Conventional is the name of the game for West Texas native James P. Mertz. He founded Mertz Energy LLC in 2013 in Houston to pursue onshore Gulf Coast exploration and development. Joining him in the endeavor are 30-year industry veterans from Exxon, EOG, Apache, Devon and other large E&Ps.

Mertz’s family roots in ranching reach back to the late-1800s in Texas. Mayne & Mertz, the E&P company co-founded by his father, Len Mertz, was an early adopter of AVO (ampli¬tude variation with offset) technology, and James is carrying on that legacy.

After graduating from the Univer¬sity of Texas with a degree in electri¬cal engineering, Mertz completed the MBA program at the University of Michigan’s Ross School of Business with highest distinction and studied at IESE, in Barcelona. He then started up Amphenol Corp.’s downhole and subsea group and for two-and-a-half years worked worldwide.

He launched Mertz Energy with core senior staff and built out the geological and geophysical team as companies scaled back conventional operations during the downturn. The company has invested tens of millions of dollars in eight new projects in the Gulf Coast.

Mertz favors a “classic” exploration model, with organic prospect generation followed by leasing. The company recently partnered in a new 300-square-mile, 3-D seismic survey and plans to drill the first couple of wells off the data in the next several months. This fall Mertz Energy added a Williston Basin prospect to its portfolio and is completing the initial well. It plans to put together a drilling program there over the next 12 months and continue drilling Gulf Coast projects in several locations.

In a recent interview, Mertz discussed the company’s strategy.

James P. Mertz

Investor How did international work influence your career?

Mertz It gave me the perspective of people who have operated in higher-cost and regulatory environments around the world, and confirmed the value of sticking with high-margin opportunities. Even if a new regu¬latory regime comes in, or there’s a market crash like recently, you can handle it.

At Amphenol, we developed technology with world-leading service companies. Due to that experi¬ence, Mertz Energy is now able to run tools right out of R&D from firms like Baker Hughes and Schlumberger. There are risks, but we always have a back-up plan.

Investor Why focus on Gulf Coast conventional?

Mertz We had new play concepts in South Louisiana. We were able to go back in and discover some deeper pools and try different approaches and technologies. Also, the entry costs aren’t as high.

Investor Is that the case in the Willis¬ton Basin also?

Mertz Yes. We look for low entry cost in parts of the world not completely covered by existing resource plays. We’re looking in different areas of the Williston Basin, taking advantage of some of our geologists’ experience with Tenneco and others in the days when the focus was on conventional.

Investor What are your targets in the Gulf Coast?

Mertz It’s project-specific but focused primarily in Tertiary trends from the Lower Miocene through the Frio and into the Cockfield/Yegua. The key is we have acreage held by production we can develop that we’ve identified through exploration, not acquisition.

With the new 3-D shoot, we’re looking at deeper Miocene sands with very good reserve potential with a proven trap concept and an AVO response to lower the risk.

Investor How does your compensation structure reflect your strategy?

Mertz The team has exposure to their success through our compensation model. This, plus their experience, results in our higher-than-average batting percentage. Let’s just say the staff is handsomely compensated for discoveries.

Investor Is there a Mertz mantra?

Mertz We try to think differently. Everyone involved in a specific project has to go into it with an open mind. We can’t expect to use the same old techniques to unlock new production, so we have to be creative.

As mentioned, we have an active outreach program with major vendors that have R&D capability, and we’re very open to taking something that they’ve only run offshore, for example, and running it onshore to see how it works. Sometimes that can be cost prohib¬itive, so we’re acutely aware of expenses. We have extremely targeted deployment but relatively high confidence that the data will be actionable and will immediately unlock additional things to do.

Investor What technology do you test, generally?

Mertz It’s about 50% on the drilling and comple¬tion side and 50% on the evaluation side. We evaluate every borehole very thoroughly and pay attention to additional formations beyond our initial objectives that might be hard to uncover with just traditional triple combo logs.

Investor How have you managed through the downturn?

Mertz It slowed us down; we would have done more drilling and grown more quickly otherwise. But because we’ve stuck with conventional exploration, it was not as impactful as if we had acquired assets or gone into lower-margin resource plays. Any conven¬tional discovery would yield, we hope, several multi¬ples of return, so it’s much less sensitive to price.