Energy executive Richard F. Lane retired as president of Southwestern Energy E&P Co. on a high note in September 2008, after enjoying a leadership role in what turned out to be one of the best runs of the past decade among all energy companies. Best-in-class financial returns and reserve and production growth were achieved during his tenure.

He then enjoyed what he calls “my skip year,” filled with world travels to “recharge my batteries.” Now, Lane is back at work and moving to new office space, this time as the chairman, president and chief executive officer of his newly minted E&P company, Vitruvian Exploration LLC, based in The Woodlands, near Houston.

He did it by unconventionally leveraging off assets of a former bankrupt entity, creating a new board and new management, and forging a new strategic vision. This time around, he says, his focus is not going to be on unconventional natural gas plays like the Fayetteville shale that defines Southwestern. No. His eye is on crude oil.

Lane was president of two subsidiaries at Southwestern Energy, SEECO Inc. and Southwestern Energy Production Co. The parent’s well-known formula for success and value creation adorns its headquarters building in north Houston. While Lane was with the company for 11 years, he saw its market cap soar from about $100 million to approximately $16 billion, thanks to its stunning successes in East Texas and the Fayetteville shale in Arkansas, operations he once headed.

“My time at SWN was a hugely rewarding experience and I will always be proud of what we accomplished there, and the learnings that we had, which were vast for me personally,” he says. “They will be applied at Vitruvian.”

He’ll also call on 25 years of experience, including time at Tenneco Oil, Fina Oil & Gas Co. and American Exploration Co., as well as at Southwestern Energy.

Oil and Gas Investor spoke with Lane to find out more about the new company.

Investor Richard, for starters, what does Vitruvian mean? Is it some kind of new geology concept?

Lane No. The name comes from an iconic da Vinci drawing, “The Vitruvian Man,” which I learned more about when I was traveling in Italy. You’ve probably seen it—a man with outstretched arms within a circle and a square. The image was supposed to represent the perfect geometry or proportions of man. Vitruvius was one of Rome’s first well-known engineers and architects, and he wrote about the ideal proportions of man.

Some people think of it as representing the balance between man and nature, and science. It made me think a lot about our business and what our principles should be, to have that balance.

Investor How did your new deal come about?

Lane I was invited to sit on the board of the predecessor company, CDX Gas, which filed Chapter 11 in December 2008. They were primarily a coalbed-methane producer, with the added benefit of having developed proprietary drilling technology. They wanted me to help move the company forward after it emerged from bankruptcy. I told the board members about the principles I felt they needed to focus on, and they became interested in having me do more than be a board member. I wasn’t looking for full-time work, but the discussions evolved.

Investor What is Vitruvian now?

Lane It’s kind of a hybrid. It’s a start-up, but not in the same way you think of, where private-equity partners put up capital and you start with a blank slate, where you have to find office space and buy desks and data, generate ideas and get a group together, lease land, etc.

We have instant operations under this platform. Instead of taking in capital like a true start-up, Vitruvian started with the best assets from the former CDX. Stakeholders who held debt in the old company now have common equity in the new company. The remaining assets were sold to allow the old company to emerge from bankruptcy. So, from the first day we walked in, we had production and positive cash flow.

Investor How much production did you start with?

Lane We have about 25 million cubic feet a day and this year, we’ll have about $30 million in free cash flow. We have the upside of a private-equity start-up for our team and the new stakeholders, but with the benefit of free cash flow, low debt, and a significant facility with BNP Paribas and BBVA Compass. We currently have about 30 employees. The neat thing is, this platform jump-starts us considerably. While we are, at this stage, a small company, with the existing assets the potential to grow is great.

Investor What’s the plan going forward?

Lane We have made a dramatic change in strategy. CDX had coalbed methane and the pinnate drilling technology, which is really very good technology, but the business strategy wasn’t so good. We’ll retain the technology, but use it only in our own plays, and possibly in ways it hasn’t been used before.

Investor And you will focus on oil.

Lane Yes. Oil is very topical these days, but it had been nagging me for a few years that this commodity would strengthen, and that the price would move higher, so this aligns well for us, given some of the ideas we have. We have some unconventional ideas, probably not in shale gas, though. We’re not getting paid enough for gas right now. When I look down the road, I want to wrap a big bow around this and monetize it, or offer it to a broader shareholder base, and I want Vitruvian to be mostly oil.

Investor What’s to become of the coalbed-methane assets?

Lane They are in Alabama and West Virginia. These are stable producing assets with a significant inventory to pursue more locations if we want to, but we are not going to be a coalbed-methane company anymore. It’s too hard to earn money that way—you’re like a gerbil in a wheel, and you spin and spin but the margins are thin and the growth is difficult at the rate we would like to grow.

In 2010 the team will look at what is the minimum number of wells to drill to hold that production flat and divert as little capital as possible to that. We’ll keep our eye on what prices do, and I can see us divesting it down the road, but for now it’s good to have it as cash- flow security.

Investor How will you get into oil then?

Lane Just recently we did our first acquisition of leasehold. I’d rather not say where exactly, but it’s an old, underdeveloped field with multiple high-quality crude reservoirs, some conventional and some with opportunities that are unconventional. It looks to have potential for a tertiary flood also. It’s a start. We’ll drill our first well very soon, shoot some 3-D, and we are still leasing in the general area.

e have a number of other ideas we’re putting together now. We have a chance to grow this organically, with the existing cash flow and the bank facility. The board is all new. There is some new management. We brought in a new person to head exploration, and a new land and business development person. We are still looking for a few high-performing technical people who can participate in the upside of the company.

The credit facility and the bank are new too. We “skinnied” the old company back greatly and streamlined G&A.

Investor What lessons did you bring from working so successfully at Southwestern?

Lane We did a lot of great things there, by whatever measure you take: we were one of the leading companies, based on returns, on the whole New York Stock Exchange for 5- and 10-year periods. We got to the point where, when you looked forward, you saw a platform for continued growth, and we had good implementation, a really good team, with chemistry. It was balanced. That’s what I am trying to develop here.

The lesson was “focus on creating value with every dollar you invest.” Idea generation is the key, and knowing where the leverage is in this business is key. It’s a disciplined approach to investing, and having your own vision. I’m not a tagalong kind of guy.