Facility Agreement

12 Months Ended

Dec. 31, 2011

Facility Agreement [Abstract]

Facility Agreement

3. 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 would be 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 has an initial 9-month term ending August 28, 2012, which may be extended by three months upon satisfaction of certain other conditions. The Company made an initial draw of $17.9 million in anticipation of the first half 2012 operations and to pay finance costs and related expenses, and additional draws may be made under the Agreement in amounts specified from time to time. Loans under the Facility Agreement will bear interest at LIBOR plus a 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. At December 31, 2011, the total amount drawn under the Facility Agreement was $17.9 million and the related accrued interest was $0.2 million. 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 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. Pursuant to the terms of the Facility Agreement, in the event we fail to receive approval from the MofCom of the 2011 Shouyang PSC Modification Agreement (defined below), we may not be able to draw down the full amount of available funds otherwise available under the Facility Agreement. The failure to receive such notice on or before May 31, 2012 will constitute an event of default under the Facility Agreement. Upon notice of an event of default under the Facility Agreement, SCB would have the right to accelerate all amounts outstanding under the Facility Agreement. Since December 31, 2011, a draw of $2.1 million has been made under the Facility Agreement.

     The Company incurred approximately $1.6 million in financing costs in connection with entering into the Facility Agreement. The costs related to the Facility Agreement were capitalized as deferred financing costs and amortized over the term of the Facility Agreement. The effective interest rate for the Facility Agreement is 23.2% per annum. Amortization expense for the year ended December 31, 2011 was $181,000.