Not every producer and capital provider sees long-term reserve growth as the best route to high returns. Some believe aggressive exploitation, followed by a timely divestiture, is a better formula. Sapient Energy Inc. acquires and enhances operated properties, with high working interests, in the Anadarko and Permian basins and Ark-La-Tex region. It looks for long-lived reserves and significant potential upside. And in January, it announced that it was examining strategic alternatives-the financial code phrase for a possible merger or outright sale. "We are at the classic flex point of a start-up oil and gas company," explained Robert R. Anderson, the Tulsa independent's president, in a session during the private equity conference at the Independent Petroleum Association of America's 2001 Oil and Gas Investment Symposium. "We've reached our limit as a one-trick pony. We're at a size where acquisitions in our classic range of $30- to $40 million no longer are accretive. We have to decide where we're going next." Houston-based Tri-C Resources Inc. changed from a low-risk producer to one that pursues exploration opportunities. "We have divested producing properties 10 times since our founding in 1985," noted Tri-C president Scott Cone. "All of them were developed through the drill bit. None came through acquisitions." Divestitures produce returns for investors in two to three years, compared with the approximately 10 years that it takes to develop and fully exploit most oil and gas properties, he maintained. "We've found a tremendous appetite for development properties with good upside among our publicly traded competitors," said Cone. S. Wil VanLoh Jr., managing partner of Quantum Energy Partners LP in Houston, pointed out that the North American oil and gas basin is very mature, with low production rates. He nevertheless sees opportunities for smaller exploitation-oriented upstream companies that can amalgamate properties and resell them to large producers. "We believe that the greatest returns in this business come from enhancing an asset, not producing it out," VanLoh said. "The 10% to 12% base rate of return that characterizes oil and gas production can be enhanced by buying right and selling right." - Nick Snow