TIDMRSE
RNS Number : 1615Q
Riverstone Energy Limited
24 February 2021
Annual Report and Financial Statements for the year Riverstone
ended 31 December 2020 Energy
A shift in focus towards energy transition Limited
(LSE: RSE)
Who We Are...
Riverstone Energy Limited
The Company's investment manager is RIGL Holdings, LP, which is
majority-owned and controlled by affiliates of Riverstone.
Riverstone is an energy and power-focussed private investment
firm founded in 2000 by David M. Leuschen and Pierre F. Lapeyre
with approximately $41 billion of capital raised. Riverstone
conducts buyout and growth capital investments in the E&P,
midstream, oilfield services, power and renewable sectors of the
energy industry. With offices in New York, London, Houston, Mexico
City, Amsterdam and Menlo Park, the firm has committed
approximately $43 billion to over 200 investments in North America,
Latin America, Europe, Africa, Asia and Australia.
Riverstone Energy Limited seeks to achieve superior risk
adjusted returns through investing in the energy sector. The energy
sector is global and a significant component of virtually all major
economies. Long-term market drivers of economic expansion,
population growth, development of markets, deregulation and
privatisation will continue to create opportunities globally for
investors in energy.
The registered office of the Company is PO Box 286, Floor 2,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.
Financial and Operational Highlights(1)
Net Committed Capital $1,100 million(2) / 99 per cent. of net
to Date capital available(3)
Commitments during the Commitments reduced by a total of $96
year ended 31 December million:
2020 (i) $77 million in Aleph Midstream S.A.
(ii) $15 million in Castex Energy 2014,
LLC
(iii) $4 million in Ridgebury H3, LLC
Remaining potential unfunded $46 million(4)(5) :
commitments at 31 December (i) $26 million in ILX Holdings III, LLC
2020 (ii) $13 million in Onyx Strategic Investment
Management I BV
(iii) $7 million in Enviva Holdings, LP
Net Capital Invested to $1,017 million / 91 per cent. of net capital
Date available(3)
Investments during the Invested a total of $59 million(4) :
year ended 31 December (i) $22 million in Onyx Strategic Investment
2020 Management I BV
(ii) $19 million in ILX Holdings III,
LLC
(iii) $18 million in Enviva Holdings,
LP
Gross Realised Capital $945 million / 53 per cent. of total capital
to Date invested
Realisations during the Realised a total of $52 million(4) :
year ended 31 December (i) $23 million in Aleph Midstream S.A.
2020 (ii) $20 million in Ridgebury H3 LLC
(iii) $8 million in Castex Energy 2014,
LLC
(iv) $1 million in Riverstone Credit Opportunities,
L.P.
Key Financials
2020 2019
NAV as at 31 December $390 million / $772 million /
GBP286 million(6) GBP588 million(6)
NAV per Share as at 31 December $6.20 / GBP4.55(6) $9.66 / GBP7.36(6)
Market capitalisation at 31 December $255 million / $434 million /
GBP187 million(6) GBP331 million(6)
Cash and cash equivalents at 31 December $99 million(7) / $183 million(7) /
GBP73 million(6) GBP139 million(6)
Marketable securities at 31 December $31 million(8) / $86 million(8) /
GBP23 million(6) GBP65 million(6)
Share price at 31 December $4.05 / GBP2.97 (6) $5.43 / GBP4.14(6)
Total comprehensive loss for the year ended 31 December $(318.9) million $(659.6) million
Basic and diluted Loss per Share for the year ended 31 December (442.25) cents (825.53) cents
(1) Amounts shown reflect investment-related activity at the
Partnership, not the Company
(2) Net committed capital is gross committed capital of $1,881
million less return of capital proceeds of $649 million and
realised losses of $132 million
(3) Net capital available of $1,116 million is based on total
capital raised of $1,320 million, capital utilised for Tender Offer
of $72 million, capital utilised for share buyback programme of
GBP50 million, realised profits and other income net of fees,
expenses and performance allocation
(4) Amounts may vary due to rounding
(5) Excludes the remaining unfunded commitments for Carrier II,
Hammerhead and Fieldwood of $37 million, in aggregate, which are
not expected to be funded. The expected funding of the remaining
unfunded commitments at 31 December 2020 are $25 million in 2021
and $nil in 2022. The residual amounts are to be funded in 2023 and
later years
(6) Based on exchange rate of 1.3643 $/GBP at 31 December 2020
(1.3124 $/GBP at 31 December 2019 and 1.606 $/GBP at IPO)
(7) At 31 December 2020 and 2019, respectively, amounts are
comprised of $8.8 million and $0.2 million held at the Company,
$90.3 million and $163.4 million held at the Partnership and $nil
and $19.0 million held at REL US Corp
(8) At 31 December 2020, unrestricted marketable securities held
by the Partnership consist of publicly-traded shares of Centennial,
Pipestone and Talos for which the aggregate fair value was $31.4
million, which increased to $75.2 million as of 22 February 2021.
(31 December 2019: Centennial and Pipestone)
Chairman's Statement
The past year has been one of the most challenging periods for
Riverstone Energy Limited in its history. With the coronavirus
pandemic continuing to impact economies worldwide, global lockdowns
coupled with stimulus uncertainty during the first half of 2020
dramatically reduced oil demand, creating an oil surplus that led
to a historic drop in commodity prices. This had a significant
effect on energy markets and investor sentiment, causing headwinds
for REL's portfolio company valuations and overall performance
during what was already a difficult period in the industry. While
in the past six months we have seen the market begin to stabilise,
further supported by the long-anticipated roll-out of coronavirus
vaccines in the fourth quarter, REL's top priority in 2021 remains
managing liquidity at the portfolio company level in anticipation
of continued uncertainty, while continuing to pursue the modified
investment strategy with decarbonisation and other green asset
opportunities.
Following the historic decline of the global economy in the
first six months of 2020, growth in the second half of the year
showed signs of improvement and was better than anticipated. This
momentum was supported by private household spending following
lockdowns in the first half of the year, and extraordinary levels
of fiscal and monetary stimulus worldwide. After a tumultuous first
half of the year, energy prices saw increased stability in the
second half of 2020, due to rising economic growth supported by a
notable recovery in China, and increased geopolitical stability
related to OPEC+. Following the precipitous drop in oil demand in
the beginning of the year, in April OPEC+ agreed to record
production cuts of 9.7 million barrels per day. As concerns over
pricing continued into the second half of 2020, OPEC+ agreed to
extend production cuts of 7.2 mb/d into January 2021.
These significant OPEC+ actions, coupled with increased economic
growth in the back half of the year, supported a WTI price recovery
to just over $48 per barrel by 31 December 2020 - a 136 per cent.
increase since the end of March 2020. Despite these positive
developments, the initial outlook for 2021 appeared to be muted. In
January 2021, the EIA announced the expectation that average annual
U.S. crude oil production will fall from a record level of 12.2
mb/d in 2019 to 11.1 mb/d in 2021, increasing marginally to 11.5
mb/d by 2022. This positioning follows concerns in the fourth
quarter over both a new variant of the coronavirus, that is
threatening a resurgence of pandemic lockdowns, and vaccination
programmes that have not progressed as quickly as expected.
However, and to the contrary, as 2021 has progressed, oil market
fundamentals have shown signs of improvement. While a full recovery
in oil demand during the first half of 2021 remains unlikely, a
tightening in supply, as a result of higher demand and lower
non-OPEC+ supply, has helped to support a higher commodity price
environment.
Given the continued macroeconomic uncertainty, REL remains
cautious and has spent the last twelve months focused on managing
liquidity through executing on initiatives such as well shut-ins
and pullbacks in capital expenditure and growth projects.
Furthermore, REL continued to execute on the Company's modified
investment programme in 2020, which includes a pivot from
commodity-price sensitive E&P investments towards energy
transition assets. Even as the pandemic ground economic activity to
a halt this past year, governments globally pursued decarbonisation
plans. As a result, clean energy demand proved resilient in
comparison to fossil fuel demand. In 2020 alone, the S&P Global
Clean Energy Index grew by 138 per cent., while in the same period
the S&P Energy Select Index and S&P Oil & Gas E&P
Index declined by 38 per cent. and 37 per cent., respectively. This
contrast between energy transition and traditional energy
opportunities in the marketplace underscores the continued value
challenge facing REL's E&P portfolio.
In connection with REL's initiative to pursue decarbonisation
opportunities, the Company made a $25 million commitment in January
2021 to Loanpal, a fintech platform focused on originating loans
that finance the purchase of environmentally conscious home
improvements, including solar panels and battery systems.
Additionally, REL fully funded a $10 million commitment to
FreeWire, which designs, manufactures and markets unitised
battery-integrated DCFCs to customers such as retailers, utilities,
electric vehicle fleet operators, and charging station network
operators across the globe. In addition to hardware sales,
FreeWire's software platform offers recurring revenues, enabling
charger management and third-party platform integration with plans
to offer energy management and grid services. Furthermore, REL made
a $10 million commitment, via a private placement, to
Decarbonization Plus Acquisition Corporation (NASDAQ: DCRB), which
announced an agreement for a business combination with Hyzon Motors
Inc. in February 2021 that is expected to close during the second
quarter of 2021. Hyzon, is an independent mobility company with an
exclusive focus on hydrogen in the commercial vehicle market. The
company's proven and proprietary hydrogen fuel cell technology
enables zero emission, fleet based, commercial transport at
competitive performance as measured against both traditional fuel
sources and other alternative vehicle power sources. Lastly, REL
fully funded a $0.6 million commitment to Decarbonization Plus
Acquisition Corporation II (NASDAQ: DCRNU), via an initial public
offering, during the first quarter of 2021. In addition to a strong
ESG focus, REL believes these investments have attractive return
potential, further diversify the portfolio, and capitalise on
strong momentum for the energy transition globally. Additionally,
in July 2020 REL committed $25 million to a vehicle that acquired
Enviva Holdings ("Enviva"), the world's largest supplier of utility
grade renewable biomass fuel in the form of wood pellets. Not only
does this investment align strongly with REL's commitment to ESG,
but operational performance in the fourth quarter was strong and
outlook for the Company is positive.
Given disappointing REL performance, challenges facing the
energy markets for the last six years, and events in 2020,
restoring Shareholder confidence in REL remains a priority. The
Company has conviction in the modified investment programme, though
improving performance will take time. During this period, REL is
working to preserve value in the portfolio, continue cash flow
discipline at the portfolio company level, and return capital to
Shareholders via the share buyback programme. To-date, REL, through
the Partnership, has repurchased nearly 17.0 million shares at a
weighted average purchase price of GBP2.90 per share. The remaining
portion of the GBP50 million share buyback programme, announced in
May 2020, will be completed in 2021 and the Company will continue
to consider additional share buybacks in the future.
Performance
REL ended 31 December 2020 with a NAV of $6.20 (GBP4.55) per
share, a 36 per cent. and 38 per cent. decrease in USD and GBP
compared to the 31 December 2019 NAV of $9.66 (GBP7.36) per share.
REL, through the Partnership, ended the period with $1,016.9
million net invested (GBP745.4 million), equating to 91 per cent.
of net capital available, and an aggregate gross cash balance of
$99.1 million (GBP72.7 million) across the Company, Partnership and
REL US Corp. As REL continued to experience a challenging and
depressed valuation environment for energy companies, shares traded
down 25 per cent. and 28 per cent. in USD and GBP, respectively,
during the period, rebounding modestly towards the end of 2020 from
the trough in March and as a result of the Company's share
repurchase programme at significant discount to book value,
additional OPEC+ production cut agreements, and modest economic
activity and demand recovery overseas.
During 2020, REL's E&P commodity sensitive portfolio
experienced significant reductions in valuation, reflective of the
ongoing volatility in the macro energy market. The downturn in
commodity prices led to the underperformance of U.S. and Canadian
equities across energy subsectors throughout 2020, which halted
energy capital markets and M&A activity, creating headwinds for
REL's portfolio company valuations. REL's valuations were further
impacted by the decrease in capital expenditures and reduced
operational activity across the portfolio to preserve liquidity and
cash. While markets rebounded somewhat towards the end of 2020 on
positive news around a coronavirus vaccine, valuations and energy
markets continue to be depressed when compared to 2019 levels.
Hammerhead, ILX III and Liberty II saw the largest overall
decreases in unrealised value during 2020. Hammerhead's Gross MOIC
decreased from 0.4x to 0.2x at the end of 2020, reflecting the
lower commodity price environment, limited access to liquidity and
ongoing reduced drilling activity. The Gross MOIC for ILX III
decreased from 1.2x to 0.8x to reflect the decrease in commodity
prices, which adversely impacted the Company's NAV and associated
publicly traded comparable valuations during the year. Liberty II's
Gross MOIC decreased from 0.4x to 0.0x to reflect the implied
valuation of REL's equity position, through the Partnership,
following the pending restructuring of the company's reserve-based
lending facility. The Gross MOICs for Centennial, Carrier II,
Fieldwood and Castex 2014 also declined in 2020 to reflect
continued weak market conditions. Meanwhile, valuations for REL's
power investment, Onyx, remained flat, while REL's services
investment, Ridgebury H3, increased slightly during the period.
Enviva, a modified investment strategy asset, saw the largest
overall increase in unrealised value during 2020, with Gross MOIC
increasing from 1.0x to 1.6x at year end, reflecting strong
operational performance and a successful M&A integration that
occurred during the fourth quarter.
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.
During 2020, through the Partnership, REL received approximately
$52 million in gross proceeds from its portfolio, principally as a
result of the unwind and sale of Aleph Midstream to Vista Oil and
Gas, S.A.B. de CV in March 2020. In addition, REL received gross
proceeds of over $20 million from Ridgebury H3, primarily
attributable to sales of the company's Nalini, Elivia, and Colette
vessels during the year. REL also received sale proceeds in the
amount of approximately $8 million in March 2020, for the sale of
Castex 2014 to Talos Energy.
At 31 December 2020, REL had an aggregate net cash balance of
$95.4 million, reflecting share buyback transactions pending
settlement and accrued Management Fees, which is expected to be
sufficient to fund the portfolio's future capital calls currently
anticipated. REL, through the Partnership, holds marketable
securities consisting of publicly-traded shares of Centennial,
Pipestone and Talos, for which the aggregate fair value was $31.4
million at 31 December 2020 and $75.2 million as of 22 February
2021.
Following the seventh anniversary of the Company's IPO on 29
October 2020, an extraordinary general meeting was conducted on 9
December 2020 to consider a discontinuation resolution vote, which
subsequently did not pass. Turnout for the vote was 72.1 per cent.
and the vote required 75 per cent. of the votes cast in favour in
order to pass. 88.8 per cent. of votes cast at the meeting were
against the discontinuation resolution, including a Cornerstone
Investor with share ownership above 30 per cent., and therefore it
did not pass.
In connection with the vote, each of Pierre F. Lapeyre, David M.
Leuschen and Kenneth Ryan, the directors nominated by the
Investment Manager, agreed to step down from the Board as directors
effective immediately and become observers instead. REL now
operates with a fully independent Board but looks forward to a
continued partnership with these individuals and our Investment
Manager going forward.
Given the outcome of the vote, the Investment Management
Agreement will continue in perpetuity. However, either the Board or
Shareholders holding in aggregate 10 per cent. of the Company's
voting securities can call an EGM at any time to vote on the
liquidation of the Company (75 per cent. of the votes cast in
favour would be required) or run-off of its portfolio (50 per cent.
of the votes cast in favour would be required). Under both these
scenarios, the Investment Manager would still be entitled to twenty
times the most recent quarterly Management Fee. In addition, the
Board committed to continue to evaluate the Investment Manager's
performance with the modified investment programme and, before 31
December 2022, decide whether or not the Board should call for a
Shareholder vote to wind up the Company.
Since the Board's discontinuation resolution announcement on 30
October 2020, the Company's share price has increased by
approximately 19 per cent, as of 31 December 2020, while the
Company's NAV per share has increased from $5.74 (GBP4.46) per
share to $6.20 (GBP4.55) per share from 30 September 2020 through
31 December 2020, respectively. Since October 2020, REL, through
the Partnership, has deployed approximately $45.6 million into new
decarbonisation investments.
On 1 May 2020, the Company announced a buyback programme with
the intention of returning GBP50 million to Shareholders via on
market buybacks. Since the announcement, the Company has purchased
16,958,265 shares, in aggregate, for GBP49 million ($62 million) at
an average share price of GBP2.90 ($3.67), which has attributed to
the narrowing of the Company's trading discount from 66.1 per cent.
at 31 March 2020 to 34.7 per cent. at 31 December 2020 (or from
131.7 per cent. to 46.5 per cent., respectively, on a cash-adjusted
basis). From year-end through 22 February 2021, reflecting a $43.8
million increase in the fair value of the Company's unrestricted
marketable securities, the Company's pro forma trading discount has
remained relatively unchanged at 34.8 per cent.; and its
cash-adjusted discount has decreased to 40.1 per cent. as of 22
February 2021.
The Management Engagement Committee continues to have
discussions with the Investment Manager regarding additional
changes to the Investment Management Agreement. Following revised
terms announced on 3 January 2020 (but effective 30 June 2019),
approximately $3.7 million in Performance Fees that would have been
due under the prior agreement were not paid, since REL did not meet
the appropriate Cost Benchmark at year end. A Performance
Allocation will only be accrued for payment upon the realisation of
an investment if the proceeds from that investment exceed an amount
equal to its acquisition cost plus an 8 per cent. annual cumulative
hurdle rate calculated from the date of investment to the date of
realisation. Other changes have been made to the Investment
Management Agreement which will stop payments of Performance Fees
until the $565 million of realised and unrealised losses to date at
31 December 2020 are made whole with future gains. If, at any time
during the next three years from the respective accrual date, the
Cost Benchmark is satisfied for four continuous quarters, the
relevant Performance Allocation will then become distributable
without interest. Any accrued but undistributed Performance
Allocation that has been deferred due to the portfolio level Cost
Benchmark test will expire after 36 months.
Further, the management fees paid to the Investment Manager on a
quarterly basis during the years ended 31 December 2020 and 2019,
respectively, were $5.6 million and $13.9 million, in aggregate.
The reduction in management fees year over year is due to the
decrease in NAV over that period. During the year ended 31 December
2019, the General Partner received Performance Allocation payments
of $13.6 million with an additional residual payment in 2020 of $91
thousand.
Since the EGM, the Board has actively engaged with the
Investment Manager in evaluating value maximisation strategies for
the legacy E&P portfolio while focussing on new high growth
decarbonisation investments. These are no longer being co-invested
with the Private Riverstone Funds. As a result, Board approval is
now required for all such transactions. During the past four
months, there have been two Board meetings and six Board committee
meetings, at which there were briefing meetings with the Investment
Manager and outside advisors. We are fully committed to recovering
losses and providing Shareholders with attractive risk adjusted
returns in the years ahead.
Richard Hayden
Chairman
23 February 2021
Environmental, Social and Governance REPORT
The Company utilises the services of Riverstone as the
Investment Manager to take appropriate Environmental, Social and
Governance ("ESG") principles into account in its investment
decisions and in the ongoing management of the portfolio. In order
to ensure the robustness of these policies, the Board engages with
the Investment Manager on ESG matters and monitors compliance of
REL's portfolio companies with this policy. Patrick Firth, a member
of the REL Board, leads the ESG efforts for the Company. He and
others get periodic updates from the Investment Manager on the
Investment Manager's ESG programme and on ESG matters related to
the REL portfolio. The Board takes its fiduciary responsibility to
Shareholders seriously and engages with Riverstone on corporate
governance matters, as evidenced by the changes to the Investment
Management Agreement agreed in January 2020.
Further details on Riverstone's ESG policies are set out in the
sections below.
Statement from the Investment Manager
We hope you and your families, friends and colleagues have been
staying well throughout the COVID-19 pandemic. 2020 was certainly a
difficult year in so many respects, with the devastating health and
socio-economic impacts of the pandemic spanning the globe. Despite
the turmoil through 2020, Riverstone and its portfolio company
operations remained highly resilient, working to manage both public
health and economic risks as they arose.
As we reflect on the past twelve months and consider the future,
one thing has become very clear to us - the importance of investing
responsibly has never been greater. ESG topics such as climate
change, health and safety, community engagement, ethics and
compliance, and diversity and inclusion are all issues Riverstone
continues to monitor and manage. By doing so, we earn the right to
be a trusted partner to our stakeholders, enhancing both risk
management and value creation opportunities.
2020 IN REVIEW
Since we started the firm more than 20 years ago, Riverstone has
been steadily focused on improving its ESG programme. The firm's
approach to ESG in 2020 was multi-faceted, focusing on a few key
areas:
-- Ensuring operations within the firm and at portfolio
companies complied with COVID-19 safety guidelines
-- Making climate change a core pillar to our investment thesis
-- Building upon our deep renewable energy and decarbonisation
presence with a number of notable new platform investments
-- Enhancing our portfolio company monitoring by creating
formalised ESG scorecards to measure performance and identify areas
for improvement
-- Analysing climate change risk and opportunities
-- Expanding internal initiatives from measuring and identifying
ways to reduce our internal carbon footprint to formalising our
diversity and inclusion policy
-- Continued implementation of a rigorous compliance programme
through ongoing training and monitoring
In addition, Riverstone became a signatory to the United
Nations-backed Principles for Responsible Investment (PRI) in 2020.
As a signatory, we are committed to the PRI's six core principles
which provide us with a blueprint that helps guide our ESG
integration throughout the investment lifecycle, reporting on ESG,
and promoting the PRI within the wider private equity industry.
FOCUS ON DECARBONISATION
As one of the most active energy transition investors,
Riverstone expanded upon the firm's 15+ years of experience and
raised over $1.9 billion in commitments for our renewable energy
and decarbonisation platform over the past 12 months. Going
forward, we expect to continue to grow our investment platform in
areas that support broader decarbonisation, from traditional power
generation to technology-enabled solutions that reduce the impacts
of climate change. Recently, we have made several investments in
this area, including in Loanpal, FreeWire Technologies and Hyzon
Motors and expect to continue broadening our investment presence in
2021. As the world seeks to accelerate the low-carbon energy
transition, we believe our longstanding depth of our experience in
renewable energy and decarbonisation will be an important
differentiator for Riverstone.
LOOKING FORWARD
While we are pleased to have made significant progress on a
number of important ESG initiatives in 2020, we recognise there is
always more that we can do. We will continue to prioritise our
commitment to being responsible investors and look forward to
providing further updates on our ESG activities in the year to
come.
Riverstone published its annual ESG report in February 2021. The
pages that follow summarise the key elements for investors in REL.
More detail is included in the full report, which is available on
Riverstone's website:
https://www.riverstonellc.com/en/about/responsible-investing/.
Riverstone's Approach to ESG
As one of the most experienced private investment firms within
the energy, power and infrastructure sectors, Riverstone recognises
the ever-increasing importance of ESG and has made the proactive
implementation of ESG initiatives one of its highest priorities.
Riverstone takes its fiduciary responsibility to investors very
seriously and believes that a strong commitment to addressing ESG
factors is critical to the success of its funds, portfolio
companies and firm. By devoting substantial internal and external
resources towards ESG matters, Riverstone has developed clear
processes that take account of leading industry standards.
Riverstone believes this effort helps it to make sustainable,
ethical and socially responsible decisions over the long run.
ESG OBJECTIVES
Riverstone has established institutional ESG processes that
support the high standards that it has set for itself. These
procedures were developed to achieve several key objectives related
to ESG, including:
-- Providing Riverstone personnel and its portfolio companies
with training and the resources to ensure that those portfolio
companies can provide the necessary ESG support appropriately
-- Identifying potential risks and mitigants before an investment is made
-- Immediate assistance with the identification of any issues
that may arise and track ongoing performance through portfolio
monitoring
-- Evaluating and tracking portfolio companies' execution of
opportunities to improve current practices at its portfolio
companies and firm
RIVERSTONE'S ESG POLICY
In support of meeting its ESG objectives, Riverstone has an ESG
policy that sets out its approach to handling key ESG factors, such
as natural resource management, health and safety, community and
stakeholder impact, climate change, greenhouse gas emissions,
governance, among many others. This policy helps inform the ESG
considerations that are relevant to the management of Riverstone's
portfolio companies from initial due diligence all the way through
to an exit, and the operation of Riverstone's own business. Since
inception, Riverstone has continuously evolved its ESG policy in
conjunction with third party ESG experts to strive towards best
practices across the board. A copy of Riverstone's ESG policy is
available online:
https://www.riverstonellc.com/media/1189/Riverstone_ESG_Policy_Statement.pdf
ESG RESOURCES AT RIVERSTONE
Riverstone has an ESG Committee comprised of a cross-functional
set of leaders from across the firm as well as a partner from its
external ESG advisor which sets the standard for ESG protocols and
policies for its portfolio companies and firm. In addition,
Riverstone's investment teams are responsible for applying an ESG
lens to pre-investment decision making and post-investment
monitoring.
Riverstone's ESG Committee meets on a quarterly basis to drive
Riverstone's ESG strategy forward and provide leadership with
respect to a range of matters.
To support execution of its ESG strategy internally, Riverstone
has also established an internal working group of individuals from
each of its offices that are responsible for advancing firm-wide
ESG initiatives and practices.
ESG in Practice
The careful evaluation of ESG issues is a mandatory component
for the underwriting of all REL investments. Furthermore,
Riverstone investment professionals conduct a comprehensive
evaluation of ESG considerations throughout the lifecycle of an
investment. These steps are summarised below:
RISK IDENTIFICATION
-- Use Riverstone's deep industry expertise and materiality
assessments (which provide standard risk criteria tailored to each
investment sector) to identify relevant ESG risks and mitigating
factors for each new potential investment
DUE DILIGENCE
-- Early engagement with the management team and advisors to
understand the "ESG landscape" for a potential investment
-- Engage third party experts to evaluate specific risks and areas of concern
-- Thorough evaluation of key ESG risks for each potential
investment and determination of whether appropriate mitigants can
be implemented
INVESTMENT COMMITTEE
-- Complete ESG risk assessment as part of the Investment
Committee memo for potential investments, within the context of the
investment's broader risk analysis
-- Review third party ESG assessments and reference checks
-- Determine whether a potential investment has any ESG risks that are "dealbreakers"
-- Robust discussion at Investment Committee of the ESG risk evaluation scorecard
-- Go/no go investment decision
ONGOING MONITORING AND PORTFOLIO MANAGEMENT
-- Health, safety, environmental (HSE) and other material ESG
issues as part of Riverstone's participation on the board of
portfolio companies
-- Annual portfolio review through ESG questionnaires with
portfolio company follow-up based on responses received
-- All portfolio companies are subject to periodic assessment of
foreign bribery risks and regular reporting and training required
for those portfolio companies identified as facing higher levels of
risk
-- Portfolio companies ensure regular training and compliance
reviews are undertaken including, where necessary, by third party
legal teams
EXIT
-- Where appropriate, make relevant ESG disclosures and evaluate
whether potential buyers' ESG standards comply with all applicable
laws with regard to, for example, employees and decommissioning of
assets and infrastructure
ESG: 2020 in Review
In its 2019 ESG report, Riverstone set out of a number of
overarching ESG objectives. Its progress through 2020 against these
objectives, and other ESG issues addressed during the year, are
summarised below.
DUE DILIGENCE AND INITIAL INVESTMENT
-- Developed a toolkit to complement its existing process for
the evaluation of ESG risks and opportunities in due diligence and
during its Investment Committee process
-- Established ESG Minimum Expectations (or "ESG-MEs") as a set
of key performance indicators against which both potential new
investments and existing portfolio companies can assess their
performance
PORTFOLIO MONITORING
-- Introduced procedures to increase engagement with its
portfolio companies on ESG risks and opportunities and achieve
greater depth and consistency of responses to ESG portfolio
questionnaires
-- Measured all Riverstone portfolio companies against its established ESG-MEs
-- Carried over the ESG due diligence scorecards discussed
during its Investment Committee process into formalised ESG
monitoring scorecards
-- Incorporated ESG management in the performance reviews of
Riverstone responsible professionals
CLIMATE CHANGE
-- Developed a strategy informed by the recommendations of the
Taskforce for Climate-related Financial Disclosures (TCFD) to
evaluate potential risks that climate change may pose to its
current portfolio
-- Assessed opportunities for Riverstone portfolio companies to
consider in order to seek to reduce their impact on climate
change
-- Identified opportunities for Riverstone to capitalise on the
energy transition to generate strong financial returns for
investors
ESG REPORTING
-- Became a signatory to the PRI and its six core principles in June 2020
ESG AT RIVERSTONE
-- Established an internal working group that meets on a
quarterly basis to identify and drive ESG initiatives within the
firm
-- Published a commitment to diversity and inclusion (D&I)
and created a roadmap for executing other important D&I
initiatives
-- Completed an evaluation of Riverstone's firm's greenhouse gas
emissions from its own operations and developed an offset
strategy
COVID-19 RESPONSE
-- Prioritised the safety and welfare of its employees and the
employees and contractors of its portfolio companies, as well as
the wider communities in which they operate
-- Implemented remote working and safety measures in line with
government and public health guidelines within the firm and across
its portfolio companies
CLIMATE CHANGE
The energy industry is at an inflection point. The need to
address climate change risks and facilitate a transition towards
lower carbon forms of energy production and consumption continues
to accelerate.
The reshaping of the regulatory environment driven by
international treaties such as the Paris Agreement, changing
patterns of energy demand, and the emergence of new technologies
have all disrupted the existing energy landscape, while creating
new opportunities in the market. In 2020, the COVID-19 pandemic and
its impact on energy demand added further to the drivers for
long-term change. Climate change, and Riverstone's response to it,
remains one of the most important considerations to its
business.
At Riverstone, we recognise the importance of the
recommendations published by the Task Force for Climate-related
Financial Disclosures (TCFD) in helping companies improve
transparency on climate-related risks and opportunities, and we are
working on ways to adopt the framework.
Some of the actions we took in 2020 to address climate change
included:
Strategy and Governance
Riverstone developed a climate strategy. This builds on market
trend insights informed by its understanding of emerging climate
policy. It also incorporates the firm's view of structural shifts
in commodity supply and demand based on its experience in the
energy and infrastructure sectors.
Riverstone has increased its level of engagement with its
portfolio companies, both at board level and through its ESG deal
leads, to help them understand climate-related risk, and to enable
them to build strategies to mitigate these risks (such as increased
exposure to carbon pricing) and capture opportunity (for example
pivoting operations of certain companies towards renewable
energy).
Risk Management
Riverstone has worked with external subject matter experts to
conduct enhanced climate risk and opportunity screening on a number
of its portfolio companies across the sectors and geographies in
which it operates.
The assessment covers the risks arising from changes to the
climate itself, as well as the risks and opportunities associated
with the move to a low carbon economy, under both
"business-as-usual" and "low carbon" scenarios. It highlights
potential drivers of risk and opportunity which Riverstone plans to
leverage during 2021 in engaging with management at portfolio
companies on their strategies. It also provides broader insight, as
case studies, on the influence of climate factors and combines with
the guidance discussed below as a growing tool box for investment
teams to leverage.
Riverstone has developed guidance, which it is in the process of
being integrated in to its broader ESG risk management process, to
support its investment teams throughout the investment cycle
to:
-- Ensure its portfolio companies are positioned to undertake
timely and appropriate mitigation and management of climate-related
risk
-- Enable its portfolio companies to capture climate-related opportunities as they arise
This guidance also includes a high-level briefing on how climate
risk and opportunity manifests in the sectors in which Riverstone
invest. Riverstone expects to incorporate the guidance into our
portfolio companies over the next 12-24 months.
Metrics and Targets
In addition to calculating a carbon footprint of its own
operations, one of its ESG-MEs is for Riverstone portfolio
companies to calculate a greenhouse gas (GHG) baseline, and
annually report and monitor GHG emissions. From this established
baseline, portfolio companies will be able to measure GHG emissions
reductions, to help ensure the climate impacts of Riverstone's
businesses are minimised over time. Riverstone recognises there is
a significant amount of work to be done with its portfolio
companies on this front and will make it a priority for 2021.
Diversity and Inclusion
Riverstone is committed to fostering a culture of inclusion by
encouraging diversity and inclusivity (D&I) among its
workforce.
It is Riverstone's goal to create an environment within the firm
and to encourage the creation of an environment at its portfolio
companies in which diverse backgrounds, perspectives, and personnel
are represented throughout its business.
Riverstone has implemented or is in the process of implementing
a number of important D&I initiatives at the firm,
including:
-- Integrating a D&I committee into our ESG committee, which
will hold regular meetings to review and improve D&I at
Riverstone and throughout our portfolio
-- Focus on partnering with a Historically Black College or
University (HBCU) to bring interns to Riverstone's US offices for
training and an introduction to the private equity industry
-- Integrating D&I into part of our diligence process when
we first evaluate a company and, following the initial investment,
monitoring the company to assess performance against our D&I
expectations
-- Working with our recruiting firms to ensure that we see
diverse candidates pools and that such firms are adhering to
Riverstone's Commitment to Diversity and Inclusion policy
-- Working towards aligning our practices with the Institutional
Limited Partners Association's D&I roadmap and their Diversity
in Action initiative
-- Ongoing evaluation of our training to ensure it focuses on
unconscious bias and provides concrete tools to mitigate the
negative effects of bias
-- Establishing a set of minimum expectations for our service
providers and requiring each of them to meet our requirements
-- Compiling and reviewing certain demographic data at
Riverstone to better understand where deficiencies exists and how
we can improve
A copy of Riverstone's Diversity and Inclusion Policy is
available online:
https://www.riverstonellc.com/media/1252/commitment-to-diversity-inclusion-090720.pdf
ESG in Practice within REL's Portfolio: Enviva
Enviva, a recent example of the Company's modified investment
strategy implemented in 2019, owns and operates nine wood-pellet
production plants in the U.S. Southeast with a combined production
capacity of up to 5.4 million metric tons of wood pellets per year.
Its customers around the world use its sustainable wood pellets as
a renewable, reliable and dispatchable energy source, to replace
coal in existing power generation infrastructure. Sustainable woody
biomass enables power utilities and heat generators to reduce their
carbon footprint by up to 85 per cent. on a lifecycle basis today,
while meeting or exceeding their renewable energy generation goals
by mid-century.
Enviva's comprehensive sustainability impact goes beyond
producing wood pellets, it entails promoting sustainable forest
management and forest growth, creating a strong market for
second-tier wood in the U.S. and addressing climate change
globally. To date, Enviva has displaced over 16 million metric tons
of coal and eliminated 31 million metric tons of CO(2) emissions
globally. In addition, forest inventory in the U.S. South, where
Enviva operates, has increased by more than 100 per cent. since the
1950s.
Enviva's sustainability highlights include:
-- Renewed commitment to its Responsible Sourcing Policy (RSP)
to ensure Enviva's operations are consistent with forest
stewardship and the implementation of best management practices as
well as remain compliant with applicable federal and state
regulations. Enviva's RSP prohibits Enviva from accepting wood from
environmentally sensitive ecosystems or forests where the landowner
does not intend to replant forests, thereby working to keep forests
as forests. Pursuant to its policy, Enviva began publishing yearly
goals, yearly implementation plans as well as end-of-year impact
reports in an effort to highlight its achievements while remaining
transparent to the community, partners, and stakeholders alike.
-- Further implementation of Enviva's Track & Trace(R)
Program, a leading, proprietary sustainable sourcing programme,
which provides transparent, publicly available data about its wood
sourcing. Track & Trace(R) works with Enviva's supply chain
partners to verify and document the origin of all of the wood
sourced by the company (from the forest or sawmill to its
production plants) to further monitor and audit its procurement
activities. In 2020, Enviva partnered with GoChain to pilot
blockchain technology to further affirm its commitment to
innovation, sustainability, and transparent biomass supply
chains.
-- Publication of Enviva's first Corporate Sustainability
Report. In 2019, Enviva worked with BSR(TM) - a global non-profit
to conduct a materiality assessment to identify the issues that are
most important to the sustainability of its business. In its first
Sustainability Report, Enviva laid out the key elements of its
sustainability programme, tracing its sustainability journey since
its founding in 2004, and also voluntarily and publicly disclosed
material data via a Corporate GHG Inventory covering 2017 - 2019,
as well as a brand-new Sustainable Accounting Standards Board
(SASB) index.
-- Continued certification to the stringent standards of the
world's foremost forestry organisations, such as the Sustainable
Biomass Program (SBP) and others, which provide a consistent,
verifiable, and transparent framework for evaluating the
sustainability of the company's operations from forest to
product.
-- Proactive protection of forests through the establishment of
the Enviva Forest Conservation Fund, a $5 million, 10-year
programme administered by the U.S. Endowment for Forestry and
Communities, which is designed to protect tens of thousands of
acres of sensitive bottomland forests across the U.S. South. Now
entering its 6th year, Enviva has aggressively worked toward its
goal of conserving approximately 35,000 acres of bottomland
forests. To-date, Enviva has conserved more than 25,000 acres.
-- Partnering with the communities it calls home. Enviva began
partnering with the Sustainable Forestry and African American Land
Retention (SFLR) Program back in 2015 to assist disadvantaged
landowners with the challenges of effective forest management.
To-date, Enviva has provided about $150,000 in financial assistance
for forestry and legal services. Likewise, in 2020, Enviva
partnered with The Longleaf Alliance (LLA) to offer technical
expertise in the deployment of Enviva's longleaf forest restoration
plan. In accordance with the plan, Enviva works with private
landowners to develop a management plan, provide forest
certification, harvest undesirable woody plant material as part of
forest restoration activities, and monitor long-term restoration
effects on appropriate sites.
-- Investments in additional state-of-the-art industry-proven
air emissions control technology at its manufacturing facilities to
meet, or exceed, environmental standards and clean air standards in
the communities in which it operates.
In addition to its sustainability efforts, Enviva is an active
corporate citizen and works to support its local communities. When
planned investments in Alabama, Mississippi and South Carolina are
complete, it is estimated that Enviva's footprint across the U.S.
Southeast will support approximately 4,200 jobs and an annual
economic impact of more than $2.7 billion. For every plant,
terminal, and office Enviva owns and operates, it seeks to improve
and empower communities by partnering with local leaders at all
levels to identify and execute on the specific needs of that
community. For example, when COVID-19 began afflicting families in
the U.S. Southeast, Enviva volunteered to stock food pantries and
host luncheons and dinners for frontline medical workers and local
police. Additionally, Enviva sent meals to senior citizen homes,
sent laptops and WiFi hotspots to school systems in need of
connectivity for online learning, sponsored events for the local
Boys & Girls clubs, and donated to various local youth programs
and sports leagues across several counties. Throughout 2020, Enviva
contributed approximately $75,000 in monetary donations to support
COVID-19 related activities across the U.S. Southeast.
To learn more about Enviva and its sustainably sourced wood
pellets, visit www.envivabiomass.com.
Investment Manager's Report
Continued focus on capital discipline, value preservation, and
portfolio diversification
Macro headwinds are expected to continue well into the first
half of 2021 as the coronavirus pandemic shows no signs of
subsiding. Until a vaccine is widely distributed, volatility and
depressed energy valuations will likely persist, regardless of a
recovery in the broader equity markets. While WTI prices have
rebounded following a record decline in April 2020, ending the year
at just over $48 per barrel, prices remain below 2019 levels. As
further indication of future hurdles, forward WTI prices ended the
year in the mid-$40s per barrel, a sign of continued uncertainty
regarding economic recovery in the future and structural challenges
facing the industry. Against this backdrop, REL is working closely
with portfolio companies to manage liquidity in 2021 and
restructure balance sheets as necessary.
The rally in WTI prices in the fourth quarter of 2020 was due in
part to the successful development of a coronavirus vaccine,
coupled with OPEC+ agreements that extended production cuts into
2021. This late stage recovery was further supported by better than
expected economic growth in the U.S. and some Asian countries as
spending and demand increased. Despite these gains, WTI prices
ended the year 21 per cent. lower year-over-year, and the future of
OPEC+ production levels is still uncertain. Supply decreases may
not outweigh the structural and cultural changes impacting oil
demand since the beginning of the pandemic. During what was already
a tough period for energy markets, COVID-19 exacerbated investor
concerns and has led to decreased valuations and lower portfolio
company earnings at a time when a broader economic recovery is
still fragile.
Despite a relatively brightening outlook for oil demand in the
second half of 2020, following OPEC+ actions and the lifting of
initial lockdowns, forward price gains which support valuations
remain capped. In December, OPEC+ agreed upon extending production
cuts into January 2021 following an initial disagreement in supply
levels driven by Russia. While Saudi Arabia agreed to further
curtail production to achieve necessary output levels, it is
unclear how long Russia's posturing can persist and this will be an
important factor influencing the market going forward. Further
developments in the fourth quarter paint a more difficult picture
of the future, including the emergence of a new more transmissible
coronavirus variant, the threat of new lockdowns, and unanticipated
delays in COVID-19 vaccine distribution and administration.
This extraordinary landscape in 2020 has led to one of the least
active periods in history for public energy equity and M&A
activity in North America. With energy now just 2 per cent. of the
S&P 500 Index, a decline in trading multiples and subsequent
strategic options has created new hurdles for energy companies in
an industry already facing tighter margins due to lower pricing and
balance sheet concerns. In 2020 alone, 46 energy companies filed
for bankruptcy, an unfortunate trend that is likely to continue
into next year([1]) .
Near-term prices are expected to continue to face headwinds as
2021 is shaping up to be a continuation of the preceding six
months. While supply will most likely remain curtailed, demand is
not expected to recover close to pre-pandemic levels until
coronavirus vaccines are more widely available. Given this outlook,
Riverstone continues to work with the portfolio to extend
cost-saving and protective measures into 2021 to preserve
liquidity, with capital infusions only in very select cases where
there is realistic upside. Initiatives to lower costs and cut
growth development projects this past year were successful, and an
emphasis on lean operations will continue even as demand shows
signs of recovery and REL portfolio companies begin bringing wells
back online. Additionally, Riverstone successfully engaged with the
lenders of Liberty Resources II, Carrier, CNOR and Hammerhead
Resources over the past twelve months in order to renegotiate
borrowing bases and near-term debt maturities and will continue to
pursue these negotiations as needed. Finally, Riverstone expects to
continue utilising hedging strategies across E&P producers into
2021 as protection against an ongoing lower oil price
environment.
Macro headwinds facing the industry will inevitably endure, and
REL continues to prioritise preserving value in the existing
portfolio during this time, while also opportunistically pursuing
investments within the lens of the modified investment programme.
While the coronavirus pandemic upended nearly every aspect of daily
life in 2020, a continued rise in Shareholder engagement across ESG
and climate change related opportunities shows the fundamental
trends impacting a shift away from carbon-intensive assets remain.
The events this past year magnified difficulties facing the sector,
and REL remains committed to continued portfolio diversification in
order to unlock value for Shareholders in new markets.
Investment Strategy
The Investment Manager's objective is to achieve superior risk
adjusted after tax returns by making privately negotiated
investments in the E&P, midstream, services and power
(including renewable energy) sectors, which are 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.
The Investment Manager continues to reposition the Company's
focus away from commodity price sensitive oil and gas investments
in the exploration and production sector and to increase its focus
on renewable, decarbonisation and selective infrastructure
investments, in each case with strong ESG processes in place. This
includes the Company's $25 million commitment announced in July
2020 to participate in the recapitalisation of Enviva Holdings, LP,
and the Company's $25 million and $10 million commitments announced
in January 2021 to Loanpal, LLC and FreeWire Technologies, Inc.,
respectively. Further, in February 2021, REL announced a $10
million commitment to Decarbonization Plus Acquisition Corporation
(NASDAQ: DCRB), via a private placement, and a $0.6 million
commitment to Decarbonization Plus Acquisition Corporation II
(NASDAQ: DCRNU), via an initial public offering. The Company
believes that each of these commitments provides an opportunity to
create shareholder value while supporting REL's long-term focus on
ESG and energy transition investments. Going forward, REL expects
to continue to increase its exposure in areas that support
decarbonisation across the entire investment spectrum, from
traditional power generation to technology-enabled solutions that
reduce the impacts of global climate change.
The Company's independent directors are supportive of the
continuation of the Investment Manager's modified investment
strategy for the immediate future. The independent directors will
continue to monitor the Investment Manager's success in
repositioning the Company's existing investment policy through the
modified investment strategy. At the EGM, the Board committed to
review the Investment Manager's performance and, before 31 December
2022, decide whether or not it would be in the best interests of
all shareholders to request an EGM to vote on a run-off of its
portfolio.
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;
-- Historical under-investment in energy infrastructure; and
-- Rapid growth in electricity consumption and energy transition.
The Investment Manager, through its affiliates, has a strong
track record of building businesses with management teams. The
Company aims to capitalise on the opportunities presented by
Riverstone's pipeline of investments, as well as through its
modified investment strategy implemented in 2019. This can be seen
through the Partnership's investment in Ridgebury H3 in 2019 and
Enviva in 2020 as the Private Riverstone Funds did not
participate.
The Investment Manager, having made over 200 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 & 31 Dec 31 Dec
Investment Committed Invested Realised Unrealised Unrealised 2020 2019
(Initial Investment Capital Capital Capital Value Value Gross Gross
Date) Target Basin ($mm) ($mm) ($mm)(1) ($mm) ($mm) MOIC(2) MOIC(2)
---------------------- ---- -------------- --------- --------- --------- ----------- ---------- -------- --------
Centennial Permian
(6 Jul 2016) (U.S.) $268 $268 $172 $23 $195 0.7x 0.9x
ILX III Deepwater GoM
(8 Oct 2015) (U.S.) 200 174 5 135 140 0.8x 1.2x
Onyx
(30 Nov 2019) Europe 66 53 - 53 53 1.0x 1.0x
Hammerhead Resources Deep Basin
(27 Mar 2014) (Canada) 307 295 23 22 45 0.2x 0.4x
Permian &
Carrier II Eagle Ford
(22 May 2015) (U.S.) 133 110 29 15 44 0.4x 0.7x
Southeast (U.
Enviva(3) S.) 25 18 - 29 29 1.6x n/a
(22 July 2020)
CNOR Western
(29 Aug 2014) Canada 90 90 16 6 22 0.2x 0.3x
Fieldwood GoM Shelf
(17 Mar 2014) (U.S.) 89 88 8 - 8 0.1x 0.5x
Liberty II Bakken, PRB
(30 Jan 2014) (U.S.) 142 142 - - - 0.0x 0.4x
Total Current Portfolio(4) $1,320 $1,237 $252 $283 $535 0.4x 0.4x
-------------------------------------------- --------- --------- --------- ----------- ---------- -------- --------
Realisations
Gross
Realised
Gross Gross Gross Capital & 31 Dec 31 Dec
Investment Committed Invested Realised Unrealised Unrealised 2020 2019
(Initial Investment Capital Capital Capital Value Value Gross Gross
Date) Target Basin ($mm) ($mm) ($mm)(1) ($mm) ($mm) MOIC(2) MOIC(2)
---------------------- ---- ---------------------- --------- --------- --------- ---------- ---------- -------- --------
Rock Oil(5) Permian (U.S.) $114 $114 $231 $2 $233 2.0x 2.1x
(12 Mar 2014)
Three Rivers III
(7 Apr 2015) Permian (U.S.) 94 94 204 - 204 2.2x 2.2x
Meritage III(6) Western Canada 40 40 83 - 83 2.1x 2.1x
(7 Apr 2015)
RCO(7) North America 80 80 80 - 80 1.0x 1.0x
(2 Feb 2015)
Sierra
(24 Sep 2014) Mexico 18 18 39 - 39 2.1x 2.1x
Aleph Midstream Vaca Muerta
(9 Jul 2019) (Argentina) 23 23 23 - 23 1.0x 1.0x
Ridgebury H3(3) Global 18 18 22 - 22 1.2x 1.2x
(19 Feb 2019)
Gulf Coast Region (U.
Castex 2014 S.) 52 52 8 3 11 0.2x 0.4x
(3 Sept 2014)
Total Realisations(4) $440 $440 $692 $5 $697 1.6x 1.6x
---------------------------------------------------- --------- --------- --------- ---------- ---------- -------- --------
Withdrawn Commitments and Impairments(8) 121 121 1 - 1 0.0x 0.0x
---------------------------------------------------- --------- --------- --------- ---------- ---------- -------- --------
Total Investments(4)(9) $1,881 $1,798 $945 $288 $1,233 0.7x 0.7x
---------------------------------------------------- --------- --------- --------- ---------- ---------- -------- --------
Cash and Cash Equivalents(10) $99
---------------------------------------------------- --------- --------- --------- ---------- ---------- -------- --------
Total Investments & Cash and Cash Equivalents(4) $387
---------------------------------------------------- --------- --------- --------- ---------- ---------- -------- --------
( [1] ) Gross realised capital is total gross proceeds realised
on invested capital. Of the $945 million of capital realised to
date, $649 million is the return of the cost basis, and the
remainder is profit
(2) Gross Unrealised Value and Gross MOIC (Gross Multiple of
Invested Capital) 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 applicable gross profits in
accordance with the revised terms announced on 3 January 2020, but
effective 30 June 2019. Since there was no netting of losses
against gains before the aforementioned revised terms, 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
(3) Investment is consistent with the Company's modified
investment strategy that was adopted in 2019
(4) Amounts may vary due to rounding
(5) The unrealised value of the Rock Oil investment consists of rights to mineral acres
(6) Midstream investment
(7) Credit 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)
(9) Amount includes marketable securities in Centennial,
Pipestone and Talos with an aggregate fair value at 31 December
2020 of $31.4 million
(10) This figure is comprised of $ 8. 8 million held at the
Company, $ 90.3 million held at the Partnership and $ Nil held at
REL US Corp
Investment Portfolio Summary
As of 31 December 2020, REL's portfolio comprised nine active
investments including seven E&P investments, one power
investment and one renewable energy investment.
Centennial Resource Development
As of 31 December 2020, REL, through the Partnership, has
invested in full its $268 million commitment to Centennial.
Centennial, based in Denver, Colorado, 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 has rapidly aggregated an 80,100 net acre position in
its targeted basin.
Centennial recommenced drilling activity during the third
quarter of 2020 and is currently operating a one-rig programme,
after it temporarily suspended its drilling programme due to the
poor commodity price environment experienced during the first half
of 2020. Based on recent operational performance, Centennial has
increased its full-year 2020 oil production target to 36,000
barrels per day and total company production to 67,000 boepd.
The company continues to focus on preserving balance sheet
strength and liquidity. Centennial reduced its full-year capital
expenditure budget and 2020 LOE per unit, in addition to G&A,
DD&A and severance & Ad Valorem taxes. As a result of
enhanced operational performance and well cost improvements,
Centennial expects to generate incremental free-cash-flow during
the fourth quarter, at current strip prices.
To-date, Centennial has hedged approximately 3,471 barrels per
day and 2,247 barrels per day of forecasted oil production in 2021
at a weighted average price of $42.59 per barrel WTI and $47.79 per
barrel Brent, respectively.
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 31 December 2020, REL's interest in Centennial, through
the Partnership, was valued at 0.7x Gross MOIC(1) or $195 million
(Realised: $172 million, Unrealised: $23 million). The Gross
MOIC(1) , which reflects the mark-to-market value of REL's
shareholding, increased over the period.
ILX III
As of 31 December 2020, REL, through the Partnership, has
invested $174 million of its $200 million commitment to ILX III.
ILX III, based in Houston, Texas, is a joint-venture with Ridgewood
Energy Corporation and pursues a strategy of acquiring non-operated
working interests in oil-focussed exploration projects in the Gulf
of Mexico. To date, the company has participated in nine commercial
discoveries, of which four are currently producing oil, and one is
temporarily shut in.
In October 2020, all of ILX III's producing discoveries were
temporarily shut-in as a result of Hurricane Delta and Hurricane
Zeta. While production has since been brought back online, the
company's Durango discovery remains shut-in due to a subsea
infrastructure issue. Current company guidance contemplates
bringing the Calliope and Praline discoveries online in 2021 and
the Khaleesi and Mormont discoveries in 2022. During the fourth
quarter of 2020, ILX III hedged approximately 861,000 barrels of
oil between November 2020 and October 2024, at a weighted average
price of $44 per barrel bringing total hedged volumes to
approximately 2.2 million barrels of oil through October 2024,
representing approximately 60 per cent. of forecasted production,
at a weighted average price of $48/bbl. As of 31 December 2020, ILX
III was producing approximately 5,770 boepd.
As of 31 December 2020, REL's interest in ILX III, through the
Partnership, was valued at 0.8x Gross MOIC(1) or $140 million
(Realised: $5 million, Unrealised: $135 million). The Gross MOIC(1)
increased over the period.
Onyx Power
As of 31 December 2020, REL, through the Partnership, has
invested $53 million of its $66 million commitment to Onyx. Onyx is
a European-based independent power producer that was created
through the successful acquisition of 2,350MW of gross installed
capacity (1,941MW of net installed capacity) of five coal- and
biomass-fired power plants in Germany and the Netherlands from
Engie SA. Two of the facilities in the current portfolio are among
Europe's most recently constructed thermal plants, which benefit
from high efficiencies, substantial environmental controls, low
emissions profiles and the potential use of sustainable
biomass.
Since January 2020, the Rotterdam plant has been in an unplanned
outage after damage to the boiler. The plant is expected to return
to service by the second quarter of 2021, and both the cost of the
repair and the lost income are being covered by insurance, minus a
modest deductible. While the company has faced some market
headwinds through the last year from short term market weakness as
a result of the ongoing COVID-19 pandemic, the management team
continues to work on several initiatives related to regulatory
developments, cost optimisation, and future site development
options. The Investment Manager expects that these initiatives will
be resolved during the second quarter of 2021.
As of 31 December 2020, REL's interest in Onyx, through the
Partnership, was valued at 1.0x Gross MOIC(1) or $53 million
(Realised: $- million, Unrealised: $53 million). The Gross MOIC(1)
remained flat over the period.
Hammerhead
As of 31 December 2020, REL, through the Partnership, has
invested $295 million of its $307 million commitment to Hammerhead.
Hammerhead is a Calgary-based private E&P company focussed on
the liquids-rich unconventional resources in the Montney and
Duvernay resource plays in Western Canada. Since its establishment
in 2010, Hammerhead has aggregated one of the largest and most
advantaged land positions in the Montney and Duvernay formations of
Western Canada's Deep Basin. The company controls and operates
almost 100 per cent. of this asset base, which comprises over 2,000
net drilling locations across approximately 190,000 Montney net
acres. Since Riverstone's initial investment, Hammerhead has
increased production almost ten-fold and has significantly grown
reserves to 410 mmboe. As of 31 December 2020, the company was
producing approximately 30,200 boepd.
Following the significant decline in commodity prices that
occurred during the second quarter of 2020, Hammerhead elected to
temporarily suspend its drilling programme to generate
free-cash-flow for the paydown of outstanding indebtedness under
its reserve-based lending facility. While the company continues to
focus on preserving liquidity, Hammerhead does have a modest
drilling programme planned for 2021 and expects the majority of
drilling activity to occur during the second half of 2021. As of 31
December 2020, Hammerhead has hedged approximately 65 per cent. of
forecasted 2021 oil production at a weighted average price of
CAD$56 per barrel.
As of 31 December 2020, REL's interest in Hammerhead, through
the Partnership, was valued at 0.2x Gross MOIC(1) or $45 million
(Realised: $23 million, Unrealised: $22 million). The Gross MOIC(1)
remained flat over the period.
Carrier II
As of 31 December 2020, REL, through the Partnership, has
invested $110 million of its $133 million commitment to Carrier II.
Carrier II, based in Houston, TX, is focussed on the acquisition
and exploitation of upstream oil and gas assets by partnering with
select operators that are developing both conventional and
unconventional 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), which the company exited in
November 2019. In addition, through three separate acquisitions
between 2015 and 2016, the company has acquired 3,935 net acres in
Karnes County in the Eagle Ford basin, targeting the Sugarloaf
Project and the Reynolds Project, both operated by Marathon Oil
Corp.
During 2020, Carrier successfully drilled & completed 8
Eagle Ford wells, resulting in a total of 42 completed wells since
2019. The company is currently focused on preserving balance sheet
strength and is utilising its free-cash-flow generation to pay down
outstanding indebtedness under its reserve-based lending facility.
As of 31 December 2020, Carrier II was producing approximately
3,300 boepd and the company had hedged approximately 33 per cent.
of forecasted 2021 gas production at a weighted average price of
$2.97/MMBtu.
Since inception, Carrier II has distributed $29 million through
dividends to REL, through the Partnership, representing
approximately 26 per cent. of REL's invested capital. As of 31
December 2020, REL's interest in Carrier II, through the
Partnership, was valued at 0.4x Gross MOIC(1) or $44 million
(Realised: $29 million, Unrealised: $15 million). The Gross MOIC(1)
remained flat over the period.
Enviva
As of 31 December 2020, REL, through the Partnership, has
invested $18 million of its $25 million commitment to Enviva.
Enviva, based in Bethesda, Maryland, is the world's largest
supplier of wood pellets to major utilities and heat and power
generators, principally in Europe and Japan. Through its
subsidiaries, Enviva owns and operates nine plants with a combined
wood pellet production capacity of approximately 5.4 million
MTPY.
In August 2020, Enviva closed the Greenwood drop-down and
Georgia Biomass acquisition and associated export terminal. The
company continues to successfully integrate the acquisitions while
expanding its sales pipeline in Europe and Asia. The company's
revenue backlog for the fourth quarter of 2020 was $19.4 billion
and the weighted average remaining term was 13.7 years.
Additionally, construction is continuing on the Pascagoula
terminal, Lucedale plant, and Epes plant representing 3+ million
MPTY of capacity.
As of 31 December 2020, REL's interest in Enviva, through the
Partnership, was valued at 1.6x Gross MOIC(1) or $29 million
(Realised: $0 million, Unrealised: $29 million). The Gross MOIC(1)
increased over the period.
CNOR
As of 31 December 2020, REL, through the Partnership, has
invested in full its $90 million commitment to CNOR. CNOR is a
Calgary-based oil and gas company focussed on the Western Canadian
Sedimentary Basin. The company invested in a joint venture with
Tourmaline Oil Corp. targeting the Peace River High area (126,000
net acres), which it sold in 3Q19 for C$175 million. Earlier in
2019, CNOR closed on a strategic combination with publicly-traded
Blackbird Energy to consolidate its 25,000 net acre Pipestone
Montney position with that of Blackbird's offsetting 73,000 acres.
The pro forma company is named Pipestone Energy Corporation and
trades under TSX: PIPE. During the third quarter of 2019, Pipestone
completed the build-out of required infrastructure needed to expand
its future operations, and PIPE has since been working towards
bringing incremental production online. During 2020, the company is
expected to average production of approximately 15,500 boepd.
As of 31 December 2020, REL's interest in CNOR, through the
Partnership, was valued at 0.2x Gross MOIC(1) or $22 million
(Realised: $16 million, Unrealised: $6 million). The Gross MOIC(1)
increased over the period.
Fieldwood
As of 31 December 2020, REL, through the Partnership, has
invested $88 million of its $89 million commitment to Fieldwood.
Riverstone formed Fieldwood in partnership with Chief Executive
Officer 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 SandRidge Energy,
Inc. Fieldwood underwent a restructuring that concluded in April
2018 and resulted in the acquisition of Noble Energy's deepwater
Gulf of Mexico portfolio.
To alleviate liquidity concerns, and in response to the oil
price downturn during the period, Fieldwood reduced headcount, cut
expenses, and had to shut-in a substantial amount of production. In
addition, Fieldwood restructured its hedge book yet faced a
significant liquidity shortfall amid reduced production and
commodity prices. As a result, the company elected to miss its
April 2020 interest payment and entered into a forbearance
agreement with lenders. On August 3, 2020, Fieldwood filed for
Chapter 11 restructuring and has been negotiating extensively with
lenders. Matt McCarroll has stepped down as CEO to pursue other
opportunities and was replaced by an Executive Leadership Team
comprised of Michael Dane, Chief Financial Officer, Thomas Lamme,
General Counsel, and Gary Mitchell, Senior Vice President of
Production. The Executive Leadership Team will oversee day-to-day
operations and report to the board.
As of 31 December 2020, REL's interest in Fieldwood, through the
Partnership, was valued at 0.1x Gross MOIC(1) or $8 million
(Realised: $8 million, Unrealised: $- million). The Gross MOIC(1)
remained flat over the period.
Liberty II
As of 31 December 2020, REL, through the Partnership, has
invested in full its $142 million commitment to Liberty II. Liberty
II established positions in the Williston (Bakken) and Powder River
Basins through a series of acquisitions expected to 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 the development of its
Bakken acreage, which has grown to approximately 104,000 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.
Liberty II suspended drilling activities throughout 2020 as a
result of the low commodity price environment and the restructuring
of its reserve-based lending facility. While the economic terms of
the pending restructuring of the company's reserve-based lending
facility have been agreed to in principle, REL has elected to not
participate in the required new equity contribution, which is
likely to fully dilute REL's existing equity position. While there
is still risk to the transaction closing, REL, through the
Partnership, has decreased the Gross MOIC(1) to 0.0x to reflect the
implied valuation of its position following completion of the
restructuring. Liberty II is currently producing approximately
4,600 boepd and has hedged approximately 86 per cent. and 43 per
cent. of forecasted 2021 and 2022 oil production, respectively, at
a weighted average price of approximately $55 per barrel.
As of 31 December 2020, REL's interest in Liberty II, through
the Partnership, was valued at 0.0x Gross MOIC(1) or $0 million
(Realised: $- million, Unrealised: $- million). The Gross MOIC(1)
declined over the period.
Realised Investments
RCO
RCO was formed in January 2015 to take advantage of the
dislocation in the leveraged capital markets for energy companies.
Since its inception, RCO made a total of 32 investments, all of
which have already been fully exited.
As of 31 December 2020, REL's interest in RCO, through the
Partnership, was valued at 1.0x Gross MOIC(1) or $80 million (100
per cent. realised).
Aleph Midstream
Aleph Midstream was the first independent midstream company
focussed on gathering and processing infrastructure in the oil
window of Argentina's Vaca Muerta shale play.
In February 2020, REL decided to unwind its commitment to Aleph
Midstream due to the macroeconomic conditions in Argentina as well
as certain condition precedents that have not been met with its
anchor customer. In March 2020, REL was reimbursed for its fund
invested capital in Aleph Midstream.
As of 31 December 2020, REL's interest in Aleph Midstream,
through the Partnership, was valued at 1.0x Gross MOIC(1) or $23
million (100 per cent. realised).
Ridgebury H3
As of 31 December 2020, REL, through the Partnership, has
invested in full its $18 million commitment to Ridgebury H3.
Ridgebury H3, based in Westport, Connecticut, is an international
shipping company, targeting the Handy size tanker markets, and
initially owned three approximately 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.
In January 2020, Ridgebury H3 sold its spot vessel, the Nalini
D, one of the three Handy vessels purchased in April 2019, to
Tufton Oceanic, at a premium to its original purchase price. During
the fourth quarter of 2020, the company closed on the sale of its
two remaining vessels, the Elvia B and the Colette B, to Tufton
Oceanic. REL, through the Partnership, expects to fully realise its
investment in Ridgebury H3 during the first quarter of 2021.
As of 31 December 2020, REL's interest in Ridgebury H3, through
the Partnership, was valued at 1.2x Gross MOIC(1) or $22.4 million
(Realised: $21.9 million, Unrealised: $0.5 million). As of 31
December 2020, the remaining unrealised value represents the
residual proceeds from the sale of the two remaining vessels.
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 Q4
2019, the company was sold to Talos for cash proceeds and Talos
shares.
As of 31 December 2020, REL's interest in Castex 2014, through
the Partnership, was valued at 0.2x Gross MOIC(1) or $11 million
(Realised: $8 million, Unrealised: $3 million). As of 31 December
2020, the remaining unrealised value represents the mark-to-market
value of REL's shareholding in Talos shares.
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. 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.
Uninvested Cash
As of 31 December 2020, REL had a cash balance of $8.8 million,
gross of the accrued share buyback transactions of $3 million, and
the Partnership, including its wholly-owned subsidiaries, REL
Cayman Holdings, LP, REL US Corp and REL US Centennial Holdings,
LLC, had uninvested funds of over $90.3 million held as cash and
money market fixed deposits, gross of the accrued Management Fee of
$1.2 million. As in prior years, in accordance the Partnership
Agreement, if the Company requires additional funds for working
capital, it is entitled to receive another distribution from the
Partnership. 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
134 basis points during the year ended 31 December 2020.
On 1 May 2020, the Company announced a buyback programme with
the intention of returning GBP50 million to Shareholders via on
market buybacks. Since the announcement, the Company has purchased
16,958,265 shares, in aggregate, for GBP49 million ($62 million) at
an average share price of GBP2.90 ($3.67). After these share
buybacks and the accrued Management Fee, REL's aggregate cash
balance is $95 million.
As of 31 December 2020, REL, through the Partnership, had
potential unfunded commitments of $83 million. 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.
Subsequent Events
Subsequent to year-end, REL, through the Partnership, funded all
of its $25 million commitment to Loanpal in conjunction with the
closing of the transaction on 13 January 2021. Loanpal is a San
Francisco based sustainable home improvement loan originator,
providing a point-of-sale lending platform used by key residential
contractors. Loanpal does not take funding risk, and the company
presells its originated loans via forward purchase agreements to
large funds managed by asset managers including Blackstone and
Goldman Sachs. The company's attractive unit economics and
asset-light business model allow for rapid growth and the ability
to scale faster than its competitors, while generating free cash
flow by capitalising on upfront net cash payments for loan
originations and avoiding costly SG&A and capital expenditures
incurred by other portions of the value chain.
Additionally, and subsequent to year-end, REL, through the
Partnership fully funded its $10 million commitment to FreeWire.
Based in the San Francisco Bay Area and led by co-founder and CEO
Arcady Sosinov, FreeWire designs, manufactures, and markets
unitised battery-integrated DCFCs to customers such as retailers,
utilities, electric vehicle fleet operators, and charging station
network operators across the globe. In addition to hardware sales,
FreeWire's software platform offers recurring revenues, enabling
charger management and third-party platform integration with plans
to offer energy management and grid services.
Furthermore, again post year-end, REL, through the Partnership,
announced a commitment of $10 million to Decarbonization Plus
Acquisition Corporation (NASDAQ: DCRB), via a private placement,
and fully funded its commitment of $0.6 million to Decarbonization
Plus Acquisition Corporation II (NASDAQ: DCRNU), via an initial
public offering, respectively. Both entities are blank check
companies formed for the purpose of effecting a merger, capital
stock exchange, asset acquisition, stock purchase, reorganisation
or similar business combination with a target whose principal
effort is developing and advancing a platform that decarbonises the
most carbon-intensive sectors. These include the energy and
agriculture, industrials, transportation and commercial and
residential sectors. On 9 February 2021, Hyzon Motors Inc.
("Hyzon") and Decarbonization Plus Acquisition Corporation
announced a definitive agreement for a business combination, which
is expected to close during the second quarter of 2021 that would
result in Hyzon becoming a publicly listed company. Hyzon is the
industry-leading global supplier of zero-emissions hydrogen fuel
cell powered commercial vehicles.
Lastly, Riverstone Holdings, LLC, directors of Talos Energy Inc.
(NYSE: TALO) designated by Riverstone, and other parties are among
the defendants in a shareholder action filed in late May 2020
challenging the December 2019 transactions by which TALO acquired
assets from Riverstone related entities: Castex Energy 2014, LLC,
ILX Holdings LLC, ILX Holdings II, LLC and ILX Holdings III, LLC.
Riverstone and the other defendants have filed a motion to dismiss
such claims and, based on the current stage of the claims, no
estimate can be made of the outcome at this time.
Outlook
The Investment Manager is continuing to actively work with each
of its portfolio company management teams to determine the
go-forward business plans, especially in light of the recent
developments in the market related to OPEC+ and coronavirus. The
next twelve months are expected to be challenging, and Riverstone
is still focussed on managing its portfolio for an additional
period of prolonged uncertainty. Initiatives across portfolio
companies that are expected to continue include prioritising
liquidity, renegotiating debt covenants, reductions in G&A,
pulling back capital expenditures and drilling activity, and
monetising hedges where accretive. The Investment Manager also
expects to continue identifying new investments within
decarbonisation with attractive risk-reward profiles to support
value creation for Shareholders going forward.
RIGL Holdings, LP
23 February 2021
(1) Gross Unrealised Value and Gross MOIC (Gross Multiple of
Invested Capital) 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 applicable gross profits in
accordance with the revised terms announced on 3 January 2020, but
effective 30 June 2019. Since there was no netting of losses
against gains before the aforementioned revised terms, 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
Investment Policy
The Investment Manager continues to reposition the Company's
focus away from commodity price sensitive oil and gas investments
in the exploration and production sector and to increase its focus
on renewable, decarbonisation and selective infrastructure
investments, in each case with strong ESG processes in place. This
includes the Company's $25 million commitment announced in July
2020 to participate in the recapitalisation of Enviva Holdings, LP,
and the Company's $25 million and $10 million commitments announced
in January 2021 to Loanpal, LLC and FreeWire Technologies, Inc.,
respectively. Further, in February 2021, REL announced a $10
million commitment to Decarbonization Plus Acquisition Corporation
(NASDAQ: DCRB), via a private placement, and a $0.6 million
commitment to Decarbonization Plus Acquisition Corporation II
(NASDAQ: DCRNU), via an initial public offering. The Company
believes that each of these commitments provides an opportunity to
create shareholder value while supporting REL's long-term focus on
ESG and energy transition investments. Going forward, REL expects
to continue to increase its exposure in areas that support
decarbonisation across the entire investment spectrum, from
traditional power generation to technology-enabled solutions that
reduce the impacts of global climate change.
The Company's independent directors are supportive of the
continuation of the Investment Manager's modified investment
strategy for the immediate future. The independent directors will
continue to monitor the Investment Manager's success in
repositioning the Company's existing investment policy through the
modified investment strategy. At the EGM, the Board committed to
review the Investment Manager's performance and, before 31 December
2022, decide whether or not it would be in the best interests of
all Shareholders to request an EGM to vote on a run-off of its
portfolio.
Since REL, through the Partnership, has the right to invest
alongside the Private Riverstone Funds as well as in investments
consistent with its modified investment strategy, REL presents a
unique opportunity for public market investors to gain exposure to
Riverstone's investments in the attractive global energy transition
sector.
The Investment Manager intends to manage investments for the
benefit of all of its investors. If any matter arises that the
Investment Manager determines in its good faith judgement
constitutes an actual conflict of interest, the Investment Manager
may take such actions as may be necessary or appropriate, having
regard to all relevant terms of the Investment Management
Agreement, to manage the conflict (and upon taking such actions the
Investment Manager will be considered to have discharged
responsibility for managing such conflict). The Directors are
required by the Registered Collective Investment Schemes Rules 2018
issued by the GFSC to take all reasonable steps to ensure that
there is no breach of the conflicts of interest requirements of
those rules.
Asset Allocation
The Company acquires its interests in each Qualifying Investment
at the same time (or as near as practicable thereto) as, and on
substantially the same economic and financial terms as, the
relevant Private Riverstone Funds.
The Company and the current Private Riverstone Funds, (Fund V
and Fund VI) invest in each Qualifying Investment in which the
Private Riverstone Funds participate in a ratio of one-third to REL
to two-thirds to the Private Riverstone Funds. This investment
ratio is subject to adjustment on a case-by-case basis (a) to take
account of the liquid assets available to each of the Company and
the Private Riverstone Funds for investment at the relevant time
and any other investment limitations applicable to either of them
or otherwise and (b) if both (i) a majority of the Company's
independent Directors and (ii) the Investment Manager agree that
the investment ratio should be adjusted for specific Qualifying
Investments.
For each Private Riverstone Fund subsequent to Fund V and Fund
VI which is of a similar size and has a similar investment policy
to the Company, Riverstone will seek to ensure that, subject to the
investment capacity of the Company at the time, the Company and the
Private Riverstone Fund invest in Qualifying Investments in an
investment ratio of one-third to REL to two-thirds to the Private
Riverstone Fund or in such other ratio as the Company's independent
Directors and the Investment Manager agree at or prior to the first
closing of such Private Riverstone Fund.
Such investment ratio may be adjusted by agreement between the
Company's independent Directors and the Investment Manager on
subsequent closings of a Private Riverstone Fund having regard to
the total capital commitments raised by that Private Riverstone
Fund during its commitment period, the liquid assets available to
the Company at that time and any other investment limitations
applicable to either of them.
The Investment Manager typically seeks to ensure that the
Company and the Private Riverstone Funds dispose of their interests
in Qualifying Investments at the same time, on substantially the
same terms, and in the case of partial disposals, in the same ratio
as the relevant Qualifying Investment was acquired, but this may
not always be the case.
In addition, the Company may at any time make investments
consistent with its investment policy independent from Private
Riverstone Funds, which may include investments alongside
Riverstone employee co-investment vehicles or other Riverstone
managed or advised co-investment vehicles. In such cases, approval
by the Board is required.
The Company invests in public or private securities, may hold
controlling or non-controlling positions in its investments and may
make investments in the form of equity, equity-related instruments,
indebtedness or derivatives (or a combination of any of them). The
Company does not permit any investments to be the subject of stock
lending or sale and repurchase of shares.
Diversification
Save for the Company's investment in Hammerhead, which may
represent up to 35 per cent. of the Company's gross assets,
including cash holdings, measured at the time the investment is
made, no one investment made by the Company, through the
Partnership, may (at the time of the relevant investment) represent
more than 25 per cent. of the Company's gross assets, including
cash holdings, measured at the time the investment is made. The
Company utilises the Partnership and its subsidiary undertakings or
other similar investment holding structures to make investments and
this limitation does not apply to its ownership interest in any
such subsidiary undertaking (nor, for the avoidance of doubt, to
the Company's interest in the Partnership).
Gearing
The Company can, but is not required to, incur indebtedness for
investment purposes, to the extent that such indebtedness is a
precursor to an ultimate equity investment, working capital
requirements and to fund own-share purchases or retentions up to a
maximum of 30 per cent. of the last published NAV as at the time of
the borrowing unless approved by the Company by an ordinary
resolution. This limitation does not apply to portfolio level
entities in respect of which the Company is invested but it does
apply to all subsidiary undertakings utilised by the Company or the
Partnership for the purposes of making investments. The consent of
a majority of the Company's Directors, with consent of the
Investment Manager, shall be required for the Company or the
Partnership to enter into any credit or other borrowing
facility.
The Company must at all times comply with its published
investment policy. For so long as the Ordinary Shares are listed on
the Official List, no material change may be made to the Company's
investment policy other than with the prior approval of both the
Company's Shareholders and a majority of the independent Directors
of the Company, and otherwise in accordance with the Listing
Rules.
Investment Restrictions
The Company is subject to the following investment
restrictions:
-- for so long as required by the Listing Rules, it will at all
times seek to ensure that the Investment Manager invests and
manages the Company's and the Partnership's assets in a way which
is consistent with the Company's objective of spreading risk and in
accordance with the Company's investment policy;
-- for so long as required by the Listing Rules, it must not
conduct a trading activity which is significant in the context of
the Company and its Investment Undertakings;
-- for so long as required by the Listing Rules, not more than
10 per cent. of the value of its total assets will be invested in
other UK-listed closed-ended investment funds, except for those
which themselves have published investment policies to invest not
more than 15 per cent. of their total assets in other UK-listed
closed-ended investment funds; and
-- any investment restrictions that may be imposed by Guernsey
law (although no such restrictions currently exist).
Currency and interest rate hedging transactions will only be
undertaken for the purpose of efficient portfolio management and
these transactions will not be undertaken for speculative
purposes.
The COMPANY INVESTS IN THE GLOBAL ENERGY AND INFRASTRUCTURE
INDUSTRY ACROSS SUBSECTORS AND IS WELL-POSITIONED TO CAPITALISE ON
OPPORTUNITIES ARISING FROM THE SHIFT TOWARDs energy transition over
the long-term.
Board of Directors
Richard Hayden (75), Chairman and Non-executive Independent
Director
Appointment: Appointed to the Board in May 2013 and appointed as
Chairman in May 2016
Experience: Mr Hayden serves as non-executive Chairman of
TowerBrook Capital Partners Advisory Board and member of the
Investment Committee. Prior to joining TowerBrook in 2009, Mr
Hayden was Vice Chairman of GSC Group Inc and Global Head of the
CLO and Mezzanine Debt business. Previously, Mr Hayden was with
Goldman Sachs from 1969 to 1999. Mr Hayden held a variety of senior
positions during his time at Goldman Sachs, including Deputy
Chairman of Goldman Sachs International Ltd and Chairman of the
Global Credit Committee. Mr Hayden has served on a number of
corporate and advisory boards including CQS Capital Management,
Haymarket Financial, Deutsche Borse and Abbey National Bank. Mr
Hayden is currently on the Finance and Investment Committee of the
Children's Investment Fund Foundation. Mr Hayden is a UK
resident.
Committee Membership: Audit Committee Member; Nomination
Committee Chairman; Management Engagement Committee Member
Peter Barker (72), Non-executive Independent Director
Appointment: Appointed to the Board in September 2013
Experience: Mr Barker was California Chairman of JPMorgan Chase
& Co., a global financial services firm, from September 2009
until his retirement on 31 January 2013, and a member of its
Executive Committee in New York. Mr Barker was also an Advisory
Director of Goldman, Sachs & Co. from December 1998 until his
retirement in May 2002, and a Partner of Goldman, Sachs & Co.
from 1982 to 1998, heading up Investment Banking on the West Coast,
having joined Goldman, Sachs & Co. in 1971. Mr Barker is
President of the Fletcher Jones Foundation and has held numerous
directorships. He is currently on the board of Avery Dennison
Corporation, the W. M. Keck Foundation, the Irvine Company, and the
Automobile Club of Southern California. Mr Barker is also a Trustee
of Claremont McKenna College, having formerly been its Chairman,
and was previously Chair of the Los Angeles Area Council of the Boy
Scouts of America. Mr Barker is a U.S. resident.
Committee Membership: Audit Committee Member; Nomination
Committee Member; Management Engagement Committee Member
Patrick Firth (59), Non-executive Senior Independent
Director
Appointment: Appointed to the Board in May 2013 and appointed as
Senior Independent Director in May 2016
Experience: Mr Firth qualified as a Chartered Accountant with
KPMG Guernsey in 1991 and is also a member of the Chartered
Institute for Securities and Investment. He has worked in the fund
industry in Guernsey since joining Rothschild Asset Management (CI)
Limited in 1992 before moving to become Managing Director at
Butterfield Fund Services (Guernsey) Limited (subsequently
Butterfield Fulcrum Group (Guernsey) Limited), a company providing
third party fund administration services, where he worked from
April 2002 until June 2009. He is a non-executive Director of a
number of investment funds and management companies, including GLI
Finance Limited, ICG Longbow Senior Secured UK Property Debt
Investments Limited, India Capital Growth Fund Limited and
NextEnergy Solar Fund Limited. Mr Firth is a UK resident.
Committee Membership: Audit Committee Chairman; Nomination
Committee Member; Management Engagement Committee Member
Jeremy Thompson (65), Non-executive Independent Director
Appointment: Appointed to the Board in May 2016
Experience: Mr Thompson has sector experience in Finance,
Telecoms, Engineering and Oil & Gas. He acts as an independent
non-executive director for both listed, including DP Aircraft 1
Limited, and PE funds. Prior to that, he has worked in private
equity and was CEO of four autonomous global businesses within
Cable & Wireless Plc (operating in both regulated and
unregulated markets), and earlier held CEO roles within the Dowty
Group. He currently serves as chairman of the States of Guernsey
Renewable Energy Team and is a commissioner of the Alderney
Gambling Control Commission. He is also an independent member of
the Guernsey Tax Tribunal panel. He is a graduate of Brunel (B.Sc),
Cranfield (MBA) and Bournemouth (M.Sc) Universities and was an
invited member to the UK's senior defence course (Royal College of
Defence Studies). He is a member of the IoD and holds the IoD's
Certificate and Diploma in Company Direction, is an associate of
the Chartered Institute of Arbitration and a chartered Company
Secretary. Mr Thompson is a resident of Guernsey and has previously
lived and worked in the UK, USA and Germany.
Committee Membership: Audit Committee Member; Nomination
Committee Member; Management Engagement Committee Member
Claire Whittet (65), Non-executive Independent Director
Appointment: Appointed to the Board in May 2015
Experience:
Mrs Whittet has over 40 years of experience in the financial
services industry. After obtaining a MA (Hons) in Geography from
the University of Edinburgh, she joined the Bank of Scotland for 19
years and undertook a wide variety of roles. She moved to Guernsey
in 1996 and was Global Head of Private Client Credit for Bank of
Bermuda before joining the Board of Rothschild & Co Bank
International Limited in 2003, initially as Director of Lending and
latterly as Managing Director and Co-Head until May 2016 when she
became a non-executive Director. Mrs Whittet is an ACIB member of
the Chartered Institute of Bankers in Scotland, a Chartered Banker,
a member of the Chartered Insurance Institute and holds an IoD
Diploma in Company Direction. She is an experienced non-executive
Director of five other listed funds (BH Macro Limited, Eurocastle
Investment Limited, International Public Partnerships Limited,
Third Point Offshore Investors Limited and TwentyFour Select
Monthly Income Fund Limited) and various PE funds. Mrs Whittet is a
Guernsey resident.
Committee Membership: Audit Committee Member; Nomination
Committee Member; Management Engagement Committee Chairman
Report of the Directors
The Directors hereby submit the Annual Report and Audited
Financial Statements for the Company for the year ended 31 December
2020. This Report of the Directors should be read together with the
Corporate Governance Report.
General Information
Riverstone Energy Limited is a company limited by shares, which
was incorporated on 23 May 2013 in Guernsey with an unlimited life
and registered with the Commission as a Registered Closed-ended
Collective Investment Scheme pursuant to the POI Law. It has been
listed on the London Stock Exchange since 29 October 2013. The
registered office of the Company is PO Box 286, Floor 2, Trafalgar
Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.
Principal Activities
The principal activity of the Company is to act as an investment
entity through the Partnership and make privately negotiated equity
investments in the energy sector.
The Company's investment objective is to generate long-term
capital growth by investing in the global energy sector, with a
particular focus on opportunities in the global exploration and
production and midstream energy sub-sectors. The Company may also
make investments in other energy sub-sectors (including
transportation energy services and power and coal).
Business Review
A review of the Company's business and its likely future
development is provided in the Chairman's Statement and in the
Investment Manager's Report.
Listing Requirements
Since being admitted on 29 October 2013 to the Official List of
the UK Listing Authority, maintained by the FCA, the Company has
complied with the applicable Listing Rules.
Results and Dividend
The results of the Company for the year are shown in the audited
Statement of Comprehensive Income.
The Net Asset Value of the Company as at 31 December 2020 was
$390 million (31 December 2019: $772 million).
The Directors do not recommend the payment of a dividend in
respect of the year ended 31 December 2020 (31 December 2019:
$Nil).
Share Capital
At incorporation on 23 May 2013, the Company issued one founder
Ordinary Share of no par value. On 29 October 2013, the Company
issued 71,032,057 Ordinary Shares of no par value at GBP10 per
Ordinary Share in an initial public offering raising a total of
$1,138 million.
KFI, one of the Cornerstone Investors in the Company, paid for
and acquired 10 million Ordinary Shares in two equal tranches of
GBP50 million. The first tranche was paid on Admission and the
second tranche of 5 million Ordinary Shares was paid on 26
September 2014.
On 11 December 2015, the Company raised GBP67.6 million ($102.3
million)(1) through the issuance of 8,448,006 new Ordinary Shares
at GBP8.00 per Ordinary Share.
On 15 October 2018, the Company announced a Tender Offer for
GBP55.0 million in value of the Company's Ordinary Shares. The
Company acquired 4,583,333 Ordinary Shares which were cancelled on
23 November 2018.
On 1 May 2020, the Company announced a buyback programme with
the intention of returning GBP50 million to Shareholders via on
market buybacks. Since the announcement, the Company has purchased
16,958,265 shares, in aggregate, for GBP49 million ($62 million) at
an average share price of GBP2.90 ($3.67).
Following admission of the new Ordinary Shares, the cancellation
of Ordinary Shares from the Tender Offer, and the shares purchased
and cancelled during the 2020 buyback programme, the share capital
of the Company is 62,938,466 Ordinary Shares in aggregate.
The Company has one class of Ordinary Shares. The issued nominal
value of the Ordinary Shares represents 100 per cent. of the total
issued nominal value of all share capital. Under the Company's
Articles of Incorporation, on a show of hands, each Shareholder
present in person or by proxy has the right to one vote at general
meetings. On a poll, each Shareholder is entitled to one vote for
every share held.
Shareholders are entitled to all dividends paid by the Company
and, on a winding up, provided the Company has satisfied all of its
liabilities, the Shareholders are entitled to all of the surplus
assets of the Company. The Company has not declared or paid
dividends from inception to 31 December 2020, and has no intention
to do so.
The Ordinary Shares have no right to fixed income.
(1) Gross of share issuance costs of $3.6 million
Shareholdings of the Directors
The Directors with beneficial interests in the shares of the
Company as at 31 December 2020 and 2019 are detailed below:
Ordinary Per cent. Ordinary Per cent.
Shares held Holding at Shares held Holding at
31 December 31 December 31 December 31 December
Director 2020 2020 2019 2019
---------------------- ------------- ------------- ------------- -------------
Richard Hayden(1) 10,000 0.016 10,000 0.013
Peter Barker(1)(2) 5,000 0.008 5,000 0.006
Patrick Firth(3) 8,000 0.013 8,000 0.010
Jeremy Thompson(1) 3,751 0.006 3,751 0.005
Claire Whittet(1)(4) 2,250 0.004 2,250 0.003
Pierre Lapeyre(5)(6) 50,000 0.079 50,000 0.063
David Leuschen(6) - - - -
Ken Ryan(6) - - - -
(1) Non-executive Independent Director
(2) Ordinary Shares held jointly with spouse
(3) Senior Independent Director
(4) Ordinary Shares held indirectly with spouse
(5) Mr Lapeyre holds 50,000 Ordinary Shares directly, and has a
beneficial interest in REL Coinvestment, LP, which as at the
year-end consisted of 1,976,750 Ordinary Shares, and Riverstone
Energy Limited Capital Partners LP, which as at the year-end
consisted of 627,920 Ordinary Shares. Mr Leuschen, Mr Ryan and
other members of Riverstone senior management have a beneficial
interest in REL Capital Partners LP, which at the year-end
consisted of 1,007,606 Ordinary Shares. Other Riverstone senior
management have a beneficial interest in REL Coinvestment, LP
consisting of 843,353 Ordinary Shares.
(6) Resigned as Director of the Company with effect from 30 October 2020
In addition, the Company also provides the same information as
at 23 February 2021, being the most current information
available.
Ordinary Per cent.
Shares held Holding at
Director 23 February 2021 23 February 2021
---------------------- ------------------ ------------------
Richard Hayden(1) 10,000 0.016
Peter Barker(1)(2) 5,000 0.008
Patrick Firth(3) 8,000 0.013
Jeremy Thompson(1) 3,751 0.006
Claire Whittet(1)(4) 2,250 0.004
---------------------- ------------------ ------------------
(1) Non-executive Independent Director
(2) Ordinary Shares held jointly with spouse
(3) Senior Independent Director
(4) Ordinary Shares held indirectly with spouse
Directors' Authority to Buy Back Shares
At the AGM on 17 June 2020 in St Peter Port, Guernsey, the
Company renewed the authority to make market purchases of up to a
maximum of 14.99 per cent. of the issued share capital of the
Company. Any buy back of the Company's Ordinary Shares will be made
subject to Companies Law and within any guidelines established from
time to time by the Board. The making and timing of any buy backs
will be at the absolute discretion of the Board, with consent of
the Investment Manager, and not at the option of the Shareholders.
Purchases of the Company's Ordinary Shares will only be made
through the market for cash at prices below the prevailing Net
Asset Value of the Company's Ordinary Shares (as last calculated)
where the Directors believe such purchases will enhance Shareholder
value. Such purchases will also only be made in accordance with the
Listing Rules.
In accordance with the Company's Articles of Incorporation and
Companies Law, up to 10 per cent. of the Company's Ordinary Shares
may be held as treasury shares.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of directors' and
officers' liability in relation to their acts on behalf of the
Company.
Substantial Shareholdings
As at 31 December 2020, the Company had been notified, in
accordance with Chapter 5 of the Disclosure Guidance and
Transparency Rules, of the following substantial voting rights as
Shareholders of the Company.
Nature
Per cent. of
Shareholder Shareholding Holding Holding
--------------------------------- ------------- ---------- ---------
AKRC Investments LLC(1)(2) 20,199,580 32.1 Indirect
Quilter Investors 12,309,369 19.6 Indirect
MMF MLP, Ltd(1)(3) 8,430,490 13.4 Direct
Riverstone Directors of REL and
Related Holdings(4) 4,505,629 7.2 Direct
--------------------------------- ------------- ---------- ---------
In addition, the Company also provides the same information as
at 23 February 2021, being the most current information
available.
Nature
Per cent. of
Shareholder Shareholding Holding Holding
----------------------------------------- ------------- ---------- ---------
AKRC Investments LLC(1)(2) 20,199,580 32.1 Indirect
Quilter Investors 12,309,369 19.6 Indirect
MMF MLP, Ltd(1)(3) 8,430,490 13.4 Direct
Riverstone Directors of REL and Related
Holdings(4) 4,505,629 7.2 Direct
----------------------------------------- ------------- ---------- ---------
(1) Held by a Cornerstone Investor
(2) Holding increased to 32.1 per cent. over the year as a
result of the share buyback programme
(3) Formerly known as Kendall Family Investments LLC
(4) Mr Lapeyre holds 50,000 Ordinary Shares directly, and has a
beneficial interest in REL Coinvestment, LP, which as at the
year-end consisted of 1,976,750 Ordinary Shares, and Riverstone
Energy Limited Capital Partners LP, which as at the year-end
consisted of 627,920 Ordinary Shares. Mr Leuschen, Mr Ryan and
other members of Riverstone senior management have a beneficial
interest in REL Capital Partners LP, which at the year-end
consisted of 1,007,606 Ordinary Shares. Other Riverstone senior
management have a beneficial interest in REL Coinvestment, LP
consisting of 843,353 Ordinary Shares.
The Directors confirm that there are no securities in issue that
carry special rights with regards to the control of the
Company.
Independent External Auditor
Ernst & Young LLP has been the Company's external auditor
since incorporation. The Audit Committee reviews the appointment of
the external auditor, its effectiveness and its relationship with
the Company, which includes monitoring the use of the external
auditor for non-audit services and the balance of audit and
non-audit fees paid. Following a review of the independence and
effectiveness of the external auditor, a resolution will be
proposed at the 2021 Annual General Meeting to reappoint Ernst
& Young LLP. Each Director believes that there is no relevant
information of which the external auditor is unaware. Each has
taken all steps necessary, as a Director, to be aware of any
relevant audit information and to establish that Ernst & Young
LLP is made aware of any pertinent information. This confirmation
is given and should be interpreted in accordance with the
provisions of Section 249 of the Companies Law. Further information
on the work of the external auditor is set out in the Report of the
Audit Committee.
Articles of Incorporation
The Company's Articles of Incorporation may only be amended by
special resolution of the Shareholders. At the AGM on 22 May 2018,
the Company adopted Amended and Restated Articles.
AIFMD
REL is regarded as an externally managed non-EEA AIF under the
AIFM Directive. RIGL is the Investment Manager of the Company as
its non-EEA AIFM. The AIFMD outlines the required information which
has to be made available to investors in an AIF and directs that
material changes to this information be disclosed in the Annual
Report of the AIF. All information required to be disclosed under
the AIFMD is either disclosed in this Annual Report or is detailed
in the Appendix entitled AIFMD Disclosures on page 178 in REL's
latest Prospectus which can be obtained through the Company's
website www.RiverstoneREL.com. The AIFM has no remuneration within
the current or prior year that falls within the scope of Article 22
of the Directive.
RIGL provides AIFMD compliant management services to REL. The
AIFM acting on behalf of the AIF, has appointed Ocorian Depositary
Company (UK) Limited to provide depositary services to the AIF. The
appointment of the Depositary is intended to adhere to, and meet
the conditions placed on the Depositary and the AIFM under Article
21 and other related articles of the AIFMD. The Depositary shall
only provide depositary services to the AIF should it admit one or
more German and/or Danish investors following marketing activity
towards them. At that time, the Depositary shall observe and comply
with the Danish and German regulations applying to the provision of
depositary services to a non-EEA AIF marketed in Denmark or
Germany, as the case may be, by a non-EEA AIFM.
UCITS Eligibility
The Investment Manager is a relying adviser of Riverstone
Investment Group LLC. Riverstone Investment Group LLC is registered
as an investment adviser with the SEC under the U.S. Investment
Advisers Act. As such, the Investment Manager is subject to
Riverstone Investment Group LLC's supervision and control, the
advisory activities of the Investment Manager are subject to the
U.S. Investment Advisers Act and the rules thereunder and the
Investment Manager is subject to examination by the SEC.
Accordingly the Company has been advised that its Ordinary Shares
should be "transferable securities" and, therefore, should be
eligible for investment by authorised funds in accordance with the
UCITS Directive or NURS on the basis that:
-- the Company is a closed end investment company;
-- the Ordinary Shares are admitted to trading on the Main
Market of the London Stock Exchange; and
-- the Ordinary Shares have equal voting rights.
However, the manager of the relevant UCITS or NURS should
satisfy itself that the Ordinary Shares are eligible for investment
by the relevant UCITS or NURS.
AEOI Rules
Under AEOI Rules the Company continues to comply with both FATCA
and CRS requirements to the extent relevant to the Company.
General Partner's Performance Allocation and Management Fees
The General Partner's Performance Allocation is equal to 20 per
cent. of all applicable realised pre-tax profits, in accordance
with the revised terms announced on 3 January 2020, but effective
30 June 2019 (see Note 9 for further detail). In particular, taxes
on realised gains from ECI investments, as shown in the Investment
Manager's Report, in excess of existing net operating losses, can
be substantial at rates up to 27.5 per cent. The Company is not an
umbrella collective investment undertaking and therefore has no
gross liability. 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.
The General Partner's Performance Allocation is calculated under
the aforementioned revised terms of the Partnership Agreement
announced on 3 January 2020, but effective 30 June 2019, and as
described in the Prospectuses.
The accrued Performance Allocation is calculated on a quarterly
basis, which is taken into account when calculating the fair value
of the Company's investment in the Partnership, as described in
Note 10. The fair value of the Company's investment in the
Partnership is after the calculation of Management Fees, as
described in Note 9.
The financial effect of the General Partner's Performance
Allocation, Management Fees and any taxes on ECI investments is
shown in Note 6. The Investment Management Agreement continues into
perpetuity post the seventh year anniversary.
Going Concern
The Audit Committee has reviewed the appropriateness of the
Company's Financial Statements being prepared in accordance with
Guernsey law and IFRS and presented on a going concern basis, which
it has recommended to the Board. As further disclosed in the
Corporate Governance Report, the Company is a member of the AIC and
complies with the AIC Code. The Financial Statements have been
prepared on a going concern basis for the reasons set out below and
as the Directors, with recommendation from the Audit Committee,
have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable
future. In reaching this conclusion, the Directors, with
recommendation from the Audit Committee, have considered the risks
that could impact the Company's liquidity over the period from the
date of approval of the Financial Statements up until 31 March
2022, as well as taken into account the following four key
considerations, which are discussed further below.
1. Available liquid resources and potential proceeds from
investment realisations versus current and expected liabilities of
the Company over the period from the date of approval of the
Financial Statements up until 31 March 2022;
2. Available liquid resources and potential proceeds from
investment realisations versus total potential unfunded commitments
of the Partnership;
3. Discount to NAV of the Company; and
4. COVID-19.
1. Available liquid resources and potential proceeds from
investment realisations versus current and expected liabilities of
the Company over the period from the date of approval of the
Financial Statements up until 31 March 2022
The Audit Committee has recommended to the Directors that they
should have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the period from
the date of approval of the Financial Statements up until 31 March
2022, as explained below. The Company retained $11.5 million of
cash in the IPO and Placing and Open Offer, and has requested and
received seven distributions for working capital needs in aggregate
of $24.3 million from the Partnership cumulatively through 31
December 2020. During 2020, in addition to the two distributions
for working capital needs in aggregate of $10 million requested and
received from the Partnership, the Company also requested and
received a distribution request of GBP50 million ($63 million) for
the share buyback programme, of which $8.8 million remains at 31
December 2020 (31 December 2019: $0.2 million). This cash balance
is sufficient to cover the Company's existing liabilities at 31
December 2020 of $3.2 million, the remaining portion of the
aforementioned share buyback programme of $1.0 million and the
Company's forecasted annual expenses of approximately $4.0 million.
As in prior years, in accordance with the Partnership Agreement, if
the Company requires additional funds for working capital, it is
entitled to receive another distribution from the Partnership. In
order to do so, the Company would submit a distribution request
approved by the Board to the Partnership, which would then be
required to arrange for the payment of the requested amount. Since
REL's inception, the Company has requested and received seven
distributions from the Partnership for working capital needs. As
detailed further in section 2 below, REL and the Partnership had
available liquid resources of $99.1 million in excess of potential
unfunded commitments of $83.2 million at 31 December 2020, but
currently, as of the date of this report, REL, through the
Partnership has total potential unfunded commitments of $89.3
million, which exceed its available liquid resources of $53.5
million. However, based on the Investment Manager's cash flow
forecast for the next three years to 31 December 2023, the
expectation is that, if needed, the Partnership will only fund the
remaining commitments to ILX III, Onyx Power and Enviva, which
aggregate to $41.9 million as of the date of this report.
2. Available liquid resources and potential proceeds from
investment realisations versus total potential unfunded commitments
of the Partnership
As at 31 December 2020, REL and the Partnership, including its
wholly-owned subsidiaries, REL Cayman Holdings, LP, REL US Corp and
REL US Centennial Holdings, LLC, had $99.1 million of uninvested
funds held as cash and money market fixed deposits (31 December
2019: $182.4 million). This amount is comprised of $90.3 million
held at the Partnership and $8.8 million held at REL. In 2021, the
Company, through the Partnership, invested $39.5 million held at
the Partnership in Loanpal of $25.0 million, FreeWire of $10.0
million, ILX III of $3.9 million and DCRN of $0.6 million, bringing
the uninvested funds at the Partnership level down to $53.5 million
as at the date of this report. In accordance with the revised terms
for REL's GP Performance Allocation announced in January 2020, REL
did not meet the portfolio level cost benchmark at 31 December
2020; therefore, any unrealised performance allocation has been
deferred. If these changes had not been accepted, then the accrued
GP Performance Allocation would have been $3.7 million as of 31
December 2020. No performance fees will be payable until the $565
million realised and unrealised losses to date at 31 December 2020
are offset with future gains. If these realised and unrealised
losses have not been offset, any such accrued fees will no longer
be payable after three years from each respective accrual date.
The Company's total potential unfunded commitments of $83.2
million as at 31 December 2020 (31 December 2019: $212.5 million),
through the Partnership, did not exceed its available liquid
resources as at 31 December 2020. In 2021, REL, through the
Partnership, invested $3.9 million of its remaining commitment in
ILX III and fully funded its commitments to new investments in
Loanpal of $25.0 million, FreeWire of $10.0 million and DCRN of
$0.6 million, as well as announced a commitment to DCRB of $10.0
million, bringing total potential unfunded commitments to $89.3
million. This amount exceeds the Partnership's available liquid
resources of $53.5 million as of the date of this report, which
includes $2.7 million of proceeds from Meritage III, Ridgebury H3
and Loanpal received in 2021. It is not expected that all potential
unfunded commitments will be drawn due to a variety of factors,
such as the ability for the commitment to be reduced and/or
cancelled by the Investment Manager with consideration from the
Board, the present market conditions do not warrant presently
further capital expenditure as the returns would not be
incrementally positive, a portfolio company being sold earlier than
anticipated or a targeted investment opportunity changing or
disappearing. Based on the Investment Manager's cash flow forecast
for the next three years to 31 December 2023, the expectation is
that, if needed, the Partnership will only fund the remaining
commitments to ILX III, Onyx Power and Enviva, which aggregate to
$41.9 million as of the date of this report. However, if the Board
decides to fund any of the Partnership's unfunded commitments to
the other active investments, the Partnership can execute a
reactionary measure to provide liquidity as discussed further
below.
As at 31 December 2020, the Company, through the Partnership,
has realised eight investments for $692 million of gross proceeds
on invested capital of $440 million, respectively in aggregate,
resulting in an average Gross MOIC of approximately 1.6x. The
initial commitments to these eight investments were in excess of
$734 million, so approximately 60 per cent. had been funded before
realisation. In addition, the board of each underlying portfolio
company, more often than not are controlled by Riverstone, which
has discretion over whether or not that capital is ultimately
invested. Moreover, REL's arrangements with Riverstone allow the
Company's potential unfunded commitments to be reduced and/or
cancelled by the Investment Manager with consideration from the
Board, although this has yet to happen. Moreover, any proposed
investments outside of those made with Fund V and Fund VI can be
unilaterally declined by the Board.
Finally, as a reactionary measure, the Partnership's investments
in the publicly-traded shares of the portfolio companies could
always be sold, or used as collateral to secure asset-backed
financing, to fund the Partnership's shortfall of liquid resources
and potential proceeds from investment realisations versus
potential unfunded commitments, which is $35.8 million as of the
date of this report. The Partnership holds marketable securities
consisting of publicly-traded shares of Centennial, Pipestone and
Talos, for which the aggregate fair value was $31.4 million at 31
December 2020 and $75.2 million as of 22 February 2021.
3. Discount to NAV of the Company
Since its inception, the Company's trading discount to NAV
percentage has remained consistent with a population of comparable
publicly--traded PE funds as their life to date average trading
discount percentages are 20.3 per cent. and 21.7 per cent.,
respectively. However, from December 2015 to January 2016 and
November 2018 to December 2018, as well as from December 2019 to
November 2020, declines in the price of oil adversely impacted the
market sentiment for energy companies, which resulted in the
Company's trading discount percentage increasing at a faster rate
than the population of comparable publicly-traded PE funds, as it
is solely invested in the global energy industry across all
sectors. In order to return uninvested capital to Shareholders and
attempt to reduce REL's trading discount percentage, on 1 May 2020,
the Company announced a buyback programme with the intention of
returning GBP50 million to shareholders via market buybacks. Since
the announcement, the Company has purchased 16,958,265 shares, in
aggregate, for GBP49 million ($62 million) at an average share
price of GBP2.90 ($3.67), which has attributed to the narrowing of
the
Company's trading discount from 66.1 per cent. at 31 March 2020
to 34.7 per cent. at 31 December 2020 (or from 131.7 per cent. to
46.5 per cent., respectively, on a cash-adjusted basis). From
year-end through 22 February 2021, reflecting a $43.8 million
increase in the fair value of the Company's unrestricted marketable
securities, the Company's pro forma trading discount has remained
relatively unchanged and was 34.8 per cent. as of 22 February 2021
(or 40.1 per cent. on a cash-adjusted basis).
The Board, with consultation of the Investment Manager,
regularly monitors the Company's trading discount percentage and,
when possible, executes corporate actions aimed at managing it,
such as the aforementioned share buyback programme and Tender Offer
share repurchase in November 2018, which attributed to a 1.5 per
cent. increase in the Company's NAV, and partially offset the
increase of the trading discount percentage. As announced on 4
January 2021, the Board intends to recommence the aforementioned
share buyback programme after publication of the Annual Report.
4. COVID-19
The Board and Investment Manager have been in continuous
dialogue regarding the impact of COVID-19 and appropriate
disclosures within the Company's interim condensed financial
statements, given that it's an evolving situation. The Company's
Management Engagement Committee requested and received updates from
REL's key service providers, including the Investment Manager,
regarding their response to COVID-19, including an update on their
respective business continuity plans.
The Investment Manager activated its business continuity plan
and its regular working pattern has changed to remote working,
though all staff are continuing to assume their day-to-day
responsibilities remotely. There has been regular communication
with its employees, as well as its investors. In addition, the
Investment Manager's partners are hosting regular calls on
potential investment opportunities in this new environment (caused
by COVID-19 and OPEC+ news), so that Riverstone can best position
the portfolio for the future. The Investment Manager has contacted
its portfolio companies to make sure that they have the appropriate
plans and resources in place to prioritise the health and safety of
their employees, as well as to assess supply chain disruptions and
ensure the normal operations of our businesses.
Directors' Assessment of Going Concern
Based on the reasons outlined above, on balance, the Directors
are satisfied, as of today's date, that it is appropriate to adopt
the going concern basis in preparing the Financial Statements.
Viability Statement
The Directors, with recommendation from the Audit Committee,
have assessed the prospects of the Company over a longer period
than required by the going concern provision. With recommendation
from the Audit Committee, the Board chose to conduct a review for a
period of three years to 31 December 2023 as it was determined to
be an appropriate timeframe based on the historical investment
cycle of the Company's investments, through the Partnership, and
its financial planning processes. On a rolling basis the Directors
evaluate the outcome of the investments and the Company's financial
position as a whole. While an unprecedented and long-term decline
in global oil and gas consumption would threaten the Company's
performance, it would not necessarily threaten its viability.
In support of this statement, the Audit Committee recommended to
the Directors to take into account all of the principal risks and
their mitigation as identified in the Principal Risk and
Uncertainties section of the Corporate Governance Report, the
nature of the Company's business; including the cash reserves and
money market deposits at the Partnership, the potential of its
portfolio of investments to generate future income and capital
proceeds, and the ability of the Directors to minimise the level of
cash outflows, if necessary. The most relevant potential impacts of
the identified Principal Risks and Uncertainties on viability were
determined to be:
-- An investment's capital requirements may exceed the Company's
ability to provide capital; and
-- The Company may not have sufficient capital available to
participate in all investment opportunities presented.
Each quarter, the Directors, through the Audit Committee, review
threats to the Company's viability utilising the risk matrix and
update as required due to recent developments and/or changes in the
global market. The Board relies on periodic reports provided by the
Investment Manager and Administrator regarding risks faced by the
Company. When required, experts are utilised to gather relevant and
necessary information, regarding tax, legal, and other factors.
The Investment Manager considers the future cash requirements of
the Company before funding portfolio companies. Furthermore, the
Board receives regular updates from the Investment Manager on the
Company's cash position, which allows the Board to maintain their
fiduciary responsibility to the Shareholders and, if required,
limit funding for existing commitments.
The Board, with recommendation from the Audit Committee,
considered the Company's viability over the three year period,
based on a working capital model prepared by the Investment Manager
which presumed that the Board would not seek Shareholder approval
before 31 December 2022 to amend the Company's investment policy to
provide for the managed wind-down of the Company, as discussed
further below. The working capital model forecasts key cash flow
drivers such as capital deployment rate, investment returns,
Management Fees and operating expenses. In connection with the
preparation of the working capital model, capital raises,
realisations, and, dividend payments and/or share repurchases were
assumed to not occur during the three year period, unless already
predetermined. In addition, the Board reviews credit market
availability, but no such financing has been assumed.
If all factors apart from capital deployment rate remain
constant, accelerating the capital deployment rate (which is the
most critical aspect of the Company's operations) by approximately
67 per cent., from 36 months to 12 months, in a worst case
scenario, would result in the Company being directed by the Board,
and the Investment Manager recommending, to preserve working
capital and postpone future investments after 9 months, rather than
18 months; unless a financing, capital raise or realisation of
marketable securities was completed. In both scenarios, the Company
is forecasted to preserve its ability to maintain sufficient
working capital for the three year period.
Despite the prolonged downturn in the price of oil and gas and
the poor performance of the trading price of the Ordinary Shares,
the Investment Manager believes that the investment outlook for the
Company remains attractive, in particular in light of its modified
investment programme for the Company (adopted in 2019) which seeks
to give the Company greater autonomy from the private funds managed
by affiliates of the Investment Manager and to diversify the
Company's investments. The Investment Manager continues to
reposition the Company's focus away from oil and gas investments in
the exploration and production sector and to increase its focus on
renewable, decarbonisation and selective infrastructure
investments, in each case with strong ESG processes in place. This
includes the Company's $25 million commitment announced in July
2020 to participate in the recapitalisation of Enviva Holdings, LP
and $45.6 million aggregate commitments in 2021 to Loanpal ($25
million), DCRB ($10 million), FreeWire ($10 million) and DCRN ($0.6
million).
The Board is supportive of the continuation of the Investment
Manager's modified investment strategy for the immediate future.
However, the Board does propose to monitor the Investment Manager's
success in repositioning the Company's existing investment policy
through the modified investment strategy over the next twenty-four
months. In the absence of a significant improvement in the
performance of the Company, taking into account, among other
factors, the trading price of the Ordinary Shares and portfolio
performance over that period, the Board will seek Shareholder
approval before 31 December 2022 to amend the Company's investment
policy to provide for the managed wind-down of the Company.
Based on the aforementioned procedures and the existing internal
controls of the Company and Investment Manager, the Board, with
recommendation from the Audit Committee, has concluded there is a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
three-year period of the assessment.
Directors' Responsibilities
Although the Company is domiciled in Guernsey, in accordance
with the guidance set out in the AIC Code, the Directors describe
in this Annual Report how the matters set out in Section 172 of the
UK Companies Act 2006 have been considered in their board
discussions and decision-making. Section 172 of the Companies Act
requires that the directors of a company act in the way that they
consider, in good faith, is most likely to promote the success of
the company for the benefit of its members as a whole, and in doing
so have regard (amongst other matters) to the likely consequences
of any decision in the long term and the interests of all the
company's stakeholders.
The Board seeks to encourage engagement between the Company's
Shareholders and the Chairman of the Board, the Chairs of the Audit
and Management Engagement Committees and the Senior Independent
Director, which has been facilitated throughout the year. Up to
date quarterly reporting also provides the Board with accurate,
timely information on shareholder sentiment and direct feedback
from service providers, impacted by the Company's operations, and
is canvassed at least annually by the Chair of the Management
Engagement Committee. It is against this backdrop that key
decisions which are either material to the Company or are
significant to any of the Company's key stakeholders, are taken.
The below key decisions were made or approved by the Directors
during the year, with the overall aim of promoting the success of
the Company, having regard to the long term, while considering the
impact on its members, stakeholders and the wider society as
outlined in the ESG section.
Engagement with Shareholders
The Company reports to Shareholders in a number of formal ways,
including its Annual Report, Interim Report and regulatory news
releases, all of which are approved by the Board. In addition, the
Company's website contains comprehensive information for
Shareholders. Due to potential travel restrictions as a result of
COVID-19, the Directors are keeping the 2021 AGM location and date
under review and will make announcements as information becomes
available. Further details will be included in the AGM Notice and
Form of Proxy, which will be published on the Company's website in
advance of the AGM.
During the year, the Chairman and the Audit Committee Chairman
met with AKRC Investments LLC, the Company's largest shareholder
and Cornerstone Investor, and other large shareholders, ahead of
the Discontinuation vote in December 2020.
Directorate Changes
To bring the structure of the Board in line with current market
practice, each of Mr Lapeyre, Mr Leuschen and Mr Ryan, the
Directors nominated by the Investment Manager, have stepped down as
Directors with effect from 30 October 2020 and will become
observers at the Company's Board meetings instead. The Company's
Investment Management Agreement has been amended to remove the
Investment Manager's ability to nominate directors of the Company
and to replace it with the ability to request that its
representatives attend Board meetings as observers instead, except
in circumstances where matters specifically regarding the
Investment Manager and its affiliates are being considered.
On 1 May 2020, the Company announced a buyback programme with
the intention of returning GBP50 million to Shareholders via on
market buybacks. Since the announcement, the Company has purchased
16,958,265 shares, in aggregate, for GBP49 million ($62 million) at
an average share price of GBP2.90 ($3.67).
Financial Risk Management Policies and Objectives
Financial Risk Management Policies and Objectives are disclosed
in Note 10.
Principal Risk and Uncertainties
Principal Risk and Uncertainties are discussed in the Corporate
Governance Report.
Subsequent Events
Subsequent Events are disclosed in Note 15.
Annual General Meetings
The AGM of the Company will be held at 15:30 pm BST on 25 May
2021 at the offices of Ocorian Administration (Guernsey) Limited,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, Channel
Islands. Details of the resolutions to be proposed at the AGM,
together with explanations, will appear in the notices of meetings
to be distributed to Shareholders listed on the register as at 31
December 2020 together with this Annual Report. As a matter of good
practice, all resolutions will be conducted on a poll and the
results will be announced to the market as soon as possible after
the meeting.
Due to potential travel restrictions as a result of COVID-19,
the Directors are keeping the 2021 AGM location and date under
review and will make announcements as information becomes
available. Further details will be included in the AGM Notice and
Form of Proxy, which will be published on the Company's website in
advance of the AGM.
Members of the Board, including the Chairman and the Chairperson
of each Committee, will be in attendance at the AGM and will be
available to answer Shareholder questions. Additionally,
Shareholders can submit questions in advance to
IR@RiverstoneREL.com addressed for the attention of the Board.
By order of the Board
Richard Hayden
Chairman
23 February 2021
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations.
The Companies Law requires the Directors to prepare Financial
Statements for each financial year. Under the Companies Law, the
Directors must not approve the Financial Statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
that period. In preparing these Financial Statements, the Directors
are required to:
-- select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company's financial position and financial
performance;
-- state that the Company has complied with IFRS, subject to any
material departures disclosed and explained in the Financial
Statements; and
-- prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Financial Statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time, the
financial position of the Company and to enable them to ensure that
the Financial Statements comply with Companies Law. They are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud, error and non-compliance with law and regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website (www.RiverstoneREL.com). The work carried out by
the external auditor does not involve considerations of these
matters and, accordingly, the external auditor accepts no
responsibility for any changes that may have occurred to the
Financial Statements since they were initially presented on the
website.
Legislation in Guernsey governing the preparation and
dissemination of the Financial Statements may differ from
legislation in other jurisdictions.
Responsibility Statement of the Directors in Respect of the
Annual Report under the Disclosure GUIDANCE and Transparency
Rules
Each of the Directors confirms to the best of their knowledge
and belief that:
-- the Financial Statements, prepared in accordance with IFRS,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company;
-- the Annual Report includes a fair review of the development
and performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties faced; and
-- the Annual Report and Financial Statements include
information required by the UK Financial Conduct Authority so that
the Company complies with the provisions of the Listing Rules,
Disclosure Guidance and Transparency Rules of the UK Listing
Authority. With regard to corporate governance, the Company is
required to disclose how it has applied the principles, and
complied with the provisions of the corporate governance code
applicable to the Company.
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations. As part of the preparation of the Annual Report and
Financial Statements, the Directors have received reports and
information from the Company's Administrator and Investment
Manager. The Directors have considered, reviewed and commented upon
the Annual Report and Financial Statements throughout the drafting
process in order to satisfy itself in respect of the content.
Having taken advice from the Investment Manager, the Directors
consider the Annual Report and Financial Statements, taken as a
whole, as fair, balanced and understandable and that it provides
the information necessary for Shareholders to assess the Company's
performance, business model and strategy.
By order of the Board
Richard Hayden Patrick Firth
Chairman Director
23 February 2021 23 February 2021
Corporate Governance Report
As a UK listed Company, Riverstone Energy Limited's governance
policies and procedures are based on the principles of the UK Code
as required under the Listing Rules. The UK Code is available on
the Financial Reporting Council's website, www.frc.org.uk.
The Company is subject to the GFSC Code, which applies to all
companies registered as collective investment schemes in Guernsey.
The GFSC has also confirmed that companies that report against the
UK Code or AIC Code are deemed to meet the GFSC Code.
Although not required as the Company is no longer within the
FTSE 350, the Board monitors developments in corporate governance
to ensure the Board remains aligned with best practice especially
with respect to the increased desired focus on greater gender and
ethnic diversity on the boards of FTSE 350 companies. The Board
recognises and supports the Hampton Alexander Review and the Parker
Review, and acknowledges the importance of having a variety of
backgrounds and experiences represented in the boardroom for the
effective functioning of the Board. It is the ongoing aspiration of
the Board to have a well-diversified representation. The Board also
values diversity of business skills and experience because
Directors with diverse skills sets, capabilities and experience
gained from different geographical backgrounds enhance the Board by
bringing a wide range of perspectives to the Company. The Board's
view has been and, continues to be, that all appointments to the
Board should be merit based, assessed against objective selection
criteria. To avoid precluding any deserving candidate from
consideration, executive search consultants will be asked to
provide candidates from a diverse range of backgrounds and that
these lists are gender neutral.
The AIC Code addresses all the principles set out in the UK
Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance to
investment companies such as the Company. The Board considers that
reporting against the principles and recommendations of the AIC
Code provides better information to Shareholders.
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of the UK Code, except as set out
below.
The UK Code includes provisions relating to:
-- the role of the chief executive;
-- executive directors' remuneration; and
-- the need for an internal audit function.
As explained in the UK Code, the Board considers that the above
provisions are not currently relevant to the position of the
Company, being an externally managed investment company, which
delegates most day-to-day functions to third parties.
The Company does not have a chief executive or any executive
directors. The Company has not established a separate remuneration
committee as the Company has no executive officers and the Board is
satisfied that any relevant issues that arise can be properly
considered by the Board.
The Company has no employees or internal operations and has
therefore not reported further in respect of these provisions. The
need for an internal audit function is discussed in the Audit
Committee report.
The Board
The Company is led and controlled by a Board of Directors, which
is collectively responsible for the long-term sustainable success
of the Company. It does so by creating and preserving value, and
has as its foremost principle acting in the interests of
Shareholders as a whole and the Company's stakeholders.
The Company believes that the composition of the Board is a
fundamental driver of its success as the Board must provide strong
and effective leadership of the Company. The current Board was
selected, as their biographies illustrate, to bring a breadth of
knowledge, skills and business experience to the Company. The
non-executive Directors provide independent challenge and review,
bringing wide experience, specific expertise and a fresh objective
perspective.
The Board consists of five Non-executive Directors (31 December
2019: eight), all of whom, including the Chairman, are independent
of the Company's Investment Manager; Mr Hayden, Mr Firth, Mr
Barker, Mrs Whittet and Mr Thompson (31 December 2019: five). All
Directors served throughout the year. In addition, Mr Lapeyre, Mr
Leuschen, and Mr Ryan, resigned as Directors of the Company with
effect from 30 October 2020, in order to the bring the Company in
line with best practice, as they were not considered independent
because of their nomination for appointment to the Board by the
Investment Manager.
The Chairman of the Board is independent and is appointed in
accordance with the Company's Articles of Incorporation. Mr Hayden
is considered to be independent because he:
-- has no current or historical employment with the Investment Manager;
-- has no current directorships or partnerships in any other
investment funds managed by the Investment Manager; and
-- is not an executive of a self-managed company or an
ex-employee who has left the executive team of a self-managed
company within the last five years.
The Board is fully satisfied that Patrick Firth demonstrates
complete independence and robustness of character and judgement in
his capacity as Senior Independent Director. The Board is of the
view that no individual or group of individuals dominates decision
making.
New Directors receive an induction from the Investment Manager
and all Directors receive other relevant training as necessary.
At each subsequent Annual General Meeting of the Company, each
of the Directors at the date of the notice convening the Annual
General Meeting shall retire from office and may offer themselves
for election or re-election by the Shareholders.
The Board meets at least four times a year for regular,
scheduled meetings and should the nature of the activity of the
Company require it, additional meetings may be held, some at short
notice. At each meeting the Board follows a formal agenda that
covers the business to be discussed. The primary focus at Board
meetings is a review of investment performance and associated
matters such as asset allocation, share price discount/premium
management, investor relations, peer group information, gearing,
industry issues and principal risks and uncertainties in particular
those identified at the end of this report.
Pre COVID-19, between meetings the Board visits the Investment
Manager at least annually, and there is regular contact with the
Administrator. The Board requires to be supplied in a timely manner
with information by the Investment Manager, the Company Secretary
and other advisers in a form and of a sufficient quality to enable
it to discharge its duties.
The Company has adopted a share dealing code for the Board and
will seek to ensure compliance by the Board and relevant personnel
of the Investment Manager and other third party service providers
with the terms of the share dealing code.
Board Tenure and Re-election
No member of the Board has served for longer than nine years as
the Company was incorporated on 23 May 2013. As such, no issue has
arisen to be considered by the Board with respect to long tenure.
In accordance with the AIC Code, when and if any director shall
have been in office (or on re-election would at the end of that
term of office) for more than nine years, the Company will consider
further whether there is a risk that such a director might
reasonably be deemed to have lost independence through such long
service. The Board considers its composition and succession
planning on an ongoing basis. All Directors stand for annual
re-election at the AGM.
A Director who retires at an Annual General Meeting may, if
willing to continue to act, be elected or re-elected at that
meeting. If, at a general meeting at which a Director retires, the
Company neither re-elects that Director nor appoints another person
to the Board in the place of that Director, the retiring Director
shall, if willing to act, be deemed to have been re-elected unless
at the general meeting it is resolved not to fill the vacancy or
unless a resolution for the re-election of the Director is put to
the meeting and not passed.
Directors are appointed under letters of appointment, copies of
which are available at the registered office of the Company. The
Board considers its composition and succession planning on an
ongoing basis.
Directors' Remuneration
The level of remuneration of the Non-executive Directors
reflects the time commitment and responsibilities of their roles.
The remuneration of the Non-executive Directors does not include
any share options or other performance related elements and there
are no plans to seek any Shareholder waivers to deviate from
this.
The Chairman is entitled to annual remuneration of GBP132,000
(31 December 2019: GBP132,000). The Chairman of the Audit Committee
is entitled to annual remuneration of GBP82,500 (31 December 2019:
GBP82,500) and the Chairman of the Management Engagement Committee
is entitled to annual remuneration of GBP71,500 (31 December 2019:
GBP71,500). The other independent Directors are entitled to annual
remuneration of GBP66,000 (31 December 2019: GBP66,000). The three
non-independent Directors had chosen not to be remunerated by the
Company for their services during the period until their
resignation on 30 October 2020.
During the year ended 31 December 2020 and 31 December 2019, the
Directors' remuneration was as follows:
Director 2020 2019
($'000) ($'000)
---------------------- --------- ---------
Peter Barker (1) 85 86
Patrick Firth(1)(2) 106 108
Richard Hayden(1)(3) 170 173
Jeremy Thompson(1) 85 86
Claire Whittet(1)(4) 92 94
Pierre Lapeyre(5) - -
David Leuschen(5) - -
Ken Ryan (5) - -
(1) Non-executive Independent Director
(2) Senior Independent Director and Chairman of the Audit Committee
(3) Chairman of the Company
(4) Chairman of the Management Engagement Committee
(5) Resigned as Director of the Company with effect from 30 October 2020
The above fees due to the Directors are for the year ended 31
December 2020 and 31 December 2019, and none were outstanding at 31
December 2020 (31 December 2019: $Nil).
Duties and Responsibilities
The Board is responsible to Shareholders for the overall
management of the Company. The duties and powers reserved for the
Board include decisions relating to the determination of investment
policy and approval of investments in certain instances, strategy,
capital raising, statutory obligations and public disclosure,
financial reporting and entering into any material contracts by the
Company.
The Board retains direct responsibility for certain matters,
including (but not limited to):
-- approving the Company's long term objective and any decisions
of a strategic nature including any change in investment objective,
policy and restrictions, including those which may need to be
submitted to Shareholders for approval;
-- reviewing the performance of the Company in light of the
Company's strategy objectives and budgets ensuring that any
necessary corrective action is taken;
-- the appointment, overall supervision and removal of key
service providers and any material amendments to the agreements or
contractual arrangements with any key delegates or service
providers;
-- approving any transactions with "related parties" for the
purposes of the Company's voluntary compliance with the applicable
sections of the UK Listing Rules;
-- the review of the Company's valuation policy;
-- the review of the Company's corporate governance arrangements; and
-- approving any actual or potential conflicts of interest.
The Directors have access to the advice and services of the
Administrator, who is responsible to the Board for ensuring that
Board procedures are followed and that it complies with Companies
Law and applicable rules and regulations of the GFSC and the LSE.
Where necessary, in carrying out their duties, the Directors may
seek independent professional advice and services at the expense of
the Company. The Company maintains directors' and officers'
liability insurance in respect of legal action against its
Directors on an ongoing basis.
The Board's responsibilities for the Annual Report are set out
in the Directors' Responsibility Statement. The Board is also
responsible for issuing appropriate half-yearly financial reports,
quarterly portfolio valuations and other price-sensitive public
reports.
Directors' attendance at Board and Committee Meetings:
One of the key criteria the Company uses when selecting
Non-executive Directors is their confirmation prior to their
appointment that they will be able to allocate sufficient time to
the Company to discharge their responsibilities in a timely and
effective manner.
The Board formally met four times during the year. The Board has
held a number of ad hoc meetings, and the sub committees of the
Board have met frequently, during the course of 2020. The Chairman
meets privately with the Non-executive Directors before each
scheduled Board meeting. Directors are encouraged when they are
unable to attend a meeting to give the Chairman their views and
comments on matters to be discussed, in advance. In addition to
their meeting commitments, the Non-executive Directors also liaise
with the Investment Manager whenever required and there is regular
contact outside the Board meeting schedule. In addition to the
Board members, members of the Investment Manager attend relevant
sections of the Board meetings by invitation.
Attendance is further set out below:
Management Tenure as
Audit Nomination Engagement at 31 December
Board Committee Committee Committee 2020
Meetings Meetings Meetings Meetings
(max 4) (max 5) (max 1) (max 1)
Director
--------------------- ------- ---- ----- ------ ----- ------ ------ ------ -----------------
Peter Barker(1) 4 5 1 1 7 years,
4 months
Patrick Firth(1)(2) 4 5 1 1 7 years,
8 months
Richard Hayden(1) 4 5 1 1 7 years,
8 months
Claire Whittet(1) 4 4 1 1 5 years,
8 months
Jeremy Thompson(1) 4 5 1 1 4 years,
8 months
Pierre Lapeyre(3) 3 N/A N/A N/A N/A
David Leuschen(3) 3 N/A N/A N/A N/A
Ken Ryan(3) 3 N/A N/A N/A N/A
(1) Non-executive Independent Director
(2) Non-executive Senior Independent Director
(3) Resigned as Director of the Company with effect from 30
October 2020, at which point 3 scheduled Board meetings had taken
place.
A quorum is comprised of any two or more members of the Board
from time to time, to perform
administrative and other routine functions on behalf of the
Board, subject to such limitations as the Board may expressly
impose on this committee from time to time.
Travel restrictions imposed as a result of the global COVID-19
pandemic resulted in Board members who are not ordinarily resident
in Guernsey being unable to travel and attend certain Board and
committee meetings in person during 2020. In those cases, the
relevant Board members attended those meetings by telephone or
video link (and are shown as being in attendance at the relevant
meeting in the table above), although only the Directors who were
physically present in Guernsey were treated as being present at the
meeting for the quorum and voting provisions applicable to Board
and committee meetings contained in the Company's Articles.
Conflicts of interest
A Director has a duty to avoid a situation in which he or she
has, or can have, a direct or indirect interest that conflicts, or
possibly may conflict, with the interests of the Company. The Board
requires Directors to declare all appointments and other situations
that could result in a possible conflict of interest and has
adopted appropriate procedures to manage and, if appropriate,
approve any such conflicts. The Board is satisfied that there is no
compromise to the independence of those Directors who have
appointments on the boards of, or relationships with, companies
outside the Company.
Committees of the Board
The Board believes that it and its committees have an
appropriate composition and blend of skills, experience,
independence and diversity of backgrounds to discharge their duties
and responsibilities effectively. The Board keeps its membership,
and that of its committees, under review to ensure that an
acceptable balance is maintained, and that the collective skills
and experience of its members continue to be refreshed. It is
satisfied that all Directors have sufficient time to devote to
their roles and that undue reliance is not placed on any
individual.
Each committee of the Board has written terms of reference,
approved by the Board, summarising its objectives, remit and
powers, which are available on the Company's website
(www.RiverstoneREL.com) and reviewed on an annual basis. All
committee members are provided with appropriate induction on
joining their respective committees, as well as on-going access to
training. Minutes of all meetings of the committees (save for the
private sessions of committee members at the end of meetings) are
made available to all Directors and feedback from each of the
committees is provided to the Board by the respective committee
Chairmen at the next Board meeting. The Chairman of each committee
attends the AGM to answer any questions on their committee's
activities. Due to potential COVID-19 travel restrictions, the
Directors are keeping the 2021 AGM location and date under review
and will make announcements as information becomes available.
Further details will be included in the AGM Notice and Form of
Proxy, which will be published on the Company's website in advance
of the AGM.
The Board and its committees are supplied with regular,
comprehensive and timely information in a form and of a quality
that enables them to discharge their duties effectively. All
Directors are able to make further enquiries of management whenever
necessary and have access to the services of the Company
Secretary.
Audit Committee
The Audit Committee is chaired by Mr Firth and comprises Mr
Barker, Mr Hayden, Mr Thompson and Mrs Whittet. The Chairman of the
Audit Committee, the Investment Manager and the external auditor,
Ernst & Young LLP, have held discussions regarding the audit
approach and identified risks. The external auditors attend Audit
Committee meetings and a private meeting is routinely held with the
external auditors to afford them the opportunity of discussions
without the presence of management. The Audit Committee activities
are contained in the Report of the Audit Committee.
Nomination Committee
The Nomination Committee is chaired by Mr Hayden and comprises
Mr Barker, Mr Firth, Mr Thompson and Mrs Whittet.
The Nomination Committee meets at least once a year pursuant to
its terms of reference and met on 25 February 2020. The Nomination
Committee is convened for the purpose of considering the
appointment of additional Directors as and when considered
appropriate. The Nomination Committee recognises the continuing
importance of planning for the future and ensuring that succession
plans are in place. In considering appointments to the Board, the
Nomination Committee takes into account the ongoing requirements of
the Company and evaluates the balance of skills, experience,
independence, and knowledge of each candidate. Appointments are
therefore made on personal merit and against objective criteria
with the aim of bringing new skills and different perspectives to
the Board whilst taking into account the existing balance of
knowledge, experience and diversity.
In the case of candidates for Non-executive Directorships, care
is taken to ascertain that they have sufficient time to fulfil
their Board and, where relevant, committee responsibilities. The
Board believes that the terms of reference of the Nomination
Committee ensure that it operates in a rigorous and transparent
manner. The Board believes that, as a whole, it comprises an
appropriate balance of skills, experience and knowledge. The Board
also believes that diversity of experience and approach, including
gender diversity, amongst Board members is of great importance and
it is the Company's policy to give careful consideration to issues
of Board balance and diversity when making new appointments. The
Board remains focussed on the guidelines outlined by the
Hampton-Alexander Review and The Parker Review.
The Nominations Committee has reviewed the composition,
structure and diversity of the Board, succession planning, the
independence of the Directors and whether each of the Directors has
sufficient time available to discharge their duties effectively.
The Nominations Committee and the Board confirm that they believe
that the Board has an appropriate mix of skills and backgrounds and
was selected with that in mind, that all Directors should be
considered as Independent in accordance with the provisions of the
AIC Code and that all Directors have the time available to
discharge their duties effectively.
Notwithstanding that Claire Whittet is on the Boards of six
companies listed on the London Stock Exchange or Euronext, the
Committee noted that she is a full-time non-executive director and
that all of the six companies are listed investment companies where
the level of complexity and time commitment required is lower than
larger trading companies. Further, they noted that Mrs Whittet has
attended all Board and main committee meetings during the year,
except for one Audit Committee meeting, and that she has always
shown the time commitment to discharge fully and effectively her
duties as a Director.
Patrick Firth is a director and Chairman of the Audit Committee
of four companies listed on the London Stock Exchange. He is also a
full-time non-executive director and all of the four companies are
listed investment companies. Further, they noted that Mr Firth has
attended all Board and main committee meetings during the year and
that he has always demonstrated the time commitment to discharge
fully and effectively his duties as a Director.
Accordingly, the Board recommends that Shareholders vote in
favour of the re-election of all Directors at the forthcoming
AGM.
Management Engagement Committee
The Management Engagement Committee is chaired by Mrs Whittet
and comprises Mr Barker, Mr Hayden, Mr Firth and Mr Thompson. The
Management Engagement Committee meets at least once a year pursuant
to its terms of reference.
The Management Engagement Committee provides a formal mechanism
for the review of the performance of the Investment Manager and the
Company's other advisors and service providers. It carries out this
review through consideration of a number of objective and
subjective criteria and through a review of the terms and
conditions of the advisors' appointments with the aim of evaluating
performance, identifying any weaknesses and ensuring value for
money for the Shareholders. During 2020, all service providers
confirmed on two occasions that their Business Continuity Plans
were performing well under COVID-19 restrictions and the Board
noted that there was no disruption to the quality of service
received.
Board Performance and Evaluation
In accordance with Provision 26 of the AIC Code which requires a
formal and rigorous annual evaluation of its performance, the Board
formally reviews its performance annually through an internal
process. Internal evaluation of the Board, the Audit Committee, the
Nomination Committee, the Management Engagement Committee and
individual Directors has taken the form of self-appraisal
questionnaires and discussions to determine effectiveness and
performance in various areas as well as the Directors' continued
independence.
The Board believes that annual evaluations are helpful and
provide a valuable opportunity for continuous improvement.
All Directors participated in the evaluation, and the findings
were collectively considered by the Board. No significant areas of
weaknesses were highlighted during the evaluation and the Board
concluded that it had operated effectively throughout 2020. The
Board is confident in its ability to continue effectively to lead
the Company and oversee its affairs. The Board believes that the
current mix of skills, experience, knowledge and age of the
Directors is appropriate to the requirements of the Company.
The Board commissions an independent evaluation of its
performance every three years. The next independent evaluation is
due in 2022.
New Directors receive an induction on joining the Board and
regularly meet with the senior management employed by the
Investment Manager both formally and informally to ensure that the
Board remains regularly updated on all issues. All members of the
Board are members of professional bodies and serve on other Boards,
which ensures they are kept abreast of the latest technical
developments in their areas of expertise.
The Board arranges for presentations from the Investment
Manager, the Company's brokers and other advisors on matters
relevant to the Company's business. The Board assesses the training
needs of Directors on an annual basis.
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Company's system of internal
control and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss. However,
the Board's objective is to ensure that Riverstone Energy Limited
has appropriate systems in place for the identification and
management of risks. The Directors carry out a robust assessment of
the principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. The key procedures which have been established to
provide internal control are that:
-- the Board has delegated the day-to-day operations of the
Company to the Administrator and Investment Manager; however, it
retains accountability for all functions it delegates;
-- the Board clearly defines the duties and responsibilities of
the Company's agents and advisors and appointments are made by the
Board after due and careful consideration. The Board monitors the
ongoing performance of such agents and advisors and will continue
to do so through the Management Engagement Committee;
-- the Board monitors the actions of the Investment Manager at
regular Board meetings and is given frequent updates on
developments arising from the operations and strategic direction of
the underlying investee companies;
-- the Administrator provides administration and company
secretarial services to the Company. The Administrator maintains a
system of internal control on which they report to the Board;
and
-- the Board has reviewed the need for an internal audit
function and has decided that the systems and procedures employed
by the Administrator and Investment Manager, including their own
internal controls and procedures, provide sufficient assurance that
an appropriate level of risk management and internal control, which
safeguards Shareholders' investment and the Company's assets, is
maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
Internal controls over financial reporting are designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of Financial Statements for external
reporting purposes. The Administrator and Investment Manager both
operate risk controlled frameworks on a continual ongoing basis
within a regulated environment. The Administrator has undertaken an
ISAE 3402: Assurance Reports on Controls at a Service Organisation
audit and formally reports to the Board quarterly through a
compliance report. The Investment Manager formally reports to the
Board quarterly including updates within Riverstone and also
engages with the Board on an ad-hoc basis as required. No
weaknesses or failings within the Administrator or Investment
Manager have been identified.
The systems of control referred to above are designed to ensure
effectiveness and efficient operation, internal control and
compliance with laws and regulations. In establishing the systems
of internal control, regard is paid to the materiality of relevant
risks, the likelihood of costs being incurred and costs of control.
It follows therefore that the systems of internal control can only
provide reasonable but not absolute assurance against the risk of
material misstatement or loss. This process has been in place for
the year under review and up to the date of approval of this Annual
Report and Financial Statements. It is reviewed by the Board and is
in accordance with the FRC's internal control publication: Guidance
on Risk Management, Internal Control and Related Financial and
Business Reporting.
Investment Management Agreement
The Investment Manager is the sole investment manager of the
Company and the Partnership. Pursuant to the Investment Management
Agreement, the Investment Manager has responsibility for and
discretion over investing and managing the Company's and the
Partnership's direct and indirect assets, subject to and in
accordance with the Company's investment policy. The Investment
Manager is entitled to delegate all or part of its functions under
the Investment Management Agreement to one or more of its
affiliates.
The Company has delegated the provision of all services to
external service providers whose work is overseen by the Management
Engagement Committee at its regular scheduled meetings. Each year,
a detailed review of performance pursuant to their terms of
engagement is undertaken by the Management Engagement Committee. In
particular, during 2019, the Management Engagement Committee and
the Investment Manager discussed fees, termination provisions,
capital structure management, the performance of the Company, and
the basis of the Company's and the Investment Manager's
relationship and alignment of interests at length, including the
benefits to the Company of Riverstone's extensive participation in
the management of all of the Company's investments and the
significant equity commitment of Riverstone to the Company as one
of its major Shareholders.
In accordance with Listing Rule 15.6.2(2)R and having formally
appraised the performance and resources of the Investment Manager,
in the opinion of the Directors the continuing appointment of the
Investment Manager on the terms agreed is in the interests of the
Shareholders as a whole.
On 3 January 2020, the Company announced amendments to
Performance Allocation arrangements under the Investment Management
Agreement that are effective from 30 June 2019. The amended terms
on which the Company is required to pay a Performance Allocation in
respect of its investment are as follows:
-- Portfolio level cost benchmark: A Performance Allocation will
only be distributed in respect of a realised investment if, at the
time of the realisation of the relevant investment, the aggregate
of the fair market value of all of the Company's then unrealised
investments and the proceeds of all of its realised investments
since inception exceeds the aggregate acquisition price of all of
the Company's unrealised and realised investments. If this
portfolio level cost benchmark is not met at the time of
realisation of the relevant investment, distribution of the
Performance Allocation is subject to deferment as described further
below. As of 31 December 2020, the portfolio level cost benchmark
was in deficit of $565 million.
-- 8 per cent. hurdle rate: A Performance Allocation will only
be accrued for payment upon the realisation of an investment if the
proceeds from that investment exceed an amount equal to its
acquisition cost plus an 8 per cent. annual cumulative hurdle rate
calculated from the date of investment to the date of realisation.
If the hurdle is met, the Performance Allocation will be 20 per
cent. of all Net Profits in respect of each such investment. As of
31 December 2020, the Ridgebury and Enviva investments exceeded the
hurdle rate and the total portfolio's Gross IRR is approximately
-14.9 per cent.
-- Full realisation: A Performance Allocation will only be
calculated and accrued on the full realisation of the entire
interest in an investment, unless a partial realisation results in
the full return of all capital invested in such investment.
Otherwise, no Performance Allocation will be payable on partial
disposals and the ability for the Investment Manager to elect to
receive a Performance Allocation on an investment that has been
held by the Company for at least seven years (but not sold) has
been removed.
-- Deferral: If the portfolio level cost benchmark is not met at
the time of full realisation of the relevant investment, it will be
retested on a quarterly basis for the following three years. If, at
any time during those three years, the benchmark is satisfied for
four continuous quarters, the relevant Performance Allocation will
then become distributable without interest. Any accrued but
undistributed Performance Allocation that has been deferred due to
the portfolio level cost benchmark test will expire after 36
months.
The Investment Manager will continue to be required to apply
each Performance Allocation (net of taxes) to acquire ordinary
shares of the Company.
During the year, in compliance with the laws of the Cayman
Islands, the Company and its existing Investment Manager,
Riverstone International Limited, a Cayman Islands exempted
company, assigned its investment advisory rights and obligations
under the Company's Investment Management Agreement to RIL's
immediate parent entity, RIGL Holdings, LP, a Cayman Islands
exempted limited partnership.
Furthermore, on 9 December 2020, the Company's Investment
Management Agreement has been amended to remove the Investment
Manager's ability to nominate directors of the Company and to
replace it with the ability to request that its representatives
attend Board meetings as observers instead, except in circumstances
where matters specifically regarding the Investment Manager and its
affiliates are being considered.
Distribution of Investment Proceeds
In addition, the Company and the Investment Manager have agreed
that, going forward, 20 per cent. of the Net Profits attributable
to each fully realised investment, net of taxes, withholdings or
reserves for taxes will, at the discretion of the Company, be
available for distribution to the Company's Shareholders, whether
by dividend or share repurchases.
Our Culture
The Board has determined that the Company's culture is built
around that of the Investment Manager, with a focus on long lasting
relationships with a diverse investor base; sustainable investment
excellence; and a world class team demonstrating extensive industry
knowledge. The Board monitors the Company's culture on an annual
basis through continued engagement with Shareholders and
management.
Relations with Shareholders
The Board welcomes Shareholders' views and places great
importance on communication with its Shareholders. Due to potential
COVID-19 travel restrictions, the Directors are keeping the 2021
AGM location and date under review and will make announcements as
information becomes available. Further details will be included in
the AGM Notice and Form of Proxy, which will be published on the
Company's website in advance of the AGM. In addition, Mr Firth, as
the Senior Independent Director, is also available to Shareholders
if they have concerns which contact through the normal channels has
failed to resolve or for which such contact would be inappropriate.
Mrs Whittet, Management Engagement Committee Chair, is available to
discuss matters regarding service providers of REL. The Chairman,
Senior Independent Director and other Directors are also available
to meet with Shareholders at other times, if required. At the
request of several Shareholders, the Chairman, Senior Independent
Director and other Directors arranged meetings and addressed direct
correspondence raised at the quarterly Board meetings during the
year.
The Company reports formally to Shareholders in a number of
ways; regulatory news releases through the London Stock Exchange's
Regulatory News Service, announcements are issued in response to
events or routine reporting obligations. Also, an Interim Report
will be published each year outlining performance to 30 June and
the Annual Report will be published each year for the year ended 31
December, both of which will be made available on the Company's
website. In addition, the Company's website contains comprehensive
information, including company notifications, share information,
financial reports, investment objectives and policy, investor
contacts and information on the Board and corporate governance.
Shareholders and other interested parties can subscribe to email
news updates by registering online on the website.
The Investment Manager has regular contact with Shareholders,
including the Cornerstone Investors, and any views that they may
have are communicated to the Board and vice versa. No sensitive
information is provided to the Cornerstone Investors that is not
provided to the Shareholders as a whole and at the same time. The
Board is also kept fully informed of all relevant market commentary
on the Company by the Investment Manager and the Corporate Brokers.
The Directors and Investment Manager receive informal feedback from
analysts and investors, which is presented to the Board by the
Company's Broker. The Company Secretary also receives informal
feedback via queries submitted through the Company's website and
these are addressed by the Board, the Investment Manager or the
Company Secretary, where applicable.
Over the year, the Investment Manager's investor relations team
and senior management held several roadshows and meetings with
investors and equity research analysts.
Financial results, events, corporate reports, webcasts and fact
books are all stored in the Investor Relations section of our
website: www.riverstonerel.com/investors/
2021 KEY SHAREHOLDER ENGAGEMENTS
January
Quarterly Portfolio Valuations
February
Full Year Results
April
Notice of Annual General Meeting
Quarterly Portfolio Valuations
May
Annual General Meeting
July
Quarterly Portfolio Valuations
August
Half Year Results
October
Quarterly Portfolio Valuations
Engagement with Stakeholders
The wider stakeholders of the Company comprise its service
providers, investee companies and suppliers and the Board
recognises and values these stakeholders.
The Company's relationship with its service providers, including
the Investment Manager, is of particular importance. Service
providers have been selected and engaged based on due diligence and
references including consideration of their internal controls and
expertise. The Company has a Management Engagement Committee, who
will review the performance of each service provider annually and
provide feedback as appropriate, to maintain good working
relationships.
Responsible investing principles have been applied to each of
the investments made, which ensures that appropriate due diligence
has been conducted and that the terms of the investments are
clearly set out and agreed with investee companies in advance.
The Board recognises that relationships with suppliers are
enhanced by prompt payment and the Company's Administrator, in
conjunction with the Investment Manager, ensures all payments are
processed within the contractual terms agreed with the individual
suppliers.
Relations with Other Stakeholders
The Investment Manager conducts presentations with analysts and
investors to coincide with the announcement of the Company's full
and half year results, providing an opportunity for discussions and
queries on the Company's activities, performance and key metrics.
In addition to these semi-annual presentations, the Investment
Manager meets regularly with analysts and investors to provide
further updates with how the Company and the investment portfolio
are performing.
The Directors and Investment Manager receive informal feedback
from analysts and investors, which is presented to the Board by the
Company's Brokers. The Company Secretary also receives informal
feedback via queries submitted through the Company's website and
these are addressed by the Board, the Investment Manager or the
Company Secretary, where applicable.
The Directors recognise that the long term success of the
Company is linked to the success of the communities in which the
Group, and its investee companies, operate.
Whistleblowing
The Board has considered arrangements by which staff of the
Investment Manager or Administrator may, in confidence, raise
concerns within their respective organisations about possible
improprieties in matters of financial reporting or other matters.
It has concluded that adequate arrangements are in place for the
proportionate and independent investigation of such matters and,
where necessary, for appropriate follow-up action to be taken
within their organisation.
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 and energy transition
sectors 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.
Each Director is fully aware of the risks inherent in the
Company's business and understands the importance of identifying,
evaluating and monitoring these risks. The Board has adopted
procedures and controls that enable it to carry out a robust
assessment of the risks facing the Company, manage these risks
within acceptable limits and to meet all of its legal and
regulatory obligations. The Board is committed to upholding and
maintaining our zero tolerance towards the criminal facilitation of
tax evasion.
The Board thoroughly considers the process for identifying,
evaluating and managing any significant risks faced by the Company
on an ongoing basis and these risks are reported and discussed at
Board meetings. It ensures that effective controls are in place to
mitigate these risks and that a satisfactory compliance regime
exists to ensure all applicable local and international laws and
regulations are upheld. The Board and Investment Manager have been
in continuous dialogue regarding the impact of COVID-19 and
appropriate disclosures within the Company's 2020 Annual Report and
Financial Statements, including necessary updates to the key areas
of risk faced by the Company as certain risks have been elevated in
terms of importance for the immediate near-term. With regards to
the continuing impact of COVID-19, the inherent risk of the global
energy sector has been included below, as well as the corresponding
measures taken by the Board, through the Management Engagement
Committee, and the Investment Manager to mitigate the impact of
this risk.
For each material risk, the likelihood and consequence are
identified, management controls and frequency of monitoring are
confirmed, and results reported and discussed at the quarterly
Board meetings.
The Company's principal risk factors are fully discussed in the
Prospectuses, available on the Company's website
(www.RiverstoneREL.com) and should be reviewed by Shareholders.
The key areas of risk faced by the Company are summarised
below:
1. The Company initially intended to only invest in the global
energy sector, with a particular focus on oil and gas exploration
and production, and midstream investments, which exposed it to
concentration risk. Under the modified investment strategy, the
Company has pivoted to focus on energy transition and
decarbonisation.
2. The Ordinary Shares have traded at a Discount to NAV per
Share for reasons including but not limited to: market conditions,
liquidity concerns and actual or expected Company performance. As
such, there is no guarantee that attempts to mitigate such discount
will be successful or that the use of discount control mechanisms
will be possible, advisable or adopted by the Company. There is a
risk that through successive buybacks to try and manage the market
discount to NAV, the Company may become too small to be able to
make new investments or follow-on investments.
3. Investments in the exploration and production and midstream
sectors of the global energy sector involve a degree of inherent
risk.
-- The countries in which the Company invests may be exposed to
domestic policy changes and geopolitical risks.
-- The change in the price of oil could adversely affect the
investment valuations through the public market trading and
transaction comparables, the discounted cash flow rates, and
potentially limit exit opportunities.
-- A change in interest rates could adversely affect efficient
access to debt as a source of capital for both portfolio
investments and potential buyers of portfolio investments.
-- The regulatory and tax environment of the Company's target
investments is potentially subject to change, which may adversely
affect the value or liquidity of investments held by the Company or
its ability to obtain leverage.
-- The Company will be exposed to increased risk by investing in
build-up and early-stage investments that have little or no
operating history and are comparably more vulnerable to financial
failure than more established companies. The investor should be
aware there can be no assurance that losses generated by these
types of entities will be offset by gains (if any) realised on the
Company's other investments.
-- An investment's requirements for additional capital may
require the Company to invest more capital than it had originally
planned or result in the dilution of the Company's investment or a
decrease in the value of that investment.
-- Current regulations require SIFIs, specifically large banks,
to hold sufficient capital as a buffer against trading losses, or
CAR / CRAR. Since commodities are more volatile / risky in the
current market, it could strip large banks of commodity trading
operations to alleviate the capital required to maintain their CAR
/ CRAR. This could in turn impact the commodity prices and
therefore the value of REL's portfolio companies.
-- Some of REL's portfolio companies operate in hazardous
industries, which are highly regulated by safety and health laws.
Failure to provide a safe working environment may result in harm to
employees and local communities. Governments may force closure of
facilities or refuse future drilling right applications.
-- The ongoing coronavirus pandemic has led to reductions in the
near-term demand for energy especially within oil and gas, and
long-term impacts remain unknown. However, the pivot towards energy
transition assets should help to alleviate this risk.
The Company invests broadly across various energy subsectors and
going forward those with de-carbonisation strategies. The Company
will make investments that are compliant with the Investment
Manager's ESG policy.
4. It will be costly for the Company to terminate its Investment
Management Agreement as it has to make significant payments,
including if a Discontinuation Resolution were to be proposed and
passed by Shareholders or if the Company was otherwise wound up.
The Investment Management Agreement does not provide for the
Company to terminate the agreement on notice without specific
cause, and poor investment performance, the departure of key
Riverstone executives or a change of control of Riverstone do not
constitute cause for these purposes.
5. Affiliates of the Investment Manager and the Company's
Cornerstone Investors would be entitled to vote on any
Discontinuation Resolution that may be proposed. As the Investment
Manager and its affiliates (and, indirectly, the Cornerstone
Investors) receive fees from the Company, they will most probably
be incentivised to vote against such resolution. Riverstone and the
Company's Cornerstone Investors, in aggregate, own 56 per cent. of
outstanding Ordinary Shares, with the largest investor owning 32
per cent. as at 31 December 2020.
6. Differences in the investment time horizons and fee
provisions between the Company and the private funds managed by
Riverstone may create conflicts regarding the allocation of
investment opportunities and holding periods between the Company
and those funds, in particular as a result of step-downs in fees
payable by a private fund part way through its duration. The
investments made via Special Purpose Acquisition Companies
("SPACs") may attract a degree of liquidity risk of the SPAC
vehicle itself. In addition, companies in the oil and gas sector
are suffering from Capital Starvation and may have difficulties in
securing finance in the future. For this reason, investment
disposals by sale within the industry can be increasingly more
difficult.
7. Climate change and the transition to a lower carbon economy
could possibly reduce demand for the Company's existing investments
and limit future growth opportunities. General sentiment may affect
investor appetite and hence lead to a depression of the share
price. The Company may be subject to the risk of Perceived Green
Washing. The is a risk that the change to ESG investment focus is
wrongly perceived by the market as being without genuine foundation
having been adopted late in the lifetime of the fund. Furthermore,
there may be a perceived over reliance on the Investment Manager's
ESG Credentials. Riverstone has adopted well publicised and
market-leading credentials for ESG investing having adopted the UN
Principles for Responsible Investment and Sustainable Development
Goals. These are explained at length in the Annual Financial
Statements and the Riverstone website. There is a risk that these
are not tested and examined at the level of the Board.
The Company (as with all companies) continues to be exposed to
external cyber-security threats. The Company recognises the
increased incidence of cyber-security threats and has recently
reviewed its policies, procedures and defences to mitigate
associated risks, as well as those of the Investment Manager,
Administrator and key service providers; engaging market-leading
specialists where appropriate. We continually develop our IT
infrastructure, and monitor those of the Investment Manager,
Administrator and key service providers, to ensure the Company is
resilient to existing and emerging threats.
The above key risks are mitigated and managed by the Board
through continual review, policy setting and updating of the
Company's risk matrix at each Audit Committee Meeting to ensure
that procedures are in place with the intention of minimising the
impact of the above mentioned risks. The Board relies on periodic
reports provided by the Investment Manager and Administrator
regarding risks that the Company faces. When required, experts will
be employed to gather information, including tax advisors, legal
advisors, and environmental advisors. As it is not possible to
eliminate risks completely, the purpose of the Company's risk
management policies and procedures is not to eliminate risks, but
to reduce them and to ensure that the Company is adequately
prepared to respond to such risks and to minimise any impact if the
risk develops.
Over the Company's viability period of the next three years, the
Investment Manager continues to seek monetisation of the Company's
existing E&P investments and reinvest in new investments that
span the entire energy value chain, with a specific focus on
investments that support energy transition and decarbonisation. The
green washing risk and perceived over reliance of the ESG
credentials of the Investment Manager is mitigated by the
experience, background and ESG credentials of the Board, the
adoption of specific Environmental, Social and Corporate Governance
criteria, independently of the Investment Manager, with which to
assess and review investee companies and monitor them on an ongoing
basis at each quarterly Board meetings, and consideration to
exclude certain activities as being out of scope. The ESG
credentials of the Company will be further enhanced by the
publication on the AIC website of the ESG principles adopted by the
Company, detailed explanation of ESG principles broken down and
applied to the fund's new investments, as reported in this Annual
Report. The Board is undertaking a strong analysis of the ESG
principles adopted by the Company as part of the deal due diligence
and ongoing monitoring of investments.
The Company's Management Engagement Committee continues to
receive updates from REL's key service providers, including the
Investment Manager, regarding their ongoing response to COVID-19,
including an update on their respective business continuity plans.
The Investment Manager activated its business continuity plan and
its regular working pattern has changed to remote working, though
all staff are continuing to assume their day-to-day
responsibilities remotely. There has been regular communication
with its employees, as well as its investors. In addition, the
Investment Manager's partners are hosting regular calls on
potential investment opportunities in this new environment (caused
by COVID and OPEC+ news), so that Riverstone can best position the
portfolio for the future. The Investment Manager has contacted its
portfolio companies to make sure that they have the appropriate
plans and resources in place to prioritise the health and safety of
their employees, as well as to assess supply chain disruptions and
ensure the normal operations of our businesses.
The Company's financial instrument risks are discussed in Note
10 to the Financial Statements.
By order of the Board
Richard Hayden
Chairman
23 February 2021
Report of the Audit Committee
The Audit Committee, chaired by Mr Firth, operates within
clearly defined terms of reference, which are available from the
Company's website www.RiverstoneREL.com, and include all matters
indicated by Disclosure Guidance and Transparency Rule 7.1, the AIC
Code and the UK Code. Its other members are Mr Barker, Mr Hayden,
Mr Thompson and Mrs Whittet. Members of the Audit Committee must be
independent of the Company's external auditor and Investment
Manager. The Audit Committee will meet no less than three times in
a year, and at such other times as the Audit Committee Chairman
shall require, and will meet the external auditor at least once a
year.
The Committee members have considerable financial and business
experience and the Board has determined that the membership, as a
whole, has sufficient recent and relevant sector and financial
experience to discharge its responsibilities and that at least one
member has competence in accounting or auditing having a background
as a chartered accountant.
Responsibilities
The main duties of the Audit Committee are:
-- to monitor the integrity of the Company's Financial
Statements and regulatory announcements relating to its financial
performance and review significant financial reporting
judgements;
-- to report to the Board on the appropriateness of the
Company's accounting policies and practices;
-- to review the valuations of the Company's investments
prepared by the Investment Manager, and provide a recommendation to
the Board on the valuation of the Company's investments;
-- to oversee the relationship with the external auditors,
including agreeing their remuneration and terms of engagement,
monitoring their independence, objectivity and effectiveness,
ensuring that policy surrounding their engagement to provide
non-audit services is appropriately applied, and making
recommendations to the Board on their appointment, reappointment or
removal, for it to put to the Shareholders in general meeting;
-- to monitor and consider annually whether there is a need for
the Company to have its own internal audit function;
-- to keep under review the effectiveness of the Company's
internal controls, including financial controls and risk management
systems;
-- to review and consider the UK Code, the AIC Code, the GFSC
Code, the AIC Guidance on Audit Committees and the Stewardship
Code; and
-- to report to the Board on how it has discharged its responsibilities.
The Audit Committee is aware that the Annual Report is not
subject to formal statutory audit, including the Chairman's
Statement and the Investment Manager's Report. Financial
information in these sections is reviewed by the Audit
Committee.
The Audit Committee is required to report its findings to the
Board, identifying any matters on which it considers that action or
improvement is needed, and make recommendations on the steps to be
taken.
The external auditor is invited to attend the Audit Committee
meetings at which the Annual Report and Interim Financial Report
are considered and at which they have the opportunity to meet with
the Committee without representatives of the Investment Manager or
Administrator being present at least once per year.
Financial Reporting
The primary role of the Audit Committee in relation to financial
reporting is to review with the Administrator, Investment Manager
and the external auditor and report to the Board on the
appropriateness of the Annual Report and Financial Statements and
Interim Financial Report, concentrating on, amongst other
matters:
-- the quality and acceptability of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgements have been
applied or there has been discussion with the external auditor
including going concern and viability statement;
-- whether the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy; and
-- any correspondence from regulators in relation to our financial reporting.
To aid its review, the Audit Committee considers reports from
the Administrator and Investment Manager and also reports from the
external auditor on the outcomes of their half-year review and
annual audit. The Audit Committee supports Ernst and Young LLP in
displaying the necessary professional scepticism their role
requires.
Meetings
During the year ended 31 December 2020, the Audit Committee met
formally five times and maintained ongoing liaison and discussion
between the external auditor and the Chairman of the Audit
Committee with regards to the audit approach and the identified
risks. Additional ad hoc meetings or informal discussions have been
convened at other times during the year as the Committee determined
appropriate. The Audit Committee has met on one occasion since the
year-end through to the date of this report on 23 February 2021.
The matters discussed at those meetings include:
-- review of the terms of reference of the audit committee for approval by the Board;
-- review of the accounting policies and format of the Financial Statements;
-- review and approval of the audit plan of the external auditor;
-- discussion and approval of the fee for the external audit;
-- detailed review of the valuations of the Company's investment
portfolio and recommendation for approval by the Board;
-- detailed review of the Annual Report and Financial
Statements, Interim Financial Report and quarterly portfolio
valuations, and recommendation for approval by the Board;
-- assessment of the independence of the external auditor;
-- assessment of the effectiveness of the external audit process as described below;
-- review of the Company's key risks and internal controls;
-- consideration of going concern applicability;
-- focus on ESG; and
-- application of any IFRS changes.
Significant Areas of Judgement Considered by the Audit
Committee
The Audit Committee has determined that a key risk of
misstatement of the Company's Financial Statements relates to the
valuation of the investment in the Partnership at fair value
through profit or loss, in the context of the judgements necessary
to evaluate market values of the underlying investments held
through the Partnership.
The Directors have considered whether any discount or premium
should be applied to the net asset value of the Partnership, which
is based on the fair value of its underlying investments. In view
of the Company's investment in the Partnership and the nature of
the Partnership's assets, no adjustment to the net asset value of
the Partnership has been made, as this is deemed equivalent to fair
value.
The Audit Committee reviews, considers and, if thought
appropriate, recommends for the purposes of the Company's Financial
Statements, valuations prepared by the Investment Manager in
respect of the investments of the Partnership. As outlined in Note
6 to the Financial Statements, the total carrying value of the
investment in the Partnership at fair value through profit or loss
at 31 December 2020 was $384 million (31 December 2019: $773
million). Market quotations are not available for this financial
asset such that the value of the Company's investment is based on
the value of the Company's limited partner capital account with the
Partnership, which itself is based on the value of the
Partnership's investments as determined by the Investment Manager,
along with the cash and fixed deposits held. The valuation for each
individual investment held by the Partnership is determined by
reference to common industry valuation techniques, including
comparable public market valuation, comparable merger and
acquisition transaction valuation, and discounted cash flow
valuation, as detailed in the Investment Manager's Report and Note
5 to the Financial Statements.
The valuation process and methodology was discussed with the
Investment Manager and with the external auditor at the Audit
Committee meetings held on 9 December 2020 and 23 February 2021.
The Investment Manager has carried out a valuation quarterly and
provided a detailed valuation report to the Company at each
quarter.
The Audit Committee reviewed the Investment Manager's
Report.
The external auditor explained the results of their audit work
on valuations. There were no adjustments proposed that were
material in the context of the Annual Report and Financial
Statements as a whole.
The Audit Committee considers, and if thought appropriate,
recommends that the Board adopts the going concern basis for
preparing the Company's Financial Statements. As outlined in Note 3
to the Financial Statements, the Audit Committee has considered the
risks that could impact the Company's liquidity over the next
period from the date of approval of the Financial Statements up
until March 2022, as well as taken into account the below four key
considerations.
1. Available liquid resources and potential proceeds from
investment realisations versus current and expected liabilities of
the Company over the period from the date of approval of the
Financial Statements up until 31 March 2022;
2. Available liquid resources and potential proceeds from
investment realisations versus total potential unfunded commitments
of the Partnership;
3. Discount to NAV of the Company; and
4. COVID-19.
The Audit Committee, based on the reasons set out in Note 3 to
the Financial Statements, are satisfied, as of today's date, that
it is appropriate to adopt the going concern basis in preparing
these Financial Statements and has recommended this approach is
adopted by the Board.
The Audit Committee considers, and if thought appropriate,
recommends that the Board considers the Company's viability over a
period of three years to 31 December 2023. The Audit Committee has
determined that the period of three years was deemed to be an
appropriate timeframe and that there is a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over this period of assessment, as
further outlined in the Report of the Directors. Accordingly, the
Audit Committee has recommended the three period of assessment for
the Company's longer term viability is adopted by the Board.
Risk Management
The Board is accountable for carrying out a robust assessment of
the principal risks facing the Company, including those threatening
its business model, future performance, solvency and liquidity. On
behalf of the Board, the Audit Committee reviews the effectiveness
of the Company's risk management processes. The Company's risk
assessment process and the way in which significant business risks
are managed is a key area of focus for the Audit Committee. The
work of the Audit Committee was driven primarily by the Company's
assessment of its principal risks and uncertainties as set out in
the Corporate Governance Report. The Audit Committee receives
reports from the Investment Manager and Administrator on the
Company's risk evaluation process and reviews changes to
significant risks identified.
Internal Audit
The Audit Committee shall consider at least once a year whether
or not there is a need for an internal audit function. Currently,
the Audit Committee does not consider there to be a need for an
internal audit function, given that there are no employees in the
Company and all outsourced functions are with parties who have
their own internal controls and procedures.
External Audit
Ernst & Young LLP has been the Company's external auditor
since the Company's incorporation. This is the eighth year of
audit.
The external auditor is required to rotate the audit partner
every five years. The current Ernst & Young LLP lead audit
partner, David Moore, started his tenure in 2018 and his current
rotation will end with the audit of the 2022 Annual Report and
Financial Statements. There are no contractual obligations
restricting the choice of external auditor and the Company will put
the audit services contract out to tender at least every ten years.
Under Companies Law, the reappointment of the external auditor is
subject to Shareholder approval at the Annual General Meeting.
The Audit Committee assessed the qualifications, expertise and
resources, and independence of the external auditor as well as the
effectiveness of the audit process. This review covered all aspects
of the audit service provided by Ernst & Young LLP, including
obtaining a report on the audit firm's own internal quality control
procedures and consideration of the audit firm's annual
transparency reports in line with the UK Code. The Audit Committee
also approved the external audit terms of engagement and
remuneration. During 2020, the Committee held private meetings with
the external auditor. The Audit Committee Chairman also maintained
regular contact with the audit partner throughout the year. These
meetings provide an opportunity for open dialogue with the external
auditor without management being present. Matters discussed
included the auditor's assessment of significant financial risks
and the performance of management in addressing these risks, the
auditor's opinion of management's role in fulfilling obligations
for the maintenance of internal controls, the transparency and
responsiveness of interactions with management, confirmation that
no restrictions have been placed on them by management, maintaining
the independence of the audit, and how they have exercised
professional challenge. The Audit Committee will continue to
monitor the performance of the external auditor on an annual
basis and will consider their independence and objectivity,
taking account of appropriate guidelines. In addition, the
Committee Chairman will continue to maintain regular contact with
the lead audit partner outside the formal Committee meeting
schedule, not only to discuss formal agenda items for upcoming
meetings, but also to review any other significant matters. Members
of the Audit Committee also sat in on the valuation meetings
between the Investment Manager and external auditor.
The Audit Committee reviews the scope and results of the audit,
its cost effectiveness and the independence and objectivity of the
external auditor, with particular regard to the level of non-audit
fees. The Audit Committee is also monitoring developments, in this
regard, with respect to the Crown Dependencies' Audit Rules and
Guidance. Notwithstanding such services the Audit Committee
considers Ernst & Young LLP to be independent of the Company
and that the provision of such non-audit services is not a threat
to the objectivity and independence of the conduct of the
audit.
To further safeguard the objectivity and independence of the
external auditor from becoming compromised, the Audit Committee has
a formal policy governing the engagement of the external auditor to
provide non-audit services. This precludes Ernst & Young LLP
from providing certain services such as valuation work or the
provision of accounting services and also sets a presumption that
Ernst & Young LLP should only be engaged for non-audit services
where Ernst & Young LLP are best placed to provide the
non-audit service for example, the interim review. Note 13 details
services provided by Ernst & Young LLP. In addition to
processes put in place to ensure segregation of audit and non-audit
roles, Ernst & Young LLP is required, as part of the assurance
process in relation to the audit, to confirm to the Committee that
it has both the appropriate independence and the objectivity to
allow it to continue to serve the members of the Company. This
confirmation is received every six months and no matters of concern
were identified by the Committee.
To fulfil its responsibility regarding the independence of the
external auditor, the Audit Committee considers:
-- discussions with or reports from the external auditor
describing its arrangements to identify, report and manage any
conflicts of interest; and
-- the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the
committee reviews:
-- the external auditor's fulfilment of the agreed audit plan and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit; and
-- feedback from other service providers evaluating the performance of the audit team.
In respect of the year ended 31 December 2019 the audit of the
Company was subject to review by the FRC's Audit Quality Review
team as part of its routine programme of audit firm quality
inspections. The Audit Committee considered the review team's
findings noting that there were no key findings reported. The Audit
Committee Chairman discussed the review with the audit engagement
partner in November 2020.
The Audit Committee is satisfied with Ernst & Young LLP's
effectiveness and independence as external auditor having
considered the degree of diligence and professional scepticism
demonstrated by them. Having carried out the review described above
and having satisfied itself that the external auditor remains
independent and effective, the Audit Committee has recommended to
the Board that Ernst & Young LLP be reappointed as external
auditor for the year ending 31 December 2021.
The Audit Committee has provided the Board with its
recommendation to the Shareholders on the re-appointment of Ernst
& Young LLP as external auditor for the year ending 31 December
2021. Accordingly, a resolution proposing the reappointment of
Ernst & Young LLP as our external auditor will be put to
Shareholders at the Annual General Meeting.
On behalf of the Audit Committee
Patrick Firth
Chairman of the Audit Committee
23 February 2021
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF RIVERSTONE ENERGY
LIMITED
Opinion
We have audited the Financial Statements of Riverstone Energy
Limited (the 'Company') for the year ended 31 December 2020 which
comprise 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 15, including a
summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards as adopted by
the European Union ("IFRS").
In our opinion, the Financial Statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2020 and of its loss for the year then
ended;
-- have been properly prepared in accordance with IFRS; and
-- have been properly prepared in accordance with the
requirements of The Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities under those standards are further described in the
"Auditor's responsibilities for the audit of the Financial
Statements" section of our report below. We are independent of the
Company in accordance with the ethical requirements that are
relevant to our audit of the Financial Statements, including the UK
FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting
included:
-- The audit engagement partner directed and supervised the audit procedures on going concern;
-- We assessed the determination made by the Board of Directors
of the Company and the Investment Manager that the Company is a
going concern and hence the appropriateness of the financial
statements to be prepared on a going concern basis;
-- We obtained the cash flow forecasts and sensitivities
prepared by Investment Manager and tested for arithmetical accuracy
of the models;
-- We challenged the appropriateness of Investment Manager's
forecasts by assessing historical forecasting accuracy, challenging
their consideration of downside sensitivity analysis including
their scenario to reflect their expectation of the impact of the
continuing challenges of COVID-19 and oil and gas prices
volatility, and applying further sensitivities to understand the
impact on liquidity of the Company;
-- We assessed whether available funds compared to commitments
made to underlying investments at year end and up until 31 March
2022, taking account of the existing arrangements with the
Riverstone Energy Investment Partnership, L.P. ("the underlying
Partnership"), cast significant doubt over the going concern status
of the Company; and
-- We assessed the disclosures in the Annual Report and
Financial Statements relating to going concern to ensure they were
fair, balanced and understandable and in compliance with IAS1.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company's ability to continue as a going concern over a period from
the date of approval of the Financial Statements up until 31 March
2022.
In relation to the Company's reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the Directors' statement in the
financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Company's ability to continue as a going concern.
Overview of our audit approach
Key audit
matters * Misstatement or manipulation of the valuation of the
Company's investment in Riverstone Energy Investment
Partnership, L.P. ("the Underlying Partnership")
-----------------------------------------------------------------
Materiality
* Overall materiality of $7.5m which represents 2% of
equity.
------------ -----------------------------------------------------------------
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Company. This enables us to form an opinion on the
Financial Statements. We consider size, risk profile, the
organisation of the Company and effectiveness of controls,
including controls and changes in the business environment when
assessing the level of work to be performed.
All audit work was performed directly by the audit engagement
team. The audit was led from Guernsey, and the audit team included
individuals from the Guernsey and New York offices of Ernst &
Young and operated as an integrated audit team. In addition, we
engaged our Valuation, Modelling and Economics ('VME') industry
valuation specialists from the Houston and London offices, who
assisted us in auditing the valuation of unquoted investments. The
scope of their work was consistent with the prior year.
Changes from the prior year
As a result of the Covid-19 outbreak, and the resulting lockdown
restrictions in all of the countries where audit procedures were
performed, we modified our audit strategy to allow for the audit to
be performed remotely. This approach was supported through the use
of EY software collaboration platforms for the secure and timely
delivery of requested audit evidence.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the Financial
Statements of the current year and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
Risk Our response to the risk Key observations
communicated to the
Audit Committee
Misstatement or Our audit procedures consisted We reported to the
manipulation of: Audit Committee that,
of the valuation * Updating and confirming our understanding of the overall, the valuation
of the Company's Company's processes and methodologies, including the of the Company's
investment in the use of industry specific measures, and policies for investment in the
underlying Partnership valuing investments held by the underlying underlying Partnership
($384 million; 2019 Partnership; was materially correct,
$773 million) in accordance with
The fair value of IFRS and within our
the Company's * Obtaining and inspecting the valuation papers and estimated valuation
investment supporting data to assess whether the data used is range.
in the underlying appropriate and relevant, and discussing these with
Partnership is based the Investment Manager to evaluate whether the fair
on the Net Asset value of the Company's investment in the underlying
Value of the underlying Partnership approximates to the net asset value of
Partnership which, the underlying Partnership, challenging the
in turn, is based assumptions made by the Investment Manager and Board
on the fair values of Directors of the Company.
of its net assets
including the
underlying * Holding fair value discussions in relation to 30
investments held September and 31 December 2020 valuations. These
by the underlying included the Investment Manager, EY Guernsey and EY
Partnership through New York audit teams, EY Houston VME and EY London
the investment VME teams;
structures.
Most of the underlying
investments are level * Vouching valuation inputs that do not require
three investments specialist knowledge to independent sources and
as defined in the testing the arithmetical accuracy of the Company's
IFRS hierarchy. Valuing calculations;
such investments
requires significant
judgement and * For a sample of investments, engaging EY Houston and
estimation EY London VME teams as valuation specialists to:
as explained in Note
3 to the Financial
Statements and in * use their knowledge of the market to challenge the
the Audit Committee Investment Manager's mark, and their related
Report. It also judgements and valuation inputs including discount
requires rates, forward oil price, production values and
significant industry recent relevant transaction data; and
expertise.
The values of unquoted
investments may be * assist us to determine whether the methodologies used
misstated due to to value investments were in accordance with methods,
the application of particularly those specific to the industry, usually
inappropriate used by market participants.
methodologies,
inputs to the
valuation, * Updating our previous discussions with the Investment
discount/premiums Manager with respect to the qualitative factors and
applied at the other information used to value investments;
underlying
Partnership level
and/or inappropriate * Performing roll forward procedures to capture fair
judgmental factors. value changes between 30 September and 31 December
There is also a risk 2020, with specific focus on changes in macro factors
that proper adjustments such as oil prices, geopolitical events and Company
are not made in the specific events:
fair value calculations
for the effects that
tax and General Partner * Assessing levels of taxation and performance
performance allocation fee/incentive accruals in investment valuations;
will have on realised
and unrealised gains
of underlying * Identifying the key unobservable inputs to valuations
investments. and reviewing and assessing the reasonableness of the
sensitivity workings and disclosures, comparing the
Investment Adviser's position with EY's range of
acceptable inputs; and
* Reporting to the Audit Committee on the calibration
of investment valuations against EY's ranges and
comment on those ranges against other market
participants. In addition, we commented on any
specific movements of valuation marks in those
ranges' vs prior periods.
----------------------------------------------------------------- -------------------------
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
"Materiality" is the magnitude of omissions or misstatements
that, individually or in aggregate, could reasonably be expected to
influence the economic decisions of the users of the Financial
Statements. Materiality provides a basis for determining the nature
and extent of our audit procedures.
We determined planning materiality for the Company to be $7.5
million (2019: $15.4 million), which is approximately 2 per cent.
(2019: 2 per cent.) of equity. This provided a basis for
determining the nature, timing and extent of risk assessment
procedures, identifying and assessing the risk of material
misstatement and determining the nature, timing and extent of
further audit procedures. We used equity as a basis for determining
planning materiality because the Company's primary performance
measures for internal and external reporting are based on
equity.
Performance materiality
"Performance materiality" is the application of materiality at
the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
Based on our risk assessments, together with our assessment of
the Company's overall control environment, our judgement was that
overall performance materiality (i.e. our tolerance for
misstatement in an individual account or balance) for the Company
should be 75 per cent. of materiality, namely $5.6 million (2019:
75 per cent. of materiality, namely $11.6 million). Our objective
in adopting this approach was to ensure that total uncorrected and
undetected audit differences in the Financial Statements did not
exceed our materiality level.
Reporting threshold
"Reporting threshold" is an amount below which identified
misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them
all audit differences in excess of $0.4 million (2019: $0.8
million) which is set at 5 per cent. of planning materiality, as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluated any uncorrected misstatements against both the
quantitative measures of materiality discussed above and
considering other relevant qualitative considerations in forming
our opinion.
Other information
The other information comprises the information included in the
Annual Report, other than the Financial Statements and our
auditor's report thereon. The Directors are responsible for the
other information.
Our opinion on the Financial Statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the Financial Statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there
is a material misstatement in the Financial Statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report
that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which The Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
-- proper accounting records have not been kept by the Company; or
-- the Financial Statements are not in agreement with the
Company's accounting records and returns; or
-- we have not received all the information and explanations we require for our audit.
Corporate Governance Statement
The Listing Rules require us to review the Directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Company's
compliance with the provisions of the UK Corporate Governance
Statement specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
-- Directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified;
-- Directors' explanation as to its assessment of the Company's
prospects, the period this assessment covers and why the period is
appropriate;
-- Directors' statement on fair, balanced and understandable;
-- Board's confirmation that it has carried out a robust
assessment of the emerging and principal risks;
-- The section of the annual report that describes the review of
effectiveness of risk management and internal control systems;
and
-- The section describing the work of the audit committee.
Responsibilities of Directors
As explained more fully in the Directors' Responsibilities
Statement, the Directors are responsible for the preparation of the
Financial Statements and for being satisfied that they give a true
and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of Financial
Statements that are free from material misstatement, whether due to
fraud or error.
In preparing the Financial Statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about whether
the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these Financial
Statements.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined below, to detect irregularities,
including fraud. The risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud, are detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of
the Company. Our approach was as follows:
-- We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and determined that
the most significant are:
o Financial Conduct Authority ("FCA") Listing Rules
o Disclosure Guidance and Transparency Rules ("DTR") of the
FCA
o The 2018 UK Corporate Governance Code
o The 2019 AIC Code of Corporate Governance
o The Companies (Guernsey) Law, 2008, as amended
o The Protection of Investors (Bailiwick of Guernsey) Law 1987,
as amended (including Registered Collective Investment Schemes
(RCIS) Rules 2018)
-- We understood how the Company is complying with those frameworks by:
o Discussing the processes and procedures used by the Directors,
the Investment Manager, the Company Secretary and Administrator to
ensure compliance with the relevant frameworks;
o Reviewing internal reports that evidenced quarterly compliance
testing; and
o Inspecting any correspondence with regulators.
-- We assessed the susceptibility of the Company's financial
statements to material misstatement, including how fraud might
occur by undertaking the audit procedures set out in Key Audit
Matter section above, and reading the Financial statements to check
that the disclosures are consistent with the relevant regulatory
requirements; and
-- Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations. Our
procedures involved:
o Through discussion, gaining an understanding of how those
charged with governance, the Investment Manager, the Company
Secretary and Administrator identify instances of non-compliance by
the Company with relevant laws and regulations;
o Inspecting the relevant policies, processes and procedures to
further our understanding;
o Holding discussions with the Company's nominated Compliance
Officer;
o Reviewing Board minutes and internal compliance reporting;
o Inspecting correspondence with regulators; and
o Obtaining relevant written representations from the Board of
Directors.
A further description of our responsibilities for the audit of
the Financial Statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of The Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
David Robert John Moore, ACA
For and on behalf of Ernst & Young LLP
Guernsey
23 February 2021
Notes:
(1) The maintenance and integrity of the Company's website is
the sole responsibility of the Directors; the work carried out by
the auditors does not involve consideration of these matters and,
accordingly, the auditor accepts 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.
INDEPENT AUDITORS REPORT TO THE DIRECTORS OF RIVERSTONE ENERGY
LIMITED
We have audited the accompanying Financial Statements of
Riverstone Energy Limited (the "Company"), which comprise the
Statement of Financial Position as of 31 December 2020 and 2019,
and the related Statements of Comprehensive Income, the Statements
of Changes in Equity, the Statements of Cash Flows for the years
then ended, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in conformity with
International Financial Reporting Standards as adopted by the
European Union ("IFRS"); this includes the design, implementation,
and maintenance of internal control relevant to the preparation and
fair presentation of financial statements that are free of material
misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the Financial Statements. The
procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
Company's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control.
Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the Financial Statements referred to above
present fairly, in all material respects, the financial position of
Riverstone Energy Limited at 31 December 2020 and 2019, and the
results of its operations, changes in its net assets, and its cash
flows for the years then ended, in conformity with IFRS.
Ernst & Young LLP
Guernsey, Channel Islands
23 February 2021
Statement of Financial Position
As at 31 December 2020
31 December 31 December
2020 2019
Notes $'000 $'000
---------------------------------- ------ ------------ ------------
Assets
Non-current assets
Investment at fair value through
profit or loss 6 383,589 772,722
---------------------------------- ------ ------------ ------------
Total non-current assets 383,589 772,722
---------------------------------- ------ ------------ ------------
Current assets
Trade and other receivables 1,137 593
Cash and cash equivalents 7 8,807 211
---------------------------------- ------ ------------ ------------
Total current assets 9,944 804
---------------------------------- ------ ------------ ------------
Total assets 393,533 773,526
---------------------------------- ------ ------------ ------------
Current liabilities
Trade and other payables 3,190 1,834
Total current liabilities 3,190 1,834
---------------------------------- ------ ------------ ------------
Total liabilities 3,190 1,834
---------------------------------- ------ ------------ ------------
Net assets 390,343 771,692
---------------------------------- ------ ------------ ------------
Equity
Share capital 8 1,184,100 1,246,559
Retained deficit (793,757) (474,867)
---------------------------------- ------ ------------ ------------
Total equity 390,343 771,692
---------------------------------- ------ ------------ ------------
Number of Shares in issue
at year end 8 62,938,466 79,896,731
---------------------------------- ------ ------------ ------------
Net Asset Value per Share
($) 12 6.20 9.66
---------------------------------- ------ ------------ ------------
The Financial Statements of the Company were approved and
authorised for issue by the Board of Directors on 23 February 2021
and signed on its behalf by:
Richard Hayden Patrick Firth
Chairman Director
The accompanying notes form an integral part of the Company's
Financial Statements.
Statement of Comprehensive Income
For the year ended 31 December 2020
1 January 1 January
2020 to 2019 to
31 December 31 December
2020 2019
Notes $'000 $'000
------------------------------------ ------- ------------- -------------
Investment loss
Change in fair value of investment
at fair value through profit
or loss 6 (315,879) (654,163)
------------------------------------- ------ ------------- -------------
Expenses
Directors' fees and expenses 9 (684) (1,144)
Legal and professional fees (66) (1,707)
Other operating expenses 13 (2,396) (2,580)
------------------------------------- ------ ------------- -------------
Total expenses (3,146) (5,431)
------------------------------------- ------ ------------- -------------
Operating loss for the financial
year (319,025) (659,594)
Finance income
Foreign exchange gain/(loss) 135 (11)
Interest income - 36
------------------------------------- ------ ------------- -------------
Total finance income 135 25
------------------------------------- ------ ------------- -------------
Loss for the year (318,890) (659,569)
Total comprehensive loss for
the year (318,890) (659,569)
------------------------------------- ------ ------------- -------------
Basic Loss per Share (cents) 12 (442.25) (825.53)
------------------------------------- ------ ------------- -------------
Diluted Loss per Share (cents) 12 (442.25) (825.53)
------------------------------------- ------ ------------- -------------
All activities derive from continuing operations.
The accompanying notes form an integral part of the Company's
Financial Statements.
Statement of Changes in Equity
For the year ended 31 December 2020
Share Retained Total
capital deficit Equity
$'000 $'000 $'000
-------------------------- ---------- ----------- -----------
As at 1 January 2020 1,246,559 (474,867) 771,692
Loss for the financial
year - (318,890) (318,890)
Total comprehensive
loss for the year - (318,890) (318,890)
Buyback and cancellation
of shares (62,459) - (62,459)
--------------------------- ---------- ----------- -----------
As at 31 December
2020 1,184,100 (793,757) 390,343
--------------------------- ---------- ----------- -----------
Share Total
Retained earnings
capital /(deficit) Equity
$'000 $'000 $'000
------------------------ ---- ---------- ------------------ ----------
As at 1 January 2019 1,246,559 184,702 1,431,261
Loss for the financial
year - (659,569) (659,569)
Total comprehensive
loss for the year - (659,569) (659,569)
------------------------------ ---------- ------------------ ----------
As at 31 December
2019 1,246,559 (474,867) 771,692
------------------------------ ---------- ------------------ ----------
The accompanying notes form an integral part of the Company's
Financial Statements.
Statement of Cash Flows
For the year ended 31 December 2020
1 January 1 January
2020 to 2019 to
31 December 31 December
2020 2019
Notes $'000 $'000
------------------------------------ ------- ------------- -------------
Cash flow used in operating
activities
Operating loss for the financial
year (319,025) (659,594)
------------------------------------- ------ ------------- -------------
Adjustments for:
Net finance income - 36
Change in fair value of investment
at fair value through profit
or loss 6 315,879 654,163
Movement in trade and other
receivables (544) (14)
Movement in trade and other
payables (1,208) 1,399
Net cash used in operating
activities (4,898) (4,010)
------------------------------------- ------ ------------- -------------
Cash flow generated from investing
activities
Distribution from the Partnership 73,254 2,100
Net cash generated from investing
activities 73,254 2,100
------------------------------------- ------ ------------- -------------
Cash flow used in financing
activities
Buyback of shares 8 (59,895) -
------------------------------------- ------ ------------- -------------
Net cash used in financing (59,895) -
activities
------------------------------------- ------ ------------- -------------
Net movement in cash and cash
equivalents during the year 8,461 (1,910)
------------------------------------- ------ ------------- -------------
Cash and cash equivalents at
the beginning of the year 211 2,132
Effect of foreign exchange
rate changes 135 (11)
------------------------------------- ------ ------------- -------------
Cash and cash equivalents at
the end of the year 8,807 211
------------------------------------- ------ ------------- -------------
The accompanying notes form an integral part of the Company's
Financial Statements.
Notes to the Financial Statements
For the year ended 31 December 2020
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 UK Listing Authority's
Official List and to trading on the London Stock Exchange as part
of its IPO which completed on 29 October 2013. 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 partnership 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
investment in Ridgebury H3 in 2019 demonstrates 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. Accounting policies
Basis of preparation
The Financial Statements for the year ended 31 December 2020
have been prepared in accordance with IFRS and with the Companies
Law.
In the preparation of these Financial Statements, the Company
followed the same accounting policies and methods of computation as
compared with those applied in the previous year with the addition
of the below accounting policy adopted within these Financial
Statements.
Repurchase of Ordinary Shares for cancellation
The cost of repurchasing Ordinary Shares, including any related
stamp duty and transaction costs, is charged to 'Share Capital' and
dealt with in the Condensed Statement of Changes In Equity. Share
repurchase and cancellation transactions are accounted for on a
trade date basis.
Foreign currencies
The functional currency of the Company is U.S. Dollars
reflecting the primary economic environment in which the Company
operates, that being the exploration and production and midstream
energy sectors, where most transactions are expected to take place
in U.S. Dollars.
The Company has chosen U.S. Dollars as its presentation currency
for financial reporting purposes.
Transactions during the year, including purchases and sales of
investments, income and expenses are translated into U.S. Dollars
at the rate of exchange prevailing on the date of the transaction.
Monetary assets and liabilities denominated in currencies other
than U.S. Dollars are retranslated at the functional currency rate
of exchange ruling at the reporting date. Non-monetary items that
are measured in terms of historical cost in a currency other than
U.S. Dollars are translated using the exchange rates as at the
dates of the initial transactions. Non-monetary items measured at
fair value in a currency other than U.S. Dollars are translated
using the exchange rates at the date when the fair value was
determined. Foreign currency transaction gains and losses on
financial instruments classified as at fair value through profit or
loss are included in profit or loss in the Statement of
Comprehensive Income as part of the "Change in fair value of
investments at fair value through profit or loss". Exchange
differences on other financial instruments are included in profit
or loss in the Statement of Comprehensive Income as "Foreign
exchange gain/(loss)".
Financial instruments
In accordance with IFRS 9, financial assets and financial
liabilities are recognised in the Company's Statement of Financial
Position when the Company becomes a party to the contractual
provisions of the instrument. Financial assets and financial
liabilities are only offset and the net amount reported in the
Statement of Financial Position and Statement of Comprehensive
Income when there is a currently enforceable legal right to offset
the recognised amounts and the Company intends to settle on a net
basis or realise the asset and liability simultaneously.
Financial assets
At initial recognition, financial assets are classified based on
the Company's business model for managing the financial assets and
the contractual cash flow characteristics of the financial asset.
The Company initially measures a financial asset at its fair
value.
a) Investment at fair value through profit or loss
i. Classification
Financial assets classified at FVTPL are those that do not meet
the contractual cash flow test and are managed with their
performance evaluated on a fair value basis in accordance with the
Company's investment strategy. The Company includes in this
category its only investment, being the Partnership.
ii. Measurement
Investments made by the Company in the Partnership are measured
initially and subsequently at fair value, with changes in fair
value taken to the Statement of Comprehensive Income.
iii. Fair value estimation
A summary of the more relevant aspects of IPEV valuations is set
out below:
Marketable (Listed) Securities - where an active market exists
for the security, the value is stated at the bid price on the last
trading day in the period. Marketability discounts are not
generally applied unless there is some contractual, governmental or
other legally enforceable restriction preventing realisation at the
reporting date.
Unlisted Investments - are carried at such fair value as the
Investment Manager considers appropriate, and as approved or
adjusted by the Board, taking into account the performance of each
investee company and the exercise of ratchets, options or other
incentive schemes. Methodologies used in arriving at the fair value
include prices of recent investment, earnings multiples, net
assets, discounted cash flows analysis and industry valuation
benchmarks. Valuations may be derived by reference to observable
valuation measures for comparable companies or transactions
(examples include discount rates, forward oil prices, production
multiples and multiplying a key performance metric of the investee
company such as estimated, unobservable EBITDA by a relevant
valuation multiple observed in the range of comparable companies or
transactions), adjusted for differences between the investment and
the referenced comparable.
The Company has determined that the fair value of its investment
in the Partnership is $384 million (31 December 2019: $773 million)
and is calculated in accordance with applicable IFRS accounting
standards and IPEV Valuation Guidelines. No adjustment to the net
asset value of the Partnership has been made, as this is deemed
equivalent to fair value.
b) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term highly liquid investments with an
original maturity of three months or less that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
c) Trade and other receivables
Trade receivables are classified as financial assets at
amortised cost. They are measured at amortised cost less impairment
assessed using the simplified approach of the expected credit loss
model based on experience of previous losses and expectations of
future losses.
A financial asset is derecognised (in whole or in part)
either:
-- when the Company has transferred substantially all the risks and rewards of ownership; or
-- when it has neither transferred nor retained substantially
all the risks and rewards and when it no longer has control over
the assets or a portion of the asset; or
-- when the contractual right to receive cash flow has expired.
Financial liabilities
a) Trade and other payables
Trade payables are classified as financial liabilities at
amortised cost.
Equity
The Company's Ordinary Shares are classified as equity and upon
issuance, the fair value of the consideration received is included
in equity, net of share issue costs (excluding share issue costs of
the IPO). All formation and initial expenses of the Company,
including the share issue costs of its IPO, have been borne by the
Investment Manager.
Finance income
Interest income is recognised on a time apportioned basis.
Expenses
Expenses include legal, accounting, auditing and other operating
expenses. They are recognised on an accruals basis in the Statement
of Comprehensive Income in the period in which they are
incurred.
Amended standards and interpretations not applied by the
Company
New and amended standards and interpretations applied in these
Financial Statements
There were no new standards or interpretations effective for the
first time for periods beginning on or after 1 January 2020 that
had a significant effect on the Company's Financial Statements.
Furthermore, none of the amendments to standards that are effective
from that date had a significant effect on these Financial
Statements.
New and amended standards and interpretations not applied in
these Financial Statements (issued but not yet effective)
Other accounting standards and interpretations have been
published and will be mandatory for the Company's accounting
periods beginning on or after 1 January 2021 or later periods. The
impact of these standards is not expected to be material to the
reported results and financial position of the Company.
3. Significant accounting judgements, estimates and assumptions
The preparation of Financial Statements requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
Judgements
In the process of applying the Company's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the Financial
Statements:
Assessment as an Investment Entity
The Company meets the definition of an investment entity on the
basis of the following criteria:
1. the Company obtains funds from multiple investors for the
purpose of providing those investors with investment management
services;
2. the Company commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
3. the Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
To determine that the Company meets the definition of an
investment entity, further consideration is given to the
characteristics of an investment entity that are demonstrated by
the Company.
Assessment of control over the Partnership
The Company makes its investments through the Partnership in
which it is the sole limited partner.
The Board has assessed whether the Company has all the elements
of control as prescribed by IFRS 10 in relation to the Company's
investment in the Partnership and has concluded that although the
Company is the sole limited partner, it does not control the
Partnership but instead has significant influence and therefore
accounts for the Partnership as an investment in associate at fair
value in accordance with IAS 28.
Assessment of the Partnership as a structured entity
The Company considers the Partnership to be a structured entity
under IFRS 12. Transfer of funds by the Partnership to the Company
is determined by the General Partner (see Note 9). The risks
associated with the Company's investment in the Partnership are
disclosed in Note 10. The summarised financial information for the
Company's investment in the Partnership is disclosed in Note 6.
Going concern
The Financial Statements have been prepared on a going concern
basis for the reasons set out below and as the Directors, with
recommendation from the Audit Committee, have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. In reaching this
conclusion, the Directors, with recommendation from the Audit
Committee, have considered the risks that could impact the
Company's liquidity over the period from the date of approval of
the Financial Statements up until 31 March 2022, as well as taken
into account the following four key considerations, which are
discussed further below:
1. Available liquid resources and potential proceeds from
investment realisations versus current and expected liabilities of
the Company over the period from the date of approval of the
Financial Statements up until 31 March 2022;
2. Available liquid resources and potential proceeds from
investment realisations versus total potential unfunded commitments
of the Partnership;
3. Discount to NAV of the Company; and
4. COVID-19.
1. Available liquid resources and potential proceeds from
investment realisations versus current and expected liabilities of
the Company over the period from the date of approval of the
Financial Statements up until 31 March 2022
The Audit Committee has recommended to the Directors that they
should have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the period from
the date of approval of the Financial Statements up until 31 March
2022, as explained below. The Company retained $11.5 million of
cash in the IPO and Placing and Open Offer, and has requested and
received seven distributions for working capital needs in aggregate
of $24.3 million from the Partnership cumulatively through 31
December 2020. During 2020, in addition to the two distributions
for working capital needs in aggregate of $10 million requested and
received from the Partnership, the Company also requested and
received a distribution request of GBP50 million ($63 million) for
the share buyback programme, of which $8.8 million remains at 31
December 2020 (31 December 2019: $0.2 million). This cash balance
is sufficient to cover the Company's existing liabilities at 31
December 2020 of $3.2 million, the remaining portion of the
aforementioned share buyback programme of $1.0 million and the
Company's forecasted annual expenses of approximately $4.0 million.
As in prior years, in accordance with the Partnership Agreement, if
the Company requires additional funds for working capital, it is
entitled to receive another distribution from the Partnership. In
order to do so, the Company would submit a distribution request
approved by the Board to the Partnership, which would then be
required to arrange for the payment of the requested amount. Since
REL's inception, the Company has requested and received seven
distributions from the Partnership for working capital needs. As
detailed further in section 2 below, REL and the Partnership had
available liquid resources of $99.1 million in excess of potential
unfunded commitments of $83.2 million at 31 December 2020, but
currently, as of the date of this report, REL, through the
Partnership has total potential unfunded commitments of $89.3
million, which exceed its available liquid resources of $53.5
million. However, based on the Investment Manager's cash flow
forecast for the next three years to 31 December 2023, the
expectation is that, if needed, the Partnership will only fund the
remaining commitments to ILX III, Onyx Power and Enviva, which
aggregate to $41.9 million as of the date of this report.
2. Available liquid resources and potential proceeds from
investment realisations versus total potential unfunded commitments
of the Partnership
As at 31 December 2020, REL and the Partnership, including its
wholly-owned subsidiaries, REL Cayman Holdings, LP, REL US Corp and
REL US Centennial Holdings, LLC, had $99.1 million of uninvested
funds held as cash and money market fixed deposits (31 December
2019: $182.4 million). This amount is comprised of $90.3 million
held at the Partnership and $8.8 million held at REL. In 2021, the
Company, through the Partnership, invested $39.5 million held at
the Partnership in Loanpal of $25.0 million, FreeWire of $10.0
million, ILX III of $3.9 million and DCRN of $0.6 million, bringing
the uninvested funds at the Partnership level down to $53.5 million
as at the date of this report. In accordance with the revised terms
for REL's GP Performance Allocation announced in January 2020, REL
did not meet the portfolio level cost benchmark at 31 December
2020; therefore, any unrealised performance allocation has been
deferred. If these changes had not been accepted, then the accrued
GP Performance Allocation would have been $3.7 million as of 31
December 2020. No performance fees will be payable until the $565
million realised and unrealised losses to date at 31 December 2020
are offset with future gains. If these realised and unrealised
losses have not been offset, any such accrued fees will no longer
be payable after three years from each respective accrual date.
The Company's total potential unfunded commitments of $83.2
million as at 31 December 2020 (31 December 2019: $212.5 million),
through the Partnership, did not exceed its available liquid
resources as at 31 December 2020. In 2021, REL, through the
Partnership, invested $3.9 million of its remaining commitment in
ILX III and fully funded its commitments to new investments in
Loanpal of $25.0 million, FreeWire of $10.0 million and DCRN of
$0.6 million, as well as announced a commitment to DCRB of $10.0
million, bringing total potential unfunded commitments to $89.3
million. This amount exceeds the Partnership's available liquid
resources of $53.5 million as of the date of this report, which
includes $2.7 million of proceeds from Meritage III, Ridgebury H3
and Loanpal received in 2021. It is not expected that all potential
unfunded commitments will be drawn due to a variety of factors,
such as the ability for the commitment to be reduced and/or
cancelled by the Investment Manager with consideration from the
Board, the present market conditions do not warrant presently
further capital expenditure as the returns would not be
incrementally positive, a portfolio company being sold earlier than
anticipated or a targeted investment opportunity changing or
disappearing. Based on the Investment Manager's cash flow forecast
for the next three years to 31 December 2023, the expectation is
that, if needed, the Partnership will only fund the remaining
commitments to ILX III, Onyx Power and Enviva, which aggregate to
$41.9 million as of the date of this report. However, if the Board
decides to fund any of the Partnership's unfunded commitments to
the other active investments, the Partnership can execute a
reactionary measure to provide liquidity as discussed further
below.
As at 31 December 2020, the Company, through the Partnership,
has realised eight investments for $692 million of gross proceeds
on invested capital of $440 million, respectively in aggregate,
resulting in an average Gross MOIC of approximately 1.6x. The
initial commitments to these eight investments were in excess of
$734 million, so approximately 60 per cent. had been funded before
realisation. In addition, the board of each underlying portfolio
company, more often than not are controlled by Riverstone, which
has discretion over whether or not that capital is ultimately
invested. Moreover, REL's arrangements with Riverstone allow the
Company's potential unfunded commitments to be reduced and/or
cancelled by the Investment Manager with consideration from the
Board, although this has yet to happen. Moreover, any proposed
investments outside of those made with Fund V and Fund VI can be
unilaterally declined by the Board.
Finally, as a reactionary measure, the Partnership's investments
in the publicly-traded shares of the portfolio companies could
always be sold, or used as collateral to secure asset-backed
financing, to fund the Partnership's shortfall of liquid resources
and potential proceeds from investment realisations versus
potential unfunded commitments, which is $35.8 million as of the
date of this report. The Partnership holds marketable securities
consisting of publicly-traded shares of Centennial, Pipestone and
Talos, for which the aggregate fair value was $31.4 million at 31
December 2020 and $75.2 million as of 22 February 2021.
3. Discount to NAV of the Company
Since its inception, the Company's trading discount to NAV
percentage has remained consistent with a population of comparable
publicly--traded PE funds as their life to date average trading
discount percentages are 20.3 per cent. and 21.7 per cent.,
respectively. However, from December 2015 to January 2016 and
November 2018 to December 2018, as well as from December 2019 to
November 2020, declines in the price of oil adversely impacted the
market sentiment for energy companies, which resulted in the
Company's trading discount percentage increasing at a faster rate
than the population of comparable publicly-traded PE funds, as it
is solely invested in the global energy industry across all
sectors. In order to return uninvested capital to Shareholders and
attempt to reduce REL's trading discount percentage, on 1 May 2020,
the Company announced a buyback programme with the intention of
returning GBP50 million to shareholders via market buybacks. Since
the announcement, the Company has purchased 16,958,265 shares, in
aggregate, for GBP49 million ($62 million) at an average share
price of GBP2.90 ($3.67), which has attributed to the narrowing of
the Company's trading discount from 66.1 per cent. at 31 March 2020
to 34.7 per cent. at 31 December 2020 (or from 131.7 per cent. to
46.5 per cent., respectively, on a cash-adjusted basis). From
year-end through 22 February 2021, reflecting a $43.8 million
increase in the fair value of the Company's unrestricted marketable
securities, the Company's pro-forma trading discount has remained
relatively unchanged and was 34.8 per cent. as of 22 February 2021
(or 40.1 per cent. on a cash-adjusted basis).
The Board, with consultation of the Investment Manager,
regularly monitors the Company's trading discount percentage and,
when possible, executes corporate actions aimed at managing it,
such as the aforementioned share buyback programme and Tender Offer
share repurchase in November 2018, which attributed to a 1.5 per
cent. increase in the Company's NAV, and partially offset the
increase of the trading discount percentage. As announced on 4
January 2021, the Board intends to recommence the aforementioned
share buyback programme after publication of the Annual Report.
4. COVID-19
The Board and Investment Manager have been in continuous
dialogue regarding the impact of COVID-19 and appropriate
disclosures within the Company's interim condensed financial
statements, given that it's an evolving situation. The Company's
Management Engagement Committee requested and received updates from
REL's key service providers, including the Investment Manager,
regarding their response to COVID-19, including an update on their
respective business continuity plans.
The Investment Manager activated its business continuity plan
and its regular working pattern has changed to remote working,
though all staff are continuing to assume their day-to-day
responsibilities remotely. There has been regular communication
with its employees, as well as its investors. In addition, the
Investment Manager's partners are hosting regular calls on
potential investment opportunities in this new environment (caused
by COVID-19 and OPEC+ news), so that Riverstone can best position
the portfolio for the future. The Investment Manager has contacted
its portfolio companies to make sure that they have the appropriate
plans and resources in place to prioritise the health and safety of
their employees, as well as to assess supply chain disruptions and
ensure the normal operations of our businesses.
Directors' Assessment of Going Concern
Based on the reasons outlined above, on balance, the Directors
are satisfied, as of today's date, that it is appropriate to adopt
the going concern basis in preparing the Financial Statements.
Estimates and assumptions
The area involving a high degree of judgement or complexity and
where assumptions and estimates are significant to the Financial
Statements has been identified as the risk of misstatement of the
valuation of the investment in the Partnership (see Note 5).
Revisions to accounting estimates are recognised in the period in
which the estimate is revised and in any future periods affected.
The Board's determination that no discount or premium should be
applied to the net asset value of the Partnership involves a degree
of judgement due to the nature of the Partnership's investments and
other assets and liabilities (see Note 2: Financial assets a) iii.)
and the valuation techniques and procedures adopted by the
Partnership.
The resulting accounting estimates will, by definition, seldom
equal the related actual results.
4. Taxation
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, Fieldwood, Carrier II,
ILX III, and Enviva, the future U.S. tax liability on profits is
expected to be in the range of 21 to 27.5 per cent. (31 December
2019: 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 year ended 31 December 2020 were
$384 million (31 December 2019: $773 million).
The fair value of all other financial instruments approximates
to their carrying value.
Transfers during the period
There have been no transfers between levels during the year
ended 31 December 2020 (31 December 2019: Nil). Any transfers
between the levels will be accounted for on the last day of each
financial period. Due to the nature of the investment in the
Partnership, it is always expected to be classified under Level
3.
Valuation methodology and process
The Directors base the fair value of the investment in the
Partnership on the value of its limited partnership capital account
received from the General Partner, which is determined on the basis
of the fair value of its assets and liabilities, adjusted if
necessary, to reflect liquidity, future commitments, and other
specific factors of the Partnership and Investment Manager. This is
based on the components within the Partnership, principally the
value of the Partnership's investments in addition to cash and
short-term money market fixed deposits. Any fluctuation in the
value of the Partnership's investments in addition to cash and
short-term money market fixed deposits held will directly impact on
the value of the Company's investment in the Partnership.
The Partnership's investments are valued using the techniques
described in the Company's valuation policy. The Investment
Manager's assessment of fair value of investments held by the
Partnership, through Investment Undertakings, is determined in
accordance with IPEV Valuation Guidelines. When valuing the
Partnership's investments, the Investment Manager reviews
information provided by the underlying investee companies and other
business partners and applies IPEV methodologies, to estimate a
fair value as at the date of the Statement of Financial Position,
subject to Board approval. It is the opinion of the Directors, that
the IPEV valuation methodology used in deriving a fair value is
generally not different from the fair value requirements of IFRS
13. In the event that there is a difference, the requirements of
IFRS 13 override the IPEV requirements.
The Investment Manager values the investments on a quarterly
basis using common industry valuation techniques, including
comparable public market valuation, comparable merger and
acquisition transaction valuation and discounted cash flow
valuation. For early stage private investments, Riverstone's
investment due diligence process includes assumptions about
short-term financial results in determining the appropriate
purchase price for the investment. The techniques used in
determining the fair value of the Company's investments through the
Partnership are selected on an investment by investment basis so as
to maximise the use of market based observable inputs.
REL's valuation policy is compliant with both IFRS and IPEV
Valuation Guidelines and is applied consistently from period to
period. 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.
For the year ended 31 December 2020, 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 31 December 2020
Industry: Energy
Fair value of Sensitivity of Fair value of
Level 3 the Level 3
Investments Investments
affected by
input to fair unobservable
Valuation Unobservable Range value of input (3)
(in thousands) Weighted
Average Level 3
technique(s) input(s) Low (1) High (1) (1) investments(2) (in thousands)
---------------- -------------- -------------------- --------- ---------- ----------- ---------------- ---------------
10 per cent.
weighted
average change
in the input
would result
in 1 per cent.
change in the
total fair
Public 2020 EV / EBITDA value of Level
$254,017 comparables Multiple 4.0x 6.0x 4.3x 3 investments 22,124
10 per cent. weighted average change in the
input would result in 1 per cent. change in
2021 EV / EBITDA the
Multiple(4) 3.8x 3.9x 3.9x total fair value of Level 3 investments 37,423
30 per cent. weighted average change in the
input would result in 1 per cent. change in
2022 EV / EBITDA the
Multiple(4) 3.5x 6.5x 5.0x total fair value of Level 3 investments 52,740
EV / 2020E 10 per cent. weighted average change in the
Production input would result in 1 per cent. change in
Multiple the
($/Boepd) $16,500 $29,200 $21,700 total fair value of Level 3 investments 37,423
EV / 2021E 10 per cent. weighted average change in the
Production input would result in 1 per cent. change in
Multiple the
($/Boepd)(4) $16,500 $29,200 $21,700 total fair value of Level 3 investments 37,423
30 per cent. weighted average change in the
input would result in 1 per cent. change in
1P Reserve the
multiple ($/Boe) $4 $8 $6 total fair value of Level 3 investments 15,299
10 per cent. weighted average change in the
input would result in 2 per cent. change in
2P Reserve the
multiple ($/Boe ) $2 $4 $2 total fair value of Level 3 investments 22,124
10 per cent. weighted average
change in the input would
result in 2 per cent. change in
Acreage Multiple the
Transaction ($/Boepd per Acre total fair value of Level 3
comparables ) $2,900 $4,000 $3,000 investments 22,124
30 per cent. weighted average change in the
input would result in 9 per cent. change in
2P / 2C Reserve the
multiple ($/Boe) $5 $10 $7 total fair value of Level 3 investments 135,040
50 per cent. weighted average change in the
input would result in 2 per cent. change in
Asset Value the
($m/kW)(4) $56 $182 $119 total fair value of Level 3 investments 52,740
-------------------- --------- ---------- ----------- ------------------------------------------------ ---------------
20 per cent. weighted average
change in the input would
result in 12 per cent. change
in the
Discounted Oil Price Curve total fair value of Level 3
cash flow ($/bbl)(5) $38 $43 $43 investments 172,462
15 per cent. weighted average change in the
input would result in 2 per cent. change in
Gas Price Curve the
($/mcfe)(5) $2 $2 $2 total fair value of Level 3 investments 172,462
50 per cent. weighted average change in the
input would result in 2 per cent. change in
the
Discount Rate(4) 30% 10% 20% total fair value of Level 3 investments 52,740
20 per cent. weighted average change in the
input would result in 1 per cent. change in
GP Distribution the
Yield Per cent.(4) 7% 5% 6% total fair value of Level 3 investments 28,815
-------------------- --------- ---------- ----------- ------------------------------------------------ ---------------
$8,552 Total
$262,569 Total
Quantitative information about Level 3 fair value measurements
as at 31 December 2019
Industry: Energy
Fair value of Sensitivity of Fair value of
Level 3 the Level 3
investments Investments
affected by
input to fair unobservable
Valuation Unobservable Range value of input (3)
(in thousands) Weighted
Average Level 3
technique(s) input(s) Low (1) High (1) (1) investments(2) (in thousands)
---------------- -------------- -------------------- --------- ---------- ----------- ---------------- ---------------
40 per cent.
weighted
average change
in the input
would result
in 3 per cent.
change in the
total fair
Public 2019 EV / EBITDA value of Level
$405,752 comparables Multiple(6) 3.5x 4.1x 3.8x 3 investments $176,048
25 per cent. weighted average change in the
input would result in 1 per cent. change in
2020 EV / EBITDA the
Multiple(6) 3.1x 4.0x 3.5x total fair value of Level 3 investments $185,375
EV / 2019E 45 per cent. weighted average change in the
Production input would result in 5 per cent. change in
Multiple the
($/Boepd)(6) $21,000 $44,100 $30,900 total fair value of Level 3 investments $224,220
EV / 2020E 40 per cent. weighted average change in the
Production input would result in 3 per cent. change in
Multiple the
($/Boepd)(6) $21,000 $39,100 $28,700 total fair value of Level 3 investments $185,375
40 per cent. weighted average change in the
input would result in 5 per cent. change in
1P Reserve the
multiple ($/Boe) $7 $13 $9 total fair value of Level 3 investments $143,683
50 per cent. weighted average change in the
input would result in 5 per cent. change in
2P Reserve the
multiple ($/Boe ) $3 $4 $3 total fair value of Level 3 investments $80,536
20 per cent. weighted average
change in the input would
result in 2 per cent. change in
Acreage Multiple the
Transaction ($/Boepd per Acre total fair value of Level 3
comparables ) $3,000 $39,100 $13,400 investments $185,375
10 per cent. weighted average change in the
input would result in 1 per cent. change in
1P Reserve multiple the
($/Boe)(6) $9 $13 $9 total fair value of Level 3 investments $56,667
20 per cent. weighted average change in the
input would result in 3 per cent. change in
2P / 2C Reserve the
multiple ($/Boe) $7 $12 $10 total fair value of Level 3 investments $181,532
-------------------- --------- ---------- ----------- ------------------------------------------------ ---------------
30 per cent. weighted average
change in the input would
result in 35 per cent. change
in the
Discounted Oil Price Curve total fair value of Level 3
cash flow(5) ($/bbl) $51 $62 $58 investments $405 ,752
20 per cent. weighted average change in the
input would result in 4 per cent. change in
Gas Price Curve the
($/mcfe) $3 $3 $3 total fair value of Level 3 investments $349 ,086
$117,405 Other
$523,157 Total
(1) Calculated based on fair values of the Partnership's Level 3
investments
(2) Based on its professional experience and recent market
conditions, the Investment Manager has provided the Board with
these weighted average change in the inputs with a forecasted time
period of 6 to 12 months
(3) 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
(4) As at 31 December 2020, the sensitivity of this unobservable
input 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 2019
(5) Discounted cash flow technique involves the use of a
discount factor of 10 per cent.
(6) As at 31 December 2019, the sensitivity of this unobservable
input 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
The Board reviews and considers the fair value of each 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 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 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 year
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 (see Note 3).
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.
31 December 31 December
2020 2019
$'000 $'000
--------------------------------------- ------------ ------------
Cost
Brought forward 1,223,171 1,225,271
Distribution from the Partnership (73,254) (2,100)
Carried forward 1,149,917 1,223,171
--------------------------------------- ------------ ------------
Fair value movement through profit
or loss
Brought forward (450,449) 203,714
Fair value movement during the year
- see Summary Income Statement below (315,879) (654,163)
--------------------------------------- ------------ ------------
Carried forward (766,328) (450,449)
--------------------------------------- ------------ ------------
Fair value at year end 383,589 772,722
--------------------------------------- ------------ ------------
Summary financial information for the Partnership
31 December 31 December
2020 2019
Summary Balance Sheet $'000 $'000
--------------------------------------- ------------ ------------
Investments at fair value (net) 288,237 612,289
Cash and cash equivalents(1) 13,666 28,382
Money market fixed deposits(1) 76,675 134,975
Management Fee payable - see Note 9 (1,181) (2,443)
Other net assets/(liabilities) 6,192 (481)
--------------------------------------- ------------ ------------
Fair value of REL's investment in the
Partnership 383,589 772,722
--------------------------------------- ------------ ------------
(1) These figures are comprised of $90.3 million (2019: $163.4
million) held at the Partnership and $Nil (2019: $19.0 million)
held at REL US Corp
31 December 31 December
2020 2019
Reconciliation of Partnership's investments
at fair value $'000 $'000
--------------------------------------------- ------------ ------------
Investments at fair value - Level 1 (gross) 25,668 70,131
Investments at fair value - Level 3 (gross)
- see Note 5 262,569 523,157
--------------------------------------------- ------------ ------------
Investments at fair value (gross) 288,237 593,288
Cash and cash equivalents - 19,001
--------------------------------------------- ------------ ------------
Partnership's investments at fair value
(net) 288,237 612,289
--------------------------------------------- ------------ ------------
1 January 1 January
2020 to 2019 to
31 December 31 December
2020 2019
Summary Income Statement $'000 $'000
----------------------------------------------- ------------- -------------
Unrealised and realised loss on Partnership's
investments (net) (310,312) (644,276)
Interest and other income 2,152 4,983
Management Fee expense - see Note 9 (5,594) (13,923)
Other operating expenses (2,125) (947)
----------------------------------------------- ------------- -------------
Portion of the operating loss for the
year attributable to REL's investment
in the Partnership (315,879) (654,163)
----------------------------------------------- ------------- -------------
1 January 1 January
2020 to 2019 to
31 December 31 December
2020 2019
Reconciliation of unrealised and realised
loss on Partnership's investments $'000 $'000
----------------------------------------------- ------------- -------------
Unrealised loss on Partnership's investments
(gross) (311,459) (667,962)
Realised gain/(loss) on Partnership's
investments (gross) 457 (18,793)
Income from Partnership's investments
(gross) - 30
General Partner's performance allocation
- see Note 9 (91) 42,301
Release of provision for taxation 781 148
----------------------------------------------- ------------- -------------
Unrealised and realised loss on Partnership's
investments (net) (310,312) (644,276)
----------------------------------------------- ------------- -------------
7. Cash and cash equivalents
These comprise cash and short-term bank deposits available on
demand. The carrying amounts of these assets approximate to their
fair value.
8. Share capital
31 December 31 December
2020 2019
$'000 $'000
-------------------------------- ------------ ------------
Authorised:
Ordinary Shares of no par value Unlimited Unlimited
-------------------------------- ------------ ------------
Total Total
No. No.
----------------------------------------- -------------- ------------
Issued and fully paid:
Unlimited Shares of no par value
Shares as at inception - -
Issued on 23 May 2013 1 1
Issued on 29 October 2013 71,032,057 71,032,057
Issued on 10 October 2014 5,000,000 5,000,000
Issued on 11 December 2015 8,448,006 8,448,006
Cancelled on 23 November 2018 (4,583,333) (4,583,333)
Cancelled during year ended 31 December (16,958,265) -
2020
----------------------------------------- -------------- ------------
Shares as at year end 62,938,466 79,896,731
----------------------------------------- -------------- ------------
Share capital $'000 $'000
------------------------------- ----------- ----------
Share capital brought forward 1,246,559 1,246,559
Movements for the period:
Cancellation of shares (62,459) -
------------------------------- ----------- ----------
Share capital as at year end 1,184,100 1,246,559
------------------------------- ----------- ----------
The Company has one class of Ordinary Shares. The issued nominal
value of the Ordinary Shares represents 100 per cent. of the total
issued nominal value of all share capital. Under the Company's
Articles of Incorporation, on a show of hands, each Shareholder
present in person or by proxy has the right to one vote at general
meetings. On a poll, each Shareholder is entitled to one vote for
every Share held.
Shareholders are entitled to all dividends paid by the Company
and, on a winding up, providing the Company has satisfied all of
its liabilities, the Shareholders are entitled to all of the
surplus assets of the Company. The Ordinary Shares have no right to
fixed income.
On 15 October 2018, the Company announced a Tender Offer for
GBP55.0 million in the value of the Company's Ordinary Shares. The
Company acquired 4,583,333 Ordinary Shares which were cancelled on
23 November 2018.
On 1 May 2020, the Company announced a share buyback programme
for GBP50.0 million in the value of the Company's Ordinary Shares.
During the year, the Company acquired 16,958,265 Ordinary Shares
which were subsequently cancelled.
Following the cancellation of Ordinary Shares from the Tender
Offer and share buyback programme, the share capital of the Company
is 62,938,466 Ordinary Shares in aggregate.
9. 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 five Non-executive Directors (31 December 2019:
eight). The Chairman is entitled to annual remuneration of
GBP132,000 (31 December 2019: GBP132,000). The Chairman of the
Audit Committee is entitled to annual remuneration of GBP82,500 (31
December 2019: GBP82,500) and the Chairman of the Management
Engagement Committee is entitled to annual remuneration of
GBP71,500 (31 December 2019: GBP71,500). The other independent
Directors are entitled to annual remuneration of GBP66,000 (31
December 2019: GBP66,000). The three non-independent Directors had
chosen not to be remunerated by the Company for their services
during the period until their resignation on 30 October 2020.
Directors' fees and expenses for the year ended 31 December 2020
amounted to $684,182 (31 December 2019: $1,144,166), which resulted
in a reduction to the 31 December 2020 quarter-end Management Fee
as further discussed below. $Nil of Directors' expenses were
outstanding at year-end (31 December 2019: $Nil).
Messrs Barker and Hayden have direct or indirect economic
interests in Other Riverstone Funds as investors.
Investment Manager
The Investment Manager, an affiliate of Riverstone, provides
advice to the Company and the Partnership on the origination and
completion of new investments, on the management of the portfolio
and on realisations, as well as on funding requirements, subject to
Board approval. 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.
The Investment Manager has agreed to deduct from its annual
Management Fee all fees, travel costs and related expenses of the
Directors exceeding the following annual limits:
Limit (as a percentage of the
Portion of NAV then last published NAV)
------------------------------------- -----------------------------------
Up to and including GBP500 million 0.084 per cent.
------------------------------------- -----------------------------------
From GBP500 million to and including 0.084 per cent. at GBP500 million
GBP600 million and thereafter adjusted downwards
proportionately to NAV to 0.07
per cent. at GBP600 million
------------------------------------- -----------------------------------
From GBP600 million to and including 0.07 per cent. at GBP600 million
GBP700 million and thereafter adjusted downwards
proportionately to NAV to 0.06
per cent. at GBP700 million
------------------------------------- -----------------------------------
Above GBP700 million 0.06 per cent.
------------------------------------- -----------------------------------
The above limits are subject to adjustment by agreement between
the Investment Manager and the Company acting by its independent
Directors. Based on the last published NAV as of 31 December 2020,
the maximum amount of annual fees, travel and related expenses of
the Directors is $401,721 (31 December 2019: $639,982). During the
year ended 31 December 2020, fees and expenses of the Directors
amounted to $684,182 (31 December 2019: $1,090,830), resulting in a
reduction of $282,461 to the 31 December 2020 quarter-end
Management Fee (31 December 2019: reduction of $450,848 of the
quarter-end Management Fee).
During the year ended 31 December 2020, the Partnership incurred
Management Fees of $5,593,907 (31 December 2019: $13,923,187) of
which $1,181,324 remained outstanding as at the year-end (31
December 2019: $2,442,998). In addition, the Company and
Partnership, in aggregate, reimbursed the Investment Manager
$1,244,542 in respect of amounts paid on their behalf for the year
(31 December 2019: $2,314,306), of which $1,508,867 related to
legal and professional fees of the Company and Partnership, and
$32,951 related to travel and other operating expenses of the
Investment Manager (31 December 2019: $131,065), partially offset
by a credit balance with the Investment Manager of $297,276 related
to expenses reimbursed by portfolio companies.
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
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
-------------- ---------------------------------
The Investment Management Agreement cannot be terminated by
either the Company or the Investment Manager without cause.
Following the seventh anniversary of the Company's London
listing on 29 October 2020, a discontinuation resolution was
proposed and not passed, therefore the Investment Manager Agreement
will continue in perpetuity subject to the termination for cause
provisions described above. However, either the Board or
Shareholders holding in aggregate 10 per cent. of the Company's
voting securities can call an EGM at any time to vote on the
liquidation of the Company (75 per cent. of the votes cast in
favour required) or run-off of its portfolio (50 per cent. of the
votes cast in favour required). Under both these scenarios, the
Investment Manager would still be entitled to twenty times the most
recent quarterly Management Fee.
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 year ended 31 December 2020, the Partnership paid
Performance Allocation of $91,340 (31 December 2019: $13,561,741)
of which $nil remained outstanding as at the year end (31 December
2019: $nil).
On 3 January 2020, the Company announced amendments to
Performance Allocation arrangements under the Investment Management
Agreement that were effective from 30 June 2019. The amended terms
on which the Company is required to pay a Performance Allocation in
respect of its investment are as follows:
-- Portfolio level cost benchmark: A Performance Allocation will
only be distributed in respect of a realised investment if, at the
time of the realisation of the relevant investment, the aggregate
of the fair market value of all of the Company's then unrealised
investments and the proceeds of all of its realised investments
since inception exceeds the aggregate acquisition price of all of
the Company's unrealised and realised investments. If this
portfolio level cost benchmark is not met at the time of
realisation of the relevant investment, distribution of the
Performance Allocation is subject to deferment as described further
below. As of 31 December 2020, the portfolio level cost benchmark
was in deficit of $565 million.
-- 8 per cent. hurdle rate: A Performance Allocation will only
be accrued for payment upon the realisation of an investment if the
proceeds from that investment exceed an amount equal to its
acquisition cost plus an 8 per cent. annual cumulative hurdle rate
calculated from the date of investment to the date of realisation.
If the hurdle is met, the Performance Allocation will be 20 per
cent. of all Net Profits in respect of each such investment. As of
31 December 2020, the Ridgebury and Enviva investment exceeded the
hurdle rate and the total portfolio's Gross IRR is approximately
-14 per cent.
-- Full realisation: A Performance Allocation will only be
calculated and accrued on the full realisation of the entire
interest in an investment, unless a partial realisation results in
the full return of all capital invested in such investment.
Otherwise, no Performance Allocation will be payable on partial
disposals and the ability for the Investment Manager to elect to
receive a Performance Allocation on an investment that has been
held by the Company for at least seven years (but not sold) has
been removed.
-- Deferral: If the portfolio level cost benchmark is not met at
the time of full realisation of the relevant investment, it will be
retested on a quarterly basis for the following three years. If, at
any time during those three years, the benchmark is satisfied for
four continuous quarters, the relevant Performance Allocation will
then become distributable without interest. Any accrued but
undistributed Performance Allocation that has been deferred due to
the portfolio level cost benchmark test will expire after 36
months.
The Investment Manager will continue to be required to apply
each Performance Allocation (net of taxes) to acquire ordinary
shares of the Company.
During the year, in compliance with the laws of the Cayman
Islands, the Company and its existing Investment Manager,
Riverstone International Limited, a Cayman Islands exempted
company, assigned its investment advisory rights and obligations
under the Company's Investment Management Agreement to RIL's
immediate parent entity, RIGL Holdings, LP, a Cayman Islands
exempted limited partnership.
Furthermore, on 9 December 2020, the Company's Investment
Management Agreement has been amended to remove the Investment
Manager's ability to nominate directors of the Company and to
replace it with the ability to request that its representatives
attend Board meetings as observers instead, except in circumstances
where matters specifically regarding the Investment Manager and its
affiliates are being considered.
Distribution of Investment Proceeds
In addition, the Company and the Investment Manager have agreed
that, going forward, 20 per cent. of the Net Profits attributable
to each fully realised investment, net of taxes, withholdings or
reserves for taxes will, at the discretion of the Company, be
available for distribution to the Company's Shareholders, whether
by dividend or share repurchases.
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.
10. Financial risk management
Financial risk management objectives
The Company's investing activities, through its investment in
the Partnership, intentionally expose it to various types of risks
that are associated with the underlying investee companies of the
Partnership, including the ongoing oil and gas market decline and
COVID-19. The Company makes the investment in order to generate
returns in accordance with its investment policy and
objectives.
The most important types of financial risks to which the Company
is exposed are market risk (including price, interest rate and
foreign currency risk), liquidity risk and credit risk. The Board
of Directors has overall responsibility for the determination of
the Company's risk management and sets policy to manage that risk
at an acceptable level to achieve those objectives. The policy and
process for measuring and mitigating each of the main risks are
described below.
The Investment Manager and the Administrator provide advice to
the Company which allows it to monitor and manage financial risks
relating to its operations through internal risk reports which
analyse exposures by degree and magnitude of risks. The Investment
Manager and the Administrator report to the Board on a quarterly
basis.
Categories of financial instruments
31 December 31 December
2020 2019
$'000 $'000
----------------------------------------- ------------ ------------
Financial assets
Investment at fair value through profit
or loss:
Investment in the Partnership 383,589 772,722
Other financial assets:
Cash and cash equivalents 8,807 211
Trade and other receivables 1,137 593
Financial liabilities
Financial liabilities:
Trade and other payables (3,190) (1,834)
Capital risk management
The Company manages its capital to ensure that the Company will
be able to continue as a going concern while maximising the capital
return to Shareholders. The capital structure of the Company
consists of issued share capital and retained earnings, as stated
in the Statement of Financial Position.
In order to maintain or adjust the capital structure, the
Company may buy back shares or issue new shares. During the year,
the Company bought and cancelled 16,958,265 Ordinary Shares. There
are no external capital requirements imposed on the Company.
The Company's investment policy is set out in the Investment
Policy section of the Annual Report.
Market risk
Market risk includes price risk, foreign currency risk and
interest rate risk.
(a) Price risk
The underlying investments held by the Partnership present a
potential risk of loss of capital to the Partnership and hence to
the Company. The Company invests through the Partnership. Price
risk arises from uncertainty about future prices of underlying
financial investments held by the Partnership, which at year-end
was $288,237,082 (31 December 2019: $593,288,398). Please refer to
Note 5 for quantitative information about the fair value
measurements of the Partnership's Level 3 investments.
The Partnership is exposed to a variety of risks which may have
an impact on the carrying value of the Company's investment in the
Partnership. The Partnership's risk factors are set out in (a)(i)
to (a)(iii) below.
(i) Not actively traded
The Partnership's investments are not generally traded in an
active market but are indirectly exposed to market price risk
arising from uncertainties about future values of the investments
held. The underlying investments of the Partnership vary as to
industry sub-sector, geographic distribution of operations and
size, all of which may impact the susceptibility of their valuation
to uncertainty.
Although the investments are in the same industry, this risk is
managed through careful selection of investments within the
specified limits of the investment policy. The investments are
monitored on a regular basis by the Investment Manager.
(ii) Concentration
The Company, through the Partnership, invests in the global
energy sector, with a particular focus on businesses that engage in
oil and gas exploration and production and midstream investments in
that sector. This means that the Company is exposed to the
concentration risk of only making investments in the global energy
sector, which concentration risk may further relate to sub-sector,
geography, and the relative size of an investment or other factors.
Whilst the Company is subject to the investment and diversification
restrictions in its investment policy, within those limits,
material concentrations of investments have arisen.
The Board and the Investment Manager monitor the concentration
of the investment in the Partnership on a quarterly basis to ensure
compliance with the investment policy.
(iii) Liquidity
The Company's underlying investments through the Partnership are
dynamic in nature. The Partnership will maintain flexibility in
funding by keeping sufficient liquidity in cash and cash
equivalents which may be invested on a temporary basis in line with
the cash management policy as agreed by the Board from time to
time.
As at 31 December 2020, $90.3(1) million or 23.6 per cent. (31
December 2019: $183(1) million or 23.6 per cent.) of the
Partnership's financial assets, including those held by its
wholly-owned subsidiaries, REL US Corp and REL US Centennial
Holdings, LLC, were money market fixed deposits and cash balances
held on deposit with several, A or higher rated, banks. All of
these assets have maturities of less than one year.
(1) These figures are comprised of $90.3 million (2019: $163.4
million) held at the Partnership and $Nil (2019: $19.0 million)
held at REL US Corp
(b) Foreign currency risk
The Company has exposure to foreign currency risk due to the
payment of some expenses in Pounds Sterling. Consequently, the
Company is exposed to risks that the exchange rate of its currency
relative to other foreign currencies may change in a manner that
has an adverse effect on the value of that portion of the Company's
assets or liabilities denominated in currencies other than the U.S.
Dollar. Any exposure to foreign currency risk at the underlying
investment level is captured within price risk.
The following tables set out, in U.S. Dollars, the Company's
total exposure to foreign currency risk and the net exposure to
foreign currencies of the monetary assets and liabilities:
As at 31 December 2020
------- --------
$ GBP Total
Assets $'000 $'000 $'000
---------------------------------- --------- ------- --------
Non-current assets
Investment in the Partnership(1) 383,589 - 383,589
----------------------------------- -------- ------- --------
Total non-current assets 383,589 - 383,589
----------------------------------- -------- ------- --------
Current assets
Trade and other receivables 1,136 1 1,137
Cash and cash equivalents 4,983 3,824 8,807
----------------------------------- -------- ------- --------
Total current assets 6,119 3,825 9,944
----------------------------------- -------- ------- --------
Current liabilities
Trade and other payables 150 3,040 3,190
----------------------------------- -------- ------- --------
Total current liabilities 150 3,040 3,190
----------------------------------- -------- ------- --------
Total net assets 389,558 785 390,343
----------------------------------- -------- ------- --------
As at 31 December 2019
-------- -------- --------
$ GBP Total
Assets $'000 $'000 $'000
---------------------------------- -------- -------- --------
Non-current assets
Investment in the Partnership(1) 772,722 - 772,722
---------------------------------- -------- -------- --------
Total non-current assets 772,722 - 772,722
---------------------------------- -------- -------- --------
Current assets
Trade and other receivables 592 1 593
Cash and cash equivalents 211 - 211
---------------------------------- -------- -------- --------
Total current assets 803 1 804
---------------------------------- -------- -------- --------
Current liabilities
Trade and other payables 204 1,630 1,834
---------------------------------- -------- -------- --------
Total current liabilities 204 1,630 1,834
---------------------------------- -------- -------- --------
Total net assets 773,321 (1,629) 771,692
---------------------------------- -------- -------- --------
The Directors do not consider that the foreign currency exchange
risk at the balance sheet date is material and therefore
sensitivity analysis for the foreign currency risk has not been
provided.
(1) Includes the fair value of two investments held through the
Partnership, Hammerhead and CNOR, denominated in CAD and therefore
subject to foreign currency risk. These two investments had an
aggregate fair value of $67.5 million as at 31 December 2020 (31
December 2019: $95.8 million).
(c) Interest Rate Risk
The Company's exposure to interest rate risk relates to the
Company's cash and cash equivalents held through the Partnership.
The Company is subject to risk due to fluctuations in the
prevailing levels of market interest rates. Any excess cash and
cash equivalents are invested at short-term market interest rates.
As at the date of the Statement of Financial Position, the majority
of the Company's cash and cash equivalents were held on interest
bearing fixed deposit accounts at the Partnership. Any exposure to
interest rate risk at the underlying investment level is captured
within price risk.
The Company has no other interest-bearing assets or liabilities
as at the reporting date. As a consequence, the Company is only
exposed to minimal variable market interest rate risk. Management
does not expect any residual interest rate risk to be material, and
therefore sensitivity analysis has not been provided.
31 December 31 December
2020 2019
$'000 $'000
--------------------------- ------------ ------------
Non-interest bearing
Cash and cash equivalents 8,807 211
--------------------------- ------------ ------------
Liquidity risk
Ultimate responsibility for liquidity risk management rests with
the Board of Directors.
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations on time or at a
reasonable price.
The Company adopts a prudent approach to liquidity management
and through the preparation of budgets and cash flow forecasts
maintains sufficient cash reserves to meet its obligations. During
the year, the Company received distributions of $73.3 million from
the Partnership (2019: $2.1 million), comprising $10 million for
working capital purposes to meet its forecasted liabilities and
$63.3 million to fund the 2020 share buyback programme announced on
1 May 2020. As in prior years, in accordance with the Partnership
Agreement, if the Company requires additional funds for working
capital, it is entitled to receive further distributions from the
Partnership. In order to do so, the Company would submit a
distribution request approved by the Board to the Partnership,
which would then be required to arrange for the payment of the
requested amount. Since REL's inception, the Company has requested
and received six distributions from the Partnership for working
capital needs. As at 31 December 2020, REL and the Partnership has
available liquid resources of $99.1 million in excess of potential
unfunded commitments of $83.2 million, but currently, as of the
date of this report, REL, through the Partnership has total
potential unfunded commitments of $89.3 million. This amount
exceeds its available liquid resources of $53.5 million as of the
date of this report, which includes $2.7 million of proceeds from
Meritage III, Ridgebury H3 and Loanpal received in 2021. However,
based on the Investment Manager's cash flow forecast for the next
three years, the expectation is that, if needed, the Partnership
will only fund the remaining commitments to ILX III, Onyx Power and
Enviva, which aggregate to $41.9 million as of the date of this
report. In order to enable the Partnership to satisfy an additional
distribution request from the Company, as a reactionary measure,
the Partnership's investments in the publicly-traded shares of
portfolio companies could always be sold, or used as collateral to
secure asset-backed financing, to fund the Partnership's shortfall
of liquid resources and potential proceeds from investment
realisations versus potential unfunded commitments, which is $35.8
million as of the date of this report. The Partnership holds
marketable securities consisting of publicly-traded shares of
Centennial, Pipestone and
Talos, for which the aggregate fair value was $31.4 million at
31 December 2020 and $75.2 million as of 22 February 2021.
The Company's financial assets (excluding equity investments)
and liabilities have an expected maturity of less than 12 months
from 31 December 2020 (2019: less than 12 months from 31 December
2019). Based on the assessment outlined above, the Board has
concluded that, as of the date of this report, the Company and
Partnership have sufficient available liquid resources to meet
current liabilities as they fall due over the next 13 months to
March 2022.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company. Any exposure to credit risk at the underlying investment
level is captured within price risk.
Financial assets mainly consist of cash and cash equivalents,
trade and other receivables, and investments at fair value through
profit or loss. The Company's risk on liquid funds, including those
held by the Partnership(1) , is reduced because it can only deposit
monies with institutions with a minimum credit rating of "single
A". The Company mitigates its credit risk exposure on its
investment at fair value through profit or loss by the exercise of
due diligence on the counterparties of the Partnership, its General
Partner and the Investment Manager.
The table below shows the material cash balances and the credit
rating for the counterparties used at the year-end date:
31 December 31 December
2020 2019
Counterparty Location Rating $'000 $'000
------------------- ---------- -------- ------------ ------------
Barclays Bank Plc Guernsey A 8,807 211
------------------- ---------- -------- ------------ ------------
(1) The Partnership hold its cash and cash equivalents at
Barclays Bank Plc (Rating: A), Citibank (Rating: A) and JPMorgan
Bank Luxembourg S.A. (Rating A+)
The Company's maximum exposure to loss of capital from credit
risk at the year-end is shown below:
Carrying Value and
Maximum exposure
31 December 2020 $'000
---------------------------------------------- -------------------
Other financial assets (including cash and
cash equivalents but excluding prepayments) 8,807
---------------------------------------------- -------------------
Carrying Value and
Maximum exposure
31 December 2019 $'000
---------------------------------------------- -------------------
Other financial assets (including cash and
cash equivalents but excluding prepayments) 211
---------------------------------------------- -------------------
Gearing
As at the date of these Financial Statements the Company itself
has no gearing. The Company may have indirect gearing through the
operations of the underlying investee companies.
11. Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors, as a
whole. The key measure of performance used by the Board to assess
the Company's performance and to allocate resources is the Total
Return of the Company's Net Asset Value and therefore no
reconciliation is required between the measure of profit or loss
used by the Board and that contained in the Financial
Statements.
For management purposes, the Company is organised into one main
operating segment, which invests in one limited partnership.
All of the Company's income is derived from within Guernsey and
the Cayman Islands.
All of the Company's non-current assets are located in the
Cayman Islands.
Due to the Company's nature, it has no customers.
12. Earnings per Share and Net Asset Value per Share
Earnings per Share
31 December 2020 31 December 2019
---------------------------
Basic Diluted Basic Diluted
--------------------------- ------------ ------------ ----------- -----------
Loss for the year ($'000) (318,890) (318,890) (659,569) (659,569)
Weighted average numbers
of Shares in issue 72,106,969 72,106,969 79,896,731 79,896,731
EPS (cents) (442.25) (442.25) (825.53) (825.53)
--------------------------- ------------ ------------ ----------- -----------
The Earnings per Share is based on the profit or loss of the
Company for the year and on the weighted average number of Shares
the Company had in issue for the year ended 31 December 2020.
The weighted average number of Shares during the year is
72,106,969.
There are no dilutive Shares in issue as at 31 December
2020.
Net Asset Value per Share
31 December 31 December
2020 2019
--------------------------------- ------------ ------------
NAV ($'000) 390,343 771,692
Number of Shares in issue 62,938,466 79,896,731
Net Asset Value per Share ($) 6.20 9.66
Net Asset Value per Share (GBP) 4.55 7.36
Discount to NAV (per cent.) 34.68 43.75
--------------------------------- ------------ ------------
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. The Discount to
NAV is arrived at by calculating the percentage discount of the
Company's Net Asset Value per Share to the Company's closing Share
price as at the date of the Statement of Financial Position.
13. Auditor's Remuneration
Other operating expenses include all fees payable to the
auditor, which can be analysed as follows:
2020 2019
$'000 $'000
---------------------------------------------- ------- -------
Ernst & Young LLP Audit fees 538 490
---------------------------------------------- ------- -------
2020 2019
$'000 $'000
Ernst & Young LLP (United Kingdom) Interim
Review fees 157 174
Ernst & Young LLP (United Kingdom) Other
Assurance services - 121
Ernst & Young Business Services S.Ã
r.l Non-Assurance services 2 2
Ernst & Young (United States) Tax Compliance
fees - 45
Ernst & Young Non-Audit fees 159 342
---------------------------------------------- ------- -------
14. IFRS to US GAAP Reconciliation
The Company's Financial Statements are prepared in accordance
with IFRS, which in certain respects differ from US GAAP. These
differences are not material and therefore no reconciliation
between IFRS and US GAAP has been presented. For reference, please
see below for a summary of the key judgments and estimates taken
into account with regards to the Company as of 31 December 2020, as
well as the Shareholders' financial highlights required under US
GAAP.
Assessment as an Investment Entity
As stated in Note 3, REL meets the definition of an investment
entity under IFRS 10. Per US GAAP (Financial Services - Investment
Companies (Topic 946): Amendments to the Scope, Measurement, and
Disclosure Requirements or "ASC 946"), REL meets the definition of
an investment company, and as required by ASC 946, REL measures its
investment in the Partnership at FVTPL, which in turn measures its
investment in the underlying investments at FVTPL.
REL's Investment in the Partnership
As stated in Note 3, although the Company is the sole limited
partner, it does not control the Partnership (as that is
attributable to the General Partner), but instead has significant
influence. Therefore, REL accounts for the Partnership as an
investment in associate in accordance with IAS 28 - Investment in
Associates and Joint Ventures, and, since REL meets the definition
of an investment company in accordance with IFRS 10, it measures
its investment in the Partnership at FVTPL. Taking into
consideration all applicable US GAAP requirements (ASC 946 and ASC
323), REL is permitted to not consolidate its investment in the
Partnership and account for it at FVTPL as required by ASC 946 and
ASC 323, which is similar to the IFRS 10 requirements.
Fair Value Measurements
The fair value of the underlying investments held by the
Partnership are determined based on valuation techniques and inputs
that are observable and unobservable in the market which market
participants have access to and will use to determine the exit
price or selling price of the investments. The change in valuation
of REL's investments held by the Partnership is then reflected in
the fair value of REL's investment in the Partnership.
Shareholders' Financial Highlights
Year Ended Year Ended
31 December 31 December
2020 2019
------------------------ ------------------------
Expense ratio(1) 2.3% 1.8%
Performance Allocation ratio(1) 0.0% (2.6)%
------------------------ ------------------------
Total Expense and Performance Allocation
ratio 2.3% (0.8)%
======================== ========================
Net investment loss ratio(2) (1.8)% (1.4)%
======================== ========================
Internal rate of return(3) , beginning
of year (7.4)% 2.7%
======================== ========================
Internal rate of return(3) , end
of year (13.0)% (7.4)%
======================== ========================
Net contributed capital to total
capital commitments(4) 100.0% 100.0%
======================== ========================
1. The expense ratio is calculated using total expenses of the
Company and the Partnership allocated to the Shareholders divided
by the Shareholders' average capital balance for the year
presented. For the years ended 31 December 2020 and 2019, the
Performance Allocation realised by the General Partner of the
Partnership was $0.1 million and $13.6 million, respectively, and
the Performance Allocation accrued by the General Partner of the
Partnership was approximately $nil million and $(42.3) million,
respectively.
2. The net investment loss ratio is the Shareholders' investment
income of the Company and Partnership reduced by total expenses of
the Company and the Partnership divided by the Shareholders'
average capital balance for the year presented. However, net
investment loss does not include any realised or unrealised
gains/losses generated from the sale or recapitalisation of an
investment of the Partnership. Thus, net investment loss includes
dividend and interest income of the Company and the Partnership
less the total expenses of the Company and the Partnership incurred
during the year presented.
3. The internal rate of return since the commencement of
operations ("IRR") is computed based on the dates of the
Shareholders' capital contributions to the Company, distributions
from the Company to the Shareholders, and the fair value of the
Shareholders' NAV as of 31 December 2020. The IRR of the
Shareholders is net of all fees and Performance Allocation to the
General Partner of the Partnership. The computation of the IRR for
an individual Shareholder may vary from the IRR presented above due
to the timing of capital transactions.
4. Net contributed capital is based on the Shareholders' gross capital contributions.
15. Subsequent Events
Subsequent to year-end, REL, through the Partnership, funded all
of its $25 million commitment to Loanpal in conjunction with the
closing of the transaction on 13 January 2021. Loanpal is a San
Francisco based sustainable home improvement loan originator,
providing a point-of-sale lending platform used by key residential
contractors. Loanpal does not take funding risk, and the company
presells its originated loans via forward purchase agreements to
large funds managed by asset managers including Blackstone and
Goldman Sachs. The company's attractive unit economics and
asset-light business model allow for rapid growth and the ability
to scale faster than its competitors, while generating free cash
flow by capitalising on upfront net cash payments for loan
originations and avoiding costly SG&A and capital expenditures
incurred by other portions of the value chain.
Additionally, and subsequent to year-end, REL, through the
Partnership fully funded its $10 million commitment to FreeWire.
Based in the San Francisco Bay Area and led by co-founder and CEO
Arcady Sosinov, FreeWire designs, manufactures, and markets
unitised battery-integrated DCFCs to customers such as retailers,
utilities, electric vehicle fleet operators, and charging station
network operators across the globe. In addition to hardware sales,
FreeWire's software platform offers recurring revenues, enabling
charger management and third-party platform integration with plans
to offer energy management and grid services.
Furthermore, again post year-end, REL, through the Partnership,
announced a commitment of $10 million to Decarbonization Plus
Acquisition Corporation (NASDAQ: DCRB), via a private placement,
and fully funded its commitment of $0.6 million to Decarbonization
Plus Acquisition Corporation II (NASDAQ: DCRNU), via an initial
public offering, respectively. Both entities are blank check
companies formed for the purpose of effecting a merger, capital
stock exchange, asset acquisition, stock purchase, reorganisation
or similar business combination with a target whose principal
effort is developing and advancing a platform that decarbonises the
most carbon-intensive sectors. These include the energy and
agriculture, industrials, transportation and commercial and
residential sectors. On 9 February 2021, Hyzon Motors Inc.
("Hyzon") and Decarbonization Plus Acquisition Corporation
announced a definitive agreement for a business combination, which
is expected to close during the second quarter of 2021, that would
result in Hyzon becoming a publicly listed company. Hyzon is the
industry-leading global supplier of zero-emissions hydrogen fuel
cell powered commercial vehicles.
Lastly, Riverstone Holdings, LLC, directors of Talos Energy Inc.
(NYSE: TALO) designated by Riverstone, and other parties are among
the defendants in a shareholder action filed in late May 2020
challenging the December 2019 transactions by which TALO acquired
assets from Riverstone related entities: Castex Energy 2014, LLC,
ILX Holdings LLC, ILX Holdings II, LLC and ILX Holdings III, LLC.
Riverstone and the other defendants have filed a motion to dismiss
such claims and, based on the current stage of the claims, no
estimate can be made of the outcome at this time.
Alternative performance measures ("APMs")
This Annual Report and Accounts contain APMs, which are
financial measures not defined in IFRS. These include certain
financial and operational highlights and key financials, as well as
in the performance section of the Chairman's Statement. The
definition of each of these APMs is shown below.
The Company assesses its performance using a variety of measures
that are not specifically defined under IFRS and are therefore
termed APMs. The APMs that the Company uses may not be directly
comparable with those used by other companies. These APMs are used
to present a clearer picture of how the Company has performed over
the year and are all financial measures of historical
performance.
The table below defines our APMs.
APM Definition Purpose Calculation and (where
relevant) reconciliation to
IFRS
NAV per Ordinary Share The Company's NAV divided A measure of the value of The net assets as shown on
by the number of Ordinary one ordinary share. the statement of financial
Shares. position ($390 million as
at 31 December
2020 and $772 million as at
31 December 2019) divided
by the number of Ordinary
Shares in
issue as at the calculation
date (62,938,466 as at 31
December 2020 and
79,896,731 as at 31
December 2019).
---------------------------- ---------------------------- ----------------------------
Ordinary NAV total return The increase/(decrease) in A measure of the overall The difference in the NAV
the NAV per ordinary share. financial performance of per Ordinary Share at the
the Company. beginning and end of the
year from the
statement of financial
position (($6.20) for the
year ended 31 December 2020
& ($9.66) for
the year ended 31 December
2019) as a percentage of
the opening NAV per
Ordinary Share as
shown in the Statement of
Financial Position (being
$(9.66) per ordinary share
as at 31 December
2019 & $17.91 as at 31
December 2018).
---------------------------- ---------------------------- ----------------------------
Premium/(discount) to NAV The amount by which the A measure of the The difference between the
ordinary share price is performance of the Company's share price and
higher/lower than the NAV Company's share price NAV per Ordinary Share as a
per Ordinary Share, relative to the NAV per relative
expressed as a percentage Ordinary percentage of the NAV per
of the NAV per ordinary Share. Ordinary Share (34.7 per
share. cent. as at 31 December
2020 and 43.7 per
cent. as at 31 December
2019).
---------------------------- ---------------------------- ----------------------------
Annual total costs' impact The impact on return each A measure to show how total Annual total costs of the
on return per year year that total costs, costs, including GP Company and Partnership as
including GP Performance Performance Allocation, a per cent. of average NAV
Allocation, have affect the return of the Company:
on the investment return. from the Company.
Total annual costs for the
year ended 31 December
2020: $10,917,596 (31
December 2019: $33,860,704)
Average NAV of the Company
for the year ended 31
December 2020: $467,768,254
(31 December
2019: $1,052,867,102)
Annual total costs' impact
of return per year:
2.3 per cent. as of 31
December 2020 (3.2 per
cent. as of 31 December
2019)
---------------------------- ---------------------------- ----------------------------
Reconciliation of The annual investment value A reconciliation of the For the year ended 31
Partnership's investments of the Partnership, Partnership's investments December 2020:
including capital deployed on an annual basis. $593 million - Brought
into the Company's Forward
assets, cash received from 59 million - Capital
the Company's investment Invested
portfolio and the net (53) million - Cash
unrealised change Proceeds
in value. (311) million - Change in
Unrealised
Gain/(Loss)
$288 million - Carried
Forward
For the year ended 31
December 2019:
$1,360 million - Brought
Forward
81 million - Capital
Invested
(163) million - Cash
Proceeds
(685) million - Change in
Unrealised
Gain/(Loss)
$593 million - Carried
Forward
---------------------------- ---------------------------- ----------------------------
Expense Ratio The impact on return each A measure to show how As shown in Note 14, the
year that total costs, costs, excluding GP expense ratio is calculated
excluding GP Performance Performance Allocation, using total expenses of the
Allocation, have affect the return from the Company and
on the investment return. Company. the Partnership allocated
to the Shareholders divided
by the Shareholders'
average capital
balance for the year
presented (2.3 per cent.
for the year ended 31
December 2020 & 1.8 per
cent. for the year ended 31
December 2019).
---------------------------- ---------------------------- ----------------------------
Performance Allocation The impact on return each A measure to show how GP As shown in Note 14, for
Ratio year that GP Performance Performance Allocation the years ended 31 December
Allocation has on the affects the return from the 2020 and 2019, the
investment return. Company. Performance Allocation
realised by the General
Partner of the Partnership
was $0.1 million and $13.6
million, respectively,
and the Performance
Allocation accrued by the
General Partner of the
Partnership was
approximately
$nil million and $(42.3)
million, respectively.
---------------------------- ---------------------------- ----------------------------
Net Investment Loss Ratio The impact on return each A measure to show how total As shown in Note 14, the
year that total costs, net costs, net of interest net investment loss ratio
of interest income, have on income, affect the return is the Shareholders'
the investment from the Company. investment income
return. of the Company and
Partnership reduced by
total expenses of the
Company and the Partnership
divided by the
Shareholders' average
capital balance for the
year presented. However,
net
investment loss does not
include any realised or
unrealised gains/losses
generated from the
sale or recapitalisation of
an investment of the
Partnership. Thus, net
investment loss includes
dividend and interest
income of the Company and
the Partnership less the
total expenses of
the Company and the
Partnership incurred during
the year presented. (1.8
per cent. for the
year ended 31 December 2020
& 1.4 per cent. for the
year ended 31 December
2019).
---------------------------- ---------------------------- ----------------------------
Internal Rate of Return The cumulative return on A measure to show the As shown in Note 14, the
Shareholders' investment. return from the Company. internal rate of return
since the commencement of
operations ("IRR")
is computed based on the
dates of the Shareholders'
capital contributions to
the Company,
distributions from the
Company to the
Shareholders, and the fair
value of the Shareholders'
NAV as of 31 December 2020.
The IRR of the Shareholders
is net of all fees and
Performance
Allocation to the General
Partner of the Partnership.
(13.0) per cent. as of 31
December 2020
(7.4) per cent. as of 31
December 2019
2.7 per cent. as of 31
December 2018
---------------------------- ---------------------------- ----------------------------
Net Contributed Capital to The Shareholders' gross A measure to show the As shown in Note 14, net
Total Capital Commitments capital contributions in remaining unfunded portion contributed capital is
relation to total capital of the Shareholders' total based on the Shareholders'
commitments. capital commitments. gross capital
contributions.
(100 per cent. as of 31
December 2020 and 2019).
---------------------------- ---------------------------- ----------------------------
Glossary of Capitalised Defined Terms
"1P reserve" means proven reserves;
"2P reserve" means proven and probable reserves;
"Administrator" means Ocorian Administration (Guernsey) Limited
(formerly 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;
"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, as amended from time to time;
"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 Ocorian Administration (Guernsey)
Limited (formerly 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 and McNair;
"Corporate Brokers" means JP Morgan Cazenove and Numis
Securities Limited;
"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;
"DCRB" means Decarbonization Plus Acquisition Corporation;
"DCRN" means Decarbonization Plus Acquisition Corporation
II;
"DEA" means Deutsche Erdoel AG, an international independent
exploration and production company headquartered in Germany;
"Depositary" means Ocorian Depositary Company (UK) Limited
(formerly Estera Depositary Company (UK) Limited);
"Discontinuation Resolution" means a special resolution that was
proposed and not passed by 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;
"Disclosure Guidance and Transparency Rules" or "DTRs" mean the
disclosure guidance published by the FCA and the transparency rules
made by the FCA under section 73A of FSMA;
"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;
"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;
"ECL" means expected credit loss;
"EEA" means European Economic Area;
"EGM" means an Extraordinary General Meeting of the Company;
"EIA" means the U.S. Energy Information Administration;
"Enviva" means Enviva Holdings, LP;
"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;
'FreeWire" means FreeWire Technologies, Inc.;
"Fund V" means Riverstone Global Energy & Power Fund V,
L.P.;
"Fund VI" means Riverstone Global Energy & Power Fund VI,
L.P.;
"FVTPL" means Fair Value through the profit or loss;
"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;
"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 as
adopted by the European Union, being the principles-based
accounting standards, interpretations and the framework by that
name issued by the International Accounting Standards Board;
"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" means RIL (effective through 17 August
2020) and RIGL (effective after 17 August 2020) which are both
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 (effective 17 August 2020), the2(nd)
Amended & Restated investment management agreement effective
after 17 August 2020 between RIGL, the Company and the Partnership
(acting through its General Partner) under which RIGL is appointed
as the Investment Manager of both the Company and the Partnership
and the 3(rd) Amended & Restatement investment management
agreement effective 9 December 2020 between RIGL, the Company and
the Partnership (acting through its General Partner);
"Invested Capital Target Return" means, as defined in the
Articles, the Gross IRR of 8 per cent. on the portion of the
proceeds of the Issue (as such term is defined in the Company's
Prospectus) that have been invested or committed to an investment
("Invested Capital") in respect of the period from the dates of
investment or commitment of that Invested Capital (being the dates
from which a Management Fee has been paid in respect of that
Invested Capital) to the seventh anniversary of the first
Admission, calculated by reference to the prevailing U.S. dollar
valuations (as of the seventh anniversary of the first Admission
(or earlier disposal)) of the investment acquired with that
Invested Capital and sales proceeds of investments that have been
disposed of prior to such seventh anniversary and taking account of
any distributions made on those investments prior to the seventh
anniversary of the first Admission;
"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);
"ISIN" means an International Securities Identification
Number;
"KFI" means Moore Capital Management, formerly known as 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;
"Loanpal" means Loanpal, LLC;
"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 the
Investment Manager 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;
"Net Profits" means the proceeds received from each realised
investment (after the expenses related to its disposal) minus the
acquisition price of that realised investment;
"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 Power" 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 REL IP General Partner Limited
(Formerly Riverstone Energy Investment Partnership, L.P.), 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 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;
"PRT" means Riverstone Performance Review Team;
"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.;
"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;
"RIGL" means RIGL Holdings, LP;
"RIL" 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.;
"SIFI" means Systemically Important Financial Institutions;
"Shareholder" means the holder of one or more Ordinary
Shares;
"SPPI" means solely payments of principal and interest;
"Standing Committee" means a formal committee of the Board with
defined terms of reference;
"Stewardship Code" means the UK Stewardship Code;
"Target Price" means, as defined in the Articles, GBP15.00,
subject to (a) downward adjustment in respect of the amount of all
dividends and other distributions, stock splits and equity
issuances below the prevailing NAV per Ordinary Share made
following the first Admission and (b) upward adjustment to take
account of any share consolidations made following the first
Admission;
"Tender Offer" means up to GBP55,000,000 in value of Ordinary
Shares made by the Company in 2018;
"Three Rivers III" means Three Rivers Natural Resources Holdings
III LLC;
"Total Return of 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;
"TRIF" means Total Recordable Incident Frequency;
"TSX" means Toronto Stock Exchange;
"UCITS" means undertakings for collective investment in
transferable securities;
"United States Bankruptcy Code" means the source of bankruptcy
law in the United States Code;
"United States Code" means the consolidation and codification by
subject matter of the general and permanent laws of the United
States;
"UK" or "United Kingdom" means the United Kingdom of Great
Britain and Northern Ireland;
"UK Code" means The UK Corporate Governance Code 2018, issued by
the FRC;
"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;
"US GAAP" means the accounting principles generally accepted in
the United States;
"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 English solicitors
Richard Hayden (Chairman) Secretary to the Company
Peter Barker Ocorian Administration Hogan Lovells International
Patrick Firth (Guernsey) Limited LLP
Jeremy Thompson PO Box 286 Atlantic House
Claire Whittet Floor 2 Holborn Viaduct
Trafalgar Court London
Pierre Lapeyre Les Banques EC1A 2FG
(resigned 30 October St Peter Port United Kingdom
2020) Guernsey
David Leuschen GY1 4LY Guernsey advocates
(resigned 30 October Channel Islands to the Company
2020) Carey Olsen
Ken Ryan Registered office Carey House
(resigned 30 October PO Box 286 PO Box 98
2020) Floor 2 Les Banques
Trafalgar Court St Peter Port
Audit Committee Les Banques Guernsey
Patrick Firth (Chairman) St Peter Port GY1 4BZ
Peter Barker Guernsey Channel Islands
Richard Hayden GY1 4LY
Jeremy Thompson Channel Islands U.S. legal advisors
Claire Whittet to the Company
Registrar Vinson & Elkins LLP
Management Engagement Link Asset Services 1001 Fannin Street
Committee 65 Gresham Street Suite 2500
Claire Whittet (Chair) London Houston, Texas
Peter Barker EC2V 7NQ TX 77002
Patrick Firth United Kingdom United States of America
Richard Hayden
Jeremy Thompson Principal banker and Independent auditor
custodian Ernst & Young LLP
Nomination Committee Barclays Bank PLC PO Box 9, Royal Chambers
Richard Hayden (Chairman) PO Box 41 St Julian's Avenue
Peter Barker Le Marchant House St Peter Port
Patrick Firth Le Truchot Guernsey
Jeremy Thompson St Peter Port GY1 4AF
Claire Whittet Guernsey Channel Islands
GY1 3BE
Investment Manager Channel Islands Corporate Brokers
RIGL Holdings, LP JP Morgan Cazenove
190 Elgin Avenue 25 Bank Street
George Town Canary Wharf
Grand Cayman London
KY1-9005 E15 5JP
Cayman Islands United Kingdom
Investment Manager's Numis Securities Limited
Performance Review Team The London Stock Exchange
Bartow Jones Building
Pierre Lapeyre 10 Paternoster Square
David Leuschen London
Baran Tekkora EC4M 7LT
United Kingdom
Website: www.RiverstoneREL.com
ISIN: GG00BBHXCL35
Ticker: RSE
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 Audited Financial Statements
for the year ended 31 December 2020 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, the 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
[1] Haynes and Boone Oil Patch Bankruptcy Monitor, December 31,
2020.
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