TIDMRSE
RNS Number : 8726G
Riverstone Energy Limited
11 August 2016
Interim Report and Unaudited Interim Riverstone
Condensed Financial Statements for the Energy
six months ended 30 June 2016 Limited
A focus on long-term capital growth (LSE: RSE)
Financial and Operational Highlights
-- Total capital committed as of 30 June 2016 stands at $1,722
million (or 127 per cent. of total capital available.)(1)
-- Total invested capital as of 30 June 2016 stands at $1,048
million (or 77 per cent. of total capital available.)(1)
-- NAV per Share as at 30 June 2016 totalled $16.24/GBP12.25 per
share, representing an increase of 29 cents or GBP1.42 compared to
NAV per Share at 31 December 2015.
Commitments during Committed a total of $142 million:
the period ended (i) $100 million to Carrier Energy
30 June 2016 Partners II LLC
(ii) $42 million to Liberty Resources
II LLC
Art. 105 of the Delegated Invested a total of $203(2) million
Regulation 213/2013 during the period to 30 June
- Overview of the 2016:
Investments as of (i) $73 million in Carrier Energy
30 June 2016 Partners II LLC
(ii) $45 million in Three Rivers
Natural Resources Holdings III
LLC
(iii) $18 million in ILX Holdings
III LLC
(iv) $17 million in Liberty Resources
II LLC
(v) $17 million in Rock Oil Holdings
LLC
(vi) $11 million in Riverstone
Credit Opportunities, L.P.
(vii) $7 million in Meritage
Midstream Services III, L.P.
(viii) $6 million in Castex Energy
2014 LLC
(ix) $4 million in Fieldwood
Energy LLC
(x) $3 million in Eagle Energy
Exploration LLC
(xi) $1 million in Origo Exploration
Holding AS
Key Financials
30 June 2016 31 December 30 June 2015
2015
---------------------- --------------------- ------------------- -------------------
NAV as at $1,372 million/ $1,347 million/ $1,244 million/
GBP1,035 million(3) GBP915 million(3) GBP791 million(3)
NAV per Share $16.24/GBP12.25(3) $15.95/GBP10.83(3) $16.36/GBP10.40(3)
as at
Market capitalisation $1,006 million/ $985 million/ $1,220 million/
at GBP756 million(3) GBP668 million(3) GBP776 million(3)
Share price $11.91/GBP8.95 $11.65/GBP7.91(3) $16.04/GBP10.20(3)
at (3)
30 June 30 June 2015
2016
--------------------- ------------ --------------
Total comprehensive
profit for the six $25.23
months ended million $4.06 million
Basic earnings per 29.86 cents 5.33 cents
Share for the six
months ended
(1) Based on total capital raised of $1,320 million and $41
million of realisations
(2) Amounts may vary due to rounding
(3) Based on exchange rate of 1.326 $/GBP at 30 June 2016 (1.473
$/GBP at 31 December 2015 and 1.573 $/GBP at 30 June 2015)
Chairman's Statement
Well placed to profit from market rebalancing
Energy markets have continued to prove volatile over the past
year, with the oil price climbing 30 per cent. in the past six
months ending in June, following a 38 per cent. decline over the
prior six months. However, the initial signs of rebalancing are now
emerging as producers in North America and elsewhere respond to
dramatically lower energy prices and capital scarcity. As the
Company's results today demonstrate, REL has established a highly
resilient portfolio during a period of prolonged market volatility
and is well placed to profit as the market recovers.
During the first half of the year, REL committed an additional
$142 million, which was allocated to existing portfolio companies
Carrier II and Liberty II. The Carrier team, which has extensive
experience operating in West Texas, opportunistically acquired
interests in the prolific Sugarloaf Project in the Eagle Ford. The
commitment to Liberty II, which is REL's earliest investment and
focused on the Bakken and Powder River Basin, was increased to
support investment in gas gathering and processing infrastructure,
well completions and balance sheet strengthening.
Although REL's commitments exceed capital raised, the portfolio
remains relatively young due to its strategy of gradually deploying
capital across the cycle. Because of this "build-up" approach,
where Riverstone controls the pace and deployment of capital, the
Board is comfortable with current commitment levels. The history of
Riverstone investments has shown that not all of the commitments
made to portfolio companies are ultimately funded and in some cases
are cancelled altogether. For example, as of 30 June 2016, Funds I
through IV have only invested 87 per cent. of the total commitments
to its portfolio companies. Also, REL's arrangements with
Riverstone allow excess commitments to be amended by the Investment
Manager with consideration from the Board.
REL's portfolio companies' management teams continued to make
solid operational progress in the first half of the year. Meritage
III's gathering and processing infrastructure became operational at
the end of April, which will support CIOC as it continues to
increase production from its extensive land position in Canada's
Montney and Duvernay plays. Eagle II's initial well in the SCOOP
produced strong results and the company is now pursuing a
multi-well delineation drilling programme. While Origo and ILX III
remain relatively early in their exploration programmes, they have
already made five discoveries which are now being progressed toward
development. Rock Oil and Three Rivers III continue to develop
drilling programmes for their recently acquired properties.
Elsewhere in the portfolio, Liberty II and Fieldwood took measures
to optimise their capital structures, with Fieldwood agreeing a
solution whereby it no longer faces borrowing base redeterminations
until May 2018.
Valuations for some of the earlier investments made by REL
continue to face challenges due to weak energy prices. However, the
Company's build-up strategy, where capital is deployed gradually
over time, has allowed several of its portfolio companies to
benefit from industry distress, resulting in value accretion for
Shareholders as evidenced by three of REL's four largest
investments (CIOC, Rock Oil and Carrier II), being valued above
cost. Throughout the portfolio, Riverstone continues to work with
its portfolio companies' management teams to reduce operating
expenses, hedge commodity price exposure where appropriate and
maintain maximum capital flexibility to thrive in a variety of
commodity price environments.
The recent announcement of the UK's exit from the EU has not
impacted the portfolio, which is concentrated in North America.
At our AGM in May, I was elected non-executive Chairman of the
Board following Sir Robert Wilson's retirement from industry. In
addition, Jim Hackett stepped down to focus on his duties as an
investment partner at Riverstone. While Jim's experience will be
missed, Sir Robert has agreed to provide ongoing guidance as a
senior adviser to REL. Furthermore, I am pleased to welcome Jeremy
Thompson and Ken Ryan as additions to the Board. Jeremy brings
extensive experience of the private equity and investment trust
industry, while Ken has been deeply involved with the Company since
its initial formation. I look forward to working with Jeremy, Ken
and the rest of the Board to continue our work in growing the
Company and creating Shareholder value.
Performance
REL made a profit of $25.23 million for the six months ended 30
June 2016, resulting in a NAV
per share at 30 June 2016 of $16.24, an increase of 2.5 per
cent. from $15.85 and 1.8 per cent. from $15.95 at 31 March 2016
and 31 December 2015, respectively. The increase in NAV over the
six months ended 30 June 2016 was primarily due to the increase in
the fair market value of CIOC, Meritage III, Three Rivers III,
Carrier II, Fieldwood and RCO, which offset a decline by Castex
2005. The depreciation of the British Pound Sterling has
contributed to the NAV per share increasing by GBP1.42, or 13.1 per
cent., when compared with the previous six months in Pounds
Sterling terms. The $/GBP exchange rate declined from 1.473 at 31
December 2015 to 1.326 at 30 June 2016. The Board is sensitive to
the discount to NAV at which the REL shares currently trade and
will continue to evaluate open market purchases as authorised by
the Shareholders at the AGM.
As mentioned above, during the first half of the year, the
Company made additional commitments of $100 million to Carrier II
and $42 million to Liberty II to support these businesses as they
continue to execute their strategies. As of 30 June 2016, REL,
through the Partnership, had committed $1,722 million, or 127 per
cent. of total capital available(1) to 16 investments. The
Company's commitments are now split approximately evenly across
four geographic areas: Western Canada, the Permian & Eagle
Ford, Gulf of Mexico and niche strategies comprising credit,
international opportunities and select US onshore basins.
As of 30 June 2016, REL, through the Partnership, had invested
$1,048 million, equating to 77 per cent. of total capital
available(1) . REL deployed $203 million in the first half of 2016,
of which approximately two-thirds was directed towards investments
in the prolific Permian and Eagle Ford basins. The largest
investment during the period was $73 million, in which the Carrier
II management team took advantage of volatile market conditions to
acquire interests in the Sugarloaf Project in Karnes County, Texas
in the Eagle Ford from two publicly-listed energy companies facing
balance sheet constraints. The Carrier II team knows the asset
well, which is operated by highly-regarded Marathon Oil and
benefits from attractive breakeven oil price economics.
In the Permian Basin, Three Rivers III acquired approximately
36,000 net acres through two acquisitions offsetting their existing
position in Culberson County, Texas. This resulted in an additional
$45 million of investment by REL as the company continues its
strategy of aggregating attractive asset packages with significant
upside opportunities, as the team has successfully accomplished on
two previous occasions for Riverstone. Since formation in April
2015, the company has established a position of approximately
55,000 net acres in the highly prospective Delaware Basin in the
Permian.
In addition to acquisitions, REL invested approximately $39
million during the first half of 2016 to fund drilling programs for
ILX III, Rock Oil, Eagle II and Origo. Riverstone Credit
Opportunities invested $11 million during the first half of the
year towards twelve additional investments. Meritage III invested
an additional $7 million for construction of its gathering and
processing infrastructure in Western Canada, which is now fully
operational.
Subsequent to the period ending on 30 June 2016, REL announced
its first exit, with the sale of Rock Oil for gross cash proceeds
of approximately $237 million. This transaction results in
excellent returns for REL, representing a Gross MOIC(2) of 2.1x
(Net MOIC of 1.6x) and a Gross IRR of 78 per cent. (Net IRR of 43
per cent.) on the Company's investment, through the Partnership, of
$114 million, and affirms the strength of Riverstone's investment
strategy even during periods of weak oil and gas prices.
In addition, REL announced an investment of up to $175 million
in Centennial Resource Development LLC alongside other funds
affiliated with Riverstone, including Fund VI and Silver Run
Acquisition Corp., a Riverstone sponsored special purpose
acquisition company. This investment will be led by Mark Papa,
Riverstone partner and former chief executive of EOG Resources, and
will further strengthen the portfolio's exposure to low-cost energy
producers due to Centennial's significant resource potential in the
oil-rich core of the Delaware Basin in the Permian.
REL's activity over the past six months demonstrates the
strength of Riverstone's "build-up" approach. This has resulted in
REL developing a high-quality portfolio with best-in-class
management teams focused on highly attractive basins for
hydrocarbon production. With 16 investment platforms, and over $250
million of un-invested capital, REL is uniquely positioned to
continue to take advantage of opportunities and deliver value to
Shareholders.
Richard Hayden
Chairman
10 August 2016
(1) Based on total capital raised of $1,320 million and $41
million of realisations
(2) Gross MOIC is Gross Multiple of Invested Capital before
transaction costs, taxes, carried interest on gross profit,
management fees and other expenses.
Investment Manager's Report
Well Positioned for Long Term Value Creation and Near Term
Resiliency
It has been nearly two years since WTI traded over $100 per
barrel in July 2014. While energy markets appear to have found the
bottom of the cycle in the first half of 2016, with oil briefly
trading below $30 per barrel in January, the price recovered to $50
per barrel in the second quarter as North American production
responded to low prices and various supply disruptions shifted the
market closer to balance. The signs of recovery, while encouraging,
remain fragile, and we continue to position the portfolio to remain
resilient to further market volatility.
Over the past 24 months, the energy market has gone through
extreme turbulence, with oil prices declining by over 70 per cent.
from peak to trough, resulting in significant financial stress and
a dramatic decline in capital expenditure by industry participants.
It is in times like these, that Riverstone's scale, experience and
diversified investment approach serves to differentiate us from
industry peers, particularly those who are less experienced in the
energy sector. Riverstone has the benefit of a sixteen year history
of private investing in energy, and its investment professionals
have experience successfully investing in, and operating energy
businesses through multiple commodity price cycles. The firm
applies a disciplined approach to maintain maximum operational and
capital flexibility under any commodity price environment.
One key element of Riverstone's strategy is the "build-up"
approach, from which REL has particularly benefitted. REL began
committing capital and establishing investment platforms soon after
its formation. However the pace of capital actually invested has
been markedly slower with the most attractive opportunities
emerging after the decline in commodity prices, resulting in the
REL portfolio being invested at a weighted average oil price of
approximately $51 per barrel. By establishing investment platforms
early and backing experienced and focused management teams with
significant line of equity commitments, REL was well positioned
within key target basins to move quickly as attractive assets
became available. This is particularly evident in Carrier II, Three
Rivers III and Rock Oil, where the management teams had identified
strategic assets in the Permian and Eagle Ford basins, and built up
positions through a series of asset and corporate level
acquisitions over a 12-24 month period. The REL portfolio is now 77
per cent. invested as of the end of June 2016.
As well as creating an opportunity to acquire assets at
attractive valuations, the decline in oil prices has driven a
general high-grading of the energy sector. With energy companies
having less capital to invest, there has been an increasing drive
for efficiency and lowering cost of production. This is
particularly notable in the North American upstream sector, where
well costs have declined and production rates increased, resulting
in materially lower breakeven costs and significant divergence in
the economics of different basins. Riverstone has always focused on
high quality assets, and the REL portfolio is favorably exposed to
the basins which we see has having the most attractive economics,
in particular the Permian, Eagle Ford and Western Canada. In CIOC,
well costs have declined by 50 per cent. since 2012, and earlier
this year, the production rates from two of CIOC's wells were
recorded as the two best performing wells in Alberta.
While we are confident that the long term outlook for the sector
remains favorable, we expect the energy market to continue to be
volatile in the short term given uncertainties over global economic
growth and North American oil production. We continue to manage
risk through diversifying across geographies and energy segments,
focusing on build-up strategies, partnering with experienced,
operationally-focused management teams, hedging cash flows from
producing assets, using moderate levels of debt with flexible
covenant structures, and maintaining sufficiently high levels of
liquidity to take advantage of attractive acquisition
opportunities. With 15 management teams and substantial positions
in North America's most attractive basins, REL is well placed to
reward patient investors.
Investment Strategy
The Investment Manager's objective is to achieve superior risk
adjusted, after tax, returns by making privately negotiated control
investments primarily in the exploration and production and
midstream energy sectors, which is a significant component of
virtually all major economies. 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;
-- Industry distress and pressures to rationalise assets;
-- Growing success rates of deepwater exploration and other
technology-driven sources of reserves; and
-- Historical under-investment in energy infrastructure.
The Investment Manager, through its affiliates, has an
outstanding track record of building businesses with exceptional
management teams and of delivering consistently strong returns and
significant outperformance against both crude oil and natural gas
benchmarks. The Company aims to capitalise on the opportunities
presented by Riverstone's pipeline of investments.
The Investment Manager 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-focused professional
advisory firms to assist with due diligence in other areas such as
accounting, tax, legal, employee benefits, environmental,
engineering and insurance.
Investment Portfolio Summary
As of 30 June 2016, fourteen exploration and production
investments, one midstream investment and one credit investment
have been completed as further discussed below.
CIOC
As of 30 June 2016, REL, through the Partnership, has invested
in full its $232 million commitment to CIOC. CIOC is a private
exploration & production company focused on liquids-rich
unconventional resources in Western Canada. Since its establishment
in 2010, CIOC 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 approximately 400,000
acres. CIOC has more than quadrupled production capacity to over
20,000 boepd since Riverstone's investment.
As of 30 June 2016, REL's interest in CIOC, through the
Partnership, was valued at 1.5x Gross MOIC(1) or $352 million
(Realised $1 million, Unrealised $351 million).
Rock Oil
As of 30 June 2016, REL, through the Partnership, has invested
$114 million of its $150 million commitment to Rock Oil. Rock Oil
is a newly formed, Denver and Houston based oil and gas company
focused on the acquisition and development of assets in top-tier
North American plays. As of the end of June, Rock Oil has acquired
24,500 net acres in Howard County (Permian Midland Basin), has
drilled six production wells and is currently producing
approximately 5,000 boepd. On 8 August 2016, REL announced the sale
of Rock Oil for gross cash proceeds of approximately $237 million,
equating to a gross profit of $123 million. This gross profit will
be subject to taxes and a performance fee, resulting in a net
profit of approximately $64 million. The closing of the sale is
expected to occur in early October 2016 and is subject to customary
closing conditions.
As of 30 June 2016, REL's interest in Rock Oil, through the
Partnership, was valued at 1.3x Gross MOIC(1) or $152 million.
Based on the valuation implied by the Rock Oil sale announced
subsequent to 30 June 2016, the Gross MOIC(1) would move to
2.1x.
Liberty II
As of 30 June 2016, REL, through the Partnership, has invested
$110 million of its $142 million commitment to Liberty II. Since
formation in January 2014, Liberty has established a c. 44,000 net
acre position in the Williston and Powder River Basin through a
series of acquisitions, which benefit from Liberty's sophisticated
and proprietary well completion technology. Liberty has an
inventory of over 150 gross drilling locations, and is currently
producing approximately 4,500 boepd.
As of 30 June 2016, REL's interest in Liberty II, through the
Partnership, was valued at 0.9x Gross MOIC(1) or $100 million.
CNOR
As of 30 June 2016, REL, through the Partnership, has invested
$73 million of its $90 million commitment to CNOR. CNOR is a
Calgary-based oil and gas company focused on the Western Canadian
Sedimentary Basin. CNOR is currently investing actively in new
wells through its joint venture with Tourmaline Oil in the Peace
River High area, which are currently producing approximately 3,100
boepd net.
As of 30 June 2016, REL's interest in CNOR, through the
Partnership, was valued at 1.0x Gross MOIC(1) or $73 million.
Castex 2005
As of 30 June 2016, REL, through the Partnership, has invested
$48 million of its $50 million commitment to Castex 2005. Castex
2005 is a partnership focused on a portfolio of properties in
Southern Louisiana and the Gulf of Mexico Shelf which produce
approximately 78 mmcfepd, as well as a seismic-driven exploration
program. Castex is managed by Castex Energy Inc., which has a 27
year operating history in exploration and development in the
region.
As of 30 June 2016, REL's interest in Castex 2005, through the
Partnership, was valued at 0.5x Gross MOIC(1) or $24 million.
Fieldwood
As of 30 June 2016, REL, through the Partnership, has invested
$58 million of its $82 million commitment to Fieldwood. Riverstone
formed Fieldwood in partnership with CEO Matt McCarroll and his
team in December 2012 with a commitment from Fund V. Fieldwood has
made two material acquisitions (from Apache and SandRidge), with
three further bolt-on acquisitions, and now has an interest in
approximately 500 leases covering over two million gross acres and
over 1,000 wells in the Gulf of Mexico, making it the largest oil
and gas producer in the Shallow Gulf of Mexico. During the first
half of 2016, Fieldwood completed 34 recompletions and 30 workover
projects, and materially reduced operating costs relative to 2015.
During Q2 2016, REL, through the Partnership, along with Other
Riverstone Funds, (collectively, the "Buyers"), completed open
market purchases of 2(nd) lien debt issued by Fieldwood. The Q2
2016 valuation of REL's interest in Fieldwood, through the
Partnership, treats the 2(nd) lien debt owned by the Buyers as
though it were cancelled. Fieldwood also eliminated any borrowing
base re-determinations until May 2018.
As of 30 June 2016, REL's interest in Fieldwood, through the
Partnership, was valued at 1.0x Gross MOIC(1) or $58 million
(Realised $1 million, Unrealised $57 million).
Eagle II
As of 30 June 2016, REL, through the Partnership, has invested
$47 million of its $50 million commitment to Eagle II. To date, the
company has acquired approximately 11,500 net acres in the SCOOP
and approximately 20,000 net acres in the Mississippi Lime, and is
currently producing approximately 2,400 boepd. Earlier this year
Eagle drilled its first well in the SCOOP as part of a six well
delineation drilling program, producing over 1,000 boepd during
testing.
As of 30 June 2016, REL's interest in Eagle II, through the
Partnership, was valued at 0.8x Gross MOIC(1) or $37 million.
Carrier II
As of 30 June 2016, REL, through the Partnership, has invested
$104 million of its $133 million commitment to Carrier II. Carrier
II is focused 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 and PT Petroleum
targeting 19,131 net acres for development in the southern Midland
Basin. Subsequently through three separate acquisitions the company
has acquired 3,489 net acres in Karnes county in the Eagle Ford
basin, targeting the Sugarloaf Project and the Chisholm Project,
both operated by Marathon Oil Corp.
As of 30 June 2016, REL's interest in Carrier II, through the
Partnership, was valued at 1.1x Gross MOIC(1) or $115 million.
Castex 2014
As of 30 June 2016, REL, through the Partnership, has invested
$36 million of its $67 million commitment to Castex 2014. Castex
2014 is a Houston-based oil and gas company focused on testing and
developing the current and future portfolio of exploration
opportunities in the U.S. Gulf Coast Region, in partnership with
Castex 2005. In 2015, Castex 2014 partnered with Castex 2005 on
five successful exploration wells. There were no new wells drilled
in the first half of 2016, as drilling activity is weighted to the
second half of the year, but Castex 2014 did participate in the
acquisition of additional working interests in existing
locations.
As of 30 June 2016, REL's interest in Castex 2014, through the
Partnership, was valued at 1.0x Gross MOIC(1) or $36 million.
ILX III
As of 30 June 2016, REL, through the Partnership, has invested
$47 million of its $200 million commitment to ILX III. ILX III,
based in Houston, Texas, is a repeat joint-venture with the
management team of Ridgewood Energy Corporation. The new entity
maintains the same strategy of acquiring non-operated working
interests in oil-focused exploration projects in deepwater Gulf of
Mexico. To date, ILX III has drilled four wells, of which two are
commercial discoveries. The company is currently drilling a fifth
well, and has begun development on one of the previous
discoveries.
As of 30 June 2016, REL's interest in ILX III, through the
Partnership, was valued at 1.0x Gross MOIC(1) or $47 million.
RCO
As of 30 June 2016, REL, through the Partnership, has invested
$87 million of its $125 million commitment to RCO, of which $40
million has been realised, to result in $47 million of remaining
unrealised invested capital. 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 31
investments, 13 of which have already been fully exited.
As of 30 June 2016, REL's interest in RCO, through the
Partnership, was valued at 1.1x Gross MOIC(1) or $92 million
(Realised $40 million, Unrealised $52 million).
Meritage III
As of 30 June 2016, REL, through the Partnership, has invested
$24 million of its $33 million commitment to Meritage III. REL's
investment to date is related to the ongoing construction of gas
gathering, gas processing, and oil gathering infrastructure in
support of CIOC's drilling program in western Canada. In April 2016
the gas pipeline and the Gold Creek and Karr plants entered
service.
As of 30 June 2016, REL's interest in Meritage III, through the
Partnership, was valued at 1.1x Gross MOIC(1) or $26 million.
Three Rivers III
As of 30 June 2016, REL, through the Partnership, has invested
$56 million of its $167 million commitment to Three Rivers III.
Similar to Riverstone's two prior successful partnerships with this
management team, Three Rivers III focuses on oil and gas
acquisition and development opportunities in the Permian Basin.
Through a series of acquisitions in 2015 and first half 2016, Three
Rivers III has built a position of over 55,000 net acres in the
Permian Delaware basin, primarily in Culberson & Reeves
counties.
As of 30 June 2016, REL's interest in Three Rivers III, through
the Partnership, was valued at 1.1x Gross MOIC(1) or $62
million.
Origo
As of 30 June 2016, REL, through the Partnership, has invested
$7 million of its $67 million commitment to Origo. Origo is a
Norway-based oil and gas company focused on exploration on the
Norwegian and UK continental shelves. Since inception, Origo has
reviewed over 250 potential farm-in opportunities, and completed
seven farm-in transactions, and made three discoveries from six
exploration wells drilled.
As of 30 June 2016, REL's interest in Origo, through the
Partnership, was valued at 1.0x Gross MOIC(1) or $7 million.
Sierra
As of 30 June 2016, REL, through the Partnership, has invested
$3 million of its $75 million commitment to Sierra. Sierra is an
independent Mexican energy company established to pursue select
upstream and midstream opportunities in Mexico. In July 2015,
Sierra secured two oil and gas exploration blocks in Mexico's
initial shallow Gulf of Mexico tender. Sierra and its partners are
currently undertaking subsurface assessments on these blocks ahead
of initiating a drilling campaign. The company is also advancing
several midstream development opportunities.
As of 30 June 2016, REL's interest in Sierra, through the
Partnership, was valued at 1.0x Gross MOIC(1) or $3 million.
CanEra III
As of 30 June 2016, REL, through the Partnership, has invested
$1 million of its $60 million commitment to CanEra III. CanEra III
is a private Calgary-based oil and gas company formed to pursue oil
and gas exploration and production opportunities in the Western
Canadian Sedimentary Basin. CanEra III focuses on the acquisition,
exploitation and exploration of large hydrocarbon deposits in the
Western Canada Sedimentary Basin.
As of 30 June 2016, REL's interest in CanEra III, through the
Partnership, was valued at 1.0x Gross MOIC(1) or $1 million.
Going Concern
Of the $11.5 million of cash retained by the Company in the IPO
and Placing and Open Offer, and the $5.5 million distribution from
the Partnership in Q1 2016, $5.5 million remains at 30 June 2016.
This amount is adequate to meet the Company's liabilities as they
fall due over the next twelve months. In accordance with section
4.1(a) of the Partnership Agreement, the Company is expected to
receive another distribution from the Partnership in the event it
requires additional funds.
As at 30 June 2016, the Partnership had $264 million of
uninvested funds held as cash and money market fixed deposits (31
December 2015: $555 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 the
portfolio company being sold earlier than anticipated or the
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 excess commitments to be amended
by the Investment Manager with consideration from the Board. In
light of the above, the Directors are satisfied that it is
appropriate to adopt the going concern basis in preparing the
interim condensed financial statements.
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 sectors. Its principal risks are therefore related
to market conditions in the energy sector in general, but also the
particular circumstance of the businesses in which it is invested
through the Partnership. The Investment Manager, through 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 and 3)
inherent risks associated with the exploration and production and
midstream energy subsectors.
The principal risks and uncertainties of REL were identified in
further detail in the 2015 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 2016 and no
changes are anticipated in the second half of the year.
Subsequent Events and Outlook
In July 2016, REL, through the Partnership, announced an
investment in Centennial Resource Development LLC through the
purchase of shares in NASDAQ-listed Silver Run Acquisition
Corporation. Silver Run, subject to certain conditions including
approval of the Silver Run stockholders, will acquire a controlling
interest in Centennial from NGP Energy Capital. Centennial is an
exploration and production company focused on the acquisition and
development of oil and liquids-rich natural gas resources in the
Permian Delaware Basin, West Texas. The investment by REL, through
the Partnership, is expected to comprise up to $175 million.
In August 2016, REL announced the sale of Rock Oil to SM Energy
Company, a US-based E&P company. Under the terms of the
transaction, REL, through the Partnership, will realise gross cash
proceeds of approximately $237 million, representing a Gross
MOIC(1) of 2.1x (Net MOIC of 1.6x) on the $114 million investment
and a Gross IRR of 78 per cent. (Net IRR of 43 per cent.). This
will result in a gross realised gain of $123 million and an uplift
of $84 million or 55 per cent. above its fair value of $152 million
as at 30 June 2016. The Company's gross profit, through the
Partnership, will be subject to taxes and a performance fee,
resulting in a net uplift to the Company's NAV at 30 June 2016 of
approximately $44 million(2) . The closing of the sale is expected
to occur in early October 2016 and is subject to customary closing
conditions.
Also in August 2016, REL agreed to transfer half of its
investment to date and unfunded commitment in Sierra, $1.3 million
and $36.2 million, respectively, to a separate investment vehicle
managed by Riverstone and funded primarily by Mexican pension
funds. This transfer is in line with REL's stated strategy of
periodically reviewing its unfunded commitment levels.
Riverstone International Limited
10 August 2016
(1) Gross MOIC is Gross Multiple of Invested Capital before
transaction costs, taxes, carried interest on gross profit,
management fees and other expenses.
(2) Amount is subject to additional taxes up to approximately
$10 million
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 meet
the requirements of an interim management report, and include a
fair review of the information required by:
(i) DTR 4.2.7R of the Disclosure 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 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
10 August 2016
Independent Review Report to Riverstone Energy Limited
We have been engaged by the Company to review the condensed set
of financial statements in the Interim Financial Report for the six
months ended 30 June 2016 which comprises the Statement of
Financial Position, the Statement of Comprehensive Income, the
Statement of Changes in Equity, the Statement of Cash Flows and the
related Notes 1 to 11. We have read the other information contained
in the Interim Financial Report and considered whether it contains
any apparent misstatements or material inconsistencies with the
information in the condensed set of 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. 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 Financial Report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the Interim Financial Report in accordance with the
Disclosure and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in Note 2, the Financial Statements of the Company
are prepared in accordance with IFRSs as adopted by the European
Union. The condensed set of financial statements included in this
Interim Financial Report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the Interim Financial
Report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. 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 Ireland) 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 condensed set of financial statements
in the Interim Financial Report for the six months ended 30 June
2016 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Guernsey
10 August 2016
(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 2016
30 June 31 December
2016 2015
$'000 $'000
Notes (Unaudited) (Audited)
----------------------------- ------ ------------- ------------
ASSETS
Non-current assets
Investment at fair value
through profit or loss 6 1,367,148 1,345,150
----------------------------- ------ ------------- ------------
Total non-current assets 1,367,148 1,345,150
----------------------------- ------ ------------- ------------
Current assets
Trade and other receivables 252 683
Cash and cash equivalents 5,490 2,539
----------------------------- ------ ------------- ------------
Total current assets 5,742 3,222
----------------------------- ------ ------------- ------------
TOTAL ASSETS 1,372,890 1,348,372
----------------------------- ------ ------------- ------------
Current liabilities
Trade and other payables 516 1,183
----------------------------- ------ ------------- ------------
Total current liabilities 516 1,183
----------------------------- ------ ------------- ------------
TOTAL LIABILITIES 516 1,183
----------------------------- ------ ------------- ------------
NET ASSETS 1,372,374 1,347,189
----------------------------- ------ ------------- ------------
EQUITY
Share capital 1,317,495 1,317,537
Retained earnings 54,879 29,652
----------------------------- ------ ------------- ------------
TOTAL EQUITY 1,372,374 1,347,189
----------------------------- ------ ------------- ------------
Number of Shares in issue
at period/year end 10 84,480,064 84,480,064
----------------------------- ------ ------------- ------------
Net Asset Value per Share
($) 10 16.24 15.95
Net Asset Value per Share
(GBP) 10 12.25 10.83
----------------------------- ------ ------------- ------------
The interim condensed financial statements were approved and
authorised for issue by the Board of Directors on 10 August 2016
and signed on their behalf by:
Richard Hayden Patrick Firth
Chairman Director
Condensed Statement of Comprehensive Income
For the six months ended 30 June 2016 (Unaudited)
1 January 1 January
2016 to 2015 to
30 June 30 June
2016 2015
Notes $'000 $'000
------------------------------------ ------ ---------- ----------
Investment gain
Change in fair value of investment
at fair value through profit
or loss 6 27,498 5,892
------------------------------------ ------ ---------- ----------
Expenses
Directors' fees and expenses (384) (495)
Legal and professional fees (252) (229)
Other operating expenses (1,376) (1,110)
------------------------------------ ------ ---------- ----------
Total expenses (2,012) (1,834)
------------------------------------ ------ ---------- ----------
Operating profit for the period 25,486 4,058
Finance income and expenses
Foreign exchange loss (259) (3)
Interest income - 1
------------------------------------ ------ ---------- ----------
Total finance income and expenses (259) (2)
------------------------------------ ------ ---------- ----------
Profit for the period 25,227 4,056
Other comprehensive income - -
------------------------------------ ------ ---------- ----------
Total comprehensive income
for the period 25,227 4,056
------------------------------------ ------ ---------- ----------
Basic and Diluted Earnings
per Share (cents) 10 29.86 5.33
------------------------------------ ------ ---------- ----------
All activities derive from continuing operations.
Condensed Statement of Changes in Equity
For the six months ended 30 June 2016 (Unaudited)
Share Retained Total
capital earnings Equity
$'000 $'000 $'000
---------------------------- ---------- ---------- ----------
As at 1 January 2016 1,317,537 29,652 1,347,189
Profit for the period - 25,227 25,227
---------------------------- ---------- ---------- ----------
Total comprehensive income
for the period - 25,227 25,227
Transactions with owners
Share issue costs (42) - (42)
---------------------------- ---------- ---------- ----------
Total transactions with
owners (42) - (42)
As at 30 June 2016 1,317,495 54,879 1,372,374
---------------------------- ---------- ---------- ----------
For the six months ended 30 June 2015 (Unaudited)
Share Retained Total
capital earnings Equity
$'000 $'000 $'000
---------------------------- ---------- ---------- ----------
As at 1 January 2015 1,218,811 21,211 1,240,022
Profit for the period - 4,056 4,056
Total comprehensive income
for the period - 4,056 4,056
As at 30 June 2015 1,218,811 25,267 1,244,078
---------------------------- ---------- ---------- ----------
Condensed Statement of Cash Flows
For the six months ended 30 June 2016 (Unaudited)
1 January 1 January
2016 to 2015 to
30 June 30 June
2016 2015
$'000 $'000
------------------------------------------- ---------- ----------
Cash flows from operating activities
Operating profit for the financial
period 25,486 4,058
------------------------------------------- ---------- ----------
Adjustments for:
Net finance income - 1
Change in fair value on investment
at fair value through profit or
loss (27,498) (5,892)
Movement in trade receivables 431 273
Movement in trade payables (667) (157)
Net cash used in operating activities (2,248) (1,717)
------------------------------------------- ---------- ----------
Cash flow generated from investing
activities
Distribution from the Partnership 5,500 -
------------------------------------------- ---------- ----------
Net cash generated from investing
activities 5,500 -
------------------------------------------- ---------- ----------
Cash flow used in financing activities
Share issue costs (42) -
------------------------------------------- ---------- ----------
Net cash used in financing activities (42) -
------------------------------------------- ---------- ----------
Net movement in cash and cash equivalents
during the period 3,210 (1,717)
------------------------------------------- ---------- ----------
Cash and cash equivalents at the
beginning of the period 2,539 5,726
Effect of foreign exchange rate
changes (259) (3)
------------------------------------------- ---------- ----------
Cash and cash equivalents at the
end of the period 5,490 4,006
------------------------------------------- ---------- ----------
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 2016
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. It has been
listed on the London Stock Exchange since 29 October 2013. The
registered office of the Company is Heritage Hall, PO Box 225, Le
Marchant Street, St Peter Port, Guernsey, GY1 4HY, Channel
Islands.
The Company makes its investments through the Partnership, a
Cayman Islands registered exempted limited partnership, in which
the Company is the sole limited partner. The principal place of
business of the Partnership is the Cayman Islands. Both the Company
and the Partnership are subject to the Investment Management
Agreement with the Investment Manager, a company registered in the
Cayman Islands.
The Partnership invests alongside Private Riverstone Funds in
all Qualifying Investments in which the Private Riverstone Funds
participate. These funds are managed and advised by affiliates of
the Investment Manager. Further detail of these investments is
provided in the Investment Manager's Report.
2. Accounting policies
Basis of preparation
The Financial Statements for the year ended 31 December 2015
were prepared in accordance with IFRS.
These interim condensed financial statements have been prepared
in accordance with International Accounting Standard 34 "Interim
Financial Reporting". They do not contain all the information and
disclosures presented in the Financial Statements and should be
read in conjunction with the Financial Statements for the year
ended 31 December 2015.
The same accounting policies and methods of computation have
been followed in the preparation of these interim condensed
financial statements as were followed in the Financial Statements
for the year ended 31 December 2015.
These interim condensed financial statements are presented in
U.S. dollars and are rounded to the nearest $'000, unless otherwise
indicated.
The Company's results do not vary significantly during reporting
periods as a result of seasonal activity.
3. Critical accounting judgement and estimation uncertainty
The estimates and judgements made by management are consistent
with those made in the Financial Statements for the year ended 31
December 2015.
4. Taxation
The taxation basis of the Company remains consistent with that
disclosed in the Financial Statements for the year ended 31
December 2015.
The Company has made an election to, and currently expects to
conduct its activities so as to be treated as a partnership for
U.S. federal income tax purposes. Therefore, the Company expects
that it generally will not be liable for U.S. federal income taxes.
Instead, each of the Company's Shareholders who are liable to U.S.
taxes will take into account its respective share of the Company's
items of income, gain, loss and deduction in computing its U.S.
federal income tax liability as if such Shareholder had earned such
income directly, even if no cash distributions are made to the
Shareholder. Neither the Company nor the Partnership are subject to
Guernsey or Cayman Islands income taxes.
Local taxes may apply at the jurisdictional level on profits
arising in operating entity investments. Further withholding taxes
may apply on distributions from such operating entity investments.
Based upon the current commitments and investments in Liberty II,
Eagle II, Rock Oil, Fieldwood, Castex 2014, Castex 2005, Three
Rivers III, Carrier II and ILX III, the future U.S. tax liability
on profits is expected to be in the range of 35 to 41.5 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 2016 were
$1,367 million (31 December 2015: $1,345 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 2016 and the year ended 31 December 2015. 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
2016 and December 2015.
For the period ended 30 June 2016, 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 2016
The table summarises the most significant valuation techniques
and unobservable inputs used in those techniques together with
relevant ranges and averages. The Board considers the inputs to be
within a reasonable expected range based on their understanding of
market transactions. This is not intended to imply that the
likelihood of change or that possible changes in value would be
restricted to this range.
Fair value
(In Thousands) Range
Industry 30/06/2016 Valuation Unobservable Low High Weighted # of
technique(s) input(s) average (a) investments (b)
---------- --------------- --------------- --------------- -------- --------- ---------------- ----------------
1P/2P Reserve
Public multiple
Energy $967,501 comparables ($/Boe) $9 $23 $15 3
EV / 2016E
EBITDA
multiple 7.0x 18.4x 9.0x 4
Valuation
Transaction Multiple
comparables ($/Boepd) $40,000 $110,000 $63,776 4
Oil Price
NAV Analysis Curve ($/bbl) $40 $70 $46 6
Gas Price
Curve ($/mcfe) $2 $3 $3 6
--------------- --------------- --------------- -------- --------- ---------------- ----------------
Last round of
$109,660 financing n/a n/a n/a n/a 3
--------------- --------------- --------------- -------- --------- ---------------- ----------------
$61,369 Other Various n/a n/a n/a 4
--------------- --------------- --------------- -------- --------- ---------------- ----------------
Total $1,138,530 (see Note 6)
Quantitative information about Level 3 fair value measurements
as at 31 December 2015
Fair value
(In Thousands) Range
Industry 31/12/2015 Valuation Unobservable Low High Weighted # of
technique(s) input(s) average (a) investments (b)
---------- --------------- ---------------- --------------- -------- -------- ---------------- ----------------
1P Reserve
Public multiple
Energy $800,197 comparables ($/Boe) $8 $20 $13 3
EV / 2015
EBITDA
multiple 3.7x 9.3x 6.1x 4
Valuation
Transaction Multiple
comparables ($/Boepd) $18,837 $97,500 $62,582 4
Oil Price
NAV Analysis Curve ($/bbl) $40 $70 $44 6
Gas Price
Curve ($/mcfe) $3 $3 $3 6
--------------- ---------------- --------------- -------- -------- ---------------- ----------------
Last round of
$58,929 financing n/a n/a n/a n/a 4
--------------- ---------------- --------------- -------- -------- ---------------- ----------------
$33,055 Other Various n/a n/a n/a 3
--------------- ---------------- --------------- -------- -------- ---------------- ----------------
Total $892,181 (see Note 6)
(a) Calculated based on fair values
(b) Each of the Partnership's investments are valued using one
or more of the techniques which utilise one or more of the
unobservable inputs, so the amounts in the "# of investments"
column will not aggregate to the total number of the Partnership's
investments
The significant unobservable inputs used in the fair value
measurement of the Partnership's investments at 30 June 2016
include the oil and gas price curves, multiples derived from 1P and
2P reserves, barrels of energy production per day, and valuations
implied by the last round of financing. A 10 per cent. change in
the oil and gas curves, multiples derived from 1P reserves and
barrels of energy production per day taken together could result in
a respective decrease and increase in the fair value measurement of
the Partnership's investments of approximately $264 million, or 20
per cent. of the Company's NAV at 30 June 2016.
The Board reviews and considers the fair value of the
Partnership's investments arrived at by the Investment Manager
before incorporating into the fair value of the Partnership. The
variety of valuation bases adopted, quality of management
information provided by the underlying investee companies and the
lack of liquid markets for the investments mean that there are
inherent difficulties in determining the fair value of these
investments that cannot be eliminated. Therefore the amounts
realised on the sale of investments may differ from the fair values
reflected in these 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 observable inputs on a quarterly basis, as well as when
needed due to changes in market conditions.
6. Investment at fair value through profit or loss
30 June 31 December
2016 2015
$'000 $'000
---------------------------------------- ---------- ------------
Cost
Brought forward at 1 January 1,308,935 1,210,818
Investment in the Partnership - 98,117
Distribution from the Partnership (5,500) -
---------------------------------------- ---------- ------------
Carried forward 1,303,435 1,308,935
---------------------------------------- ---------- ------------
Fair value movement through profit
or loss
Brought forward at 1 January 36,215 23,478
Fair value movement during period/year 27,498 12,737
---------------------------------------- ---------- ------------
Carried forward 63,713 36,215
---------------------------------------- ---------- ------------
Fair value at period/year end 1,367,148 1,345,150
---------------------------------------- ---------- ------------
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.
Summary financial information for the Partnership
30 June 31 December
2016 2015
$'000 $'000
---------------------------------- ---------- ------------
Net Asset Value
Investments at fair value before
performance allocation(1) (see
Note 5) 1,138,530 892,181
General Partner's performance
allocation (36,387) (26,159)
---------------------------------- ---------- ------------
Investments at fair value (net) 1,102,143 866,022
Cash and cash equivalents 92,605 349,458
Money market fixed deposits 171,178 205,392
Investments payable - (74,008)
Management fee payable - see
Note 8 (5,146) (5,052)
Other net assets 6,368 3,338
---------------------------------- ---------- ------------
Fair value of REL's investment
in the Partnership 1,367,148 1,345,150
---------------------------------- ---------- ------------
(1) Investments at fair value after deferred tax on investment
of $Nil (31 December 2015: $Nil)
Summary Income Statement
1 January 1 January
2016 to 2015 to
30 June 30 June
2016 2015
$'000 $'000
---------------------------------------- ------------------- ----------
Unrealised gain on investments(1) 45,914 16,334
Realised gain and income on investment 1,314 2,188
Other income 1,075 1,154
Management fee expense - see Note
8 (10,168) (8,159)
Other operating expenses (409) (1,134)
---------------------------------------- ------------------- ----------
Partnership's operating profit
for the period 37,726 10,383
General Partner's performance
allocation (10,228) (4,491)
---------------------------------------- ------------------- ----------
Portion of the operating profit
for the period attributable to
REL's investment in the Partnership 27,498 5,892
---------------------------------------- ------------------- ----------
(1) Unrealised gain on investments after deferred tax on
investment of $Nil (30 June 2015: $3,132,692)
7. Contingent liabilities
The Company's existing contingent liabilities in relation to the
formation and initial expenses was $4.0 million as at 30 June 2016
(31 December 2015: $10.0 million).
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 2015:
eight).
Mr Ken Ryan is a senior executive of Riverstone and was
appointed as a non-executive Director on 19 May 2016. As a
non-independent Director, Mr Ryan has chosen not to be remunerated
by the Company for his services.
Mr Jeremy Thompson was appointed as a non-executive Independent
Director on 19 May 2016 and is entitled to annual remuneration of
$88,000 (GBP60,000).
Directors' fees and expenses for the period ended 30 June 2016
amounted to $383,791 (30 June 2015: $495,215), none of which was
outstanding at period/year end (31 December 2015: none).
Partnership
In accordance with section 4.1(a) of the Partnership Agreement,
the Company received a distribution from the Partnership of $5.5
million to meet the Company's forecasted liabilities over the
course of the next twelve months.
Investment Manager
For the provision of services under the Investment Management
Agreement, the Investment Manager is paid in cash out of the assets
of the Partnership an annual Management Fee equal to 1.5 per cent.
per annum of the Company's Net Asset Value. The fee is payable
quarterly in arrears and each payment is calculated using the
quarterly Net Asset Value as at the relevant quarter end as further
outlined on page 72 in the Financial Statements to 31 December
2015. During the period to 30 June 2016, the Partnership incurred
Management Fees of $10,167,646 (30 June 2015: $8,159,471) of which
$5,146,405 remained outstanding as at the period/year end (31
December 2015: $5,051,958). No management fee is paid by the
Company.
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 undertaking level, equal to 20 per cent. of
the realised profits (if any) on the sale of any underlying asset
of the Company. During the period to 30 June 2016, the General
Partner was entitled to receive a Performance Allocation of
$10,227,726 (30 June 2015: $4,491,001) of which $36,386,998
remained outstanding as at the period/year end (31 December 2015:
$26,159,272). No Performance Allocation is paid by the Company.
The General Partner is entitled to receive its Performance
Allocation in cash, all of which, after tax, Riverstone, through
its affiliate RELCP, intends to reinvest in Ordinary Shares of the
Company on the terms summarised in Part I and Part VIII of the IPO
Prospectus.
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. Earnings per Share and Net Asset Value per Share
Earnings per Share
1 January 2016 1 January 2015
to to
30 June 2016 30 June 2015
Basic Diluted Basic Diluted
-------------------------- ----------- ----------- ----------- -----------
Profit for the period
($'000) 25,227 25,227 4,056 4,056
Weighted average numbers
of Shares in issue 84,480,064 84,480,064 76,032,058 76,032,058
EPS (cents) 29.86 29.86 5.33 5.33
-------------------------- ----------- ----------- ----------- -----------
The Earnings per Share is based on the profit or loss of the
Company for the period and on the weighted average number of Shares
the Company had in issue for the period.
There are no dilutive Shares in issue as at 30 June 2016 (30
June 2015: none).
Net Asset Value per Share
30 June 31 December 30 June
2016 2015 2015
--------------------------- ----------- ------------ -----------
NAV ($'000) 1,372,374 1,347,189 1,244,078
Number of Shares in issue 84,480,064 84,480,064 76,032,058
Net Asset Value per Share
($) 16.24 15.95 16.36
Net Asset Value per Share
(GBP)(1) 12.25 10.83 10.40
--------------------------- ----------- ------------ -----------
(1) Based on exchange rate of 1.326 $/GBP at 30 June 2016 (1.473
$/GBP at 31 December 2015 and 1.573 $/GBP at 30 June 2015)
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 2016, REL, through the Partnership, announced an
investment in Centennial Resource Development LLC through the
purchase of shares in NASDAQ-listed Silver Run Acquisition
Corporation. Silver Run, subject to certain conditions including
approval of the Silver Run stockholders, will acquire a controlling
interest in Centennial from NGP Energy Capital. Centennial is an
exploration and production company focused on the acquisition and
development of oil and liquids-rich natural gas resources in the
Permian Delaware Basin, West Texas. The investment by REL, through
the Partnership, is expected to comprise up to $175 million.
In August 2016, REL announced the sale of Rock Oil to SM Energy
Company, a US-based E&P company. Under the terms of the
transaction, REL, through the Partnership, will realise gross cash
proceeds of approximately $237 million, representing a Gross
MOIC(2) of 2.1x (Net MOIC of 1.6x) on the $114 million investment
and a Gross IRR of 78 per cent. (Net IRR of 43 per cent.). This
will result in a gross realised gain of $123 million and an uplift
of $84 million or 55 per cent. above its fair value of $152 million
as at 30 June 2016. The Company's gross profit, through the
Partnership, will be subject to taxes and a performance fee,
resulting in a net uplift to the Company's NAV at 30 June 2016 of
approximately $44 million(3) . The closing of the sale is expected
to occur in early October 2016 and is subject to customary closing
conditions.
Also in August 2016, REL agreed to transfer half of its
investment to date and unfunded commitment in Sierra, $1.3 million
and $36.2 million, respectively, to a separate investment vehicle
managed by Riverstone and funded primarily by Mexican pension
funds. This transfer is in line with REL's stated strategy of
periodically reviewing its unfunded commitment levels.
(2) Gross MOIC is Gross Multiple of Invested Capital before
transaction costs, taxes, carried interest on gross profit,
management fees and other expenses.
(3) Amount is subject to additional taxes up to approximately
$10 million
Glossary of Capitalised Defined Terms
"1P reserve" means proven reserves;
"2P reserve" means proven and probable reserves;
"Administrator" means Heritage International Fund Managers
Limited;
"Admission" means admission, on 29 October 2013, to the Official
List and/or admission to trading on the London Stock Exchange, as
the context may require, of the Ordinary Shares becoming effective
in accordance with the Listing Rules and/or the LSE Admission
Standards as the context may require;
"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;
"CAD" means Canadian dollar;
"CanEra III" means CanEra Inc.;
"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 LLC;
"CIOC" means Canadian International Oil Corp.;
"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;
"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 Goldman Sachs International and JP
Morgan Cazenove;
"Corporate Governance Code" means The UK Corporate Governance
Code 2014 as published by the Financial Reporting Council;
"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;
"EEA" means European Economic Area;
"EU" means the European Union;
"EV" means enterprise value;
"farm-in" means an arrangement whereby an operator buys in or
acquires an interest in a lease owned by another operator on which
oil or gas has been discovered or is being produced;
"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;
"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;
"Gross IRR" means an aggregate, annual, compound, gross internal
rate of return on investments. Gross IRR does not reflect expenses
to be borne by the relevant investment vehicle or its investors
including, without limitation, carried interest, management fees,
taxes and organisational, partnership or transaction expenses;
"Gross MOIC" means gross multiple of invested capital;
"Hunt" means Hunt REL Holdings LLC together with various members
of Ray L. Hunt's family and their related entities;
"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;
"Interim Financial Report" means the Company's half-yearly
report and unaudited interim condensed financial statements for
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;
"ISIN" means an International Securities Identification
Number;
"KFI" means Kendall Family Investments, LLC, a cornerstone
investor in the company;
"Liberty II" means Liberty Resources II LLC;
"Listing Rules" means the listing rules made by the UK Listing
Authority under section 73A Financial Services and Markets Act
2000;
"London Stock Exchange" or "LSE" means London Stock Exchange
plc;
"LSE Admission Standards" means the rules issued by the London
Stock Exchange in relation to the admission to trading of, and
continuing requirements for, securities admitted to the Official
List;
"LTM" means last twelve months;
"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;
"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;
"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;
"Private Riverstone Funds" means Fund V, Fund VI 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;
"Prospectuses" 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;
"PV-10" means present value of estimated future oil and gas
revenues, net of estimated direct expenses, at an annual discount
rate of 10 per cent.;
"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 $100 million or
greater, but excluding any investments made by Private Riverstone
Funds where both (a) a majority of the Company's independent
directors and (b) the Investment Manager have agreed that the
Company should not participate;
"RCO" means Riverstone Credit Opportunities, L.P.;
"recompletions" means the action and techniques of re-entering a
well and redoing or repairing the original completion to restore a
well's productivity;
"RELCP" means Riverstone Energy Limited Capital Partners, LP
(acting by its general partner Riverstone Holdings II (Cayman)
Ltd.) a Cayman exempted limited partnership controlled by
affiliates of Riverstone;
"RIL" or "Investment Manager" means Riverstone International
Limited;
"Riverstone" means Riverstone Holdings LLC and its affiliated
entities (other than the Investment Manager and the General
Partner), as the context may require;
"Rock Oil" means Rock Oil Holdings LLC;
"SCOOP" means South Central Oklahoma Oil Province;
"Sierra" means Sierra Oil & Gas Holdings, L.P.;
"Shareholder" means the holder of one or more Ordinary
Shares;
"Stewardship Code" means the UK Stewardship Code;
"Three Rivers III" means Three Rivers Natural Resource Holdings
III LLC;
"UK" or "United Kingdom" means the United Kingdom of Great
Britain and Northern Ireland;
"UK Listing Authority" or "UKLA" means the Financial Conduct
Authority;
"U.S." or "United States" means the United States of America,
its territories and possessions, any state of the United States and
the District of Columbia;
"workover" means an oil well intervention involving invasive
techniques, such as wireline, coiled tubing or snubbing, to pull
and replace a completion;
"WTI" means West Texas Intermediate which is a grade of crude
oil used as a benchmark in oil pricing;
"GBP" or "Pounds Sterling" means British pound sterling and
"pence" means British pence; and
"$" means United States dollars and "cents" means United States
cents.
Directors and General Information
Directors Administrator and U.S. legal advisors
Richard Hayden Company Secretary to the Company
(Chairman, effective Heritage International Vinson & Elkins
from 19 May 2016) Fund Managers Limited LLP
Claire Whittet Heritage Hall 1001 Fannin Street
Peter Barker PO Box 225 Suite 2500
Patrick Firth Le Marchant Street Houston, Texas
Pierre Lapeyre St Peter Port TX 77002
David Leuschen Guernsey United States
Ken Ryan (Appointed GY1 4HY of America
19 May 2016) Channel Islands
Jeremy Thompson Independent auditor
(Appointed 19 May Registered office Ernst & Young
2016) Heritage Hall LLP
PO Box 225 PO Box 9, Royal
Sir Robert Wilson Le Marchant Street Chambers
(Resigned 19 May St Peter Port St Julian's Avenue
2016) Guernsey St Peter Port
James Hackett (Resigned GY1 4HY Guernsey
19 May 2016) Channel Islands GY1 4AF
Channel Islands
Audit Committee Registrar
Patrick Firth (Chairman, Capita Registrars Website: www.RiverstoneREL.com
effective from (Guernsey) Limited ISIN: GG00BBHXCL35
19 May 2016) Longue Hougue House Ticker: RSE
Richard Hayden St Sampson
Peter Barker Guernsey Public relations
Claire Whittet GY2 4JN advisor
Jeremy Thompson Channel Islands Scott Harris UK
(Appointed 10 August Limited
2016) Principal banker 71 Queen Victoria
ABN AMRO (Guernsey) Street
Management Engagement Limited London
Committee PO Box 253 EC4V 4BE
Claire Whittet Martello Court United Kingdom
(Chairman, effective Admiral Park
from 19 May 2016) St. Peter Port Corporate Brokers
Richard Hayden Guernsey Goldman Sachs
(effective from GY1 3QJ International
19 May 2016) Channel Islands Peterborough Court
Peter Barker 133 Fleet Street
Patrick Firth English solicitors London
Jeremy Thompson to the Company EC4A 2BB
(Appointed 10 August Freshfields Bruckhaus United Kingdom
2016) Deringer LLP
65 Fleet Street JP Morgan Cazenove
Nomination Committee London 25 Bank Street
Richard Hayden EC4Y 1HS Canary Wharf
(Chairman, effective United Kingdom London
19 May 2016) E15 5JP
Peter Barker Guernsey advocates United Kingdom
Patrick Firth to the Company
Claire Whittet Carey Olsen
Jeremy Thompson Carey House
(Appointed 10 August PO Box 98
2016) Les Banques
St Peter Port
Investment Manager Guernsey
Riverstone International GY1 4BZ
Limited Channel Islands
Clifton House
75 Fort Street
P.O. Box 1350
George Town
Grand Cayman
KY1-1108
Cayman Islands
Investment Manager's
Valuation Committee
Pierre Lapeyre
David Leuschen
Tom Walker (effective
from 31 March 2016)
Mark Papa (effective
from 31 March 2016)
Ken Ryan (effective
from 19 May 2016)
Cautionary Statement
The Chairman's Statement and Investment Manager's Report have
been prepared solely to provide additional information for
Shareholders to assess the Company's strategies and the potential
for those strategies to succeed. These should not be relied on by
any other party or for any other purpose.
The Chairman's Statement and Investment Manager's Report may
include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can
be identified by the use of forward-looking terminology, including
the terms "believes", "estimates", "anticipates", "expects",
"intends", "may", "will" or "should" or, in each case, their
negative or other variations or comparable terminology.
These forward-looking statements include all matters that are
not historical facts. They appear in a number of places throughout
this document and include statements regarding the intentions,
beliefs or current expectations of the Directors and the Investment
Manager, concerning, amongst other things, the investment
objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity,
prospects, and distribution policy of the Company and the markets
in which it invests.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of
operations, financial condition, liquidity, distribution policy and
the development of its financing strategies may differ materially
from the impression created by the forward-looking statements
contained in this document.
Subject to their legal and regulatory obligations, the Directors
and the Investment Manager expressly disclaim any obligations to
update or revise any forward-looking statement contained herein to
reflect any change in expectations with regard thereto or any
change in events, conditions or circumstances on which any
statement is based.
Riverstone Energy Limited
Heritage Hall, PO Box 225,
Le Marchant Street, St Peter Port, Guernsey, GY1 4HY, Channel
Islands.
T +44 (0) 1481 716000
F: +44 (0) 1481 730617
Further information available online:
www.RiverstoneREL.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FMGMRGGGGVZZ
(END) Dow Jones Newswires
August 11, 2016 02:01 ET (06:01 GMT)
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