Benton Oil Seeking Cash to Pump Into Drilling Projects : Energy: The Oxnard-based company has run into difficulties raising money. Some investors are skeptical of the firm’s plans.

Has the well run dry for Benton Oil & Gas Co.?

In its four-year history, Oxnard-based Benton has become better known for its money-raising talents than for finding oil. Since its $3.2-million initial public offering in 1988, Benton has raised another $22 million through a patchwork of debt and equity issues--not bad for a concern that earned just $306,000 on $8.36 million in revenue in its latest nine-month period. Benton also had a $15-million working capital deficit as of Sept. 30, and the amount of oil and gas actually produced by Benton has so far been puny.

The collapse of a proposed public offering of 3 million shares of Benton stock in December might be an ominous sign for the company. Benton had hoped to raise about $35 million in that offering. However, PaineWebber, the underwriter for the offering, pulled out when softening oil prices scared institutional investors away from energy stocks.

Instead Benton raised just $5 million by selling on its own 600,000 shares at $9.625 each.

Chairman Alex Benton said the company, which had $3.9 million in cash on hand as of Sept. 30, needs to raise another $10 million this year to continue servicing its debt and to pay for the projects it has on the table. The most significant of those projects include a fledgling joint venture with Texaco to drill oil in old fields off the coast of Louisiana and a recently announced deal to produce oil and natural gas in the western Siberian region of Russia.

Benton said that if the company can’t raise the money, the worst-case scenario is that he’d have to take in a partner to help pay for the big projects. He said several larger oil and gas concerns have expressed interest in such a deal.

But judging by the short-selling activity in Benton’s stock recently, many investors are betting that Benton will run out of cash first. One short seller, who declined to be identified, said he’s convinced that Benton is headed for bankruptcy. “The guy who runs the company jets all over the world making deals, but he spends money faster than he can raise it,” he said.

In a short sale, an investor borrows stock, sells it and hopes that the price will fall so he can buy it back and pocket the difference before returning the stock to its original owner. As of Jan. 15, the number of Benton’s shares that have been sold short and not yet repurchased increased 14% from the prior month, to more than 12 times its average daily trading volume.

Short sellers aren’t the only ones who are skeptical of Benton’s grand plans. “The idea that the potential is huge is not hard to believe,” said analyst Lorraine Maxfield at Paulson Capital Corp. in Portland, Ore. “The hard part is making it happen, turning it into money instead of just an idea.”

Still, Benton has its share of believers. The company’s stock, which closed Monday at $9.75 per share, gives it a total market value of more than $100 million. Benton contends that the company’s stock is not overpriced relative to the oil that it has in the ground--and that, he says, is what investors are banking on.

“The ability to finance ourselves is a genuine concern that someone has to examine before they buy our stock,” Benton said. “But we’ve done everything we said we were going to do and we don’t see any reason why we would fail now.”

Some Benton supporters, such as Charles M. Strain, a Houston oil and gas industry consultant, say they’re confident that Benton will come through. “As an engineer, I see very little risk in the normal sense that you get in a small oil company,” Strain said.

Benton, a geophysicist who started Benton Oil in 1988 after stints at Amoco and the now-defunct May Petroleum, acknowledged that his company gets “a lot of notoriety.” But he said he intends to prove his critics wrong. To keep the company going in the short term, Benton plans to fall back on his old routine of rounding up private investors through his well-established brokerage contacts. A convertible debt issue is a likely next move, followed by other small debt offerings, he said.

But that still raises the problem of Benton’s cash flow, said Robert E. Gillon, an analyst at John S. Herold Inc., a Greenwich, Conn., petroleum industry research and consulting firm. A debt offering “is fine,” Gillon said, “but it means they have to grow their cash flow to meet their debt requirements.”

Gillon, who advised clients to avoid Benton’s recent stock offering because he believes that the stock is overvalued by about 30%, sees a warning flag in recent sales of Benton stock by several company insiders--including Alex Benton. He also says the large projects that Benton is banking on involve big risks.

One possible problem is that Benton’s venture with Texaco in the West Cote Blanche Bay field in shallow water just off Louisiana’s coast--where drilling has just gotten started but is already Benton’s major source of revenue--is in an area that has been tapped by large oil companies for more than 40 years. Benton argues that there are still significant reserves remaining, and that new technology has made it feasible to go back and extract oil from harder-to-reach pockets.

While no one doubts that the reserves are there, Gillon said, the project has very high operating costs. If oil prices remain lodged at their current level of about $19 a barrel, he said, “I’m not sure Texaco will go ahead with an aggressive drilling program.”

Another concern is that Texaco’s leases on the West Cote Blanche Bay field are the subject of a lawsuit with Louisiana, which disputes Texaco’s calculation of royalties owed to the state under the lease agreement. A ruling against Texaco could result in the cancellation of its leases.

Benton said he expects Texaco and Louisiana to settle. If they don’t, he said, Benton is negotiating with the state for an agreement that would allow it to continue operating the field. Still, Benton’s detractors argue that any new terms with the state would likely mean higher costs for Benton.

Also seen as potentially problematic is the Russian venture.

In December, Benton received approval from the Russian republic for its joint venture with two oil exploration and production entities within the ministries that regulate natural resources. Benton owns 34% of the venture, and under the agreement, the company will be paid in oil or hard currency.

Again, most industry observers agree that the Russian venture holds great promise. The former Soviet Union was the world’s largest oil producer, and Russia is now eager to boost its oil exports to help ease its financial crisis. Many U.S. oil companies, including Chevron, Texaco and Exxon, have been scrambling to make deals to produce oil in Russia and its neighboring republics.

The harsh, subarctic Siberian region where Benton’s field is located is known to hold enormous reserves of oil and natural gas; Benton’s field alone is thought to have well in excess of 100 million barrels of oil. But while “geologically the potential is wonderful,” analyst Gillon said, he fears that political unrest in the region could undermine Benton’s plans. “The worry would be whether they get paid for the oil,” he said.

Alex Benton sought to downplay the political risk, arguing that oil production would be a priority for whomever is in power. Though other Western companies have encountered difficulties doing business in the former Soviet Union, he said, Russian officials have helped this project sail through the bureaucratic process. He expects production to begin by year-end.

Benton also has some oil and gas operations in Oklahoma, Texas, Mississippi, Colorado and California, and is one of about 80 companies that are submitting bids to Venezuela next month to reactivate some of that country’s older oil fields.

But even Benton admits that the company’s investors have bought into a great deal of risk. That’s just part of the business, he said. “We take risks here all the time. It’s not our style to do low-risk, low-reserve kind of projects.”