang Block in Shanxi Province.  LOE for the year ended December 31, 2013 increased $0.3 million when compared to the prior year primarily due to an increase in production costs.

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The table below sets out components of exploration costs for the years ended December 31, 2013 and December 31, 2012 (in thousands):

	Year ended December 31,
	2013		2012
Technical personnel compensation	$	407	$	378
PSC related payments		823		1,057
Contract drilling & related expenses		3,738		4,169
Total	$	4,968	$	5,604

Exploration costs for the year ended December 31, 2013 decreased $0.6 million primarily to a $0.2 million decrease in PSC related payments and a $0.4 million decrease in contract drilling costs.

General and administrative ("G&A") expenses for the year ended December 31, 2013 decreased $0.9 million when compared to the prior year primarily due to a decrease in legal expenses of $0.9 million.

Year Ended 2012 compared to Year Ended 2011

The following table sets forth the natural gas sales data net to our company for the years ended December 31, 2012 and 2011:

	Year Ended December 31,
	2012		2011
Natural Gas
Sale Volumes, net (Mcf)		260,424		140,887
Per Day Volumes, net (Mcf per day)		712		386
Average Sale Price, net of taxes (per Mcf)	$	4.68	$	4.63
PRC Subsidies & VAT (per Mcf)		1.75		1.73
Total Gas Sales and Other Revenues (per Mcf)	$	6.43	$	6.36
Natural Gas Sales, net (in thousands)	$	1,219	$	653

Sale volumes for the year ended December 31, 2012, net to Far East, increased 119 MMcf, or 85%, as compared to the same period for the previous year due primarily to the increase in the number of producing wells connected to the gathering system.

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The table below sets out major components of our expenditures (in thousands):

	2012		2011
Additions to Oil and Gas Properties (capitalized)
- Shouyang Block, Shanxi Province (1)	$	3,890	$	18,166
Exploration Expenditures (expensed)
- Shouyang Block, Shanxi Province		4,028		4,004
- Qinnan Block, Shanxi Province		456		491
- Laochang Block, Yunnan Province		1,120		1,472
- Total		5,604		5,967
Lease Operating Expenditures (expensed)
- Shouyang Block, Shanxi Province		5,129		3,873
- Qinnan Block, Shanxi Province		-		-
- Total		5,129		3,873
Total Capital and Operating Expenditures	$	14,623	$	28,006
General and Administrative Expenses	$	11,434	$	9,701

(1) Capitalized in the Consolidated Balance Sheets.

The table below sets out the operating expenses in the Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2013 and 2012 (in thousands):

					Increase			%
	2012		2011		(Decrease)			Change
Lease operating expense	$	5,129	$	3,873	$	1,256			32	%
Exploration costs		5,604		5,967		(363	)		-6	%
General and administrative		11,434		9,701		1,733			18	%
Depreciation, depletion and amortization		1,890		1,045		845			81	%
Total	$	24,057	$	20,586	$	3,471			17	%

Oil and gas exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether they have discovered proved commercial reserves.  For further discussion of our accounting policies, see "Critical Accounting Policies—Accounting for Oil and Gas Properties" below.

The table below sets out components of LOE for the years ended December 31, 2012 and December 31, 2011 (in thousands):

	Year ended December 31,
	2012		2011
Pumping Related Costs	$	3,389	$	2,662
Compression		724		633
Workovers		558		386
Supervision		458		192
Total	$	5,129	$	3,873

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LOE for 2012 and 2011 was comprised of costs pertaining to the production and dewatering efforts in the Shouyang Block in Shanxi Province.  LOE for the year ended December 31, 2012 increased when compared to the prior year primarily due to an increase in production costs of $0.7 million, supervision costs of $0.3 million, and workover expenses of $0.2 million.

The table below sets out components of exploration costs for the years ended December 31, 2012 and December 31, 2011 (in thousands):

	Year ended December 31,
	2012		2011
Technical personnel compensation	$	378	$	621
PSC related payments		1,057		961
Contract drilling & related expenses		4,169		4,385
Total	$	5,604	$	5,967

Exploration costs for the year ended December 31, 2012 were materially unchanged compared to the prior year.

G&A expenses for the year ended December 31, 2012 increased $1.7 million when compared to the prior year primarily due to increases in legal expenses of $0.7 million, other professional services expenses of $0.4 million, payroll expenses of $0.3 million, and share based compensation expenses of $0.2 million.

Financial Condition, Capital Resources and Liquidity

Capital Resources and Liquidity. Although gas sales under the Gas Sales Agreement commenced in the first quarter of 2011, our primary source of cash flow has been cash proceeds from public offerings, private placements of our common stock and warrants to purchase our common stock, the exercise of warrants and options to purchase our common stock, and proceeds received from the closing of the Facility Agreement and the issuance of the Notes.

On January 14, 2013, the Company sold the Notes and the Warrants to certain institutional investors for $60.0 million of gross proceeds in the Private Placement, which was exempt from the Securities Act. The Private Placement closed on January 15, 2013.

On January 15, 2013, the Company entered into the Fifth Amendment to provide for the extension of the maturity date of the Facility Agreement until January 15, 2014. The Fifth Amendment was subject to the repayment of $4.125 million of the outstanding principal amount and the repayment of $0.7 million of capitalized interest under the Facility Agreement. The total amount of outstanding principal and capitalized interest under the Facility Agreement prior to the repayment of such amount was $25.8 million (which included $125,000 borrowed on January 11, 2013). In addition, accrued interest, amendment fees and certain transaction expenses were paid at closing out of the gross proceeds of the Private Placement.  As of January 15, 2013, the amount remaining owed under the Facility Agreement was $21.0 million. After taking into account the amounts paid pursuant to the Fifth Amendment and transaction fees and expenses incurred in connection with the Fifth Amendment and the Private Placement, the net proceeds to the Company of the Private Placement were $52.0 million.

On December 31, 2013, the Company entered into the Sixth Amendment to extend the maturity date of the Facility Agreement from January 15, 2014 to April 15, 2014.  The Sixth Amendment requires the Company to pay interest under the Facility Agreement on a monthly basis rather than a quarterly basis.

On March 31, 2014, the Company entered into the Extension Agreement to the Facility Agreement to extend the maturity date of the Facility Agreement from April 15, 2014 to July 15, 2014.  The Extension Agreement contains certain customary representations, warranties, releases and confirmations.

To secure additional capital for future work programs and to repay the Facility Agreement on or before its maturity date, management must either explore potential strategic relationships or transactions involving one or more of our PSCs, such as a joint venture, farmout, merger, acquisition or sale of some or all of our assets or obtain additional debt, reserve based, project or equity-related financing. However, there can be no assurance that we will be successful in entering into any strategic relationship or transaction, securing capital or raising funds through additional debt, reserve based, project or equity-related financing. In addition, the terms and conditions of any potential strategic relationship or transaction or of any debt, reserve based, project or equity-related financing are uncertain, and we cannot predict the timing, structure or other terms and conditions or the consideration that may be paid with respect to any transaction or offering of securities and whether the consideration will meet or exceed our

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offering price. Due to certain factors, an offering of our common stock is likely not a viable alternative at this time, but a non-convertible preferred stock offering might be possible under certain circumstances. Under certain circumstances, the structure of a strategic transaction may require the approval of the Chinese authorities, which could delay closing or make the consummation of a transaction more difficult. There can be no assurance that the Chinese authorities will provide the approvals necessary for a transaction or transfer. There can be no guarantee of future capital acquisition, fundraising or exploration success.  See Note 4 to the Financial Statements for information regarding the Facility Agreement.

In addition to payment of the above amounts to SCB, FEEB and FEEC have used and intend to continue to use the net proceeds of the Private Placement for (i) drilling and development expenses for the Shouyang CBM project in the Shanxi Province in China, including drilling and completion expenses of appraisal wells, drilling and completion expenses of production wells, construction and installation of gathering and compression facilities and submission of an overall development plan for the project, (ii) general corporate purposes, including exploration costs for such project, operating costs on the Shouyang PSC and general and administrative expenses and (iii) transaction expenses. Under the securities purchase agreement for the Private Placement and the Indenture, FEEB and FEEC are obligated to apply the net proceeds according to the estimated amounts of each category set forth therein within an agreed range, provided that FEEC and FEEB shall apply not less than $21.6 million for the drilling and completion of production wells.

There can be no guarantee of future capital acquisition, fundraising or exploration success or that we will realize the value of our unproved exploratory well costs.

Summary of Material Terms of the Notes.

The Notes are senior secured obligations of FEEB and are fully and unconditionally guaranteed by FEEC. The Notes were sold at an issue price of 100% of par for an aggregate principal amount of $60.0 million. The Notes accrue cash interest at a rate of 13% per year, which is paid semi-annually in arrears on June 30 and December 30 of each year, commencing on June 30, 2013. FEEB may, at its option, elect to pay interest “in kind” at a rate of 14.500% per year by issuing additional Notes with the first interest payment required to be paid in kind. On July 1, 2013, the Company issued $3,987,501 aggregate principal amount of senior notes for the paid in kind interest that was due on June 30, 2013. On December 30, 2013, the Company issued $4,639,095 aggregate principal amount of senior notes for the paid in kind interest that was due on December 30, 2013.  The Notes will mature on January 15, 2016.

The Notes and related guarantees rank equal in right of payment with the Facility Agreement. Except as specifically permitted by the Indenture, any new indebtedness of FEEC, FEEB or any restricted subsidiary of FEEC will require the consent of SCB and the Required Noteholders (as defined in the Indenture) which means holders of 75% of aggregate principal amount at maturity of the Notes. The Notes and related guarantees are secured by substantially all of the assets of FEEC and FEEB, other than assets located in the PRC, assets the grant, creation or perfection of any lien on which would require the consent, authorization or approval of, or filing with, any governmental authority in the PRC and certain other excluded assets. Such collateral continues to secure the Facility Agreement with the administration of such collateral subject to a collateral agency and intercreditor agreement between SCB and Wells Fargo Bank, National Association, as indenture trustee of the Notes and as collateral agent.

In certain circumstances specified in the Indenture and as summarized below, FEEB may or will be required to redeem or offer to repurchase the Notes at the relevant prices set forth below times the principal amount being redeemed or repurchased:

Closing Date to February 28, 2014	100	%
March 1, 2014 to December 31, 2014	104	%
January 1, 2015 and thereafter	108	%

plus accrued and unpaid interest thereof, if any, on the Notes to the applicable date of redemption or repurchase, as applicable.

FEEB has the option to redeem the Notes, in whole or in part, at any time after all obligations under the Facility Agreement have been repaid in full at the relevant redemption prices set forth above.

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In the event that FEEC and FEEB obtain financing pursuant to a credit facility, agreement or indenture with one or more banks or other institutional lenders or a trustee or investors (a "Future Financing"), which in certain circumstances would require the consent of the Required Noteholders and Standard Chartered Bank, or if FEEC sells capital stock at a time when the aggregate principal amount of the Notes outstanding exceeds $10.0 million, the net proceeds of such Future Financing and the net proceeds of such capital stock offering in excess of $5.0 million, as applicable, shall first be used to repay obligations under the Facility Agreement and thereafter to redeem the Notes at the redemption prices set forth above to the extent of such amounts.

In the event that (i) FEEC and FEEB generate Excess Cash Flow (as defined in the Indenture), (ii) FEEC or FEEB sell assets in circumstances described in the Indenture or (iii) a casualty loss of property or assets of FEEC or FEEB occurs and the insurance proceeds with respect to such loss exceed $30.0 million, then FEEB will be required to apply the Excess Cash Flow Amount (as defined in the Indenture), the net proceeds of such asset sale or such insurance proceeds, as applicable, to first repay obligations under the Facility Agreement and thereafter to offer to repurchase the Notes at the purchase prices set forth above. The Excess Cash Flow Amount means, with respect to any period, 50% of the Excess Cash Flow for such period minus $5.0 million of cash and cash equivalents for such period minus the principal amount of the Facility Agreement repaid with such Excess Cash Flow during such period.

In the event of a change of control of FEEC, FEEB will be required to repay all obligations outstanding under the Facility Agreement and to offer to repurchase the Notes at the purchase prices set forth above.

The Indenture contains covenants that, among other restrictions, limit FEEC's and FEEB's ability and the ability of certain of their subsidiaries to:

· amend constitutional documents;

· incur or guarantee additional indebtedness other than up to $15.0 million of aggregate principal amount of additional Notes and additional warrants on terms identical to or more favorable to FEEC than the Warrants;

· issue certain preferred stock;

· create or incur liens other than liens permitted by the Indenture;

· pay dividends, repurchase equity securities, redeem subordinated debt, repay certain intercompany indebtedness up to a specified amount or make investments or other restricted payments;

· transfer or sell assets;

· incur dividend or other payment restrictions;

· enter into certain transactions with affiliates;

· change FEEC's or FEEB's line of business;

· form subsidiaries;

· sell capital stock of restricted subsidiaries; and

· merge, consolidate or transfer all or substantially all of FEEC's and FEEB's assets.

In addition, the Indenture contains covenants that, among other obligations, require FEEC and FEEB to:

· be in compliance with all relevant laws and regulations;

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· provide specified financial reports to holders of Notes;

· maintain customary insurance policies;

· maintain FEEB's foreign exchange registration certificate;

· use the net proceeds of the Private Placement as set forth in the Indenture; and

· use their commercially reasonable efforts to list the Notes on the Cayman Islands Stock Exchange within six months of the issue date and maintain such listing.

The Indenture contains customary events of default that could, subject to certain conditions, cause the Notes to become immediately due and payable, including but not limited to:

· the failure to make principal (at maturity, upon redemption or otherwise) or interest payments when due;

· the failure to make, and to accept and pay the purchase price for Notes tendered pursuant to, the offers to purchase required by the Indenture;

· the failure to comply with certain covenants in the Indenture or any of the collateral documents;

· the failure to comply with the reporting obligations in the Indenture for ten days after notice by the trustee or the holders of at least 25% of the aggregate principal amount of the Notes;

· the default by FEEC or any of its restricted subsidiaries under any mortgage, indenture or other indebtedness in the aggregate of $1.0 million or more if caused by the failure to pay principal or interest when due or if such default entitles the creditor to declare such indebtedness due and payable prior to its stated maturity;

· the failure to satisfy certain final, non-appealable judgments of any court of competent jurisdiction in excess of $1.0 million;

· if any Note guarantee is held to be unenforceable or is repudiated by the guarantor thereof;

· certain events of bankruptcy or insolvency;

· the liens securing the Notes cease to be in full force in effect or cease to have priority over certain other lienholders with respect to collateral with a fair market value in excess of $1.0 million or are contested by FEEB or any guarantor in circumstances specified by the Indenture;

· any representation or warranty made by FEEC or FEEB in the securities purchase agreement for the Private Placement proves to be incorrect in any material respect;

· the validity of the Notes, the guarantees of the Notes or the Indenture is contested by FEEB or any guarantor;

· the Shouyang project is abandoned in whole or in part, the Shouyang production sharing contract is terminated, revoked or ceases to be in full force and effect or an event of loss occurs with respect to any of the property or assets of FEEC or FEEB in excess of $10.0 million net of any insurance proceeds; and

· certain acts of governmental expropriation or nationalization or certain governmental restrictions on foreign currency exchange or that prevents FEEC or FEEB from paying its obligations in U.S. dollars.

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Summary of Material Terms of the Warrants.

The Warrants provide the holders the right to purchase up to 56,086,439 shares of FEEC common stock at an exercise price of $0.085 per share, subject to adjustments described below. The Warrants are exercisable at any time after issuance and will expire at 5:00 p.m., New York City time, on December 31, 2017. The Warrants have anti-dilution provisions specified in the Warrant Agreement, dated January 15, 2013 (the "Warrant Agreement"), between FEEC and Continental Stock Transfer & Trust Company, as warrant agent, including, but not limited to, adjustments for (i) stock splits, reverse stock splits and stock dividends, (ii) the issuance of rights, options, warrants or convertible or exchangeable securities at a price per share less than the current market value of FEEC common stock at the record date therefore, (iii) certain distributions of cash, evidence of indebtedness or other property or assets to holders of any class of common stock, (iv) certain reclassifications, consolidations, mergers or sales of assets of FEEC and (v) certain issuances or sales, or deemed issuances or sales, of shares of common stock for an effective price below the then-effective exercise price of the Warrants or for an effective price greater than the then-effective exercise price but less than or equal to $0.425 per share, subject to adjustment, or for an effective price greater than $0.425, subject to adjustment, but less than the current market price per share at the time of such issuance or sale.

The holders of the Warrants are entitled to certain registration rights set forth in the Registration Rights Agreement, dated January 15, 2013 (the "Registration Rights Agreement"), between FEEC and the purchasers of the Warrants. Under the Registration Rights Agreement, FEEC will file a registration statement (the "Primary Registration Statement") on the appropriate form with the Securities and Exchange Commission ("SEC") to register under the Securities Act the resale of the shares of common stock issuable upon exercise of the Warrants within 210 days after the closing date and will use its best efforts to cause the Primary Registration Statement to be declared effective by the SEC under the Securities Act within 360 days after the closing date (or within 390 days after the closing date if FEEC receives comments on the Primary Registration Statement from the SEC). In addition, the holders of common stock underlying the Warrants will have "piggyback" registration rights for the resale of such shares of common stock.

Our board of directors has the authority, without further action by the stockholders but subject to restrictions in the Warrant Agreement and Indenture, to issue up to 500 million shares of preferred stock in one or more series and to designate the rights, preferences, privileges and restrictions of each series. We also have 500 million shares of Common Stock authorized under our charter documents, of which approximately 346.1 million shares were issued and outstanding as of December 31, 2013.

The issuance of preferred stock could have the effect of restricting dividends on the common stock or delaying or preventing our change in control without further action by the stockholders. While we have no present plans to issue any shares of preferred stock, we may need to do so in the future in connection with capital raising transactions. In addition, we may issue additional shares of common stock in connection with capital raising activities. The issuance of additional common stock would also have a dilutive impact on our stockholders' ownership interest in our company.

Work Program and Other Funding. Our current work programs satisfied the minimum exploration expenditures for our Shouyang and Yunnan PSCs for 2013. With respect to the Qinnan PSC, we have halted activities on the Qinnan Block pending regulatory approval or denial of our force majeure claims. To secure additional capital for future work programs and to repay the Facility Agreement on or before its maturity date, management must either explore potential strategic relationships or transactions involving one or more of our PSCs, such as a joint venture, farmout, merger, acquisition or sale of some or all of our assets or obtain additional debt, reserve based, project or equity-related financing. However, there can be no assurance that we will be successful in entering into any strategic relationship or transaction, securing capital or raising funds through debt, reserve based, project or equity- related financing. In addition, the terms and conditions of any potential strategic relationship or transaction or of any debt, reserve based, project or equity-related financing are uncertain and we cannot predict the timing, structure or other terms and conditions or the consideration that may be paid with respect to any transaction or offering of securities and whether the consideration will meet or exceed our offering price. Due to certain factors, an offering of our common stock is likely not a viable alternative at this time, but a non-convertible preferred stock offering might be possible under certain circumstances. Under certain circumstances, the structure of a strategic transaction may require the approval of the Chinese authorities, which could delay closing or make the consummation of a

55

transaction more difficult. In particular, any transfer of our rights under the PSCs will require the approval of our Chinese partner company and the MofCom. However, on May 15, 2013, the State Council of PRC announced that such approval will no longer require the approval by MofCom. The Company is still analyzing the impact of the change and the affect it could have on its business and operations. There can be no assurance that the Chinese authorities will provide the approvals necessary for the consummation of a transaction or transfer. There can be no guarantee of future success in capital acquisition, fundraising or exploration success.

Our capital resources and planning can be impacted by fluctuations in the U.S. Dollar and RMB exchange rate as well as inflation in these countries. For further discussion of these risks, see Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk."

Cash flow

As of December 31, 2013, 2012 and 2011, cash and cash equivalents were $17.6 million, $1.3 million, and $23.3 million, respectively. The increase of $16.3 million in cash and cash equivalents from beginning to end of the fiscal year 2013 was primarily due to the $52.0 million provided by financing activities partially offset by the $20.9 million used by operating activities and the $14.8 million used by investing activities. The decrease of $22.0 million in cash and cash equivalents from beginning to end of the fiscal year 2012 was primarily due to the $19.2 million used by operating activities and the $8.5 million used by investing activities offset by the $5.8 million provided by financing activities.

Cash used in operating activities for 2013 was $20.9 million as compared to $19.2 million for 2012 and $16.4 million for 2011. The $1.7 million increase in cash used in operating activities in 2013 compared to 2012 was primarily due to a $2.6 million unfavorable change in working capital, a $0.3 million increase in LOE and $0.1 million increase in interest payment.  The increase was offset by a decrease of $0.9 million in G&A expenses and a decrease of $0.6 million in exploration expenses.  The $2.8 million increase in cash used in operating activities in 2012 compared to 2011 was due to a $1.7 million increase in G&A expenses, $1.3 million increase in LOE pumping related costs, with such increase offset by a $0.4 million decrease in exploratory contract drilling expenses.

Cash used in investing activities for 2013 was $14.8 million, as compared to $8.5 million for 2012, and $17.9 million for 2011.  The $6.3 million increase in 2013 compared to 2012 was primarily due to an increase in additions to oil and gas properties of $6.1 million. The $9.3 million decrease in 2012 compared to 2011 was primarily due to a decrease in additions to oil and gas properties of $8.8 million.

Cash provided by financing activities for 2013 was $52.0 million, as compared to $5.8 million for 2012, and $29.8 million for 2011.  Cash provided by financing activities for 2013 was $58.5 million as a result of net proceeds received from the issuance of the Notes pursuant to the Private Placement in January 2013, offset by $1.8 million of debt issue costs and $4.9 million repayment of the Facility Agreement.  Cash provided by financing activities for 2012 was $6.2 million as a result of net proceeds from the Facility Agreement during the first nine months of 2012 offset by $0.4 million of debt issue costs. Cash provided by financing activities during 2011 was due to $16.7 million from the sale of 34.9 million shares of common stock in March 2011 and $17.9 million gross proceeds from a draw on the Credit Facility in December 2011.

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Contractual Obligations

Obligations under non-cancelable agreements at December 31, 2013 were as follows (in thousands):

				Payments Due by Period
										2019 and
	Total			2014			2015-2016		2017-2018	Beyond
Debt Obligations (5)	$	93,062	(1)	$	93,062	$	-	$	-	$	-
Operating Lease Obligations (2)		220			212		8		-		-
Purchase Obligations (3)		4,973			2,012		2,961		-		-
Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet Under GAAP (4)		1,302			-		-		-		1,302
Totals	$	99,557		$	95,286	$	2,969	$	-	$	1,302

⁽¹⁾On November 28, 2011, the Company entered into a $25 million credit facility agreement ("Facility Agreement") to be used for project costs with respect to the Shouyang Area in Shanxi Province, China as well as for general corporate purposes.  The Facility Agreement had an initial nine month term ending August 28, 2012.  On December 31, 2013, the Company entered into the Sixth Amendment to extend the maturity date of the Facility Agreement from January 15, 2014 to April 15, 2014.  At December 31, 2013, the total amount drawn under the Facility Agreement was $21 million.  Accrued interest on December 31, 2013 was $0.5 million.  On January 15, 2013, the Company completed the Private Placement of $60 million of senior secured notes.  The Notes will mature on January 15, 2016.  Assuming acceleration of the Facility Agreement and the Notes, Debt Obligations includes total future interest cost through April 15, 2014 of $3.4 million.

⁽²⁾We enter into operating leases in the normal course of business primarily for our office space and equipment.

⁽³⁾  We include in purchase obligations contractual agreements to purchase goods or services that are legally enforceable and that specify all significant terms, including fixed or minimum quantities, fixed, minimum or variable price provisions and the approximate timing of the transaction. We have included our obligations under the Shouyang PSC for which the amounts were specified in the contracts. We have elected to enter Phase III for the Shouyang PSC and have included contractual expenses through completion of these phases, which are currently required to be completed by June 30, 2015.

⁽⁴⁾  Amount represents our asset retirement and environmental obligations.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of December 31, 2013, we were not involved in any form of off-balance sheet arrangement.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We consider an accounting estimate to be critical if (1) it requires assumptions to be made that were uncertain at the time the estimate was made; and (2) changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.

57

Management has discussed the development and selection of its critical accounting policies with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the disclosures presented below relating to them.  We believe the following critical accounting policies reflect our significant estimates and judgments used in the preparation of our consolidated financial statements:

Accounting for Oil and Gas Properties. We use the successful efforts method of accounting for our oil and gas properties. Under this method, oil and gas lease acquisition costs and intangible drilling costs associated with exploration efforts that result in the discovery of proved reserves and costs associated with development drilling, whether or not successful, are capitalized when incurred. If proved commercial reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proved commercial reserves have been found when drilling has been completed. Under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 932, Extractive Activities – Oil and Gas ("ASC 932"), such exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify its completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. We assess our capitalized exploratory wells pending evaluation each quarter to determine whether costs should remain capitalized or should be charged to earnings. Other exploration costs, including geological and geophysical costs, are expensed as incurred. We recognize gain or loss on the sale of properties on a field basis.

Unproved leasehold costs are capitalized and reviewed periodically for impairment on a field-by-field basis, considering factors such as drilling and exploitation plans and lease terms. The estimated fair value of unproved leasehold costs includes the present value of probable reserves discounted at rates commensurate with the risks involved in each classification of reserve. Costs related to impaired prospects are charged to expense. An impairment expense could result if oil and gas prices decline in the future or if downward reserves revisions are recorded, as it may not be economic to develop some of these unproved properties.  We also evaluate current drilling results, lease expiration dates, current oil and gas industry conditions, international economic conditions, capital availability, foreign currency exchange rates, political stability in the countries in which the Company has an investment, and available geological and geophysical information. Any impairment assessed is charged to expense.

Oil and Gas Reserve Quantities.  Reserve quantities and the related estimates of future net cash flows affect our periodic calculations of depletion, impairment of our oil and natural gas properties, and asset retirement obligations.  Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.  Reserve quantities and future cash flows included in this report are prepared in accordance with guidelines established by the SEC and FASB.  The accuracy of our reserve estimates is a function of:

• the quality and quantity of available data;

• the interpretation of that data;

• the accuracy of various mandated economic assumptions; and

• the judgments of the persons preparing the estimates.

Our independent resource industry consulting firm independently estimated all of the proved, probable and possible reserve quantities included in this annual report.  In connection with our external petroleum engineers performing their independent reserve estimations, we furnished them with the following information that they review: (1) technical support data, (2) technical analysis of geologic and engineering support information, (3) economic and production data, and (4) our well ownership interests.  The resource industry consulting firm, Resource Investment Strategy Consultants ("RISC"), evaluated 100% of our estimated proved reserve quantities and their related pre-tax future net cash flows as of December 31, 2013.  Estimates prepared by others may be higher or lower than our estimates.  Because these estimates depend on many assumptions, all of which may differ substantially from actual results, reserve estimates may be different from the quantities of oil and gas that are ultimately recovered.  We continually make revisions to reserve estimates throughout the year as additional

58

information becomes available.  We make changes to depletion rates, impairment calculations and asset retirement obligations in the same period that changes to reserve estimates are made.

Share-based compensation.  We measure the compensation expense for stock options granted as compensation to our employees based on the grant date fair value of the awarded options under FASB ASC Topic 718, Compensation – Stock Compensation ("ASC 718").  We determine the fair value of stock option grants using the Black-Scholes option pricing model.   We determine the fair value of shares of nonvested stock based on the last quoted price of our stock on the OTC Bulletin Board on the date of the share grant.   The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award.  As share-based compensation expense is recognized based on awards ultimately expected to vest, we have reduced the expense for estimated forfeitures based on historical forfeiture rates.  Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period.  Excess tax benefits, as defined in ASC 718, if any, are recognized as an addition to paid-in capital.

Impairment of unproved oil and gas properties. Unproved leasehold costs and exploratory drilling in progress are capitalized and are reviewed periodically for impairment. Costs related to impaired prospects or unsuccessful exploratory drilling are charged to expense. The estimated fair value of unproved leasehold costs includes the present value of probable reserves discounted at rates commensurate with the risks involved in each classification of reserve. Our assessment of the results of exploration activities, commodity price outlooks, planned future sales or expiration of all or a portion of such leaseholds impacts the amount and timing of impairment provisions. An impairment expense could result if oil and gas prices decline in the future, as it may not be economical to develop some of these unproved properties.

Estimates of future dismantlement, restoration, and abandonment costs. The accounting for future development and abandonment costs is determined by FASB ASC Topic 410, Asset Retirement and Environmental Obligations requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The accrual is based on estimates of these costs for each of our properties based upon the type of production structure, reservoir characteristics, depth of the reservoir, market demand for equipment, currently available procedures and consultations with construction and engineering consultants. Based on our experience and technical and financial data collected from managing our projects over the years, we were able to record the costs related to our asset retirement and environmental obligations in our consolidated financial statements beginning the fourth quarter of 2009.  Because these costs typically extend many years into the future, estimating these future costs is difficult and requires management to make estimates and judgments that are subject to future revisions based on numerous factors, including changing technology, the political and regulatory environment, estimates as to the proper discount rate to use and timing of abandonment.

Assessments of functional currencies.  Periodically, we assess the functional currencies of our Chinese subsidiaries to ensure that the appropriate currencies are utilized in accordance with the guidance in FASB ASC Topic 830, Foreign Currency Matters.  We determine whether the U.S. or the Chinese currency is the appropriate functional currency based on an assessment of the economic and financing environments in which the Chinese subsidiary is situated.  The assessment includes, among other factors, in what currencies the financing and operating expenditures are denominated and whether the subsidiary's operations are sufficient to service additional financings.  The assessment of functional currencies can have a significant impact on periodic results of operations and financial position.

59

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

In addition to the U.S. Dollar, we conduct our business in RMB and, therefore, are subject to foreign currency exchange risk on cash flows related to expenses and investing transactions. In June 2010, China announced that it would gradually allow the RMB to float against the U.S. Dollar and, as a result, the Chinese currency is expected to slowly appreciate with respect to the U.S. Dollar. All of our costs to operate our Chinese offices are paid in RMB. Our exploration costs in China may be incurred under contracts denominated in RMB or U.S. Dollars. As of December 31, 2013, the U.S. Dollar ($) to RMB (¥) depreciated slightly at an exchange rate of about $1 to ¥6.11, compared to an exchange rate of $1 to ¥6.30 at December 31, 2012.  If the RMB appreciates with respect to the U.S. Dollar, our costs in China may increase. To date we have not engaged in hedging activities to hedge our foreign currency exposure. In the future, we may enter into hedging instruments to manage our foreign currency exchange risk or continue to be subject to exchange rate risk. If the RMB had appreciated by 10% during 2013, our costs would have increased by approximately $2.5 million. If the RMB had depreciated by 10%, it is estimated that our costs would have been approximately $2.0 million lower in 2013.

Inflation Risk

Although inflation has not materially impacted our operations in the recent past, increased inflation in China or the U.S. could have a negative impact on our operating and general and administrative expenses, as these costs could increase. In the last couple of years, we have increased our use of Chinese suppliers, including drilling contractors, that are paid in RMB. Since 2008, China experienced inflationary pressures, which increased our costs associated with our operations in China. In the future, inflation in China may result in higher minimum expenditure requirements under our PSCs if our Chinese partner companies adjust these requirements for inflation. The actual inflationary impact on the Company may also be exacerbated by the increasing demand for goods and services in the oil and gas industry. A material increase in these costs could adversely affect our operations and, if there are material changes in our costs, we may seek to secure additional capital earlier than anticipated.

Interest Rate Risk

Interest on our outstanding debt as of December 31, 2013 is both floating and fixed. Fixed rates are in place on our $60.0 million Senior Secured Notes due 2016 at 13.0 percent per year (or 14.5% per year if FEEB elects to pay interest “in kind”) and floating rates are in place on $21.0 million of borrowings under our Facility Agreement due April 15, 2014.  Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes us to changes in market interest rates reflected in the fair value of the debt and to the risk that we may need to refinance maturing debt with new debt at a higher rate.  All other things being equal, the fair value of our fixed rate debt will increase or decrease as interest rates change.  If short-term interest rates increase, we will incur higher interest rates on any outstanding balances under the Facility Agreement.  As it relates to our variable rate debt, if variable interest rates increased by 1% during 2013, our interest expense for 2013 would have increased by approximately $0.2 million.  To date we have not engaged in hedging activities to hedge our interest rate exposure. In the future, we may enter into hedging instruments to manage our interest rate risk or continue to be subject to interest rate risk.

60

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is designed, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal controls may vary over time.

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (1992). Our management has concluded that, as of December 31, 2013, our internal control over financial reporting is effective based on these criteria.

Our independent registered public accounting firm, JonesBaggett LLP, that audited our consolidated financial statements included in this report, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2013, which is included on page 63 of this Annual Report on Form 10-K.

61

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Far East Energy Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Far East Energy Corporation and Subsidiaries (the “Company”) as of December 31, 2013 and 2012 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedule listed at Item 15(a)(2). These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Far East Energy Corporation and Subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As reflected in the consolidated financial statements and discussed in Note 2 to the consolidated financial statements, the Company has incurred significant losses and negative cash flows from operating activities since inception, has negative working capital and an accumulated deficit, and is dependent on additional debt or equity financing in order to continue operations.  These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans regarding those matters are also discussed in Note 2.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Far East Energy Corporation and Subsidiaries’ internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 31, 2014, expressed an unqualified opinion thereon.

Dallas, Texas

March 31, 2014

17330 Preston Road, Suite 240B		972.404.1226
Dallas, Texas 75252	www.jonesbaggett.com	Fax 972.404.1227

62

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Far East Energy Corporation and Subsidiaries:

We have audited Far East Energy Corporation and Subsidiaries' (the “Company”) internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Far East Energy Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Far East Energy Corporation and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Far East Energy Corporation and Subsidiaries, as of December 31, 2013 and 2012 and the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2013, and our report dated March 31, 2014 expressed an unqualified opinion thereon and included an explanatory paragraph concerning matters related to the Company’s ability to continue as a going concern.

Dallas, Texas

March 31, 2014

17330 Preston Road, Suite 240B		972.404.1226
Dallas, Texas 75252	www.jonesbaggett.com	Fax 972.404.1227

63

FAR EAST ENERGY CORPORATION

Consolidated Balance Sheets

(In Thousands, Except Shares)

	December 31,
	2013			2012
ASSETS
Current assets
Cash and cash equivalents	$	17,571		$	1,340
Accounts receivable		161			163
Inventory		1,261			423
Prepaid expenses		490			369
Deposits		142			677
Other current assets		22			16
Total current assets		19,647			2,988
Property and equipment
Oil and gas properties (Successful efforts method)		105,199			72,150
Other property and equipment		2,589			2,313
Total property and equipment		107,788			74,463
Less accumulated depreciation, depletion and amortization		(5,154	)		(3,398	)
Total property and equipment, net		102,634			71,065
Deferred financing costs		2,227			371
Other long-term assets		604			658
Total assets	$	125,112		$	75,082
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	15,842		$	14,814
Accrued liabilities		24,329			7,571
Credit facility		21,000			25,730
Secured notes payable (net of discount of $1,634)		66,992			-
Equipment lease		3			-
Total current liabilities		128,166			48,115
Equipment lease, net of current portion		12			-
Asset retirement and environmental obligations		1,302			840
Total liabilities		129,480			48,955
Commitments and contingencies (Note 11)
Stockholders' equity
Preferred stock, $0.001 par value, 500,000,000 shares authorized, none outstanding		-			-
Common stock, $0.001 par value, 500,000,000 shares authorized, 346,078,509 and 344,785,689 issued and outstanding at December 31, 2013 and 2012, respectively		346			345
Additional paid-in capital		178,584			175,554
Unearned compensation		(503	)		(987	)
Accumulated deficit		(182,795	)		(148,785	)
Total stockholders' equity		(4,368	)		26,127
Total liabilities and stockholders' equity	$	125,112		$	75,082

See the accompanying notes to consolidated financial statements.

64

FAR EAST ENERGY CORPORATION

Consolidated Statements of Operations and Comprehensive Loss

(In Thousands, Except Per Share Data)

	Year ended December 31,
	2013			2012			2011
Operating revenues:
Gas sales	$	1,108		$	1,219		$	653
Other, net		478			425			205
		1,586			1,644			858
Operating expenses:
Lease operating expense		5,425			5,129			3,873
Exploration costs		4,968			5,604			5,967
General and administrative		10,531			11,434			9,701
Depreciation, depletion and amortization		2,091			1,890			1,045
Total operating expenses		23,015			24,057			20,586
Operating loss		(21,429	)		(22,413	)		(19,728	)
Other income (expense):
Interest expense		(11,755	)		(4,756	)		(678	)
Interest income		3			13			6
Gain (loss) on sales of other fixed assets		(13	)		3			(1	)
Foreign currency transaction gain (loss)		(816	)		(7	)		(844	)
Total other income		(12,581	)		(4,747	)		(1,517	)
Loss before income taxes		(34,010	)		(27,160	)		(21,245	)
Income taxes		-			-			-
Net loss	$	(34,010	)	$	(27,160	)	$	(21,245	)
Comprehensive loss	$	(34,010	)	$	(27,160	)	$	(21,245	)
Net loss per share:
Basic and diluted	$	(0.10	)	$	(0.08	)	$	(0.06	)

See the accompanying notes to consolidated financial statements.

65

FAR EAST ENERGY CORPORATION

Consolidated Statements of Stockholders' Equity

(In Thousands, Except Share Data)

												Deficit
												Accumulated
	Common Stock					Additional						During the			Total
	Number of			Par		Paid-In			Unearned			Development			Stockholders'
	Shares			Value		Capital			Compensation			Stage			Equity
Balance at December 31, 2010		291,202,928		$	291	$	149,378		$	(167	)	$	(100,380	)	$	49,122
Net loss		-			-		-			-			(21,245	)		(21,245	)
Common shares issued		34,880,599			35		16,696			-			-			16,731
Stock issued for note conversion		14,315,789			14		6,786			-			-			6,800
Nonvested shares issued		1,753,134			2		1,086			(625	)		-			463
Nonvested shares withheld for taxes		(49,232	)		-		(28	)		-			-			(28	)
Stock options issued		-			-		399			-			-			399
Balance at December 31, 2011		342,103,218			342		174,317			(792	)		(121,625	)		52,242
Net loss		-			-		-			-			(27,160	)		(27,160	)
Nonvested shares issued		2,707,500			3		867			(195	)		-			675
Nonvested shares withheld for taxes		(25,029	)		-		(7	)		-			-			(7	)
Stock options issued		-			-		377			-			-			377
Balance at December 31, 2012		344,785,689			345		175,554			(987	)		(148,785	)		26,127
Net loss													(34,010	)		(34,010	)
Nonvested shares issued		1,714,000			1		168			484			-			653
Nonvested shares withheld for taxes		(92,846	)		-		(8	)		-			-			(8	)
Nonvested shares forfeited		(328,334	)		-		-			-			-			-
Stock options issued		-			-		486			-			-			486
Warrants issued		-			-		2,384			-			-			2,384
Balance at December 31, 2013		346,078,509		$	346	$	178,584		$	(503	)	$	(182,795	)	$	(4,368	)

See the accompanying notes to consolidated financial statements.

66

FAR EAST ENERGY CORPORATION

Consolidated Statements of Cash Flows

(In Thousands)

	For the Years Ended December 31,
	2013			2012			2011
Cash flows from operating activities:
Net loss	$	(34,010	)	$	(27,160	)	$	(21,245	)
Adjustments to reconcile net loss to cash used in operating activities:
Depletion, depreciation and amortization		2,091			1,890			1,045
Amortization of deferred financing costs		1,513			2,377			253
Amortization of warrants		682			-			-
Share-based compensation		1,140			1,052			862
Changes in components of working capital:
Accounts receivable		50			87			(899	)
Inventory		(838	)		118			(237	)
Prepaid expenses		(121	)		4			(69	)
Deposits		535			(134	)		(442	)
Accounts payable and accrued liabilities		8,060			2,546			4,337
(Gain) loss on sale of assets		13			(3	)		1
Other, net		(9	)		(7	)		(28	)
Net cash used in operating activities		(20,894	)		(19,230	)		(16,422	)
Cash flows from investing activities:
Additions to oil and gas properties		(14,343	)		(8,273	)		(17,052	)
Additions to other properties		(500	)		(242	)		(804	)
Net cash used in investing activities		(14,843	)		(8,515	)		(17,856	)
Cash flows from financing activities:
Net proceeds from credit facility		125			6,193			16,250
Net proceeds from secured note payable		58,500			-			-
Repayment of credit facility		(4,855	)		-			-
Debt issue costs		(1,802	)		(371	)		-
Payment on exchangeable note		-			-			(3,200	)
Net proceeds from sale of common stock		-			-			16,731
Net cash provided by financing activities		51,968			5,822			29,781
Net increase (decrease)  in cash and cash equivalents		16,231			(21,923	)		(4,497	)
Cash and cash equivalents--beginning of period		1,340			23,263			27,760
Cash and cash equivalents--end of period	$	17,571		$	1,340		$	23,263

See the accompanying notes to consolidated financial statements.

67

FAR EAST ENERGY CORPORATION

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Business. We were incorporated in Nevada on February 4, 2000. In January 2002, we renamed our company Far East Energy Corporation and changed our focus to exploring, developing, producing and selling coalbed methane gas ("CBM"). Throughout this Annual Report on Form 10-K, the terms "Far East Energy," "Far East," "we," "the Company," "us," "our" and "our company" refer to Far East Energy Corporation and its subsidiaries. References to “FEEB” refer to Far East Energy (Bermuda), Ltd., our principal operating subsidiary. References to "China" and "PRC" are references to the People's Republic of China. References to the “MofCom” are references to the Chinese Ministry of Commerce, the principal regulatory authority with oversight responsibility for our production sharing contracts. References to the “MLR” are references to the Chinese Ministry of Land and Resources, the principal regulatory authority for the exploration, development and production of oil and gas resources in China. References to “CUCBM” are references to China United Coalbed Methane Company, Ltd, and references to “CNPC” are references to China National Petroleum Company. Throughout this Annual Report on Form 10-K, we use the term “our Chinese partner company” when referring to CUCBM and CNPC, as applicable.

The information, as furnished herein, reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC.

Principles of Consolidation. Our consolidated financial statements include the accounts of our wholly-owned subsidiaries after the elimination of all intercompany accounts and transactions.

Use of Estimates. The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that exist at the date of the financial statements. Items subject to such estimates and assumptions include: 1) oil and natural gas reserves; 2) cash flow estimates used in impairment tests of long-lived assets; 3) depreciation, depletion and amortization; 4) asset retirement obligations; and 5) income taxes. While we believe our estimates are appropriate, actual results can, and often do, differ from those estimates.

Cash and Cash Equivalents. We consider short-term investments with little risk of change in value because of changes in interest rates and purchased with an original maturity of three months or less to be cash equivalents.

Inventory. Inventory consists primarily of tubular goods and drilling equipment used in our operations and is carried at cost with adjustments made from time to time to recognize any reductions in value.

Oil and Gas Properties. We use the successful efforts method of accounting for our oil and gas properties. Under this method, oil and gas lease acquisition costs and intangible drilling costs associated with exploration efforts that result in the discovery of proved reserves and costs associated with development drilling, whether or not successful, are capitalized when incurred. If proved commercial reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proved commercial reserves have been found when drilling has been completed. Under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 932, Extractive Activities - Oil and Gas ("ASC 932"), such exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify its completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. We assess our capitalized exploratory wells pending evaluation each quarter to determine whether costs should remain capitalized or should be charged to earnings. Other exploration costs, including geological and geophysical costs, are expensed as incurred. We recognize gain or loss on the sale of properties on a field basis. Depreciation, depletion and amortization of the cost of proved oil and gas properties is calculated using the unit-of-production method.

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Unproved property costs are capitalized and reviewed periodically for impairment on a field basis, considering factors such as drilling and exploitation plans and lease terms. The estimated fair value of unproved leasehold costs includes the present value of probable reserves discounted at rates commensurate with the risks involved in each classification of reserve. Costs related to impaired prospects are charged to expense. An impairment expense could result if oil and gas prices decline in the future or if downward reserves revisions are recorded, as it may not be economical to develop some of these unproved properties. We also evaluate current drilling results, lease expiration dates, current oil and gas industry conditions, international economic conditions, capital availability, foreign currency exchange rates, political stability in the countries in which the Company has an investment, and available geological and geophysical information. Any impairment assessed is charged to expense.

Estimates of future dismantlement, restoration, and abandonment costs. The accounting for future development and abandonment costs is determined by FASB ASC Topic 410, Asset Retirement and Environmental Obligations, which requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The liability is accreted each period through charges to depreciation, depletion and amortization. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The accrual is based on estimates of these costs for each of our properties based upon the type of production structure, reservoir characteristics, depth of the reservoir, market demand for equipment, currently available procedures and consultations with construction and engineering consultants. Because these costs typically extend many years into the future, estimating these future costs is difficult and requires management to make estimates and judgments that are subject to future revisions based on numerous factors, including changing technology, the political and regulatory environment, estimates as to the proper discount rate to use and timing of abandonment.

Convertible Debts and Warrants. We applied FASB ASC Topic 815, Derivatives and Hedging ("ASC 815") and FASB ASC Topic 470, Debt ("ASC 470"), in recording the Exchangeable Note and warrants issued to Dart Energy in conjunction with a transaction between the parties. Derivative financial instruments, as defined in ASC 815, consist of financial instruments or other contracts that contain a notional amount and one or more underlying, require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets. Convertible debt, as defined in ASC 470, generally includes an interest rate which is lower than the issuer could establish for nonconvertible debt, an initial conversion price which is greater than the market value of the common stock at the time of issuance, and a conversion price which does not decrease except pursuant to anti-dilution provisions. Also, under ASC 470, the portion of the proceeds from the issuance of the debt which is allocable to the warrant should be accounted for as additional paid-in capital. The allocation should be based on the relative fair values of the two securities at time of issuance.

Revenue Recognition. We derive revenue primarily from the sale of produced natural gas. Revenues, net of royalties, are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if the collectability of the revenue is probable. The amount of gas sold may differ from the amount to which the Company is entitled based on its working interest or net revenue interest in the properties. A ready market for natural gas allows us to sell our natural gas shortly after production at the pipeline receipt point at which time title and risk of loss transfers to the buyer. Revenue is recorded when title is transferred based on our deliveries and net revenue interests. Cash received relating to future revenues is deferred and recognized when all revenue recognition criteria are met.

Significant Customers. All of the Company's production is sold to one customer, Shanxi Province Guoxin Energy Development Group Limited ("SPG"). In the event that this significant customer ceases doing business with us, we believe, but can provide no assurances, that there are potential alternative customers with whom we could establish new relationships and that those relationships would result in the replacement of the lost customer.

Income Taxes. Deferred income taxes are accounted for under the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statements carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a

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change in tax rate is recognized in income in the period the change occurs. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Environmental Matters. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and do not contribute to current or future revenue generation are expensed. Liabilities are recorded when assessments and/or remediation are deemed probable and the costs can be reasonably estimated.

Net Loss Per Share. We apply FASB ASC Topic 260, Earnings Per Share ("ASC 260") for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in our earnings.

Share-based Compensation. We measure the cost of employee services received in exchange for stock options based on the grant date fair value of the awarded options under FASB ASC Topic 718, Compensation - Stock Compensation ("ASC 718"). We determine the fair value of stock option grants using the Black-Scholes option pricing model. We determine the fair value of shares of nonvested stock (also commonly referred to as restricted stock) based on the last quoted price of our stock on the OTC Bulletin Board on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, we have reduced the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, as defined in ASC 718, if any, are recognized as an addition to paid-in capital.

Comprehensive Loss. Comprehensive loss is defined as changes in financial position of an enterprise excluding stockholder equity transactions. There were no elements of comprehensive loss other than net loss from operations for the years ended December 31, 2013, 2012 and 2011.

Foreign Currency Transactions. Periodically, we assess the functional currencies of our Chinese subsidiaries to ensure that the appropriate currency is utilized in accordance with the guidance in FASB ASC Topic 830, Foreign Currency Matters ("ASC 830"). During the fourth quarter of 2006, we determined that the functional currency for our Chinese operations was U.S. Dollars, instead of the Chinese Renminbi ("RMB") as previously reported and utilized. Foreign currency transaction gains or losses, which resulted from transactions denominated in the Chinese RMB, were recorded in the Consolidated Statement of Operations.

Fair Values of Financial Instruments. Our company's financial instruments consist primarily of cash and cash equivalents, payables, and accrued payables. The carrying values of these financial instruments approximate their respective fair values as they are short-term in nature.

Credit Concentration. As of December 31, 2013, approximately $7.2 million of our cash was held in foreign bank accounts.

Reclassification. Certain reclassifications have been made to the consolidated balance sheet for the years ended December 31, 2011 and 2012 to be consistent with the 2013 presentation.

Adoption of New Accounting Pronouncement. There were no recent accounting pronouncements at December 31, 2013 that materially affected our company.

2. Going Concern and Liquidity

These consolidated financial statements are presented on the basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business over a reasonable length of time. The Company generated net losses of $34.0 million for the year ended December 31, 2013, and has accumulated net losses of $183.0 million since inception. In addition, the Company has negative working capital, negative cash flows from operating activities and negative net worth. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of

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liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and to obtain additional financing or refinancing as may be required. Management may seek to secure additional capital by exploring potential strategic relationships or transactions involving one or more of our PSCs, such as a joint venture, farmout, merger, acquisition or sale of some or all of our assets, by obtaining additional debt, reserve based, project or equity-related financing. No assurances can be given that the Company will be successful in generating sufficient cash flow or obtaining additional financing or refinancing.  Unless otherwise indicated, amounts provided in these notes to the financial statements pertain to continuing operations.

All of our reserves are located in Shanxi Province, China. At December 31, 2013, our estimated net proved and net probable reserves were 67.5 billion cubic feet ("Bcf") and 372.4 Bcf of CBM, respectively. At December 31, 2013, the standardized measure of our future net cash flows, discounted at 10 percent per annum, relating to our proved natural gas reserves was $151.8 million. See Supplemental Information to Consolidated Financial Statements.

On June 12, 2010, China United Coalbed Methane Corporation, Ltd. ("CUCBM"), our Chinese partner for the Shouyang production sharing contract ("PSC"), and SPG executed a gas sales agreement (the "Gas Sales Agreement"), to which we are an express beneficiary, to sell CBM produced in the CBM field governed by the Shouyang PSC. Gas sales under the gas sales agreement with SPG commenced in the first quarter of 2011. As of December 31, 2013 and 2012, gas sales proceeds to be collected were approximately $0.2 million, respectively, and were recorded in Accounts Receivable. We have funded our exploration and development activities primarily through the sale and issuance of common stock, the Notes (as defined below) and the Warrants (as defined below),  proceeds received from the closing of the Facility Agreement (as defined below) and sales of CBM.

On November 28, 2011, FEEB entered into a Facility Agreement, as borrower, with Standard Chartered Bank ("SCB"), as lender, and the Company, as guarantor (the "Facility Agreement"). The Facility Agreement provides for a $25 million credit facility, the proceeds of which were used for project costs with respect to the Shouyang Area in Shanxi Province, China, as well as for finance costs and for general corporate purposes approved by SCB. The Facility Agreement is fully drawn and no amounts remain for borrowing. See Note 4 - Facility Agreement.

On January 14, 2013, the Company sold senior secured notes of FEEB (the "Notes") and warrants to purchase common stock of FEEC (the "Warrants") to certain institutional investors for $60,000,000 of gross proceeds in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") pursuant to Section 4(a)(2) thereof and Regulation S thereunder (the "Private Placement"). The Private Placement closed on January 15, 2013.

On January 15, 2013, FEEC and FEEB entered into the Fifth Amendment to the Facility Agreement, dated November 28, 2011, among FEEC, FEEB and Standard Chartered Bank, to provide for the extension of the maturity date thereof until January 15, 2014. The Fifth Amendment was subject to the repayment of $4.125 million of the outstanding principal amount and the repayment of $0.7 million of capitalized interest under the Facility Agreement. The total amount of outstanding principal and capitalized interest under the Facility Agreement prior to the repayment of such amount was $25.8 million (which included $125,000 borrowed on January 11, 2013). In addition, accrued interest, amendment fees and certain transaction expenses were paid at closing out of the gross proceeds of the Private Placement.

On December 31, 2013, the Company entered into the Sixth Amendment to the Facility Agreement to extend the maturity date of the Facility Agreement from January 15, 2014 to April 15, 2014.  The Sixth Amendment requires the Company to pay interest under the Facility Agreement on a monthly basis rather than on a quarterly basis.

On March 31, 2014, the Company entered into the Extension Agreement to the Facility Agreement to extend the maturity date of the Facility Agreement from April 15, 2014 to July 15, 2014.  The Extension Agreement contains certain customary representations, warranties, releases and confirmations.

Our current work programs satisfied the minimum exploration expenditures for our Shouyang and Yunnan PSCs for 2013. With respect to the PSC governing CBM production activities on the approximately 573,000 acres in the Qinnan block of the Shanxi Province, we have halted activities on the Qinnan Block pending resolution of whether or not its exploration period will be extended as a result of certain force majeure claims.

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Management may seek to secure additional capital by exploring potential strategic relationships or transactions involving one or more of our PSCs, such as a joint venture, farmout, merger, acquisition or sale of some or all of our assets, by obtaining additional debt, reserve based, project or equity-related financing. However, there can be no assurance that we will be successful in entering into any strategic relationship or transaction, securing capital or raising funds through additional debt, reserve based project or equity-related financing. In addition, the terms and conditions of any potential strategic relationship or transaction or of any project or reserve based financing are uncertain, and we cannot predict the timing, structure or other terms and conditions or the consideration that may be paid with respect to any transaction or offering of securities and whether the consideration will meet or exceed our offering price. Under certain circumstances, the structure of a strategic transaction may require the approval of the Chinese authorities, which could delay closing or make the consummation of a transaction more difficult. There can be no assurance that the Chinese authorities will provide the approvals necessary for a transaction or transfer. There can be no guarantee of future capital acquisition, fundraising or exploration success.

There can be no guarantee of future capital acquisition, fundraising or exploration success or that we will realize the value of our unproved exploratory well costs.

3. Senior Secured Notes

On January 14, 2013, FEEC and FEEB entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain purchasers (the “Purchasers”) under which FEEC and FEEB agreed to sell, and the Purchasers agreed to purchase the Notes and Warrants for $60.0 million of gross proceeds in the Private Placement. The Warrants provide the holders the right to purchase up to 56,086,439 shares of FEEC common stock at an exercise price of $0.085 per share.  The Warrants will expire on December 31, 2017. The Private Placement closed on January 15, 2013.

The Notes are senior secured obligations of FEEB and are fully and unconditionally guaranteed by FEEC. The Notes were sold at an issue price of 100% of par for an aggregate principal amount of $60.0 million. The Notes accrue cash interest at a rate of 13.0% per year, which is paid semi-annually in arrears on June 30 and December 30 of each year, commencing on June 30, 2013. FEEB may, at its option, elect to pay interest “in kind” at a rate of 14.5% per year by issuing additional Notes with the first interest payment required to be paid in kind. The Notes will mature on January 15, 2016.  On July 1, 2013, the Company issued $3,987,501 aggregate principal amount of senior secured notes for the paid in kind interest that was due on June 30, 2013. On December 30, 2013, the Company issued $4,639,095 aggregate principal amount of senior secured notes for the paid in kind interest that was due on December 30, 2013. Consequently, there was no accrued interest at December 31, 2013.  The total amount of interest cost incurred during the year ended December 31, 2013 was $10.2 million, of which $1.3 million has been capitalized.  There was no interest cost or capitalized interest for the years ended December 31, 2012 and 2011.

The Notes and related guarantees rank equal in right of payment with the Facility Agreement. Except as specifically permitted by the indenture governing the Notes (the “Indenture”), any new indebtedness of FEEC, FEEB or any restricted subsidiary of FEEC will require the consent of SCB and the “Required Noteholders,” which means holders of 75% of aggregate principal amount at maturity of the Notes. The Notes and related guarantees are secured by substantially all of the assets of FEEC and FEEB, other than assets located in the PRC, assets the grant, creation or perfection of any lien on which would require the consent, authorization or approval of, or filing with, any governmental authority in the PRC and certain other excluded assets. Such collateral continues to secure the Facility Agreement with the administration of such collateral subject to a collateral agency and intercreditor agreement between SCB and Wells Fargo Bank, National Association, as indenture trustee of the Notes and as collateral agent.

If we fail to comply with the covenants in the Indenture governing the Notes or the Facility Agreement or fail to pay the Facility Agreement in full or extend the maturity date of the Facility Agreement by April 15, 2014, it could lead to an event of default and the acceleration of the maturity of all outstanding debt under our Facility Agreement, as well as a cross default and acceleration of maturity under the Indenture governing the Notes.  We have assessed our current liquidity and financial condition, and have determined that the chances that the Company will not be able to pay the Facility Agreement in full or extend the maturity date of the Facility Agreement by April 15, 2014 are not remote. As a result, we have included both the Notes and the Facility Agreement in the current liabilities section of the balance sheet as of December 31, 2013.

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In certain circumstances specified in the Indenture and as summarized below, FEEB may or will be required to redeem or offer to repurchase the Notes at the relevant prices set forth below times the principal amount being redeemed or repurchased:

Closing Date to February 28, 2014	100%
March 1, 2014 to December 31, 2014	104%
January 1, 2015 and thereafter	108%

plus accrued and unpaid interest thereof, if any, on the Notes to the applicable date of redemption or repurchase, as applicable.

We applied ASC 470 in the recording of the valuation of the Warrants.  We determined the fair value of the Warrants using the Black Scholes Option Pricing Model (“BSOPM”).

The significant assumptions used in the valuation were as follows:

	Black Scholes
	Option Pricing Model
Volatility	70.81%
Risk free interest rate	0.75%
Expected dividend yield	-
Expected term	5 year

Based on the utilization of the BSOPM valuation technique, the Warrants were valued at approximately $2.5 million at time of issuance.   The amount was recorded as a debt discount to the Notes in the liabilities section and as additional paid-in capital in the equity section of the balance sheet.  The debt discount is accreted as interest expense periodically over the term of the Notes.  We have recorded an accretion amount of $0.7 million from the issuance date to December 31, 2013.

In connection with the Notes, the Company incurred approximately $3.1 million of financing costs, which included among other items, 1.5 million warrants issued to the placement agent.  These warrants were valued at approximately $68,000 based on the same aforementioned BSOPM valuation technique.    The total financing costs of $3.1 million were allocated between the Notes and the Warrants in proportion to their respective fair values at time of issuance.  The costs related to the Warrants were recorded as an offset to the value of the Warrants in additional paid-in capital.  The costs related to the Notes were capitalized as deferred financing costs and amortized based on the effective interest method over the term of the Notes.  The objective of that method is to arrive at a periodic interest cost which represents a level effective rate over the term of the Notes on its face amount reduced by the unamortized discount and expense at the beginning of the period.  The effective interest rate for the Notes as calculated is 17.8% per annum.  We have recorded an amortization amount of $0.9 million for the period from the issuance date to December 31, 2013.

4. Facility Agreement

On November 28, 2011, FEEB entered into the Facility Agreement, as borrower, with SCB, as lender, and the Company, as guarantor. The Facility Agreement provides for a $25 million credit facility, the proceeds of which were used for project costs with respect to the Shouyang Area in Shanxi Province, China, as well as for finance costs and for general corporate purposes approved by SCB. The Agreement had an initial 9-month term ending August 28, 2012. Loans under the Facility Agreement may be made in such amounts as may be specified from time to time in one or more utilisation requests according to an agreed expenditure schedule. Loans under the Facility Agreement will bear interest at LIBOR plus an applicable margin rate of 9.5% during the initial period and 10.0% thereafter, and mandatory costs, if any, to compensate SCB for certain Hong Kong regulatory compliance costs.  In connection with and as security for the Facility Agreement, FEEB and/or the Company entered into certain other ancillary agreements dated November 28, 2011, including a Share Pledge Agreement, an Account Charge Agreement, an

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Assignment of Shareholder Loans and a Subordination Agreement (the "Ancillary Agreements").  Under the Ancillary Agreements, the Company pledged its shares in FEEB and granted a security interest in certain intercompany debt to SCB, and FEEB granted a security interest in certain bank accounts to SCB.

On May 23, 2012, the Company announced that it had entered into an amendment to the Facility Agreement with SCB that, among other things, extended the date upon which the Company was required to provide SCB with evidence of approval by MofCom of the modification agreement to the Shouyang PSC. On July 5, 2012, FEEB was notified of MofCom approval of the modification agreement to the Shouyang PSC. On July 19, 2012, FEEB entered into the First Amendment (the “First Amendment”) to the Facility Agreement, which extended the term of the Facility Agreement by three months, to November 28, 2012.  On November 28, 2012, FEEB entered into the Second Amendment (the “Second Amendment”) to the Facility Agreement, extending the termination date of the Facility Agreement and the due date for payment of all accrued interest to December 19, 2012. On December 18, 2012, FEEB entered into the Third Amendment (the “Third Amendment”) to the Facility Agreement, which extended the termination date of the Facility Agreement and the due date for payment of all accrued interest to January 15, 2013.

On January 15, 2013, FEEC and FEEB entered into the Fifth Amendment to the Facility Agreement (the "Fifth Amendment") to provide for the extension of the maturity date of the Facility Agreement until January 15, 2014. The Fifth Amendment was subject to the repayment of $4.125 million of the outstanding principal amount and the repayment of $0.7 million of capitalized interest under the Facility Agreement. The total amount of outstanding principal and capitalized interest under the Facility Agreement prior to the repayment of such amount was $25.8 million (which includes $125,000 borrowed on January 11, 2013). In addition, accrued interest, amendment fees and certain transaction expenses were paid at closing out of the gross proceeds of the Private Placement. See Note 3 - Senior Secured Notes for discussion of the Private Placement.

On December 31, 2013, the Company entered into the Sixth Amendment to the Facility Agreement (the “Sixth Amendment”) to extend the maturity date of the Facility Agreement from January 15, 2014 to April 15, 2014.  The Sixth Amendment requires the Company to pay interest under the Facility Agreement on a monthly basis rather than on a quarterly basis.

At December 31, 2013 and 2012, the total amount drawn under the Facility Agreement was $21.0 and $25.7 million, respectively. The related accrued interest was $0.5 and $0.1 million for December 31, 2013 and 2012, respectively. The effective interest rate for the Facility Agreement is 13.2% per annum.

At December 31, 2013 and 2012, total financing costs in connection with the Facility Agreement were approximately $0.6 and $2.6 million, respectively. The costs related to the Facility Agreement were capitalized as deferred financing costs and amortized over the term of the Facility Agreement.  Amortization expense for the year ended December 31, 2013 and 2012 was $0.6 million and $2.4 million, respectively.

On March 31, 2014, the Company entered into the Extension Agreement to the Facility Agreement (the “Extension Agreement”) to extend the maturity date of the Facility Agreement from April 15, 2014 to July 15, 2014.  The Extension Agreement contains certain customary representations, warranties, releases and confirmations.

5. Transactions with Dart Energy

In 2009, we entered into a series of transactions related to our Qinnan Block with Dart Energy. In connection with these transactions, one of our wholly owned subsidiaries, FEEB, and Dart Energy entered into a Farmout Agreement (the "Farmout Agreement") under which, subject to certain conditions, FEEB would assign to Dart Energy 75.25% of its rights in the Qinnan PSC in Shanxi Province (the "Assignment"). The Assignment was not carried out and FEEB terminated the Farmout Agreement in November 2011.

In conjunction with the Farmout Agreement, FEEB issued an Exchangeable Note, $10 million principal amount, to Dart Energy for $10 million in cash and a warrant to Dart Energy for 7,420,000 shares of our common stock, at an exercise price of $1.00 per share ("Warrant"). The Warrant was not exercised and expired in December 2009.

Of the $10 million principal amount, $2 million was to be set aside to be used exclusively to satisfy FEEB's existing exploration and development commitments in connection with the Qinnan PSC. This restricted portion was fully utilized for exploration expenditures related to the Qinnan PSC by mid-2010.

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The Exchangeable Note had an initial principal amount of $10 million and bore interest at a rate of 8% per annum, which began to accrue on October 16, 2009. In February 2011, Dart Energy exercised its right to exchange a total of $6.8 million in principal amount under the Exchangeable Note for 14,315,789 shares of Common Stock which was sold by Dart Energy shortly after the exchange.

On September 15, 2011, the Company fulfilled its obligations under the Exchangeable Note by paying in full the remaining $3,200,000 principal balance on the Exchangeable Note plus the $1,226,577 in accrued interest, and the Company elected to terminate the Farmout Agreement on November 11, 2011. The effective interest rate for the Exchangeable Note was 11.64% per annum.

6.  Supplemental Cash Flow Information

We use the indirect method to present cash flows from operating activities. Cash paid for interest for 2013, 2012 and 2011 was $1.8 million, $1.7 million and $1.2 million, respectively.  Cash paid for income taxes for 2013, 2012 and 2011 was zero.  Other supplemental cash flow information for 2013, 2012 and 2011, is presented as follows (in thousands):

	2013		2012		2011
Non-cash transactions:
Interest paid-in-kind	$	8,626	$	-	$	-
Amortization of deferred financing costs		1,513		2,377		253
Non-cash share-based compensation		1,140		1,052		862
Asset retirement and environmental obligation		338		20		174
Common stock issued to convert notes payable		-		-		6,800

7.  Oil and Gas Properties

All of the Company's oil and gas properties are located in the PRC.  For the year ended December 31, 2013, the Company has $90.6 million in proved oil and gas properties and $14.6 million in unproved oil and gas properties.  For the year ended 2012, the Company had $68.7 million in proved oil and gas properties and $3.4 million in unproved oil and gas properties.  The costs associated with our oil and gas properties include the following (in thousands):

	At December 31,
	2013			2012
Proved oil and gas properties	$	90,613		$	68,747
Unproved leasehold costs		275			275
Unproved oil and gas properties		14,311			3,128
Total unproved oil and gas properties		14,586			3,403
Accumulated depreciation, depletion and amortization		(3,865	)		(2,221	)
Total oil and gas properties, net	$	101,334		$	69,929

Unproved Leasehold Costs.Unproved leasehold costs are composed of amounts we paid to the PRC's Ministry of Commerce of the People's Republic of China ("MofCom") and CUCBM pursuant to a PSC we entered into in 2002 with CUCBM to acquire the mineral rights in the Enhong and Laochang areas in the Yunnan Province.

Unproved Oil and Gas Properties.  Unproved oil and gas property costs include only suspended well costs which are direct exploratory well costs pending determination of whether proved reserves have been discovered. Accounting guidance regarding capitalization of suspended well costs is provided by FASB ASC Topic 932.  FASB ASC Topic 932 addresses whether there are circumstances under the successful efforts method of accounting for oil and gas producing activities that would permit the continued capitalization of exploratory well costs beyond one year, other than when additional exploration wells are necessary to justify major capital expenditures and those wells are under way or firmly planned for the near future.  Capitalization of costs should be continued beyond one year in cases where reserves for the project are not yet proven, but the Company demonstrates sufficient continuing

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progress toward assessing those reserves.  For the capitalized costs at December 31, 2013, our assessment indicated that our current work programs demonstrated our efforts in making sufficient continuing progress toward assessing the reserves in the areas for which the costs were incurred. Therefore, we have continued to capitalize these costs.

The following table reflects the net changes in capitalized exploratory well costs during 2013, 2012 and 2011 (in thousands):

	2013		2012			2011
Beginning balance at January 1	$	3,128	$	3,726		$	49,819
Additions to unevaluated exploratory well costs pending the determination of proved reserves		11,183		1,026			18,166
Reclassifications of wells, facilities,  and equipment based on the determination of proved reserves		-		-			(64,259	)
Reclassified to Proved Oil and Gas Properties per Shouyang Modification Agreement		-		(1,624	)		-
Unevaluated exploratory well costs charged to expense		-		-			-
Ending balance at December 31	$	14,311	$	3,128		$	3,726

At December 31, 2013, the Company had $3.1 million capitalized for exploratory wells for a period of greater than one year after the completion of drilling.

8.  Asset Retirement and Environmental Obligations

The following table presents the reconciliation of the beginning and ending aggregate carrying amounts of short-term and long-term legal obligations associated with the retirement of property, plant and equipment for the years ended December 31, 2013 and 2012 (in thousands):

	2013		2012
Carrying amount at beginning of period	$	840	$	739
Liabilities incurred		338		20
Liabilities settled		-		-
Accretion expense		124		94
Settlement of obligation		-		(13	)
Revisions		-		-
Carrying amount at end of period	$	1,302	$	840
Current portion	$	-	$	-
Noncurrent portion	$	1,302	$	840

9.  Other Property and Equipment

Other fixed assets, net include the following (in thousands):

	At December 31,
	2013			2012
Other fixed assets	$	2,589		$	2,313
Accumulated depreciation		(1,289	)		(1,176	)
Other fixed assets, net	$	1,300		$	1,137

Other fixed assets include leasehold improvements, equipment and furniture.  Depreciation expense for the years ended December 31, 2013, 2012, and 2011 was approximately $324,000, $319,000, and $227,000, respectively. Approximately, $223,000 of fixed assets were written off during 2013 as well as $211,000 of related accumulated depreciation.  Furniture, fixtures and non-oil and natural gas property and equipment are depreciated using the straight-line method based on the estimated useful lives of the respective assets, generally ranging from three to

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twenty years. Leasehold improvements are amortized over the shorter of their economic lives or the lease term. Repairs and maintenance costs are expensed in the period incurred.

10.  Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31, 2013 and 2012 are as follows (in thousands):

	At December 31,
	2013			2012
Deferred tax assets:
Net operating loss	$	9,623		$	8,172
Depreciable assets and other		-			31
Accrued Compensation		246			26
Stock-based compensation		916			842
Total deferred tax assets		10,785			9,071
Depreciable assets and other		(8	)		-
Total deferred tax liabilities		-			-
Net deferred tax assets	$	10,777		$	9,071
Net deferred tax assets	$	10,777		$	9,071
Less: valuation allowance		(10,777	)		(9,071	)
	$	-		$	-

Net operating loss, which can be carried forward for federal income tax purposes, was estimated to be approximately $28.3 million and $24.0 million at December 31, 2013 and 2012, respectively.  The management has determined that it is unlikely that the NOL will be utilized before its expiration beginning in 2016.  Accordingly, a full valuation allowance is provided to comply with the provisions of FASB ASC Topic 740, Income Taxes (“ASC 740”).

Income taxes for financial reporting purposes differed from the amounts computed by applying the statutory federal income tax rates because Bermuda has no income tax that would apply to FEEB, and because of our recording of the valuation allowance for the losses generated by us. The net increase in the valuation allowance for the year ended December 31, 2013 was $1.7 million.  The net increase in the valuation allowance for the year ended December 31, 2012 was $1.4 million.  The increase for each year was primarily attributable to the net operating losses generated.

ASC 740 prescribes a minimum recognition threshold and measurement methodology that a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements. It also provides guidance for derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes on continuing operations in our Consolidated Statements of Operations and Comprehensive Loss. There were no unrecognized tax benefits as of the date of adoption.  There are no unrecognized tax benefits that if recognized would affect the tax rate for the year ended December 31, 2013.  There is no interest or penalties recognized as of the date of adoption or for the year ended December 31, 2013.

The Company files income tax returns in the U.S. Federal jurisdiction and State of Texas.  The 2010 through 2013 tax years generally remain subject to examination by federal and state tax authorities.

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11.Commitments and Contingencies

Legal Proceedings. We are periodically named in legal actions arising from normal business activities. We evaluate the merits of these actions and, if we determine that an unfavorable outcome is probable and can be estimated, we will establish the necessary accruals. We do not anticipate any material losses as a result of commitments and contingent liabilities. We are involved in no material legal proceedings.

Shouyang Production Sharing Contract. We are the operator under the Shouyang PSC to develop the Shouyang Block in Shanxi Province. The term of the Shouyang PSC consists of an exploration period, a development period and a production period. During the exploration period, we hold a 100% participating interest in the properties, and we must bear all exploration costs for discovering and evaluating CBM-bearing areas. We have negotiated and signed multiple amendments with our Chinese partner companies to extend the exploration period under our PSCs. As provided to date, the exploration period of Area A (approximately 15,988 acres or 64.7 square kilometers) of the Shouyang PSC does not expire; while the Exploration Period of Area B (approximately 272,581 acres or 1,103.1 square kilometers) of the Shouyang PSC runs to June 30, 2016.  Pursuant to the provisions of the Fifth Modification Agreement of the Shouyang PSC, the exploration period for Area A will automatically be extended on the original expiration date of June 30, 2015, as we have submitted a report detailing CBM resources to CUCBM that reasonably complies with the Chinese CBM standards.  This report was submitted in connection with the development of an overall development plan and such report was subsequently approved and certifications were received from all requisite levels of the MLR. Additionally we relinquished 121,255 acres (approximately 490.7 square kilometers) known as Area C in June 2013.  We have agreed that we will drill at least 39 additional wells in Area B by June 30, 2016.  The Shouyang PSC expires on July 1, 2032 unless extended.

We operate approximately 288,569 acres (1,167.8 square kilometers) of the Shouyang Block. There is an approximately 15,988 acre (approximately 64.7 square kilometer) portion of the block that has recently been certified by the Chinese Ministry of Land Resources (the "MLR"), which is a step that is a necessary regulatory requirement to obtain a permanent development license. This portion of the block covers our pilot development wells located in the northern portion of the Shouyang Block (the "1H Pilot Area") and a westward extension thereof. We have a 100% participating interest (subject to a net 3.5% revenue interest held by Phillips) in this portion of the block, which contains all of the wells in the 1H Pilot Area (the area of our current CBM sales) and the planned expansion thereof. With respect to the remaining 272,581 acres (1,103.1 square kilometers), CUCBM maintains the right to elect up to a 30% participating interest upon completion of certain milestones, and we retain the remaining participating interest in the contract area, subject to the 3.5% revenue interest.

During the exploration period, FEEB must complete at least the minimum work program and seek commercial deposits of CBM that can be developed in commercially paying quantities. In order to shift from the exploration period to the development period, an overall development plan is prepared and submitted for governmental approval for a long-term development license for a particular CBM field. The preparation of an overall development plan to submit as part of the application for a long-term development license will require certification in accordance with MLR standards, as well as technical, commercial, environmental, health and safety plans demonstrating how the CBM field will be developed for the exploitation of CBM located therein. Currently, we and CUCBM are in the process of jointly preparing an overall development plan for approximately 24,661 acres (99.8 square kilometer) located in the northern portion of the Shouyang Block.

Following expiration of the exploration periods, we may elect to continue the process of trying to convert portions of the Shouyang Block into MLR certified areas in order to transition these areas into the process for a long-term development license. Any acreage that is not at or past the stage of submittal of a technical report that reasonably meets the criteria for MLR certification will be relinquished unless the parties agree otherwise.

The development period as to any portion of the Shouyang Block will begin after the date of commencement of production of commercial grade quantities of CBM with respect to that area. Any CBM produced and sold prior to the approval of an overall development plan is deemed to occur during the development period, and production is to be distributed in accordance with the parties participating interests in such CBM field. Provided we remain in compliance with the requirements under the Shouyang PSC, the Shouyang PSC allows production to continue on a CBM field until the earlier of the end of the useful life of that area or June 30, 2032, unless extended or otherwise amended.

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Under the PSCs, we have committed to satisfy certain annual minimum exploration expenditure requirements for each PSC. Our minimum exploration expenditure requirement for each block is based on the minimum exploration expenditure requirements of CUCBM established by the MLR, subject to such additional commitments as we deem reasonably necessary and appropriate in light of negotiations to extend the underlying exploration periods of the PSCs. The MLR sets its requirements by applying a minimum expenditure per acre to the total acreage encompassed by each PSC. As a result, the minimum exploration expenditure requirement for 2013 and the minimum exploration expenditure under the Shouyang PSC for each yearly period after 2013 are approximately $2.4 million and $1.9 million, respectively, based on the currency exchange rate between the U.S. Dollar to the Chinese Renminbi ("RMB") as of December 31, 2013. Any portion of the exploration expenditures that exceeds the current year's minimum exploration expenditure requirement cannot be carried forward for the satisfaction of the subsequent year's minimum requirement. Under the Shouyang PSC, we are required to pay certain fees totaling $0.5 million for the year of 2013. These fees include assistance fees, training fees, fees for CBM exploration rights and salaries and benefits. We have completed the minimum work obligations under the Shouyang PSC. We have also met the requirement of drilling 25 wells in the non-MLR certified area by June 30, 2013 and spending at least $11.0 million.  On December 6, 2013, we extended the exploration period of the portion of the Shouyang Block identified as Area B until June 30, 2016, and agreed that we will drill at least 39 additional wells in Area B by June 30, 2016.  The aforementioned amounts are based on the currency exchange rate between the U.S. dollar and the RMB on December 31, 2013.

Under the Shouyang PSC, we are required to make the following yearly payments to our Chinese partner companies.  As indicated below, certain amounts may change from year to year.

Annual Payments	Shouyang PSC
Exploration Period
Salary and Benefit
2014	$	327,095
2013		305,169
Exploration Permit Fee		114,968
Training Fee		60,000
Assistance Fee		50,000
Development & Production Period
Signature Fee (1)		150,000
Training Fee		150,000
Assistance Fee		120,000

(1) Due within 30 days after first approval of the ODP following the exploration period.

Qinnan Production Sharing Contract. FEEB is the operator under the Qinnan PSC to develop the Qinnan block in Shanxi Province. CUCBM is in the process of assigning the Qinnan PSC to China National Petroleum Company ("CNPC"). The term of the Qinnan PSC consists of an exploration period, a development period and a production period. During the exploration period, we hold a 100% participating interest in the properties, and we must bear all exploration costs for discovering and evaluating CBM-bearing areas. If any CBM field is discovered, the development costs for that CBM field will be borne by us and CUCBM or CNPC (following the assignment of the Qinnan PSC) in proportion to the respective participating interests. At that time, we will recover that share of the up-front exploration costs allocable to our Chinese partner company through a gradual cost recovery mechanism. The exploration period is divided into three phases called Phase I, Phase II and Phase III. We have completed our Phase I, Phase II and Phase III work program obligations under the Qinnan PSC, and intend to continue pilot development and exploration activities in Phase III until we transition into the development period.

The exploration period of the Qinnan PSC in Shanxi Province expired on June 30, 2009, and we cannot continue our exploration activities in the Qinnan block without an extension of the exploration period or a new PSC. We are continuing to pursue an extension of the exploration period of the Qinnan PSC, but we cannot be optimistic at this

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time. We believe that the underlying exploration period should be extended due to events beyond our reasonable control, namely the lengthy transfer of rights taking place from CUCBM to CNPC. At our Chinese partner company's request, we have provided certain operational and financial information to assist them in the decision making process regarding whether to recognize an extension of the exploration period in Qinnan. PetroChina has completed an accounting audit pursuant to the Qinnan PSC of our expenditures for 2007 and 2008. We have also provided to PetroChina, at their request, our work plan for 2010 for Qinnan. In January 2011, we received a formal notice from CNPC that it has purportedly received all Chinese approvals with respect to the transfer of CUCBM's interest to it, and subsequently to its wholly owned affiliate PetroChina. CNPC also requested we execute a modification agreement to confirm PetroChina as our Chinese partner company for the Qinnan PSC. In negotiations with CUCBM and PetroChina related to this request, we have endeavored to negotiate an assignment agreement that would reflect the transfer of interest to CNPC while CNPC and PetroChina would acknowledge delays that were incurred by virtue of us not having, for an extended period of time, an official Chinese partner company that had the capacity or authority under the Qinnan PSC to work with us. Because of the inability to hold a formal joint management committee ("JMC") meeting or to have the effective involvement of our Chinese partner company, we believe that our efforts to continue CBM operations in the Qinnan block have been materially hindered. Technically, the exploration period under the Qinnan PSC expired on June 30, 2009; however, we have maintained the position that the doctrine of force majeure under the Qinnan PSC entitled us to an extension of the exploration period. We continue to discuss this situation with CUCBM and PetroChina, and as recently as January 2012, have submitted a notice of force majeure in accordance with the Qinnan PSC. There can be no assurance that we will be successful in extending the exploration period of the Qinnan PSC or that a new PSC will be granted. Additionally, in connection with obtaining this extension or a new PSC, we may be required to commit to certain expenditures or to modify the terms or respective ownership interests and/or acreage in the applicable PSC.

Under the Qinnan PSC, we have committed to satisfy certain annual minimum exploration expenditure requirements. As with the Shouyang PSC, our minimum exploration expenditure requirement is based on the minimum exploration expenditure requirements of CNPC established by the MLR. The MLR sets its requirements by applying a minimum expenditure per square kilometer to the total acreage encompassed by each PSC. The annual minimum exploration expenditure requirement under the Qinnan PSC is approximately $3.8 million in the aggregate based on the currency exchange rate between the U.S. Dollar and the RMB as of December 31, 2013. These expenditure requirements are denominated in the RMB and, therefore, are subject to fluctuations in the currency exchange rate between the U.S. Dollar and the RMB. Because the stated expiration date for the exploration period for the Qinnan PSC occurred on June 30, 2009, and we have not yet received an extension, we have halted activities associated with the Qinnan block pending receipt of the requested extension.  Accordingly, we ceased to accrue for the $0.4 million annual fees effective January 1, 2013. We believe the $1.9 million amount accrued is sufficient to cover any obligation related to the fees should the extension be granted.

Yunnan Production Sharing Contract. On January 25, 2002, we entered into a PSC to develop two areas in Yunnan Province: (1) the Enhong area, which covers approximately 145,198 acres (587.6 square kilometers), and (2) the Laochang area, which covers approximately 119,327 acres (482.9 square kilometers)( the "Yunnan PSC"). FEEB is the operator under the Yunnan PSC. The term of the Yunnan PSC consists of an exploration period, a development period and a production period. The exploration period is divided into two phases, Phase I and Phase II. We have completed Phase I and are operating in Phase II. During the fourth quarter of 2011, we signed a modification agreement to the Yunnan PSC, which was approved by MofCom on June 15, 2012 and extended the exploration period until December 31, 2013, in exchange for allowing CUCBM to proceed at its sole risk with a 100% participating interest in the 145,198 acres (587.6 square kilometers) in the Enhong part of the Yunnan PSC contract area (hence, our interest in the Yunnan PSC now comprises the Laochang area only, and is called the Laochang Block). The exploration period expired on December 31, 2013 and was not amended or extended. Following expiration of the exploration period, we had the right to elect to continue the process of trying to convert portions of the Laochang Area into MLR certified areas in order to transition these areas into the process for a long-term development license and the development period for certain areas. Any acreage that was not at or past the stage of submittal of a technical report to CUCBM that reasonably met the criteria for MLR certification would be relinquished unless the parties otherwise agree.  We have been evaluating this acreage with a minimal exploratory drilling program, and while we believe the acreage to have potential, we have chosen to focus our capital and resources upon the high permeability/high gas content acreage in Shouyang.  The Company and CUCBM have begun discussions that will likely result in the relinquishment of all of the Yunnan acreage covered by the PSC.  The Company expects that any such relinquishment of the PSC will be formalized during the second quarter of 2014.

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Under the Yunnan PSC, we have committed to satisfy certain annual minimum exploration expenditure requirements. Our minimum exploration expenditure requirements for the blocks subject to the Yunnan PSC are based our negotiated agreement to extend the Yunnan PSC exploration period. We are currently obligated to drill a total of eight wells during the entire exploration period, as extended, spending at least $0.8 million (4,850,000 RMB) per year based on the current exchange rate between the U.S. Dollar and the RMB as of December 31, 2013. Under applicable MLR rules for minimum expenditure requirements, the annual minimum exploration expenditure requirement for the Yunnan PSC was approximately $1.8 million per year before the modification but reduced to $0.8 million per year with relinquishment of acreage, based on the currency exchange rate between the U.S. Dollar and the RMB as of December 31, 2013. As we had previously drilled five wells in the Laochang region during Phase II of the Yunnan exploration period, we were only obligated to drill an additional three wells before December 31, 2013 to satisfy the minimum work commitment.  To date, these three wells have not been drilled and we do not at this time intend to drill them.  The Company and CUCBM have begun discussions that will likely result in the relinquishment of all of the Yunnan acreage covered by the PSC.  The Company expects that any such relinquishment of the PSC will be formalized during the second quarter of 2014.

These requirements are denominated in RMB and, therefore, are subject to fluctuations in the currency exchange rate between the U.S. Dollar and the RMB. The MLR minimum expenditure requirements are a significant factor that influences our exploration work program. Under the Yunnan PSC, we were required to pay certain fees totaling $0.5 million for the year of 2013. These fees include assistance fees, training fees, fees for CBM exploration rights and salaries and benefits. Based on the Yunnan modification agreement, the unfulfilled exploration work commitment will be added to the minimum exploration work commitment for the following year. If we terminate the Yunnan PSC and there exists an unfulfilled balance of the minimum exploration work commitment, we may be required to pay the balance to CUCBM.

Under the PSCs, we are required to make the following yearly payments to our Chinese partner companies.

Annual Payments	Yunnan PSC
Exploration Period
Salary and Benefit
2014	$	316,245
2013		298,344
Exploration Permit Fee		38,329
Training Fee		45,000
Assistance Fee		45,000
Development & Production Period
Training Fee		80,000
Assistance Fee		80,000

Minimum Commitments.  At December 31, 2013, total minimum commitments from long-term non-cancelable operating leases and other purchase obligations are as follows (in thousands):

	Amount
2014	$	95,286
2015 - 2016		2,969
2017 - 2018		-
2019 and beyond		1,302
Total minimum commitments	$	99,557

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12.  Employee Savings Plan

At December 31, 2013, we maintained a defined contribution plan covering all of our U.S. employees. Employees participating in the plan may select from several investment options. We match the participant's contribution up to a maximum of four percent of the participant's salary. The amounts contributed by the participants and us vest immediately. We expensed $65,000, $74,000, and $68,000 under this plan for 2013, 2012 and 2011, respectively.

13.   Share-Based Compensation

We grant shares of nonvested stock of common stock and options to purchase common stock to employees, members of the board of directors and consultants under our shareholder-approved 2005 Stock Incentive Plan (the "2005 Plan").  Options granted under the 2005 Plan must carry an exercise price equal to or above the market value of the stock at the grant date, and a term of no greater than ten years.  The 2005 Plan provides that, unless otherwise agreed, shares of nonvested stock granted under the 2005 Plan must be forfeited upon termination of service.  We issue new shares when options are exercised or shares are granted.  Our option grants under the 2005 Plan to date have generally utilized these terms: exercise price above or equal to average market price on the date of the grant; vesting periods up to four years from date of grant; term of up to ten years; and forfeiture of unexercised vested options after 60-90 days after termination of employment with the Company.  Our shares of nonvested stock granted under the 2005 Plan to date have utilized vesting periods of up to three years.

Grants prior to the adoption of the 2005 Plan and inducement grants associated with hiring of new employees and appointment of new directors are issued outside of the 2005 Plan.  These grants of options included varying terms, some differing from the above.

During the first half of 2011, we awarded options to purchase up to 1,785,000 shares of our common stock and 1,669,800 nonvested shares under the 2005 Plan to employees and members of the board of directors; and options to purchase up to 250,000 shares of our common stock and 190,000 nonvested shares outside the 2005 Plan to a new employee and a consultant.

At the annual meeting of stockholders of the Company held on October 11, 2011, the Company's stockholders approved an amendment to the 2005 Plan which increased the number of shares of common stock issuable from 12,500,000 shares to 22,000,000 shares and increased the number of shares of common stock that may be granted as restricted stock (nonvested shares), restricted stock units or any other stock-based awards from 3,900,000 to 8,000,000 shares.

During the first six months of 2012, we awarded options to purchase up to 970,000 shares of our common stock and 2,602,500 nonvested shares under the 2005 Plan to employees and members of the board of directors; and options to purchase up to 150,000 shares of our common stock and 105,000 nonvested shares outside the 2005 Plan to a consultant.  We did not award any options to purchase our common stock or any nonvested shares or other full-valued stock-based award during the last half of 2012.

During the first six months of 2013, we awarded options to purchase up to 3,610,000 shares of our common stock and 1,604,000 nonvested shares under the 2005 Plan to employees and members of the board of directors; and options to purchase up to 325,000 shares of our common stock and 110,000 nonvested shares outside the 2005 Plan to consultants.  As of December 31, 2013, we had 8,612,700 shares available for awards under the 2005 Plan, of which 328,533 shares could be issued as nonvested shares or other full-valued stock-based awards.

The following table summarizes share based compensation costs recognized under ASC 718 for 2013, 2012 and 2011 (in thousands):

	2013		2012		2011
General and administrative	$	971	$	900	$	691
Exploration costs		169		152		171
Tax benefit		-		-		-
Total share-based compensation costs, net of tax	$	1,140	$	1,052	$	862

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We utilized certain assumptions in determining the fair value of options using the Black-Scholes option pricing model.  Expected volatility is based upon historical volatility.  The risk-free interest rate is based on observed U.S. Treasury rates at date of grant, appropriate for the expected lives of the options.

Compensation expenses for the stock option grants determined under ASC 718 for 2013 and 2012 were calculated using the Black-Scholes option pricing model with the following assumptions:

	2013			2012
Dividend yield		0	%		0	%
Expected volatility		97	%		89	%
Risk-free interest rate		0.9	%		0.9	%
Expected life of options (years)		6			6
Weighted average fair value per share at grant date	$	0.08		$	0.24

No options were exercised during 2013 or 2012.

The aggregate intrinsic value for options outstanding and options exercisable at December 31, 2013 is $162,000 and $41,000, respectively.  The weighted average remaining life for the outstanding options is 5.7 years.  A summary of options outstanding as of December 31, 2013 is as follows:

		Options Outstanding						Options Exercisable
				Weighted
				Average		Weighted				Weighted
				Remaining		Average				Average
Range		Number		Contractual		Exercise		Number		Exercise
Exercise Prices		Outstanding		Life (Years)		Price		Exercisable		Price
$	0.06 to $0.45		6,146,000		8.22	$	0.17		2,948,083	$	0.29
$	0.46 to $0.70		3,733,166		5.74		0.63		2,671,500		0.65
$	0.71 to $0.99		633,000		3.38		0.82		633,000		0.82
$	1.00 to $1.99		350,000		3.52		1.07		350,000		1.07
$	2.00 to $2.37		2,695,000		0.81		2.01		2,695,000		2.01
			13,557,166		5.71		0.72		9,297,583		0.95

The following table summarizes activity in shares of nonvested stock for 2013 (shares in thousands):

	Nonvested Shares			WeightedAverageFair Value Per Share		Vest Date Fair Value
Outstanding at January 1, 2013		3,949		$	0.40
Granted		1,714			0.10
Vested		(1,898	)		0.34	$	205
Forfeited		(328	)		0.39
Withheld for Taxes		(93	)		0.35
Outstanding at December 31, 2013		3,344		$	0.27

The fair value of restricted stock that vested during the years ended December 31, 2013, 2012, and 2011 was approximately $205,000, $263,000, and $169,000, respectively, based on the closing prices on the dates of vesting.  At December 31, 2013, we had approximately $0.6 million in total unrecognized compensation cost related to share-based compensation, of which $0.4 million was related to shares of nonvested stock grants and was recorded in

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unearned compensation on our consolidated balance sheets.  This cost is expected to be recognized over a weighted average period of 1.5 years at December 31, 2013.

14.  Stockholders' Equity

Common Stock.Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all other directors standing for election. Holders of common stock are entitled to receive proportionately any dividends that may be declared by our board of directors, subject to any preferential rights of outstanding preferred stock. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to receive proportionately any of our assets remaining after the payment of liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights.

Issuances of Common Stock and Warrants and Debt Issuance.  The table below summarizes placements of our shares of common stock and warrants and debt issuance for the three-year period ended December 31, 2013:

	Shares				Proceeds				Warrants
	Common Stock		Warrant		Gross		Net		Amount		Exer. Price			Expiration
2011 (1)		49,196,388		-	$	17,527,500	$	16,696,009		-			-		-
2012 (2)		-		-		-		-		-			-		-
2013 (3)		-		57,586,439		60,000,000		52,008,510		57,586,439		$	0.085	Dec. 2017

(1) In February 2011, Dart Energy exercised its right to exchange a total of $6.8 million in principal amount under the Exchangeable Note (referenced in footnote 2 of this table) for 14,315,789 shares of common stock.  A registered offering was closed in March 2011 for shares of common stock.

(2) The Company did not issue any common stock or warrants during the year ended December 31, 2012.

(3) On January 14, 2013, the Company entered into the Securities Purchase Agreement to issue the Notes and Warrants for $60.0 million of gross proceeds in the Private Placement. The Warrants provide the holders the right to purchase up to 56,086,439 shares of FEEC common stock at an exercise price of $0.085 per share.  The Warrants will expire on December 31, 2017.

Basic and Diluted Shares Outstanding.  Our basic and diluted numbers of shares common stock outstanding in each of the three years presented were the same because we had net losses.  There were (1)13,557,166, 11,148,833, and 10,523,833 options as of December 31, 2013, 2012 and 2011, respectively; and (2)67,161,513, 17,975,074, and 21,994,982 warrants as of December 31, 2013, 2012 and 2011, respectively.

Resale Restrictions.  On December 31, 2013, we had 346,078,509 shares of common stock outstanding, of which 6,156,161 shares, or 1.8%, were subject to resale restrictions.

Preferred Stock.Our board of directors has the authority, without further action by the stockholders, to issue up to 500,000,000 shares of preferred stock in one or more series and to designate the rights, preferences, privileges and restrictions of each series. The issuance of preferred stock could have the effect of restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock or delaying or preventing our change in control without further action by the stockholders. While we have no present plans to issue any shares of preferred stock, the issuance of preferred stock and this right is currently subject to restrictions under our senior secured notes, we may need to do so in the future in connection with capital raising transactions. In addition, we may issue additional shares of common stock in connection with capital raising activities. The issuance of additional common stock would also have a dilutive impact on our stockholders' ownership interest in our company.

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Warrants.The following table summarizes warrant transactions for the years ended December 31, 2013, 2012 and 2011.

	2013			2012			2011
Outstanding at beginning of year		17,975,074			21,994,982			21,994,982
Issued related to current year's share placements		57,586,439			-			-
Exercised		-			-			-
Expired		(8,400,000	)		(4,019,908	)		-
Outstanding at end of year (1)		67,161,513			17,975,074			21,994,982

(1) The same amount of shares of our common stock authorized was reserved for the exercise of the warrants.

Stock Options.In May 2005, our stockholders approved the 2005 Plan, which permits the granting of incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to employees, consultants and members of the board of directors.  Our shareholders voted in December 2007 to add 4,000,000 shares of common stock to the 2005 Plan.  At the annual general meeting of stockholders of the Company held on July 15, 2009, the Company's stockholders approved an amendment to the 2005 Plan which increased the number of shares of common stock issuable from 7,500,000 shares to 12,500,000 shares and increased the number of shares of common stock that may be granted as nonvested stock, nonvested stock units or any other stock-based awards from 2,400,000 to 3,900,000 shares.

During the first half of 2011, we awarded options to purchase up to 1,785,000 shares of our common stock and 1,669,800 nonvested shares under the 2005 Plan to employees and members of the board of directors; and options to purchase up to 250,000 shares of our common stock and 190,000 nonvested shares outside the 2005 Plan to a new employee and a consultant.

At the annual meeting of stockholders of the Company held on October 11, 2011, the Company's stockholders approved an amendment to the 2005 Plan which increased the number of shares of common stock issuable from 12,500,000 shares to 22,000,000 shares and increased the number of shares of common stock that may be granted as restricted stock (nonvested shares), restricted stock units or any other stock-based awards from 3,900,000 to 8,000,000 shares.

During the first six months of 2012, we awarded options to purchase up to 970,000 shares of our common stock and 2,602,500 nonvested shares under the 2005 Plan to employees and members of the board of directors; and options to purchase up to 150,000 shares of our common stock and 105,000 nonvested shares outside the 2005 Plan to a consultant.  We did not award any options to purchase our common stock or any nonvested shares or other full-valued stock-based award during the last half of 2012.

During the first six months of 2013, we awarded options to purchase up to 3,610,000 shares of our common stock and 1,604,000 nonvested shares under the 2005 Plan to employees and members of the board of directors; and options to purchase up to 325,000 shares of our common stock and 110,000 nonvested shares outside the 2005 Plan to consultants.

As of December 31, 2013, we had 8,612,700 shares available for awards under the 2005 Plan, of which 328,533 shares could be issued as nonvested shares or other full-valued stock-based awards.

85

The weighted average remaining life of options exercisable at the end of the year is 4.36 years.  The following table summarizes stock option transactions for the years ended December 31, 2013, 2012 and 2011:

	2013					2012					2011
				Weighted					Weighted					Weighted
	Shares			Average		Shares			Average		Shares			Average
	Underlying			Exercise		Underlying			Exercise		Underlying			Exercise
	Options			Price		Options			Price		Options			Price
Outstanding at beginning of year		11,148,833		$	0.95		10,523,833		$	1.04		9,075,500		$	1.18
Granted		3,935,000			0.10		1,120,000			0.33		2,035,000			0.58
Exercised		-			-		-			-		-			-
Canceled		(168,333	)		0.28		(435,000	)		1.45		(400,000	)		2.28
Forfeited		(58,334	)		0.58		-			-		(186,667	)		0.52
Expired		(1,300,000	)		0.90		(60,000	)		0.65		-			-
Outstanding at end of year		13,557,166			0.72		11,148,833			0.95		10,523,833			1.04
Options exercisable at end of year		9,297,583			0.95		8,788,833			1.08		8,243,500			1.17

15.  Subsequent Events

On March 31, 2014, the Company entered into the Extension Agreement to the Facility Agreement to extend the maturity date of the Facility Agreement from April 15, 2014 to July 15, 2014.  The Extension Agreement contains certain customary representations, warranties, releases and confirmations.

86

SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Oil and Gas Reserve Information (Unaudited)

1. Modernization of Oil and Natural Gas Reporting Requirements

The reserve estimates as of December 31, 2013 presented herein were made in accordance with oil and gas reserve estimation and disclosure authoritative accounting guidance issued by the Financial Accounting Standards Board. This guidance was issued to align the accounting oil and gas reserve estimation and disclosure requirements with the requirements in the SEC’s “Modernization of Oil and Gas Reporting” rule, which was also effective for annual reports for fiscal years ending on or after December 31, 2009.

The above-mentioned rules include updated definitions of proved oil and gas reserves, proved undeveloped oil and gas reserves, oil and gas producing activities, and other terms used in estimating proved oil and gas reserves. Proved oil and gas reserves as of December 31, 2013 were calculated based on the gas price of US$8.89 per Mcf  in accordance with the Gas Sales Agreement and Chinese government subsidies. The US dollar price is based on the contract price received, relevant subsidies and the average of the US dollar-RMB exchange rate on the first day of each month in 2013.  This average price is also used in calculating the aggregate amount and changes in future cash inflows related to the standardized measure of discounted future cash flows. Undrilled locations can be classified as having proved undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time. The authoritative guidance broadened the types of technologies that a company may use to establish reserve estimates and also broadened the definition of oil and gas producing activities to include the extraction of non-traditional resources, including bitumen extracted from oil sands as well as oil and gas extracted from shales.

2. Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities

Costs incurred in the acquisition and development of oil and gas assets are presented below for the years ended December 31, 2013, 2012 and 2011 (in thousands):

	2013		2012		2011
Property acquisition costs:
Proved	$	-	$	-	$	-
Unproved		-		-		-
Exploration		4,968		5,604		5,967
Development costs (1)		14,005		8,253		16,878
Total costs incurred	$	18,973	$	13,857	$	22,845

(1) Includes Asset Retirement Costs of $338,000, $20,000 and $174,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

3.  Capitalized Oil and Gas Costs

Aggregate capitalized costs related to oil and gas production activities with applicable accumulated depreciation, depletion, amortization and impairment are presented below as of December 31, 2013 and 2012 (in thousands):

87

	2013			2012
Capitalized costs:
Proved properties	$	90,613		$	68,747
Unproved properties		14,586			3,403
Less: accumulated depreciation, depletion, amortization and impairment		(3,865	)		(2,221	)
Net capitalized costs	$	101,334		$	69,929

 Unproved properties, which are not subject to amortization, are not significant and consist of lease acquisition costs.

4. Proved Oil and Gas Reserves

An analysis of the change in estimated quantities of oil and gas reserves, all of which are located within China, for the year ended December 31, 2013, is as follows:

	Year Ended December 31, 2013
	Gas (MMcf)			Oil (MBbls)		NGL (MBbls)		Total (MMcfE)
Proved developed and undeveloped reserves, net:
Beginning of year		51,308			-		-		51,308
Revisions of previous estimates		785			-		-		785
Extensions, discoveries and other additions		15,745			-		-		15,745
Divestitures of reserves		-			-		-		-
Purchases of minerals in place		-			-		-		-
Production		(337	)		-		-		(337	)
End of year		67,501			-		-		67,501
Proved developed reserves, net:
Beginning of year		9,739			-		-		9,739
End of year		13,993			-		-		13,993
Proved undeveloped reserves, net:
Beginning of year		41,568			-		-		41,568
End of year		53,507			-		-		53,507

The gas price used is US$8.89 per Mcf in accordance with the Gas Sales Agreement and Chinese Government subsidies. The US dollar price is based on the contract price received, relevant subsidies and the average of the US dollar-RMB exchange rate on the first day of each month in 2013.  As a result of ongoing drilling and completion activities during 2013, the Company reported extensions, discoveries, and other additions of 15,745 MMcf.

At December 31, 2013, our estimated proved undeveloped (PUD) reserves were approximately 53.5 Bcf, a 11.9 Bcf net increase over the previous year's estimate of 41.6 Bcf. The increase is largely due to extensions related to the development of new locations totaling 12.9 Bcf of undeveloped reserves. As of December 31, 2013, 100% of our PUD reserves are less than five years old. The following details the changes in proved undeveloped reserves for 2013 (MMcf):

88

Beginning proved undeveloped reserves, beginning of year	41,568
Undeveloped reserves transferred to develpoed	(4,939	)
Revisions	4,000
Purchases	-
Divestitures	-
Extensions and discoveries	12,878
Ending proved undeveloped reserves, end of year	53,507

A variety of technologies were used to estimate the proved reserves. The principal methodologies employed are decline curve analysis, numerical and analytical material balance models that have been historically matched to producing wells, analysis of coal thickness, density and depth from drilling and wire line log evaluation, echometer and down hole pressure sensors to estimate the reservoir pressure from water levels in pumping wells, gas content measurements from desorption and adsorption tests performed on core samples of coal taken from wells drilled in the field, permeability estimates from transient well test analysis carried out on wells drilled in the field and analogue performance from wells within the field. Seismic data use was limited to identifying structural trends and regional dips, but was not used to predict the presence, continuity or thickness of the reservoir.

5.  Standardized Measure of Discounted Future Net Cash Flows

The standardized measure of discounted future net cash flows does not purport to be, nor should it be interpreted to present, the fair value of the oil and natural gas reserves of the property. An estimate of fair value would take into account, among other things, the recovery of reserves not presently classified as proved, the value of unproved properties, and consideration of expected future economic and operating conditions.

The estimates of future cash flows and future production and development costs as of December 31, 2013 are based on the average price received and US dollar-RMB exchange rate on the first day of each month in 2013. Estimated future production of proved reserves and estimated future production and development costs of proved reserves are based on current costs and economic conditions. Future income tax expenses are computed using the appropriate year-end statutory tax rates applied to the future pretax net cash flows from proved oil and natural gas reserves, less the tax basis of the Company. All wellhead prices are held flat over the forecast period for all reserve categories. The estimated future net cash flows are then discounted at a rate of 10%.

It is not intended that the FASB’s standardized measure of discounted future net cash flows represent the fair market value of the Company’s proved reserves. The Company cautions that the disclosures shown are based on estimates of proved reserve quantities and future production schedules which are inherently imprecise and subject to revision, and the 10% discount rate is arbitrary. In addition, costs and prices as of the measurement date are used in the determinations, and no value may be assigned to probable or possible reserves. Estimates of economically recoverable oil and natural gas reserves and of future net revenues are based upon a number of variable factors and assumptions, all of which are to some degree subjective and may vary considerably from actual results. Therefore, actual production, revenues, development and operating expenditures may not occur as estimated. The reserve data are estimates only, are subject to many uncertainties and are based on data gained from production histories and on assumptions as to geologic formations and other matters. Actual quantities of oil and natural gas may differ materially from the amounts estimated.

89

The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves is as follows at December 31, 2013 (in thousands):

	2013			2012			2011
Future cash inflows	$	633,400		$	348,900		$	351,862
Future production costs		(169,520	)		(117,240	)		(114,868	)
Future development costs		(120,330	)		(98,870	)		(76,844	)
Future income tax expenses		(40,186	)		-			(10,024	)
Future net cash flows		303,364			132,790			150,126
10% discount for estimated timing of cash flows		(151,544	)		(92,390	)		(87,562	)
Standardized measure of discounted future net cash flows	$	151,820		$	40,400		$	62,564

Standardized measure of discounted future net cash flows,   beginning of year	$	40,400		$	62,564		$	-
Changes in the year resulting from:
Sales, less production costs		4,317			3,910			3,295
Revisions of previous quantity estimates		1,945			(3,496	)		-
Extensions, discoveries and other additions		55,241			-			65,407
Net change in prices and production costs		66,852			(13,788	)		-
Changes in estimated future development costs		(16,594	)		(19,641	)		-
Previously estimated development costs incurred during the period		15,973			-			-
Purchases of minerals in place		-			-			-
Accretion of discount		4,040			6,541			-
Divestiture of Reserves		-			-			-
Net change in income taxes		(15,510	)		2,843			(2,843	)
Timing differences and other		(4,844	)		1,467			(3,295	)
Standardized measure of discounted future net cash flows, end of year	$	151,820		$	40,400		$	62,564

90

SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Quarterly Financial Information (In Thousands, Except Per Share Data):

	Quarter Ended
	March 31			June 30			September 30			December 31			Year
2013
Revenues	$	433		$	268		$	400		$	485		$	1,586
Total expenses		5,863			5,193			5,583			6,376			23,015
Net loss		(8,167	)		(8,044	)		(8,414	)		(9,385	)		(34,010	)
Basic and diluted
- Earnings per share	$	(0.02	)	$	(0.02	)	$	(0.02	)	$	(0.04	)	$	(0.10	)
- Weighted average shares outstanding		345,835			346,204			346,079			346,079			346,050
2012
Revenues	$	297		$	352		$	505		$	490		$	1,644
Total expenses		6,214			5,725			6,710			5,408			24,057
Net loss		(7,038	)		(6,483	)		(7,463	)		(6,176	)		(27,160	)
Basic and diluted
- Earnings per share	$	(0.02	)	$	(0.02	)	$	(0.02	)	$	(0.02	)	$	(0.08	)
- Weighted average shares outstanding		343,972			344,641			344,786			344,786			344,547

91

SCHEDULE II

FAR EAST ENERGY CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

For Years Ended December 31, 2013, 2012 and 2011

(In thousands)

			Additions		Additions
	Balance at		Charged to		Charged				Balance at
	Beginning		Cost and		to Other				End
Description	of Period		Expense		Accounts		Deductions		of Period
2013 deferred tax valuation allowance	$	9,071	$	1,706	$	-	$	-	$	10,777
2012 deferred tax valuation allowance		7,859		1,212		-		-		9,071
2011 deferred tax valuation allowance		5,013		2,846		-		-		7,859

92

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Management's Report on Internal Control over Financial Reporting

Management's report on internal control over financial reporting as of December 31, 2013 is included on page 61 of this report. Additionally, our independent registered public accounting firm, JonesBaggett LLP, that audited our consolidated financial statements included in this report, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2013, which is included on page 63 of this report.

Changes in Internal Controls

In connection with the evaluation described above, our management, including our Chief Executive Officer and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2013, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

On March 31, 2014, the Company and FEEB entered into the Extension Agreement to the Facility Agreement (the “Extension Agreement”) to, among other things, extend the maturity date of the Facility Agreement from April 15, 2014 to July 15, 2014.  The Extension Agreement contains certain customary representations, warranties, releases and confirmations. 

The foregoing description of the Extension Agreement does not purport to be complete and is qualified in its entirety by reference to the Extension Agreement attached hereto as Exhibit 10.79 and to the Facility Agreement attached as Exhibit 10.1 to the Form 8-K filed on December 2, 2011, the first amendment thereto attached as Exhibit 10.1 to the Form 8-K filed on May 25, 2012, the second amendment thereto attached as Exhibit 10.1 to the Form 8-K filed on November 28, 2012, the third amendment thereto attached as Exhibit 10.1 to the Form 8-K filed on December 20, 2012, the fourth amendment thereto attached as Exhibit 10.3 to the Form 8-K filed on January 18, 2013, the fifth amendment thereto attached as Exhibit 10.4 to the Form 8-K filed on January 18, 2013, and the sixth amendment thereto attached as Exhibit 10.1 to the Form 8-K filed on December 31, 2013, which are each incorporated by reference herein.

93

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANC

Information regarding Section 16(a) compliance, the Audit Committee, background of the directors and director nominations appearing under the captions “Section 16(a) Beneficial Ownership Reporting Compliance,” “Audit Committee,” and “Executive Officers and Directors” in the Company’s Proxy Statement for the 2013 annual meeting of stockholders is hereby incorporated by reference.

Information regarding executive officers is included in Part I of this Form 10-K under the caption “Executive Officers of the Company.”  In February 2014, Lucian L. Morrison, one of the Company’s directors, Chairman of the Company’s Compensation Committee and a member of the Company’s audit committee, passed away.

Code of Ethics

We have adopted a code of ethics entitled “Code of Business Conduct,” which applies to all of our employees, including our chief executive officer and chief financial officer.  The full text of our Code of Business Conduct is published on our website, at www.fareastenergy.com, under the “About FEEC” caption.  We intend to disclose future amendments to, or waivers from, certain provisions of this code on our website within four business days following the date of such amendment or waiver.  Information contained on the website is not part of this report.

ITEM 11. EXECUTIVE COMPENSATION

Information appearing under the captions “Compensation Committee Interlocks and Insider Participation,” “Report of the Compensation Committee” (which is deemed furnished), “Compensation Discussion and Analysis” and “Compensation Tables and Additional Information” in the 2013 Proxy Statement is hereby incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information setting forth the security ownership of certain beneficial owners and management appearing under the caption “Security Ownership” in the 2013 Proxy Statement is hereby incorporated by reference.

Equity Compensation Plan Information

The following table provides information regarding the equity compensation plans as of December 31, 2013.

94

Equity Compensation Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans(excluding securities reflected in column (a)) (c)
Plans approved by security holders		9,949,166	$	0.48		8,612,700
Plans not approved by security holders
- Inducement awards (1)		968,000		0.67		-
- Investor Relations Consultant		600,000		0.57		-
- IRS 409A related grants (2)		300,000		2.09		-
- Prior to adoption of the 2005 Plan (3)		1,740,000		2.00		-
Total		13,557,166		0.72		8,612,700

(1) We awarded as inducement grants options to purchase shares of common stock to new board members and new employees outside the 2005 Plan. The grants carried a term of ten years.

(2) We granted options to purchase shares of common stock in December 2007 which were replacements for options cancelled due to potential adverse tax consequences to the holders of the cancelled options under Section 409A of the Internal Revenue Code.  The cancelled options had been granted prior to adoption of the 2005 Plan.  The replacement stock options have a five year term, and exercise price of $2.09 per share.

(3) We granted options to purchase shares of common stock prior to the adoption of the 2005 Plan, which are evidenced by individual stock option agreements.  The options were granted to officers, directors and consultants and have a ten year term and an exercise price of $2.00 per share.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information regarding certain related person transactions appearing under the caption “Review of Related Person Transactions” and information regarding director independence appearing under the caption “Board independence” in the 2013 Proxy Statement is hereby incorporated by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding our principal accounting fees and services appearing under the captions “Independent Registered Public Accounting Firm Fee Information” and “Pre-Approval Policies and Procedures” in the 2013 Proxy Statement is hereby incorporated by reference.

95

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)The following documents are filed as part of this report:

1. Financial Statements.

Our consolidated financial statements are included in Part II, Item 8 of this report:

	Page
Report of Independent Registered Public Accounting Firm	62
Consolidated Balance Sheets	64
Consolidated Statements of Operations and Comprehensive Loss	65
Consolidated Statements of Stockholders' Equity	66
Consolidated Statements of Cash Flows	67
Notes to the Consolidated Financial Statements	68

2.Financial statement schedules and supplementary information required to be submitted.

Schedule II — Valuation and qualifying accounts. 92

Schedules other than that listed above are omitted because they are not applicable.

3. Exhibits

A list of the exhibits filed or furnished with this report on Form 10-K (or incorporated by reference to exhibits previously filed or furnished by us) is provided in the Exhibit Index beginning on page 98 of this report. Those exhibits incorporated by reference herein are indicated as such by the information supplied in the parenthetical thereafter. Otherwise, the exhibits are filed herewith.

96

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31, 2014.

FAR EAST ENERGY CORPORATION
By:	/s/ Michael R. McElwrath
	Michael R. McElwrath
	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant and in the capacities with Far East Energy Corporation indicated and on March 31, 2014.

	Signature	Title	Date
	/s/ Michael R. McElwrath	Chief Executive Officer,	March 31, 2014
	(Michael R. McElwrath)	President and Director (Principal Executive Officer)
	/s/  Jennifer D. Whitley	Chief Financial Officer	March 31, 2014
	(Jennifer D. Whitley)	(Principal Financial Officer and Principal Accounting Officer)
	*  Donald A. Juckett	Chairman of the Board	March 31, 2014
	(Donald A. Juckett)
	*  William A. Anderson	Director	March 31, 2014
	(William A. Anderson)
	*  C. P. Chiang	Director	March 31, 2014
	(C. P. Chiang)
	* Thomas E. Williams	Director	March 31, 2014
	(Thomas E. Williams)
	*  John C. Mihm	Director	March 31, 2014
	(John C. Mihm)
*	By:   /s/   Jennifer D. Whitley		March 31, 2014
	(Jennifer D. Whitley)
	(Attorney-in-fact for persons indicated)

97

INDEX OF EXHIBITS

Exhibit Number	Description
3.1	Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).
3.2	Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 17, 2005 (SEC File No. 000-32455)).
4.1	Articles of Incorporation of the Company, as amended (included as Exhibit 3.1).
4.2	Amended and Restated Bylaws of the Company (included as Exhibit 3.2).
4.3	Specimen stock certificate (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).
4.4	Form of Warrant (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 27, 2007 (SEC File No. 000-32455)).
4.5	Warrant Agreement, dated August 27, 2007, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on August 27, 2007 (SEC File No. 000-32455)).
4.6	Form of Warrant (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on May 30, 2008 (SEC File No. 000-32455)).
4.7	Warrant Agreement, dated May 30, 2008, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on May 30, 2008 (SEC File No. 000-32455)).
4.8	Warrant Agreement between the Company and Continental Stock Transfer & Trust Company (including the form of warrant) (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on December 22, 2009 (SEC File No. 000-32455)).
4.9	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on March 9, 2010 (SEC File No. 000-32455)).
4.10	Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 9, 2010 (SEC File No. 000-32455)).
4.11	Indenture, dated January 15, 2013, among Far East Energy (Bermuda), Ltd., the Company and Wells Fargo Bank, National Association, as trustee (including form of note) (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).
4.12	Warrant Agreement, dated January 15, 2013, between the Company and Continental Stock Transfer and Trust Company, as warrant agent (including form of warrant) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).
4.13	Securities Purchase Agreement, dated January 14, 2013, among Far East Energy (Bermuda), Ltd., the Company and the purchasers set forth therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).
4.15	Warrant Agreement, dated May 15, 2013 but effective as of January 15, 2013, between Far East Energy Corporation and Continental Stock Transfer and Trust Company, as warrant agent (including form of warrant) (incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed on August 7, 2013 (SEC File No. 000-32455)).
4.16	Registration Rights Agreement, dated May 15, 2013 but effective as of January 15, 2013, between Far East Energy Corporation and Knight Capital Americas, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed on August 7, 2013 (SEC File No. 000-32455)).
10.1*	Amended and Restated Employment Agreement, dated December 23, 2004, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 28, 2004 (SEC File No. 000-32455)).

98

10.2*	First Amendment to Amended and Restated Employment Agreement, dated April 16, 2007, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed on April 19, 2007 (SEC File No. 000-32455)).
10.3*	Second Amendment to Amended and Restated Employment Agreement, dated November 26, 2007, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 27, 2007 (SEC File No. 000-32455)).
10.4*	Third Amendment to Amended and Restated Employment Agreement, dated March 7, 2008, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on March 13, 2008 (SEC File No. 000-32455)).
10.5*	Fourth Amendment to Amended and Restated Employment Agreement, dated December 19, 2008, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.72 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).
10.6*	Fifth Amendment to Amended and Restated Employment Agreement, dated May 18, 2009, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 18, 2009 (SEC File No. 000-32455)).
10.7*	Sixth Amendment to Amended and Restated Employment Agreement, dated December 7, 2010, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 13, 2010 (SEC File No. 000-32455)).
10.8*	Amended and Restated Employment Agreement, dated October 10, 2011, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 13, 2011 (SEC File No. 000-32455)).
10.9*	First Amendment to Amended and Restated Employment Agreement, dated May 24, 2012, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 25, 2012 (SEC File No. 000-32455)).
10.10*	Amended and Restated Employment Agreement, dated June 9, 2010, between the Company and Bruce N. Huff (incorporated by reference to Exhibit 10.75 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 filed on August 8, 2010 (SEC File No. 000-32455)).
10.11*	Amendment to the Amended and Restated Employment Agreement, dated January 27, 2012, between the Company and Bruce N. Huff (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 31, 2012 (SEC File No. 000-32455)).
10.12*	Far East Energy Corporation 2005 Stock Incentive Plan (incorporated by reference to Appendix A to the Company's Proxy Statement on Schedule 14A filed on September 9, 2011 (SEC File No. 000-32455)).
10.13*	Amended and Restated Nonqualified Stock Option Agreement, dated December 23, 2004, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on December 28, 2004 (SEC File No. 000-32455)).
10.14*	Amended and Restated Nonqualified Stock Option Agreement, dated December 23, 2004, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on December 28, 2004 (SEC File No. 000-32455)).
10.15*	Nonqualified Stock Option Agreement, dated December 23, 2004, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K filed on December 28, 2004 (SEC File No. 000-32455)).
10.16*	Second Amended and Restated Nonqualified Stock Option Agreement, dated December 27, 2007, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)). The original option agreement was entered into on January 29, 2002.

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10.17*	Second Amended and Restated Nonqualified Stock Option Agreement, dated December 27, 2007, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.65 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)). The original option agreement was entered into on October 13, 2003.
10.18*	First Amendment to Non-Qualified Stock Option Agreement, dated December 19, 2008, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.63 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).
10.19*	Second Amended and Restated Nonqualified Stock Option Agreement, dated January 14, 2009, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).
10.20*	Amended and Restated Nonqualified Stock Option Agreement, dated January 14, 2009, between the Company and Don Juckett (incorporated by reference to Exhibit 10.68 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).
10.21*	Stock Option Agreement, dated May 24, 2004, between the Company and John C. Mihm (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).
10.22*	Stock Option Agreement, dated February 24, 2004, between the Company and Thomas Williams (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).
10.23*	Amended and Restated Nonqualified Stock Option Agreement, dated December 27, 2007, between the Company and Thomas Williams (incorporated by reference to Exhibit 10.61 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)).
10.24*	Second Amended and Restated Nonqualified Stock Option Agreement, dated January 14, 2009, between the Company and Thomas Williams (incorporated by reference to Exhibit 10.65 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).
10.25*	Third Amended and Restated Nonqualified Stock Option Agreement, dated January 14, 2009, between the Company and Thomas Williams (incorporated by reference to Exhibit 10.66 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).
10.26*	Non-Qualified Stock Option Agreement, dated October 1, 2007, between the Company and William A. Anderson (incorporated by reference to Exhibit 10.52 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed on November 7, 2007 (SEC File No. 000-32455)).
10.27*	Non-Qualified Stock Option Agreement, dated January 9, 2008, between the Company and Lucian L. Morrison (incorporated by reference to Exhibit 10.58 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)).
10.28*	Form of Non-Qualified Stock Option Agreement for Far East Energy Corporation 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.73 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 30, 2009 (SEC File No. 000-32455)).
10.29*	Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.54 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)).
10.30*	Form of Incentive Stock Option Agreement for Far East Energy Corporation 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 19, 2007 (SEC File No. 000-32455)).
10.31*	Restricted Stock Agreement, dated December 27, 2007, between the Company and Michael R. McElwrath (incorporated by reference to Exhibit 10.55 to the Company's Annual Report on

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	Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)).
10.32*	Restricted Stock Agreement, dated December 27, 2007, between the Company and Thomas E. Williams (incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 13, 2008 (SEC File No. 000-32455)).
10.33*	Form of Restricted Stock Agreement for Far East Energy Corporation 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 23, 2007 (SEC File No. 000-32455)).
10.34*	Form of Restricted Stock Agreement (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 (File No. 333-148363) filed on December 27, 2007.
10.35*	Form of Letter Agreement with the Company's non-employee directors (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on April 19, 2007 (SEC File No. 000-32455)).
10.36	Production Sharing Contract for Exploitation of Coalbed Methane Resources in Enhong and Laochang, Yunnan Province, the People's Republic of China, dated January 25, 2002, between China United Coalbed Methane Corp. Ltd. and the Company (incorporated by reference to Exhibit 2(i) to the Company's Current Report on Form 8-K filed on February 11, 2002 (SEC File No. 000-32455)).
10.37	Modification Agreement for Product Sharing Contract for Exploitation of Coalbed Methane Resources in Enhong and Laochang, Yunnan Province, the People's Republic of China, dated October 20, 2005, between China United Coalbed Methane Corporation Ltd. and the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 26, 2005 (SEC File No. 000-32455)).
10.38	Modification Agreement dated April 24, 2007 for Production Sharing Contract for Exploitation of Coalbed Methane Resources for the Enhong and Laochang Area in Yunnan Province, the People's Republic of China, dated December 3, 2002, between China United Coalbed Methane Corporation Ltd. and Far East Energy (Bermuda), Ltd. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on April 27, 2007 (SEC File No. 000-32455)).
10.39	Modification Agreement for Production Sharing Contract for Exploitation of Coalbed Methane Resources in Enhong and Laochang Area, Yunnan Province, The People's Republic of China (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 27, 2009 (SEC File No. 000-32455)).
10.40	Production Sharing Contract for Exploitation of Coalbed Methane Resources for the Qinnan Area in Shanxi Province, Qinshui Basin, the People's Republic of China, dated April 16, 2002, between China United Coalbed Methane Corporation Ltd. and the Phillips China Inc. (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K filed on March 15, 2005 (SEC File No. 000-32455)).
10.41	Application for the Extension of Phase Two of the Exploration Period under the Qinnan PSC, dated December 2, 2005, between the Company and China United Coalbed Methane Corporation Ltd. (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 2005 filed on March 14, 2006 (SEC File No. 000-32455)).
10.42	Application for the Extension of Phase Two of the Exploration Period under the Qinnan PSC, dated March 16, 2006, between the Company and China United Coalbed Methane Corporation Ltd. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 17, 2006 (SEC File No. 000-32455)).
10.43	Approval Certificate from the Ministry of Foreign Trade and Economic Cooperation dated December 30, 2002 (incorporated by reference to Exhibit 2(i) to the Company's Current Report on Form 8-K filed on January 13, 2003 (SEC File No. 000-32455)).
10.44	Memorandum of Understanding, dated March 18, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.1 to the Company's Amendment No. 1 to its Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003 filed on December 24, 2003 (SEC File No. 000-32455)).

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10.45	Farmout Agreement Qinnan PSC, dated June 17, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.2 to the Company's Amendment No. 1 to its Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003 filed on December 24, 2003 (SEC File No. 000-32455)).
10.46	First Amendment to Farmout Agreement Qinnan PSC, dated December 15, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).
10.47	Second Amendment to Farmout Agreement Qinnan PSC, dated December 17, 2004, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.01 to the Company's Current Report on Form 8-K filed on December 23, 2004 (SEC File No. 000-32455)).
10.48	Third Amendment to Farmout Agreement Qinnan PSC, dated December 19, 2005, between ConocoPhillips China Inc. and the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 21, 2005 (SEC File No. 000-32455)).
10.49	Assignment Agreement Qinnan PSC, dated June 17, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.4 to the Company's Amendment No. 1 to its Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003 filed on December 24, 2003 (SEC File No. 000-32455)).
10.50	Modification Agreement, dated April 24, 2007, for Production Sharing Contract for Exploitation of Coalbed Methane Resources for the Qinnan Area in Shanxi Province, Qinshui Basin, the People's Republic of China, dated April 16, 2002, by and among China United Coalbed Methane Corporation Ltd., ConocoPhillips China Inc. and Far East Energy (Bermuda), Ltd. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 27, 2007 (SEC File No. 000-32455)).
10.51	Farmout Agreement Shouyang PSC, dated June 17, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.3 to the Company's Amendment No. 1 to its Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003 filed on December 24, 2003 (SEC File No. 000-32455)).
10.52	First Amendment to Farmout Agreement Shouyang PSC, dated December 15, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005 (SEC File No. 000-32455)).
10.53	Second Amendment to Farmout Agreement Shouyang PSC, dated December 17, 2004, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.02 to the Company's Current Report on Form 8-K filed on December 23, 2004 (SEC File No. 000-32455)).
10.54	Third Amendment to Farmout Agreement Shouyang PSC, dated December 19, 2005, between ConocoPhillips China Inc. and the Company (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 21, 2005 (SEC File No. 000-32455)).
10.55	Assignment Agreement Shouyang PSC, dated June 17, 2003, between Phillips China Inc. and the Company (incorporated by reference to Exhibit 10.5 to the Company's Amendment No. 1 to its Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2003 filed on December 24, 2003 (SEC File No. 000-32455)).
10.56	Application for the Extension of Phase Two of the Exploration Period under the Shouyang PSC, dated December 2, 2005, between the Company and China United Coalbed Methane Corporation Ltd. (incorporated by reference to Exhibit 10.46 to Company's Annual Report on Form 10-K for the year ended December 31, 2005 filed on March 14, 2006 and incorporated herein by a reference).
10.57	Application for the Extension of Phase Two of the Exploration Period under the Shouyang PSC, dated March 16, 2006, between the Company and China United Coalbed Methane Corporation Ltd. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 17, 2006 (SEC File No. 000-32455)).
10.58	Modification Agreement, dated April 24, 2007, for Production Sharing Contract for

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	Exploitation of Coalbed Methane Resources for the Shouyang Area in Shanxi Province, Qinshui Basin, the People's Republic of China, dated April 16, 2002, by and among China United Coalbed Methane Corporation Ltd., ConocoPhillips China Inc. and Far East Energy (Bermuda), Ltd. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 27, 2007 (SEC File No. 000-32455)).
10.59	Modification Agreement for Production Sharing Contract for Exploitation of Coalbed Methane Resources for the Shouyang Area in Shanxi Province, Qinshui Basin, The People's Republic of China (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 27, 2009 (SEC File No. 000-32455)).
10.60	English translation of Shouyang Project Coalbed Methane Purchase and Sales Contract, dated June 12, 2010, between China United Coalbed Methane Corporation, Ltd. and Shanxi Province Guoxin Energy Development Group Limited with Far East Energy (Bermuda), Ltd. as an express third party beneficiary (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 16, 2010 (SEC File No. 000-32455)).
10.61	English translation of Letter agreement, dated June 12, 2010, between Far East Energy (Bermuda), Ltd. and China United Coalbed Methane Corporation, Ltd. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on June 16, 2010 (SEC File No. 000-32455)).
10.62	Letter, dated June 11, 2010, from Far East Energy (Bermuda), Ltd. to China United Coalbed Methane Corporation, Ltd. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on June 16, 2010 (SEC File No. 000-32455)).
10.63	Stock Subscription Agreement, dated August 24, 2007, between the Company and International Finance Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 27, 2007 (SEC File No. 000-32455)).
10.64	Stock Subscription Agreement, dated June 2, 2008, between the Company and International Finance Corporation (incorporated by reference to Exhibit 10.64 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed on August 6, 2008 (SEC File No. 000-32455)).
10.65	Securities Purchase Agreement, dated March 13, 2009, among the Company, Far East Energy (Bermuda), Ltd., and Arrow Energy International Pte Ltd. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 16, 2009 (SEC File No. 000-32455)).
10.66	Placement Agency Agreement, dated August 20, 2010, between the Company and Macquarie Capital (USA), Inc. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 20, 2010 (SEC File No. 000-32455)).
10.67	Facility Agreement, dated November 28, 2011, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 2, 2011 (SEC File No. 000-32455)).
10.68	Amendment Letter to the Facility Agreement dated May 21, 2012, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 7, 2012 (SEC File No. 000-32455)).
10.69	Second Amendment to the Facility Agreement, dated November 28, 2012, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 28, 2012 (SEC File No. 000-32455)).
10.70	Third Amendment to the Facility Agreement, dated December 18, 2012, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2012 (SEC File No. 000-32455)).
10.71	Fourth Amendment to the Facility Agreement, dated as of January 8, 2013, among Far East Energy (Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).
10.72	Fifth Amendment to the Facility Agreement, dated January 15, 2013, among Far East Energy

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	(Bermuda), Ltd., the Company and Standard Chartered Bank (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on January 18, 2013 (SEC File No. 000-32455)).
10.73	Modification Agreement for Production Sharing Contract for Exploitation of Coalbed Methane Resources in Enhong and Laochang Area, Yunnan Province, The People’s Republic of China, dated December 31, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 21, 2012 (SEC File No. 000-32455)).
10.74	Fifth Modification Agreement for Production Sharing Contract for the Exploitation of Coalbed Methane Resources for the Shouyang Area in Shanxi Province, Qinshui Basin, The People’s Republic of China, dated April 26, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 11, 2012 (SEC File No. 000-32455)).
10.75	Amended and Restated Employment Agreement dated May 20, 2013 between Far East Energy Corporation and Jennifer D. Whitley (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 24, 2013, and incorporated herein by reference).
10.76	Second Amendment to Amended and Restated Employment Agreement, dated September 9, 2013, between Far East Energy Corporation and Michael R. McElwrath (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 10, 2013, and incorporated herein by reference).
10.77	First Amendment to Amended and Restated Employment Agreement, dated September 9, 2013, between Far East Energy Corporation and Jennifer D. Whitley (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 10, 2013, and incorporated herein by reference).
10.78	Sixth Amendment to the Facility Agreement, dated December 31, 2013, among Far East Energy (Bermuda), Ltd., Far East Energy Corporation and Standard Chartered Bank (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 31, 2013, and incorporated herein by reference).
10.79†	Extension Agreement to the Facility Agreement, dated March 31, 2014, among Far East Energy (Bermuda), Ltd., Far East Energy Corporation and Standard Chartered Bank.
21.1†	List of Subsidiaries of the Company.
23.1†	Consent of JonesBaggett LLP.
23.2†	Consent of Resource Investment Strategy Consultants.
24.1†	Powers of Attorney.
31.1†	Certification of Chief Executive Officer of the Company under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2†	Certification of Chief Financial Officer of the Company under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1††	Certification of Chief Executive Officer of the Company Pursuant to 18 U.S.C. Sec. 1350.
32.2††	Certification of Chief Financial Officer of the Company Pursuant to 18 U.S.C. Sec. 1350.
99.1†	Shouyang US SEC Reserves Report, dated as March 14, 2014, prepared by Resources Investment Strategy Consultants.
101.INS	XBRL Instant Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

* Management contract or compensatory plan or arrangement.

† Filed herewith

††    Furnished herewith

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