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                                                                   EXHIBIT 10.12

                           FAR EAST ENERGY CORPORATION
                             STOCK OPTION AGREEMENT

     THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into as
of this 18th day of May, 2004, by and between Far East Energy Corporation, a
Nevada corporation (the "Company"), and Thomas Cavanagh ("Optionee").

                                   Background

     The Company desires to grant Optionee an option to purchase shares of
common stock of the Company in exchange for Optionee becoming a member of the
Company's Board of Directors, which appointment and acceptance was ratified by
the Board on May 18, 2004.

                                    Agreement

     NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, and intending to be legally bound, it
is agreed as follows:

     1. Non-Qualified Stock Option to Purchase Shares.

          (a) Number of Option Shares and Option Price.  The Company hereby
          grants to the Optionee a non-qualified stock option (the "Option"), to
          purchase the following number of shares of the Company's common stock,
          par value $0.001 per share (the "Option Shares"):

               (i) 400,000 shares of common stock, with an exercise price of
               $2.00 per share ("Option Price").

          (b) Exercise Period.  The Option shall be exercisable, in whole or in
          part, subject to the vesting schedule and other terms set forth in
          this Agreement, until May 12, 2009 (the "Exercise Period").

          (c) Vesting Schedule.  The Option to purchase shares granted hereby
          shall vest in four (4) equal allotments as follows:

               (i) Twenty-five percent (25%) of the Option Shares shall be
               exercisable on May 18, 2004;

               (ii) Twenty-five percent (25%) of the Option Shares shall be
               exercisable on May 18, 2005;

               (iii) Twenty-five percent (25%) of the Option Shares shall be
               exercisable on May 18, 2006; and

               (iv) Twenty-five percent (25%) of the Option Shares shall be
               exercisable on May 18, 2007.

     2. Manner of Exercise and Terms of Payment.  The Option may be exercised in
     whole or in part, subject to the limitations set forth in this Agreement,
     upon delivery to the Company of timely written notice of exercise,
     accompanied by full payment of the Option Price for the Option Shares with
     respect to which the Option is exercised. The Option Price may be paid by
     delivering a certified check or wire transfer of immediately available
     funds to the order of the Company. The person entitled to the shares so
     purchased shall be treated for all purposes as the holder of such shares as
     of the close of business on the date of exercise and certificates for the
     shares of stock so purchased shall be delivered to the person so entitled
     within a reasonable time, not exceeding thirty (30) days, after such
     exercise. Unless this Option has expired, a new Option of like tenor and
     for such number of shares as the holder of this Option shall direct,
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     representing in the aggregate the right to purchase a number of shares with
     respect to which this Option shall not have been exercised, shall also be
     issued to the holder of this Option within such time.

     3. Rights as Stockholder.  Optionee or a permitted transferee of the Option
     shall have no rights as a stockholder of the Company with respect to any
     shares of common stock subject to such Option prior to his or her exercise
     of the Option.

     4. Adjustment of Purchase Price and Number of Shares.  The number and kind
     of securities purchasable upon the exercise of this Option and the Option
     Price shall be subject to adjustment from time to time, as provided in
     Schedule A attached hereto.

     5. Investment Representation.

          (a) Optionee represents and warrants to the Company that Optionee is
          acquiring this Option and the Option Shares for Optionee's own account
          for the purpose of investment and not with a view toward resale or
          other distribution thereof in violation of the Securities Act of 1933,
          as amended ("1933 Act"). Optionee acknowledges that the effect of the
          representations and warranties is that the economic risk of any
          investment in the Option and Option Shares must be borne by the
          Optionee for an indefinite period of time. This representation and
          warranty shall be deemed to be a continuing representation and
          warranty and shall be in full force and effect upon such exercise of
          the Option granted hereby.

          (b) Optionee understands that, as this Option has not been registered
          under the 1933 Act, the Company has affixed a restrictive legend
          stating that the Option is not registered under the 1933 Act and state
          securities laws and setting forth or referring to the restriction on
          transferability and sale thereof imposed by the 1933 Act or any
          applicable state securities law, and that the holder thereof agrees to
          be bound by such restrictive legend.

          (c) Optionee understands that, prior to such time as the Option Shares
          have been registered under the1933 Act, the Company shall place a
          legend on each certificate for the Option Shares issued pursuant
          hereto, or any certificate issued in exchange therefore, stating that
          such securities are not registered under the 1933 Act and state
          securities laws and setting forth or referring to the restriction on
          transferability and sale thereof imposed by the 1933 Act or any
          applicable state securities law, and that the holder thereof agrees to
          be bound by such restrictive legend.

     6. Exercisability.  The Option shall be exercisable only by Optionee,
     subject to the terms herein, during his lifetime or by his assigns, heirs,
     executors or administrators, as the case may be. The Option granted
     hereunder and the Option Shares underlying the Option may only be assigned
     in compliance with Section 7 herein and applicable securities laws. In the
     event Optionee leaves the employment of the Company, all unvested Options
     shall expire within thirty (30) days following such termination of
     employment.

     7. Non-Transferability.

          (a) Optionee shall not sell, transfer, assign, pledge for a loan,
          margin, hypothecate or exchange the Option or the Option Shares,
          except pursuant to the laws of descent, for a period of two (2) years
          from the date of grant.

          (b) Optionee recognizes that the Option Shares received pursuant to
          this Agreement will be subject to various restrictions on sale and/or
          transfer, including but not limited to, the restrictions imposed by
          Rule 144 under the 1933 Act. Notwithstanding any rights that Optionee
          may possess under the 1933 Act and any applicable state securities
          laws, Optionee hereby agrees that he or she shall not be entitled, and
          the Company shall be under no obligation, to remove the resale
          restriction from this Option. Optionee additionally agrees that the
          Company is under no obligation to remove the resale restriction from
          any number of Option Shares exceeding ten percent (10%) of
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          the average weekly trading volume in the Company's securities during
          the ninety (90) days preceding the intended sale.

     8. Miscellaneous.

          (a) Termination of Other Agreements.  This Agreement sets forth the
          entire understanding of the parties hereto with respect to the Option
          and Option Shares, and supercedes all prior arrangements or
          understandings among the parties regarding such matters.

          (b) Notices.  Any notices required hereunder shall be deemed to be
          given upon the earlier of the date when received at, or (i) the third
          business day after the date when sent by certified or registered mail,
          (ii) the next business day after the date sent by guaranteed overnight
          courier, or (iii) the date sent by telecopier or delivered by hand, in
          each case, to the addresses set forth below:

          If to the Company:    Far East Energy Corporation
                                400 N. Sam Houston Parkway East
                                Suite 205
                                Houston, TX 77060
                                Attention: Michael R. McElwrath

          With copies to:       Woltjen Law Firm
                                4144 N. Central Expwy., Suite 410
                                Dallas, Texas 75204
                                Attn: Kevin S. Woltjen

          If to the Optionee:   Thomas Cavanagh
                                801 Merrill Street
                                Houston, Texas 77009

          or to such other addresses as the parties may specify in writing.

          (c) Amendments and Waivers.  The provisions of this Agreement may be
          amended or terminated unless in a writing signed by the Optionee and
          the Company.

          (d) Binding Effect.  This Agreement will bind and inure to the benefit
          of the respective successors (including any successor resulting from a
          merger or similar reorganization), assigns, heirs, and personal
          representatives of the parties hereto.

          (e) Governing Law.  This Agreement shall be governed by and construed
          and enforced in accordance with the laws of the State of Texas. Venue
          shall lie only in the State and Federal Courts in and for the County
          of Harris, Texas as to all disputes arising under this Agreement, and
          such venue is hereby consented to by the parties hereto.

          (f) Counterparts.  This Agreement may be executed in any number of
          counterparts, each of which shall be considered to be an original
          instrument and to be effective as of the date first written above.
          Each such copy shall be deemed an original, and it shall not be
          necessary in making proof of this Agreement to produce or account for
          more than one such counterpart.

          (g) Interpretation.  Unless the context of this Agreement clearly
          requires otherwise, (a) references to the plural include the singular,
          the singular the plural, the part the whole, (b) references to one
          gender include all genders, (c) "or" has the inclusive meaning
          frequently identified with the phrase "and/or" and (d) "including" has
          the inclusive meaning frequently identified with the phrase "but not
          limited to." The section and other headings contained in this
          Agreement are for reference purposes only and shall not control or
          affect the construction of the Agreement or the interpretation thereof
          in any respect.
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     IN WITNESS WHEREOF, the undersigned have executed, or have caused this
Agreement to be executed, as of the day and year first above written.

FAR EAST ENERGY CORPORATION             OPTIONEE


/s/ Michael R. McElwrath                /s/ Thomas Cavanagh
-------------------------------------   ----------------------------------------
Michael R. McElwrath                    Thomas Cavanagh
Chief Executive Officer
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                                   SCHEDULE A

Adjustment of Purchase Price and Number of Shares

     1. Adjustment.  The number and kind of securities purchasable upon the
exercise of this Option and the Option Price shall be subject to adjustment from
time to time upon the happening of certain events as follows:

     (a) Reclassification, Consolidation or Merger.  At any time while this
     Option remains outstanding and unexpired, in case of (i) any
     reclassification or change of outstanding securities issuable upon exercise
     of this Option (other than a change in par value, or from par value to no
     par value per share, or from no par value per share to par value or as a
     result of a subdivision or combination of outstanding securities issuable
     upon the exercise of this Option), (ii) any consolidation or merger of the
     Company with or into another corporation (other than a merger with another
     corporation in which the Company is a continuing corporation and which does
     not result in any reclassification or change, other than a change in par
     value, or from par value to no par value per share, or from no par value
     per share to par value, or as a result of a subdivision or combination of
     outstanding securities issuable upon the exercise of this Option), or (iii)
     any sale or transfer to another corporation of the property of the Company
     as an entirety or substantially as an entirety, the Company, or such
     successor or purchasing corporation, as the case may be, shall without
     payment of any additional consideration therefor, execute a new Option
     providing that the holder of this Option shall have the right to exercise
     such new Option (upon terms not less favorable to the holder than those
     then applicable to this Option) and to receive upon such exercise, in lieu
     of each share of Common Stock theretofore issuable upon exercise of this
     Option, the kind and amount of shares of stock, other securities, money or
     property receivable upon such reclassification, change, consolidation,
     merger, sale or transfer. Such new Option shall provide for adjustments
     which shall be as nearly equivalent as may be practicable to the
     adjustments provided for in this Section 1 of Schedule A. The provisions of
     this subsection 1(a) shall similarly apply to successive reclassifications,
     changes, consolidations, mergers, sales and transfers.

     (b) Subdivision or Combination of Shares.  If the Company at any time while
     this Option remains outstanding and unexpired, shall subdivide or combine
     its Capital Stock, the Option Price shall be proportionately reduced, in
     case of subdivision of such shares, as of the effective date of such
     subdivision, or, if the Company shall take a record of holders of its
     Capital Stock for the purpose of so subdividing, as of such record date,
     whichever is earlier, or shall be proportionately increased, in the case of
     combination of such shares, as of the effective date of such combination,
     or, if the Company shall take a record of holders of its Capital Stock for
     the purpose of so combining, as of such record date, whichever is earlier.

     (c) Stock Dividends.  If the Company at any time while this Option is
     outstanding and unexpired shall pay a dividend in shares of, or make other
     distribution of shares of, its Capital Stock, then the Option Price shall
     be adjusted, as of the date the Company shall take a record of the holders
     of its Capital Stock for the purpose of receiving such dividend or other
     distribution (or if no such record is taken, as at the date of such payment
     or other distribution), to that price determined by multiplying the Option
     Price in effect immediately prior to such payment or other distribution by
     a fraction (a) the numerator of which shall be the total number of shares
     of Capital Stock outstanding immediately prior to such dividend or
     distribution, and (b) the denominator of which shall be the total number of
     shares of Capital Stock outstanding immediately after such dividend or
     distribution. The provisions of this subsection 1(c) shall not apply under
     any of the circumstances for which an adjustment is provided in subsection
     1(a) or 1(b).

     (d) Liquidating Dividends, Etc.  If the Company at any time while this
     Option is outstanding and unexpired makes a distribution of its assets to
     the holders of its Capital Stock as a dividend in liquidation or by way of
     return of capital or other than as a dividend payable out of earnings or
     surplus legally available for dividends under applicable law or any
     distribution to such holders made in respect of the sale of all or
     substantially all of the Company's assets (other than under the
     circumstances provided for in the foregoing subsections (a) through (c)),
     the holder of this Option shall be entitled to receive upon the exercise
     hereof, in addition to the shares of Common Stock receivable upon such
     exercise, and without payment of any consideration other than the Option
     Price, an amount in cash equal to the value of such distribution per share
     of Common Stock multiplied by the number of shares of Common Stock which,
     on the record date
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     for such distribution, are issuable upon exercise of this Option (with no
     further adjustment being made following any event which causes a subsequent
     adjustment in the number of shares of Common Stock issuable upon the
     exercise hereof), and an appropriate provision therefor should be made a
     part of any such distribution. The value of a distribution which is paid in
     other than cash shall be determined in good faith by the Board of
     Directors.

     2. Notice of Adjustments.  Whenever any of the Option Price or the number
of shares of Common Stock purchasable under the terms of this Option at that
Option Price shall be adjusted pursuant to Section 1 hereof, the Company shall
promptly make a certificate signed by its President or a Vice President and by
its Treasurer or Assistant Treasurer or its Secretary or Assistant Secretary,
setting forth in reasonable detail the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Company's Board of Directors
made any determination hereunder), and the Option Price and number of shares of
Common Stock purchasable at that Option Price after giving effect to such
adjustment, and shall promptly cause copies of such certificate to be mailed (by
first class and postage prepaid) to the registered holder of this Option.
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                               NOTICE OF EXERCISE

                   (To be signed only upon exercise of Option)

TO: Far East Energy Corporation

The undersigned, the owner of Option to purchase ___________ shares of Common
Stock of Far East Energy Corporation, a Nevada corporation ("Far East"), hereby
irrevocably elects to exercise such Option and herewith pays for the shares by
giving Far East a personal check or wire transfer in the amount of the Option
Price as specified in the Option. The undersigned requests that the certificates
for such shares be delivered to them according to instructions indicated below.

DATED this ___ day of _____________ 200__.


                                             By:
                                                 _______________________________

                                                 _______________________________

Instructions for delivery:

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

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