Great deals and great dreams have a lot in common. Both involve taking risks, even when the world—and commodity prices—are crumbling all around them.

About 10 years ago, Ronnie Irani created RKI Exploration & Production LLC on a blank sheet of paper, sketching out contours of the Powder River Basin and his thoughts about the Permian Basin. Year after year, he added in details and splashes of color to his design.

“If there is a company you can build from scratch, this one would fit the bill,” Irani said. “It was a pure build, from absolute zero.”

Irani chose the Powder River and Delaware basins because natural gas was the hot item at the time. “I very intentionally said, ‘I’m going into oil basins,’” he said. “That’s how I picked the Powder and the Permian.”

At the other end of a decade of work, Rick Muncrief, president and CEO of WPX Energy Inc., was on the lookout for oil. The company had assets in the Williston Basin and the San Juan Basin’s Gallup play, but the shallow inventory didn’t lend itself to the balanced portfolio the company wanted.

An almost perfect alignment of timing, friendship and willingness by WPX and RKI to work together made for a game-changing transaction in July. The resulting $2.75 billion deal, which closed in August, is Investor’s Deal of the Year for 2015.

“I’ve been involved in this business over 35 years, seen a lot of transactions,” Muncrief said. “This is going to be the one I’m going to hold up as one that defined me, one that’s going to define the new WPX.”

First, Muncrief had to find the assets, and it was a long journey.

Muncrief, CEO for about two years, wanted depth in WPX’s oil inventory. After working in the Bakken since the mid-1980s, he knew the prime, core acreage was locked up by companies that didn’t want to let go of it. The same was true in most other plays.

Rick Muncrief, president and CEO of WPX Energy, said that after 35 years in the industry, the deal to acquire RKI “is going to be the one I’m going to hold up as one that defined me, one that’s going to define the new WPX.”

So the search was on to expand into new basins. WPX staff spent more than a year looking at oil basins across the country and all actionable opportunities. The Permian’s Midland Basin was the most recent it had evaluated, and was better understood than the Delaware Basin. Then the Rosetta Resources sale was announced.

“We were familiar with them, and that announcement really validated the potential of the basin. We supercharged our technical work to understand the Delaware even more,” Muncrief said.

Rosetta had 50,000 net acres in the Eagle Ford and 56,000 net acres in the Permian, including 46,000 in the Delaware. Noble Energy Inc. eventually purchased the company in an all-stock transaction of $3.9 billion, including the assumption of $1.8 billion in debt.

By then, Muncrief knew the Delaware could be a game-changer. “What that did was it really whetted our appetite for a Delaware deal,” he said.

Strategic silence

When Irani went to the Permian in 2005, the Delaware was basically dead. RKI paid as little as $200 to $250 an acre, though every year the prices went higher until acreage prices were in the thousands. But by then, RKI had built up its position.

The company had kept carefully out of sight.

“When we would read some of the bigger companies announced a discovery in the Wolfcamp, we may have already had similar or better rates on our wells months ahead of them,” he said. “We just kept it quiet. That’s really what works for concepts I like to play with.

“Sometimes it works, sometimes it doesn’t, but if you’re there early you can pick things up,” he said.

By 2015, Irani’s position had grown from his scribbled notes to a powerhouse of production sprawling across more than 90,000 net acres in New Mexico and Reeves and Loving counties, Texas. The company had a stockpile of 3,600 gross risked drilling locations and was running up to six rigs for its robust program.

“It was smack dab in the center of the Wolfcamp play and the Bone Spring and the Avalon and Delaware sands,” Irani said.

By then, Irani was assessing what to do next. The asset base was strong, with decades of drilling ahead. The company would need to expand, adding people and spending more capital. By then, however, the industry and its big players had noticed the Delaware. “I had several knocks on the door, unsolicited,” Irani said.

No one had offered the right amount, but the interest level was clear.

Sandwich shop rendezvous

After further study of the Delaware, WPX felt it was ready to make an informed decision. It had also been aggressively managing its portfolio and was at a point where it could jump into action.

The question: “In a perfect world, where would we be?”

WPX had done considerable work on the New Mexico side of the basin and in the south. Eyeing all possibilities, Muncrief focused on the center.

“We really liked what we saw and settled in that area,” Muncrief said. “Then we became aware of RKI, who the operators were, who held the acreage.”

RKI’s acreage looked like a pearl, and Muncrief knew Irani. WPX advisor Tudor, Pickering, Holt & Co. suggested reaching out, and the two CEOs arranged to meet at a sandwich shop on a Sunday afternoon to initiate discussions.

In the ensuing days, WPX did a massive amount of research on RKI, said Bryan Guderian, WPX senior vice president of business development.

“They were not a public company, but did have public debt, so we did have access to audited financial statements, but certainly not the breadth and depth of information you would find in a public entity,” he said.

Irani knew Muncrief and was attracted to his pristine resume.

“If you look at his past and his career, he’s just top-notch,” Irani said. “When he told me he’d done a lot of homework and that he was serious, I didn’t have to wonder whether he was just kicking tires.”

Still, the first time Muncrief floated a number, Irani countered with a larger number.

“There’s always a difference between the bid and the ask,” Muncrief said. “I said, ‘I love this acreage, but I’m not sure that value is there, so help us understand some more.’”

The inequities of geology

Irani recalls a technical session where WPX was shown the potential of RKI’s holdings. “We let them see the actual production in the more recent wells,” he said. RKI had amassed an acreage position in New Mexico and Texas straddling the state line where the Delaware Basin was at its thickest.

Under RKI’s holdings was a confluence where the First Bone Spring, Second Bone Spring, Third Bone Spring, Delaware sands and shale and the Wolfcamp Shale were stacked at maximum thickness.

“That’s when they saw that, whereas one might think there’s one lateral in the Wolfcamp, there might be potential for five to six laterals because the section was over 1,600 to 1,700 feet thick where we were,” Irani said. The position included vertical drilling in more than 3,000 feet of Delaware sands sequence.

“They did more work and made one more push that got our group to accept,” Irani said.

Guderian was bullish on the basin but wanted to fully understand RKI’s well performance.

“The geology is not ubiquitous across the Delaware, and there are nuances you have to be aware of and cautious about,” he said.

RKI provided proprietary data that allowed WPX to do a more detailed analysis of the assets. The holding included gas assets as well as a handsome gas and water gathering system.

“What we saw, quite honestly, was a convergence of oil in place across multiple zones that put the bull’s-eye on the RKI assets,” Guderian said. “Once we saw it, we began to salivate and get super excited about the potential.”

RKI’s ownership complicated the process, since the company was backed by multiple layers of private equity investment. “Ultimately, we were more or less negotiating with four parties on the other side,” Guderian said.

Irani said his board was interested in him taking the company public, which he had done with a previous entity, but he was reluctant to do so. “You get away from creating and move to managing,” he said.

First Reserve was one of those capital providers, having joined with RKI in 2012 with a $350 million commitment to drill and prove up the existing asset base in both the Permian and Powder River. “They had established large asset bases with multiple stacked pay potential with significant scale,” said Mike France, First Reserve managing director. “They needed meaningful development capital to prove up these asset bases.”

RKI had been approached about selling the whole company, but Irani believed the assets would fetch more if split between the two basins, France said. That bifurcation occurred when WPX came calling with “a compelling offer,” he said. “We wanted to make sure we received maximum price, and Ronnie did a good job of that.”

At the time of exit, First Reserve still saw ample upside in the assets, and the stock aspect of the deal gave assurance of upside exposure.

“We were excited about the opportunity to take back stock in WPX,” said France. “We would have been open to holding the asset longer, which is why we like that we can still participate in the growth of the basin in WPX stock. And we liked what Rick Muncrief and his team were doing as part of a major transformation.”

‘The best I can’

WPX had been working hard to clean up its portfolio through a series of asset sales and strengthening its balance sheet. But a $2.75 billion price tag is still shiver-inducing.

“To be honest, this was one that did stretch us some, without a doubt,” Muncrief said. “It was just one of those opportunities you felt like you could not pass on.”

Muncrief said that as part of the RKI deal, the company’s backers took some of the proceeds in the form of WPX equity. RKI’s four private equity providers wanted to meet the WPX team.

“Our team had to go in front of them, make a presentation about our team chemistry, our other assets and how we were going to take these Delaware assets to the next level,” he said.

As the deal was announced, the market hit WPX with a blast of negativity. “What a lot of people missed was the value of that production and certainly the value of the midstream assets with the gas gathering and water gathering,” Muncrief said.

The midstream footprint could become a multibillion-dollar company, Muncrief believes. WPX is content keeping it and expanding it on its own, or even exploring for a joint venture partner. WPX has previously monetized a couple of other gathering systems in North Dakota and New Mexico.

The company knew it would have to sell assets to dramatically reduce leverage. But its 18-month divestiture campaign finished in roughly six months with almost $1.5 billion in agreements, including the $910 million sale of its once-flagship Piceance Basin asset.

In a way, WPX and RKI both walked away with the deal they wanted. WPX filled its need to diversify its portfolio. RKI received a premium value in a tough price environment

For Muncrief, this deal will be part of his legacy, one that changed the fabric, culture and future of WPX.

“This is one of those things you look at, as a steward of an asset, people, money, and I think we’ll look on it fondly and say, ‘That was the deal that was the final step in the transformation of the company,’” he said.

Irani feels the tug of bittersweet emotions. He is happiest creating underground empires. “In our business, it’s all underground and nobody can see it,” he said. He goes from idea, to spending millions of dollars, to drilling and knowing in a few weeks whether he got it right. “And you can’t hide,” he added.

Though the sale of his first company, Woods Petroleum, in 1990, was the toughest, his latest blockbuster deal gave him comfort in knowing Muncrief understood the assets.

“At some point, you know somebody will make an offer one day,” he said. “And it would be the board’s decision—I always left it for the board to decide. From that standpoint, I stay emotionally neutral. It’s hard to do. I do the best I can.”