IFC to invest in Chinese coalbed methane project

World Bank division International Finance Corp. has agreed to invest $15 million to help a Houston overseas producer develop coalbed methane resources in China.

Nick Snow
Washington Correspondent

WASHINGTON, DC, Aug. 29 -- World Bank division International Finance Corp. has agreed to invest $15 million to help a Houston overseas producer develop coalbed methane resources in China. Far East Energy Corp. will use the money to help fund exploration and development of more than 5,000 sq km of deposits in the Shanxi and Yunnan provinces, IFC said on Aug. 28.

Far East Energy has sold 11,485,452 shares of common stock at $1.306/share to IFC for $15 million. The company also issued warrants to IFC to purchase another 4,019,980 common shares at a $2.61/share exercise price. It may redeem the warrants if its common stock trades for $3.92/share or more for 15 or more consecutive trading days. Far East Energy will not pay any finder fees or commissions in connection with the offering.

"Given China's significant coalbed methane resources, this investment has the potential to help the country meet its growing energy needs by using domestic resources in an environmentally conscious manner," said Somit Varma, IFC's director for oil, gas, mining, and chemicals (OGJ, Sept. 18, 2006, p. 30).

He noted that Far East Energy is the third-largest concession holder of CBM deposits in China, which is estimated to have the world's third-largest CBM resource. The company will develop its concession with its local joint venture partner, state-owned China United Coalbed Methane Co. Ltd., Varma said.

Michael R. McElwrath, Far East Energy's president and chief executive, said in Houston that the investment was IFC's first in coalbed methane in China. The financing will allow the company to accelerate its drilling program and act on findings of Netherland, Sewell, & Associates earlier this summer that its No. 15 coal seam "has high permeability on the order of 100 md, gas content on the high end of CBM fields, and indications of a potential gas profile of 1-2 MMcfd from horizontal wells," he said.

IFC said its position as an equity investor in Far East Energy gives the financing organization a chance to help the developers establish best practices in local community engagement and a long-term strategy to leverage potential carbon finance opportunities under the Kyoto Protocol, the United Nations' framework, which aims to reduce greenhouse gas emissions. IFC also plans to provide guidance on environmental standards.

Far East Energy said it also will use the money to complete a feasibility study and social and environmental impact assessments. The company has been working in China for more than 3 years (OGJ, Sept. 6, 2004, p. 24). IFC said it also is considering participating in the project's long-term financing when it moves to commercial development.

Contact Nick Snow at nsnow@cox.net.

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