Description

Benton Oil is a highly profitable microcap oil exploration, exploitation and development corporation. Headquartered in Houston Texas, and with significant operations in Venezeuala and the Soviet Union, Benton offers investors a current opportunity to participate in the mid term recovery of oil prices based upon an economic rebound. More importantly, Benton offers significant near term capital growth potential due to rapid growth in oil revenues and a significantly improved balance sheet.

At present, Benton Oil has total proven oil reserves in excess of 130 million barrels. With a total of 34 million shares outstanding, the market price of the shares value the company for less than $.65 per proven barrel of oil reserves. This is the lowest price of any oil company that I follow.
Benton Oil also uses the highly conservative full cost method of accounting.

Benton Oil has operations in two countries.

Venezuela. Benton generates in excess of 29,000 bopd of heavy oil from the South Monogas unit. This unit holds proven reserves of approximately 98 million barrels.

Russia. Benton owns 34% of Geoilbent, a mid sized producer of oil in Siberia. Net to Benton, Geoilbent is presently producing approximately 6,000 bopd. This unit holds proven reserves of approximately 40 million bopd.

Oil production from these assets are forecast by Benton to grow by approximately 20% in 2002. Further asset growth is forecast beyond 2002.

The balance sheet was quite leveraged until very recently. At the end of the 3rd quarter of 2002, Benton had book value assets of $309 million. Net debts amounted to $279.5 million. This left shareholders equity (net of minority interests) of $15.9 million or $.46 per share.

Effective February 28th, 2002, Benton has announced the sale of a Russian oil subsidiary, Arctic Gas to Yukos Oil. This investment was held on the books of Benton with a cost of $29.5 million. The net proceeds will be $190 million. In addition, Benton will also receive the repayment of a $30 million loan extended to Arctic Gas.

The proceeds will be used to retire high coupon debts maturing in 2003, and to also retire a portion of their remaining debts due in 2007. This elimination of high interest debt will add $.47 per share to Benton's net profits in 2002.

Arctic Gas was approximately the same size in terms of proven assets as Benton's net 34% interest in Geoilbent. Benton has invested a total of $28 million in Geoilbent as of Setember 20th, 2001.

I estimate that Benton Oil has earned approximately $.40 per share in 2001 before extraordinary items. Cash flow is estimated at $1.35 per share.

After taking into account the accretive sale of assets, and assuming that oil sells for an average of $20 U.S. per barrel in 2002, Benton Oil should generate net earnings in excess of $.80 per share. Cash flow is estimated to exceed $1.80 per share in 2002.

Catalyst

The elimination of $150 million in high cost debt from a minority asset sale with a book value of $29.5 million will add more than $.47 per share per year to annual earnings. issue. This prices Benton at less than 4 times estimated 2002 earnings, and less than 2 times estimated 2002 cash flow.