Sam Fletcher
OGJ Online
HOUSTON, Feb. 28 -- In what was described as "a turnaround move" for the debt-loaded firm, Benton Oil & Gas Co., Houston, said Thursday it agreed to sell its 68% interest in Russian-based Arctic Gas Co. to a nominee of Yukos Oil Co. for $190 million.
Benton also will receive an additional $30 million as repayment of intercompany loans owed to the company by Arctic Gas, a natural gas project located in the prolific Urengoi gas province of Western Siberia. The sale is expected to generate net proceeds of $150 million after expenses, taxes, and settlement of related claims, officials said.
Benton plans to use those proceeds to retire all of the $108 million outstanding 11 5/8% senior notes that otherwise would come due in May 2003. That move alone "eliminates a substantial interest burden and removes a near-term concern about the company's liquidity," said Benton President and CEO Peter J. Hill in a telephone conference with financial analysts late Thursday. It also "will allow us to fulfill our earlier commitment to restore our balance sheet strength by reducing our debt-to-capitalization ratio from over 90% to the 45% range," he said.
Growth opportunities
Additional proceeds and cash received from repayment of loans will be used to reduce debt further from time to time, accelerate strategic growth of other operations in Venezuela and Russia, and for general corporate purposes, said Hill.
"It puts us on a platform for growth, a platform for opportunities," he told analysts. "We're going to stay close to home in areas that we know well, Venezuela and Russia." Those are Benton's primary areas of operation. The company is not active in the US.
"We believe the South Monagas unit in Venezuela and Geoilbent in Russia have substantial remaining oil reserves and significant production and cash flow growth potential. Both properties also have large known natural gas resources, which can be developed," said Hill. "We believe our longstanding experience in these two countries will allow us to participate in additional quality opportunities as a preferred partner."
Benton owns a 34% interest in Geoilbent, a joint venture with Purneftegasgeologia and Purneftegas, two local Russian oil companies. In July 1992, Benton and Vinccler, a Venezuelan construction and engineering company, signed a 20-year operating service agreement with an affiliate of Petroleos de Venezuela, SA to reactivate and further develop the South Monagas unit in eastern Venezuela.
Arctic Gas sale
The Arctic Gas sale is expected to close within 30 days, conditioned upon final consents from the Russian Ministry for Antimonopoly Policy and Support for Entrepreneurship.
"This transaction demonstrates the validity of our business strategy, which supports steady investment, prudent risk management, and timely harvest of large resources of hydrocarbons for attractive value. The sale of our interest in Arctic Gas also demonstrates the underlying value of the properties in the Benton portfolio, which, to date, has been largely unrecognized by the financial markets due to our heavy debt load," said Hill.
He called it "a landmark transaction," that "demonstrates that value can be delivered to western investors in the Russian upstream sector and that capable, independent Russian energy companies are willing to invest in the acceleration of large, low cost resources of oil and gas in their own country."
Contact Sam Fletcher at [email protected]