Far East Energy in Takeover Talks With Oil Majors, CEO Says

Far East Energy Corp., the explorer cited by short-seller Carson Block in his criticism of Standard Chartered Plc’s loan quality, has had talks with several global oil companies for a possible takeover or a stake sale.

Discussions are in the early stages, Chief Executive Officer Michael McElwrath said, without disclosing financial details or a timeline. The Houston-based company, which explores for coal-bed methane in China’s Shanxi province, will drill 70 wells this year, bringing its total to about 135, he said. The company plans to drill 400 wells next year, he said.

“Our project and the high permeability we found belongs in the portfolio of a major,” McElwrath said in an interview in Hong Kong. “If it wasn’t this good, they wouldn’t touch it.”

Large-scale commercial shale gas production in China is at least a decade away and, in the interim, coal-bed methane will be a bridge fuel that helps China increase gas usage and get away from coal, McElwrath said. More than 10 percent of domestic Chinese natural gas could come from coal-bed methane projects, he said.

Far East Energy used the $30 million it borrowed from Standard Chartered to drill wells, McElwrath said. Block, who runs Muddy Waters LLC, said at a May 10 conference in Las Vegas loans to Far East Energy and to Samin Tan, chairman of Bumi Plc, were “red flags.”

Far East Energy declined to respond to Block’s comments.