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Abstract
Vintage Petroleum Inc. has been profitable in every full year since it was formed in June 1983. The company has steadily grown its reserves from 200,000 barrels of oil equivalent (BOE) to more than 40 million BOE at year-end 1991. Its strategy is a fairly common one: to buy producing properties and then increase their production while reducing operating costs and associated overhead. Vintage's real success stems from management's strict adherence to 2 cardinal rules: 1. The economics of an acquisition have to make sense. 2. There must be enough upside, beyond the properties' current cash flow, to justify buying them. The company does considerable engineering work before making an acquisition, all in-house, and the additional upside found often bridges the gap between the buyer's and the seller's price. To evaluate a property, Vintage looks at rates of return, payout time, and potential after the acquisition closes. It also figures potential environmental liabilities into the final offer.