Porter Trimble is known as the man who built Merit Energy Co. into one of the largest private E&Ps in the nation via acquisitions, purchasing more than $6 billion in assets over a 21-year span. A reservoir engineer by trade, he came to the Dallas E&P in its early days when founder Bill Gayden put him over operations in South Texas. At that time, Merit was still a small and unsophisticated acquirer. Although acquisitions were not his role, Trimble asked Gayden for permission to buy assets in his assigned area, and soon had acquired a portfolio that outsized the acquisitions guy. It wasn’t long before his role changed.

“I had lots of different roles over that time, with an increasing title,” including as vice chairman during his last eight years there, “but always acquisitions were my focus,” he said. At its peak, Trimble grew Merit to some 105,000 barrels of oil equivalent per day (boe/d), and 550 million boe proved.

Trimble came to Merit in 1992 with acquisition acumen already in hand from his work with Charlie Lapari, at Graham Resources, an aggressive acquisitions-focused company. Lapari’s reputation stemmed from his glory days amassing acquisitions at Tenneco, and Trimble apprenticed under him at Graham. “They were an incredible buyer of assets, and I learned a lot about the purchase of assets there,” Trimble said.

That momentum has carried into today. Trimble left Merit in 2013 to form his own enterprise, Fleur de Lis Energy LLC. Based in Dallas, the model is similar to Merit’s in its strategy to raise investment capital and deploy it through funds, but different in that it maintains more flexibility in the type of assets it can buy. Through serendipity, Trimble partnered with legendary private-investment firm KKR, and the partnership is off and running.

Since inception in March 2014, Fleur de Lis has made three acquisitions that look very different, totaling more than $1.1 billion. It first bought Penn Virginia’s Selma Chalk gas assets in southern Mississippi for $73 million last summer, followed by a $350 million deal with Linn Energy for Midland Basin Wolfberry oil properties. In April, in its biggest deal to date, Fleur de Lis closed on CO2 enhanced oil recovery assets in Wyoming, anchored by the century-old Salt Creek Field, from Anadarko Petroleum for $700 million. More deals are in the making.

In just over a year, Fleur de Lis has grown to employ more than 200 people, and produces in excess of 20,000 boe/d.

Trimble’s roots are in Louisiana, where he earned a degree in petroleum geology from Louisiana State University and a master’s in petroleum engineering from Tulane University. He spoke with Oil and Gas Investor on his new endeavor.

Investor: Why did you leave Merit, after more than two decades?

Trimble: I love Merit and they’ve been incredible to me, but I felt that there were quality assets out there to pursue if you had a more versatile capital structure. Merit is a conservative structure. There’s nothing wrong with that—it makes a lot of money—but there were a lot of assets getting by us that I thought we could buy. In general, Merit could not buy any assets in which the capital structure outran its cash flow. You get very PDP-oriented in those kinds of deals. If it’s a 50% PDP deal and a significant amount of capital is needed, there’s no way to fund that capital in the Merit structure.

If I could figure out a way to get capital where we could draw capital to drill or do whatever, as in the case of CO2 floods, where we could outspend our cash flow for a few years, but ultimately return that cash flow in droves, that would open up a whole breadth of different assets to us. That’s what ultimately made me think to leave.

Investor: How did the relationship with KKR come about?

Trimble: Initially, I was going to raise capital myself. We had raised billions and billions at Merit, and I felt like that wouldn’t be an issue. I didn’t know how big it would be, maybe $300- to $500 million to get started, and I thought I could raise that.

I had met George Roberts, the “R” in KKR, a couple of times before. I was in San Francisco one day, and sent him a note asking if he might want to play San Francisco Golf Club, basically because I had never played it and it’s one of the great golf courses in the world. George said he couldn’t play that day, but invited me to his house for dinner. Over dinner, he asked me why didn’t I become a portfolio company for KKR? I told him I appreciated that—it’s a tremendous compliment—but I’ve got zero interest in being somebody’s portfolio company. I left Merit so I wouldn’t have to answer to somebody all the time, and I didn’t want to do that again.

I told him I would have an interest if he would be a 50-50 partner in a general partner structure of an energy fund together. He hesitated, and I said, “That’s fine; I’ll just go raise my own fund.” We had a great dinner. He’s a great guy. About 30 days later he called back and said, “I’ll do that deal.” I’d caught the blue marlin and didn’t know what to do with it.

George and some of the KKR guys I met afterward convinced me that they could create a true partnership. I met with Marc Lipschultz, global head of energy and infrastructure, and Jonathan Smidt, head of the energy team in New York, and we created a structure where we’re equal partners. We both put an equal contribution into the GP, and we share 50% each in the profits.

Whenever you do these deals, you don’t know what to expect. Are you going to get along? Is this going to be a bad divorce? We’ve done three deals now, and we seem to have formed a strong bond with each other. We complement each other’s skill sets very well.

Investor: How much is committed and who controls it?

Trimble: I’ve committed $22.5 million to the general partner, and KKR has already invested more than that from their balance sheet. We’re 50-50 owners in the general partner, which raises the capital and funds it, but I own 100% of Fleur de Lis, which is the operator.

Investor: Where are the acquisition funds coming from?

Trimble: When our partnership launched, KKR had an old fund called KNR. I had access to that pool of capital as well as any new funds raised for this purpose. Suffice it to say I think we will be amply capitalized and have access to nearly a billion in capital. With debt, nearly twice that in buying power. And that’s after already having more than a billion of assets.

Investor: That’s a little more than the $300 million you thought you could raise on your own.

Trimble: That’s one of the advantages I saw in KKR. It’s not that I couldn’t raise that kind of fund at some point, but Merit’s first fund was roughly $13 million, then the next one was roughly $20 million. It was some time before we raised anywhere over $500 million or even close to $1 billion.

KKR’s got approximately $100 billion under management. They’re a big machine when it comes to capital. One of the great advantages that helps them to be so successful is their ties into the financial market. Access to capital was a big part of why I went with them.

Investor: Is it risky to build a new company during this volatile period?

Trimble: Anybody will tell you it’s a gamble to some degree, but I had some pretty good guys teach me along the way, and I’ve never felt like it was a gamble.

Investor: What is Fleur de Lis’ strategy?

Trimble: The strategy is pretty simple. I want to purchase quality assets with a long R/P [reserves-to-production ratio]. I don’t like the term “mature” assets, because mature makes me think they’re old and tired, or stripper production. There are buyers for those types of assets, but I don’t look for that. I want assets where I can control the operating cost structure, but I want enough additional drilling and exploitation traits that I can bring added value back to them. I don’t care if they’re conventional or unconventional. There are always good assets in all those types of production.

Investor: What are you looking for?

Trimble: I tend to like oil assets better than gas. There are more opportunities to increase oil production than with gas. With oil, we can waterflood it, refrack it, CO2 flood it, all these things for little increases in recovery.

I like gas if you can buy it at the right price, but it doesn’t have the ultimate types of recoveries that can be achieved on the oil side. There are some opportunities to refrack gas, but once you start on a depletion-drive mechanism in gas, there’s not a lot of recovery.

Investor: So Selma Chalk is almost all gas—what attracted you to that deal?

Trimble: We ultimately thought we were buying it at a good return. It is a good asset, and we can refrack it. You can’t drill it under this current gas scenario, but there are tons of locations. They’re just not economic now. We’re going to spend between $1 million and $4 million this year doing refracks.

We bought these assets at 15% to 18% rates of return. It got us into business, and we’re making good returns, even in a bad gas price environment. I think it’s better than exceptional in this environment. And there’s potential to increase its size in the area into a couple hundred million dollars.

Investor: Will you convert your Permian assets to horizontal drilling?

Trimble: We will move to horizontal in parts of the field—price will determine that. But we’re coming up on the uplift here, so it’s thinner and some of the horizontals [from other operators] have not had the productivity we’d like, although we think one part of the field does. It looks like vertical has better economics than the horizontal wells here, for the most part.

We bought it with a solid oil production base, and it has 100-plus wells that need to be drilled, both horizontal and vertical. With prices falling, we’ll only spend $26 million out there this year. That’s about six vertical wells plus a number of wells that were already drilled that we’re going to frack and put on line. When we purchased it, we valued the field going down to 40-acre spacing. All of our information says that can be taken down to 16 acres, so we think that, even at these prices, we can get our drilling costs down and drill to that type of well spacing.

Investor: The Salt Creek and Monell EOR assets in Wyoming are your biggest purchase to date. Is that the one you’re most excited about?

Trimble: That’s a field with 1.8 billion barrels of oil in place. It’s one of the largest oilfields that has ever been found. It’s recovered about 35% of its original oil in place, and floods that have been in place for longer periods of time have all recovered close to 45% to 50%. That’s another 126 to 220 MMboe of additional reserves. That’s the kind of upside that we like.

Monell Field was almost plugged out by Union Pacific, but it’s now the most successful CO2 flood I’ve ever seen, dollar for dollar. There’s a lot of improvement we can do around that. We’re going to expand the flood into different areas of the field.

While we don’t have a ton of capital we’re going to spend out there this year—about $25- to $30 million—I could see us spending $200- to $500 million there over the next five years. We need prices to buoy up a bit, but the infrastructure is there to support a tremendous capital program.

Investor: Is this a good time for acquisitions?

Trimble: I’m a believer that it’s always a good time. You just have to be a disciplined buyer. You’ve got to have the ability to say no. It’s one of the things that made Merit great during my time there. We were very disciplined and we made sure our investors came first. It’s the same thing here. If you keep that discipline, you’re going to be successful.

We lucked out in the sense that prices started to fall. Gas prices have been poor, and the oil market started to slide as we were buying these oil assets. Our timing is fortunate, to say the least.

Investor: Why is that? Transactions have been locking up.

Trimble: Once you’ve gone down the path to sell assets, and prices start falling, what are you going to do? If you believe this is short term and prices are going to come back quickly, then you wouldn’t sell the assets. However, if your view is that prices are going to be down for awhile, and you hold assets a year, then you’re in the same position you were in a year before. So why not just follow through with the transaction? We also offer surety of closing.

Investor: What’s your secret to making a good acquisition?

Trimble: There are three risks in this business, one being the commodity price itself, but we’re all in business for the commodity. You don’t get in it thinking oil is going to $5. Why would you be in that market? You have some belief that, long term, oil and gas are commodities that are running out and do have some price appreciation. Not that we think it’s going to $150 or even $100 any time soon, but at some point the world market will dictate a better price. And this goes if you’re buying oil at $80 or at $50. You can hedge those commodities, thus taking a lot of the risk out of them.

The second risk is operational risk—can I drill the wells when I said I could, can I operate them as cheaply as I thought I could, and do I have the right manpower and cost structure to run it? While that’s important, it’s the least critical from a return-on-capital standpoint.

The third one, and I think the most important, is reserve risk. If I tell you there are 100 million barrels that are going to come out of the ground, that’s great. But if we only get 60 million barrels, you can never, ever recover a return on investment. It’s never going to make it.

So you have to be smart around the reserves and do the science necessary to make sure those reserves are there, especially those reserves you predict that have to unfold. You have to ensure how those reserves come to fruition, because if you miss it, you can never recover.

Investor: Are you in the market for more deals?

Trimble: You never quit buying in this business, right? If the opportunity comes up, we’re going to purchase assets. We have access to capital and we’re making offers now, and we’ve made some pretty substantial offers in the market right now. They’re simmering, as people try to figure out what they want to do in this pricing environment.

Investor: Does Fleur de Lis have an exit strategy in place?

Trimble: I plan to be an ongoing entity forever. We’ll have to sell assets along the way, but this is not a build-and-flip model.

Investor: How did Fleur de Lis get its name?

Trimble: I wanted to name it Constantine, after the Roman emperor. Constantine minted an inflationary-hedging gold coin that was used for a thousand years, and I thought of oil as a similar inflation hedge. However, my wife had different thoughts. I have a horse-training facility called Fleur de Lis Farms and a personal airplane under Fleur de Lis Aviation. I think I’ll name my first fund Constantine.