Benton in LoI with Schlumberger to develop South Monagas in Venezuela

Nov 10, 1999 01:00 AM

Benton Oil and Gas Company announced that it has entered into a letter of intent with Schlumberger to form a long term incentive-based alliance to further develop the South Monagas Unit, the Company's main oil producing asset located in eastern Venezuela. Upon signing of formal agreements later this quarter, the alliance partners will begin the infill drilling and operations optimisation programs, with the goal of achieving increasing production rates over the next 2-3 years.
Helmerich & Payne has been selected as the exclusive drilling contractor for the development program, and will be aligned with Schlumberger with respect to incentives. The Company also announced that it has concluded its engagement with J.P. Morgan to evaluate the Company's strategic options and alternatives.

As announced in February 1999, the Company retained J.P. Morgan Securities Inc. to act as its exclusive financial advisor to assist it in initiating, evaluating and negotiating potential shareholder value maximising transactions. The strategic alternatives evaluation process resulted in discussions with a number of industry, service, and financial entities, and consideration of many possible alternatives, including the potential for asset or corporate level transactions.

The decision to enter into an alliance with Schlumberger will allow the Company to benefit from Schlumberger's advanced reservoir technology, its 70 years of experience in Venezuela and its access to world-wide best practices, while benefiting from mutually favourable commercial terms. The terms of the alliance include the integration of Schlumberger's technical experts into the Company's organisation.
Meanwhile, the Company has already realised positive benefits from increases in oil prices, with per barrel realisations in Venezuela increasing by over 50 % since the first quarter of 1999. Importantly, production at the South Monagas Unit has stabilised at approximately 25,000 BPD for the past several months, despite the fact that no new wells have been drilled in 1999 and capital programs have been significantly curtailed for the past 12 months. The capital spending curtailments were the direct result of the drop in oil prices that began in mid-1998.

The oil production at Geoilbent, the Company's 34 % owned joint venture in West Siberia, averaged 13,300 BPD in October, up from 11,400 in the third quarter, and four rigs are currently drilling new wells. The project is currently enjoying the best operating margins in its history due to higher oil prices combined with low operating expenses, which are in turn caused in large part by the continuing weakness of the ruble.
The project has been financed through its EBRD-led credit facility and internally generated cash flow since 1997. The Company believes that Geoilbent will deliver steadily increasing oil production for the next several years, while requiring no additional capital contributions from its shareholders.

The favourable oil development climate has also impacted the Company's majority-owned Arctic Gas Company, a Russian entity which controls vast reserves of natural gas, condensate, and oil in an area adjacent to the giant Urengoy field. Arctic Gas is initiating a small program involving oil production from existing wellbores, which if successful has substantial expansion potential. Additionally, the Company is seeking financing arrangements that would allow it to implement a 13-well pilot program which would focus on production of significant quantities of natural gas and condensate.

In other parts of the world, the Company has significantly scaled back or terminated certain non-core projects in order to focus on fundamental value creation in core business areas in Venezuela and Russia. The Company has elected not to continue to the next exploration phases in its projects in Bohai Bay, China and offshore Senegal. Although the Company believes these projects offer exploration potential, they no longer fit its near term business model.
The Company has taken steps to reduce its home office general and administrative expenses in Carpinteria, California. In the fourth quarter of 1999, the Company reduced its corporate office workforce by 23 % and implemented a plan to further reduce other general and administrative costs. As a result of this focus on cost controls, the Company expects to realise a $ 3 mm reduction in 2000 corporate office expenses from the $ 14 mm rate in effect for the previous 12 months.

Schlumberger Oilfield Services is the leading supplier of services and technology to the international petroleum industry. Schlumberger operates offices, service locations, and research and development facilities around the world.

Benton Oil and Gas Company, headquartered in Carpinteria, California, is an independent oil and gas exploration and development company with operations world-wide.

Source: Business Wire
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