TIDMRSE
RNS Number : 9430I
Riverstone Energy Limited
14 August 2019
Interim Report and Unaudited Interim Condensed Financial
Statements for the six months ended 30 June 2019 Riverstone
Energy
Limited
(LSE: RSE)
A focus on long-term capital growth
Financial and Operational Highlights
Net Committed Capital $1,116 million / 92 per cent. of net capital
to Date available(1)
Net commitments during Commitments reduced by a net total of $6
the period ended 30 June million(2) :
2019 (i) $22 million in Ridgebury H3 LLC
(ii) ($19) million in Sierra Oil and Gas
Holdings, L.P.
(iii) ($5) million in Eagle Energy Exploration,
LLC.
(iv) ($4) million in Meritage Midstream
Services III, L.P.
Remaining unfunded commitments $125 million(3) :
at 30 June 2019 (i) $45 million in ILX Holdings III, LLC
(ii) $24 million in Carrier Energy Partners
II, LLC
(iii) $23 million in Meritage Midstream
Services III, L.P.
(iv) $17 million in Castex Energy 2014,
LLC
(v) $12 million in Hammerhead Resources
Inc.
(vi) $4 million in Ridgebury H3 LLC
(vii) $1 million in Fieldwood Energy, Inc.
Net Capital Invested to $991 million / 82 per cent. of net capital
Date available(1)
Investments during the Invested a total of $24 million(2) :
period ended 30 June 2019 (i) $18 million in Ridgebury H3 LLC
(ii) $4 million in ILX Holdings III, LLC
(iii) $3 million in Castex Energy 2014,
LLC
Gross Realised Capital $862 million / 51 per cent. of total capital
to Date invested
Gross Realisations during Realised a total of $133 million(2) :
the period ended 30 June (i) $83 million in Meritage Midstream Services
2019 III, L.P.
(ii) $39 million in Sierra Oil and Gas
Holdings, L.P.
(iii) $6 million in Carrier Energy Partners
II, LLC
(iv) $3 million in Three Rivers Natural
Resources Holdings III, LLC
(v) $2 million in ILX Holdings III, LLC
Key Financials
30 June 2019 31 December 30 June 2018
2018
---------------------- --------------------- --------------------- ---------------------
NAV as at $1,058 million $1,431 million $1,754 million
/ / /
GBP833 million GBP1,123 million(4) GBP1,328 million(4)
(4)
NAV per Share as at $13.24 / GBP10.43(4) $17.91 / GBP14.06(4) $20.76 / GBP15.72(4)
Market capitalisation $874 million $1,095 million $1,423 million
at / / / GBP1,078
GBP688 million(4) GBP860 million(4) million(4)
Share price at $10.93 / GBP8.61 $13.71 / GBP10.76(4) $16.85 / GBP12.76(4)
(4)
30 June 2019 30 June 2018
------------------------------- ------------------- ---------------
Total comprehensive (loss)
/ profit for the six months
ended ($373.12) million $10.75 million
Basic (Loss) / Earnings (467.01) cents 12.72 cents
per Share for the six months
ended
(1) Net capital available of $1,210 million is based on total
capital raised of $1,320 million, capital utilised for Tender Offer
of $72 million, realised profits and other income net of fees,
expenses and performance allocation
(2) Amounts may vary due to rounding
(3) The Board by consultation with the Investment Manager does
not expect to fully fund all commitments in the normal course of
business. The Investment Manager's historical track record shows
that investments are often realised prior to the commitment being
fully funded
(4) Based on exchange rate of 1.270 $/GBP at 30 June 2019 (1.274
$/GBP at 31 December 2018 and 1.321 $/GBP at 30 June 2018)
"REL continues to adapt to the changing investment landscape
within energy to identify compelling investment opportunities."
Chairman's Statement
After an especially turbulent fourth quarter last year, crude
oil prices modestly recovered during the first half of 2019. Though
the WTI price continued to fluctuate, it ended the period at $58
per barrel, compared to $45 per barrel at the end of 2018. WTI
continued to be acutely influenced by developments in the
geopolitical environment, notably the shifting dynamics of the
U.S.- China trade discussions and concerns around slowing economic
growth.
The challenging oil price backdrop has continued to impact
energy equities, particularly within E&P. While energy equities
dropped in tandem with WTI price decreases late last year, they
have been much slower to recover as oil prices have trended upwards
this year. WTI increased by 29 per cent. through 30 June 2019
compared to the end of 2018. However, the S&P Oil & Gas
E&P Index only recovered by 3 per cent. and the Canadian
S&P TSX Oil & Gas E&P Index dropped by 1 per cent.
during the same period. This dynamic is reflective of the enduring
wariness of public institutional investors towards the sector,
given the lengthy nature of the current downturn which started five
years ago.
Despite turbulence in commodity prices and the public markets,
the current market environment presents unique investment
opportunities for private capital as public financing sources for
energy companies remain scarce. REL has been focussed on continuing
to diversify its investments across subsectors as part of its
ongoing portfolio management strategy, targeting transactions with
strong risk-adjusted returns. Accordingly, the Company recently
funded its first investment in the energy services sector through
the Ridgebury H3 (Handy Tankers) transaction which acquired three
IMO-compliant vessels and committed to two transactions in the
midstream and power sectors.
In late April, REL announced a commitment of up to $66 million
to Onyx, a newly formed European independent power producer that
has agreed to acquire a fleet of coal and biomass-fired power
stations in Germany and Netherlands with approximately 2,000
megawatts of net generation capacity. Two of the plants acquired
are among the most modern and operationally efficient coal plants
in Europe. Riverstone expects the company to be a critical
component in the provision of reliable power generation in Western
Europe and to serve as a platform for future opportunities as the
demand for electricity continues to grow rapidly. In June, REL also
announced a $100 million commitment to Aleph Midstream, which
closed in July, to become the first midstream player in the Vaca
Muerta in Argentina, the largest shale development outside of North
America. With Riverstone sponsored company Vista Oil & Gas as
the anchor tenant, REL believes this transaction represents a
unique investment opportunity that will be able to capitalise on
Riverstone's core competitive advantages. Aleph Midstream
demonstrates the value of platform synergies which allow the
Company to take advantage of proprietary transactions, similar to
Meritage III whose partnership with Hammerhead Resources supported
REL's successful exit earlier this year at an attractive valuation.
This transaction, along with Ridgebury H3, demonstrate REL's
modified investment strategy as Riverstone's private funds did not
participate.
Looking forward, REL is well-positioned to create value for
shareholders through its flexible investment strategy, which has
evolved as oil prices remain lower for longer. Even though REL's
NAV and share price performance have been impacted by the
instability in the energy markets, the Company and Investment
Manager remain keenly focussed on driving portfolio company
investment performance in order to generate favourable returns to
shareholders.
Performance
Facing difficult conditions for energy valuations, REL ended 30
June 2019 with a NAV of $13.24 (GBP10.43) per share, a 26 per cent.
decrease in USD and GBP compared with 31 December 2018. REL's
shares have traded down 20 per cent. since 31 December 2018 on a
Pounds Sterling basis and closed the period at a 17 per cent.
Discount to NAV. The Board has been monitoring REL's share price
performance and the discount to the prevailing Net Asset Value and
continues to evaluate options with the goal of reducing the
discount.
While REL has not been immune to the effects of the most
prolonged oil price downturn in recent history due to its exposure
to the E&P sector, the portfolio has proven to be resilient on
a relative basis. Since inception in 2013, the NAV per share has
decreased by 18 per cent. in USD (4 per cent. in GBP) compared to
the S&P Oil & Gas E&P Index and the Canadian S&P
TSX Oil & Gas E&P Index, which have declined by 60 per
cent. and 67 per cent., respectively during the same period. In
addition, REL has realised total gross proceeds of $862 million
since inception, which represents over half of its $1,683 million
of invested capital to date.
During the period, there were several valuation changes within
the portfolio, primarily to reflect the volatility related to the
macro environment. The underperformance of U.S. and Canadian
E&P equities, combined with muted forward oil prices which
remain in the $50s per barrel and lack of M&A market activity,
created particularly challenging headwinds for REL's portfolio
company valuations.
REL's investment in Hammerhead saw the largest overall decrease
in unrealised value during the period as its Gross MOIC decreased
from 1.5x to 0.8x to reflect the lower trading multiples of its
peer group and a more conservative forecast primarily given
uncertainty around regulatory dynamics and oil price volatility.
During the first half of 2019, the public Canadian E&P capital
markets remained challenged and continued to underperform the
broader energy and E&P sectors. The Alberta government may also
elect to extend existing production curtailment quotas into 2020 in
an effort to mitigate potential widening of oil differentials, as
new liquids pipeline capacity out of the region continues to be
delayed. The Gross MOIC for Liberty II, Centennial, and Carrier II
also declined, primarily reflecting the weakness in the M&A and
equity markets. Ridgebury H3 (Handy Tankers) increased from a 1.0x
to a 1.1x during the period, while ILX III remained flat.
The valuation of REL's investments is conducted quarterly by the
Investment Manager and is subject to approval by the independent
Directors. In addition, the valuations of REL's investments are
audited by Ernst & Young LLP in connection with the annual
audit of the Company's Financial Statements. The Company's
valuation policy is compliant with both IFRS and IPEV Valuation
Guidelines and has been applied consistently from period to period
since inception. As the Company's investments are generally not
publicly quoted, valuations require meaningful judgement to
establish a range of values, and the ultimate value at which an
investment is realised may differ from its most recent valuation
and the difference may be significant. Further information on the
Company's valuation policy can be found in the Investment Manager's
Report.
In the first half of 2019, through the Partnership, REL received
$133 million in gross proceeds from the portfolio, principally as a
result of two full realisations that closed during the period. In
January, gross proceeds of $83 million were received from the sale
of Meritage III, a Canadian midstream investment. REL was able to
achieve a strong return on its $40 million investment, with the
exit representing a Gross MOIC of 2.1x and a Gross IRR of 30 per
cent.. In February, the Company closed on the sale of Sierra, an
independent E&P company, which generated gross proceeds of $39
million, representing a Gross MOIC of 2.1x and a Gross IRR of 55
per cent.. This exit also represented Riverstone's first successful
realisation in Mexico, with the energy industry having only
deregulated in the country five years ago. REL also received
proceeds from Three Rivers III, ILX III, Carrier II, Rock Oil, RCO
and Fieldwood totalling $11 million.
REL invested a total of $24 million over the period, $18 million
of which was used to fund REL's participation in the Ridgebury H3
(Handy Tankers) investment. The remaining $6 million was invested
in ILX III and Castex 2014 to fund ongoing operations. Taking this
into account, REL finished the period with $991 million net
invested, equating to 82 per cent. of net capital available and a
cash balance of $219 million.
The portfolio continued to progress operationally during the
first half of 2019, while also prioritising liquidity to mitigate
against risks amidst a fragile macro backdrop. In the US,
Centennial continues to focus on maintaining a solid balance sheet
and as a result, reduced its operated rig program to six versus
seven last year. Despite a lower rig count, the company continues
to increase both daily oil and equivalent production volumes and is
targeting 12 per cent. crude oil production growth with the ability
to ramp up rig pace if the macro environment improves. Liberty II
is continuing to execute its development program in the Bakken,
with particular focus within its new East Nesson position, and has
grown production to over 8,000 boepd today from 6,500 boepd one
year ago. The company is evaluating financing options to accelerate
development, which would increase production volumes and cash flows
and further delineate East Nesson. Liberty II also continues to
develop its midstream business which includes a 30 mcf gas
processing plant and 45,000 bw/d of produced water disposal
capacity.
In Canada, Hammerhead continues to progress the development of
its core Upper/Middle Montney acreage. The company recently
completed a six well pad at Gold Creek which came online earlier
this year, bringing total production to approximately 30,000 boepd
compared to 29,000 boepd one year ago. Given the challenging market
environment in Canada, the company has pulled back its drilling
capital program for now as it evaluates a number of financing
initiatives, including certain midstream assets, in order to fund
continued growth.
REL's offshore investments have also focussed on growth through
operational excellence. ILX III continues to progress its
development plan, and its Buckskin project recently reached first
oil at its two wells, which have performed above expectation. The
company's development plan also contemplates bringing on three
additional projects online in 2020. Meanwhile, Fieldwood recently
commenced its deepwater drilling program and encountered two
commercial discoveries. The first discovery is expected to become
producing by the end of this year, while the second will come
online by early next year.
As we move into the second half of the year, REL remains
focussed on its objective of delivering an advantageous return to
shareholders. As part of meeting this objective, the Company's
Management Engagement Committee has been holding discussions with
the Investment Manager regarding potential changes to the terms of
the Investment Management Agreement. REL has a contractual
agreement with the Investment Manager and any change to the
Investment Management Agreement requires the consent of the
Manager. While the industry has endured a prolonged downturn, the
Board looks forward to seeing the Company and Investment Manager
continuing to identify ways to capitalise on attractive investment
opportunities and drive alpha over the long-term.
Richard Hayden
Chairman
13 August 2019
Investment Manager's Report
Focussing on value creation over the long-term through a
flexible investment strategy
Oil prices continued to experience significant fluctuations
through the first half of 2019. Following the $45 per barrel WTI
pricing at the end of 2018, prices rebounded as sanctions on
Venezuela and Iran tightened and U.S. supply growth appeared to be
slowing. As U.S.-China trade discussions were tabled and
inventories were building, spot oil prices exhibited volatility.
However, they have since stabilised as trade discussions have
resumed and OPEC announced extended production cuts. Despite the
variability in commodity prices, REL continues to prioritise
driving operational performance and diversifying its portfolio
across sectors to capitalise on a broad range of opportunities.
Although energy companies have focussed on capital discipline
and commodity spot prices have recovered moderately, North American
energy valuations remain at muted levels. Despite the gains in
near-term prices, the forward oil prices supporting valuations have
been anchored in the low-to-mid $50 per barrel range. Meanwhile,
public energy equities continue to underperform the broader market
and have recovered materially less than spot prices as investor
sentiment towards the industry remains weak. As a result, trading
multiples have continued to compress, furthering the downward trend
that has persisted over the last three years. These factors,
combined with public investors' demands for capital discipline,
have also limited capital markets and M&A activity. In the
E&P sector, consolidation could potentially be on the horizon
as the "majors" have begun to trade significantly above their
smaller peers and there appears to be a need for smaller producers
to gain scale, lower their cost structures and diversify their
asset bases in order to be competitive in a lower commodity price
environment. Chevron's bid for Anadarko Petroleum, which eventually
lost to a bid by Occidental Petroleum, was the first major
transaction to be announced, though subsequent M&A activity has
been somewhat limited.
Several factors which will meaningfully affect inventory balance
have the potential to improve market sentiment and support a sector
recovery. First, a stable geopolitical environment will be
critical. Recent developments including OPEC's extension of their
production cuts through the first quarter of 2020 and continued
dialogue in U.S.-China trade discussions following the G20 Summit
are encouraging signals. Tensions between the U.S. and Iran will
also be an important issue to monitor as hostility has risen
between the two major oil producing nations recently. Recent
seizures of oil tankers in the Strait of Hormuz by Iran have
continued to create uncertainty in the oil markets and could lead
to supply constraints. It is important to note that the oil tankers
in REL's Ridgebury H3 investment do not operate in the Persian
Gulf. Secondly, there will be a considerable focus on U.S.
producers' ability to grow volumes with limited access to capital
markets, reduced capital budgets and declining quality inventory.
Investor sentiment is expected to improve if producers are able to
generate free cash flow sustainably and return value to
shareholders.
Despite a challenging backdrop for E&P, REL believes that
the energy investment landscape is still quite attractive,
especially across subsectors. Given Riverstone's flexible
investment strategy, the Company is well-suited to take advantage
of a wide range of opportunities with strong risk-adjusted returns
across the entire energy value chain. The need for critical
infrastructure in key basins continues to provide compelling
investment opportunities within midstream. Meanwhile, secular
trends indicate that the long-term demand for power and electricity
will increase immensely and outpace the rate of growth for
hydrocarbons. This dynamic, along with the shorter-term cyclical
troughs that certain power markets are facing, create a
constructive market environment for REL to capitalise on.
Riverstone has an extensive platform of investments across
various subsectors and regions, which provides REL with the ability
to leverage institutional knowledge to identify and underwrite new
opportunities. The first half of 2019 proved to be a period where
the Company was able to execute upon unique investment
opportunities in power and midstream with the announcement of
commitments to Onyx and Aleph Midstream. As the Company and
Investment Manager focus on further diversifying the portfolio, the
"build-up" approach will continue to serve as a key tenet of the
investment strategy in order to drive growth while limiting
exposure to downside risk through disciplined capital
deployment.
Even though energy will remain inherently cyclical and the
industry has faced unprecedented difficulties in recent years, REL
will continue to leverage Riverstone's core competencies to
originate proprietary transactions across the industry spectrum.
Supported by a team with deep experience in both investing and
operations through multiple economic and commodity price cycles,
REL is well-positioned to deliver for its shareholders over the
long-term.
Investment Strategy
The Investment Manager's objective is to achieve superior
risk-adjusted, after-tax returns by making privately negotiated
control investments in the global energy industry across all
sectors, which is a significant component of virtually all major
economies. REL's investment strategy has recently expanded to also
focus on other sectors across the energy value chain, including
energy services and power, as well as opportunities in which the
Private Riverstone Funds do not participate. The recent commitments
to the acquisition of three refined product tankers in partnership
with the Ridgebury Tankers LLC management team and to Aleph
Midstream, an independent Argentine oil and gas gathering and
processing-focussed midstream company, which is further discussed
in the Subsequent Events section, as disclosed in Note 11, is
representative of this modified investment approach. Long-term
market drivers of economic expansion, population growth,
development of markets, deregulation, and privatisation allied to
near-term commodity price volatility are expected to continue to
create opportunities globally for Riverstone.
Key Drivers:
-- Capital constraints among companies with high levels of
leverage and/or limited access to public markets;
-- Industry distress and pressures to rationalise assets;
-- Increases in ability to extract hydrocarbons from oil and gas-rich shale formations; and
-- Historical under-investment in energy infrastructure.
The Investment Manager, through its affiliates, has a strong
track record of building businesses with management teams and of
delivering consistently attractive 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 investments.
The Investment Manager, having made over 180 investments
globally in the energy sector since being founded in 2000, utilises
its extensive industry expertise and relationships to thoroughly
evaluate investment opportunities 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-focussed professional advisory firms to assist with due
diligence in other areas such as accounting, tax, legal, employee
benefits, environmental, engineering and insurance.
Current Portfolio
Gross
Realised
Gross Gross Gross Capital & 30 Jun 31 Dec
Investment Committed Invested Realised Unrealised Unrealised 2019 2018
(Initial Investment Capital Capital Capital Value Value Gross Gross
Date) Target Basin ($mm) ($mm) ($mm)(1) ($mm)(2) ($mm)(3) MOIC(3) MOIC(3)
---------------------- --- ---------------------- --------- --------- --------- ----------- ---------- -------- --------
Centennial
(6 Jul 2016) Permian (U.S.) $268 $268 $172 $115 $287 1.1x 1.3x
Hammerhead Resources
(formerly CIOC)
(27 Mar 2014) Deep Basin (Canada) 307 295 23 202 225 0.8x 1.5x
ILX III
(8 Oct 2015) Deepwater GoM (U.S.) 200 155 2 200 202 1.3x 1.3x
Liberty II
(30 Jan 2014) Bakken, PRB (U.S.) 142 142 - 128 128 0.9x 1.1x
Carrier II Permian & Eagle Ford
(22 May 2015) (U.S.) 133 110 22 66 88 0.8x 1.0x
RCO(4) North America 80 80 79 3 82 1.0x 1.1x
(2 Feb 2015)
Fieldwood
(17 Mar 2014) GoM Shelf (U.S.) 89 88 8 54 62 0.7x 0.7x
Gulf Coast Region (U.
Castex 2014 S.) 67 50 - 35 35 0.7x 1.0x
(3 Sept 2014)
CNOR
(29 Aug 2014) Western Canada 90 90 - 27 27 0.3x 0.8x
Ridgebury H3 Global 22 18 - 20 20 1.1x n/a
(19 Feb 2019)
Total Current Portfolio(5) $1,398 $1,296 $305 $849 $1,154 0.9x 1.0x
--------------------------------------------------- --------- --------- --------- ----------- ---------- -------- --------
Realisations
Gross
Realised
Gross Gross Gross Capital & 30 Jun 31 Dec
Investment Committed Invested Realised Unrealised Unrealised 2019 2018
(Initial Investment Capital Capital Capital Value Value Gross Gross
Date) Target Basin ($mm) ($mm) ($mm)(1) ($mm)(2) ($mm)(3) MOIC(3) MOIC(3)
---------------------- --- --------------- --------- --------- --------- ----------- ---------- -------- --------
Rock Oil(6) Permian (U.S.) 114 114 231 8 239 2.1x 2.1x
(12 Mar 2014)
Three Rivers III
(7 Apr 2015) Permian (U.S.) 94 94 203 - 203 2.2x 2.2x
Meritage III (7) Western Canada 62 40 83 - 83 2.1x 2.0x
(7 Apr 2015)
Sierra
(24 Sept 2014) Mexico 18 18 39 - 39 2.1x 2.0x
Total Realisations(5) $290 $267 $557 $8 $565 2.1x 2.1x
-------------------------------------------- --------- --------- --------- ----------- ---------- -------- --------
Withdrawn Commitments and Impairments(8) 121 121 1 - 1 0.0x 0.0x
-------------------------------------------- --------- --------- --------- ----------- ---------- -------- --------
Total Investments(5) $1,809 $1,683 $862 $857 $1,719 1.0x 1.3x
-------------------------------------------- --------- --------- --------- ----------- ---------- -------- --------
Cash and Cash Equivalents $219
-------------------------------------------- --------- --------- --------- ----------- ---------- -------- --------
Total Investments and Cash and Cash
Equivalents $1,076
-------------------------------------------- --------- --------- --------- ----------- ---------- -------- --------
Note: Please refer to the Investment Portfolio Summary for
additional details on the valuation of the Company's portfolio as
of 30 June 2019.
(1) Gross realised capital is total gross proceeds realised on
invested capital. Of the $862 million of capital realised to date,
$573 million is the return of the cost basis, and the remainder is
profit
(2) Amounts reflect the fair value of the investments held by
the Partnership (see Note 6 for further information)
(3) Gross Unrealised Value and Gross MOIC are before transaction
costs, taxes (approximately 21 to 27.5 per cent. of U.S. sourced
taxable income) and 20 per cent. carried interest on gross profits
(without a hurdle rate). Since there is no netting of losses
against gains, the effective carried interest rate on the portfolio
as a whole will be greater than 20 per cent.. In addition, there is
a management fee of 1.5 per cent. of net assets (including cash)
per annum and other expenses. Given these costs, fees and expenses
are in aggregate expected to be considerable, Total Net Value and
Net MOIC will be materially less than Gross Unrealised Value and
Gross MOIC. Local taxes, primarily on U.S. assets, 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. In the normal course of
business, REL may form wholly-owned subsidiaries, to be treated as
C Corporations for U.S. tax purposes. The C Corporations serve to
protect REL's public investors from incurring U.S. ECI. The C
Corporations file U.S. corporate tax returns with the U.S. IRS and
pay U.S. corporate taxes on its taxable income
(4) Credit investment
(5) Amounts may vary due to rounding
(6) The unrealised value of the Rock Oil investment consists of
rights to mineral acres
(7) Midstream investment
(8) Withdrawn commitments consist of Origo ($9 million) and
CanEra III ($1 million), and impairments consist of Eagle II ($62
million) and Castex 2005 ($48 million)
Investment Portfolio Summary
As of 30 June 2019, REL's portfolio comprised ten active
investments including eight E&P investments, one energy
services investment and one credit investment.
Centennial
As of 30 June 2019, REL, through the Partnership, has invested
in full its $267.9 million commitment to Centennial. Centennial is
an E&P company focussed on the acquisition and development of
oil and liquids-rich natural gas resources in the Permian Delaware
Basin, West Texas. The company, led by former EOG Resources, Inc.
chief executive Mark Papa, has rapidly aggregated an 80,200 net
acre position in the Delaware Basin of the Permian. The Company is
currently running a six-rig drilling program and will maintain a
flexible approach to operating activity based upon commodity
prices.
REL, through the Partnership, owns approximately 15.2 million
shares which are publicly traded (NASDAQ:CDEV), at a weighted
average purchase price of $11.21.
As of 30 June 2019, REL's interest in Centennial, through the
Partnership, was valued at 1.1x Gross MOIC(1) or $287.0 million
(Realised: $171.8 million, Unrealised: $115.2 million). The Gross
MOIC(1) , which reflects the mark-to-market value of REL's
shareholding, decreased over the last six months.
Hammerhead
As of 30 June 2019, REL, through the Partnership, has invested
$295.3 million of its $307.5 million commitment to Hammerhead.
Hammerhead is a private E&P company focussed on liquids-rich
unconventional resources in Western Canada. Since its establishment
in 2010, Hammerhead has aggregated one of the largest and most
advantaged land positions in the emerging Montney and Duvernay
formations of Western Canada's Deep Basin. The company controls and
operates 100 per cent. of this asset base, which comprises over
2,000 net drilling locations across 400,000 net acres in the
Montney and Duvernay. Since Riverstone's initial investment,
Hammerhead has increased production almost ten-fold to 30,000 boepd
and significantly grown reserves to 407 mmboe.
As of 30 June 2019, REL's interest in Hammerhead, through the
Partnership, was valued at 0.8x Gross MOIC(1) or $225.0 million
(Realised: $23.1 million, Unrealised: $201.9 million). The Gross
MOIC(1) decreased over the period, to reflect lower trading
multiples of its peer as well as a more conservative outlook due to
uncertainty around production curtailments in Alberta.
ILX III
As of 30 June 2019, REL, through the Partnership, has invested
$155.0 million of its $200.0 million commitment to ILX III. ILX
III, based in Houston, Texas, is a repeat joint-venture with
Ridgewood Energy Corporation. The new entity maintains the same
strategy of acquiring non-operated working interests in
oil-focussed exploration projects in the shallow Gulf of Mexico.
ILX III acquired offshore leases with 15 defined deepwater
prospects at inception but has since opportunistically farmed into
two additional prospects and added 22 additional prospects through
numerous lease sales. In 2019, ILX divested its interest in four
undrilled prospects and reached first oil on two wells at its
Buckskin project, both of which have performed above expectations.
The Company's current plan anticipates bringing three additional
projects online in 2020.
As of 30 June 2019, REL's interest in ILX III, through the
Partnership, was valued at 1.3x Gross MOIC(1) or $201.5 million.
The Gross MOIC(1) was unchanged over the period.
Liberty II
As of 30 June 2019, REL, through the Partnership, has invested
in full its $141.7 million commitment to Liberty II. Liberty II
established positions in the Williston (Bakken) and Powder River
Basins through a series of acquisitions, which benefit from Liberty
II's sophisticated and proprietary well completion technology.
Liberty II subsequently sold its position in the Powder River Basin
and is currently focussed on its Bakken acreage, which has grown to
approximately 100,000 net acres through aggressive grassroots
leasing efforts in the East Nesson and bolt-on acquisitions.
Acquisitions have resulted in an extensive drilling inventory and
many contiguous acreage positions of scale.
In the first half of 2019, Liberty II drilled 7 wells, brought 8
wells online, and is currently producing approximately 8,400 boepd.
The Company plans to continue drilling its East Nesson position in
the Bakken and is exploring options to accelerate its development
program.
As of 30 June 2019, REL's interest in Liberty II, through the
Partnership, was valued at 0.9x Gross MOIC(1) or $127.5 million.
The Gross MOIC(1) decreased during the period to reflect weakness
in M&A and equity markets and a more conservative outlook on
execution.
Carrier II
As of 30 June 2019, REL, through the Partnership, has invested
$109.6 million of its $133.3 million commitment to Carrier II.
Carrier II is focussed on the acquisition and exploitation of
upstream oil and gas assets by partnering with select operators
that are developing both unconventional and conventional reservoirs
in North America. Shortly after its establishment in May 2015,
Carrier II entered into a joint venture agreement with a highly
experienced operator group made up of Henry Resources, LLC and PT
Petroleum, LLC, targeting 19,131 net acres for development in the
southern Midland Basin (subsequently increased to 20,260 net
acres). In addition, through three separate acquisitions the
company has acquired 3,892 net acres in Karnes County in the Eagle
Ford basin, targeting the Sugarloaf Project and the Chisholm
Project, both operated by Marathon Oil Corp. Carrier II was
producing approximately 7,400 boepd at the end of the period.
In the first half of 2019, Carrier II distributed $6.3 million
through dividends to REL, through the Partnership. As of 30 June
2019, REL's interest in Carrier II, through the Partnership, was
valued at 0.8x Gross MOIC(1) or $87.7 million. The Gross MOIC(1)
decreased over the period due to uncertainty around development
pacing and the weakness in the M&A and capital markets
environments.
RCO
As of 30 June 2019, REL, through the Partnership, has invested
in full its $80.3 million commitment to RCO, of which $78.7 million
has been realised. RCO was formed in January 2015 to take advantage
of the dislocation in the leveraged capital markets for energy
companies. Since its inception, RCO has made a total of 32
investments, 31 of which have already been fully exited.
As of 30 June 2019, REL's interest in RCO, through the
Partnership, was valued at 1.0x Gross MOIC(1) or $81.5 million
(Realised: $78.7 million, Unrealised: $2.8 million). The Gross
MOIC(1) decreased slightly over the period, reflecting the
mark-to-market value of RCO's remaining underlying securities.
Fieldwood
As of 30 June 2019, REL, through the Partnership, has invested
$87.7 million of its $89.1 million commitment to Fieldwood.
Riverstone formed Fieldwood in partnership with CEO Matt McCarroll
and his team in December 2012. REL made its investment in Fieldwood
in 2014, as the company acquired the Gulf of Mexico interests from
Apache Corporation and SandRidgeEnergy, Inc. The company has
subsequently made three bolt-on acquisitions.
In the first half of 2019, Fieldwood began its deepwater
drilling program and encountered commercial discoveries at the
Orlov and Troika prospects, with first production from the campaign
expected to be in the last quarter of 2019. During the period, the
company also acquired an additional 10 per cent. interest in its
operated Gunflint deepwater field and an additional 39 per cent.
interest in the Galapagos field.
As of 30 June 2019, REL's interest in Fieldwood, through the
Partnership, was valued at 0.7x Gross MOIC(1) or $61.9 million
(Realised: $7.7 million, Unrealised: $54.2 million). The Gross
MOIC(1) increased slightly over the period, following an extensive
review of Fieldwood's prospect inventory that was conducted to
finalise the deepwater drilling plan.
Castex 2014
As of 30 June 2019, REL, through the Partnership, has invested
$50.0 million of its $66.7 million commitment to Castex 2014.
Castex 2014 is a Houston-based oil and gas company focussed on gas
exploration opportunities in the U.S. Gulf Coast Region, in
partnership with Castex 2005. Castex 2014 was formed with a deep
inventory of drill-ready and work in-progress prospects and has
continued to identify additional high-potential prospects by
utilising its extensive 3D-seismic inventory.
As of 30 June 2019, REL's interest in Castex 2014, through the
Partnership, was valued at 0.7x Gross MOIC(1) or $35.0 million. The
Gross MOIC(1) decreased over the period due to unfavourable results
at one of its prospects.
CNOR
As of 30 June 2019, REL, through the Partnership, has invested
in full its $90.0 million commitment to CNOR. CNOR is a
Calgary-based oil and gas company focussed on the Western Canadian
Sedimentary Basin. CNOR has invested in a joint venture with
Tourmaline Oil Corp. targeting the Peace River High area (126,000
net acres), and during the first half of 2019, CNOR closed on a
strategic combination with publicly-traded Blackbird Energy to
consolidate CNOR's 25,000 net acre Pipestone Montney position with
that of Blackbird's offsetting 73,000 acres. The pro forma company
is named Pipestone Energy Corp and trades under TSX-V: PIPE.
As of 30 June 2019, REL's interest in CNOR, through the
Partnership, was valued at 0.3x Gross MOIC(1) or $27.0 million. The
Gross MOIC(1) decreased over the period primarily due to a change
in valuation methodology of the Pipestone asset, following
completion of the strategic combination with Blackbird, and the
valuation for the joint venture with Tourmaline is reflective of
the expected proceeds from a potential sale which is currently
being evaluated.
Ridgebury H3
As of 30 June 2019, REL, through the Partnership, has invested
$18.3 million of its $22.0 million commitment to Ridgebury H3. The
Company is an international shipping company, targeting the Handy
size tanker markets, and owns three 10-year old Handy size product
tankers. Ridgebury H3 is managed by the same team as Ridgebury
Tankers, a Riverstone portfolio company led by Bob Burke, a
long-time shipping executive with 30 years of shipping industry
experience.
As of 30 June 2019, REL's interest in Ridgebury H3, through the
Partnership, was valued at 1.1x Gross MOIC(1) or $19.6 million. The
Gross MOIC(1) increased over the period due to a slight increase in
the appraisal value of the tankers, relative to the purchase
price.
Realised Investments
Meritage III
Meritage III was established in April 2015 to pursue greenfield
development opportunities and opportunistic acquisitions for the
gathering, treating and handling of natural gas, NGLs and crude oil
in Western Canada. Since inception, the company has constructed and
commissioned two gas processing facilities, underpinned by gas
gathering and processing agreements with Hammerhead and three
additional operators. In the second quarter of 2018, Meritage III
executed an additional offtake agreement with Hammerhead which
supported the construction of a third gas processing facility, and
in the third quarter of 2018, it also expanded its gathering and
processing agreement with Velvet Energy Ltd.
In January 2019, REL announced the sale of Meritage III to a
newly formed joint venture between SemGroup Corporation (NYSE:
SEMG) and KKR & Co. Inc., for aggregate gross proceeds to
Meritage III of C$600 million (US$449 million). The transaction
closed in February 2019, resulting in gross proceeds to REL of
$83.4 million. This implies a Gross MOIC of 2.1x, a Gross IRR of 30
per cent. and a gain of $44 million on the Company's investment,
through the Partnership, of $40 million. The MOIC and IRR, net of
performance allocation, are approximately 1.9x and 26 per cent.,
respectively. The Investment Manager, through RELCP, subsequently
invested the net proceeds of its performance allocation in Ordinary
Shares of the Company.
As of 30 June 2019, REL's total interest in Meritage III,
through the Partnership, was valued at 2.1x Gross MOIC(1) or $83.4
million (100 per cent. realised).
Sierra
Sierra was formed in September 2014 to pursue select upstream
and midstream opportunities in Mexico as the energy industry
underwent a historic period of reform and liberalisation. Through
multiple consortia, Sierra won six offshore blocks with over
750,000 net acres, which made it the largest independent acreage
holder in Mexico's Sureste Basin by net acreage. In 2017, a
consortium consisting of Sierra, Talos (a Riverstone portfolio
company) and Premier Oil plc announced a historic oil discovery in
the shallow waters of the Gulf of Mexico. The Zama 1 well, located
in Mexico's Block 7, confirmed the presence of a light oil resource
estimated to be in the range 1.4 billion and 2.0 billion barrels of
oil in place.
In the fourth quarter of 2018, Riverstone announced that it had
agreed to the sale of 100 per cent. of its membership interests in
Sierra to DEA Deutsche Erdoel AG ("DEA"), an international
independent exploration and production company headquartered in
Germany. The transaction subsequently closed in March 2019,
following approval by Mexico's antitrust and hydrocarbons
regulators. At closing, REL received $36.6 million of upfront cash,
then subsequently received an additional $2.6 million in April 2019
as part of an earn-out related to appraisal and exploration
activities. This implies a Gross MOIC(1) of 2.1x, a Gross IRR(1) of
55 per cent. and a gain of $21 million on the Company's investment,
through the Partnership. The MOIC and IRR, net of performance
allocation, are approximately 1.9x and 48 per cent., respectively.
The Investment Manager, through RELCP, subsequently invested the
net proceeds of its performance allocation in Ordinary Shares of
the Company.
As of 30 June 2019, REL's total interest in Sierra, through the
Partnership, was valued at 2.1x Gross MOIC(1) or $39.4 million (100
per cent. realised).
Withdrawn Commitments and Impairments
Eagle II
During 2Q 2019, REL, through the Partnership, wrote-off its
investment in Eagle II of $61.7 million after the company signed a
PSA to sell its SCOOP assets. The proceeds from the sale will be
used to repay debt.
Valuation
The Investment Manager is charged with proposing the valuation
of the assets held by REL through the Partnership. The Partnership
has directed that securities and instruments be valued at their
fair value. REL's valuation policy is compliant with IFRS and IPEV
Valuation Guidelines and has been applied consistently from period
to period since inception. As the Company's investments are
generally not publicly quoted, valuations require meaningful
judgement to establish a range of values, and the ultimate value at
which an investment is realised may differ from its most recent
valuation and the difference may be significant.
The Investment Manager 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. There were no valuation
adjustments recorded by REL as a result of differences between IFRS
and U.S. Generally Accepted Accounting Principles for the six
months ended 30 June 2019 or in any period to date. Valuations of
REL's investments through the Partnership are determined by the
Investment Manager and disclosed quarterly to investors, subject to
Board approval.
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 or depreciation of subsequent financing
rounds, if any. 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
assistance of the Riverstone Performance Review Team ("PRT") as
part of the valuation process. The PRT was formed to serve as a
single structure overseeing the existing Riverstone portfolio with
the goal of improving operational and financial performance.
The Audit Committee reviews the valuations of the Company's
investments held through the Partnership and makes a recommendation
to the Board for formal consideration and acceptance.
The unaudited fair market valuations as of 30 June 2019 formed
part of REL's 2019 Interim Financial Report and were subject to an
interim review under ISRE 2410, which was undertaken by Ernst &
Young LLP on behalf of the Directors.
Uninvested Cash
As of 30 June 2019, REL, including the Partnership, had
uninvested funds of over $219 million held as cash and money market
fixed deposits. The Partnership maintains deposit accounts with
several leading international banks. In addition, the Partnership
invests a portion of its cash deposits in short-term money market
fixed deposits. REL's treasury policy seeks to protect the
principal value of cash deposits utilising low risk investments
with top-tier counterparts. Uninvested cash earned approximately
139 basis points during the six months ended 30 June 2019.
As of 30 June 2019, REL, through the Partnership, had unfunded
commitments of $125 million. Pro forma for the new commitments into
Aleph Midstream and Onyx Strategic Investment Management I BV, the
Company has remaining unfunded commitments of up to $291 million;
however, the Board by consultation with the Investment Manager does
not expect to fully fund all commitments in the normal course of
business. The Investment Manager's historical track record shows
that investments are often realised prior to the commitment being
fully funded.
In connection with the listing of REL on the London Stock
Exchange, all proceeds of the offering were converted to U.S.
dollars at an average rate of 1.606 at inception. 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 commitments are
denominated in U.S. dollars, except Hammerhead and CNOR which are
denominated in Canadian dollars.
Going Concern
The Company retained $11.5 million of cash in the IPO and
Placing and Open Offer, and has received distributions in aggregate
of $14.3 million from the Partnership cumulatively through Q2 2019,
of which $3.1 million remains at 30 June 2019 (31 December 2018:
$2.1 million). This cash balance is sufficient to cover the
Company's existing liabilities at 30 June 2019 of $0.7 million, as
well as they fall due over the next six months, but the Company
will require a $1.2 million distribution in Q1 2020 to cover its
forecast expenses for the initial six months of 2020 of
approximately $1.8 million. In accordance with section 4.1(a) of
the Partnership Agreement, in the event of the Company requiring
additional funds for working capital, it is entitled to receive
another distribution from the Partnership.
As at 30 June 2019, the Partnership, including its wholly-owned
subsidiaries, REL US Corp and REL US Centennial Holdings, LLC, had
$216 million of uninvested funds held as cash and money market
fixed deposits (31 December 2018: $135 million), and has no
material going concern risk. Although the Company's commitments,
through the Partnership, exceed its available liquid resources, it
is not expected that all commitments will be drawn due to a variety
of factors, such as a portfolio company being sold earlier than
anticipated or a targeted investment opportunity changing or
disappearing. In addition, the board of each underlying portfolio
company, more often than not controlled by Riverstone, has
discretion over whether or not that capital is ultimately invested.
Moreover, REL's arrangements with Riverstone allow unfunded
commitments of $125 million as at 30 June 2019 (31 December 2018:
$156 million) to be amended by the Investment Manager with
consideration from the Board.
In light of the above facts, the Directors are satisfied that it
is appropriate to adopt the going concern basis in preparing the
interim condensed financial statements. In reaching this
conclusion, the Board has considered budgeted and projected results
of the business, projected cash flow and risks that could impact
the Company's liquidity over the next twelve months.
Principal Risks and Uncertainties
The Company's assets consist of investments, through the
Partnership, within the global energy industry, 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 circumstances 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.
The key areas of risk faced by the Company are the following: 1)
concentration risk from investing only in the global energy sector,
2) Ordinary Shares trading at a Discount to NAV per Share, 3)
inherent risks associated with the exploration and production and
midstream energy subsectors, 4) difficulty for the Company to
terminate its Investment Management Agreement, 5) voting impact on
any Discontinuation Resolution by affiliates of the Investment
Manager and the Company's Cornerstone Investors, and 6) conflicts
regarding the allocation of investment opportunities between the
Company and Private Riverstone Funds.
The principal risks and uncertainties of REL were identified in
further detail in the 2018 Annual Report and Financial Statements.
There have been no changes to REL's principal risks and
uncertainties in the six-month period to 30 June 2019 and no
changes are anticipated in the second half of the year.
Subsequent Events
In July 2019, REL, through the Partnership, funded $23.5 million
of its $100 million commitment into Aleph Midstream in conjunction
with the closing of the transaction, as disclosed in Note 11.
Riverstone International Limited
13 August 2019
(1) Gross Unrealised Value and Gross MOIC are before transaction
costs, taxes (approximately 21 to 27.5 per cent. of U.S. sourced
taxable income) and 20 per cent. carried interest on gross profits
(without a hurdle rate). Since there is no netting of losses
against gains, the effective carried interest rate on the portfolio
as a whole will be greater than 20 per cent.. In addition, there is
a management fee of 1.5 per cent. of net assets (including cash)
per annum and other expenses. Given these costs, fees and expenses
are in aggregate expected to be considerable, Total Net Value and
Net MOIC will be materially less than Gross Unrealised Value and
Gross MOIC. Local taxes, primarily on U.S. assets, 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. In the normal course of
business, REL may form wholly-owned subsidiaries, to be treated as
C Corporations for U.S. tax purposes. The C Corporations serve to
protect REL's public investors from incurring U.S. ECI. The C
Corporations file U.S. corporate tax returns with the U.S. IRS and
pay U.S. corporate taxes on its taxable income
Directors' Responsibilities Statement
The Directors are responsible for preparing this Interim
Financial Report in accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
-- The unaudited interim condensed financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the EU; and
-- The Chairman's Statement and Investment Manager's Report
include a fair review of the information required by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the unaudited interim condensed financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the financial year and that have materially
affected the financial position and performance of the entity
during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
On behalf of the Board
Richard Hayden
Chairman
13 August 2019
Independent Review Report to Riverstone Energy Limited
We have been engaged by the Company to review the Unaudited
Interim Condensed Financial Statements ("financial statements") for
the six months ended 30 June 2019 which comprises the Condensed
Statement of Financial Position, the Condensed Statement of
Comprehensive Income, the Condensed Statement of Changes in Equity,
the Condensed Statement of Cash Flow and related Notes 1 to 11. We
have read the other information contained in the Interim Report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the financial
statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board ("ISRE 2410"). To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company, for our work, for this report, or
for the conclusions we have formed.
Directors' Responsibilities
The Interim Report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the Interim Report in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in Note 2, the Annual Financial Statements of the
Company are prepared in accordance with IFRSs as adopted by the
European Union. The financial statements included in this Interim
Report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union ("IAS 34").
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the financial statements based on our review.
Scope of Review
We conducted our review in accordance with ISRE 2410. A review
of Interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the financial statements for the six
months ended 30 June 2019 are not prepared, in all material
respects, in accordance with IAS 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Ernst & Young LLP
Guernsey
13 August 2019
(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
Condensed Statement of Financial Position
As at 30 June 2019
30 June 31 December
2019 2018
$'000 $'000
Notes (Unaudited) (Audited)
------------------------------------------ ------ ------------- ------------
Assets
Non-current assets
Investment at fair value through
profit or loss 6 1,055,549 1,428,985
------------------------------------------ ------ ------------- ------------
Total non-current assets 1,055,549 1,428,985
------------------------------------------ ------ ------------- ------------
Current assets
Trade and other receivables 217 579
Cash and cash equivalents 3,054 2,132
------------------------------------------ ------ ------------- ------------
Total current assets 3,271 2,711
------------------------------------------ ------ ------------- ------------
Total assets 1,058,820 1,431,696
------------------------------------------ ------ ------------- ------------
Current liabilities
Trade and other payables 725 435
------------------------------------------ ------ ------------- ------------
Total current liabilities 725 435
------------------------------------------ ------ ------------- ------------
Total liabilities 725 435
------------------------------------------ ------ ------------- ------------
Net assets 1,058,095 1,431,261
------------------------------------------ ------ ------------- ------------
Equity
Share capital 1,246,517 1,246,559
Retained earnings (188,422) 184,702
------------------------------------------ ------ ------------- ------------
Total equity 1,058,095 1,431,261
------------------------------------------ ------ ------------- ------------
Number of Shares in issue at period/year
end 10 79,896,731 79,896,731
------------------------------------------ ------ ------------- ------------
Net Asset Value per Share ($) 10 13.24 17.91
------------------------------------------ ------ ------------- ------------
The interim condensed financial statements were approved and
authorised for issue by the Board of Directors on 13 August 2019
and signed on their behalf by:
Richard Hayden Patrick Firth
Chairman Director
The accompanying notes form an integral part of these interim
condensed financial statements.
Condensed Statement of Comprehensive Income
For the six months ended 30 June 2019 (Unaudited)
1 January 1 January
2019 to 2018 to
30 June 30 June
2019 2018
Notes $'000 $'000
------------------------------------- ------ ------------ ----------
Investment (loss) / gain
Change in fair value of investment
at fair value through profit or
loss 6 (371,336) 12,599
------------------------------------- ------ ------------ ----------
Expenses
Directors' fees and expenses (619) (525)
Legal and professional fees (69) (165)
Other operating expenses (1,130) (1,122)
------------------------------------- ------ ------------ ----------
Total expenses (1,818) (1,812)
------------------------------------- ------ ------------ ----------
Operating (loss) / profit for the
period (373,154) 10,787
Finance income and expenses
Foreign exchange gain / (loss) 10 (45)
Interest income 20 5
Total finance income and expenses 30 (40)
------------------------------------- ------ ------------ ----------
(Loss) / Profit for the period (373,124) 10,747
Total comprehensive (loss) / income
for the period (373,124) 10,747
------------------------------------- ------ ------------ ----------
Basic (Loss) / Earnings per Share
(cents) 10 (467.01) 12.72
------------------------------------- ------ ------------ ----------
Diluted (Loss) / Earnings per Share
(cents) 10 (467.01) 12.72
------------------------------------- ------ ------------ ----------
All activities derive from continuing operations.
The accompanying notes form an integral part of these interim
condensed financial statements.
Condensed Statement of Changes in Equity
For the six months ended 30 June 2019 (Unaudited)
Share Retained Total
capital earnings Equity
$'000 $'000 $'000
------------------------ ---------- ---------- ----------
As at 1 January 2019 1,246,559 184,702 1,431,261
Loss for the period - (373,124) (373,124)
Cancellation of shares (42) - (42)
As at 30 June 2019 1,246,517 (188,422) 1,058,095
------------------------ ---------- ---------- ----------
For the six months ended 30 June 2018 (Unaudited)
Share Retained Total
capital earnings Equity
$'000 $'000 $'000
----------------------- ---------- ---------- ----------
As at 1 January 2018 1,317,496 425,683 1,743,179
Profit for the period - 10,747 10,747
As at 30 June 2018 1,317,496 436,430 1,753,926
----------------------- ---------- ---------- ----------
The accompanying notes form an integral part of these interim
condensed financial statements.
Condensed Statement of Cash Flows
For the six months ended 30 June 2019 (Unaudited)
1 January 1 January
2019 to 2018 to
30 June 30 June
2019 2018
$'000 $'000
------------------------------------------------ ---------- ----------
Cash flow generated from / (used in) operating
activities
Operating (loss) / profit for the financial
period (373,154) 10,787
------------------------------------------------ ---------- ----------
Adjustments for:
Net finance income 20 5
Change in fair value of investment at fair
value through profit or loss 371,336 (12,599)
Movement in trade receivables 362 307
Movement in trade payables 290 (277)
Net cash used in operating activities (1,146) (1,777)
------------------------------------------------ ---------- ----------
Cash flow generated from investing activities
Distribution from the Partnership 2,100 3,300
------------------------------------------------ ---------- ----------
Net cash generated from investing activities 2,100 3,300
------------------------------------------------ ---------- ----------
Cash flow used in financing activities
------------------------------------------------ ---------- ----------
Buyback of shares (42) -
------------------------------------------------ ---------- ----------
Net cash used in financing activities (42) -
------------------------------------------------ ---------- ----------
Net movement in cash and cash equivalents
during the period 912 1,523
------------------------------------------------ ---------- ----------
Cash and cash equivalents at the beginning
of the period 2,132 789
Effect of foreign exchange rate changes 10 (45)
------------------------------------------------ ---------- ----------
Cash and cash equivalents at the end of
the period 3,054 2,267
------------------------------------------------ ---------- ----------
The accompanying notes form an integral part of these interim
condensed financial statements.
Notes to the UNAUDITED Interim Condensed Financial
Statements
For the six months ended 30 June 2019
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 GFSC as a Registered Closed-ended
Collective Investment Scheme pursuant to the POI Law. The Company's
Ordinary Shares were admitted to the premium segment of the UK
Listing Authority's Official List and to trading on the Main Market
of the London Stock Exchange as part of its IPO which completed on
29 October 2013. With effect from 29 April 2019, the registered
office of the Company is PO Box 286, Floor 2, Trafalgar Court, Les
Banques, St Peter Port, Guernsey, GY1 4LY.
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 has the right to invest alongside the 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. The Partnership's recent
investments in Aleph and Ridgebury H3 demonstrate its modified
investment strategy as the Private Riverstone Funds did not
participate. Further detail of these investments is provided in the
Investment Manager's Report.
2. New standards, interpretations and amendments adopted by the Company
The accounting policies adopted in the preparation of the
interim condensed financial statements are consistent with those
followed in the preparation of the Company's annual financial
statements for the year ended 31 December 2018. The Company has not
early adopted any standard, interpretation or amendment that has
been issued but is not yet effective.
The Company applied, for the first time, certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2019. The new standards or amendments to existing
standards and interpretations, effective from 1 January 2019, did
not have a material impact on the Company's interim condensed
financial statements. It is not anticipated that any standard which
is not yet effective, will have a material impact on the Company's
financial position or on the performance of the Company's
statements.
These interim condensed financial statements are presented in
U.S. dollars and are rounded to the nearest $'000, unless otherwise
indicated.
3. Critical accounting judgements and estimation uncertainty
The estimates and judgements made by the Investment Manager are
consistent with those made in the Financial Statements for the year
ended 31 December 2018.
4. Taxation
The taxation basis of the Company remains consistent with that
disclosed in the Financial Statements for the year ended 31
December 2018.
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.
In the normal course of business, REL may form wholly owned
subsidiaries, to be treated as C Corporations for U.S. tax
purposes. The C Corporations serve to protect REL's public
investors from incurring U.S. ECI. The C Corporations file U.S.
corporate tax returns with the U.S. IRS and pay U.S. corporate
taxes on its income. Each of the Company's Shareholders who are
liable for U.S. taxes will take into account their 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 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 GBP1,200.
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 taxes may apply on
distributions from such operating entity investments. The company
is structured, and has structured its investments, to eliminate the
incurrence of ECI by REL's investors. Based upon the current
commitments and investments in Liberty II, Eagle II, Rock Oil,
Fieldwood, Castex 2014, Carrier II, ILX III, and Centennial, the
future U.S. tax liability on profits is expected to be in the range
of 21 to 27.5 per cent. (31 December 2018: 21 to 27.5 per
cent.).
5. Fair value
IFRS 13 'Fair Value Measurement' requires disclosure of fair
value measurement by level. 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, adjusted if
necessary.
Financial assets and financial liabilities are classified in
their entirety into only one of the three 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 is derived using unobservable inputs. Amounts
classified under Level 3 for the period ended 30 June 2019 were
$1,056 million (31 December 2018: $1,429 million).
The fair value of all other financial instruments approximates
their carrying value.
Transfers during the period
There have been no transfers between levels during the period
ended 30 June 2019 and the year ended 31 December 2018. Any
transfers between the levels will be accounted for on the last day
of each financial period. Due to the nature of the investment, it
is always expected to be classified under Level 3.
Valuation methodology and process
The same valuation methodology and process was deployed in June
2019 and December 2018.
For the period ended 30 June 2019, the valuations of the
Company's investments, through the Partnership, are detailed in the
Investment Manager's Report.
Quantitative information about Level 3 fair value measurements
as at 30 June 2019
Industry: Energy
Fair value of Sensitivity
Level 3 of the Fair value of Level 3
investments input to fair Investments affected by
Valuation Unobservable Range value of unobservable input (2)
----------
(in thousands) Weighted
Average Level 3
technique(s) input(s) Low (1) High (1) (1) investments (in thousands)
---------------- --------------- ------------------------ --------- ------------ ---------- -------------- -------------------------
10% weighted
average
change in
the input
would result
in 1% change
in the total
fair value
Public 2019 EV/EBITDA of Level 3
$711,303 comparables Multiple(3) 3.5x 4.9x 4.0x investments $476,471
10% weighted average change in the input would
EV / 2019E Production result in 1% change in the total fair value
Multiple ($/Boepd)(3) $20,000 $43,600 $31,300 of Level 3 investments $476,471
10% weighted average change in the input would
1P Reserve multiple result in 2% change in the total fair value
($/Boe) $9 $13 $12 of Level 3 investments $282,571
10% weighted average change in the input would
2P Reserve multiple result in 1% change in the total fair value
($/Boe) $2 $3 $3 of Level 3 investments $228,898
10% weighted average change in
the input would result in 1%
change in the total fair
Transaction Acreage Multiple value
comparables ($/Boepd per Acre) $1,000 $9,300 $5,300 of Level 3 investments $422,270
10% weighted average change in the input would
2P / 2C Reserve result in 3% change in the total fair value
multiple ($/BOE) $10 $10 $10 of Level 3 investments $199,834
------------------------ --------- ------------ ---------- ----------------------------------------------- -------------------------
20% weighted average change in
the input would result in 25%
change in the total fair
Discounted value
cash flow Oil Price Curve ($/bbl) $50 $63 $58 of Level 3 investments $711,303
10% weighted average change in the input would
Gas Price Curve result in 3% change in the total fair value
($/mcfe) $3 $3 $3 of Level 3 investments $583,803
10% weighted average change in the input would
result in 2% change in the total fair value
Discount Rate 16% 16% 16% of Level 3 investments $199,834
$30,522 Other
$741,825 Total
Quantitative information about Level 3 fair value measurements
as at 31 December 2018
Industry: Energy
Fair value of Sensitivity
Level 3 of the Fair value of Level 3
investments input to fair Investments affected by
Valuation Unobservable Range value of unobservable input (2)
----------
Weighted
Average Level 3
(in thousands) technique(s) input(s) Low (1) High (1) (1) investments (in thousands)
---------------- --------------- -------------------- -------- ------------ ---------- -------------- -------------------------
10% weighted
average
change in
the input
would result
in 1% change
in the total
fair value
Public 1P Reserve multiple of Level 3
$1,055,421 comparables ($/Boe) $12 $13 $12 investments $352,337
10% weighted average change in the input would
2P Reserve multiple result in 1% change in the total fair value
($/Boe) $5 $6 $6 of Level 3 investments $487,771
10% weighted average change in
the input would result in 1%
change in the total fair
Transaction Acreage Multiple value
comparables ($/Boepd per Acre) $2,800 $11,700 $5,800 of Level 3 investments $756,162
2P / 2C Reserve 25% weighted average change in the input would
multiple result in 2% change in the total fair value
($/BOE)(4) $7 $12 $10 of Level 3 investments $196,806
-------------------- -------- ------------ ---------- ----------------------------------------------- -------------------------
20% weighted average change in
the input would result in 22%
change in the total fair
Discounted Oil Price Curve value
cash flow ($/bbl) $57 $68 $63 of Level 3 investments $1,055,421
10% weighted average change in the input would
Gas Price Curve result in 3% change in the total fair value
($/mcfe) $3 $3 $3 of Level 3 investments $852,102
10% weighted average change in the input would
result in 1% change in the total fair value
Discount Rate 16% 20% 17% of Level 3 investments $215,313
$137,689 Other
$1,193,110 Total
(1) Calculated based on fair values of the Partnership's Level 3
investments
(2) Each of the Partnership's Level 3 investments are valued
using one or more of the techniques which utilise one or more of
the unobservable inputs, so the amounts in the "Fair value of Level
3 investments" column will not aggregate to the total fair value of
the Partnership's Level 3 investments
(3) As at 30 June 2019, the sensitivity of these unobservable
inputs to the total fair value of Level 3 investments was
determined to be significant by applying the same methodology that
determined it not to be significant as at 31 December 2018
(4) As at 31 December 2018, the sensitivity of these
unobservable inputs to the total fair value of Level 3 investments
was determined to be significant by applying the same methodology
that determined it not to be significant as at 31 December 2017
The Board reviews and considers the fair value of the
Partnership's investments arrived at by the Investment Manager
before incorporating such values 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 and such difficulties cannot be eliminated.
Therefore, the amounts realised on the sale of investments may
differ from the fair values reflected in these interim condensed
financial statements and the differences may be significant.
The Board approves the valuations performed by the Investment
Manager and monitors the range of reasonably possible changes in
significant unobservable inputs on a regular basis with
consultation from the Investment Manager. Using its extensive
industry experience, the Investment Manager provides the Board with
its determination of the reasonably possible changes in significant
unobservable inputs in normal market conditions as of the period
end.
The Directors have considered whether a discount or premium
should be applied to the net asset value of the Partnership. In
view of the investment in the Partnership and the nature of the
Partnership's assets, no adjustment to the net asset value of the
Partnership has been deemed to be necessary.
6. Investment at fair value through profit or loss
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 and
applicable taxes.
30 June 31 December
2019 2018
$'000 $'000
----------------------------------------------------------------------------- ---------- ------------
Cost
Brought forward 1,225,271 1,302,335
Distribution from the Partnership (2,100) (77,064)
Carried forward 1,223,171 1,225,271
----------------------------------------------------------------------------- ---------- ------------
Fair value movement through profit or loss
Brought forward 203,714 440,122
Fair value movement during period/year - see Summary Income Statement below (371,336) (236,408)
----------------------------------------------------------------------------- ---------- ------------
Carried forward (167,622) 203,714
----------------------------------------------------------------------------- ---------- ------------
Fair value at period/year end 1,055,549 1,428,985
----------------------------------------------------------------------------- ---------- ------------
Summary financial information for the Partnership
30 June 31 December
2019 2018
Summary Balance Sheet $'000 $'000
--------------------------------------------------- ---------- ------------
Investments at fair value (net) 854,600 1,307,117
Cash and cash equivalents (1) 69,795 40,479
Money market fixed deposits (1) 137,046 87,000
Management fee payable - see Note 8 (3,968) (5,367)
Other net liabilities (1,924) (244)
--------------------------------------------------- ---------- ------------
Fair value of REL's investment in the Partnership 1,055,549 1,428,985
--------------------------------------------------- ---------- ------------
(1) These figures are comprised of $69.8 million held at the
Partnership and $9.3 million held at REL US Corp
30 June 31 December
2019 2018
Reconciliation of Partnership's investments at fair value $'000 $'000
------------------------------------------------------------- --------- ------------
Investments at fair value - Level 1 (gross) 115,216 167,283
Investments at fair value - Level 3 (gross) - see Note 5 741,824 1,193,109
------------------------------------------------------------- --------- ------------
Investments at fair value (gross) 857,040 1,360,392
Accrued General Partner performance allocation - see Note 8 (11,723) (55,863)
Provision for taxation - see Note 4 - (4,500)
Cash and cash equivalents 9,283 7,088
------------------------------------------------------------- --------- ------------
Partnership's investments at fair value (net) 854,600 1,307,117
------------------------------------------------------------- --------- ------------
1 January 1 January
2019 to 2018 to
30 June 30 June
2019 2018
Summary Income Statement $'000 $'000
--------------------------------------------------------------------------------------------- ---------- ----------
Unrealised and realised (loss) / gain on Partnership's investments (net) (364,899) 26,700
Interest and other income 2,732 1,102
Management fee expense - see Note 8 (8,547) (12,979)
Other operating expenses (622) (2,224)
--------------------------------------------------------------------------------------------- ---------- ----------
Portion of the operating (loss) / profit for the period attributable to REL's investment in
the Partnership (371,336) 12,599
--------------------------------------------------------------------------------------------- ---------- ----------
1 January 1 January
2019 to 2018 to
30 June 30 June
2019 2018
Reconciliation of unrealised and realised gain / (loss) on Partnership's investments $'000 $'000
-------------------------------------------------------------------------------------- ---------- ----------
Unrealised loss on Partnership's investments (gross) (450,190) (67,171)
Realised profit on Partnership's investments (gross) 54,330 62,522
Income from Partnership's investments (gross) 30 315
General Partner's performance allocation 30,931 3,009
Release of Provision for taxation - 28,025
-------------------------------------------------------------------------------------- ---------- ----------
Unrealised and realised (loss) / gain on Partnership's investments (net) (364,899) 26,700
-------------------------------------------------------------------------------------- ---------- ----------
7. 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 totalling
$22.5 million were 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.
8. 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 eight non-executive Directors (31 December 2018:
eight).
Directors' fees and expenses for the period ended 30 June 2019
amounted to $618,936, (30 June 2018: $524,647), $63,425 of which
was outstanding at period end (31 December 2018: $Nil).
Partnership
In accordance with section 4.1(a) of the Partnership Agreement,
the Company received distributions in aggregate of $2.1 million (30
June 2018: $3.3 million) from the Partnership through Q2 2019. In
accordance with section 4.1(a) of the Partnership Agreement, in the
event of the Company requiring additional funds for working
capital, it is entitled to receive another distribution from the
Partnership.
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 (including cash). The
fee is payable quarterly in arrears and each payment is calculated
using the quarterly Net Asset Value as at the relevant quarter end
as further outlined on page 63 in the Financial Statements to 31
December 2018. During the period to 30 June 2019, the Partnership
incurred Management Fees of $8,546,633 (30 June 2018: $12,979,442)
of which $3,967,854 remained outstanding as at the period end (31
December 2018: $5,367,224). In addition, the Company and
Partnership, in aggregate, reimbursed the Investment Manager
$901,002 in respect of amounts paid on their behalf for the period
(31 December 2018: $1,201,087), of which $58,817 related to travel
and other operating expenses of the Investment Manager (31 December
2018: $114,928).
The circumstances in which the Company and the Investment
Manager may terminate the Investment Management Agreement are as
follows:
Event Notice period Consequences of termination(2)
By the Company if the 12 months The General Partner is
Investment Manager is entitled to receive a payment
in material breach which equal to four times the
has not been rectified quarterly Management Fee
payable to the Investment
Manager on the basis of
the Company's most recent
Net Asset Value and an
amount equal to the Performance
Allocation due on the Company's
investments on the basis,
at the Company's option,
of the latest quarterly
valuation or the actual
realisation value for each
investment.
-------------- ---------------------------------
By the Investment Manager 12 months The General Partner is
if the Company is in material entitled to receive a payment
breach which has not been equal to twenty times the
rectified quarterly Management Fee
payable to the Investment
Manager on the basis of
the Company's most recent
Net Asset Value and an
amount equal to the Performance
Allocation due on the Company's
investments on the basis,
at the General Partner's
option, of the latest quarterly
valuation or the actual
realisation value for each
investment.
-------------- ---------------------------------
By the Company if the Immediate No payment to be made to
Investment Manager becomes the Investment Manager
insolvent or resolves or the General Partner.
to wind up or if the Investment
Manager commits an act
of fraud or wilful default
in relation to the Company
which results in material
harm to the Company
-------------- ---------------------------------
By the Investment Manager Immediate The General Partner is
if the Company becomes entitled to receive a payment
insolvent or resolves equal to twenty times the
to wind up, undergoes quarterly Management Fee
a change of control and payable to the Investment
delists, ceases to maintain Manager on the basis of
its Guernsey regulatory the Company's most recent
approval or, if in each Net Asset Value and an
case if the consent of amount equal to the Performance
the Investment Manager Allocation due on the Company's
is not obtained, the Company investments on the basis,
materially changes its at the General Partner's
investment policy, raises option, of the latest quarterly
new equity, makes a distribution valuation or the actual
or acquires or disposes realisation value for each
of an investment investment.
-------------- ---------------------------------
If a Discontinuation Resolution(1) Immediate The General Partner will
is passed be entitled to receive
a payment equal to twenty
times the quarterly Management
Fee payable to the Investment
Manager on the basis of
the Company's most recent
Net Asset Value and an
amount equal to the Performance
Allocation due on the Company's
investments on the basis,
at the General Partner's
option, of the latest quarterly
valuation or the actual
realisation value for each
investment.
-------------- ---------------------------------
(1) If, on 29 October 2020 (the seventh anniversary of the
Company's London listing), both of the following are true:
-- the trading price for the Company's ordinary shares has not
at any time exceeded GBP14.70 (initially GBP15.00, subject to
adjustments for dividends, stock splits or consolidations and below
NAV equity issuances); and
-- a gross IRR of 8 per cent. has not been achieved on the
Company's capital, calculated by reference to the prevailing
valuation or sale proceeds achieved on each of the Company's
investments from the date of the initial investment or commitment
of capital to that investment and prior to the deduction of fees or
taxes,
then a special resolution must be proposed to the Company's
Shareholders to discontinue the Company ("Discontinuation
Resolution"). Both tests must be triggered for the requirement to
propose a Discontinuation Resolution to apply.
(2) In addition, if the Investment Management Agreement is
terminated on or before 29 October 2020 other than for a material
breach by the Investment Manager attributable to its fraud), the
Company is required to reimburse the Investment Manager (or its
associates) in full in respect of all expenses relating to the
formation and initial listing of the Company incurred by the
Investment Manager and its associates.
The Investment Management Agreement cannot be terminated by
either the Company or the Investment Manager without cause.
If a Discontinuation Resolution is proposed and not passed, or
if, on 29 October 2020, the tests requiring a Discontinuation
Resolution are not triggered, the Investment Management Agreement
will thereafter continue in perpetuity subject to the termination
for cause provisions described above.
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 gross realised profits (if any) in respect of a
disposal, in whole or in part, of any underlying asset of the
Company..
The General Partner is entitled to receive its Performance
Allocation in cash, all of which, after tax, Riverstone, through
its affiliate RELCP, reinvests in Ordinary Shares of the Company on
the terms summarised in Part I and Part VIII of the IPO
Prospectus.
During the period to 30 June 2019, the Partnership paid
Performance Allocations of $13,208,875 (31 December 2018:
$28,677,639) of which $11,722,930 remained outstanding as at the
period end (31 December 2018: $55,862,746).
Cornerstone Investors
Each of the Cornerstone Investors has acquired an indirect
economic interest in each of the General Partner and the Investment
Manager depending on the size of their commitment and the total
issue size, up to an aggregate maximum indirect economic interest
of 20 per cent. in each, for nominal consideration. These interests
entitle the Cornerstone Investors to participate in the economic
returns generated by the General Partner, including from the
Performance Allocation, and the Investment Manager, which receives
the Management Fee.
9. Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors, as a
whole. The key measure of performance used by the Board to assess
the Company's performance and to allocate resources is the Total
Return on the Company's Net Asset Value, as calculated under IFRS,
and therefore no reconciliation is required between the measure of
profit or loss used by the Board and that contained in the
Financial Statements and Interim Financial Report.
For management purposes, the Company is organised into one main
operating segment, which invests in one limited partnership.
All of the Company's income is derived from within Guernsey and
the Cayman Islands.
All of the Company's non-current assets are located in the
Cayman Islands.
Due to the Company's nature, it has no customers.
10. (Loss) / Earnings per Share and Net Asset Value per
Share
(Loss) / Earnings per Share
1 January 2018
1 January 2019 to to
30 June 2019 30 June 2018
Basic Diluted Basic Diluted
----------------------------- ----------- ----------- ----------- -----------
(Loss) / Profit for the
period ($'000) (373,124) (373,124) 10,747 10,747
Weighted average numbers
of Shares in issue 79,896,731 79,896,731 84,480,064 84,480,064
(Loss) / Earnings Per Share
(cents) (467.01) (467.01) 12.72 12.72
----------------------------- ----------- ----------- ----------- -----------
The (Loss) / 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.
There are no dilutive Shares in issue as at 30 June 2019 (30
June 2018: none).
Net Asset Value per Share
30 June 31 December 30 June
2019 2018 2018
--------------------------------- ----------- ------------ -----------
NAV ($'000) 1,058,095 1,431,261 1,753,926
Number of Shares in issue 79,896,731 79,896,731 84,480,064
Net Asset Value per Share ($) 13.24 17.91 20.76
Net Asset Value per Share (GBP) 10.43 14.06 15.72
Discount to NAV (per cent.) 17.44 23.45 18.83
--------------------------------- ----------- ------------ -----------
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.
11. Subsequent events
In July 2019, REL, through the Partnership, funded $23.5 million
of its $100 million commitment into Aleph Midstream in conjunction
with the closing of the transaction.
There are no other material events after the period end to the
date on which these Financial Statements were approved.
Glossary of Capitalised Defined Terms
"1P reserve" means proven reserves;
"2P reserve" means proven and probable reserves;
"Administrator" means Estera International Fund Managers
(Guernsey) Limited;
"Admission" means admission, on 29 October 2013, to the Official
List and/or admission to trading on the London Stock Exchange, as
the context may require, of the Ordinary Shares becoming effective
in accordance with the Listing Rules and/or the LSE Admission
Standards as the context may require;
"AEOI Rules" means Automatic Exchange of Information;
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Code of Corporate Governance;
"AIC Guide" means the AIC Corporate Governance Guide for
Investment Companies;
"AIF" means Alternative Investment Funds;
"AIFM" means AIF Manager;
"AIFMD" means EU Alternative Investment Fund Managers Directive
(No. 2011/61EU);
"Aleph Midstream" means Aleph Midstream S.A;
"Annual General Meeting" or "AGM" means the general meeting of
the Company;
"Annual Report and Financial Statements" means the annual
publication of the Company provided to the Shareholders to describe
their operations and financial conditions, together with their
Financial Statements;
"Articles of Incorporation" or "Articles" means the articles of
incorporation of the Company;
"Audit Committee" means a formal committee of the Board with
defined terms of reference;
"bbl" means barrel of crude oil;
"Board" or "Directors" means the directors of the Company;
"boepd" means barrels of equivalent oil per day;
"bopd" means barrels of oil per day;
"bw/d" means barrels of water per day;
"CAD" or "C$" means Canadian dollar;
"CanEra III" means CanEra Inc.;
"CAR" means Capital Adequacy Ratio;
"Carrier II" means Carrier Energy Partners II LLC;
"Castex 2005" means Castex Energy 2005 LLC;
"Castex 2014" means Castex Energy 2014 LLC;
"Centennial" means Centennial Resource Development, Inc.;
"CNOR" means the Canadian Non-Operated Resources LP;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as
amended);
"Company" or "REL" means Riverstone Energy Limited;
"Company Secretary" means Estera International Fund Managers
(Guernsey) 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 Brokers" means JP Morgan Cazenove and Numis
Securities Limited (effective from 26 February 2019);
"Corporate Governance Code" means The UK Corporate Governance
Code 2018 as published by the Financial Reporting Council;
"C Corporations" means a C Corporation, under U.S. federal
income tax law, being a corporation that is taxed separately from
its owners;
"CRAR" means Capital to Risk (Weighted) Assets Ratio;
"CRS" means Common Reporting Standard;
"DEA" means Deutsche Erdoel AG, an international independent
exploration and production company headquartered in Germany;
"Depositary" means Estera Depositary Company (UK) Limited;
"Discontinuation Resolution" means a special resolution that
must be proposed to the Company's Shareholders to discontinue the
Company within six weeks of the seventh anniversary of the
Company's first Admission if the trading price has not met the
Target Price, and the Invested Capital Target Return has not been
met;
"Discount to NAV" means the situation where the Ordinary shares
of the Company are trading at a price lower than the Company's Net
Asset Value;
"E&P" means exploration and production;
"Eagle II" means Eagle Energy Exploration, LLC;
"Earnings per Share" or "EPS" means the Earnings per Ordinary
Share and is expressed in U.S. dollars;
"EBITDA" means earnings before interest, taxes, depreciation and
amortisation;
"EBITDAX" means earnings before interest, taxes, depreciation,
amortisation and exploration expenses;
"ECI" means effectively connected income, which refers to all
income from sources within the United States connected with the
conduct of a trade or business;
"EEA" means European Economic Area;
"EGM" means an Extraordinary General Meeting of the Company;
"EU" means the European Union;
"EV" means enterprise value;
"FATCA" means Foreign Account Tax Compliance Act;
"FCA" means the UK Financial Conduct Authority (or its successor
bodies);
"Fieldwood" means Fieldwood Energy LLC;
"Financial Statements" means the audited financial statements 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;
"FRC" means Financial Reporting Council;
"FTSE 350" means Financial Times Stock Exchange 350 Index;
"Fund V" means Riverstone Global Energy & Power Fund V,
L.P.;
"Fund VI" means Riverstone Global Energy & Power Fund VI,
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;
"GoM" means the Gulf of Mexico;
"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;
"G20 Summit" means the 2019 G20 Osaka summit which was the
fourteenth meeting of the G20, a forum of 19 countries and the
European Union;
"Hammerhead" means Hammerhead Resources Inc.;
"Hunt" means Hunt REL Holdings LLC together with various members
of Ray L. Hunt's family and their
related entities;
"IAS" means international accounting standards as issued by the
Board of the International Accounting Standards Committee;
"IFRS" means the International Financial Reporting Standards,
being the principles-based accounting standards, interpretations
and the framework by that name issued by the International
Accounting Standards Board, as adopted by the EU;
"ILX III" means ILX Holdings III LLC;
"IMO" means the International Maritime Organization (IMO), an
agency of the United Nations which has been formed to promote
maritime safety;
"Interim Financial Report" means the Company's half yearly
report and unaudited interim condensed 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 Guidelines" 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;
"IRS" means the Internal Revenue Service, the revenue service of
the U.S. federal government;
"ISAE 3402" means International Standard on Assurance
Engagements 3402, "Assurance Reports on Controls at a Service
Organisation";
"ISA" means International Standards on Auditing (UK and
Ireland);
"ISIN" means an International Securities Identification
Number;
"ISRE 2410" means International Standard on Review Engagements
2410, "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity";
"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;
"M&A" means mergers and acquisitions;
"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;
"Meritage III" means Meritage Midstream Services III, L.P.;
"mmboe" means million barrels of oil equivalent;
"mcfe" means thousand cubic feet equivalent (natural gas);
"mmcfepd" means million cubic feet equivalent (natural gas) per
day;
"NASDAQ" means National Association of Securities Dealers
Automated Quotations
Stock Market;
"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;
"Net IRR" means an aggregate, annual, compound, gross internal
rate of return on investments, net of taxes and carried interest on
gross profit;
"Net MOIC" means gross multiple of invested capital net of taxes
and carried interest on gross profit;
"Nomination Committee" means a formal committee of the Board
with defined terms of reference;
"NURS" means non-UCITS retail schemes;
"NYSE" means The New York Stock Exchange;
"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;
"Onyx" means Onyx Strategic Investment Management I BV;
"OPEC" means Organisation of the Petroleum Exporting
Countries;
"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;
"Origo" means Origo Exploration Holding AS;
"Other Riverstone Funds" means other Riverstone-sponsored,
controlled or managed entities, including Fund V/VI, 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;
"Placing and Open Offer" means the issuance of 8,448,006 new
Ordinary Shares at GBP8.00 per Ordinary Share on 11 December
2015;
"POI Law" means the Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended;
"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;
"prompt" means the front end of the price curve;
"Prospectus" means the prospectus published on 24 September 2013
by the Company in connection with the IPO of Ordinary Shares and
further prospectus published on 23 November 2015;
"PSA" means a public service announcement;
"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;
"RCO" means Riverstone Credit Opportunities, L.P.;
"REL" or "Company" means Riverstone Energy Limited;
"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;
"Ridgebury H3" means Ridgebury H3, LLC;
"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;
"Rock Oil" means Rock Oil Holdings, LLC;
"S&P Index" means the Standard & Poor's 500 Index;
"S&P Oil & Gas E&P Index" means the Standard &
Poor's Oil & Gas Exploration & Production Select Industry
Index;
"SCOOP" means South Central Oklahoma Oil Province;
"SEC" means the U.S. Securities and Exchange Commission;
"Sierra" means Sierra Oil and Gas Holdings, L.P.;
"Shareholder" means the holder of one or more Ordinary
Shares;
"Three Rivers III" means Three Rivers Natural Resources Holdings
III LLC;
"Total Return on the Company's Net Asset Value" means the
capital appreciation of the Company's Net Asset Value plus the
income received from the Company in the form of dividends;
"TSX" means Toronto Stock Exchange;
"UCITS" means undertakings for collective investment in
transferable securities;
"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;
"WTI" means West Texas Intermediate which is a grade of crude
oil used as a benchmark in oil pricing;
"GBP" or "Pounds Sterling" or "Sterling" means British pound
sterling and "pence" means British pence; and
"$" means United States dollars and "cents" means United States
cents.
DIRECTORS AND GENERAL INFORMATION
Directors Administrator and Company Le Truchot
Richard Hayden (Chairman) Secretary St Peter Port
Peter Barker Estera International Guernsey
Patrick Firth Fund Managers (Guernsey) GY1 3BE
Pierre Lapeyre Limited Channel Islands
David Leuschen Heritage Hall
Ken Ryan PO Box 225 English solicitors to
Jeremy Thompson Le Marchant Street the Company
Claire Whittet St Peter Port Hogan Lovells International
Guernsey LLP
Audit Committee GY1 4HY Atlantic House
Patrick Firth (Chairman) Channel Islands Holborn Viaduct
Peter Barker London
Richard Hayden Effective from 29 April EC1A 2FG
Jeremy Thompson 2019 United Kingdom
Claire Whittet PO Box 286
Floor 2 Guernsey advocates to
Management Engagement Trafalgar Court the Company
Committee Les Banques Carey Olsen
Claire Whittet (Chairman) St Peter Port Carey House
Peter Barker Guernsey PO Box 98
Patrick Firth GY1 4LY Les Banques
Richard Hayden Channel Islands St Peter Port
Jeremy Thompson Guernsey
Registered office GY1 4BZ
Nomination Committee Heritage Hall Channel Islands
Richard Hayden (Chairman) PO Box 225
Peter Barker Le Marchant Street U.S. legal advisors
Patrick Firth St Peter Port to the Company
Jeremy Thompson Guernsey Vinson & Elkins LLP
Claire Whittet GY1 4HY 1001 Fannin Street
Channel Islands Suite 2500
Investment Manager Houston, Texas
Riverstone International Effective from 29 April TX 77002
Limited 2019 United States of America
190 Elgin Avenue PO Box 286
George Town Floor 2 Independent auditor
Grand Cayman Trafalgar Court Ernst & Young LLP
KY1-9005 Les Banques PO Box 9, Royal Chambers
Cayman Islands St Peter Port St Julian's Avenue
Guernsey St Peter Port
Investment Manager's GY1 4LY Guernsey
Performance Review Team Channel Islands GY1 4AF
James Hackett Channel Islands
Bartow Jones Registrar
Pierre Lapeyre Link Asset Services Corporate Brokers
David Leuschen 65 Gresham Street JP Morgan Cazenove
Baran Tekkora London 25 Bank Street
Carl Williams EC2V 7NQ Canary Wharf
United Kingdom London
Website: www.RiverstoneREL.com E15 5JP
ISIN: GG00BBHXCL35 Principal banker United Kingdom
Ticker: RSE ABN AMRO (Guernsey)
Limited Numis Securities Limited
PO Box 253 The London Stock Exchange
Martello Court Building
Admiral Park 10 Paternoster Square
St. Peter Port London
Guernsey EC4M 7LT
GY1 3QJ United Kingdom
Channel Islands
Effective from 10 July
2019
Barclays Bank PLC
PO Box 41
Le Marchant House
SWISS SUPPLEMENT
ADDITIONAL INFORMATION FOR INVESTORS IN SWITZERLAND
This Swiss Supplement is supplemental to, forms part of and
should be read in conjunction with the Interim Report and Unaudited
Interim Condensed Financial Statements ended 30th June 2019 for
RIVERSTONE ENERGY LIMITED (the "Fund").
Effective from 20th July 2015, the Fund had appointed Société
Générale as Swiss Representative and Paying Agent. The current
Prospectus, the Memorandum and Articles of Association and the
annual report of the Fund can be obtained free of charge from the
representative in Switzerland, Société Générale, Paris, Zurich
Branch, Talacker 50, P.O. Box 5070, CH-8021 Zurich. The paying
agent of the Fund in Switzerland is Société Générale, Paris, Zurich
Branch, Talacker 50, P.O. Box 5070, CH-8021 Zurich. The Company may
offer Shares only to qualified investors in Switzerland. In respect
of the Shares distributed in and from Switzerland, the place of
performance and jurisdiction is the registered office of the Swiss
Representative.
Cautionary Statement
The Chairman's Statement, the Investment Manager's Report and
the Report of the Directors 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, Investment Manager's Report and the
Report of the Directors 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
Adviser, 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.
Riverstone Energy Limited
PO Box 286, Floor 2,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY,
Channel Islands.
T 44 (0) 1481 742742
F 44 (0) 1481 742698
Further information available online:
www.RiverstoneREL.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR MMGMRNFNGLZM
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August 14, 2019 02:00 ET (06:00 GMT)
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