Armed with $770 million in cash, and a mere 8% debt-to-capital ratio, privately held Merit Energy Co. is looking for more acquisitions, says Tony Weber, chief financial officer of the Dallas-based company since 1998. "If we buy more properties this year, then we'll kick off raising a new fund this fall. We normally raise a new fund about every two years," Weber told the Houston Energy Finance Group recently. The company has been fairly quiet for most of its 13-year history, but has begun to speak out more often about its size, strategy and returns. However, Merit does not intend to go public, Weber said. Formed in 1989 by mangers of the old Petrus Oil Co., Merit began raising money with institutions in 1994 through a limited partnership structure. It now manages $1.4 billion from about 100 institutions such as college endowment funds, high-net-worth individuals and family foundations. It acquires and exploits producing properties but does no exploration. It prefers to operate the majority of its wells. The company has about 400 employees and operates or holds interests in nearly 10,000 wells in 14 states. Its largest deal, a package acquired from Devon Energy in 2002, transformed Merit into a company that today has 340 million barrels of oil equivalent (BOE) in proved reserves. Its production of about 70,000 BOE per day is 65% oil. Revenues in 2002 were $440 million, roughly the equivalent of Forest Oil or Westport Resources. Net income totaled $139 million and cash flow was $257 million. Since inception, Merit has averaged a 16.5% rate of return to its partners, many of whom are repeat customers. "We've never lost money," Weber said. Merit executes this business model by managing properties and production for 18 limited partnerships with a lifespan of 15 years. "This is much longer than most institutionally funded oil and gas partnerships, and twice the life of the average U.S. marriage, so it is important that we have good relationships and produce results. "Our investors use us, along with other natural resource investments like timber, to get counter-cyclical returns, opposite the financial assets they hold [stocks and bonds]. It's been a tough market but today, oil and gas returns look good." -Leslie Haines