TIDMRSE
RNS Number : 0683A
Riverstone Energy Limited
14 February 2014
Riverstone Energy Limited
Final results for the year ended 31 December 2013
London, 14 February 2014: Riverstone Energy Limited ("REL" or
the "Company"), a limited liability, closed-ended Investment
Company, announces its results from inception to 31 December
2013.
Summary performance
31 December 2013
NAV $1,139 million
NAV per share $16.04
Share price $15.57 (GBP9.40)(1)
Market Capitalization $1,106 million (GBP668 million)(1)
Highlights
-- Successful listing completed on 29 October 2013 raising $1.23
billion(2) .
-- Committed $100 million to Liberty Resources II LLC ("Liberty
II"). Liberty II principally operates in the Bakken Shale and will
apply the management team's expertise in well completion design and
execution to a proved and primarily undeveloped resource play.
-- Committed $50 million to Eagle Energy Exploration LLC ("Eagle
II") on 13 December 2013 with the right to commit an additional $50
million. Eagle II's primary strategy is to accumulate acreage for
delineation and development in United States Mid-Continent region,
leveraging its deep operating experience in the region.
-- As of 31 December 2013, total of $200 million committed
representing 16.2 Per Cent. of capital raised.(3)
-- Admitted to FTSE 250 on 23 December 2013.
Events since 31 December 2013
-- In the period since year end, REL has seen continued progress
in its investment portfolio. On 30 January 2014, Liberty II signed
an agreement to acquire approximately 53,000 net acres and
approximately 4,000 Boepd net in the Williston Basin. The
acquisition is expected to represent approximately $55 to $65
million of REL's $100 million commitment to Liberty II.
________________
(1) GBP:USD Fx rate of 1.656 as of 31 December 2013.
2 Includes KFI's second tranche of GBP50 million at GBP:USD Fx
rate of 1.616 as of 23 October 2013, see Note 12 of Annual Report
for reference.
(3) Assumes $50 million optional commitment on Eagle II is
exercised.
Manager Outlook
-- The investment pipeline for REL remains robust with several
E&P and Midstream investments in various stages of review and
negotiations.
-- Several current industry themes continue to drive the
investment opportunity set for REL, including the North American
shale revolution, historic under-investment in energy
infrastructure, continued pressure for larger companies to
rationalize assets, and the growing success rates in deepwater
exploration.
-- The Investment Manager continues to believe that this is a
market where patience and a disciplined approach to investment are
likely to be well-rewarded.
Sir Robert Wilson, Chairman of Riverstone Energy Limited,
commented:
"It has been a relatively short time since listing but we are
pleased to report positive progress. REL had a net asset value at
the end of December of $1,139 million, or $16.04 per share. We
remain fully focused on delivering the strategy we outlined at
IPO."
David M. Leuschen and Pierre F. Lapeyre Jr., Co-Founders of
Riverstone, added:
"We are very pleased with the successful IPO of REL as well as
the first two announced commitments. In each of Liberty II and
Eagle II, we are investing alongside management teams with whom we
have had successful partnerships previously. We look forward to
exciting future developments for REL in the weeks and months
ahead."
- Ends -
Riverstone Energy Limited's 2013 Annual Report is available to
view at: http://www.RiverstoneREL.com.
The Manager will host a conference call with investors at
10:30am this morning. Dial-in details are as follows:
Dial-in (UK): 08006940257
Dial-in (Intl.): +44 (0) 1452 555566
Code: 49123712
About Riverstone Energy Limited:
REL is a closed-ended investment company that invests
exclusively in the global energy industry, with a particular focus
on the exploration & production and midstream sectors. The
company is well positioned to take advantage of, and benefit from,
the large number of investment opportunities being driven by
continued global energy demand, including the North American energy
revolution. REL aims to capitalize on the opportunities presented
by Riverstone's pipeline of investment opportunities and is listed
on the London Stock Exchange, trading under the symbol RSE.
For further details, see www.RiverstoneREL.com
Neither the contents of Riverstone Energy Limited's website nor
the contents of any website accessible from hyperlinks on the
websites (or any other website) is incorporated into, or forms part
of, this announcement.
Media Contacts
For Riverstone Energy Limited:
Alfredo Marti
+44-20-3206-6315
Ken Ryan
+1 212-271-2941
Brunswick:
Andrew Mitchell
Robin Wrench
+44-207-404-5959
Annual Report and Financial Statements for the period
ended 31 December 2013
Riverstone
Energy
Limited
A focus on long-term capital growth (LSE: RSE)
Who we are...
Riverstone Energy Limited
Riverstone Energy Limited is a company limited by shares, which
was incorporated on 23 May 2013 in Guernsey with an unlimited life
and registered with the Commission as a Registered Closed-ended
Collective Investment Scheme pursuant to the POI Law. It was listed
on the London Stock Exchange on 29 October 2013.
The Company's investment manager is Riverstone International
Limited, which is majority-owned and controlled by affiliates of
Riverstone.
Riverstone is an energy and power-focused private investment
firm founded in 2000 by David M. Leuschen and Pierre F. Lapeyre
with approximately $26 billion of equity capital raised across
seven private investment funds and related co-investment entities.
Riverstone conducts buyout and growth capital investments in the
exploration and production, midstream, oilfield services, power and
renewable sectors of the energy industry. With offices in New York,
London and Houston, the firm has committed over $25 billion to more
than 100 investments in North America, Latin America, Europe,
Africa and Asia.
The registered office of the Company is Heritage Hall, PO Box
225, Le Marchant Street, St Peter Port, Guernsey, GY1 4HY, Channel
Islands.
Our Approach...
REL invests exclusively in the global energy industry, with a
particular focus on the exploration and production and midstream
sectors. The Company may also make investments in other energy
sub-sectors (including energy services and power and coal), but
will not do so during the investment period (including any
extension thereof) of Fund V. REL is well positioned to take
advantage of, and benefit from, the large number of investment
opportunities being driven by continued growth in global energy
demand, the North American energy revolution, asset rationalisation
by larger companies, and growing deepwater exploration success
rates. Since REL, through the Partnership, invests alongside the
Private Riverstone Funds in all Qualifying Investments in which the
Private Riverstone Funds participate, REL presents a unique
opportunity for public market investors to gain exposure to
Riverstone's investments in the very attractive global energy
sector.
Investment Policy
Asset Allocation
The Company acquires its interests in each Qualifying Investment
at the same time (or as near as practicable thereto) as, and on
substantially the same economic and financial terms as, the
relevant Private Riverstone Fund.
The Company and the current Private Riverstone Fund, Fund V,
invest in each Qualifying Investment in which Fund V participates
in a ratio of one-third to REL to two-thirds to Fund V. This
investment ratio is subject to adjustment on a case-by-case basis
(a) to take account of the liquid assets available to each of the
Company and Fund V for investment at the relevant time and any
other investment limitations applicable to either of them or
otherwise and (b) if both (i) a majority of the Company's
independent Directors and (ii) the Investment Manager agree that
the investment ratio should be adjusted for specific Qualifying
Investments.
For each Private Riverstone Fund subsequent to Fund V which is
of a similar size as Fund V (i.e. $7.7 billion) and has a similar
investment policy to the Company, Riverstone seeks to ensure that
subject to the investment capacity of the Company at the time, the
Company and the Private Riverstone Fund invest in Qualifying
Investments in an investment ratio of one-third to REL to
two-thirds to the Private Riverstone Fund or in such other ratio as
the Company's independent Directors and the Investment Manager
agree at or prior to the first closing of such Private Riverstone
Fund.
Such investment ratio may be adjusted by agreement between the
Company's independent Directors and the Investment Manager on
subsequent closings of a Private Riverstone Fund having regard to
the total capital commitments raised by that Private Riverstone
Fund during its commitment period, the liquid assets available to
the Company at that time and any other investment limitations
applicable to either of them.
The Investment Manager typically seeks to ensure that the
Company and the Private Riverstone Funds dispose of their interests
in Qualifying Investments at the same time, on substantially the
same terms, and in the case of partial disposals, in the same ratio
as the relevant Qualifying Investment was acquired, but this may
not always be the case.
In addition, the Company may at any time make investments
consistent with its investment policy independent from Private
Riverstone Funds, which may include investments alongside
Riverstone employee co-investment vehicles or other Riverstone
managed or advised co-investment vehicles. In such cases, approval
by the Board is required.
The Company invests in public or private securities, may hold
controlling or non-controlling positions in its investments and may
make investments in the form of equity, equity-related instruments,
indebtedness or derivatives (or a combination of any of them). The
Company does not permit any investments to be the subject of stock
lending or sale and repurchase of shares.
Diversification
No one investment made by the Company, through the Partnership,
may (at the time of the relevant investment) represent more than 25
per cent. of the Company's gross assets, including cash holdings,
measured at the time the investment is made. The Company utilises
the Partnership and its subsidiary undertakings or other similar
investment holding structures to make investments and this
limitation does not apply to its ownership interest in any such
subsidiary undertaking (nor, for the avoidance of doubt, to the
Company's interest in the Partnership).
Gearing
The Company can, but is not required to, incur indebtedness for
investment purposes, to the extent that such indebtedness is a
precursor to an ultimate equity investment, working capital
requirements and to fund own-share purchases or retentions up to a
maximum of 30 per cent. of the last published NAV as at the time of
the borrowing unless approved by the Company by an ordinary
resolution. This limitation does not apply to portfolio level
entities in respect of which the Company is invested but it does
apply to all subsidiary undertakings utilised by the Company or the
Partnership for the purposes of making investments. The consent of
a majority of the Company's Directors shall be required for the
Company or the Partnership to enter into any credit or other
borrowing facility.
The Company must at all times comply with the published
investment policy. For so long as the Ordinary Shares are listed on
the Official List, no material change may be made to the Company's
investment policy other than with the prior approval of both the
Company's Shareholders and a majority of the independent Directors
of the Company, and otherwise in accordance with the Listing
Rules.
Investment Restrictions
The Company is subject to the following investment
restrictions:
-- for so long as required by the Listing Rules, it will at all
times seek to ensure that the Investment Manager invests and
manages the Company's and the Partnership's assets in a way which
is consistent with the Company's objective of spreading risk and in
accordance with the Company's investment policy;
-- for so long as required by the Listing Rules, it must not
conduct a trading activity which is significant in the context of
the Company and its Investment Undertakings;
-- for so long as required by the Listing Rules, not more than
10 per cent. of the value of its total assets will be invested in
other UK-listed closed-ended investment funds, except for those
which themselves have published investment policies to invest not
more than 15 per cent. of their total assets in other UK-listed
closed-ended investment funds; and
-- any investment restrictions that may be imposed by Guernsey
law (although no such restrictions currently exist).
Currency and interest rate hedging transactions will only be
undertaken for the purpose of efficient portfolio management and
these transactions will not be undertaken for speculative
purposes.
"THE COMPANY INVESTS IN THE GLOBAL ENERGY SECTOR, which is
undergoing significant transformation driven in large part by a
revolution in horizontal drilling and completion technology."
Financial and Operational Highlights
Total Capital Raised $1.23 billion (GBP760.3 million)(1)
Committed to Date $200 million/16.2 per cent.
Commitments (as at Committed (i) $100 million to Liberty Resources
31 December 2013) II LLC and (ii) $50 million to Eagle Energy Exploration
LLC with the right to commit an additional $50
million
Subsequent Events On 30 January 2014, Liberty Resources II LLC
entered into an agreement to acquire 53,000 net
acres in Williston Basin in North Dakota, which
will require an investment of approximately $55-65
million in total from REL
Historical Achievement Largest energy sector IPO on the LSE since April
2010
Key Financials
NAV as at 31 December 2013 $1,139 million
NAV per share as at 31 December
2013 $16.04
Share price at 31 December 2013 $15.57 (GBP9.40)(2)
Market capitalisation at 31 December $1,106 million (GBP668 million)(2)
2013
Chairman's Statement
A focus on long-term capital growth...
________________
(1) Includes KFI's second tranche of GBP50 million (see Note
12).
(2) Assumed exchange rate of 1.656 $/GBP.
On 29 October, REL's ordinary shares were admitted to the
premium listing segment of the Official List of the UK Listing
Authority and to trading on the London Stock Exchange's main market
for listed securities under the ticker "RSE". Over 76 million
shares(1) were issued at an issue price of GBP10 per ordinary
share, raising GBP760.3 million(1) ($1.23 billion) by way of a
successful global placing, offer for subscription for investors in
the UK and private placing to selected cornerstone investors. REL
was the largest energy sector IPO on the LSE since April 2010.
These facts were a product of the strong demand we saw from
institutional investors. REL is now a member of the FTSE 250
index.
Background
REL was launched by Riverstone, an energy and power-focused
private investment firm with approximately $26 billion of equity
capital raised across seven investment funds and related
co-investment entities. With offices in New York, London and
Houston, the firm has committed over $25 billion to more than 100
investments in North America, Latin America, Europe, Africa and
Asia. Riverstone has an outstanding track record of building
businesses with exceptional management teams and of delivering
consistently strong returns and significant outperformance against
both crude oil and natural gas benchmarks.
The Board is comprised of nine Directors, five of whom are
independent of Riverstone. I am delighted to chair the Board, and
am joined by a group of experienced individuals from the energy
world. The Board members are Peter Barker(2) , Lord John Browne,
Patrick Firth(2) , James Hackett, Richard Hayden(2)(3) , Pierre F.
Lapeyre, David M. Leuschen and Dr Tidu Maini(2) .
Over 76 million shares(1) were issued at an issue price of GBP10
per ordinary share, raising GBP760.3 million(1)
Investment Approach
REL provides an opportunity for investors to gain exposure to
the global energy sector, but with potentially better risk-adjusted
returns than are currently available through alternative investment
opportunities. Our intention is to invest globally across the
energy sector, with a particular focus on the exploration and
production and midstream segments. Initially, REL will invest
alongside Fund V, but we are a stand-alone company and have the
ability to make investments on our own, although there is no
intention to make an independent investment in the short-term.
Our focus is on long-term capital growth and, as such, it is not
expected that we will pay any dividends in the short to
medium-term. Cash generated by investments will be reinvested to
grow the Company's Net Asset Value.
Performance
REL had a NAV per share at the end of December of $16.04.
In the two months since listing, REL, through the Partnership,
has made its first two commitments of $100 million in Liberty
Resources II LLC and $50 million in Eagle Energy Exploration LLC
(with the right to commit up to an additional $50 million for a
total commitment
________________
(1) Includes KFI's second tranche of 5 million shares at GBP50
million (see Note 12).
(2) Non-executive Independent Director.
(3) Senior Independent Director.
of $100 million). Consistent with our stated investment
strategy, both investments are targeting opportunities in the North
American exploration and production areas. The investments are with
proven management teams with whom Riverstone has partnered
successfully before, and we look forward to working with them again
as they develop their new asset portfolios.
On behalf of the Board, I would like to thank all our
shareholders for their commitment to REL. The successful listing of
the Company on the London Stock Exchange and, subsequently, its
first investments alongside Fund V, marks the commencement of an
exciting journey. We firmly believe that Riverstone's long-standing
investment record provides a unique proposition for London-based
investors in the global energy sector.
Sir Robert Wilson
Chairman
13 February 2014
Investment Manager's Report
A track record built over our 14-year history...
Riverstone has developed a track record of sponsoring and
advising private investment vehicles that have provided strong
investment returns and multiples of equity by investing in the
exploration and production and midstream sectors, generated over
periods of varying economic conditions and different commodity
price cycles.
The global energy industry continues to go through very
substantial change, driven in large part by the North American
energy revolution and the exponential growth of the industry's
capital needs. The continued refinement of horizontal drilling
techniques plus the growing deep water exploration success rates
are among the macro tail winds that are driving our global
investment opportunity.
About the Investment Manager
Appointed in September 2013, the Investment Manager, an
affiliate of Riverstone, provides advice to the Company on the
origination and completion of new investments, on the management of
the portfolio and on realisations, as well as on funding
requirements.
Investment Strategy
The Investment Manager's objective is to achieve superior risk
adjusted returns through investing primarily in the exploration and
production and midstream energy sectors. The energy sector is
global and a significant component of virtually all major
economies. Prevalent market drivers of economic expansion,
population growth, development of markets, deregulation and
privatisation will continue to create opportunities globally for
investors in energy.
Key Drivers:
-- The industry is being transformed as the North American shale
revolution creates numerous exciting investment opportunities.
-- Larger companies are under constant pressure to rationalise
assets.
-- Growing success rates of deepwater exploration.
-- Historical under-investment in energy infrastructure.
Macro-drivers make energy investment a very attractive
proposition, particularly in shale gas, tight oil, energy
infrastructure, orphaned assets and certain offshore basins such as
the Gulf of Mexico.
The Investment Manager, through its affiliates, has an
outstanding track record of building businesses with exceptional
management teams and of delivering consistently strong returns and
significant outperformance against both crude oil and natural gas
benchmarks. The Company aims to capitalise on the opportunities
presented by Riverstone's pipeline of investment opportunities.
The Investment Manager utilises its extensive industry expertise
and relationships to thoroughly evaluate and investigate investment
prospects and uses its significant experience in conducting due
diligence, valuing assets and all other aspects of deal execution,
including financial and legal structuring, accounting and
compensation design. The Investment Manager also draws upon its
extensive network of relationships with industry-focused
professional advisory firms to assist with due diligence in other
areas such as legal, accounting, tax, employee benefits,
environmental, engineering or insurance.
Investment Portfolio Summary
The Investment Manager has reviewed several potential
exploration and production, and midstream investments since REL's
admission. Thus far, two exploration and production investments
have been completed as further discussed below. The Investment
Manager continues to maintain a strong pipeline of investment
opportunities and expects to make a number of further commitments
in 2014.
Liberty Resources II LLC
REL, through the Partnership, has partnered with Fund V to form
Liberty Resources II LLC ("Liberty II") along with Liberty II's
management team. Separate Riverstone affiliated funds previously
completed a similar transaction with Liberty II's management team
resulting in a successful sale of the assets at 1.7x Gross MOIC and
a Gross IRR of 28 per cent.
The Company, through the Partnership, has committed $100 million
to Liberty II. Liberty II will principally operate in the Bakken
Shale and will apply the management team's expertise in well
completion design and execution to a proved and underdeveloped
resource play. Among other potential areas of focus, Liberty II
will likely target the DJ Basin, where we believe certain play
types are conducive to Liberty II's proprietary technical
completion approach.
As of 31 December 2013, the Company through the Partnership, had
not invested any of the $100 million commitment in Liberty II.
On 30 January 2014, Liberty II signed an agreement to acquire
approximately 53,000 net acres and approximately 4,000 Boepd net in
the Williston Basin in North Dakota. The acquisition is expected to
require approximately $55-65 million net from REL (of the initial
$100 million commitment) pending financing arrangement and is
expected to close in March 2014. REL made a $13.3 million deposit
on 30 January 2014. Liberty II will continue to target acquisitions
in the Bakken and Three Forks formations as it furthers the
development of the acquired properties.
Eagle Energy Exploration LLC
REL, through the Partnership, has partnered with Fund V to form
Eagle Energy Exploration LLC ("Eagle II") along with Eagle II's
management team. Separate Riverstone affiliated funds previously
completed a similar investment with Eagle II's management team
resulting in a successful sale of the assets at approximately 4.1x
Gross MOIC and a Gross IRR of 57 per cent.
The Company, through the Partnership, has committed $50 million
to Eagle II with the right to commit an additional $50 million for
a total commitment of $100 million. Eagle II's primary strategy is
to accumulate acreage for delineation and development in the
Mid-Continent region of the United States. Eagle II's management
has deep connections with local operators and access to proprietary
deal flow in the region. With this advantageous sourcing position,
the generally decreasing cost of entry in the region, and the
management team's operating experience in the play, Eagle II is
poised to capture attractive returns.
Currently, $1 million of the $100 million commitment has been
invested in Eagle II. Eagle II is currently evaluating several
exploration and development projects.
Valuation
The Investment Manager is charged with the responsibility of
valuing the assets held by REL and the Partnership. The Partnership
has directed that securities and instruments be valued at their
fair value. REL's valuation policy follows the IFRS accounting
standards and IPEV Valuation Guidelines. Riverstone values each
underlying investment in accordance with the Riverstone valuation
policy, the IFRS accounting standards and IPEV Valuation
Guidelines. The value of REL's portion of that investment is
derived by multiplying its ownership percentage by the value of the
underlying investment. If there is any divergence between the
Riverstone valuation policy and REL's valuation policy, the
Partnership's proportion of the total holding will follow REL's
valuation policy and the Fund V proportion will follow the
Riverstone valuation policy. Valuations determined by Riverstone
are disclosed quarterly to investors.
Riverstone values its investments using common industry
valuation techniques, including comparable public market valuation,
comparable merger and acquisition transaction valuation, and
discounted cash flow valuation.
For development-type investments, Riverstone also considers the
recognition of appreciation of subsequent financing rounds, if any,
or if subsequent financing rounds are below original cost, the
investment is valued at the "down round". For those early stage
privately held companies where there are other indicators of a
decline in the value of the investment, Riverstone will value the
investment accordingly even in the absence of a subsequent
financing round.
Riverstone reviews the valuations on a quarterly basis with the
Riverstone investment committee as part of the valuation process.
Ernst & Young LLP attends the valuation review meetings that
are relevant to the Company as part of their statutory audit
process.
Formation and Initial Expenses
The formation and initial expenses of the Company have been paid
in full by the Investment Manager. In some circumstances, this may
be repayable in full by the Company (see Note 13).
Investment Management Fee
The Investment Manager has agreed to deduct from its annual
Investment Management Fee all fees, travel costs and related
expenses of the Directors exceeding certain specified annual limits
(see Note 14).
The annual limits are subject to adjustment by agreement between
the Investment Manager and the Company acting by its independent
Directors. Based on the NAV as of 31 December 2013, the maximum
amount of annual fees, travel and related expenses of the Directors
is $899,541. The maximum amount pro-rated for the period 29 October
2013 to 31 December 2013 was $155,263.
Uninvested Cash
Of the $1,140 million(1) of cash raised in the IPO, $1,130
million(2) has been invested into the Partnership for investment
purposes. The Partnership maintains deposit accounts with several
leading international banks. In addition, the Partnership invests a
portion of its cash deposits in short-term U.S. treasury bills.
REL's treasury policy seeks to protect the principal value of cash
deposits utilising low risk products with top tier
counterparts.
In connection with the listing of REL on the London Stock
Exchange, all proceeds of the offering were converted to U.S.
dollars. All cash deposits referred to above are denominated in
U.S. dollars. Additionally, REL's functional currency and Financial
Statements are all presented in U.S. dollars. The Partnership's
first two commitments, Liberty II and Eagle II are both denominated
in U.S. dollars. REL expects foreign exchange to have nominal
impact on its business and overall financial results.
Subsequent Events and Outlook
On 30 January 2014, Liberty II signed an agreement to acquire
approximately 53,000 net acres and approximately 4,000 Boepd net in
the Williston Basin in North Dakota. The acquisition is expected to
require approximately $55-65 million net from REL (of the initial
$100 million commitment) pending financing arrangement and is
expected to close in March 2014. REL made a $13.3 million deposit
on 30 January 2014. Liberty II will continue to target acquisitions
in the Bakken and Three Forks formations as it furthers the
development of the acquired properties.
The investment pipeline for REL remains robust with several
actionable exploration and production and midstream investments in
various stages of review and negotiation. Several current industry
themes continue to drive the investment opportunity set for REL.
These include the North American shale revolution, historical
under-investment in energy infrastructure, continued pressure for
larger companies to rationalise assets, and the growing success
rates and democratisation of deepwater exploration. The Investment
Manager continues to believe that this is a market where patience
and a disciplined approach to investment are likely to be well
rewarded.
________________
(1) Does not include KFI's second tranche of GBP50 million (see
Note 12).
(2) The Company retained $10 million of cash raised in the IPO
to meet liabilities over the Company's going concern horizon.
Riverstone International Limited
13 February 2014
Report of the Directors
The Directors hereby submit the Annual Report and Audited
Financial Statements for the Company for the period ended 31
December 2013.
General Information
Riverstone Energy Limited is a company limited by shares, which
was incorporated on 23 May 2013 in Guernsey with an unlimited life
and registered with the Commission as a Registered Closed-ended
Collective Investment Scheme pursuant to the POI Law. It has been
listed on the London Stock Exchange since 29 October 2013. The
registered office of the Company is Heritage Hall, PO Box 225, Le
Marchant Street, St Peter Port, Guernsey, GY1 4HY, Channel
Islands.
Principal Activities
The principal activity of the Company is to act as an investment
entity through the Partnership and make privately negotiated equity
investments in the energy sector.
The Company's investment objective is to generate long-term
capital growth by investing in the global energy sector, with a
particular focus on opportunities in the global exploration and
production and midstream energy sub-sectors.
Business Review
A review of the Company's business and its likely future
development is provided in the Chairman's Statement and in the
Investment Manager's Report.
Listing Requirements
Since being admitted on 29 October 2013 to the Official List of
the UK Listing Authority, maintained by the FCA, the Company has
complied with the applicable Listing Rules.
Results and Dividend
The results of the Company for the period are shown in the
audited Statement of Comprehensive Income.
The Net Asset Value of the Company as at 31 December 2013 was
$1,139 million.
The Directors do not recommend the payment of a dividend in
respect of the period ended 31 December 2013.
Share Capital
At incorporation on 23 May 2013, the Company issued one founder
Ordinary Share of no par value. On 29 October 2013, the Company
issued 71,032,057 Ordinary Shares of no par value at GBP10 per
Ordinary Share in an initial public offering raising a total of
$1,138 million. A further 5 million Ordinary Shares will be issued
on a deferred basis, raising a further GBP50 million, as set out
below. Details of the issue were set out in the Prospectus dated 24
September 2013, which is available from the Company's website
(www.RiverstoneREL.com).
The Company has one class of Ordinary Shares. The issued nominal
value of the Ordinary Shares represents 100 per cent. of the total
issued nominal value of all share capital. Under the Company's
Articles of Incorporation, on a show of hands, each Shareholder
present in person or by proxy has the right to one vote at general
meetings. On a poll, each Shareholder is entitled to one vote for
every share held.
Shareholders are entitled to all dividends paid by the Company
and, on a winding up, providing the Company has satisfied all of
its liabilities, the Shareholders are entitled to all of the
surplus assets of the Company. The Ordinary Shares have no right to
fixed income.
KFI, one of the Cornerstone Investors in the Company, pays for
and acquires its Ordinary Shares in two equal tranches of GBP50
million. The first tranche was paid on Admission at which time 5
million Ordinary Shares were issued to KFI. The second tranche will
become payable upon the earlier of (i) such time as the Company has
invested or committed 50 per cent. of the aggregate net proceeds of
the issue, calculated using KFI's total subscription monies; and
(ii) the second anniversary of Admission, at such time, a further 5
million Ordinary Shares will be issued to KFI.
The Company and KFI are party to an Off-Market Acquisition
Agreement dated 23 September 2013, pursuant to which, upon the
failure by KFI to pay the second tranche of subscription monies
when requested to do so by the Company in accordance with its
Cornerstone Subscription Agreement, the Company may elect to force
a sale of, or a compulsorily repurchase of, such Ordinary Shares as
equates in value to the second tranche of subscription monies which
is unpaid (valued by reference to the then market price of the
Ordinary Shares) for nil consideration.
KFI has the right to pay the second tranche of subscription
monies to the Company at any time after Admission, and prior to the
due date for payment.
The terms of the Off-Market Acquisition Agreement, which is
governed by Guernsey law, were approved by special resolution of
the Company dated 23 September 2013.
Board of Directors
Sir Robert Wilson (70), Chairman and Non-executive Independent
Director
Appointment: Appointed to the Board and became Chairman in May
2013
Experience: Sir Robert Wilson is the Chairman of the Company, a
Senior Adviser at Morgan Stanley and a Non-executive Independent
Director of GlaxoSmithKline plc. Sir Robert served as Chairman of
BG Group plc from January 2004 until May 2012. He was previously
Executive Chairman of Rio Tinto plc where he became Chief Executive
in 1991 and was Executive Chairman from 1997 until his retirement
in 2003. From 2003 to 2009, Sir Robert was also Non-executive
Chairman of The Economist Group. Sir Robert is a UK resident.
Committee Membership: Nomination Committee Chairman, Management
Engagement Committee Chairman
Peter Barker (64), Non-executive Independent Director
Appointment: Appointed to the Board in September 2013
Experience: Mr Barker was former California Chairman of JPMorgan
Chase & Co., a global financial services firm, from September
2009 until his retirement on 31 January 2013, and a member of its
Executive Committee in New York. Mr Barker was also a former
Advisory Director of Goldman, Sachs & Co. from December 1998
until his retirement in May 2002, and a Partner of Goldman, Sachs
& Co. from 1982 to 1998, heading up Investment Banking on the
West Coast, having joined Goldman, Sachs & Co. in 1971. Mr
Barker is President of the Fletcher Jones Foundation and has held
numerous directorships. He is currently on the board of Fluor
Corporation, Avery Dennison Corporation, the W. M. Keck Foundation,
the Irvine Company, Franklin Resources, Inc., and the Automobile
Club of Southern California. Mr Barker was also formerly a Director
of GSC Investment Corp. Mr Barker is also a Trustee of Claremont
McKenna College, having formerly been its Chairman, and was
previously Chair of the Los Angeles Area Council of the Boy Scouts
of America. Mr Barker is a U.S. resident.
Committee Membership: Audit Committee Member; Nomination
Committee Member; Management Engagement Committee Member
Lord Browne of Madingley (65), Non-executive Director
Appointment: Appointed to the Board in May 2013
Experience: Lord Browne is a Partner and Managing Director of
Riverstone and is based in London. Lord Browne joined Riverstone in
2007 and is co-head of Riverstone's Renewable Energy Funds. Prior
to joining Riverstone, he spent 41 years at BP. He joined BP in
1966, became Group Treasurer in 1984, became Managing Director and
Chief Executive Officer of BP Exploration in 1989 and in September
1991 joined the Board of The British Petroleum Company plc. as a
Managing Director. He was appointed Group Chief Executive in June
1995 and following the merger of BP and Amoco, became Group Chief
Executive of the combined group in December 1998 (remaining in this
position until May 2007).
Lord Browne was appointed the UK Government's Lead Non-Executive
Board member in June 2010 and in addition to serving on the boards
of a number of portfolio companies in which Other Riverstone Funds
have investment interests, is also the Chairman of a variety of
corporate, advisory and charitable boards and is a member of the L1
Energy Advisory Board. Lord Browne is a director of Pattern Energy
Group Inc. and is a UK resident.
Committee Membership: None
Patrick Firth (52), Non-executive Independent Director
Appointment: Appointed to the Board in May 2013
Experience: Mr Firth qualified as a Chartered Accountant with
KPMG Guernsey in 1991 and is also a member of the Chartered
Institute for Securities and Investment. He has worked in the fund
industry in Guernsey since joining Rothschild Asset Management (CI)
Limited in 1992 before moving to become Managing Director at
Butterfield Fund Services (Guernsey) Limited (subsequently
Butterfield Fulcrum Group (Guernsey) Limited), a company providing
third party fund administration services, where he worked from
April 2002 until June 2009. He is a Non-executive Director of a
number of investment funds and management companies, including BH
Credit Catalysts Limited, ICG Longbow Senior Secured UK Property
Debt Investments Limited and JZ Capital Partners Limited. Mr Firth
is a resident of Guernsey.
Committee Membership: Audit Committee Member; Nomination
Committee Member; Management Engagement Committee Member
James Hackett (59), Non-executive Director
Appointment: Appointed to the Board in May 2013
Experience: Mr Hackett is a Partner and Managing Director of
Riverstone and was, before becoming a director of the Company,
Executive Chairman of the Board of Anadarko Petroleum Corporation,
a global oil and natural gas exploration and production company. Mr
Hackett was named Executive Chairman of Anadarko in May 2012, after
serving as Chief Executive Officer since 2003 and Chairman of the
Board since January 2006. He also served as Anadarko's President
from December 2003 to February 2010. Before joining Anadarko, Mr
Hackett served as President and Chief Operating Officer of Devon
Energy Corporation. Mr Hackett is a Director of Cameron
International Corporation, Fluor Corporation, Bunge Limited, is a
member of the L1 Energy Advisory Board and is the former Chairman
of the Board of the Federal Reserve Bank of Dallas. Mr Hackett is a
U.S. resident.
Committee Membership: None
Richard Hayden (68), Non-executive Senior Independent
Director
Appointment: Appointed to the Board in May 2013
Experience: Mr Hayden serves as Non-executive Chairman of
Haymarket Financial LLP. Prior to joining Haymarket Financial LLP
in 2009, Mr Hayden was Vice Chairman of GSC Group Inc and Global
Head of the CLO and Mezzanine Debt business. Previously, Mr Hayden
was with Goldman Sachs from 1969 to 1999, became a Partner in 1980,
and was Vice Chairman prior to joining GSC Group Inc in 2000. Mr
Hayden held a variety of senior positions during his time at
Goldman Sachs, including Deputy Chairman of Goldman Sachs
International Ltd and Chairman of the Global Credit Committee. He
was also a member of the firm's Commitments Committee, Partnership
Committee and the Goldman Sachs International Executive Committee.
Mr Hayden has served on a number of corporate and advisory boards
and is currently a Non-executive Director of Deutsche Boerse and
Chairman of the TowerBrook Capital Partners Advisory Board. Mr
Hayden is a UK resident.
Committee Membership: Audit Committee Chairman
Pierre F. Lapeyre (51), Non-executive Director
Appointment: Appointed to the Board in May 2013
Experience: Mr Lapeyre is a Founder and Senior Managing Director
of Riverstone. He is based in New York. Prior to founding
Riverstone, Mr Lapeyre was a Managing Director of Goldman Sachs in
its Global Energy and Power Group. Mr Lapeyre joined Goldman Sachs
in 1986 and spent his 14-year investment banking career focused on
energy and power, particularly the midstream, upstream and energy
service sectors. Mr Lapeyre's responsibilities at Goldman Sachs
included client coverage and leading the execution of a wide
variety of M&A, IPO, strategic advisory and capital markets
financings for clients across all sectors of the industry.
While at Goldman Sachs, Mr Lapeyre served as sector captain for
the midstream and energy services segments, led the group's
coverage of Asian energy companies and was extensively involved in
the origination and execution of energy private equity investments
on behalf of the firm. Mr Lapeyre was responsible for managing
Goldman Sachs' leading franchise in master limited partnerships. He
was also asked to lead the group's agency and principal investment
effort in energy/power technology. At Goldman Sachs Mr Lapeyre had
relationship and deal execution responsibilities for a broad range
of energy clients.
Mr Lapeyre serves on the boards of directors or equivalent
bodies of a number of portfolio companies in which Other Riverstone
Funds have investment interests. Mr Lapeyre is a U.S. resident.
Committee Membership: None
David M. Leuschen (62), Non-executive Director
Appointment: Appointed to the Board in May 2013
Experience: Mr Leuschen is a Founder and Senior Managing
Director of Riverstone. He is based in New York. Prior to founding
Riverstone, Mr Leuschen was a Partner and Managing Director at
Goldman Sachs and founder and head of the Goldman Sachs Global
Energy and Power Group. Mr Leuschen joined Goldman Sachs in 1977,
became head of the Global Energy and Power Group in 1985, became a
Partner of that firm in 1986 and remained with Goldman Sachs until
leaving to found Riverstone. Mr Leuschen has extensive M&A,
financing and investing experience in the energy and power
industry.
Mr Leuschen was responsible for building the Goldman Sachs
energy and power investment banking practice into one of the
leading franchises in the global energy and power industry. During
this period, Mr Leuschen and his team participated in a large
number of the major energy and power M&A transactions
worldwide. Mr Leuschen also was a founder of Goldman Sachs' leading
master limited partnership franchise. Mr Leuschen also served as
Chairman of the Goldman Sachs Energy Investment Committee, where he
was responsible for screening potential capital commitments by
Goldman Sachs in the energy and power industry and was responsible
for establishing and managing the firm's relationships with senior
executives from leading companies in all segments of the energy and
power industry.
Mr Leuschen also serves on the boards of directors or equivalent
bodies of a number of portfolio companies in which Other Riverstone
Funds have investment interests. Mr Leuschen is a U.S.
resident.
Committee Membership: None
Dr Tidu Maini (70), Non-executive Independent Director
Appointment: Appointed to the Board in May 2013
Experience: Dr Maini currently serves on a number of corporate
and advisory boards including as a member of the Executive
Committee of and Advisor to Qatar Foundation Endowment and as
Special Envoy for the Office of Her Highness Shiekha Moza Bint
Nasser of Qatar. From January 2002 to June 2007, Dr Maini was Pro
Rector for Development and Corporate Affairs at Imperial College
London. Dr Maini has 30 years experience in the management of
technology companies in the defence, electronics, energy and
information and communication technology sectors. Dr Maini's
extensive executive experience includes the management of
businesses in Europe, U.S., Asia and the Middle East including as a
former Deputy Chairman of GEC Marconi and as a senior executive at
both Schlumberger and Sema Group. Dr Maini is a resident of
Qatar.
Committee Membership: None
Shareholdings of the Directors
The Directors and their beneficial interests in the shares of
the Company as at 31 December 2013 are detailed below:
Ordinary Shares of
GBP10.00 each held Per cent. holding at
Director 31 December 2013 31 December 2013
---------------------- -------------------- ---------------------
Sir Robert Wilson(2) 20,000 0.028
Peter Barker(2)(3) 5,000 0.007
Lord John Browne - -
Patrick Firth(2)(3) 4,000 0.006
James Hackett - -
Richard Hayden(2)(4) 10,000 0.014
Pierre Lapeyre(1) - -
David Leuschen(1) - -
Dr Tidu Maini(2) 5,000 0.007
---------------------- -------------------- ---------------------
(1) Mr Lapeyre and Mr Leuschen have a beneficial interest in REL
Coinvestment, LP which as at the period end held 5,000,000
shares.
(2) Non-executive Independent Directors.
(3) Ordinary Shares held jointly with his spouse.
(4) Senior Independent Director.
There have been no changes to the Directors' shareholdings since
31 December 2013.
Directors' Authority to Buy Back Shares
At the AGM to take place on 14 May 2014, the Company will seek
authority to make market purchases of up to a maximum of 14.99 per
cent. of the issued share capital of the Company. Any buy back of
the Company's Ordinary Shares will be made subject to Companies Law
and within any guidelines established from time to time by the
Board. The making and timing of any buy backs will be at the
absolute discretion of the Board and not at the option of the
Shareholders. Purchases of the Company's Ordinary Shares will only
be made through the market for cash at prices below the prevailing
Net Asset Value of the Company's Ordinary Shares (as last
calculated) where the Directors believe such purchases will enhance
shareholder value. Such purchases will also only be made in
accordance with the Listing Rules which provide that the price to
be paid must not be more than 5 per cent. above the average of the
middle market quotations for the Company's Ordinary Shares for the
five business days before the shares are purchased unless
previously advised to shareholders.
In accordance with the Company's Articles of Incorporation and
Companies Law, up to 10 per cent. of the Company's Ordinary Shares
may be held as treasury shares. The Company did not purchase any
shares for treasury or cancellation up to the date of this
report.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of directors' and
officers' liability in relation to their acts on behalf of the
Company. Insurance is in place, effective as of 24 October
2013.
Substantial Shareholdings
As at 31 December 2013, the Company had been notified, in
accordance with Chapter 5 of the Disclosure and Transparency Rules,
of the following substantial voting rights as shareholders of the
Company.
Per cent. Nature of
Shareholder Shareholding Holding Holding
----------------------------- ------------- ---------- ----------
AKRC Investments LLC(1) 20,908,815 29.4 Indirect
Hunt(1,2) 6,167,885 8.7 Direct
Kendall Family Investments,
LLC(1,3) 5,000,000 7.0 Direct
REL Coinvestment, LP 5,000,000 7.0 Direct
Casita, L.P.(1) 5,000,000 7.0 Direct
----------------------------- ------------- ---------- ----------
(1) Held by a Cornerstone Investor
(2) Held in aggregate by Hunt
(3) Excludes second tranche of 5 million shares (see Note
12)
In addition, the Company also provides the same information as
at 31 January 2014, being the most current information
available.
Per cent. Nature of
Shareholder Shareholding Holding Holding
----------------------------- ------------- ---------- ----------
AKRC Investments LLC(1) 20,908,815 29.4 Indirect
Hunt(1,2) 6,167,885 8.7 Direct
Kendall Family Investments,
LLC(1,3) 5,000,000 7.0 Direct
REL Coinvestment, LP 5,000,000 7.0 Direct
Casita, L.P.(1) 5,000,000 7.0 Direct
----------------------------- ------------- ---------- ----------
(1) Held by a Cornerstone Investor
(2) Held in aggregate by Hunt
(3) Excludes second tranche of 5 million shares (see Note
12)
The Directors confirm that there are no securities in issue that
carry special rights with regards to the control of the
Company.
The Company's issued share capital consists of 71,032,058(1)
Ordinary Shares. Under the Company's Articles of Incorporation, on
a show of hands, each Shareholder present in person or by proxy has
the right to one vote at general meetings. On a poll, each
shareholder is entitled to one vote for every share held.
Independent Auditor
Ernst & Young LLP has been the Company's external auditor
since the Company's incorporation. This is the first period of
audit. A resolution will be proposed at the forthcoming AGM to
re-appoint them as auditor and authorise the Directors to determine
the auditor's remuneration for the ensuing year.
The Audit Committee will periodically review the appointment of
Ernst & Young LLP and the Board recommends their appointment.
Further information on the work of the auditor is set out in the
Report of the Audit Committee.
Articles of Incorporation
The Company's Articles may only be amended by special resolution
of the shareholders.
________________
(1) Does not include KFI's second tranche of 5 million shares at
GBP50 million (see Note 12).
Non-mainstream Pooled Investments
The Board notes the changes to the FCA rules regarding the
restrictions on the promotion to retail investors of unregulated
collective investment schemes and close substitutes (referred to as
"non-mainstream pooled investments"), which came into effect on 1
January 2014. On the basis of advice received, the Board has
concluded that the Company's Ordinary Shares are not non-mainstream
pooled investments for the purposes of these rules, meaning that
the restrictions on promotion imposed by the rules do not apply. It
is the Board's intention that the Company conducts its affairs so
that these restrictions will continue to remain inapplicable.
General Partner's Performance Allocation
The General Partner's Performance Allocation is calculated under
the terms of the RELIP Limited Partnership Agreement and as
described in the Prospectus dated 24 September 2013.
As of 31 December 2013, no amounts have been paid or accrued in
respect of the Performance Allocation. The Performance Allocation
will be calculated on a quarterly basis, which will be taken into
account when calculating the fair value of the Company's investment
in the Partnership.
Change of Control
There are no agreements that the Company considers significant
and to which the Company is party that would take effect, alter or
terminate upon change of control of the Company following a
takeover bid.
Going Concern
The Company has invested $1,130 million of the issue proceeds
into the Partnership, retaining $11.8(2) million. This amount is
adequate to meet the Company's liabilities as they fall due over
the going concern horizon. The Partnership has $930.5 million of
uncommitted cash and U.S. treasury bills and has no material going
concern risk. In light of the above, the Directors are satisfied
that it is appropriate to adopt the going concern basis in
preparing the financial statements.
Financial Risk Management Policies and Objectives
Financial Risk Management Policies and Objectives are disclosed
in Note 15.
Principal Risk and Uncertainties
Principal Risk and Uncertainties are discussed in the Corporate
Governance Report.
Subsequent Events
On 30 January 2014, Liberty II signed an agreement to acquire
approximately 53,000 net acres and approximately 4,000 Boepd net in
the Williston Basin in North Dakota. The acquisition is expected to
require approximately $55-65 million net from REL (of the initial
$100 million commitment) pending financing arrangement and is
expected to close in March 2014. REL made a $13.3 million deposit
on 30 January 2014. Liberty II will continue to target acquisitions
in
_________________
(2) Includes GBP1.5million KFI financing charge (see Note
12).
the Bakken and Three Forks formations as it furthers the
development of the acquired properties.
Annual General Meetings
The AGM of the Company will be held at 10.00 am GMT on 14 May
2014 at Lefebvre Place, Lefebvre Street, St Peter Port, Guernsey,
Channel Islands. Details of the resolutions to be proposed at the
AGM, together with explanations, will appear in the notices of
meetings to be distributed to Shareholders listed on the register
as at 31 December 2013 together with this Annual Report.
Members of the Board, including the Chairman and the Audit
Committee chairman, will be in attendance at the AGM and will be
available to answer shareholder questions.
By order of the Board
Sir Robert Wilson
Chairman
13 February 2014
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations.
The Companies Law requires the Directors to prepare Financial
Statements for each financial year. Under the Listing Rules, the
Directors are required to prepare the Financial Statements in
accordance with IFRS as adopted by the European Union. Under the
Companies Law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing these Financial
Statements, International Accounting Standard 1 requires that
Directors:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and estimates that are reasonable and
prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
-- prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Financial Statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time, the
financial position of the Company and to enable them to ensure that
the Financial Statements comply with Companies Law. They are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud, error and non compliance with law and regulations.
The maintenance and integrity of the Company's website
(www.RiverstoneREL.com) is the responsibility of the Directors. The
work carried out by the Auditors does not involve considerations of
these matters and, accordingly, the auditors accept no
responsibility for any change that may have occurred to the
Financial Statements since they were initially presented on the
website.
Legislation in Guernsey governing the preparation and
dissemination of the Financial Statements may differ from
legislation in other jurisdictions.
All companies with a premium listing of equity shares in the UK
are required under the Listing Rules to report on how they have
applied the Corporate Governance Code in their Annual Report and
Financial Statements.
Responsibility Statement of the Directors in Respect of the
Annual Report
Each of the Directors, whose names are set out in the Report of
the Directors section of the Annual Report, confirms to the best of
their knowledge that:
-- the Financial Statements, prepared in accordance with IFRS as
adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the
Company;
-- the Annual Report includes a fair review of the development
and performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties faced;
-- the Directors confirm that the Annual Report and Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company's performance, business model and strategy; and
-- so far as each Director is aware, there is no relevant audit
information of which the Company's auditors are unaware, and each
Director has taken all the steps that he ought to have taken as a
Director in order to make himself aware of any relevant audit
information and to establish that the Company's Auditors are aware
of that information. This confirmation is given and should be
interpreted in accordance with the provisions of section 249 of the
Companies Law.
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations. Having taken advice from the Audit Committee, the
Directors consider the Annual Report and Financial Statements,
taken as a whole, as fair, balanced and understandable and that it
provides the information necessary for shareholders to assess the
Company's performance, business model and strategy.
By order of the Board
Sir Robert Wilson Richard Hayden
Chairman Director
13 February 2014 13 February 2014
Corporate Governance Report
The Directors recognise the importance of sound corporate
governance, particularly the requirements of the AIC Code.
The Company became a member of the AIC effective 15 January 2014
and in preparation has put in place arrangements to comply with the
AIC Code and, in accordance with the AIC Code, voluntarily complies
with the Corporate Governance Code. The Company is subject to the
GFSC Code, which applies to all companies that hold a licence from
the GFSC under the regulatory laws or which are registered or
authorised as collective investment schemes in Guernsey.
The Board monitors the developments in corporate governance to
ensure the Board remains aligned with best practice especially with
respect to the increased focus on diversity. The Board acknowledges
the importance of diversity, including gender, for the effective
functioning of the Board and commits to supporting diversity in the
boardroom. It is the Board's ongoing aspiration to have a well
diversified representation. The Board also values diversity of
business skills and experience because Directors with diverse
skills sets, capabilities and experience gained from different
geographical backgrounds enhance the Board by bringing a wide range
of perspectives to the Company.
The AIC Code, as explained by the AIC Guide, addresses all the
principles set out in the Corporate Governance Code, as well as
setting out additional principles and recommendations on issues
that are of specific relevance to investment companies such as the
Company. The Board considers that reporting against the principles
and recommendations of the AIC Code, by reference to the AIC Guide,
provides better information to shareholders.
The AIC Code and the AIC Guide are available on the AIC's
website, www.theaic.co.uk. The Corporate Governance Code is
available on the Financial Reporting Council's website,
www.frc.org.uk.
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of the Corporate Governance Code,
except as set out below.
The Corporate Governance Code includes provisions relating
to:
-- the role of the chief executive;
-- executive directors' remuneration; and
-- the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in
the Corporate Governance Code, the Board considers that the above
provisions are not relevant to the position of the Company, being
an externally managed investment company, which delegates most
day-to-day functions to third parties.
The Company does not have a chief executive or any executive
directors. The Company has not established a separate remuneration
committee as the Company has no executive officers and the Board is
satisfied that any relevant issues that arise can be properly
considered by the Board.
The Company has no employees or internal operations and has
therefore not reported further in respect of these provisions. The
need for an internal audit function is discussed in the Audit
Committee report.
Except for the Principle 6 of the AIC Code, the Company has
complied throughout the period with the provisions of the AIC Code.
Principle 6 of the AIC Code states Directors should consider the
diversity of the Board, including gender. Currently, the Company's
Board is comprised of male members. The Board intends to address
this when a vacancy arises.
The Board
The Directors details are listed in the Report of the Directors
which set out their range of investment, financial and business
skills and experience represented.
Sir Robert Wilson, Mr Lapeyre and Mr Leuschen were appointed on
23 May 2013 and the remaining Directors were appointed on 28 May
2013, with the exception of Mr Barker who was appointed on 20
September 2013, and all will submit themselves for election at the
first Annual General Meeting of the Company. At each subsequent
Annual General Meeting of the Company, each of the Directors at the
date of the notice convening the Annual General Meeting shall
retire from office and may offer themselves for election or
re-election by the Shareholders.
A Director who retires at an Annual General Meeting may, if
willing to continue to act, be elected or re-elected at that
meeting. If, at a general meeting at which a Director retires, the
Company neither re-elects that Director nor appoints another person
to the Board in the place of that Director, the retiring Director
shall, if willing to act, be deemed to have been re-elected unless
at the general meeting it is resolved not to fill the vacancy or
unless a resolution for the re-election of the Director is put to
the meeting and not passed. The Board has considered the need for a
policy regarding tenure of office, however, the Board believes that
any decisions regarding tenure should consider the need for
continuity and maintenance of knowledge and experience and to
balance this against the need to periodically refresh Board
composition and have a balance of skills, experience, age and
length of service.
The Board intends to meet at least four times a year and, in
addition to maintaining regular contact between the Board, the
Investment Manager and the Administrator, the Board requires to be
supplied in a timely manner with information by the Investment
Manager, the Administrator and other advisors in a form and of a
quality appropriate to enable it to discharge its duties.
The Company has adopted a share dealing code for the Board and
will seek to ensure compliance by the Board and relevant personnel
of the Investment Manager with the terms of the share dealing code.
The share dealing code is compliant with the Model Code for
Directors' Dealings contained in the Listing Rules.
The primary focus at Board meetings is a review of investment
performance and associated matters such as asset allocation, share
price discount/premium management, investor relations, peer group
information, gearing, industry issues and principal risks and
uncertainties in particular those identified at the end of this
report.
Directors Remuneration
The Chairman is entitled to annual remuneration of $199,000
(GBP120,000). The other independent Directors are entitled to
annual remuneration of $99,000 (GBP60,000). The four
non-independent Directors have chosen not to be remunerated by the
Company for their services.
During the period to 31 December 2013, the Directors'
remuneration was as follows:
2013
($'000)
---------------------- ---------
Sir Robert Wilson(1) 121
Peter Barker(1) 28
Lord John Browne -
Patrick Firth(1) 59
James Hackett -
Richard Hayden(1)(2) 59
Pierre Lapeyre -
David Leuschen -
Dr Tidu Maini(1) 59
---------------------- ---------
The above fees due to the Directors are for the period from
appointment to 31 December 2013, and all were outstanding at that
date.
Sir Robert Wilson was selected as the Company's Chairman in
January 2013 and paid $0.4 million by the Investment Manager for
services between his selection and his appointment to the Board.
Consistent with the recommendation of Principle 11 of the AIC Code
the Chairman was selected at the earliest practicable point in the
process of launching the new company.
All of the Directors are non-executive. Sir Robert Wilson, Mr
Barker, Mr Firth, Mr Hayden(2) and Dr Maini are each considered
independent for the purposes of Chapter 15 of the Listing Rules and
the AIC Code. Lord Browne, Mr Hackett, Mr Lapeyre and Mr Leuschen
are not considered
__________________
(1) Non-executive Independent Director.
(2) Senior Independent Director.
independent because of their nomination for appointment to the
Board by the Investment Manager, pursuant to a right set out in the
Investment Management Agreement.
The Chairman of the Board must, on appointment, be independent
and is appointed in accordance with the Company's Articles of
Incorporation. Sir Robert Wilson is considered to be independent
because he:
-- has no current or historical employment with the Investment
Manager;
-- has no current directorships or partnerships in any other
investment funds managed by the Investment Manager; and
-- is not an executive of a self-managed company or an
ex-employee who has left the executive team of a self-managed
company within the last five years.
The Board has overall responsibility for maximising the
Company's success by directing and supervising the affairs of the
business and meeting the appropriate interests of shareholders and
relevant stakeholders, while enhancing the value of the Company and
also ensuring the protection of investors. A summary of the Board's
responsibilities is as follows:
-- statutory obligations and public disclosure;
-- strategic matters and financial reporting;
-- risk assessment and management including reporting,
compliance, governance, monitoring and control; and
-- other matters having a material effect on the Company.
Duties and Responsibilities
The Board is responsible to shareholders for the overall
management of the Company. The duties and powers reserved for the
Board include decisions relating to the determination of investment
policy and approval of investments in certain instances, strategy,
capital raising, statutory obligations and public disclosure,
financial reporting and entering into any material contracts by the
Company.
The Directors have access to the advice and services of the
Administrator, who is responsible to the Board for ensuring that
Board procedures are followed and that it complies with Companies
Law and applicable rules and regulations of the GFSC and the LSE.
Where necessary, in carrying out their duties, the Directors may
seek independent professional advice and services at the expense of
the Company. The Company maintains Directors' and Officers'
liability insurance in respect of legal action against its
Directors on an on-going basis.
The Board's responsibilities for the Annual Report are set out
in the Directors' Responsibility Statement. The Board is also
responsible for issuing appropriate half-yearly financial reports,
interim management statements and other price-sensitive public
reports.
The attendance record of the Directors for the period is set out
below:
Management
Scheduled Board Audit Nomination Engagement
Board Committee Committee Committee Committee
Meetings Meetings Meetings Meetings Meetings
Director (max 2) (max 1) (max n/a)(3) (max n/a)(3) (max n/a)(3)
---------------------- ---------- ----------- -------------- -------------- --------------
Sir Robert Wilson(1) 2 1 - - -
Peter Barker(1)(2) 1 n/a - - -
Lord John Browne 2 n/a - - -
Patrick Firth(1) 2 1 - - -
James Hackett 2 n/a - - -
Richard Hayden(1)(4) 2 n/a - - -
Pierre Lapeyre 2 n/a - - -
David Leuschen 2 n/a - - -
Dr Tidu Maini(1) 2 n/a - - -
---------------------- ---------- ----------- -------------- -------------- --------------
Committees of the Board
Audit Committee
On 28 May 2013, the Board established an Audit Committee which
held its first meeting on 12 February 2014. There has been ongoing
discussion between the chair of the Audit Committee, the Investment
Manager and Ernst & Young LLP with regards to the audit
approach and identified risks. The Audit Committee is chaired by Mr
Hayden(4) and comprised of Mr Barker and Mr Firth. The report of
the activities is contained in the Report of the Audit Committee.
The Committee has terms of reference which are available on the
Company's website (www.RiverstoneREL.com).
Nomination Committee
On 28 May 2013, the Board established a Nomination Committee
which held its first meeting on 12 February 2014. The Nomination
Committee is chaired by Sir Robert Wilson and comprised of Mr
Barker and Mr Firth. The Nomination Committee meets at least once a
year pursuant to its terms of reference which are available on the
Company's website (www.RiverstoneREL.com).
The Nomination Committee is convened for the purpose of
considering the appointment of additional Directors as and when
considered appropriate. In considering appointments to the Board,
the Nomination Committee takes into account the ongoing
requirements of the Company and the need to have a balance of
skills and experience within the Board. The Board believes
________________
(1) Non-executive Independent Director.
(2) Mr Barker was appointed at the second Board meeting on 20
September 2013.
(3) The initial meetings for these committees were held on 12
February 2014.
(4) Senior Independent Director.
that, as a whole, it comprises an appropriate balance of skills,
experience and knowledge. The Board also believes that diversity of
experience and approach, including gender diversity, amongst Board
members is of great importance and it is the Company's policy to
give careful consideration to issues of Board balance and diversity
when making new appointments.
Performance and Evaluation
In accordance with Principle 7 of the AIC Code, the Board is
required to undertake a formal and rigorous evaluation of its
performance on an annual basis. Such an evaluation of the
performance of the Board as a whole, the Audit Committee, the
Nomination Committee, the Management Engagement Committee,
individual Directors and the Chairman will be carried out under the
mandate of the Nomination Committee. The Company believes that the
current mix of skills, experience and ages of the Directors is
appropriate to the requirements of the Company. With any new
director appointment to the Board, induction training will be
provided by an independent service provider at the expense of the
Company.
Due to the recent commencement of operations of the Company, no
formal Board evaluation has been carried out as at the date of this
report. A formal Board evaluation will be completed during 2014
with the format to be determined by the Board in due course.
Management Engagement Committee
On 28 May 2013, the Board established a Management Engagement
Committee which held its first meeting on 12 February 2014. The
Management Engagement Committee is chaired by Sir Robert Wilson and
comprised of Mr Barker and Mr Firth. The Management Engagement
Committee meets at least once a year pursuant to its terms of
reference which are available on the Company's website
(www.RiverstoneREL.com).
The Management Engagement Committee provides a formal mechanism
for the review of the performance of the Investment Manager and the
Company's other advisors and service providers. It carries out this
review through consideration of a number of objective and
subjective criteria and through a review of the terms and
conditions of the advisors' appointments with the aim of evaluating
performance, identifying any weaknesses and ensuring value for
money for the Company's shareholders.
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Company's system of internal
control and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss. The
Directors review all controls including operations, compliance and
risk management. The key procedures which have been established to
provide internal control are that:
-- the Board has delegated the day to day operations of the
Company to the Administrator and Investment Manager; however, it
retains accountability for all functions it delegates;
-- the Board clearly defines the duties and responsibilities of
the Company's agents and advisors and appointments are made by the
Board after due and careful consideration. The Board monitors the
ongoing performance of such agents and advisors and will continue
to do so through the Management Engagement Committee;
-- the Board monitors the actions of the Investment Manager at
regular Board meetings and is given frequent updates on
developments arising from the operations and strategic direction of
the underlying investee companies;
-- the Administrator provides administration and company
secretarial services to the Company. The Administrator maintains a
system of internal control on which they report to the Board;
and
-- the Board has reviewed the need for an internal audit
function and has decided that the systems and procedures employed
by the Administrator and Investment Manager, including their own
internal controls and procedures, provide sufficient assurance that
a sound system of risk management and internal control, which
safeguards shareholders' investment and the Company's assets, is
maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
The systems of control referred to above are designed to ensure
effectiveness and efficient operation, internal control and
compliance with laws and regulations. In establishing the systems
of internal control, regard is paid to the materiality of relevant
risks, the likelihood of costs being incurred and costs of control.
It follows therefore that the systems of internal control can only
provide reasonable but not absolute assurance against the risk of
material misstatement or loss.
Investment Management Agreement
The Investment Manager has been appointed as the sole investment
manager of the Company and the Partnership. Pursuant to the
Investment Management Agreement, the Investment Manager will have
responsibility for and discretion over investing and managing the
Company's and the Partnership's direct and indirect assets, subject
to and in accordance with the Company's investment policy. The
Investment Manager is entitled to delegate all or part of its
functions under the Investment Management Agreement to one or more
if its affiliates.
The Company has delegated the provision of all services to
external service providers whose work is overseen by the Management
Engagement Committee at its regular scheduled meetings. Each year a
detailed review of performance pursuant to their terms of
engagement is undertaken by the Management Engagement
Committee.
In accordance with Listing Rule 15.6.2(2)R and having formally
appraised the performance and resources of the Investment Manager,
in the opinion of the Directors their continuing appointment of the
Investment Manager on the terms agreed is in the interests of the
shareholders as a whole.
Dealings with Shareholders
The Board welcomes shareholders' views and places great
importance on communication with its shareholders. The Company's
AGM provides a forum for shareholders to meet and discuss issues
with the Directors of the Company. The Chairman and other directors
are also available to meet with shareholders at other times, if
required. In addition, the Company maintains a website
(www.RiverstoneREL.com) which contains comprehensive information,
including company notifications, share information, financial
reports, investment objectives and policy, investor contacts and
information on the Board and corporate governance.
The Investment Manager has regular contact with Shareholders, in
particular Cornerstone Investors, and any views that they may have
are communicated to the Board and vice versa. No sensitive
information is provided to the Cornerstone Investors that is not
provided to the Shareholders as a whole and at the same time.
Principal Risks and Uncertainties
The Company's assets consist of investments, through the
Partnership, within the global energy sector, with a particular
focus on opportunities in the global exploration and production and
midstream energy sub-sectors. Its principal risks are therefore
related to market conditions in the energy sector in general, but
also the particular circumstance of the businesses in which it is
invested through the Partnership. The Investment Manager to the
Partnership seeks to mitigate these risks through active asset
management initiatives and carrying out due diligence work on
potential targets before entering into any investments.
Each Director is aware of the risks inherent in the Company's
business and understands the importance of identifying, evaluating
and monitoring these risks. The Board has adopted procedures and
controls that enable it to manage these risks within acceptable
limits and to meet all of its legal and regulatory obligations.
The Board considers the process for identifying, evaluating and
managing any significant risks faced by the Company on an on-going
basis and these risks are reported and discussed at Board meetings.
It ensures that effective controls are in place to mitigate these
risks and that a satisfactory compliance regime exists to ensure
all applicable local and international laws and regulations are
upheld.
The Company's financial instrument risks are discussed in Note
15 to the financial statements.
The Company's principal risk factors are fully discussed in the
Company's prospectus, available on the Company's website
(www.RiverstoneREL.com) and should be reviewed by shareholders.
The key areas of risk faced by the Company are summarised
below:
1. The Company intends to only invest in the global energy
sector, with a particular focus on oil and gas exploration and
production, and midstream investments, which will expose it to
concentration risk.
2. The Ordinary Shares may trade at a discount to NAV per Share
for reasons including but not limited to: market conditions,
liquidity concerns and actual or expected Company performance. As
such no guarantee that attempts to mitigate such discount will be
successful or that the use of discount control mechanisms will be
possible, advisable or adopted by the Company.
3. Investments in the exploration and production and midstream
sectors of the global energy sector involve a degree of inherent
risk.
-- The regulatory and tax environment of the Company's target
investments is potentially subject to change, which may adversely
affect the value or liquidity of investments held by the Company or
its ability to obtain leverage.
-- The Company will be exposed to increased risk by investing in
build-up and early-stage investments that have little or no
operating history and are comparably more vulnerable to financial
failure than more established companies. The investor should be
aware there can be no assurance that losses generated by these
types of entities will be offset by gains (if any) realised on the
Company's other investments.
-- An investment's requirements for additional capital may
require the Company to invest more capital than it had originally
planned or result in the dilution of the Company's investment or a
decrease in the value of that investment.
These inherent risks associated with investments in the global
energy sector could result in a material adverse effect on the
Company's performance and the value of Ordinary Shares.
The above risks are mitigated and managed by the Board through
continual review, policy setting and annual review of the Company's
risk matrix to ensure that procedures will be in place with the
intention of minimising the impact of the above mentioned risks.
Given the recent commencement of the Company's operations and low
number of investments made as at the date of the statement of
financial position the Board carried out its first review of the
risk matrix at the Board meeting held on 13 February 2014. The
Board relies on periodic reports provided by the Investment Manager
and Administrator regarding risks that the Company faces. When
required, experts will be employed to gather information, including
tax advisors, legal advisors, and environmental advisors.
By order of the Board
Sir Robert Wilson
Chairman
13 February 2014
Report of the Audit Committee
On 28 May 2013, the Board established an audit committee which
held its first meeting on 12 February 2014. The Audit Committee,
chaired by Mr Hayden, operates within clearly defined terms of
reference (which are available from the Company's website) and
include all matters indicated by Disclosure and Transparency Rule
7.1, the AIC Code and the Corporate Governance Code. Its other
members are Mr Barker and Mr Firth. Only independent Directors can
serve on the Audit Committee, not including the Chairman of the
Company, who may, however, be invited to attend. Members of the
Audit Committee must have no links with the Company's external
auditor and must be independent of the Investment Manager.
Appointments to the Committee shall be for a period of up to three
years, extendable for two further three-year periods. The Audit
Committee will meet no less than three times in a year, and at such
other times as the Audit Committee chairman shall require, and will
meet the external auditor at least once a year.
The Board has taken note of the requirement that at least one
member of the Audit Committee should have recent and relevant
financial experience and is satisfied that the Audit Committee is
properly constituted in that respect, with all members being highly
experienced and in particular, one member having a background as a
chartered accountant.
The duties of the Audit Committee in discharging its
responsibilities include reviewing the Annual Report and Financial
Statements and Interim Financial Report, the valuation of the
Company's investment portfolio, the system of internal controls,
and the terms of appointment of the auditor together with its
remuneration. It is also the formal forum through which the auditor
reports to the Board. The objectivity of the auditor is reviewed by
the Audit Committee which also reviews the terms under which the
external auditor is appointed to perform non-audit services and the
fees paid to them or their affiliated firms overseas.
The Audit Committee will review, consider and, if thought
appropriate, recommend for the purposes of the Company's financial
statements, valuations prepared by the Investment Manager in
respect of the investments of the Partnership.
Responsibilities
The main duties of the Audit Committee are:
-- monitoring the integrity of the Financial Statements of the
Company and any formal announcements relating to the Company's
financial performance, reviewing significant financial reporting
judgements contained in them;
-- reporting to the Board on the appropriateness of the
Company's accounting policies and practices;
-- reviewing the valuation of the Company's investments prepared
by the Investment Manager, and making a recommendation to the Board
on the valuation of the Company's investments;
-- meeting the external auditor to review their proposed audit
programme of work and the subsequent audit report and assess the
effectiveness of the audit process and the levels of fees paid in
respect of both audit and non-audit work;
-- making recommendations to the Board in relation to the
appointment, re-appointment or removal of the external auditors and
approving their remuneration and the terms of their engagement;
-- monitoring and reviewing annually the external auditor's
independence, objectivity, effectiveness, resources and
qualification;
-- considering annually whether there is a need for the Company
to have its own internal audit function;
-- monitoring the internal financial control and risk management
systems on which the Company is reliant; and
-- reviewing and considering the Corporate Governance Code, the
AIC Code, the AIC Guidance on Audit Committees and the Stewardship
Code.
In addition, the Audit Committee advises the Board on whether
the Annual Report and Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
The Audit Committee is aware that several sections of the Annual
Report are not subject to formal statutory audit, including the
Chairman's Statement and the Investment Manager's Report. Financial
information in these sections is reviewed by the Audit
Committee.
The Audit Committee is required to report its findings to the
Board, identifying any matters on which it considers that action or
improvement is needed, and make recommendations on the steps to be
taken.
The external auditor is invited to attend the Audit Committee
meetings at which the Annual and Interim Financial Statements are
considered and at which they have the opportunity to meet with the
Committee without representatives of the Investment Manager being
present at least once per year.
Financial Reporting
The primary role of the Audit Committee in relation to the
financial reporting is to review with the Administrator, Investment
Manager and the auditor of the appropriateness of the Annual Report
and Financial Statements and Interim Financial Report,
concentrating on, amongst other matters:
-- the quality and acceptability of accounting policies and
practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgements have been
applied or there has been discussion with the auditor;
-- whether the Annual Report and Financial Statements, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
performance, business model and strategy; and
-- any correspondence from regulators in relation to our
financial reporting.
To aid its review, the Audit Committee considers reports from
the Administrator and Investment Manager and also reports from the
auditor on the outcomes of their half-year review and annual audit.
The Audit Committee supports Ernst and Young LLP in displaying the
necessary professional scepticism their role requires.
Meetings
Due to the Company effectively being in operation for less than
three months up to 31 December 2013, the Audit Committee did not
meet formally during the period, however, there has been ongoing
liaison and discussion between the auditors and the chair of the
Audit Committee with regards to the audit approach and the
identified risks. The Audit Committee has met on one occasion since
the period end through to the date of this report. The matters
discussed at those meetings were:
-- review and approval of the audit plan of the external
auditors;
-- discussion and approval of the fee for the external
audit;
-- detailed review of the Annual Report and Financial Statements
and recommendation for approval by the Board;
-- assessment of the effectiveness of the external audit process
as described below; and
-- review of the Company's key risks and internal controls.
Primary Area of Judgement
The Audit Committee has determined that the key risk of
misstatement of the Company's Financial Statements is the failure
to identify and adequately disclose all related party
transactions.
The factors that increase the risk of misstatement are as
follows:
-- operating through a complex range of relationships and
structures, increasing the complexity of related party
transactions;
-- the commitments made to date, through the Partnership, have
been in concert with Other Riverstone Funds;
-- the Directors may be unaware of the existence of all
related-party relationships and transactions;
-- the Administrator's information systems may not identify
transactions or outstanding balances with related parties,
especially for transactions conducted at nil value, or outside the
normal course of business; and
-- related-party transactions may not be conducted under normal
terms and conditions.
The risk is mitigated through the production and regular review
of a register, detailing the names, relationships and transactions
of all entities and individuals thought to be related parties of
the Company.
The Audit Committee determined that the key risk of misstatement
of the Company's Financial Statements in future periods will relate
to the valuation of the investment in the Partnership at fair value
through profit or loss, in the context of the judgements necessary
to evaluate market values of the Investment Undertakings of the
Partnership.
At 31 December 2013, however, the value of the Partnership's
investments represented only a small amount of the net asset value
of the Partnership, which is primarily made up of cash and U.S.
treasury bills. This significantly reduces the relative level of
risk associated with the valuation of the Company's investment in
the Partnership in these Financial Statements.
The Directors have considered whether any discount or premium
should be applied to the net asset value of the Partnership. In
view of the Company's recent investment in the Partnership and the
nature of the Partnership's assets, no adjustment to the net asset
value of the Partnership has been made.
As outlined in Note 6 to the Financial Statements, the total
carrying value of the investment in the Partnership at fair value
through profit or loss at 31 December 2013 was $1,130 million.
Market quotations are not available for this financial asset such
that the value of the Company's investment is based on the value of
the Company's limited partner capital account with the Partnership,
which itself is based on the value of the Partnership's investments
as determined by the Investment Manager, along with the cash and
U.S. treasury bills held.
The valuation process and methodology was discussed with the
Investment Manager and with the auditor at an Audit Committee
meeting held on 12 February 2014. The Investment Manager will carry
out a valuation quarterly and provide a detailed valuation report
to the Company.
The Audit Committee reviewed the Investment Manager's report.
The Investment Manager confirmed to the Audit Committee that the
auditor's work had not identified any errors or inconsistencies
that were material in the context of the Annual Report and
Financial Statements as a whole.
The auditor explained the results of their review of the
valuations, including their challenge of management's valuation of
the Investment Undertakings at cost. On the basis of their audit
work, there were no adjustments proposed that were material in the
context of the Annual Report and Financial Statements as a
whole.
Risk Management
The Company's risk assessment process and the way in which
significant business risks are managed is a key area of focus for
the Audit Committee. The work of the Audit Committee was driven
primarily by the Company's assessment of its principal risks and
uncertainties as set out in the Corporate Governance Report. The
Audit Committee receives reports from the Investment Manager and
Administrator on the Company's risk evaluation process and reviews
changes to significant risks identified.
Internal Audit
The Audit Committee shall consider at least once a year whether
or not there is a need for an internal audit function. Currently,
the Audit Committee does not consider there to be a need for an
internal audit function, given that there are no employees in the
Company and all outsourced functions are with parties who have
their own internal controls and procedures.
External Audit
Ernst & Young LLP has been the Company's external auditor
since the Company's incorporation. This is the first period of
audit.
The auditors are required to rotate the audit partner every five
years. The current partner is in his first year of tenure. There
are no contractual obligations restricting the choice of external
auditor and the Company will put the audit services contract out to
tender at least every ten years. In line with the FRC's suggestions
on audit tendering, this will be considered further when the audit
partner rotates every five years. Under Companies Law the
reappointment of the external auditors is subject to shareholder
approval at the Annual General Meeting.
The objectivity of the auditor is reviewed by the Audit
Committee which also reviews the terms under which the external
auditor may be appointed to perform non-audit services. The Audit
Committee reviews the scope and results of the audit, its cost
effectiveness and the independence and objectivity of the auditor,
with particular regard to any non-audit work that the auditor may
undertake. In order to safeguard auditor independence and
objectivity, the Audit Committee ensures that any other advisory
and/or consulting services provided by the external auditor does
not conflict with its statutory audit responsibilities. Advisory
and/or consulting services will generally only cover reviews of
interim financial statements, tax compliance and capital raising
work. Any non-audit services conducted by the auditor outside of
these areas will require the consent of the Audit Committee before
being initiated.
The external auditor may not undertake any work for the Company
in respect of the following matters - preparation of the financial
statements, preparation of valuations used in financial statements,
provision of investment advice, taking management decisions or
advocacy work in adversarial situations.
The Committee reviews the scope and results of the audit, its
cost effectiveness and the independence and objectivity of the
auditor, with particular regard to the level of non-audit fees.
Notwithstanding such services the Audit Committee considers Ernst
& Young LLP to be independent of the Company and that the
provision of such non-audit services is not a threat to the
objectivity and independence of the conduct of the audit.
To fulfil its responsibility regarding the independence of the
external auditor, the Audit Committee will consider:
-- discussions with or reports from the external auditor
describing its arrangements to identify, report and manage any
conflicts of interest; and
-- the extent of non-audit services provided by the external
auditor.
To assess the effectiveness of the external auditor, the
committee will review:
-- the external auditor's fulfilment of the agreed audit plan
and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit; and
-- feedback from other service providers evaluating the
performance of the audit team.
The Audit Committee is satisfied with Ernst & Young LLP's
effectiveness and independence as auditor having considered the
degree of diligence and professional scepticism demonstrated by
them. Having carried out the review described above and having
satisfied itself that the external auditor remains independent and
effective, the Audit Committee has recommended to the Board that
Ernst & Young LLP be reappointed as auditor for the year ending
31 December 2014.
On behalf of the Audit Committee
Richard Hayden
Chairman of the Audit Committee
13 February 2014
Independent Auditor's Report to the Members of Riverstone Energy
Limited
We have audited the Company's Financial Statements for the
period ended 31 December 2013 which comprise the Statement of
Financial Position, the Statement of Comprehensive Income, the
Statement of Changes in Equity, the Statement of Cash Flows and
related Notes 1 to 17. The financial reporting framework that has
been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the EU.
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies Law. Our audit work
has been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditor's
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company and the Company's members as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditor
As explained more fully in the Directors' Responsibilities
Statement, the Directors are responsible for the preparation of the
Financial Statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an
opinion on the Financial Statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
Scope of the Audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the Financial Statements sufficient to give
reasonable assurance that the Financial Statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Directors; and the
overall presentation of the Financial Statements. In addition, we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
Financial Statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on Financial Statements
In our opinion the Financial Statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2013 and of its profit for the period
then ended;
-- have been properly prepared in accordance with IFRSs as
adopted by the EU; and
-- have been prepared in accordance with the requirements of the
Companies Law.
Our Assessment of Risks of Material Misstatement
We identified the following risk that has had the greatest
effect on the overall audit strategy and scope:
-- the Company may not identify, record and disclose related
party transactions in the Financial Statements.
Our Application of Materiality
When establishing our overall audit strategy, we determined
materiality for the Company to be $22.8 million, which is
approximately 2 per cent. of total equity. This provided a basis
for determining the nature, timing and extent of risk assessment
procedures, identifying and assessing the risk of material
misstatement and determining the nature, timing and extent of
further audit procedures.
On the basis of our risk assessment, together with our
assessment of the Company's overall control environment, our
judgement was that overall performance materiality (i.e. our
tolerance for misstatement in an individual account or balance) for
the group should be 50 per cent. of materiality, namely $11.4
million. Our objective in adopting this approach was to ensure that
total uncorrected and undetected audit differences in the financial
statements did not exceed our materiality level.
We have reported to the Audit Committee all audit differences in
excess of $1.1 million, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
An Overview of the Scope of our Audit
We have audited the balances of the Financial Statements using
our materiality. The way in which we scoped our response to the
risk identified above was as follows:
-- We obtained the related party register, and reviewed all
identified related party transactions that took place during the
period. We then cross checked these to the structure chart and the
definitions within IFRS and the Listing Rules. We reviewed the
management fee calculation in the underlying limited partnership in
conjunction with the tri-party investment management agreement.
Matters on Which we are Required to Report by Exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to
you if, in our opinion, information in the Director's report
is:
-- materially inconsistent with the information in the audited
Financial Statements; or
-- apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Company; or
-- is otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the Directors' Responsibilities Statement that
they consider the Annual Report and Financial Statements is fair,
balanced and understandable and whether the Annual Report and
Financial Statements appropriately discloses those matters that we
communicated to the Audit Committee which we consider should have
been disclosed.
Under the Companies Law we are required to report to you if, in
our opinion:
-- proper accounting records have not been kept; or
-- the Financial Statements are not in agreement with the
accounting records; or
-- we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
-- the Directors' Responsibilities Statement in relation to
going concern; and
-- the part of the Corporate Governance Report relating to the
company's compliance with the nine provisions of the UK Corporate
Governance Code specified for our review.
Michael Bane
For and on behalf of Ernst & Young LLP
13 February 2014
(1) The maintenance and integrity of the Company's website is
the responsibility of the Directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the Financial Statements since they were
initially presented on the website.
(2) Legislation in Guernsey governing the preparation and
dissemination of Financial Statements may differ from legislation
in other jurisdictions
Statement of Financial Position
As at 31 December 2013
2013
Notes $'000
------------------------------------------------- ------ -----------
ASSETS:
Non-current assets
Investment at fair value through profit or loss 7 1,130,051
------------------------------------------------- ------ -----------
Total non-current assets 1,130,051
------------------------------------------------- ------ -----------
Current assets
Debtors and prepayments 8 553
------------------------------------------------- ------ -----------
Cash and cash equivalents 9 11,805
------------------------------------------------- ------ -----------
Total current assets 12,358
------------------------------------------------- ------ -----------
TOTAL ASSETS 1,142,409
------------------------------------------------- ------ -----------
Non-current liabilities
Due to affiliates 11 1,028
Current liabilities
Trade and other payables 10 1,132
Due to affiliates 11 1,243
------------------------------------------------- ------ -----------
Total current liabilities 2,375
------------------------------------------------- ------ -----------
TOTAL LIABILITIES 3,403
------------------------------------------------- ------ -----------
NET ASSETS 1,139,006
------------------------------------------------- ------ -----------
EQUITY
Share capital 12 1,138,431
Retained earnings 575
------------------------------------------------- ------ -----------
TOTAL EQUITY 1,139,006
------------------------------------------------- ------ -----------
Number of shares in issue at period end 12 71,032,058
------------------------------------------------- ------ -----------
Net Asset Value per share ($) 16 16.04
------------------------------------------------- ------ -----------
The Financial Statements of the Company were approved and
authorised for issue by the Board of Directors on 13 February 2014
and signed on their behalf by:
Sir Robert Wilson Richard Hayden
Chairman Director
The accompanying notes form an integral part of the Company's
Financial Statements.
Statement of Comprehensive Income
For the period from incorporation on 23 May 2013 to 31 December
2013
23 May
2013 to
31 December
2013
Notes $'000
-------------------------------------------------- ------ -------------
Investment loss
Change in fair value of investment at fair value
through profit or loss 7 (387)
-------------------------------------------------- ------ -------------
Expenses
Directors' fees and expenses (326)
Legal and professional fees (479)
Audit fees (141)
Other operating expenses (322)
-------------------------------------------------- ------ -------------
Total expenses (1,268)
-------------------------------------------------- ------ -------------
Operating loss for the financial period (1,655)
Finance income and expenses
Foreign exchange gain 2,011
Other finance income 214
Interest income 5
-------------------------------------------------- ------ -------------
2,230
-------------------------------------------------- ------ -------------
Profit for the period 575
Other comprehensive income -
-------------------------------------------------- ------ -------------
Total comprehensive income for the period 575
-------------------------------------------------- ------ -------------
Basic earnings per share (cents) 16 0.81
-------------------------------------------------- ------ -------------
Diluted earnings per share (cents) 16 0.47
-------------------------------------------------- ------ -------------
All activities derive from continuing operations.
The accompanying notes form an integral part of the Company's
Financial Statements.
Statement of Changes in Equity
For the period from incorporation on 23 May 2013 to 31 December
2013
Share Retained Total
capital earnings Equity
Notes $'000 $'000 $'000
------------------------------------ ------ ---------- ---------- ----------
As at 23 May 2013 - - -
Profit for the financial period - 575 575
Other comprehensive income - - -
------------------------------------ ------ ---------- ---------- ----------
Total comprehensive income for the
period - 575 575
------------------------------------ ------ ---------- ---------- ----------
Transactions with owners
Issue of shares 12 1,138,431 - 1,138,431
------------------------------------ ------ ---------- ---------- ----------
Total transactions with owners 1,138,431 - 1,138,431
------------------------------------ ------ ---------- ---------- ----------
As at 31 December 2013 1,138,431 575 1,139,006
------------------------------------ ------ ---------- ---------- ----------
The accompanying notes form an integral part of the Company's
Financial Statements.
Statement of Cash Flows
For the period from incorporation on 23 May 2013 to 31 December
2013
23 May
2013 to
31 December
2013
Notes $'000
---------------------------------------------------- ------ -------------
Cash flows from operating activities
Operating loss for the financial period (1,655)
---------------------------------------------------- ------ -------------
Adjustments for:
Net finance income for the period 219
Change in fair value of investment at fair value
through profit or loss 7 387
Increase in due to affiliates 2,271
Movement in trade receivables 8 (553)
Movement in trade payables 10 1,132
Foreign exchange loss (23)
---------------------------------------------------- ------ -------------
Net cash generated from operating activities 1,778
---------------------------------------------------- ------ -------------
Cash flows from investing activities
Purchase of investment 7 (1,130,438)
---------------------------------------------------- ------ -------------
Net cash used in investing activities (1,130,438)
---------------------------------------------------- ------ -------------
Cash flow from financing activities
Proceeds from issue of shares 1,138,431
Foreign exchange gain 1,847
---------------------------------------------------- ------ -------------
Net cash generated from financing activities 1,140,278
---------------------------------------------------- ------ -------------
Net movement in cash and cash equivalents during
the period 11,618
---------------------------------------------------- ------ -------------
Cash and cash equivalents at the beginning of the
period -
Effect of foreign exchange rate changes 187
---------------------------------------------------- ------ -------------
Cash and cash equivalents at the end of the period 11,805
---------------------------------------------------- ------ -------------
The accompanying notes form an integral part of the Company's
Financial Statements.
Notes to the Financial Statements
For the period from incorporation on 23 May 2013 to 31 December
2013
1. General information
Riverstone Energy Limited is a company limited by shares, which
was incorporated on 23 May 2013 in Guernsey with an unlimited life
and registered with the Commission as a Registered Closed-ended
Collective Investment Scheme pursuant to the POI Law. It has been
listed on the London Stock Exchange since 29 October 2013. The
registered office of the Company is Heritage Hall, PO Box 225, Le
Marchant Street, St Peter Port, Guernsey, GY1 4HY, Channel
Islands.
The Company makes its investments through the Partnership, a
Cayman Islands registered exempted limited partnership, in which
the Company is the sole limited partner. The principal place of
business of the Partnership is the Cayman Islands. Both the Company
and the Partnership are subject to the Investment Management
Agreement with the Investment Manager, a company registered in the
Cayman Islands.
The Partnership invests alongside Private Riverstone Funds in
all Qualifying Investments in which the Private Riverstone Funds
participate. These funds are managed and advised by affiliates of
the Investment Manager, and therefore all of these parallel
investments are considered to be related party transactions.
Further detail of these investments is provided in Note 14.
2. Accounting policies
Basis of preparation
The Financial Statements for the period ended 31 December 2013
have been prepared in accordance with EU Adopted IFRSs and with the
Companies (Guernsey) Law, 2008.
The Company has early adopted the Investment Entity amendments
to IFRS 10, IFRS 12 and IAS 27 which define investment entities and
provide consolidation exemptions for them together with changed
disclosure requirements as described below.
Investment Entities (Amendments to IFRS 10, IFRS 12
and IAS 27)
The Investment Entities standard is a recently issued standard,
and was endorsed by the EU on 20 November 2013, with an effective
date of 1 January 2014. The Company has early adopted this standard
for the period from incorporation to 31 December 2013. The standard
introduced an exception to the principle that all subsidiaries
shall be consolidated. The amendments define an investment entity
and require a parent entity that is an investment entity to measure
its subsidiaries at fair value through profit or loss, in
accordance with IAS 39 Financial Instruments: Recognition and
Measurement, instead of consolidating those subsidiaries.
The Company meets the definition of an investment entity on the
basis of the following criteria.
(a) the Company obtains funds from multiple investors for the
purpose of providing those investors with investment management
services;
(b) the Company commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
(c) the Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
To determine that the Company meets the definition of an
investment entity, further consideration is given to the
characteristics of an investment entity that are demonstrated by
the Company.
The principal accounting policies adopted are set out below.
New and revised standards
At the date of authorisation of these Financial Statements, the
following standards and interpretations which have not been applied
in these Financial Statements were in issue but not yet effective
(and in some cases had not yet been adopted by the EU):
-- IAS 32 Offsetting of Financial Instruments - Intended to
clarify existing application issues relating to the offsetting
rules and reduce the level of diversity in current practice
(effective 1 January 2014).
-- IFRS 9 Financial Instruments - reflects the first phase of
the IASBs work on the replacement of IAS 39 and applies to
classification and measurement of financial assets as defined in
IAS 39. The Company is currently assessing the full impact of this
standard and it is not practicable to quantify the effect as at the
date of the publication of these Financial Statements. The
effective implementation date is not yet determined but is not
expected to be earlier than 1 January 2017.
The Company has not early adopted any other standards,
amendments and interpretations that are not effective.
Foreign currencies
The functional currency of the Company is U.S. Dollars
reflecting the primary economic environment in which the Company
operates, that being the exploration and production and midstream
energy sectors, where most transactions are expected to take place
in U.S. Dollars.
The Company has chosen U.S. Dollars as its presentation currency
for financial reporting purposes.
Transactions during the period, including purchases and sales of
investments, income and expenses are translated into U.S. Dollars
at the rate of exchange prevailing on the date of the transaction.
Monetary assets and liabilities denominated in currencies other
than U.S. Dollars are retranslated at the functional currency rate
of exchange ruling at the reporting date. Non-monetary items that
are measured in terms of historical cost in a currency other than
U.S. Dollars are translated using the exchange rates as at the
dates of the initial transactions. Non-monetary items measured at
fair value in a currency other than U.S. Dollars are translated
using the exchange rates at the date when the fair value was
determined. Foreign currency transaction gains and losses on
financial instruments classified as at fair value through profit or
loss are included in profit or loss in the Statement of
Comprehensive Income as part of the "Net gain or loss on
investments at fair value through profit or loss". Exchange
differences on other financial instruments are included in profit
or loss in the Statement of Comprehensive Income as "Net foreign
exchange gains (losses)".
Going concern
The Company has invested $1,130 million of the issue proceeds
into the Partnership, retaining $11.8 million. This amount is
adequate to meet the Company's liabilities as they fall due over
the going concern horizon. The Partnership has $930.5 million of
uncommitted cash and U.S. treasury bills and has no material going
concern risk. In light of the above the Directors are satisfied
that it is appropriate to adopt the going concern basis in
preparing the Financial Statements.
Financial instruments
Financial assets and financial liabilities are recognised in the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument. Financial
assets and financial liabilities are only offset and the net amount
reported in the statement of financial position and statement of
comprehensive income when there is a currently enforceable legal
right to offset the recognised amounts and the Company intends to
settle on a net basis or realise the asset and liability
simultaneously.
Financial assets
When financial assets are recognised initially, they are
measured at fair value. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date.
The Company does not have any available for sale or held to
maturity financial assets.
Purchases or sales of financial assets made by the Partnership
that require delivery of assets within a time frame established by
regulation or convention in the market place (regular way
purchases) are recognised on the trade date, i.e., the date that
the Partnership commits to purchase or sell the asset.
a) Investments at fair value through profit or loss
i. Classification
The Company's investment in the Partnership has been classified
as an investment in associate as the Company has significant
influence over the Partnership. In accordance with the exemption
within IAS 28 Investments in Associates, the Company does not
account for its investment in the Partnership using the equity
method. Instead, the Company has elected to measure its investment
in the Partnership at fair value through profit or loss.
ii. Recognition
Investments made by the Company in the Partnership are
recognised on the day they are called.
iii. Measurement
Subsequent to initial recognition the investment in the
Partnership is measured at fair value.
The Directors base the fair value of the investment in the
Partnership on the value of its limited partnership capital account
received from the General Partner. The Investment Manager's
assessment of fair value of investments held by the Partnership,
through Investment Undertakings, is determined in accordance with
IPEV Valuation Guidelines. It is the opinion of the Directors, that
the IPEV valuation methodology used in deriving a fair value is
generally not different from the fair value requirements of IFRS
13.
The Directors have considered whether a discount or premium
should be applied to the net asset value of the Partnership. In
view of the recent investment in the Partnership and the nature of
the Partnership's assets, being principally cash and U.S. treasury
bills, no adjustment to the net asset value of the Partnership has
been made (see Note 4).
In measuring this fair value, the net asset value of the
Partnership is adjusted, as necessary, to reflect liquidity, future
commitments, and other specific factors of the Partnership and
Investment Manager.
iv. Fair value estimation
A summary of the more relevant aspects of IPEV valuations is set
out below:
Marketable (Listed) Securities - where an active market exists
for the security, the value is stated at the bid price on the last
trading day in the period. Marketability discounts are not
generally applied unless there is some contractual, governmental or
other legally enforceable restriction preventing realisation at the
reporting date.
Unlisted Investments - are carried at such fair value as the
Investment Manager considers appropriate given the performance of
each investee company and after taking account of the effect of
dilution, the exercise of ratchets, options or other incentive
schemes. Methodologies used in arriving at the fair value include
prices of recent investment, earnings multiples, net assets,
discounted cash flows analysis and industry valuation benchmarks.
Valuations may be derived by reference to observable valuation
measures for comparable companies or transactions (for example,
multiplying a key performance metric of the investee company such
as EBITDA by a relevant valuation multiple observed in the range of
comparable companies or transactions), adjusted for differences
between the investment and the referenced comparable. Privately
held investments may also be valued at cost for a period of time
after an acquisition as the best indicator of fair value.
b) Derecognition of financial assets
A financial asset (in whole or in part) is derecognised
either:
-- when the Company has transferred substantially all the risks
and rewards of ownership; or
-- when it has neither transferred nor retained substantially
all the risks and rewards and when it no longer has control over
the assets or a portion of the asset; or
-- when the contractual right to receive cash flow has
expired.
c) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term highly liquid investments with an
original maturity of three months or less that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Financial liabilities
The Company's financial liabilities consist of financial
liabilities measured at amortised cost.
a) Financial liabilities measured at amortised cost
These include trade payables and other short-term monetary
liabilities, which are initially recognised at fair value and
subsequently carried at amortised cost using the effective interest
rate method.
b) Derecognition of financial liabilities
A financial liability (in whole or in part) is derecognised when
the Company has extinguished its contractual obligations, it
expires or is cancelled. Any gain or loss on derecognition is taken
to the Statement of Comprehensive Income.
Equity
The Company's Ordinary Shares are classified as equity and upon
issuance the fair value of the consideration received is included
in equity. All transaction costs, including share issue costs which
are otherwise chargeable to equity, have been borne by the
Investment Manager. In the event that the Investment Management
Agreement terminates, it would become liable for those costs. For
further details please see Note 13.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable.
Finance income
Interest income is recognised on a time apportioned basis using
the effective interest method.
Expenses
Expenses include legal, accounting, auditing and other fees.
They are recognised in the Statement of Comprehensive Income in the
period in which they are incurred (on an accruals basis).
3. Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors, as a
whole. The key measure of performance used by the Board to assess
the Company's performance and to allocate resources is the total
return on the Company's Net Asset Value, as calculated under IFRS,
and therefore no reconciliation is required between the measure of
profit or loss used by the Board and that contained in the
Financial Statements.
For management purposes, the Company is organised into one main
operating segment, which invests in one limited partnership.
All of the Company's income is derived from within Guernsey and
the Cayman Islands.
All of the Company's non-current assets are located in the
Cayman Islands.
Due to the Company's nature, it has no customers.
4. Critical accounting judgement and estimation uncertainty
Use of estimates and judgements
The preparation of Financial Statements requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The area involving a high degree of judgement or complexity or
area where assumptions and estimates are significant to the
Financial Statements has been identified as the risk of
misstatement of the investment in the Partnership in future periods
(see Note 7). Revisions to accounting estimates are recognised in
the period in which the estimate is revised and in any future
periods affected.
The Company makes its investments through the Partnership in
which it is the sole limited partner. The Board has assessed
whether the Company has all the elements of control as prescribed
by IFRS 10 in relation to the Company's investment in the
Partnership and has concluded that although the Company is the sole
limited partner it does not control the Partnership but instead has
significant influence resulting in its classification as an
investment in associate. The Boards determination that the
Company's investment in the Partnership is an associate investment
involves a degree of judgement due to the complexity within the
wider structure of the Company, the Partnership and the Investment
Undertakings (see Note 2: Financial assets a) i.).
The Board's determination that no discount or premium should be
applied to the net asset value of the Partnership involves a degree
of judgement due to the nature of the Partnership's investments and
other assets and liabilities (see Note 2: Financial assets a)
iii.)
The resulting accounting estimates will, by definition, seldom
equal the related actual results.
5. Taxation
The Company is exempt from taxation in Guernsey under the
provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
2008 and is charged an annual exemption fee of GBP600.
The Company has made an election to, and currently expects to
conduct its activities so as to be treated as a partnership for
U.S. federal income tax purposes. Therefore, the Company expects
that it generally will not be liable for U.S. federal income taxes.
Instead, each of the Company's shareholders who are liable to U.S.
taxes will take into account its respective share of the Company's
items of income, gain, loss and deduction in computing its U.S.
federal income tax liability as if such shareholder had earned such
income directly, even if no cash distributions are made to the
shareholder.
The Cayman Islands at present impose no taxes on profit, income,
capital gains or appreciations in value of the Partnership. There
are also currently no taxes imposed in the Cayman Islands by
withholding or otherwise on the Company as a limited partner of the
Partnership on profit, income, capital gains or appreciations in
respect of its partnership interest nor any taxes on the Company as
a limited partner of the Partnership in the nature of estate duty,
inheritance or capital transfer tax.
Local taxes may apply at the jurisdictional level on profits
arising in operating entity investments. Further withholding taxes
may apply on distributions from such operating entity investments.
Based upon the current commitments and investments in Liberty II
and Eagle II, the future U.S. tax liability on profits is expected
to be in the range of 35 to 41.5 per cent.
6. Fair value
The level in the fair value hierarchy within which the financial
assets or financial liabilities are categorised is determined on
the basis of the lowest level input that is significant to the fair
value measurement.
Financial assets and financial liabilities are classified in
their entirety into only one of the three levels.
The fair value hierarchy has the following levels:
-- Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities;
-- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the assets or liabilities, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices);
-- Level 3 - inputs for the assets or liabilities that are not
based on observable market data (unobservable inputs).
The Company's only financial instrument carried at fair value is
its investment in the Partnership which has been classified within
Level 3 as it has unobservable inputs and is not traded. Amounts
classified under Level 3 for the period are $1,130 million.
Transfers during the period
There have been no transfers between levels. Due to the nature
of the investments, they are always expected to be classified under
Level 3.
Valuation techniques
The value of the Company's investment in the Partnership is
based on the value of the Company's limited partner capital account
within the Partnership. This is based on the components within the
Partnership, principally the value of the Partnership's investments
in addition to cash and U.S. treasury bills held. Any fluctuation
in the value of the Partnership's investments in addition to cash
and U.S. treasury bills held will directly impact on the value of
the Company's investment in the Partnership.
In measuring this fair value, the net asset value of the
Partnership is adjusted, as necessary, to reflect liquidity, future
commitments, and other specific factors of the fund and fund
manager.
When valuing the underlying investee companies, the Investment
Manager reviews information provided by the underlying investee
companies and other business partners and applies IPEV
methodologies, to estimate a fair value as at the date of the
statement of financial position.
Initially, acquisitions are valued at price of recent
investment. Subsequently, and as appropriate, the Investment
Manager values the investments using common industry valuation
techniques, including comparable public market valuation,
comparable merger and acquisition transaction valuation, and
discounted cash flow valuation. For early stage private
investments, Riverstone's investment due diligence process includes
assumptions about short-term financial results in determining the
appropriate purchase price for the investment. The techniques used
in determining the fair value of the Company's investments through
the Partnership are selected on an investment by investment basis
so as to maximise the use of market based observable inputs.
The Board reviews and considers the fair value arrived at by the
Investment Manager before incorporating into the fair value of the
Partnership. The variety of valuation bases adopted, quality of
management information provided by the underlying investee
companies and the lack of liquid markets for the investments mean
that there are inherent difficulties in determining the fair value
of these investments that cannot be eliminated. Therefore the
amounts realised on the sale of investments may differ from the
fair values reflected in these Financial Statements and the
differences may be significant.
Where price of recent investment is determined to be the most
appropriate methodology the transactional price will be that of the
investment by the Partnership. The Partnership's investment in
Eagle II is carried at the price of recent investment due to the
immaturity of the investment, therefore no sensitivity analysis has
been prepared.
The Company approves the valuations performed by the Investment
Manager and monitors the range of reasonably possible changes in
significant observable inputs on a regular basis.
7. Investments at fair value through profit or loss
2013
$'000
---------------------------------------------- ----------
Cost
At inception -
Investment in the Partnership 1,130,438
---------------------------------------------- ----------
Carried forward 1,130,438
---------------------------------------------- ----------
Fair value adjustment through profit or loss
At inception -
Fair value movement during period (387)
---------------------------------------------- ----------
Carried forward (387)
---------------------------------------------- ----------
Fair value as at 31 December 2013 1,130,051
---------------------------------------------- ----------
The movement in fair value is derived from the fair value
movements in the underlying investments held by the Partnership,
net of income and expenses of the Partnership and its related
Investment Undertakings, including any Performance Allocation or
applicable taxes.
Summary financial information for the Partnership
2013
Net asset value $'000
-------------------------------------- ----------
Investment - Eagle II 989
Cash and cash equivalents 529,518
U.S. treasury bills 599,974
Management fee payable - see Note 14 (387)
Other net liabilities (43)
-------------------------------------- ----------
Total net asset value 1,130,051
-------------------------------------- ----------
Summary P&L
Total income 85
Management fee expense (387)
Other operating expense (85)
-------------------------------------- ----------
Loss for the period (387)
-------------------------------------- ----------
8. Trade and other receivables
2013
$'000
------------------------- -------
Debtors and prepayments 553
------------------------- -------
There are no past due or impaired receivable balances
outstanding at the period end. The Directors consider that the
carrying value of financial assets within trade and other
receivables approximate their fair value.
9. Cash and cash equivalents
These comprise cash held by the Company and short-term bank
deposits available on demand. The carrying amounts of these assets
approximate their fair value.
10. Trade and other payables
2013
$'000
------------------------------ -------
Accruals and other creditors 1,132
------------------------------ -------
Trade and other payables principally comprise amounts accrued in
respect of costs incurred in the normal course of business. The
carrying amount of trade payables approximates to their fair value.
The Company's management seeks to ensure that the payables are paid
within the credit time frames. The Directors consider that the
carrying value of financial liabilities within trade and other
payables approximate their fair value.
11. Other finance income
Other finance income is entirely made up of a financing charge
from a Cornerstone Investor, KFI, owing to an agreement to acquire
shares in the Company in two tranches. This arrangement is
described in more detail in Note 12.
An upfront 2-year financing charge equal to 1.5 per cent. of the
unpaid subscription monies of GBP50 million, calculated on an
annual basis, therefore equal to GBP1.5 million ($2.5 million), was
payable by KFI at the time the first tranche became due for payment
shortly prior to Admission. If the second tranche becomes payable
prior to the second anniversary of Admission, a portion of the
financing charge will be repaid to KFI at the time the second
tranche of subscription monies is paid (such portion to be
calculated on a pro rata basis by reference to the date the second
tranche is payable).
2013
$'000
----------------------------------------------- -------
Other finance income recognised in the period 214
----------------------------------------------- -------
Due to affiliates current portion 1,243
----------------------------------------------- -------
Due to affiliates non-current portion 1,028
----------------------------------------------- -------
12. Share capital
2013
-------------------------------------- -----------
Authorised:
Ordinary shares of no par value Unlimited
-------------------------------------- -----------
Total
No.
-------------------------------------- -----------
Issued and fully paid:
Unlimited shares of no par value
Shares as at inception -
Issued on 23 May 2013 1
Issued on 29 October 2013 71,032,057
-------------------------------------- -----------
Shares as at 31 December 2013 71,032,058
-------------------------------------- -----------
Share capital $'000
-------------------------------------- -----------
Share capital as at inception -
Movements for the period:
Issue of ordinary shares 1,138,431
-------------------------------------- -----------
Share capital as at 31 December 2013 1,138,431
-------------------------------------- -----------
On 29 October 2013, the Company issued 71,032,057 Ordinary
Shares of no par value at GBP10 per Ordinary Share in an initial
public offering. Details of the issue were set out in the
Prospectus dated 24 September 2013.
The Company has one class of Ordinary Shares. The issued nominal
value of the Ordinary Shares represents 100 per cent. of the total
issued nominal value of all share capital. Under the Company's
Articles of Incorporation, on a show of hands, each Shareholder
present in person or by proxy has the right to one vote at general
meetings. On a poll, each Shareholder is entitled to one vote for
every share held.
Shareholders are entitled to all dividends paid by the Company
and, on a winding up, providing the Company has satisfied all of
its liabilities, the shareholders are entitled to all of the
surplus assets of the Company. The Ordinary Shares have no right to
fixed income.
KFI, one of the Cornerstone Investors in the Company, pays for
and acquires its Ordinary Shares in two equal tranches of GBP50
million. The first tranche was paid on Admission at which time 5
million Ordinary Shares were issued to KFI. The second tranche will
become payable upon the earlier of (i) such time as the Company has
invested or committed 50 per cent. of the aggregate net proceeds of
the Issue, calculated using KFI's total subscription monies; and
(ii) the second anniversary of Admission. At this time, a further 5
million Ordinary Shares will be issued to KFI.
An upfront two year financing charge equal to 1.5 per cent. of
the unpaid subscription monies of GBP50 million, calculated on an
annual basis, therefore equal to GBP1.5 million ($2.5 million), was
payable by KFI at the time the first tranche became due for payment
shortly prior to Admission. If the second tranche becomes payable
prior to the second anniversary of Admission, a portion of the
financing charge will be repaid to KFI at the time the second
tranche of subscription monies is paid (such portion to be
calculated on a pro rata basis by reference to the date the second
tranche is payable).
The Company and KFI are party to an Off-Market Acquisition
Agreement, dated 23 September 2013, pursuant to which, upon the
failure by KFI to pay the second tranche of subscription monies
when requested to do so by the Company in accordance with its
Cornerstone Subscription Agreement, the Company may elect to force
a sale of, or compulsorily repurchase, such Ordinary Shares as
equates in value to the second tranche of subscription monies which
is unpaid (valued by reference to the then market price of the
Ordinary Shares) for nil consideration.
KFI has the right to pay the second tranche of subscription
monies to the Company at any time after Admission, and prior to the
due date for payment. The share capital will be issued in Pounds
Sterling and therefore the Company bears the foreign exchange risk
of the transaction.
The terms of the Off-Market Acquisition Agreement, which is
governed by Guernsey law, were approved by special resolution of
the Company dated 23 September 2013.
13. Contingent liabilities
Contingent liabilities are potential future cash outflows where
the likelihood of payment is considered more than remote but is not
considered probable or cannot be measured reliably.
Formation and initial expenses
The formation and initial expenses of the Company as at 31
December 2013 in the amount of $22.9 million have been paid in full
by the Investment Manager. However, if the Investment Management
Agreement is terminated by the Company on or before the seventh
anniversary of Admission (other than for a material breach by the
Investment Manager attributable to its fraud) the Company will be
required to reimburse the Investment Manager in respect of the
formation and initial expenses of the Company and the costs and the
expenses of the Issue to the full extent that such costs and
expenses were borne by the Investment Manager. At this time, the
Directors consider the likelihood of the Investment Management
Agreement being terminated by the Company to be remote.
14. Related party transactions
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the party in making financial or operational
decisions.
Directors
The Company has nine non-executive Directors. Annual
remuneration terms for each Director are as follows: the Chairman
receives $199,000 (GBP120,000), the chairman of the Audit Committee
receives $99,000 (GBP60,000), the chairman of the Management
Engagement Committee receives $99,000 (GBP60,000), the chairman of
the Nomination Committee receives $99,000 (GBP60,000) and the other
non-executive Directors receive $99,000 (GBP60,000).
Directors' fees for the period to 31 December 2013 amounted to
$325,989, all of which was outstanding at the period end.
Sir Robert Wilson was selected as the Company's Chairman in
January 2013 and paid $0.4 million by the Investment Manager for
services between his selection and his appointment to the
Board.
Messrs Lapeyre and Leuschen are senior executives of Riverstone
and have direct or indirect economic interests in affiliates and/or
related parties of the Investment Manager, which holds the founder
Ordinary Share of the Company, the General Partner, the general
partner of Fund V, Riverstone Equity Partners, Riverstone
Investment Group LLC, REL Coinvestment, LP and Other Riverstone
Funds. REL Coinvestment, LP is subject to lock-up restrictions for
two years from admission.
Lord Browne is a senior executive of Riverstone and has direct
or indirect economic interests in Other Riverstone Funds as an
investor.
Mr Hackett is a senior executive of Riverstone and has direct or
indirect economic interests in Other Riverstone Funds as an
investor.
Messrs Barker and Hayden have direct or indirect economic
interests in Other Riverstone Funds as investors.
Investment Manager
For the provision of services under the Investment Management
Agreement, the Investment Manager is paid in cash out of the assets
of the Partnership an annual Management Fee equal to 1.5 per cent.
per annum of the Company's Net Asset Value. The fee is payable
quarterly in arrear and each payment is calculated using the
quarterly Net Asset Value as at the relevant quarter end.
Notwithstanding the foregoing, no Management Fee is paid on the
cash proceeds of the Issue to the extent that they have not yet
been invested or committed to an investment. Amounts not forming
part of a commitment to an investment that are invested in cash
deposits, interest-bearing accounts or sovereign securities
directly or indirectly, are not considered to have been invested or
committed for these purposes.
The Investment Manager has agreed to deduct from its annual
Management Fee all fees, travel costs and related expenses of the
Directors exceeding the following annual limits:
Portion of NAV Limit (as a percentage of the then last
published NAV)
--------------------------- ------------------------------------------------
Up to and including GBP500 0.084 per cent.
million
--------------------------- ------------------------------------------------
From GBP500 million to 0.084 per cent. at GBP500 million and
and including GBP600 thereafter adjusted downwards proportionately
million to NAV to 0.07 per cent. at GBP600 million
--------------------------- ------------------------------------------------
From GBP600 million to 0.07 per cent. at GBP600 million and thereafter
and including GBP700 adjusted downwards proportionately to
million NAV to 0.06 per cent. at GBP700 million
--------------------------- ------------------------------------------------
Above GBP700 million 0.06 per cent.
--------------------------- ------------------------------------------------
The above limits are subject to adjustment by agreement between
the Investment Manager and the Company acting by its independent
Directors. Based on the NAV as of 31 December 2013, the maximum
amount of annual fees, travel and related expenses of the Directors
is $899,541. The maximum amount pro-rated for the period 29 October
2013 to 31 December 2013 was $155,263.
During the period, the Partnership incurred Management Fees of
$387,004 of which all remained outstanding as at the period
end.
General Partner
The General Partner makes all management decisions, other than
investment management decisions, in relation to the Partnership and
controls all other actions by the Partnership and is entitled to
receive a Performance Allocation, calculated and payable at the
underlying investment holding subsidiary level, equal to 20 per
cent. of the realised profits (if any) on the sale of any
underlying asset of the Company.
The General Partner is entitled to receive its Performance
Allocation in cash, a substantial portion of which Riverstone,
through its affiliate RELCP, intends to reinvest in Ordinary Shares
of the Company on the terms summarised in Part I and Part VIII of
the Prospectus. No amounts are liable to be paid yet or accrued in
respect of Performance Allocation but, will be taken into account
when calculating the fair value of the Company's investment in the
Partnership.
Qualifying Investments
For so long as the Investment Manager (or any of its affiliates)
remains the investment manager of the Company, the Company, through
the Partnership, invests alongside Private Riverstone Funds in all
Qualifying Investments in which the Private Riverstone Funds
participate. Two such qualifying investments were committed to by
the Company, through the Partnership, in the period.
These investments are related party transactions due to the fact
that Messrs Lapeyre and Leuschen are both in a position to exercise
significant influence over the General Partner, the Investment
Manager and the general partner of Fund V, which make management
and investment management decisions, for the Partnership and Fund
V.
Liberty II
On 7 November 2013, the Company committed $100 million,
alongside $200 million from Fund V, into Liberty Resources II LLC,
a newly formed, Denver-based oil and gas company. No investment has
been made by the Partnership during the period.
On 30 January 2014, Liberty II signed an agreement to acquire
approximately 53,000 net acres and approximately 4,000 Boepd net in
the Williston Basin in North Dakota. The acquisition is expected to
require approximately $55-65 million net from REL (of the initial
$100 million commitment) pending financing arrangement and is
expected to close in March 2014. REL made a $13.3 million deposit
on 30 January 2014. Liberty II will continue to target acquisitions
in the Bakken and Three Forks formations as it furthers the
development of the acquired properties.
Eagle II
On 13 December 2013, the Company committed $50 million,
alongside $100 million from Fund V, into Eagle Energy Exploration,
LLC, a Tulsa-based oil and gas company formed to pursue oil and gas
exploration and production opportunities in the Mid-Continent
region of the USA. The Company has a right to commit a further $50
million, alongside $100 million from Fund V, in the future.
An initial drawdown of $989,009 was made on 18 December 2013 on
this commitment.
Cornerstone Investors
Each of the Cornerstone Investors has acquired an indirect
economic interest in each of the General Partner and the Investment
Manager depending on the size of their commitment and the total
issue size, up to an aggregate maximum indirect economic interest
of 20 per cent. in each, for nominal consideration. These interests
entitle the Cornerstone Investors to participate in the economic
returns generated by the General Partner, including from the
Performance Allocation, and the Investment Manager, which receives
the Management Fee.
Each Cornerstone Investor has agreed with the Company and the
Joint Bookrunners not to dispose of its Ordinary Shares for a
specified period from Admission, subject to certain exclusions as
described in paragraph 7.8 of Part VIII "Additional information" of
this Prospectus. The subscriptions by each of the Cornerstone
Investors and REL Coinvestment, LP will be subject to lock-up
restrictions for the following specified periods from Admission: in
the case of AKRC, Hunt, Casita and McNair, 12 months; in the case
of REL Coinvestment, LP, 2 years; and in the case of KFI, the later
of the first anniversary of Admission and the date of payment for
the second tranche of 5 million Ordinary Shares being made in full
(which will become payable on or before the second anniversary of
Admission).
15. Financial risk management
Financial risk management objectives
The Company's investing activities, through its investment in
the Partnership, intentionally expose it to various types of risks
that are associated with the underlying investee companies of the
Partnership. The Company makes the investment in order to generate
returns in accordance with its investment policy and
objectives.
The most important types of financial risks to which the Company
is exposed are market risk, liquidity risk and credit risk. The
Board of Directors has overall responsibility for the determination
of the Company's risk management and sets policy to manage that
risk at an acceptable level to achieve those objectives. The policy
and process for measuring and mitigating each of the main risks are
described below.
The Investment Manager and the Administrator provide advice to
the Company which allows it to monitor and manage financial risks
relating to its operations through internal risk reports which
analyse exposures by degree and magnitude of risks. The Investment
Manager and the Administrator report to the Board on a quarterly
basis.
Categories of financial instruments
2013
$'000
-------------------------------------------------- ----------
Financial assets
Investment at fair value through profit or loss:
Investment in the Partnership 1,130,051
Loans and receivables:
Cash and cash equivalents 11,805
Financial liabilities
Financial liabilities:
Trade and other payables (1,132)
Capital risk management
The Company manages its capital to ensure that the Company will
be able to continue as a going concern while maximising the capital
return to shareholders. The capital structure of the Company
consists of investment in the Partnership, cash and issued share
capital and retained earnings.
In order to maintain or adjust the capital structure, the
Company may buy back shares or issue new shares. There are no
external capital requirements imposed on the Company.
During the period ended 31 December 2013, the Company had no
borrowings other than trade and other payables. The Company had
sufficient cash and cash equivalents to pay these as they fell
due.
The Company's investment policy is set out above.
Market risk
Market risk includes price risk, foreign currency risk and
interest rate risk.
(a) Price risk
The underlying investments held by the Partnership present a
potential risk of loss of capital to the Partnership and hence to
the Company. The Company invests through the Partnership. Price
risk arises from uncertainty about future prices of underlying
financial investments held by the Partnership.
The Partnership is exposed to a variety of risks which may have
an impact on the carrying value of the Company's investment in the
Partnership. The Partnership's risk factors are set out in (a)(i)
to (a)(iii) below.
(i) Not actively traded
The Partnership's investments are not traded in an active market
but are indirectly exposed to market price risk arising from
uncertainties about future values of the investments held (see Note
7). The underlying investments of the Partnership vary as to
industry sub-sector, geographic distribution of operations and
size, all of which may impact the susceptibility of their valuation
to uncertainty.
This risk is managed by an investment strategy that diversifies
the investments in terms of geography, financing stage or industry
and through careful selection of investments within the specified
limits of the investment policy. The investments are monitored on a
regular basis by the Investment Manager.
(ii) Concentration
Concentration in an investment portfolio can have opposing
effects on the credit risk of a portfolio.
A low number of investments in a portfolio, or high
concentration, reduces risk due to better knowledge and information
whilst a higher portfolio concentration in a certain sector of;
industry, geographic distribution of operations or size increases
sector concentration and the risk of the portfolio.
Conversely a high number of investments and lower concentration
can reduce the credit risk of the portfolio but may limit
availability of resources and flexibility.
The Company, through the Partnership, intends to invest in the
global energy sector, with a particular focus on businesses that
engage in oil and gas exploration and production and midstream
investments in that sector. This means that the Company will be
exposed to the concentration risk of only making investments in the
global energy sector, which concentration risk may further relate
to sub-sector, geography, the relative size of an investment or
other factors. Whilst the Company is subject to the investment and
diversification restrictions in its investment policy, within those
limits, material concentrations of investments may still arise
The Board and the Investment Manager monitor the concentration
of the investment in the Partnership on a quarterly basis to ensure
compliance with the investment policy.
(iii) Liquidity
The Company's underlying investments through the Partnership are
dynamic in nature. The Partnership will maintain flexibility in
funding by keeping sufficient liquidity in cash and cash
equivalents which may be invested on a temporary basis in line with
the cash management policy as agreed by the Board from time to
time.
As at 31 December 2013, $1,129 million or 99.9 per cent. of the
Partnership's financial assets were U.S. treasury bills and cash
balances held on deposit with several, A or higher rated, banks.
All of these assets have maturities of less than one year.
(b) Foreign currency risk
The Company has exposure to foreign currency risk due to the
payment of some expenses in Pounds Sterling. Consequently, the
Company is exposed to risks that the exchange rate of its currency
relative to other foreign currencies may change in a manner that
has an adverse effect on the value of that portion of the Company's
assets or liabilities denominated in currencies other than the U.S.
Dollar.
As detailed in Note 12, the Company will bear the foreign
exchange risk on the GBP50 million second tranche of the KFI share
issue, which will be the movement in the exchange rate between the
admission date and when the capital is received.
The following table sets out, in U.S. Dollar, the Company's
total exposure to foreign currency risk and the net exposure to
foreign currencies of the monetary assets and liabilities:
$ GBP Total
ASSETS: $'000 $'000 $'000
------------------------------- ---------- ------- ----------
Non-current assets
Investment in the Partnership 1,130,051 - 1,130,051
------------------------------- ---------- ------- ----------
Total non-current assets 1,130,051 - 1,130,051
------------------------------- ---------- ------- ----------
Current assets
Debtors and prepayments 547 6 553
Cash and cash equivalents 4,319 7,486 11,805
------------------------------- ---------- ------- ----------
Total current assets 4,866 7,492 12,358
------------------------------- ---------- ------- ----------
Current liabilities
Trade and other payables 150 982 1,132
------------------------------- ---------- ------- ----------
Total current liabilities 150 982 1,132
------------------------------- ---------- ------- ----------
Total net assets 1,134,767 6,510 1,141,277
------------------------------- ---------- ------- ----------
The amounts due to affiliates as detailed in Note 11 have been
excluded from this analysis as they are not financial
instruments.
The Directors do not consider that the foreign currency exchange
risk at the balance sheet date to be significant or material and
therefore sensitivity analysis for the foreign currency risk has
not been provided.
(c) Interest Rate Risk
The Company's exposure to interest rate risk relates to the
Company's cash and cash equivalents. The Company is subject to risk
due to fluctuations in the prevailing levels of market interest
rates. Any excess cash and cash equivalents are invested at
short-term market interest rates. As at the date of the statement
of financial position the majority of the Company's cash and cash
equivalents were held on interest bearing fixed deposit
accounts.
The Company has no other interest-bearing assets or liabilities
as at the reporting date. As a consequence, the Company is only
exposed to variable market interest rate risk. Management does not
expect any significant change in interest rates that would have a
material impact on the financial performance of the Company in the
near future, therefore sensitivity analysis for the interest rate
risk has not been provided.
31 December
2013
$'000
--------------------------- ------------
Fixed rate
Cash and cash equivalents 7,486
Non-interest bearing
Cash and cash equivalents 4,319
Liquidity risk
Ultimate responsibility for liquidity risk management rests with
the Board of Directors.
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations on time or at a
reasonable price.
The Company adopts a prudent approach to liquidity management
and through the preparation of budgets and cash flow forecasts
maintains sufficient cash reserves to meet its obligations.
Credit risk
Credit risk refers to the risk that the counterparty will
default on its contractual obligations resulting in financial loss
to the Company.
The carrying value of the investment in the Partnership as at 31
December 2013 was $1,130 million.
Financial assets mainly consist of cash and cash equivalents and
investments at fair value through profit or loss. The Company's
risk on liquid funds is reduced because it can only deposit monies
with institutions with a minimum credit rating of "single A". The
Company mitigates its credit risk exposure on its investment at
fair value through profit or loss by the exercise of due diligence
on the counterparties of the Partnership, its General Partner and
the Investment Manager. The investment risk is managed by an
investment strategy that diversifies the investments in terms of
financing stage, industry or time.
The investment objectives, policy and restrictions of the
Company are set out above. For so long as the Ordinary Shares are
listed on the Official List, no material change may be made to the
Company's investment policy other than with the prior approval of
both the Shareholders and a majority of the independent directors
of the Company, and otherwise in accordance with the Listing
Rules.
The table below shows the material cash balances and the credit
rating for the counterparties used at the period end date:
31 December
2013
Counterparty Location Rating $'000
-------------------------------------- ---------- -------- ------------
Royal Bank of Scotland International
Limited Guernsey A 11,805
-------------------------------------- ---------- -------- ------------
The Company's maximum exposure to loss of capital at the period
end is shown below:
Carrying
Value and
Maximum
exposure
31 December 2013 $'000
-------------------------------------------------- -----------
Investment at fair value through profit or loss: -
Limited partnership 1,130,051
Loans and receivables (including cash and cash
equivalents but excluding prepayments) 11,805
-------------------------------------------------- -----------
Gearing
As at the date of these Financial Statements the Company itself
has no gearing, however, the Partnership may have indirect gearing
through the operations of the underlying investee companies.
16. Earnings per share and Net Asset Value per share
Earnings per share
Period from 23 May
2013
to 31 December 2013
Basic Diluted
--------------------------------------------- ----------- -----------
Profit for the period ($'000) 575 361
Weighted average numbers of shares in issue 71,032,058 76,032,058
EPS (cents) 0.81 0.47
--------------------------------------------- ----------- -----------
$'000
------------------------------------------------------- -----------
Profit for the period 575
Less: impact of assumed share issues
Finance income relating to KFI arrangement - see Note
12 (214)
------------------------------------------------------- -----------
Profit for the period including assumed share issues 361
------------------------------------------------------- -----------
Weighted average numbers of shares in issue 71,032,058
Plus incremental shares assumed
Dilutive potential ordinary shares relating to KFI
arrangement - see Note 12 5,000,000
------------------------------------------------------- -----------
Weighted average numbers of shares in issue 76,032,058
------------------------------------------------------- -----------
The earnings per share is based on the profit or loss of the
Company for the period and on the weighted average number of shares
the Company had in issue for the period from Admission to the
Official List on 29 October 2013 until 31 December 2013.
The deferred issue of shares to KFI as outlined in Note 12 may
have a dilutive effect on earnings per share. There are no other
dilutive shares in issue.
Net Asset Value per share
31 December
2013
------------------------------- ------------
NAV ($'000) 1,139,006
Number of shares in issue 71,032,058
Net Asset Value per share ($) 16.04
------------------------------- ------------
The Net Asset Value per share is arrived at by dividing the net
assets as at the date of the statement of financial position by the
number of Ordinary Shares in issue at that date.
17. Subsequent events
On 30 January 2014, Liberty II signed an agreement to acquire
approximately 53,000 net acres and approximately 4,000 Boepd net in
the Williston Basin in North Dakota. The acquisition is expected to
require approximately $55-65 million net from REL (of the initial
$100 million commitment) pending financing arrangement and is
expected to close in March 2014. REL made a $13.3 million deposit
on 30 January 2014. Liberty II will continue to target acquisitions
in the Bakken and Three Forks formations as it furthers the
development of the acquired properties.
Glossary of Capitalised Defined Terms
"Administrator" or "Heritage" or "HIFM" means Heritage
International Fund Managers Limited;
"Admission" means admission, on 29 October 2013, to the Official
List and/or admission to trading on the London Stock Exchange, as
the context may require, of the Ordinary Shares becoming effective
in accordance with the Listing Rules and/or the LSE Admission
Standards as the context may require;
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Code of Corporate Governance;
"AIC Guide" means the AIC Corporate Governance Guide for
Investment Companies;
"Annual General Meeting" or "AGM" means the general meeting of
the Company;
"Annual Report and Financial Statements" means the annual
publication of the Company provided to the Shareholders to describe
their operations and financial conditions, together with their
Financial Statements;
"Articles of Incorporation" or "Articles" means the articles of
incorporation of the Company;
"Audit Committee" means a formal committee of the Board with
defined terms of reference;
"Board" or "Directors" means the directors of the Company;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as
amended);
"Company" or "REL" means Riverstone Energy Limited;
"Cornerstone Investors" means those investors who have acquired
Ordinary Shares and acquired a minority economic interest in the
General Partner and in the Investment Manager, being AKRC
Investments, LLC, Casita, L.P., KFI, Hunt and McNair;
"Corporate Governance Code" means The UK Corporate Governance
Code as published by the Financial Reporting Council;
"Eagle II" means Eagle Energy Exploration, LLC;
"EBITDA" means earnings before interest, taxes, depreciation and
amortisation;
"EU" means the European Union;
"FCA" means the UK Financial Conduct Authority (or its successor
bodies);
"Financial Statements" means the audited financial records of
the Company, including the statement of financial position, the
statement of comprehensive income, the statement of cash flows, the
statement of changes in equity and associated notes;
"Fund V" means Riverstone Global Energy & Power Fund V,
L.P.;
"General Partner" means REL IP General Partner LP (acting
through its general partner, REL IP General Partner Limited), the
general partner of the Partnership and a member of the Riverstone
group;
"GFSC" or "Commission" means the Guernsey Financial Services
Commission;
"GFSC Code" means the GFSC Finance Sector Code of Corporate
Governance;
"Gross IRR" means an aggregate, annual, compound, gross internal
rate of return on investments. Gross IRR does not reflect expenses
to be borne by the relevant investment vehicle or its investors
including, without limitation, carried interest, management fees,
taxes and organisational, partnership or transaction expenses;
"Gross MOIC" means gross multiple of invested capital;
"Hunt" means Hunt REL Holdings LLC together with various members
of Ray L. Hunt's family and their related entities;
"IFRS" means the International Financial Reporting Standards,
being the principles-based accounting standards, interpretations
and the framework by that name adopted by the International
Accounting Standards Board, as adopted by the EU;
"Interim Financial Report" means the Company's half yearly
report and unaudited financial statements for the period ended 30
June;
"Investment Manager" or "RIL" means Riverstone International
Limited which is majority-owned and controlled by Riverstone;
"Investment Management Agreement" means the investment
management agreement dated 24 September 2013 between RIL, the
Company and the Partnership (acting through its General Partner)
under which RIL is appointed as the Investment Manager of both the
Company and the Partnership;
"Investment Undertaking" means the Partnership, any intermediate
holding or investing entities that the Company or the Partnership
may establish from time to time for the purposes of efficient
portfolio management and to assist with tax planning generally and
any subsidiary undertaking of the Company or the Partnership from
time to time;
"IPEV Valuation Guideline" means the International Private
Equity and Venture Capital Valuation Guidelines;
"IPO" means the initial public offering of shares by a private
company to the public;
"ISA" means international accounting standards as issued by the
Board of the International Accounting Standards Committee;
"ISIN" means an International Securities Identification
Number;
"KFI" means Kendall Family Investments, LLC, a cornerstone
investor in the company;
"Liberty II" means Liberty Resources II, LLC;
"Listing Rules" means the listing rules made by the UK Listing
Authority under section 73A Financial Services and Markets Act
2000;
"London Stock Exchange" or "LSE" means London Stock Exchange
plc;
"LSE Admission Standards" means the rules issued by the London
Stock Exchange in relation to the admission to trading of, and
continuing requirements for, securities admitted to the Official
List;
"Management Engagement Committee" means a formal committee of
the Board with defined terms of reference;
"Management Fee" means the management fee to which RIL is
entitled;
"McNair" means RCM Financial Services, L.P. for the purposes of
acquiring Ordinary Shares and Palmetto for the purposes of
acquiring a minority economic interest in the General Partner and
the Investment Manager;
"NAV per Share" means the Net Asset Value per Ordinary
Share;
"Net Asset Value" or "NAV" means the value of the assets of the
Company less its liabilities as calculated in accordance with the
Company's valuation policy and expressed in U.S. Dollars;
"Nominations Committee" means a formal committee of the Board
with defined terms of reference;
"Official List" is the list maintained by the Financial Conduct
Authority (acting in its capacity as the UK Listing Authority) in
accordance with Section 74(1) of the Financial Services and Markets
Act 2000;
"Ordinary Shares" means redeemable ordinary shares of no par
value in the capital of the Company issued and designated as
"Ordinary Shares" and having the rights, restrictions and
entitlements set out in the Articles;
"Other Riverstone Funds" means other Riverstone-sponsored,
controlled or managed entities, including Fund V, which are or may
in the future be managed or advised by the Investment Manager or
one or more of its affiliates, excluding the Partnership;
"Partnership" or "RELIP" means Riverstone Energy Investment
Partnership, LP, the Investment Undertaking in which the Company is
the sole limited partner;
"Partnership Agreement" means the partnership agreement in
respect of the Partnership between inter alios the Company as the
sole limited partner and the General Partner as the sole general
partner dated 23 September 2013;
"Performance Allocation" means the Performance Allocation to
which the General Partner is entitled;
"POI Law" means the Protection of Investors (Bailiwick of
Guernsey) Law, 1987;
"Private Riverstone Funds" means Fund V and all other private
multi-investor, multi-investment funds that are launched after
Admission and are managed or advised by the Investment Manager (or
one or more of its affiliates) and excludes Riverstone employee
co-investment vehicles and any Riverstone managed or advised
private co-investment vehicles that invest alongside either Fund V
or any multi-investor multi-investment funds that the Investment
Manager (or one or more of its affiliates) launches after
Admission;
"Prospectus" means the prospectus published on 24 September 2013
by the Company in connection with the IPO of Ordinary Shares;
"Qualifying Investments" means all investments in which Private
Riverstone Funds participate which are consistent with the
Company's investment objective where the aggregate equity
investment in each such investment (including equity committed for
future investment) available to the relevant Private Riverstone
Fund and the Company (and other co-investees, if any, procured by
the Investment Manager or its affiliates) is $100 million or
greater, but excluding any investments made by Private Riverstone
Funds where both (a) a majority of the Company's independent
directors and (b) the Investment Manager have agreed that the
Company should not participate;
"RELCP" means Riverstone Energy Limited Capital Partners, LP
(acting by its general partner Riverstone Holdings II (Cayman)
Ltd.) a Cayman exempted limited partnership controlled by
affiliates of Riverstone;
"RIL" or "Investment Manager" means Riverstone International
Limited;
"Riverstone" means Riverstone Holdings LLC and its affiliated
entities (other than the Investment Manager and the General
Partner), as the context may require;
"Shareholder" means the holder of one or more Ordinary
Shares;
"Stewardship Code" means the UK Stewardship Code;
"UK" or "United Kingdom" means the United Kingdom of Great
Britain and Northern Ireland;
"UK Listing Authority" or "UKLA" means the Financial Conduct
Authority;
"U.S." or "United States" means the United States of America,
its territories and possessions, any state of the United States and
the District of Columbia.
"GBP" or "Pounds Sterling" means British pound sterling; and
"$" means United States dollar.
Cautionary Statement
The Chairman's Statement and Investment Manager Report have been
prepared solely to provide additional information for shareholders
to assess the Company's strategies and the potential for those
strategies to succeed. These should not be relied on by any other
party or for any other purpose.
The Chairman's Statement and Investment Manager Report may
include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can
be identified by the use of forward-looking terminology, including
the terms "believes", "estimates", "anticipates", "expects",
"intends", "may", "will" or "should" or, in each case, their
negative or other variations or comparable terminology.
These forward-looking statements include all matters that are
not historical facts. They appear in a number of places throughout
this document and include statements regarding the intentions,
beliefs or current expectations of the Directors and the Investment
Manager, concerning, amongst other things, the investment
objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity,
prospects, and distribution policy of the Company and the markets
in which it invests.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance. The Company's actual investment performance, results
of operations, financial condition, liquidity, distribution policy
and the development of its financing strategies may differ
materially from the impression created by the forward-looking
statements contained in this document.
Subject to their legal and regulatory obligations, the Directors
and the Investment Manager, expressly disclaim any obligations to
update or revise any forward-looking statement contained herein to
reflect any change in expectations with regard thereto or any
change in events, conditions or circumstances on which any
statement is based.
General Information
Investment Manager English solicitors to the Company
Riverstone International Limited Freshfields Bruckhaus Deringer
Clifton House LLP
75 Fort Street 65 Fleet Street
P.O. Box 1350 London
George Town EC4Y 1HS
Grand Cayman United Kingdom
KY1-1108
Cayman Islands Guernsey advocates to the Company
Carey Olsen
Administrator and Company secretary Carey House
Heritage International Fund Managers PO Box 98
Limited Les Banques
Heritage Hall St Peter Port
PO Box 225 Guernsey
Le Marchant Street GY1 4BZ
St Peter Port Channel Islands
Guernsey
GY1 4HY U.S. legal advisors to the Company
Channel Islands Vinson & Elkins LLP
1001 Fannin Street
Registered office Suite 2500
Heritage Hall Houston, Texas
PO Box 225 TX 77002
Le Marchant Street United States of America
St Peter Port
Guernsey Independent auditor
GY1 4HY Ernst & Young LLP
Channel Islands PO Box 9, Royal Chambers
St Julian's Avenue
Registrar St Peter Port
Capita Registrars (Guernsey) Limited Guernsey
Longue Hougue House GY1 4AF
St Sampson Channel Islands
Guernsey
GY2 4JN Website: www.RiverstoneREL.com
Channel Islands ISIN: GG00BBHXCL35
Ticker: RSE
Principal bankers
The Royal Bank of Scotland International
Limited
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4BQ
Channel Islands
Public relations adviser
Brunswick Group LLP
16 Lincoln's Inn Fields
London
WC2A 3ED
United Kingdom
Riverstone Energy Limited
Heritage Hall, PO Box 225,
Le Marchant Street, St Peter Port, Guernsey, GY1 4HY, Channel
Islands.
P 44 (20) 3206 6300
F 44 (20) 3206 6301
Further information available online:
www.RiverstoneREL.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UOSORSVAUAUR
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