Capstone announced today that Citizens Energy Group through its subsidiary Kinetrex Energy Exploration & Production, has acquired a 50% working interest in oil assets in Knox County, Indiana from Trey Exploration.

Capstone Strategic, Inc. (Capstone) announced today that Kinetrex Energy Exploration & Production (KEEP), a subsidiary of Citizens Energy Group (Citizens), has acquired a 50% stake in oil producing assets in Knox County, Indiana from Trey Exploration, Inc. (TEI). Capstone advised KEEP on the transaction.

KEEP is a subsidiary of Citizens focused on the exploration and production of oil. Founded in 1887 as a public charitable trust, Citizens is a broad-based utility service company providing natural gas, thermal energy, water and wastewater services to about 800,000 people and thousands of businesses in the Indianapolis area.

TEI primarily engages in the exploration and production of oil and gas resources in the Illinois Basin and other hydrocarbon producing areas across the United States. The company has also conducted geological studies in areas across the United States and in international markets. TEI was founded in 1987 by Howard A. Nevins. The company provides the highest standards of conduct and is environmentally responsible.

Capstone assisted in structuring a deal to establish a long-term partnership between KEEP and TEI. Both companies will use their complementary skills to increase production by using enhanced oil recovery techniques, drilling additional wells, and by exploring deeper geological formations. KEEP will provide additional geological studies while TEI will continue to operate the property.

“As a third party advisor, Capstone’s expertise was critical in identifying the opportunity and providing deal advisory, valuation and negotiation assistance to help finalize the investment. We are pleased to begin working with TEI today and for many years to come,” said Aaron Johnson, President of KEEP.

“We are excited to bring together two companies with this partnership. KEEP’s investment in Knox County and partnership with TEI will allow Citizens to reinvest more of its oil and gas profits into providing unparalleled utility services to consumers for many years to come.” said Capstone Managing Director John Dearing.

Capstone Advises Kinetrex Energy Exploration & Production in Acquiring Oil Assets in Knox County, Indiana from Trey Exploration

About Capstone Strategic

Capstone Strategic, Inc. is a management consulting firm located outside of Washington DC specializing in corporate growth strategies, primarily mergers and acquisitions for the middle market. Founded in 1995 by CEO David Braun, Capstone has facilitated over $1 billion of successful transactions in a wide variety of manufacturing and service industries. Capstone utilizes a proprietary process, “The Roadmap to Acquisitions,” to provide tailored services to clients in a broad range of domestic and international markets. Learn more about Capstone online at www.CapstoneStrategic.comTwitter LinkedIn.

About Citizens Energy Group

Citizens Energy Group provides safe and reliable utility services to about 800,000 people in Indianapolis. Citizens operates its utilities only for the benefit of customers and the community. Kinetrex Energy Exploration & Production is a wholly-owned subsidiary of Citizens. Additional information is available online at www.CitizensEnergyGroup.com – Facebook – Twitter – YouTube.

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Last year was a record-breaking one for M&A. Global deal-making reached a 7-year high with 40,298 transactions amounting to $3.5 trillion.

With cheap debt financing readily available and stock prices rising, more companies pursued M&A in 2014. The improving U.S. economy greatly contributed to robust activity; at $1.53 trillion, the U.S. accounted for 44% of global M&A activity.

Top industries for M&A worldwide included oil and gas ($409 billion), pharmaceuticals ($210 billion), and cable ($187 billion). In the U.S., energy & power ($338 billion) and healthcare ($237 billion) topped the list, followed by media & entertainment ($208 billion) and high technology ($168 billion), according to Reuters data.

As I noted this past November, CEOs and executives are continuously looking for new ways to grow, including mergers and acquisitions. Most importantly, it seems that CEOs and boards are finally on the same page about M&A.

According to Dealbook, “Corporate boards and management teams have come to realize that their ability to expand their companies on their own has become more difficult. A substantial move, like acquiring a major competitor or complementary business, is now seen as necessary to move the needle.”

Given this spirit of internal cooperation, 2015 is setting out to be a year of robust activity as well.

The first few weeks of 2015 already produced some exciting news in M&A.

Coach has acquired luxury shoe retailer Stuart Weitzman for $574 million as part of its strategy to become an “upscale lifestyle brand.”

Facebook has also acquired wit.ai, a company that makes voice recognition software for wearable devices. Such devices as Apple’s iWatch are the next hot trend in technology as companies like Apple, Google and Facebook compete to connect devices from watches, kitchen appliances and thermostats to the Internet. Watch for more exiting deals in this arena in 2015.

Shire has also agreed to buy NPS Pharmaceuticals for $5.2 billion cash in the first big corporate acquisition of 2015. Last year Shire agreed to sell to AbbVie in deal that would allow U.S.-based AbbVie to reincorporate. However, due to proposed regulatory changes aimed at limiting tax inversions, AbbVie walked away from the deal. This cross-border deal shows the general trend of consolidation in the pharmaceutical industry and that availability of cash due to low interest rates.

Take a look at our infographic for more details on 2014 deal activity. (Click on the image for a closer look.)

Mergers and Acquisitions 2014 Year Review Infographic by Capstone

Capstone CEO David Braun will present “Strategic Alliances, Joint Ventures and M&A – the Route to Success?” at the 2014 European Base Oil & Lubricants Summit in Alicante, Spain on September 18.

The two-day conference brings together leading executives and experts in the lubricant and base oil industry from established Western Europe and U.S. markets and from emerging markets, including Central and Eastern Europe, India and the Middle East.

Over 150 C-suite, senior-level executives, directors and managers will attend the summit, including representatives of such industry leaders as Chevron and ExxonMobil.

In his presentation, David will challenge attendees to consider their five options for growth as the base oil and lubricant markets face new challenges and regulatory developments. Strategic alliances, joint ventures or mergers and acquisitions can help companies identify new opportunities and ways to grow.

“I am eager to engage leaders in discussion about proactive growth and hear their analysis of market dynamics and trends,” he said.

The conference will focus on the global base oil trade, analysis of the European lubricant market, challenges and opportunities for automotive and industrial lubricants, regulatory developments and technology advancements in lubricants.

Photo Credit: Lars Plougmann via Compfight cc

Welcome back and Happy New Year! 2014 is looking to be an exciting year for M&A. I was recently able to share my predictions and insights for the coming year on First Business News.

In case you missed the segment, you can view the full interview below.

Mergers and acquisitions in the oil and gas industry oscillated from a high of $84.8 billion in the first half of 2012 to just $51.5 billion in the first half of 2013. The total deal value for Q2 2013 was $23.6 billion, the lowest since Q3 2009. Expect a new swing given the rumors that Repsol might be buying between $5 and $10 billion of U.S. oil and gas assets.

The goals of a firm in acquisition mode may be entering new markets, diversifying a firm’s customer base, accessing new technologies, or achieving scale and cost synergies. While these M&A strategies are applicable across all industries, each industry is unique. In light of the roller coaster activity of the oil and gas industry, Capstone has compiled a list of the top five strategic drivers of oil and gas M&A.

1. The Need for Reserves:

The oil and gas industry is dependent on finite natural resources. To remain successful, an O&G company must replenish its reserves of oil by using profits from selling its products.  Dealmaking is an often-used tactic for adding proven reserves of oil and gas to a company’s balance sheet. Large oil companies with high current production values and expertise in developing oil fields can avoid the risks of exploration by buying undeveloped fields that have already been explored by other companies.

2. The Need to Develop Fields:

While larger firms are focused on acquiring reserves, smaller exploration-focused companies may not have the expertise, supplier relationships, or financial resources to turn their proven reserves into a cash-generating asset. Small firms may accept a minority investment from a larger company or sell their reserves to quickly monetize an unproductive asset.

3. Geographic Diversification:

As global commodities, it is commonly understood that oil and gas are the same products everywhere, selling for globally determined prices. While this simplistic view can be used to understand the macroscopic dynamics of the oil & gas industry, in reality the industry is more complex.

The quality of oil and gas produced and the costs necessary to extract resources depend on local geologies. Prices depend on local factors such as proximity to refineries, quality of pipeline and rail infrastructure, and regional supply and demand. A study by Kimmeridge Energy illustrates how geographic factors influence the oil and gas industry in different regions across the United States.

Consequently, a diversified portfolio can minimize risk by spreading it across multiple unrelated revenue streams. The larger a company, the more important geographic diversification becomes. For entrepreneurial small to mid-sized oil companies, acquiring other small companies in different states and countries can be a viable strategy for geographic expansion. An acquisition not only brings in new reserves from a new area, but also the know-how and market relationships of the sellers ─ intangibles that would not be achieved by venturing alone.

4. Acquiring Know-How:

Oil companies have different core competencies. Some companies are better at deepwater drilling, others at horizontal drilling or at deep shale exploration and development. Compared to in-house research and development, acquiring a company that possesses the desired know-how is much quicker and less risky. In fact, the desire for advanced American know-how about unconventional oil resources has been a major driver of foreign investment and M&A in the U.S. oil industry.

5. Taxes & Regulations:

Finally, perceptions about future tax and regulatory policy can drive deals. As we saw in last year, the prospect of higher marginal tax rates in 2013 convinced many investors to close deals in 4Q 2012 that may have been scheduled for 2013.

 

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