FEEC is a Texas-based holding company incorporated in the State of Nevada in 2002. Its sole focus is CBM exploration in China. The company's common stock trades on the Over-the-Counter Bulletin Board (OTC) with approximately 124.8 million shares outstanding as of June 30, 2007, and it has a market capitalization of $187 million. FEEC’s shareholder base is largely institutional shareholders, including the Martin Currie China Fund (9%), Sofaer Capital Group (7%), Heartland Fund (6%), and Goldman Sachs (3%). Management and Directors own 7%, assuming exercise of outstanding options.

FEEC has raised $69 million to date and is seeking to raise up to $26 million from IFC to fund its exploration program and completion of feasibility study and SEIA documentation.

15.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	15.0

* These investment figures are indicative

The project will initially focus on the two CBM blocks in the Shanxi Province, the Shouyang and Qinnan blocks. These blocks are strategically located between two major interstate gas pipelines: Shouyang (1,963 km2) is approximately 30 km south of the Shanjiang II Pipeline that serves Beijing and its surrounding market areas, and Qinnan (2,316 km2) is approximately 20km north of the West-East Pipeline that serves Shanghai.

China recently overtook the United States as the world's biggest producer of carbon dioxide. The environmental and associated health impacts of a principally coal fired economy are of increasing concern, and development of local natural gas resources, including CBM, can be part of the solution to alleviate these problems. Compared to coal-fired electricity, natural gas use produces virtually no emissions of sulfur dioxide, mercury or particulate matter, 80% less NOx, and approximately 50 percent less CO2. Increasing the use of natural gas helps reduce acid rain, smog, regional haze, and their associated health impacts, including asthma attacks, cardiac problems and upper and lower respiratory ailments. China is the world’s second largest consumer of oil after the U.S. and the third largest net importer of oil after the U.S. and Japan. The development of a local energy source can help alleviate concerns of energy security. Furthermore, the government will reap benefits from fiscal revenues, royalties, and taxes. The government of China is taking measures to diversify its energy supply, with the aim of increasing the proportion of clean energy in the mix. China’s natural gas usage is projected to increase from the current 3.2% of the nation’s energy mix to 8.0% by 2020. In order to meet this target, CBM & CMM development and utilization has been identified as a priority in China’s 11th 5-Year Development Plan. China has considerable potential for CBM development, but as yet projects are mainly at the exploration stage and there is limited commercial production. There are several barriers to overcome to move projects from the exploration to development and production stage, including access to advanced technology and equipment, technical expertise, necessary market access and downstream infrastructure for CBM sales, and project financing of a frontier sector in the country. Development benefits at the gas production stage include environmental and associated health benefits from cleaner energy, increased energy security from local energy source, employment, and fiscal revenues (royalties, taxes, and government ownership interests in CBM production). - Fit with World Bank Group Strategy Within the broad framework of the World Bank Group’s operational strategy in China as outlined in the FY06-10 CAS, IFC’s strategic priorities include: - improving the business environment and strengthening regulatory capacity; - expanding access to markets; - upgrading corporate practices; - expanding access to finance and financial sector development; - enhancing environmental sustainability and energy efficiency; and - promoting private participation in infrastructure. IFC’s value proposition in China is to be the preferred financial partner for companies seeking to adopt international standards in governance, environmental and social practices. The project is consistent with IFC and World Bank Group strategy for China as it supports private sector investment in one of the poor interior provinces of China and in a sector which has the potential to contribute significantly to addressing China’s energy and environmental problems. World Bank has been actively supporting development of China’s natural gas market through: - promotion of the country's energy switch from coal to gas and the use of cleaner coal technologies; and - providing technical assistance to the Shanxi government for CBM utilization projects. IFC is also committed to actively support development of overall natural gas market in China, including current support of the expansion of local distribution infrastructure and expected support for future gas-fired power plants.

FEEC is in the process of transitioning from the exploration to development stage, and IFC support at this critical time is expected to involve following levels of support: - guidance on community engagement and strategic advice on FEEC’s environmental and social management program; - early stage equity support, and longer term potential project financing; - potential financing of associated downstream infrastructure, including connecting pipelines, CNG, and LNG infrastructure; and - potential political risk mitigation. IFC been actively involved in the carbon credit market of the Clean Development Mechanism of the Kyoto Protocol, and it will also provide guidance to FEEC to develop a long term strategy to leverage potential carbon finance opportunities.

This is a category B project according to IFC’s procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.

The key environmental and social issues and impacts from the proposed project include acquisition of land use rights, well dewatering, groundwater quality, and employee and community environment, health and safety.

IFC’s environmental and social appraisal for the project consisted of document reviews, company interviews, visits to the project sites, and meetings with local governmental agencies and communities impacted by the project. Specific information about how potential environmental and social impacts will be addressed by FEEC is summarized in the Environmental and Social Review Summary (ESRS) for the project. An environmental and social action plan has also been agreed with the company to address all of the issues identified during appraisal. The action plan is attached to the ESRS.

As noted above, the expected development impacts of the project include environmental and health benefits associated with the use of cleaner energy, increased energy security from local energy source, employment, and fiscal revenues. It is judged that the governance risks to these benefits are relatively low. Therefore, this is a project that IFC should support. In addition, the sponsor has agreed to publicly disclose all payments made to the Chinese government.