A Kingdom Besieged

BUSINESSMEN have always admired the entrepreneur who has a grand, imperial design. But 1970 is turning out to be the twilight of empires that were built hastily on ideas, optimism and debt. Last week John M. King, 43, joined the ranks of those whose achievements and future have been cast into shadow by a combination of tight money and public skepticism.

From his base in Denver, King in the past decade has built a complex of companies that explore for and exploit a wide variety of natural resources. Among them are oil and natural gas in the U.S., Canada and elsewhere, diamonds in South Africa, copper in Peru and ilmenite in Australia. Now King's realm is besieged. Stock in his King Resources Co. has collapsed from a high of $34 last year to $4.87 bid last week. Corporate officials concede that they are short of cash and having a hard time paying bills. Creditors have been pushing to collect some of the $23 million in loans that are coming due this year. Ordinarily, such a short-term debt would be easily managed by a company that lists assets of $177 million and had revenues of $118 million last year. A series of events has clouded King Resources in rumor, however, and called into question its whole way of doing business.

Flying High. Part of the problem is that John King has become rich quickly in a complicated, volatile business --and has the image of an archetypical wheeler-dealer. He wears flashy, monogrammed boots and shirts and owns 3,000 pairs of gold cuff links. He uses a fleet of airplanes as other men use taxis, and collects friends and acquaintances in high places. A space buff, he has put two former astronauts, Walter Schirra and Frank Borman, in top positions in his companies. King is a lover of the West; he owns an ostentatious ranch outside Denver, which he leases to King Resources for $120,000 a year as "recreational facilities."

The mainstay of his fortunes is King Resources, which searches for natural resources. It also produces some oil, gas and minerals but usually prefers to profit by dealing in leases and selling to other companies shares in the reserves that it finds. King and his family own about 16% of King Resources. They also own 92% of a second company, Colorado Corp., which sells to the public shares in highly speculative oil and gas wildcatting and in somewhat less risky development ventures. From these and some other businesses, Colorado earned $16 million on revenues of $54 million last year; sales of its public shares in oil ventures have substantially declined lately because of the economic recession and the rumors about King. The two companies have such a close relationship that some critics charge that King Resources gets too much of its in come from a captive client. Last year King Resources collected almost a quarter of its revenues by selling oil and gas leases, drilling services and geological work to Colorado Corp.

Crisis over Cornfeld. Oddly, it was King Resources' attempt to lessen its reliance on Colorado Corp. that brought on the present crisis of cash and confidence. King found a rich new client: Bernard Cornfeld's Investors Overseas Services. Last year 35% of King Resources' revenues came from selling shares in ventures to I.O.S. and its Fund of Funds. When I.O.S. tumbled into deep trouble in May, John King jetted to Geneva in a highly publicized --and unsuccessful--bid to take control. Bankers then saw how heavily King Resources depended on Cornfeld's I.O.S. for funds; some wondered aloud who was trying to rescue whom. John King realizes that after his Geneva trip the investing public put him in much the same category as Cornfeld. "It drew my authenticity into question," King told TIME Correspondent Roger Beard-wood last week. "But I still think I was right to move as I did."

Investors and creditors are now doing what most failed to do before. They are reading the fine print and numerous footnotes in the official reports and prospectuses of King's companies. Some accountants cast doubt on King Resources' computation of assets. Unlike virtually all major oil and mining companies, King Resources uses the "full cost" method of accounting for exploration and development in North America. Instead of being shown as an expense, the cost of such work is listed as an asset under "oil and gas resources held for production." Even dry holes show up as an asset; the total cost of exploration and development is then amortized from revenues. If the normal method of showing these costs as an expense had been used, last year's $25.5 million net profit would have been substantially reduced--if not turned into a loss.

King Resources has also been criticized widely for its valuation of some oil and gas leases in the Canadian Arctic. Over the past two years, the company and Fund of Funds jointly bought 22.4 million acres of leases there. They paid $1 an acre. Last year, after a 10% interest was sold for just over $14 an acre, the owners raised the book valuation of the whole property to $8 an acre.

John King is banking on a big oil find in the Canadian Arctic. He is not alone. The Canadian government is a partner in leases next to those of King Resources; a French company is drilling, and a major U.S. company is negotiating for leases. Natural gas has been found already, and King's geologists are among many who say that other signs are promising. But nobody has yet drilled an oil well. Even if King Resources does find oil, there will be formidable barriers between it and the market. The region is icebound for five months a year, and King's men estimate that up to $500 million would be needed for pipelines and other equipment. Because Canadian oil is subject to U.S. import quotas, it would have to compete with other foreign crude, which is normally offered on the East Coast for under $2 a barrel, v. up to $3.40 for U.S. crude.

Political Repercussions. King's reputation has been hurt by a political scandal. In April and May, King Resources got loans totaling $8,000,000 from the state of Ohio. The loans run for two years, but the state auditor ruled recently that they were illegal because the maximum term under Ohio law is 270 days. Ohio officials have asked King Resources and other companies that borrowed long-term funds to repay the loans. The scandal arises because the loans were arranged for King Resources by a financial consulting firm whose members contributed handsomely to the political campaigns of a state senator and of the state treasurer who granted the loans. Both are Republicans; so is John King. He contributed $250,000 to Richard Nixon's 1968 campaign, and was the President's representative with the rank of ambassador to Japan's Expo '70. King denies that he had anything to do with arranging the loans; but some critics charge that political influence was used to get them.

Throughout the myriad crises, King continues to exude confidence. "I have no doubts--absolutely none--that we shall surmount our temporary problems," he says. King has been flying the financial circuit, trying to calm creditors and ease the cash crunch. Last week there were unconfirmed reports that some banks would tide King over with fresh financing. Clearly, King is determined not to reign over the liquidation of an empire. The next few weeks will show whether his determination, persuasiveness and agility will be enough to cure the short-term ailments and give King Resources time to achieve what it desperately needs: a period of consolidation rather than hectic growth.

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