About 10 years ago, Ronnie Irani took out a blank sheet of paper and began sketching out contours of the Powder River Basin and his thoughts about the Permian Basin.

Slowly, he created what would become RKI Exploration & Production LLC.

Year after year, he added in the 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.”

About seven months have passed since Irani sold his Delaware Basin holdings to WPX Energy Inc. (NYSE: WPX).

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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 is a game change for WPX, said Rick Muncrief, president and CEO.

“I’ve been involved in this business over 35 years, seen a lot of transactions,” Muncrief said. “This one 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.”

Irani chose the Powder 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.”

When he went to the Permian in 2005, the Delaware was basically dead. In retrospect, it was perfect timing.

Strategic Silence

In the early days of RKI, the industry was indifferent to the Delaware, which was largely seen as a shallow vertical play.

RKI paid as little as $200 to $250 an acre, though every year the prices went higher and toward the end acreage prices were in the thousands.

But by then, RKI had built up its position and 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.”

Part of Irani’s silence is strategic. He didn’t want anyone to recognize the value in the area as he built it.

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

What Irani wants to avoid is what he calls “the mob”—an influx of companies that want in on the action looking for signs of a happening play.

“They hear a big rate or some success and they all rush in,” he said. “And the prices start skyrocketing.”

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. RKI was running up to six rigs and had a 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 so strong, with decades of drilling ahead of it. The company would need to expand, adding people and spending more capital.

However, the Delaware had been noticed by the industry and all the big players.

“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

Through 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.

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Muncrief’s question to himself: “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 of the basin.

“We really liked what we saw and so we really 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. Muncrief also heard from Tudor, Pickering, Holt & Co., that reaching out to Irani could be worthwhile.

It took a week, but the two CEOs arranged to meet at a sandwich shop on a Sunday afternoon.

Irani wanted to keep the meetings quiet in case a deal couldn’t be made.

“He wanted to protect the organization,” Muncrief said.

What helped the process was Irani knew Muncrief and his pristine resume.

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“If you look at his past and his career, he’s just topnotch,” Irani said. “So when he first came, and told me he’d done a lot of homework and he was serious, I didn’t have to sit there and doubt whether he was just kicking tires.”

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

“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

RKI had amassed an acreage position in New Mexico and Texas straddling the state line where the Delaware was thickest. That insider knowledge wasn’t something public reports would reveal.

Under RKI was a confluence where the Bone Spring, First Bone Spring, Second Bone Spring, Third Bone Spring, Delaware sands and shale and the Wolfcamp was stacked at its 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, 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 went back, did some more work and made one more push that got our group to accept,” Irani said.

Irani said his board was interested in him taking the company public, which he had done with a previous entity. But Irani was reluctant to do so.

“You get away from creating and move to managing,” he said.

’The Best I Can’

Irani feels the tug of bittersweet emotions. He is happiest creating subterranean 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 said.

Though his sale of first company, Woods Petroleum in 1990 was the toughest his latest blockbuster deal had the comfort of knowing Muncrief understands the asset.

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

“It’s hard to do. I do the best I can.”

Since then, Irani’s created a new company, RKI Energy Resources and leased 18,000 square feet of space.

Irani’s interest is in the creativity of his work and the nearly instant results.

“You go and drill, spend millions of dollars and you know the answer within a few weeks whether you’re right or not. And you can’t hide,” he said.

So Irani is back at it, 10 years later, putting his ideas together, excited wake with ideas.

“It’s kind of fun, actually.”

Darren Barbee can be reached at dbarbee@hartenergy.com.

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