REG - Riverstone Energy Ld - Annual Report and Financial Statements 2022
01/03/2023 07:16
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RNS Number : 4259R Riverstone Energy Limited 01 March 2023
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 $43 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. Since 2009, Riverstone has committed over $8 billion in
renewable energy and decarbonisation, across 45 investments in technologies
ranging from wind development to financial software facilitating renewable
deployment. With offices in New York, London, Houston, Mexico City, Amsterdam
and Menlo Park, the firm has committed to over 200 investments in North
America, Latin America, Europe, Africa, Asia and Australia.
The Company seeks to achieve superior risk adjusted returns through investing
in the energy sector with a specific focus on energy transition and
decarbonisation of the global economy.
The transition to a clean mix of energy sources will require unprecedented
investment in new technologies and infrastructure. REL is poised to power that
momentum by supporting its conventional positions and by executing on its
modified investment programme. In 2022, REL invested $95 million in six
companies located at diverse junctions of the energy transition value chain.
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)(2))
Net commitments during the year ended 31 December 2022 Commitments increased by a net total of $69 million ($93 million pursuant to
decarbonisation strategy and ($24 million) pursuant to legacy conventional
strategy):
(i) $25 million in Tritium DCFC Limited
(ii) $20 million in Anuvia Plant Nutrients, Inc.
(iii) $17.5 million in T-REX Group, Inc.
(iv) $17.5 million in Infinitum Electric Inc.
(v) $12.5 million in Our Next Energy, Inc.
(vi) $4 million in Group14 Technologies Inc.
(vii) ($24 million) in Carrier Energy Partners II LLC
(viii) ($3 million) in Enviva, Inc. (in connection with overall
approved commitment reduction)
Remaining potential unfunded commitments at 31 December 2022 $11 million((2)(3)) ($5 million pursuant to decarbonisation strategy and $6
million pursuant to legacy conventional strategy):
(i) $6 million in Onyx Power
(ii) $4 million in Enviva Inc.
(iii) $1 million in Our Next Energy, Inc.
Investments during the year ended 31 December 2022 Invested a total of $95 million((2)) ($95 million pursuant to decarbonisation
strategy):
(i) $25 million in Tritium DCFC Limited
(ii) $20 million in Anuvia Plant Nutrients Inc.
(iii) $17.5 million in T-REX Group, Inc.
(iv) $17.5 million in Infinitum Electric Inc.
(v) $11.5 million in Our Next Energy, Inc.
(vi) $4 million in Group14 Technologies Inc.
Realisations during the year ended 31 December 2022 Realised a total of $164 million((2)) ($163 million pursuant to legacy
conventional strategy and $1 million pursuant to decarbonisation strategy):
(i) $61 million in Onyx Power
(ii) $42 million from Pipestone Energy Corp. (formerly
Canadian Non-Operated Resources LP)
(iii) $34 million in Carrier Energy Partners II LLC((4))
(iv) $23 million from Permian Resources Corporation (formerly
Centennial Resource Development, Inc.)
(v) $2 million from Meritage Midstream Services III, L.P.
(vi) $2 million in aggregate from ILX Holdings III, LLC,
GoodLeap, LLC, Rock Oil Holdings, LLC and Tritium DCFC Limited
Key Financials
2022 2021
NAV as at 31 December((5)) $739 million / $682 million /
£610 million((6)) £506 million((6))
NAV per Share as at 31 December((5)) $14.52 / £11.99 ((6)) $12.41 / £9.19 ((6))
Per cent. change in NAV per Share (USD) for the year ended 31 December 17.0 per cent. 100.2 per cent.
Market capitalisation at 31 December $418 million / $345 million /
£345 million ((6)) £255 million((6))
Share price at 31 December $8.21 / £6.78 $6.28 / £4.65
Per cent. change in Share price (Sterling) for the year ended 31 December 45.8 per cent. 56.6 per cent.
Number of Shares outstanding at 31 December 50,891,658 54,937,599
Share price discount to NAV 43.5 per cent. 49.4 per cent.
Cash and cash equivalents at 31 December $120 million ((7)) / $106 million((7)) /
£99 million((6)) £78 million((6))
Marketable securities (unrestricted) at 31 December $177 million ((8)) / $195 million((8)) /
£146 million((6)) £144 million((6))
Marketable securities (restricted) at 31 December $4 million ((9)) / $47 million((9)) /
£3 million((6)) £35 million((6))
Total comprehensive income for the year ended 31 December $88.9 million $341.9 million
Basic and Diluted Earnings per Share for the year ended 31 December 171.87 cents 561.73 cents
Number of Shares repurchased/average price per Share for the year ended 31 4,045,941 8,000,867
December ((9))
$7.95/ £6.63 $6.28 / £4.60
( )
((1) ) Amounts shown reflect investment-related activity at the Partnership,
not the Company.
((2)) Amounts may vary due to rounding.
((3)) Excludes the remaining unfunded commitment for Hammerhead of $12.2
million, which is not expected to be funded. The expected funding of the
remaining unfunded commitments at 31 December 2022 are $4.5 million in 2023
and $nil in 2024. The residual amounts are to be funded as needed in 2025 and
later years.
((4)) Please see Investment Portfolio Summary section for further information
regarding the details of the Carrier II realisation transaction in December
2022.
((5)) NAV and NAV per Share are reflective of 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 which were both $nil as of 31
December 2022 and 31 December 2021.
((6)) Based on exchange rate of 1.2103 $/£ at 31 December 2022 (1.3503 $/£
at 31 December 2021 and 1.606 $/£ at IPO).
((7)) At 31 December 2022 and 2021, respectively, amounts are comprised of
$15.8 million and $7.3 million held at the Company, $68.4 million and $4.5
million held at the Partnership and $35.3 million and $94.0 million held at
REL US Corp.
((8)) Unrestricted marketable securities held by the Partnership consist of
publicly-traded shares of Permian Resources (formerly Centennial), Enviva,
Solid Power, Tritium and Hyzon for which the aggregate fair value was $177
million at 31 December 2022, and $198 million as of 27 February 2023 (31
December 2021: $195 million).
((9)) Restricted marketable securities held by the Partnership consist of
publicly-traded shares of Tritium and DCRD for which the aggregate fair value
was $4 million at 31 December 2022 and $234 million as of 27 February 2023,
which also includes the shares of HHRS (see Post-Year End Update section in
the Investment Manager's Report for further information) (31 December 2021:
$47 million).
((10)) Inception to date total number of shares repurchased were 29,005,073 at
an average price per share of £3.89 ($5.00) for a total cost of approximately
£113 million ($145 million).
board Chair's Statement
Dear Shareholder,
GLOBAL MARKET DISRUPTION
2022 was one of the most event and policy driven energy markets I have ever
seen. On the face of it, commodity prices ended the year in a similar place to
where they started. WTI opened 2022 at US$75.99/bbl and closed it at
US$80.16/bbl. In Europe, the Title Transfer Facility (TTF) natural gas price
started the year at € 80.43/MWh and ended it at €76.31/MWh.
But this apparent calm year-on-year masked extreme intra-year price movements,
driven in a large part by Russia's invasion of Ukraine and the ensuing
European gas and power crisis. The high/low price for WTI during the year was
$123.64/$71.05 per barrel. A near decade of under-investment in conventional
fossil fuels, combined with continued post-COVID demand recovery, further
exacerbated the energy crisis.
Unpredictable commodity prices have been matched by uncertainty in the global
stock and bond markets. The highest inflation seen in Europe and North America
for forty years, and subsequent shift towards higher interest rate policies by
the World's central banks for the first time in over a decade, contributed to
a significant sell off in technology and other growth sectors. It has also
been a difficult year for the SPAC market, which has seen demand fall back
from the high levels of 2020 and 2021.
Despite this tough backdrop REL has performed well. Our listed companies
have remained focused on executing their achievable near-term growth plans.
Furthermore, higher commodity prices have lifted the value of our conventional
E&P investments, generating additional cashflows that support our share
buybacks and the growth of our decarbonisation portfolio as we continue to
pivot into the energy transition.
GOVERNMENT POLICY SUPPORTS DECARBONISATION INVESTMENT
Elevated energy prices and wider inflationary pressures continue to fuel a
cost-of-living crisis, threatening major economies with recession just as they
recover from the pandemic. More welcome is that after years of low cost and
abundant energy being taken for granted, we are now seeing greater attention
being placed on energy security on both sides of the Atlantic.
Many European governments have reacted to the crisis by introducing some form
of windfall tax on high energy profits and at the EU level a gas and power
price cap. While it is understandable that governments act to protect their
most vulnerable citizens at this time, this needs to be balanced against
compounding the crisis by dis-incentivising badly needed new investment in
energy. Consequently, it is encouraging that in addition to imposing
additional taxes governments have also doubled down on decarbonisation as a
means both to bolster energy security through diversification and accelerate
efforts to keep global warming to below 1.5 degrees.
The EU announced the REPowerEU plan in May with the intention to make Europe
independent of Russian fossil fuels before 2030. Under the plan the Commission
made hundreds of billions of Euros in financing available to member states to
support clean energy and clean industry initiatives and encourage significant
energy saving initiatives across the bloc.
In August, the US Congress passed its largest ever climate-related
legislation, the Inflation Reduction Act ("IRA"). The legislation makes $391
billion of climate related incentives and provisions available, two thirds of
which are uncapped and could see the overall quantum rise further. Designed to
spur growth of the US's domestic green energy industry and supply chain, the
legislation will accelerate the development of blue hydrogen and CCUS amongst
others.
REL is well placed to capitalise on these new initiatives. While there is
little in either REPowerEU or the IRA to address one of our key strategic
initiatives which is to invest in grid flexibility and resilience, our other
areas of focus should benefit. These are the electrification of transport;
agriculture; next generation liquid fuels; and next horizon resource use plays
- all areas we have identified as attractive opportunities for making
decarbonisation investments.
BOARD CHANGES
As previously announced, after nearly ten years as a REL Non-Executive
Director and as Chair of the Board for almost seven years, I am standing down
as Chair of the Board in February 2023 and retiring from the Board after the
AGM in May 2023. I am proud that over the course of my time as Chair of the
Board, REL has successfully reoriented its strategy towards investing in the
energy transition, while strengthening its balance sheet and improving the
liquidity of its assets, as well as implemented significant favourable
adjustments to the IMA. Further, as of 31 December 2022, REL has returned
£113 million ($145 million) to Shareholders by purchasing 29,005,073 shares
through the buyback programme, representing 36.3 per cent. of the total
outstanding shares at commencement in May 2020, at a weighted average price of
£3.89 ($5.00) per share. As a result, I am leaving the Company well
positioned to benefit from and support decarbonisation, the greatest
investment theme of the coming decades.
In October 2022, we welcomed Richard Horlick to the Board as a Non-Executive
Director. Richard brings a huge amount of experience from a long career in
investment management, including with Schroders and Fidelity International. As
well as joining the Audit Committee, Nomination Committee and Management
Engagement Committee, Richard will become Chair of the Board in February 2023.
I wish him every success in the role.
During the year, two further Non-Executive Directors announced that they would
be standing down from the Board, having served for nearly ten years. Peter
Barker will retire from the REL Board at the Company's 2023 Annual General
Meeting, while Patrick Firth will remain on the Board until December 2023 to
ensure the orderly transition of his responsibilities as Chair of the Audit
Committee. Again, I would like to thank both Peter and Patrick for their
service to REL and our Shareholders over the years.
I would like to welcome John Roche to the Board. John joined as a
Non-Executive Director in December 2022 and will become Chair of the Audit
Committee, taking over from Patrick Firth. John is a former partner of PwC.
With these changes to the Board of Directors, I believe REL is now well placed
for the next phase of its growth as the Company continues to maximise the
value of its conventional energy investments and build out its investment
portfolio in the decarbonisation space.
INVESTMENT PORTFOLIO SUMMARY
As of 31 December 2022, REL's portfolio comprised thirteen active investments
in decarbonisation and three conventional energy investments. Over the
course of 2022, we continued to invest in the decarbonisation pipeline, making
six exciting new investments.
At the beginning of the year, we made a $17.5 million investment in T-REX
Group. T-REX brings together asset class expertise, critical data management
capabilities, and a platform for deal structuring, cash flow modelling,
scenario analysis, real-time performance tracking, and reporting. By giving
institutions the modernised tools and validation they require to deploy
capital, T-REX facilitates increased investment allocations into sustainable,
decarbonisation-related assets.
Shortly afterwards in February, REL announced it was making a lead investment
of $17.5 million in Infinitum Electric's $80 million Series D round. Founded
in 2018, Infinitum Electric created the breakthrough air-core motor which
offers superior performance at half the weight and size of conventional motors
- and at a fraction of the carbon footprint.
In March, REL invested $20 million in Anuvia Plant Nutrients' $65.5 million
Series D fund raising round. The company has developed and now uses a unique
technology that optimises nutrient availability and efficiency for plants,
while also improving soil health, preserving natural resources, and reducing
greenhouse gas emissions.
Group14 Technologies held a $400 million Series C round in April, with REL
investing $4 million. Group14 is a battery materials technology company that
has developed a proprietary silicon-based anode battery material to replace
graphite in conventional lithium-ion batteries.
In September, REL, alongside other investors, increased Tritium DCFC Limited's
existing debt facility by $60 million to a total of $150 million. Tritium is a
global developer and manufacturer of direct current (DC) fast charging
technology for electric vehicles. The additional funding will be used to fund
working capital, product development and to help accelerate production to meet
high demand from across the globe.
Our final investment of the year came in December, when REL funded $11.5
million of its $12.5 million commitment to Our Next Energy's $300
million Series B round, valuing the company at over $1 billion. ONE is
a Michigan-based energy storage technology company working to develop
batteries for mobility and large-scale storage applications.
The year also saw two mergers in our portfolio companies. Centennial and
Colgate completed its merger in September to create a $7 billion Permian basin
pure-play. REL has invested $268 million into Centennial since 2016 and has so
far realised $194 million, or ~73 per cent. of its cost basis through proceeds
from share sales.
In September, REL announced that Hammerhead Resources Inc., a Calgary based
E&P company, was merging with Decarbonization Plus Acquisition Corporation
IV (DCRD), a special purpose acquisition company. The combination values
Hammerhead at an EV of C$1.39 billion, approximately 2.2x DCRD's projected
2024 EBITDA for Hammerhead. The transaction will create a publicly traded
upstream oil and gas company with an identified investment programme to
decarbonise its oil and gas operations through carbon capture and
sequestration. This is expected to lead to a 79 per cent. reduction in scope 1
and 2 emissions by 2029 versus 2021, even after a doubling in production. The
transaction closed on 23 February 2023 (see Post-Year End Update section in
the Investment Manager's Report for further details).
Finally, REL realised some value from its legacy energy assets announcing in
February that it was exiting Pipestone Energy Corp. Pipestone, a Calgary-based
E&P company listed on the Toronto Stock Exchange, yielded net proceeds of
C$53 million, representing approximately a 0.64x Gross MOIC. The sale further
shifted our portfolio away from oil and gas and provided additional proceeds
to accelerate our growth in decarbonisation opportunities.
BUYBACK PROGRAMME
Since the Company's announcement on 14 February 2022 of the authorised
increase of £46 million for the share buyback programme, 4,045,941 ordinary
shares have been bought back at a total cost of approximately £26.8
million ($32.2 million) and at an average share price of
approximately £6.63 ($7.95). As of 31 December 2022, £23.2 million was
available for repurchasing.
With the intention to narrow the Company's trading discount, the Board took
the decision in Q4 2022 to steadily buyback shares up to £15.5
million ($17.5 million) for the period to 31 December 2022. In Q4, REL
repurchased 1,190,588 shares, an increase from 632,041 shares purchased in Q3.
The Board will continue evaluating opportunities for additional share buybacks
or tender offers based upon projected cashflow from potential significant
asset investment and divestitures.
PORTFOLIO VALUATION
REL ended the period to 31 December 2022 with a NAV of $14.52 (£11.99) per
share, a 17.0 per cent. and 30.5 per cent. increase in USD and GBP,
respectively, compared to the 31 December 2021 NAV of $12.41 (£9.19) per
share. REL ended the period with an aggregate gross cash balance of $120
million (£99 million) across the Company, Partnership and REL US Corp.
Reflecting the improved commodity price environment and the extension of the
share buyback programme, shares traded up 45.8 per cent. during the full year
2022.
Owing to the volatile markets, REL's largest investments by gross unrealised
value had a mixed performance year on year. Onyx was marked up from 1.70x to
3.00x Gross MOIC during 2022, a substantial improvement and benefiting from
continued good performance in European energy markets. However, GoodLeap, one
of REL's decarbonisation investments, saw a decline in its marks from 2.75x
Gross MOIC at the start of the year to 2.20x in December 2022.
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. Those of the Company's investments which are not publicly quoted
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.
OUTLOOK FOR 2023 AND BEYOND
As I wrote at the beginning, 2022 has seen unprecedented event and policy
driven shifts in global energy and public markets. While that makes
predictions about the future even harder to make than usual, I believe we are
likely to see geopolitics continue to dominate, whether that is Ukraine,
US-China relations, or rising tensions in Asia Pacific, and Taiwan in
particular. These are likely to outweigh any recessionary impacts with
commodity prices remaining elevated as a consequence.
While Europe looks like it will weather the 2022/23 winter, the following
winter could well be tougher, especially if a lack of alternatives to Russian
gas makes it hard to fill European storage during the summer months. There is
also a risk that by dis-incentivising further necessary investment in energy -
renewable and conventional - the EU's gas and power cap and other windfall
taxes will further limit the supply of badly needed energy into Europe.
Obviously, a powerful settlement to the Ukraine conflict and lifting of
sanctions could be expected to stabilise energy prices at lower levels.
What is required is a pragmatic approach and recognition that cleaner fossil
fuels have an important role to play as a bridge to wider decarbonisation in
the energy transition. We believe the need to provide greater supplies of
green fossil fuels will become more widely accepted. The IRA will boost both
blue hydrogen and Carbon Capture, Utilisation and Storage (CCUS) in the US
and, with transactions like Hammerhead and DCRD. Pressure on agriculture to
deliver the crop and food yields necessary to supply the world, at a time when
weather and climate is making this ever harder, continues the drive and
opportunity for innovative solutions. REL is well placed to continue to invest
into these trends as part of growing its wider decarbonisation portfolio.
The Board's objective has always been to maximise shareholder value and to
maintain the highest standards of corporate governance. Over the past several
years, there have been several significant changes to the IMA. These include
the Investment Manager's representatives voluntarily leaving the Board,
amending the IMA to stop performance fees until there is 100 per cent. make
whole from prior realised and unrealised losses (aggregating circa $660
million at the start and now $95 million), and instituting an 8 per cent.
hurdle for each deal as well as the requirement of full capital return on
individual deals before a performance fee. It is important to note that
changes to the IMA cannot be unilaterally made by the Board. The Investment
Manager's consent is required for IMA amendments, and both the Investment
Manager and the Cornerstone Investors must agree to any changes in performance
fees. Such negotiations are always protracted and require compromises by all
parties.
To be very clear, the Board has always been focused on the Net Asset Value
("NAV") share discount in making asset allocations. We evaluate the immediate
NAV uplift of share buy back as well as the long term value enhancement from
new investments in high return decarb opportunities. Since inception, the
Board has emphasised and the Investment Manager has sought to achieve high
risk adjusted long term returns as was the premise with Riverstone Energy
Funds V and VI, which was set forth in the IPO prospectus. When the share NAV
discount is large, the Board has pursued aggressive open market and tender
offer buy backs. In aggregate, REL has purchased 29,005,073 shares,
representing 36.3 per cent. of the total outstanding shares at a weighted
average price of £3.89 ($5.00) per share. This is one of the largest buybacks
for any closed end fund since May 2020 when the Company commenced its buyback
programme. However, we are also cognisant of the after effects of such
programmes: reduced share liquidity, less capital available for future
investments, smaller pool of investment opportunities, smaller deal size with
higher likely volatility, and therefore fewer deals, more concentration, and
less diversification, all of which entails additional risk.
The Board welcomes feedback from Shareholders, but will not relinquish its
responsibilities to meet short-term objectives. Moreover, if the Board deems
it appropriate, they will call an EGM for a shareholder vote, as can any
shareholder or shareholder group which in aggregate totals 10 per cent or more
of the shares outstanding.
Our investment protocols have proven to be successful during 2022. According
to a recent JPM Euro Equity research report, with the exception of four
aircraft leasing companies, REL had the highest price total return for closed
end investment companies. During 2022 and 2021, respectively, the Company's
share price traded up 45.8 per cent. from £4.65 to £6.78 per share and 56.6
per cent. from £2.97 to £4.65 per share. The list included many energy,
renewable, infrastructure and commodity funds.
Still, more can and will be done. Energy markets, both fossil and renewable,
have been challengingly volatile and the Board must adapt accordingly. They
will continue to allocate capital where they expect the highest risk adjusted
long term returns - from both capital investments and share repurchases. The
Board will also maintain their regular discussions with the Investment Manager
to make further shareholder friendly changes to the IMA, which will require
the consent of the Investment Manager and possibly the Cornerstone investors
as well. This approach should give the Directors and Shareholders confidence
that REL will continue with the success it has achieved to date.
Let me end by thanking you for your continued support. REL has repositioned
its investments and portfolio over recent years to capitalise on the shift
towards the energy transition. The long-term trends and demand driving our
decarbonisation investments remain strong and we see the opportunity for
continued capital deployment. At the same time the Investment Management team
and the teams running our portfolio companies have taken the necessary steps
to reduce leverage, improve cash generation and improve liquidity. As a
result, both our conventional, legacy E&P investments and our thirteen
decarbonisation investments are well placed to continue to perform through a
period of considerable disruption and uncertainty in global energy markets.
I look forward to watching REL continue to grow under a refreshed Board and
would like to thank you all for your support over the past 10 years.
Richard Hayden
Chair of the Board
28 February 2023
Environmental, Social and Governance REPORT
The investment strategy of the Company, which was originally focussed on the
traditional oil and gas sector, has been transitioned towards decarbonisation
assets since 2020. This shift is reflective of a larger awareness and
implementation of Environmental, Social and Governance ("ESG") policies and is
a clear statement of the Company's focus on this area. The Company's focus on
ESG not only guides its new investments, but also extends to its legacy
portfolio, which has made demonstrable progress in the pursuit of improvement
of ESG policies and performance.
The Company itself, led by its independent Board, views ESG as a core element
in the management of REL. In order to put ESG into practice, the Board relies
on its Investment Manager to design and implement an ESG policy which applies
to their operations and those of the investee companies. This policy and
examples of its application are highlighted below.
The Company utilises the services of Riverstone as the Investment Manager to
take appropriate ESG principles into account in its investment decisions and
in the ongoing management of the portfolio. In order to support the robustness
of these principles, the Board engages with the Investment Manager on ESG
matters and monitors compliance of REL's portfolio companies with Riverstone's
ESG policy. Patrick Firth, a member of the REL Board and Audit Committee
Chair, leads the ESG efforts for the Company. The Board receives periodic
updates from the Investment Manager on the Investment Manager's ESG programme
and on ESG matters related to the REL investment 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.
Riverstone published its annual ESG report for 2022 in February 2023. The
following summarises the key elements for investors which impact REL's current
and future investments. More detail is included in the full report, which is
available on Riverstone's website:
https://www.riverstonellc.com/en/responsible-investing/
(https://www.riverstonellc.com/en/responsible-investing/) . The statement from
the Investment Manager below relates to the Investment Manager's portfolio
which includes investments made by the Company.
While Riverstone seeks to integrate ESG matters into its overall investment
management processes, including the standards and strategies described in this
report, there can be no assurance that Riverstone will be able to successfully
apply such strategies or implement its ESG policies to procure particular ESG
results for any particular portfolio company or other initiative. The ESG
results for any portfolio company or business are no guarantee as to ESG
outcomes for any other portfolio company. Applying ESG factors to investment
decisions involves a mix of factors, including considerations that are
qualitative and subjective by nature. There can be no assurance that the ESG
criteria utilised by Riverstone, or any judgment exercised by Riverstone with
respect to ESG matters, will reflect the beliefs or values of any third party.
No representation, warranty, forecast or other projection is given with
respect to any investment results. This report contains forward-looking
statements and actual results and outcomes may differ materially and
adversely. Numbers and percentages in this report include estimates,
approximations and assumptions that, if inaccurate, may make results differ
from current disclosures and expectations. We are also reliant in part on
third party data that we have not independently verified or audited.
Riverstone's ESG Report
Our primary obligation is to be exceptional stewards of our investors'
capital. In today's world, this translates not only into delivering strong
risk-adjusted returns but also doing so in a manner which formally adopts and
integrates proportionate and measured environmental, social and governance
(ESG) practices for the benefit of a diverse group of stakeholders.
This is all at a time of increasing economic uncertainty, emerging regulatory
complexity and political scrutiny that will undoubtedly shape how ESG evolves
over the coming years.
We continue to recognise the correlation between those businesses that make
ESG a core pillar of their strategies and day-to-day operations and those that
are successful in what they do. At Riverstone, we remain committed to
deploying your capital in a manner that appropriately and thoughtfully
integrates sustainability, ethical and social considerations.
In our last ESG report, we outlined several ambitious objectives. The advances
we have made against each of these are set out below.
The below report on ESG is for the period ending on 31 December 2022. This
report does not constitute an offer to sell or a solicitation of an offer to
purchase any securities. Past or projected performance is no guarantee of
future results. Additionally, Riverstone may provide information herein that
is not necessarily "material" under the federal securities laws for SEC
reporting purposes, but that is informed by various ESG standards and
frameworks (including standards for the measurement of underlying data) and
the interest of various stakeholders. Much of this information is subject to
assumptions, estimates or third-party information that is still evolving and
subject to change. For example, Riverstone's disclosures based on any
standards may change due to revisions in the framework requirements,
availability of information, changes in Riverstone's business or applicable
government policies, or other factors, some of which may be beyond
Riverstone's control.
Emissions Reporting
We are particularly proud of the work we have undertaken to measure greenhouse
gas (GHG) emissions across Riverstone's portfolio (which includes the
companies in which the Company has invested). We now know the magnitude of
financed emissions from our investments for the 2021 calendar year. Having
completed our baseline year, we have two primary goals on emissions:
· Increasing GHG emissions data quality with more of our portfolio
companies reporting more granular, "bottom-up" data; and
· Working with our portfolio companies on GHG emissions reduction
initiatives and technologies
As a firm, we will continue to invest in climate solutions and data analytics
to decrease the emissions of our portfolio companies. By reducing these
emissions and being able to track such reductions, we understand and
effectively communicate our contribution to climate change mitigation.
Climate Risk Assessments
The climate crisis poses a host of different risks to the financial stability
of all organisations that need to be anticipated and incorporated into
investment decisions. These risks fall under two main categories: "physical
risks" and "transition risks."
During 2022, we undertook physical and transition climate risk assessments for
the majority of Riverstone's portfolio, including for a number of the
companies in which the Company has invested. We plan to use the results to
support our portfolio companies as they seek to improve their climate
resilience and capture potential opportunities presented by the energy
transition.
While some of the identified risks may be unavoidable, understanding and
adapting to the distinct and systemic risks posed by the effects of climate
change are important first steps to reducing climate risk,
In addition to our work around emissions and climate change, there are a
number of other noteworthy developments to our ESG programme which are
highlighted below.
Looking Forward
We are encouraged by the improvements we have made to our ESG programme in
2022. However, against the backdrop of the heightened focus on ESG and, in
particular, on climate change issues, we recognise there is much more work
required, in partnership with our investors, our management teams, our
regulators and other important stakeholders. 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.
In support of the low carbon transition, we will continue to focus on
investments in decarbonisation and plan to further align with the
recommendations of the Task Force on Climate-related Financial Disclosures
(TCFD).
As the ESG landscape evolves, we are preparing to manage risks by monitoring
emerging industry trends and scanning the regulatory horizon, including
evolving requirements from the SEC.
We also plan to maintain awareness of changes in reporting frameworks as the
International Sustainability Standards Board (ISSB) strives to develop global
sustainability standards. We will consider opportunities to integrate these
standards once available to provide additional critical ESG data in our
reporting. In addition, we will monitor the framework in development from the
Taskforce on Nature-related Financial Disclosures (TNFD).
We will also continue to mature our ESG programme by leveraging the insights
collected during the past year and strengthening our management approach for
climate change.
To accomplish this, we plan to build on the objectives outlined in our 2021
ESG Report while looking to incorporate additional priorities for 2023 and
2024 and:
· Continue to further align our reporting with the TCFD
recommendations and evaluate opportunities to advance our risk management and
estimate the financial implications of risks
· Refine our GHG accounting across our portfolio companies and
include any new investments in our GHG inventory
· Consider development of potential targets for emission reductions
and support our portfolio companies in understanding their emissions and
pursuing their own reduction goals
· Using the findings from our climate risk assessment, enhance our
engagement with our portfolio companies to mitigate climate-related risks,
capitalise on opportunities to enhance resilience and assess opportunities to
build on our risk assessment further by evaluating additional companies and
considering sensitivity analysis
· Update our annual ESG questionnaire to further monitor ESG
practices and track performance with additional focus on climate change
· Continue to facilitate ESG training/capacity building at
Riverstone to promote greater ESG awareness and capabilities, specifically to
further incorporate climate-related considerations into our ongoing risk
management and due diligence processes
· Further evolve our ESG due diligence procedures and resources to
incorporate climate risk assessment for potential investments and enhance
rigor of assessment process
Riverstone's Approach to ESG
As one of the most experienced private investment firms within the energy,
power, infrastructure and decarbonisation 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 enable those portfolio companies to 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 tracking 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
Riverstone has an ESG policy that sets out its approach to handling key ESG
factors, including inter alia natural resource management, health and safety,
community and stakeholder impact, climate change, GHG emissions and
governance. 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. 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
(https://www.riverstonellc.com/media/1189/Riverstone_ESG_Policy_Statement.pdf)
.
ESG RESOURCES AT RIVERSTONE
Riverstone's ESG Committee comprises a cross-functional set of leaders and our
external ESG advisor, Environmental Resources Management (ERM). The ESG
Committee meets on a quarterly basis to continually develop our ESG strategy,
support ESG initiatives across the firm and its portfolio companies, grow the
capabilities of the investment teams on which REL relies, and analyse and
benchmark ESG performance and trends using data from portfolio company
operations.
Nominated investment team members serve as ESG deal leads and engage their
respective portfolio company on ESG management and performance. In partnership
with Riverstone's internal legal team, ESG deal leads maintain responsibility
for coordinating the completion of annual compliance reviews and ESG
questionnaires and providing feedback on the ESG monitoring scorecards.
Riverstone's annual performance reviews assess the quality of ESG engagement
driven by each ESG deal lead, and the results inform decisions related to
compensation and promotion for ESG deal leads.
ESG in Practice
The careful evaluation of ESG issues is a mandatory component for the
underwriting of all REL investments, both by the Investment Manager's
Investment Committee and the Company's Board. 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, its ESG Minimum
Expectations (or 'ESG-MEs') and its proprietary ESG toolkit to identify and
manage material ESG risks and value creation opportunities in a consistent
manner for investments throughout the deal lifecycle
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
· Completion of the climate change screening questionnaire to
analyse whether a company has considered impacts from climate-related market
shifts, regulatory and voluntary frameworks and extreme weather events
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 "deal-breakers"
· Robust discussion at Investment Committee, and by the Company's
Board, 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 implement regular training and compliance
reviews including, where necessary, by third-party legal teams
· A third party conducts regular cybersecurity assessments of
portfolio companies to evaluate financial, operational technology and
information technology controls
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: 2022 in Review
In our 2021 ESG report, we established a number of overarching ESG objectives
for 2022 and 2023. Our progress through 2022 against these objectives, and
other ESG issues addressed during the year, are summarised below and presented
in more detail throughout this report.
CLIMATE CHANGE
· Completed actions to further develop Riverstone's ESG reporting,
resulting in further alignment with the recommendations of the TCFD
· Engaged a leading carbon accounting platform, Persefoni, to
collaborate with our portfolio companies to track their emissions, yielding
disclosure of our financed emissions for the first time, including Scope 1 and
2 emissions and significant sources of Scope 3 emissions for our portfolio
companies
· Performed climate risk assessments to identify physical and
transition risks for the majority of the portfolio
ESG INTEGRATION
· Maintained portfolio company performance against our ESG Minimum
Expectations (ESG-MEs) and continued to strengthen criteria to drive further
improvements in performance
· Developed an ESG onboarding pack for new portfolio companies to
share information with them about our ESG programme, portfolio engagement and
best practices
· Continued to expand our Green and Sustainability-Linked Loan
investments across our credit funds
ESG ENGAGEMENT
· Strengthened our partnership with Howard University by providing
summer internships, participating in their career fair and leading on-campus
seminars
· Built ESG capacity at all levels in Riverstone by facilitating
training on ESG topics, including unconscious bias and anti-harassment, and
providing guidance on effectively utilising the ESG toolkit
· Participated in the ESG Data Convergence Initiative (EDCI) to
contribute comparable data that will enable private equity firms to better
assess their ESG progress and practices
Climate Change and Decarbonisation
ALIGNMENT WITH THE TCFD RECOMMENDATIONS
Riverstone recognises climate change is a threat to our global economy,
society and ecosystems. As a firm, we support the Paris Agreement and its goal
to limit global warming to no more than 2°C above pre-industrial levels. In
addition, climate change also impacts how we evaluate investment risk and
opportunity as part of the world's transition to a low carbon economy.
In its April 2022 report, the Intergovernmental Panel on Climate Change (IPCC)
identified the financial industry as a fundamental enabler of the low carbon
transition. As the effects of climate change continue to become more apparent,
capital allocators can look to climate-related disclosures to make informed
decisions. To enable greater understanding of these impacts, the TCFD
recommendations promote consistency and transparency around climate-related
reporting. The climate disclosure proposal presented by the U.S. Securities
and Exchange Commission (SEC) also aligns emerging regulations with the
pillars and requirements of the TCFD framework.
In 2022, Riverstone performed analyses and took steps to improve our
management practices and enhance our disclosures through increased alignment
with TCFD guidance. Riverstone's disclosures aligning with the TCFD
recommendations and structure are included in the "Climate Change and
Decarbonisation" section of this report.
In addition to reporting on more elements of the TCFD recommendations in 2022,
we also consider the TCFD Supplemental Guidance for the Financial Sector
specific to asset managers.
Riverstone's GHG emissions disclosure efforts align with the Partnership for
Carbon Accounting Financials (PCAF) Global GHG Accounting and Reporting
Standard for the Financial Industry.
We also reference the supplemental guidance in the GHG Accounting and
Reporting for the Private Equity Sector report - produced by Initiative Climat
International (iCI) and ERM and supported by the Principles for Responsible
Investment (PRI).
The statement from the Investment Manager below around governance, strategy,
risk management and metrics and targets relate to the Investment Manager's
portfolio which includes investments made by the Company.
GOVERNANCE
Responsibilities
Driving collaboration across the firm, our cross-functional ESG Committee
leads Riverstone's ESG programme and our response to climate change, which
includes our climate strategy, climate risk assessments, risk management
efforts and GHG reporting for our firm and portfolio.
The ESG Committee monitors consistent application of our ESG Policy
(https://www.riverstonellc.com/media/1327/riverstone_esg_policy.pdf) and
associated ESG initiatives across our activities.
The ESG Committee also supports our ESG deal leads. Each of our investment
teams has a designated ESG deal lead who help to screen, assess and manage
climate-related risks and opportunities for each portfolio company throughout
the investment lifecycle. Please refer to "ESG resources at Riverstone" for
more details about the responsibilities of ESG deal leads.
We incorporate external support as needed to enhance our ESG programme and
disclosures. For example, ERM serves as an external advisor to our ESG
Committee and assists our ESG deal leads with portfolio engagement.
As part of Riverstone's commitment to decarbonisation, we have also engaged a
leading carbon accounting platform, Persefoni, to measure, track and report
GHG emissions across our portfolio. Persefoni's platform is fully compliant
with the PCAF framework, and all calculations adhere to the global gold
standard of carbon accounting-the GHG Protocol. To learn more about how we
strive to understand and monitor the GHG footprint of our investments, please
see this video (https://www.riverstonellc.com/en/responsible-investing/) for
interviews with key leaders within the firm.
Awareness
We endeavour to enhance understanding of climate-related risks and
opportunities across our firm and increase awareness of key actions by
providing regular ESG training for our investment professionals. Through our
ESG training we review information about Riverstone's ESG programme and ESG
deal lead responsibilities. We also provide updates on available resources
such as the ESG toolkit and the ESG diligence scorecards, which include our
climate change screening questionnaire and inform due diligence and portfolio
engagement around ESG topics. In addition, we held a firm-wide call in 2022 to
share the findings of our climate risk assessments and highlight the
importance of managing climate-related risks and opportunities.
STRATEGY
Climate-Related Risks and Opportunities
We continue to inform our climate strategy by monitoring physical and
transition risks and opportunities within our portfolio. Riverstone leverages
these insights to drive conversations with portfolio company management teams
and to inform our overall decarbonisation investment approach as part of the
low carbon transition. We consider the following time horizons as we evaluate
risks:
· Short term: Present-2030
· Medium term: 2031-2040
· Long term: 2041-2050
Climate risk assessments allow us to proactively identify key hazards. Our
investment time horizon focuses on the short-term timeframe. By understanding
present and future risks, we can support portfolio company success throughout
the lifetime of our investment and integrate our findings into implementation
plans and investment strategies. To inform our efforts, our third-party
partner, ERM, leveraged a Screen-Assess-Adapt strategic approach for reviewing
portfolio company data and used innovative tools that generated insights into
key risks and opportunities.
Physical Risk
Based on the evaluation of the selected sites of the Investment Manager's
portfolio companies, the climate risk assessment showed that approximately 3
per cent. of assets have high risk and 35 per cent. have moderate risk. While
the number of high-risk assets remains the same by 2030, the proportion of
moderate risk assets increases to 45 per cent.
Climate risk assessment conducted on a subset of the Investment Manager's
portfolio revealed that companies may be subject to a variety of physical
climate hazards. Please see "Physical Risk Analysis" section of this report
for details about the selection of portfolio companies included in the
analysis. In the short term, top climate hazards across select portfolio
companies of the Investment Manager include water stress (including drought)
and tropical cyclones. Key emerging risks, which reflect the greatest
increases over medium-and long-term time horizons, are extreme heat, water
stress and wildfires.
Company-specific risk profiles, which highlight key climate hazards facing the
portfolio company, were developed and shared with each company that was
included in the assessment.
Impacts of climate hazards vary by sector and asset type. Examples of
potential impacts to operations include the following:
· Extreme weather events, such as cyclones, wildfires and flooding,
may damage critical infrastructure, buildings, equipment and vehicles, as well
as interrupt key transportation routes and supply chain networks
· Water stress and extreme heat may reduce productivity levels and
lead to higher costs for cooling systems and other operational needs
· Climate hazards may pose health and safety risks to site
personnel and may require delays in operations that impact revenue
· If risks are not managed properly, climate-related events could
lead to potential contaminations, waste releases and water pollution in the
local environment
Transition Risk
From a transition risk perspective, losses in market share and revenue
primarily drive growing risks for exploration and production and midstream oil
and coal-fired power generation portfolio companies in the medium- and
long-term timeframes in a low carbon future. Some portfolio companies could
benefit in the future from falling fuel prices but may also realise reduced
operational expenditures by switching to lower carbon fuels. However,
potential decarbonisation policies may add carbon pricing to fuel costs and
require companies to invest in emissions reduction measures throughout their
operations.
In the near term, natural gas may serve as a lower-emitting "bridge option"
compared to coal and other high carbon fuels. If demand increases, natural
gas-fired power generation portfolio companies may have potential expansion
opportunities. Despite potential short-term benefits, natural gas demand is
ultimately expected to decrease over medium- and long-term time horizons in a
low carbon future and impact the market share for portfolio companies in
related sectors.
Power and energy transition portfolio companies may have greater growth
opportunities in a low carbon future, which could be readily available in the
short-term time horizon. Emerging supportive policies and incentives may
further improve the conditions for these portfolio companies, depending on
geography. Portfolio companies that focus on renewable energy and electric
vehicle charging infrastructure may have greater opportunity for market
expansion over time. However, portfolio companies may receive pressure to
decarbonise their supply chains and invest in new technology to reduce their
carbon footprint, which may increase operational costs for emissions
management.
Implementation Plan
At portfolio company level, we aim to enhance our resilience against
climate-related risks through strategic engagement and mitigation of risks
identified in our assessment. By leveraging these findings to promote
discussion with management teams, we plan to outline actions for mitigating
physical risks, encouraging geographical diversity, preparing for market
shifts and limiting emissions in advance of impending regulations.
Our climate strategy focuses on investments that align with our
decarbonisation platform. Our climate risk assessment highlighted the
intensifying risks usually associated with conventional investments and
outlined the types of companies that may access greater market share in the
future. The screening did not include financial or impact assessments at this
stage, but we plan to make use of the initial insights from the risk analysis.
Going forward, we intend to primarily invest in businesses that support the
low carbon transition and represent key growth opportunities. We concentrate
on reducing the impact that our investments have on the climate by investing
in five core areas that offer scalable climate solutions:
· Grid flexibility and resiliency
· Electrification of transportation
· Next generation fuels
· Efficient resource use
· Agriculture and natural resource plays
As we evolve our investment strategy in alignment with the low carbon
transition, we will also consider opportunities to integrate climate-related
physical and transition risks into our investment process. We will strive to
draw on potential opportunities to increase resilience and drive value
creation across our portfolio, and we aim to track our progress as we build
further on our performance.
RISK MANAGEMENT
We actively utilise our ESG toolkit, climate risk assessments and portfolio
engagement processes to support our portfolio companies in managing
climate-related risks and monitoring GHG emissions.
During pre-investment due diligence, our deal teams evaluate how a potential
investment assesses and manages climate-related risks and opportunities. As
part of scoring prospective investments on the basis of ESG performance, the
deal teams utilise our climate change screening questionnaire to analyse
whether a company has considered impacts from climate-related market shifts,
regulatory and voluntary frameworks and extreme weather events.
Each Investment Committee memo includes the results of this assessment, along
with a summary of other key ESG practices, to inform investment decisions.
In 2022, we collaborated with a third party, Persefoni, to engage a subset of
our portfolio companies in developing high-quality GHG inventories to track
their emissions. During ownership, we expect portfolio companies to establish
a GHG baseline inventory for Scope 1 and 2 emissions, monitor their emissions
and annually report on performance as part of our portfolio engagement
process.
Deal teams, with third party support as required, develop actions to help
portfolio companies meet our expectations and improve their overall ESG
performance, including efforts related to climate change.
Additionally, Riverstone actively communicates with portfolio companies on
climate-related topics throughout the year as part of our wider portfolio
engagement efforts.
Climate Risk Assessment
Riverstone utilises risk assessments throughout the investment lifecycle to
identify and assess the impacts from potential climate-related risks and
opportunities. The analysis allows us to identify risks for and to better
inform our engagement with specific portfolio companies.
In 2022, we expanded upon our pilot climate assessment and conducted an
in-depth climate risk assessment for certain portfolio companies to contribute
to a greater understanding of Riverstone's exposure to acute and chronic
climate hazards, as well as the types of climate policy, technology, market,
reputational and legal risks. We selected portfolio companies while
considering the level of our equity ownership and the materiality of each
company to our business strategy. The subset of companies reflects the wide
range of sectors and geographies represented in our portfolio.
The results of the recent analysis provided insights about the relevant types
of climate-related risks and opportunities. In addition to supporting
engagement with specific portfolio companies, we aim to apply the results to
inform our ongoing implementation plan to prepare for climate change and
advance our decarbonisation investments.
Physical Risk Analysis
To understand the acute and chronic physical risks associated with climate
change, our assessment included analysis of extreme temperatures, river
flooding, rainfall flooding, coastal flooding, tropical cyclones, wildfires,
rainfall-induced landslides, water stress and drought. We evaluated current
and emerging climate hazards at operational sites for certain portfolio
companies at present, 2030 and 2050 timeframes.
The scenarios used for the climate analysis are based on the IPCC Assessment
Report 6, which incorporates around 100 leading climate models into five
Shared Socioeconomic Pathways (SSPs). These SSPs present plausible scenarios
for global trends in net carbon dioxide emissions. Although uncertainties
exist around the different scenarios and climate impacts, evaluation across
multiple scenarios enables increased preparedness against possible risks. Two
climate scenarios were analysed in our physical risk assessment:
· SSP1-2.6 is a low GHG emissions scenario in which global warming
stays below 2°C by 2100, aligned to current commitments under the Paris
Agreement
· SSP3-7.0 represents a high GHG emissions scenario in which an
average warming greater than 3°C is projected to occur by 2100
We utilised ERM's proprietary Climate Risk Impacts and Solutions Platform
(CRISP) tool to conduct a TCFD-aligned assessment of the Investment Manager's
portfolio's physical assets. CRISP integrates climate data and exposure
ratings, which account for the characteristics of the site type (e.g., an oil
and gas, renewable or manufacturing site), and normalises the risk levels of
individual climate hazards to produce overall risk scores. The analysis
considered acute risks, which reflect extreme weather events, and chronic
risks, which are longer-term shifts in climate patterns.
For the subset of portfolio companies reflected in the analysis, the screening
provided asset-specific climate risk scores and highlighted the asset
locations and climate hazards that pose the greatest risk. Assessment results
included climate risk scores at the present, 2030 and 2050 timeframes under
the two SSP scenarios. This analysis generated asset-specific insights about
the top baseline climate hazards and emerging climate hazards at a given
location. We will leverage these findings throughout portfolio engagement to
build resilience across operational sites within our portfolio.
Physical Risk Level in Current and Future Time Horizons*
Footnote: *Based on the SSP3-7.0 climate scenario and the assets analysed in
the 2022 climate risk assessment.
Percent Totals** Very High Risk High Risk Moderate Risk Low Risk Minimal Risk
Baseline 0.0% 3.2% 35.5% 48.4% 12.9%
2030 0.0% 3.2% 45.2% 41.9% 9.7%
2050 0.0% 3.2% 54.8% 41.9% 0.0%
** Climate risk ratings at the asset level present a summary statistic across
different climate hazards (flooding, extreme heat, tropical cyclones, etc.)
While generalising an asset's overall climate risk from "Low" to "Very High"
is essential for comparative analysis, especially when assessing risk across a
portfolio of assets, an overall risk rating should be distinguished from the
underlying individual climate hazards. Certain individual hazards may be rated
as "Very High Risk," but with an asset's overall resulting risk rating being
lower due to other individual hazards being rated as "Low Risk." An asset must
be threatened by several hazards that reflect "Very High Risk" for an asset to
achieve a "Very High Risk" rating overall. For "Very High Risk" and "High
Risk" categories, each asset risk category may remain stable due to individual
hazards remaining relatively stable for all time horizons. Conversely, the
individual hazards may increase or decrease but result in a stable rating
(e.g., risk of flooding may be increasing while risk of extreme cold may be
decreasing).
Transition Risk Analysis
We also conducted a climate transition risk assessment to better understand
how climate-related risks and opportunities might develop under different
scenarios, including how impacts change if policy efforts ramp up over time to
meet climate targets. Similar to the physical risk analysis, the transition
risk analysis employed two main scenarios to determine potential trends. For
global temperature alignments, the scenarios incorporated data primarily from
the International Energy Agency (IEA) World Energy Outlook and IEA Energy
Technology Perspectives models:
· The 2°C scenario limits global temperature rises by 2°C by
2100, based on pathways for sustainable development
· The business-as-usual (BAU) scenario applies current policies and
commitments outlined by countries to mitigate emissions
This assessment incorporated geographic- and sector-specific energy and
emission results from the climate scenario modelling to assess risks and
opportunities from 2030 to 2050. To estimate the effects of a low carbon
transition, the process involved assignment of company relevance weightings to
sector-specific indicators, used as a proxy for understanding potential
commercial impacts on each of the individual portfolio companies analysed.
Geography also impacts trajectories for risk assessment and indicator data,
because forecasts may expect certain countries to decarbonise more quickly
compared to other less developed regions. This assessment relied on
geography-specific model data where available, based on the main operating
regions of the portfolio companies, and considered relevant policies and
regulations specific to that region.
Scenario indicators were selected to cover a broad range of transition risks
and opportunities across the economy and Riverstone's business. Indicators
included sector-specific model results related to emissions in various
industries and across the value chain, fuel demand in certain markets, fuel
prices and different power generation resource types. Transition scenario
indicators collectively describe an economy-wide shift from BAU to the low
carbon 2°C scenario path and individually they provide relevance to the
target sector and portfolio company. The assessment generated indicator scores
for 2030 to 2050 based on assigned relevance weightings, which were informed
by how the indicator potentially characterised the financial risk or
opportunity of transition to a company. As described in the Strategy section
of the ESG Report, the results generally align with our expectations for
growth or decline in certain sectors while generating additional insights
about specific risks.
The risk assessment provides information for Riverstone to consider while
evaluating potential adjustments to risk appetite and strategy. We can also
use the findings to respond to emerging changes in a low carbon future and to
capitalise on potential opportunities for growth. This evaluation of risks
continues to represent an ongoing process as we strive to determine the extent
of financial and risk management implications.
METRICS AND TARGETS
To establish a baseline for our portfolio, Riverstone engaged a leading carbon
accounting platform, Persefoni, to support our portfolio companies in
calculating their GHG emissions. We performed our GHG accounting in alignment
with the PCAF standard to estimate our Scope 3 category 15 financed emissions
across our portfolio. The organisational reporting boundary was used in
accordance with the GHG Protocol, and the calculations included the seven GHGs
outlined in the IPCC Fourth Assessment Report and converted to carbon dioxide
equivalent (CO(2)e) using relevant global warming potentials. For each
portfolio company, we evaluated Scope 1 and 2 emissions, and we included
partial Scope 3 emissions for portfolio companies based on Scope 3 materiality
determinations 1 (#_ftn1) .
Callout:
~41,000 CO(2)e for
financed emissions (Scope 1 and 2)
1 Materiality was determined by reviewing common sources of emissions for
each industry and evaluating the most significant sources for each portfolio
company included in Scope 3 calculations. Companies were then engaged to
confirm the materiality of emissions for relevant Scope 3 categories.
We plan to explore opportunities to help portfolio companies set
individual reduction targets. Some of our portfolio companies have already
set GHG reduction targets:
Company Climate-related Targets*
Enviva · 2030 Net Zero Target
· Plan to Neutralise Scope 2 Emissions by using 100% renewable
energy by 2030
Hammerhead Resources · 2030 Net Zero on Scope 1 and 2 Emissions
Onyx Power · 2035 carbon neutral target
*This table is based on third-party information as of 31 December 2022, and
has not been independently verified.
To measure our portfolio's progress in this area, we also track GHG reporting
through our ESG-MEs, which include a recommendation for companies to calculate
their GHG baseline for Scope 1 (direct emissions) and Scope 2 (purchased
energy) and annually monitor and report their GHG emissions. We continue to
track this metric to assess how companies can enhance their GHG emissions
management. We also collect and report climate data along with other
ESG-related data through the EDCI.
Additionally, we continue to calculate Riverstone's annual firm GHG footprint
to assess the climate impact of our own activities and identify ways to reduce
or offset our carbon footprint. In 2022, we expanded and refined our analysis
of Scope 1 emissions from stationary combustion at our facilities, Scope 2
emissions from purchased electricity at our sites and Scope 3 emissions from
private and commercial air travel (category 6). We also re-evaluated our 2021
emissions baseline using our revised methodology, leading to an updated
estimate of 326 metric tons CO2e for our operational emissions in 2021 (note:
we updated our calculation methodology but did not incorporate new sources of
data). This adjustment was largely driven by adopting an updated methodology
around private air travel.
In 2022, our total emissions across these categories amounted to approximately
413 metric tons of CO2e. Compared to 2021, Riverstone's emissions increased by
approximately 27 per cent. year-over-year. This increase was largely due to
greater amounts of business travel and increased office energy use as our
operations returned to more in-person work, post-pandemic.
ESG in Practice within REL's Portfolio*
*The case studies presented in this report are intended to highlight relevant
portfolio company ESG characteristics or results and are set forth for
illustrative purposes only. There can be no assurance that other Riverstone
portfolio companies will have similar ESG characteristics or results.
Hammerhead
Hammerhead Resources (https://www.hhres.com/) (Hammerhead) is a
growth-oriented, upstream Canadian oil and gas company headquartered in
Calgary, Alberta, with an asset portfolio in Northern Alberta.
In 2020, Hammerhead made the commitment to net zero by 2050. Since that time,
Hammerhead has dedicated resources to focus on understanding baseline air
pollutants and emissions (Scopes 1, 2 and 3), challenging operations to
improve efficiency around emitting sources and evaluating solutions to achieve
an accelerated net zero goal, on a Scope 1 and 2 basis, by 2030.
Hammerhead has mapped a path to net zero using carbon capture technology and
will be progressing engineering design on its current batteries in the coming
years. Hammerhead's goal is to not only be considered a top producer, but
also to accelerate its net zero target to 2030, while also becoming a leader
in sustainability and ESG disclosure and performance.
Building the Path to Net Zero 2030
2022 Quantified baseline for Scope 3 emissions
Sold Creek and Karr Asset certification under EO100TM Standard for Responsible
Energy Development
Invested $2.5 million to eliminate 65 per cent. of vented emissions
2023 Zero routine venting by end of 2023
Pilot continuous fugitive emissions monitoring
2022-2030 Carbon capture and storage progression with net zero Scopes 1 and 2 by 2030
Monitor and evaluate new technologies and alternate energy sources for
additional emission reduction opportunities
2023-2028 10% annual reduction in flaring
Hammerhead 2021 Emissions1 (metric tons CO(2)e)
Scope 1 & 2 235 041
Combustion Flaring Venting Drilling & Completion Combustion Fugitives Electricity (Scope 2)
Scope 1 & 2 73.6% 10.5% 8.9% 6.5% 0.4% 0.1%
1 2021 emissions have been amended from Hammerhead's 2022 ESG Report to
reflect a 733 metric ton increase due to previously unaccounted liquid fuel
invoices. Regarding calculation methodology, greenhouse gases included in
Scope 1 and 2 calculations are carbon dioxide (CO(2)), methane (CH(4)),
nitrous oxide (N(2)O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs),
sulfur hexafluoride (SF(6)) and nitrogen trifluoride (NF(3)). HFCs, PFCs,
SF(6) and NF(3) volumes are zero. All emission factors used for Scope 1 and 2
emissions, nitrogen oxides, sulfur dioxides and other significant air
emissions are provided by the Canadian Association of Petroleum Producers
(CAPP), Canada Energy Regulator (CER), Environment Climate Change Canada
(ECCC) and Alberta Environment and Parks (AEP). All standards, methodologies
and assumptions used for air emission calculations are provided by the CAPP,
ECCC and AEP.
Investment Manager's Report
Concerns about inflation and feared of a global recession ruled fourth quarter
headlines, however due to a warmer than expected winter consumers found some
respite from elevated energy prices. This provided relief to European
consumers and also undermined Russia's efforts to weaponize energy in its
ongoing war with Ukraine. As the conflict stretches into its second year, the
EU has made improvements in its energy supply, leaning heavily on conventional
power assets to compensate for conflict-era deficits. Unseasonably warm
weather in the fourth quarter and near capacity storage of natural gas in
Europe drove prices to a 12-month low at year end. Lower energy prices have
provided governments a much-needed reprieve from natural gas supply concerns
to address structural weaknesses in legacy energy supply chains and the
opportunity to further integrate additional renewable generation. On 14
January, Germany broke the wind generation record it had set just 10 days
prior, generating 50,802 MW. Investments in grid and intermittency management
systems, among other decarbonisation technologies, will allow the continent to
take full advantage of existing assets in efforts to advance a just and
equitable energy transition.
The Investment Manager continues to make good progress in meeting its
investment strategy of re-positioning the portfolio away from oil and gas
investments in the exploration and production sector and towards renewable
energy, decarbonisation and select infrastructure investments. This evolution
in the portfolio reflects the broader changes occurring in the global economy
at large. In 2022, REL made a further six investments in line with this
strategy in the year and has also taken further steps to generate value from
its existing portfolio investments in the oil and gas space.
These portfolio changes were made against a backdrop of highly volatile energy
and commodity price moves which saw oil and gas prices broadly ending the year
where they started. Within that, though, oil prices rose over 50 per cent.
from trough to peak in the year and gas prices more than doubled on the same
basis before pulling back in the second half of 2022. Despite these moves in
energy prices, our conventional energy companies are well positioned to
continue delivering positive earnings and returning cash to their
shareholders.
Commodity assets performed best among all asset classes in 2022 returning 16
per cent., while small-cap and growth companies performed near the bottom of
all asset classes, - down 20 per cent. in 2022. These two extremes in
performance carried implication for REL's entire portfolio as the majority of
investments are characterised as either commodity-linked - nearly 64 per cent.
of the portfolio's gross unrealised value - or small cap assets, which
characterise the majority of REL's decarbonisation holdings. REL's
conventional portfolio investments held or improved their valuations in the
fourth quarter of 2022. Despite a considerable reduction in anticipated
weather-related natural gas demand, Permian Resources, REL's sole publicly
traded conventional energy investment, grew in value by 12.5 per cent. Onyx,
the second-largest investment in REL's portfolio, made three distributions to
REL totalling $61 million. The company has returned its cost basis on REL's
investment, maintained its value over the course of the quarter, and continues
to provide key energy resources to western Europe in the midst of the now
year-old conflict in Ukraine.
REL ended the period to 31 December 2022 with a NAV of $14.52 (£11.99) per
share, a 17.0 per cent. and 30.5 per cent. increase in USD and GBP,
respectively, compared to the 31 December 2021 NAV of $12.41 (£9.19) per
share.
Consistent with its investment strategy, REL announced in February it was
exiting Pipestone Energy Corp for net proceeds of C$53 million, representing
approximately a 0.64x Gross MOIC. The year also saw two mergers in our
traditional investment portfolio companies. Centennial and Colgate were merged
in July to create a $7 billion Permian basin pure-play. REL has invested $268
million into Centennial since 2016 and has so far realised $194 million, or 73
per cent. of its cost basis through proceeds from share sales.
In September, REL announced Hammerhead Resources Inc, a Calgary based E&P
company, was merging with Decarbonisation Plus Acquisition Corporation IV
(DCRD), a special purpose acquisition company. The combination values
Hammerhead at an EV of C$1.39 billion and REL holds an approximate 17 per
cent. stake in Hammerhead at 0.60x Gross MOIC as of 31 December 2022, a
carrying value of $154 million. In addition, REL owns 396,456 founder shares
and 638,247 warrants in DCRD worth $3 million at 31 December 2022. The
transaction will create a publicly traded upstream oil and gas company with an
identified investment programme to decarbonise its oil and gas operations
through carbon capture and sequestration. Please see Post-Year End Update
section in the Investment Manager's Report for further details regarding the
closing of the transaction.
REL also made six new investments into areas aligned with the modified
investment strategy and which shift the portfolio further towards our chosen
areas of focus in renewable energy, agriculture and decarbonisation. These
investments were:
· $17.5 million investment in T-REX Group, a SaaS provider
supporting the asset-backed financing industry to deploy capital.
· A lead investment of $17.5 million in Infinitum Electric's $80
million Series D round. Infinitum Electric created the breakthrough air-core
motor which offers superior performance at half the weight and size of
conventional motors - and at a fraction of the carbon footprint.
· $20 million invested in Anuvia Plant Nutrients' $65.5 million
Series D fund raising round. The company has developed and now uses a unique
technology that optimises nutrient availability and efficiency for plants,
while also improving soil health, preserving natural resources, and reducing
greenhouse gas emissions.
· $4 million in Group14 Technologies' $400 million Series C round.
Group14 is a battery materials technology company that has developed a
proprietary silicon-based anode battery material to replace graphite in
conventional lithium-ion batteries.
· Along side other investors, REL increased Tritium DCFC Limited's
existing debt facility by $60 million to a total of $150 million. Tritium is a
global developer and manufacturer of direct current (DC) fast charging
technology for electric vehicles. The additional funding will be used to fund
working capital, product development and to help accelerate production to meet
high demand from across the globe.
· Lastly, in December, REL funded $11.5 million of its $12.5
million commitment to Our Next Energy's $300 million Series B round,
valuing the company at over $1 billion. ONE is a Michigan-based energy
storage technology company working to develop batteries for mobility and
large-scale storage applications.
There remains a significant opportunity in clean energy, driven by increasing
concern over the need to take more urgent and significant steps to reduce the
impact of carbon emissions on climate change, as 2022 looks like being one of
the warmest years on record. Coupled with the increase in energy prices and
concerns over security of energy supply, as well as decades of
under-investment in energy generation and infrastructure assets, the pressure
to find sustainable alternative sources of energy means that three quarters of
the growth in energy investment is coming from renewable energy investment
which is expected to top $1.4 trillion in 2023.
A further catalyst for our REL's decarbonisation energy is the Inflation
Reduction Act, the largest ever climate-related bill which passed into law in
the US Congress on 16 August 2022. It provides $391 billion in climate related
incentives and provisions, with two thirds of incentives uncapped which could
see these provisions materially increase. REL's decarbonisation investments
will stand to benefit from this stimulus as its five investment families stand
firmly at the core of the legislation's intended impact: batteries, renewables
infrastructure, critical materials, EV batteries and storage, and sustainable
fuels to name a few. The portfolio has already benefitted from this
legislation, with Group14 receiving in October a $100 million non-dilutive
grant to accelerate the build-out of its manufacturing facility in Washington
state. We expect other existing and future portfolio companies to benefit from
this Federal largesse.
Current Portfolio - Conventional
Investment (Public/Private) Gross Committed Capital ($mm) Invested Gross Realised Gross Unrealised Value Gross Realised Capital & Unrealised Value ($mm) 31 Dec 2022 Gross MOIC((2)) 31 Dec 2021
Capital ($mm) Capital ($mm)((1)) ($mm)((2)) Gross MOIC((2))
Permian Resources ((4)) (Public) 0.98x
268 312 1.17x
268 194 118
Onyx (Private) 66 60 61 118 179 3.00x 1.70x
Hammerhead Resources (Private) 0.60x 0.39x
307 295 23 154 177
Total Current Portfolio - Conventional - Public((3)) 268 268 194 118 312 1.17x 0.98x
Total Current Portfolio - Conventional - Private((3)) 373 355 84 272 356 1.00x 0.61x
Total Current Portfolio - Conventional - Public & Private((3)) 641 623 278 390 668 1.07x 0.77x
Current Portfolio - Decarbonisation
Investment (Public/Private) Gross Committed Capital ($mm) Invested Gross Realised Gross Unrealised Value Gross Realised Capital & Unrealised Value ($mm) 31 Dec 2022 31 Dec 2021
Capital ($mm) Capital ($mm)((1)) ($mm)((2)) Gross MOIC((2)) Gross MOIC((2))
GoodLeap (formerly Loanpal) (Private) 25 25 2 53 55 2.20x 2.75x
Enviva (Public)((4)) 22 18 - 35 35 1.93x 2.45x
Infinitum 18 18 - 23 23 1.30x n/a
(Private)
FreeWire (Private) 10 10 - 20 20 2.00x 2.00x
Anuvia Plant Nutrients 20 20 - 20 20 1.00x n/a
(Private)
Solid Power((4)) (Public) 48 48 - 19 19 0.39x 1.24x
T-REX Group (Private) 18 18 - 18 18 1.00x n/a
Tritium DCFC((4)) (Public) 25 25 - 15 15 0.60x 6.46x
Our Next Energy (Private) 13 11 - 11 11 1.00x n/a
Group14 4 4 - 4 4 1.00x n/a
(Private)
DCRD((4), (5)) 1 1 - 3 3 4.99x 1.00x
(Public)
Ionic I & II (Samsung Ventures) (Private) 3 3 - 3 3 1.00x 1.00x
Hyzon Motors (Public) 10 10 - 2 2 0.16x 0.65x
Total Current Portfolio - Decarbonisation - Public((3)) 105 102 - 73 73 0.72x 1.49x
Total Current Portfolio - Decarbonisation - Private((3)) 109 108 2 152 154 1.42x 2.42x
Total Current Portfolio - Decarbonisation - Public & Private((3)) 214 210 2 225 227 1.08x 1.80x
Total Current Portfolio - Conventional & Decarbonisation - Public & 855 833 280 615 895 1.07x 0.93x
Private((3))
Cash and Cash Equivalents((11)) $120
Total Liquidity $311
Total Market Capitalisation $418
Realisations
Investment Gross Committed Capital Invested Gross Realised Gross Unrealised Value Gross Realised Capital & Unrealised Value ($mm) 31 Dec 2022 31 Dec 2021
(Initial Investment Date) ($mm) Capital ($mm) Capital ($mm)((1)) ($mm)((2)) Gross Gross MOIC((2))
MOIC((2))
Rock Oil((6)) 114 114 233 4 237 2.07x 2.06x
(12 Mar 2014)
Three Rivers III 94 94 204 - 204 2.17x 2.17x
(7 Apr 2015)
ILX III 179 179 172 - 172 0.96x 0.96x
(8 Oct 2015)
Meritage III((7)) 40 40 88 - 88 2.20x 2.16x
(17 Apr 2015)
RCO((8)) 80 80 80 - 80 0.99x 0.99x
(2 Feb 2015)
Carrier II((9)) 110 110 63 3 66 0.60x 0.70x
(22 May 2015)
Pipestone Energy (formerly CNOR) 90 90 58 - 58 0.64x 0.58x
Sierra 18 18 38 - 38 2.06x 2.06x
(24 Sept 2014)
Aleph Midstream 23 23 23 - 23 1.00x 1.00x
(9 Jul 2019)
Ridgebury H3 18 18 22 - 22 1.22x 1.22x
(19 Feb 2019)
Castex 2014 52 52 14 - 14 0.27x 0.27x
(3 Sep 2014)
Total Realisations((3)) 819 819 995 7 1,002 1.22x 1.23x
Withdrawn Commitments and Impairments((10)) 350 350 9 - 9 0.02x 0.02x
Total Investments((3)) 2,024 2,001 1,285 622 1,906 0.95x 0.89x
Total Investments & Cash and Cash Equivalents((3), (11)) 741
( )
((1)) Gross realised capital is total gross proceeds realised on invested
capital. Of the $1,285 million of capital realised to date, $983 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. No
further carried interest will be payable until the $95.2 million of realised
and unrealised losses to date at 31 December 2022 (largest deficit of $605.5
million at 30 June 2020) are made whole with future gains, so the earned
carried interest of $0.8 million at 31 December 2022 has been deferred and
will expire in October 2023 if the aforementioned losses are not made whole.
Since REL has not yet met the appropriate Cost Benchmark at 31 December 2022,
$38.0 million in Performance Allocation was not accrued in accordance with the
terms of the current agreement, which would have been accrued under the prior
agreement. Based on the aforementioned Performance Allocation, net of
estimated applicable taxes, the potential increase arising from the Investment
Manager's share purchases would be $19 million as of 31 December 2022. 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 US tax purposes. The C Corporations serve to protect REL's
public investors from incurring U.S. effectively connected income. The C
Corporations file U.S. corporate tax returns with the U.S. Internal Revenue
Service and pay U.S. corporate taxes on its taxable income.
((3)) Amounts may vary due to rounding.
((4)) Represents closing price per share in USD for publicly traded shares
Permian Resources Corporation (formerly Centennial Resource Development, Inc.)
(NASDAQ:PR - 31-12-2022: $9.40 per share / 31-12-2021: $5.98 price per share);
Enviva, Inc. (NYSE:EVA - 31-12-2022: $52.97 per share / 31-12-2021: $70.42
price per share); Solid Power, Inc. (NASDAQ:SLDP - 31-12-2022: $2.54 per share
/ 31-12-2021: $8.74 price per share); Hyzon Motors, Inc. (NASDAQ:HYZN -
31-12-2022: $1.55 per share / 31-12-2021: $6.49 price per share); and Tritium
DCFC Limited (NASDAQ:DCFC - 31-12-2022: $1.68 price per share / 31-12-2021
$9.97 price per share), which consisted of only the Tritium/DCRN Sponsor
investment at 31 December 2021.
((5)) SPAC Sponsor investment for Decarbonisation Plus Acquisition Corporation
IV (NASDAQ:DCRD).
((6)) The unrealised value of the Rock Oil investment consists of rights to
mineral acres.
((7)) Midstream investment.
((8)) Credit investment.
((9)) The unrealised value of the Carrier II investment consists of certain
assets held back at the closing of the transaction in December 2022, which are
scheduled to be released from escrow in Q1 2023. Please refer to the
Investment Portfolio Summary section in the Investment Manager's report for
further information regarding the details of the Carrier II realisation
transaction in December 2022.
((10)) Withdrawn commitments consist of Origo ($9 million) and CanEra III ($1
million), and impairments consist of Liberty II ($142 million), Fieldwood ($80
million), Eagle II ($62 million) and Castex 2005 ($48 million).
((11)) This figure is comprised of $15.8 million held at the Company, $68.4
million held at the Partnership and $35.3 million held at REL US Corp.
Investment Portfolio Summary
As of 31 December 2022, REL's portfolio comprised sixteen active investments
including two E&P investments, thirteen decarbonisation investments and
one power investment.
Onyx
As of 31 December 2022, REL, through the Partnership, has invested $60 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.
As of 31 December 2022, REL's interest in Onyx, through the Partnership, was
valued at 3.00x Gross MOIC((1)) or $179 million (Realised: $61 million,
Unrealised: $118 million). The Gross MOIC((1)) increased over the prior
period.
Hammerhead
As of 31 December 2022, REL, through the Partnership, has invested $295
million of its $307 million commitment to Hammerhead. Hammerhead is a private
E&P company focused on liquids-rich unconventional resources in the
Montney and Duvernay resource play in Western Canada. Since its establishment
in 2010, Hammerhead has aggregated one of the largest and most advantaged land
positions in the emerging Montney and Duvernay formations of Western Canada's
Deep Basin. The company controls and operates 100 per cent. of this asset
base, which comprises over 1,800 net drilling locations across approximately
~112,000 Montney net acres. Since Riverstone's initial investment, Hammerhead
has increased production almost ten-fold and has significantly grown reserves
to 310 mmboe. As of 31 December 2022, the company was producing approximately
30,200 boepd.
Hammerhead plans to have higher capital expenditures in 2023 than in 2022 in
order to increase development activities. As of 31 December 2022, Hammerhead
had hedged approximately 47 per cent. of forecasted 2022 oil production at a
weighted average price of US$72.95/bbl.
As of 31 December 2022, REL's interest in Hammerhead, through the Partnership,
was valued at 0.60x Gross MOIC((1)) or $176 million (Realised: $23 million,
Unrealised: $153 million). The Gross MOIC((1)) increased over the prior
period.
In September, REL announced that Hammerhead was merging with DCRD, a special
purpose acquisition company (see further details in the DCRD and Post-Year End
Update sections in the Investment Manager's Report, respectively).
Permian Resources (formerly Centennial)
As of 31 December 2022, REL, through the Partnership, has invested in full its
$268 million commitment to Permian Resources / Centennial. Headquartered in
Midland, Texas, Permian Resources is the largest pure-play E&P company in
the Delaware Basin.
In Q3 2022, Centennial closed its merger with Colgate and began its first day
of trading as Permian Resources (NYSE: PR) on 12 September 2022.
In Q4 2022, Permian Resources announced an inaugural quarterly base dividend
of $0.05 / share and a robust capital programme, aiming to return at least 50%
of free cash flow after dividends starting in 2023.
Permian Resources expects to generate ~$1.1 billion of free cash flow FY 2023
and closed on a new $2.5 billion borrowing base RCF with an elected commitment
amount of $1.5 billion.
REL, through the Partnership, owns approximately 12.5 million shares which are
publicly traded (NYSE: PR).
As of 31 December 2022, REL's interest in Centennial, through the Partnership,
was valued at 1.17x Gross MOIC((1)) or $312 million (Realised: $194 million,
Unrealised: $118 million). The Gross MOIC((1)), which reflects the
mark-to-market value of REL's shareholding, increased over the period.
GoodLeap (formerly Loanpal)
As of 31 December 2022, REL, through the Partnership, has invested in full its
$25 million commitment to GoodLeap. The company is a technology-enabled
sustainable home improvement loan originator, providing a point-of-sale
lending platform used by key residential contractors. GoodLeap does not take
funding risk. The company presells its originated loans via forward purchase
agreements to large asset managers. 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 on the flow of loan originations and avoiding
costly SG&A and capital expenditures incurred by other portions of the
value chain.
During the second quarter of 2022, the company closed on its 13th
securitisation which was oversubscribed despite volatile markets. Management
continues to execute on its growth plans. On 13 October 2021, GoodLeap
announced a new investment round of over $800 million, which will support the
company's operational improvements, technology innovation efforts, and
expansion.
As of 31 December 2022, REL's interest in GoodLeap, through the Partnership,
was valued at 2.20x Gross MOIC((1)) or $55 million (Realised: $2 million,
Unrealised: $53 million). The Gross MOIC((1)) decreased over the period.
Enviva
As of 31 December 2022, REL, through the Partnership, has invested $18 million
of its $22 million commitment to Enviva, which was reduced by $3.0 million
this period in conjunction with an overall commitment reduction to the company
by the Investment Manager. 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 ten plants with a combined wood pellet production capacity
of approximately 6.2 million MTPY.
On 31 December 2021, Enviva completed its conversion from a master limited
partnership to a corporation following approval by Enviva unitholders on 17
December 2021. The company continues to capitalise on the industry's growth
opportunities, announcing its inaugural agreements with German customers in
May and continuing to expand into heat and other industrial applications.
Enviva commissioned its newly constructed Lucedale plant in March 2022 and
commemorated its first shipment of pellets from the Port of Pascagoula in June
2022. On 17 November 2022, Enviva priced $100 million of bonds in the U.S.
tax-exempt market through the Mississippi Business Finance Corporation (the
issuer). The Tax-Exempt Green Bonds will bear interest at an annual rate of
7.75 per cent. and mature in 2047, with the option for holders to redeem at
par in 2032.
As of 31 December 2022, REL's interest in Enviva, through the Partnership, was
valued at 1.93x Gross MOIC((1)) or $35 million (Realised: nil, Unrealised: $35
million). The Gross MOIC((1)) decreased over the period.
Samsung Ventures
On 17 August 2021, REL announced the purchase of an interest in one of Samsung
Ventures' battery technology focused venture capital portfolios (the "Samsung
Portfolio") for $30.0 million. The majority of the Samsung Portfolio consists
of 1.66 million shares of Solid Power, Inc., which successfully completed its
business combination with DCRC on 8 December 2021. Gross proceeds to Solid
Power from the transaction amounted to $542.9 million from a fully committed
$195 million PIPE and $347.9 million of cash held in trust net of redemptions;
only 0.6 per cent. of shares held by public stockholders of DCRC were
redeemed. Of the shares voted at the special meeting of DCRC's stockholders,
over 99.9 per cent. voted to approve the business combination.
The remainder of the portfolio is held in shares of Ionic Materials (Ionic I
& II), a material science company that manufactures transformative
polymers for use in solid-state batteries, healthcare and 5G applications.
Ionic Materials' solid polymer is believed to be the first of its kind to
conduct ions at room temperature, a critical enabler of solid-state batteries.
As of 31 December 2022, REL's aggregate investment in the Samsung Portfolio,
through the Partnership, was marked at 0.50x Gross MOIC((1)) or $15 million
(Realised: nil, Unrealised: $15 million). The Gross MOIC((1)) decreased over
the period.
DCRC/Solid Power
As of 31 December 2022, REL, through the Partnership, has fully invested its
$20.6 million commitment to DCRC/Solid Power. Riverstone sponsored DCRC's $350
million IPO on 23 March 2021. REL made a $0.6 million investment in DCRC at
the time of the IPO, as the blank check company began to pursue merger
candidates. On 15 June 2021, DCRC announced its business combination agreement
with Solid Power, a Louisville, Colorado based producer of all solid-state
batteries for electric vehicles, to which REL committed an additional $20
million to the $165 million PIPE that was raised.
Between DCRC's IPO and announcing the business combination with Solid Power,
Solid Power closed on a $130 million Series B investment raise led by BMW
Group, Ford Motor Company, and Volta Energy Technologies. In conjunction with
the Series B raise, BMW and Ford expanded their existing joint development
agreements with the company to secure all solid-state batteries for future
electric vehicles. Both Ford and BMW will receive full-scale 100 Ah cells for
automotive qualification testing and vehicle integration beginning in 2022.
Solid Power's all solid-state platform technology allows for the production of
unique cell designs expected to meet performance requirements for each
automotive partner.
The business combination between DCRC and Solid Power closed on 8 December
2021, with Solid Power beginning to trade on NASDAQ under the ticker "SLDP".
Gross proceeds to Solid Power from the transaction amounted to $542.9 million
from a fully committed $195 million PIPE and $347.9 million of cash held in
trust net of redemptions; only 0.6 per cent. of shares held by public
stockholders of DCRC were redeemed. Of the shares voted at the special meeting
of DCRC's stockholders, over 99.9 per cent. voted to approve the business
combination
As of 31 December 2022, REL's interest in Solid Power, through the
Partnership, consisted of the $0.6 million sponsor investment, which was
valued at 2.20x Gross MOIC((1)) or $1 million (Realised: $- million,
Unrealised: $2 million), and the $20 million PIPE investment, which was valued
at 0.25x Gross MOIC((1)) or $5 million (Realised: nil, Unrealised: $5
million).
FreeWire
As of 31 December 2022, REL, through the Partnership, has fully invested its
$10 million commitment to FreeWire. FreeWire is the leading provider of
battery-integrated DC fast chargers (DCFCs) and their associated software.
Riverstone led the company's $50 million Series C round in January 2021.
Their primary hardware product is the Boost Charger, a unitised, turnkey DCFC
that offers charging speeds of up to 200kW with only a 27kW grid connection by
using a 160kWh battery. These specifications support 15-24 fast charging
sessions per day. The current software platform, AMP Connect, allows for
charger management and integration with existing customer platforms with
broader services in development.
As of 31 December 2022, REL's interest in FreeWire, through the Partnership,
was valued at 2.00x Gross MOIC((1)) or $20 million (Realised: nil, Unrealised:
$20 million).
Anuvia Plant Nutrients
As of 31 December 2022, REL, through the Partnership, has fully invested its
$20 million commitment to Anuvia Plant Nutrients. Anuvia Plant Nutrients
manufactures high-efficiency, sustainable field-ready fertilisers for the
agriculture, turf, and lawncare industries.
Located in Winter Garden, Florida, the company developed and uses a unique
technology that not only optimises nutrient availability and efficiency for
plants, but also improves soil health, preserves natural resources, and
reduces greenhouse gas emissions.
As of 31 December 2022, REL's interest in Anuvia Plant Nutrients, through the
Partnership, was valued at 1.00x Gross MOIC((1)) or $20 million (Realised:
nil, Unrealised: $20 million).
T-REX Group
As of 31 December 2022, REL, through the Partnership, has fully invested its
$17.5 million commitment to T-REX Group. T-REX Group, a SaaS provider
supporting the asset-backed financing industry, brings together asset class
expertise, critical data management capabilities, and a platform for deal
structuring, cash flow modeling, scenario analysis, real-time performance
tracking, and reporting.
T-REX Group combines sophisticated cloud-based SaaS technology with big data
and asset class expertise to drive down operating and capital expense, reduce
risk exposure, and enhance performance for complex investments.
As of 31 December 2022, REL's interest in T-REX Group, through the
Partnership, was valued at 1.00x Gross MOIC((1)) or $17.5 million (Realised:
nil, Unrealised: $17.5 million).
Infinitum Electric
As of 31 December 2022, REL, through the Partnership, has fully invested its
$17.5 million commitment to Infinitum. Infinitum Electric's patented air-core
motors offer superior performance in half the weight and size, at a fraction
of the carbon footprint of traditional motors, making them pound for pound the
most efficient in the world. Infinitum Electric motors open up sustainable
design possibilities for the machines we rely on to be smaller, lighter and
quieter, improving our quality of life while also saving energy.
As of 31 December 2022, REL's interest in Infinitum Electric, through the
Partnership, was valued at 1.30x Gross MOIC((1)) or $22.8 million (Realised:
nil, Unrealised: $22.8 million).
DCRN/Tritium DCFC
In February 2021, REL invested $0.6 million in the Founder Shares and Warrants
of Decarbonisation Plus Acquisition Corp. II (NASDAQ: DCRN) at the time of its
IPO. In May 2021, DCRN announced it would combine with Tritium, a Brisbane
based pioneer in e-mobility and EV charging infrastructure. On 4 January 2022,
Tritium announced record breaking Q4'21 and FY'21 financial performance
results. The merger vote to approve the combination of Tritium and DCRN
occurred and closed on 12 January 2022.
In February 2022, REL funded an additional $15 million commitment to Tritium.
The funding event occurred three days after the company met with President
Biden to announce the construction of the Company's Lebanon, Tennessee
manufacturing plant. The plant will employ 500 over the next five years,
produce over 10,000 DC fast chargers units annually, and will ultimately reach
peak production capacity of 30,000 units annually.
On 17 January 2023, Tritium announced its largest single customer order from
BP plc (NYSE: BP) for deployment across the U.S., UK, Europe, and Australia.
bp will install the chargers for fleets and the general public across three
continents as part of a multi-year contract with Tritium to expand its EV
charging business, bp pulse. In December 2022, Tritium achieved the largest
monthly production output in company history, with 50 per cent. more output
than any previous month as its Tennessee factory continues to ramp up.
The company opened the 2023 calendar year with a record order backlog of ~$159
million as of 31 December 2022. The company is projecting 2023 revenue in
excess of $200 million, corresponding to a 100+ per cent. YoY increase with
expected gross margins of 10 per cent. to 12 per cent. as the company benefits
from manufacturing scale up, improved product pricing, and planned produce
suite streamlining.
As of 31 December 2022, REL's interest in Tritium, through the Partnership,
consisted of the $0.6 million sponsor investment, which was valued at 1.7x
Gross MOIC((1)) or $1 million (Realised: nil, Unrealised: $1 million), the $15
million equity investment, which was valued at 0.28x Gross MOIC((1)) or $4
million (Realised: nil, Unrealised: $4 million), and the $9.7 million loan
investment, which was valued at 1.00x Gross MOIC((1)) or $10 million
(Realised: $0.2 million, Unrealised: $9.8 million).
Group14
In April 2022, REL, through the Partnership, invested $4 million into Group14
Technologies, Inc.'s $400 million Series C funding round. The Series C round
was led by Porsche AG, with participation from OMERS Capital Markets,
Decarbonisation Partners, Vsquared Ventures, and others. Group14 is a battery
materials technology company founded in 2015. The company has developed a
proprietary silicon-based anode battery material to replace graphite in
conventional lithium-ion batteries.
In Q4 2022, the company raised an additional $214mm as a second close to its
Series C transaction; bringing total Series C capital raised to $614mm, fully
funding the business plan through 2023.
As of 31 December 2022, REL's interest in Group14, through the Partnership,
was valued at 1.00x Gross MOIC((1)) or $4 million (Realised: nil, Unrealised:
$4 million).
Hyzon
In connection with the closing of the previously announced merger between DCRB
and Hyzon Motors Inc. (NASDAQ: HYZN), REL purchased $10 million of DCRB common
stock in a private placement transaction at $10 per share in July 2021. Hyzon,
headquartered in Rochester, New York, is the industry-leading global supplier
of zero-emissions hydrogen fuel cell powered commercial vehicles.
As of 31 December 2022, REL's interest in Hyzon, through the Partnership, was
valued at 0.16x Gross MOIC((1)) or $2 million (Realised: nil, Unrealised: $2
million). The Gross MOIC((1)) decreased over the period.
DCRD
In August 2021, REL announced an investment of $0.6 million in DCRD, a special
purpose acquisition vehicle sponsored by an affiliate of REL's Investment
Manager which raised over $316 million in its IPO.
On 23 January 2023, the business combination agreement by and among DCRD,
Hammerhead, Hammerhead Energy Inc., an Alberta corporation and wholly owned
subsidiary of Hammerhead ("NewCo") and 2453729 Alberta ULC ("AmalCo") was
approved with 27,623,812 votes for, 3,314,327 votes against, and 1 abstention.
The transaction subsequently closed on 23 February 2023. Please see further
details in the Post-Year End Update section of the Investment Manager's
Report.
As of 31 December 2022, REL's interest in DCRD, through the Partnership, was
valued at 4.99x Gross MOIC((1)) or $3.0 million (Realised: nil, Unrealised:
$3.0 million).
Our Next Energy (ONE)
In December 2022, REL invested $11.5 million of its $12.5 million commitment
to Our Next Energy's (ONE) $300 million Series B round, valuing the company
at over $1 billion. ONE is a Michigan-based energy storage technology
company working to develop batteries for mobility and large-scale storage
applications. ONE will use the proceeds of the round to complete ONE Circle,
its Van Buren Township, Michigan facility, which will be its first Lithium
Iron Phosphate (LFP) battery manufacturing plant.
As of 31 December 2022, REL's interest in ONE, through the Partnership, was
valued at 1.00x Gross MOIC((1)) or $11 million (Realised: nil, Unrealised: $11
million).
Realised Investments
Carrier II
Carrier II is focused on the acquisition and exploitation of upstream oil and
gas assets by partnering with select operators that are developing both
unconventional and conventional reservoirs in North America. Shortly after its
establishment in May 2015, Carrier II entered into a joint venture agreement
with a highly experienced operator group made up of Henry Resources, LLC and
PT Petroleum, LLC, targeting 19,131 net acres for development in the southern
Midland Basin (subsequently increased to 20,260 net acres). In addition,
through three separate acquisitions, the company has acquired 3,892 net acres
in Karnes County in the Eagle Ford basin, targeting the Sugarloaf Project and
the Chisholm Project, both operated by Marathon Oil Corp.
The company continues to operate prudently and remains focused on using free
cash flow from high commodity prices to fund development and reduce
outstanding indebtedness on the company's term loan.
Since inception, Carrier II has distributed $63 million through dividends to
REL, through the Partnership, representing approximately 57 per cent. of REL's
invested capital.
On 27 December 2022, the non-operated interests of Carrier II were sold to the
operator of its wells, Marathon Oil Corporation. At closing, REL received
proceeds of approximately $34 million from Carrier II, and as a result has
reflected this as a realisation even though the Company will be retaining its
interest in Carrier II until Q1 2023 when it expects to receive approximately
$3 million of residual proceeds to be released from escrow.
As of 31 December 2022, REL's realised position in Carrier, through the
Partnership, was valued at 0.60x Gross MOIC or $66 million (Realised: $63
million, Unrealised: $3 million).
Pipestone
Pipestone is a Calgary-based oil and gas company focused on the Western
Canadian Sedimentary Basin. CNOR had 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 has since been working towards bringing incremental
production online.
In February 2022, REL sold its entire position in Pipestone for net proceeds
of 53 million CAD (USD 41.7 million). With this transaction, REL no longer
owns any interest in Pipestone.
As of 31 December 2022, REL's realised position in Pipestone, through the
Partnership, was valued at 0.64x Gross MOIC or $58 million (100 per cent.
realised).
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 2022, REL had a cash balance of $15.8 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
$103.8 million held as cash and money market fixed deposits, gross of the
accrued Management Fee of $2.7 million. After the accrued Management Fee,
REL's aggregate cash balance is $116.9 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. 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 49 basis points during the year ended 31 December 2022. All cash
deposits referred to in this paragraph are denominated in U.S. dollars.
On 4 March 2022, the Board was pleased to allocate an additional £46.0
million to the Share Buyback Programme at which time the Company had the
authority to repurchase 8,062,463 shares pursuant to the authority granted at
its 2022 AGM. In 2022, the Company had repurchased 4,045,941 shares, in
aggregate, for £26.8 million ($32.2 million) at an average share price of
£6.63 ($7.95). Since REL started the buyback programme in May 2020, the
Company has purchased 29,005,073 shares, in aggregate, for £113 million ($145
million) at an average share price of £3.89 ($5.00). As of 31 December 2022,
£23 million remains available for repurchasing.
As of 31 December 2022, REL, through the Partnership, had potential unfunded
commitments of $23 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
which is denominated in Canadian dollars.
Post-Year End Update
As a result of the combination of Hammerhead and DCRD, which closed on 23
February 2023, REL's existing Hammerhead ownership converted into 15.4 million
common shares of Hammerhead Energy Inc. (NASDAQ / TSX: HHRS). REL also owns a
5 per cent. stake in the DCRD Sponsor. The DCRD Sponsor is entitled to up to
45 per cent. of the 7.9 million Sponsor Shares subject to Riverstone Fund V
achieving a 1.0x Gross MOIC, as detailed in the F-4 Side Letter. Therefore, at
or above a $10.53 share price, REL will own an additional 0.2 million HHRS
shares. Based on the 15.4 million common shares of HHRS at the HHRS closing
share price of $14.97 as of 27 February 2023, the company's initial day of
trading on NASDAQ and TSX, REL's investments in Hammerhead and the DCRD
Sponsor are valued at $255.8 million, inclusive of previously realised
proceeds of $23.1 million, which is an increase from $179.9 million as at 31
December 2022. There can be no assurance that the closing price as of 27
February 2023 is an indicator of future performance. As the shares of HHRS are
publicly traded, going forward the valuation will be determined based on the
market price, rather than the basis used previously for unquoted investments.
Outlook
The Investment Manager continues to work with its portfolio companies and
management teams to navigate dynamic market conditions driven by geopolitical
strife, the ongoing pandemic, volatility in commodity markets, and the energy
transition. We believe past work with the legacy commodity linked portfolio
and work to identify strong growth equity opportunities in the ever-evolving
decarbonisation space, has positioned the portfolio well to capitalise on the
upside of energy market volatility and the steady march toward a decarbonised
economy. We expect portfolio companies to manage liquidity with discipline,
and to increase strategic capital expenditure where appropriate. The
Investment Manager will continue to execute on the modified investment
programme, identifying new decarbonisation investments that present attractive
risk-reward profiles supporting value creation for shareholders.
RIGL Holdings, LP
28 February 2023
((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. No
further carried interest will be payable until the $95.2 million of realised
and unrealised losses to date at 31 December 2022 (largest deficit of $605.5
million at 30 June 2020) are made whole with future gains, so the earned
carried interest of $0.8 million at 31 December 2022 has been deferred and
will expire in October 2023 if the aforementioned losses are not made whole.
Since REL has not yet met the appropriate Cost Benchmark at 31 December 2022,
$38.0 million in Performance Allocation was not accrued in accordance with the
terms of the current agreement, which would have been accrued under the prior
agreement. Based on the aforementioned Performance Allocation, net of
estimated applicable taxes, the potential increase arising from the Investment
Manager's share purchases would be $19 million as of 31 December 2022. 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 US tax purposes. The C Corporations serve to protect REL's
public investors from incurring U.S. effectively connected income. The C
Corporations file U.S. corporate tax returns with the U.S. Internal Revenue
Service and pay U.S. corporate taxes on its taxable income.
Investment STRATEGY
The Investment Manager continues to reposition REL's portfolio away from
commodity price-sensitive oil and gas investments towards a focus on renewable
and the decarbonisation thematic. This shift in the portfolio began in the
summer of 2020 with the Company, through the Partnership investing in Enviva,
and progressed in 2021 with the commitments to GoodLeap, FreeWire
Technologies, DCRB, DCRN and DCRC. In 2022, REL, through the Partnership,
further invested $95 million in six companies (T-REX, Infinitum, Tritium,
Anuvia Plant Nutrients, Group14 and ONE), which are located at diverse
junctions of the energy transition value chain. The Company believes that each
of these investments 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 facilitate
increased renewables adoption and helps the global economy reach its climate
change goals.
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 strategy through
the modified investment strategy. At the EGM in 2020, the Board committed to
review the Company'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. Based on the significant improvement in
the performance of REL, taking into account the trading price of the Ordinary
Shares and portfolio performance from 30 September 2020 to 30 September 2022,
and the outlook for further energy transition investment opportunities from
the Investment Manager, the Company's independent Directors did 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.
INVESTMENT POLICY
The Company's investment objective is to generate long term capital growth by
making investments in the global energy sector. For so long as the Investment
Manager (or any of its affiliates) remains the investment manager of the
Company, the Company shall have the option to participate in all Qualifying
Investments in which the Private Riverstone Funds invest.
Asset Allocation
The Company shall acquire its interests in each Qualifying Investment at the
same time (or as near as practicable thereto) as, and on substantially the
same economic and financial terms as, the relevant Private Riverstone Fund
which may involve the Private Riverstone Fund acquiring all or some of such
Qualifying Investment and selling it on to the Company on the same terms on
which the Private Riverstone Fund acquired the transferred interest in the
Qualifying Investment.
The Company and either Fund V or Fund VI has participated in each applicable
Qualifying Investment in which Fund V or Fund VI, respectively, invests in a
ratio of one-third to two-thirds. This investment ratio was subject to
adjustment on a case-by-case basis (a) to take account of the liquid assets
available to each of the Company and Fund V for investment at the relevant
time and any other investment limitations applicable to either of them or
otherwise if (b) both (i) a majority of the Company's independent directors
and (ii) the Investment Manager agree that the investment ratio should be
adjusted for specific Qualifying Investments.
For each Private Riverstone Fund subsequent to Fund V which is of a similar
target equity size as Fund V (i.e. US$7.7 billion) and has a similar
investment policy to the Company, Riverstone shall seek to ensure that,
subject to the investment capacity of the Company at the time, the Company and
the Private Riverstone Fund invest in applicable Qualifying Investments in an
investment ratio of one-third to two-thirds 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 will typically seek to ensure that the Company and the
Private Riverstone Funds dispose of their interests in Qualifying Investments
at the same time and 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 co-investment arrangements.
The Company may hold controlling or non-controlling positions in its
investments and may make investments in the form of equity, equity-related
instruments, derivatives or indebtedness (to the extent that such indebtedness
is a precursor to an ultimate equity investment). The Company may invest in
public or private securities. The Company will not permit any investments to
be the subject of stock lending or sale and repurchase.
In selecting investments, the Investment Manager will target investments that
are expected to generate long term capital growth and, in particular,
investments that are expected to generate a Gross IRR of between 20 and 30 per
cent.
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 was made, no one investment made by the Company 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. As at 31 December 2022, the Company's investment in
Hammerhead represented approximately 21 per cent. of the Company's gross
assets, including cash holdings. The Company shall utilise the Partnership and
its Investment Undertakings or other similar investment holding structures to
make investments and this limitation shall not apply to its ownership interest
in the Partnership or any such Investment Undertaking.
Gearing
The Company may, but shall not be required to, incur indebtedness for
investment purposes, working capital requirements and to fund own-share
purchases or redemptions up to a maximum of 30 per cent. of the last published
NAV as at the time of the borrowing, or such greater amount as may be approved
by the Shareholders passing an ordinary resolution. The consent of a majority
of the Company's Directors shall be required for the Company or the
Partnership to enter into any credit or other borrowing facility. This
limitation will not apply to portfolio level entities in respect of which the
Company is invested or is proposing to invest.
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; in addition,
the Company will not invest more than 15 per cent. of the value of its 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.
Board of Directors
Richard Hayden (77), Chair of the Board and Non-executive Independent Director
Appointment: Appointed to the Board in May 2013 and appointed as Chair of the
Board 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 Member,
Management Engagement Committee Member.
Richard Horlick (63), Chair Elect and Non-executive Independent Director)
Appointment: Appointed to the Board in October 2022.
Experience: Mr Horlick serves as a non-executive director and chair of BH
Macro Limited and a non-executive director of VH Global Sustainable Energy
Opportunities PLC, each of which is admitted to trading on the Main Market of
the London Stock Exchange. In addition to his listed positions, he is
currently the non-executive chairman of CCLA Investment Management which
manages assets for over 38,000 charities and church and local authority funds.
Mr Horlick is a UK resident and has served on a number of closed end fund
boards and was previously head of investment and main board director of
Schroders Plc and President, Institutional, of Fidelity International and
subsequently chairman of the Trust Bank for the Fidelity Mutual funds in the
US. He has had a long and distinguished career in investment management since
graduating from Cambridge University in 1980 with an MA in Modern History.
Committee Membership: Audit Committee Member; Nomination Committee Member;
Management Engagement Committee Member.
Peter Barker (74), 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 (61), 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 India Capital Growth Fund Limited,
CT UK Capital & Income Investment Trust plc and NextEnergy Solar Fund
Limited. Mr Firth is a UK resident.
Committee Membership: Audit Committee Chair; Nomination Committee Member;
Management Engagement Committee Member.
Jeremy Thompson (67), 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 RCDS (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 Chair;
Management Engagement Committee Member.
Claire Whittet (67), 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 and currently sits on the board
of four other listed funds (BH Macro Limited, Eurocastle Investment 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 Chair.
John Roche (57), Non-executive Independent Director
Appointment: Appointed to the Board in December 2022.
Experience:
Mr Roche qualified as an Irish Chartered Accountant in 1988 and moved
immediately to Guernsey to join the PwC predecessor firm, Coopers &
Lybrand. He seconded to the investment management practices at PwC Ireland
(1996-1998) and PwC UK (2003-2008) returning on a full time basis to Guernsey
in 2009. Promoted to partner in 2006, he is now recently retired with a
strong background in auditing as well as IPO and capital markets transactions
for investment companies on the various London markets. He has focussed
delivering audit services to alternative investment managers, specialising in
private equity, secondaries, private debt, infrastructure and real estate in
the listed and private sectors. Mr Roche has been the firm's Risk Management
Partner (2008-2015), Partner Responsible for Independence/Ethics &
Business Conduct (2008-2015 & 2018-2022), as well as the Guernsey Office
Managing Partner (2013-2020). He was also President of the Guernsey Society of
Chartered and Certified Accountants (2013-2015). Mr Roche is a Guernsey
resident.
Committee Membership: Audit Committee Member; Nomination Committee Member;
Management Engagement Committee Member.
Report of the Directors
The Directors hereby submit the Annual Report and Audited Financial Statements
for the Company for the year ended 31 December 2022. This Report of the
Directors should be read together with the Corporate Governance Report.
General Information
REL 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 investments in the energy sector.
The Company's investment objective is to generate long-term capital growth by
investing in the global energy sector.
Business Review
A review of the Company's business and its likely future development is
provided in the Board Chair'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 2022 was $739 million (31
December 2021: $682 million).
The Directors do not recommend the payment of a dividend in respect of the
year ended 31 December 2022 (31 December 2021: $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 £10 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 £50 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 £67.6 million ($102.3 million) ((1))
through the issuance of 8,448,006 new Ordinary Shares at £8.00 per Ordinary
Share.
On 15 October 2018, the Company announced a Tender Offer for £55.0 million in
value of the Company's Ordinary Shares. The Company acquired 4,583,333
Ordinary Shares at £12.00 per share, which were cancelled on 23 November
2018.
On 1 May 2020, the Company announced a buyback programme with the intention of
returning £50 million to Shareholders via on market buybacks; which was
completed on 9 March 2021. Since the announcement, the Company has purchased
17,214,197 shares, in aggregate, for £50 million ($63 million) at an average
share price of £2.90 ($3.67).
On 11 May 2021, the Company announced a buyback programme with the intention
of returning £20 million to Shareholders via on market buybacks, which
subsequently, on 4 October 2021, was increased to £40 million. Since the
announcement, the Company has purchased 7,744,935 shares, in aggregate, for
£36 million ($50 million) at an average share price of £4.65 ($6.40).
On 14 February 2022, the Company announced that the Board and Investment
Manager agreed to allocate an additional £46.0 million to the programme.
Since the announcement, 4,045,941 ordinary shares have been bought back at a
total cost of approximately £26.8 million ($32.2 million) at an average share
price of approximately £6.63 ($7.95). With the intention to narrow the
Company's trading discount, the Board took the decision in Q4 2022 to steadily
buyback shares up to £15.5 million ($17.5 million) for the period to 31
December 2022.
As at 31 December 2022, the share capital of the Company is 50,891,658
Ordinary Shares in aggregate.
The Company has one class of Ordinary Shares. The issued value of the Ordinary
Shares represents 100 per cent. of the total issued 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 2022,
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 2022 and 2021 are detailed below:
Director Ordinary Per cent. Ordinary Per cent.
Shares held Holding at Shares held Holding at
31 December 31 December 31 December 31 December
2022 2022 2021 2021
Richard Hayden((1)) 10,000 0.020 10,000 0.018
Richard Horlick((1)) 10,000 0.020 - -
Peter Barker((1)(2)) 5,000 0.010 5,000 0.009
Patrick Firth((3)) 8,000 0.016 8,000 0.015
Jeremy Thompson((1)) 3,751 0.007 3,751 0.007
Claire Whittet((1)(4)) 2,250 0.004 2,250 0.004
John Roche((1)) 2,201 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.
In addition, the Company also provides the same information as at 28 February
2023, being the most current information available.
Director Ordinary Per cent.
Shares held Holding at
28 February 2023 28 February 2023
Richard Hayden((1)) 10,000 0.020
Richard Horlick((1)) 10,000 0.020
Peter Barker((1)(2)) 5,000 0.010
Patrick Firth((3)) 8,000 0.016
Jeremy Thompson((1)) 3,751 0.007
Claire Whittet((1)(4)) 2,250 0.004
John Roche((1)) 2,201 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 24 May 2022 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 2022, 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.
Shareholder Shareholding Per cent. Nature of
Holding Holding
Quilter Investors 12,292,141 24.2% Indirect
Moore Capital Mgt 8,430,490 16.6% Indirect
AKRC Investments LLC 6,208,990 12.2% Direct
SIX Group Ltd. 4,440,565 8.7% Indirect
Riverstone Related Holdings 3,358,828 6.6% Direct
In addition, the Company also provides the same information as at 24 February
2023, being the most current information available.
Shareholder Shareholding Per cent. Nature of
Holding Holding
Quilter Investors 12,292,141 24.6% Indirect
Moore Capital Mgt 8,430,490 16.9% Indirect
AKRC Investments LLC 4,777,598 9.6% Direct
SIX Group Ltd. 4,521,538 9.0% Indirect
Riverstone Related Holdings 3,358,828 6.7% Direct
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 in 2013. 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 2023 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
(http://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 applicable 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 as the Discontinuation Resolution was not passed in 2020,
subject to the termination for cause provisions described in Note 9.
However, either the Board or a 10 per cent. Shareholder or group can request
an EGM to vote on a wind-up of the Company at any time. If passed, such
actions would trigger an exit fee equal to 20 times the most recent quarterly
management fee.
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 the recommendation from the Audit Committee, have a
reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future, which is defined as the
period from the date of approval of Financial Statements up until 31 March
2024. In reaching this conclusion, the Directors, with the 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 2024, and have taken into account the following
two 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 2024; and
2. Available liquid resources and potential proceeds from
investment realisations versus total potential unfunded commitments of the
Partnership
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
2024
REL retained $11.5 million of cash in the Company's IPO and Placing and Open
Offer for the initial three years post-listing and has requested and received
eight distributions for working capital needs in aggregate of $29.4 million
from the Partnership cumulatively through 31 December 2022. During 2022, the
Company requested and received distribution requests in aggregate of £35.2
million ($42.3 million) for the share buyback programme, of which $15.7
million remains at 31 December 2022 (31 December 2021: $7.3 million). This
cash and cash equivalents balance is sufficient to cover the Company's
existing liabilities at 31 December 2022 of $0.7 million and the forecasted
company's annual expenses of approximately $4.3 million. Additionally, REL
will need additional distributions of approximately $28.0 million from the
Partnership to fulfill the remainder of the share buyback programme amount of
£23.2 million, which was announced by the Company on 8 February 2022 and for
which the buyback authority was approved at the EGM on 4 March 2022. As in
prior years, in accordance with the Partnership Agreement, if the Company
requires additional funds for working capital or the share buyback programme,
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 eight distributions from the Partnership for working
capital needs. As detailed further in section 2 below, REL, through the
Partnership, had available liquid resources of $103.8 million in excess of
potential unfunded commitments of $22.9 million at 31 December 2022, but
currently, as of the date of this report, REL, through the Partnership, has
total potential unfunded investment commitments of up to $21.9 million, which
does not exceed its available liquid resources of $99.9 million. However,
based on the Investment Manager's cash flow forecast for the next three years
to 31 December 2025, the expectation is that, if needed, the Partnership will
only fund the remaining investment commitments to Enviva and Onyx, which total
$9.7 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 2022, REL and the Partnership, including its wholly-owned
subsidiaries, REL Cayman Holdings, LP, REL US Corp and REL US Centennial
Holdings, LLC, had $119.5 million of uninvested funds held as cash and cash
equivalents (31 December 2021: $105.8 million). This amount is comprised of
$103.8 million held at the Partnership and $15.7 million held at REL.
Subsequent to 31 December 2022 and up to the date of this report, the Company,
through the Partnership, made payments of $2.7 million for the Q4 2022
Management Fee, $0.1 million for Partnership expenses and funded the remaining
commitment amount for ONE of $1.0 million. 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 2022; therefore,
any unrealised Performance Allocation has been deferred. If these changes had
not been accepted, then the accrued GP Performance Allocation would have been
$38.0 million as of 31 December 2022. No performance fees will be payable
until the $95.2 million realised and unrealised losses to date at 31 December
2022 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 investment commitments of $22.9 million
as at 31 December 2022 (31 December 2021: $49.1 million), through the
Partnership, did not exceed its available liquid resources as at 31 December
2022. This amount does not exceed the Partnership's available liquid resources
of $99.9 million as of the date of this report. It is not expected that all
potential unfunded investment 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 2025, the expectation is that, if needed, the
Partnership will only fund the remaining commitments to Enviva and Onyx which
aggregate up to $9.7 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.
At 31 December 2022, ten of the Company's realised investments, held through
the Partnership, resulted in $937.9 million of gross proceeds on invested
capital of $729.3 million, respectively in aggregate, resulting in an average
Gross MOIC of approximately 1.3x. The initial commitments to these ten
investments were in excess of $1,067.8 million, so approximately 68 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 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. The Partnership holds
unrestricted marketable securities consisting of publicly-traded shares of
Enviva, Permian Resources, Solid Power, Tritium and Hyzon, for which the
aggregate fair value was $177.1 million at 31 December 2022 and $198.0 million
as of 27 February 2023. Additionally, the Partnership holds restricted
marketable securities consisting of publicly-traded shares of Tritium (lock-up
expiration in 1Q2023), and DCRD (lock-up expiration is one year post future
business combination), for which the aggregate fair value was $4.0 million at
31 December 2022 and $234.2 million as of 27 February 2023, which also
includes the shares of HHRS (see Post-Year End Update section of Investment
Manager's Report for further information).
Directors' Assessment of Going Concern
Based on the reasons outlined above, on balance, the Directors are satisfied,
as of the date of this report, 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 2025 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 could threaten the Company's performance, it would not
necessarily threaten its viability, not least as a result of the Company's
progressive shift to decarbonisation asset investments.
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. Given the significant improvement in
the performance of the Company, taking into account the trading price of the
Ordinary Shares and portfolio performance from 30 September 2020 to 30
September 2022, the Company's independent directors did 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. 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 able to
preserve its ability to maintain sufficient working capital for the three year
period.
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
$96.5 million in aggregate commitments announced and funded during 2022 to
Anuvia ($20.0 million), T-REX Group ($17.5 million), Infinitum ($17.5
million), Tritium ($15.0 million), Tritium Loan ($10.0 million) Our Next
Energy ($12.5 million) and Group14 ($4.0 million).
The Company's fully independent Board is supportive of the continuation of the
Investment Manager's modified investment strategy for the immediate future and
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 in 2020, the Board committed to review the Company'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. As mentioned above, based on the significant improvement in the
performance of REL, taking into account the trading price of the Ordinary
Shares and portfolio performance from 30 September 2020 to 30 September 2022,
and the outlook for further energy transition investment opportunities from
the Investment Manager, the Company's independent Directors did 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.
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 Chair 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.
On 11 May 2020, the Company announced a buyback programme with the intention
of returning £20 million to Shareholders via on market buybacks, which
subsequently, on 4 October 2021, was increased to £40 million. The Board
allocated a further £46.0 million to the buyback programme in March 2022.
With the intention to narrow the Company's trading discount, the Board took
the decision to steadily buyback shares up to £15.5 million ($17.5 million)
of the available £31 million ($35 million) for the period to 31 December
2022. Since the announcement, the Company has purchased 4,045,941 shares, in
aggregate, for £27 million ($32 million) at an average share price of £6.63
($7.95).
Financial Risk Management Objectives
Financial Risk Management Objectives are disclosed in Note 10.
Principal Risk and Uncertainties
Principal Risk and Uncertainties are discussed in the Corporate Governance
Report.
Annual General Meetings
The AGM of the Company will be held at 10:30 BST on 23 May 2023 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 2022 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.
Members of the Board, including the Chair of the Board and the Chair of each
Committee, intend to 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
Chair of the Board
28 February 2023
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 and 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. In the opinion of the
Directors, the Annual Report and Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
Shareholders to assess the Company's performance, business model and strategy.
By order of the Board
Richard Hayden Patrick Firth
Chair of the Board Director
28 February 2023 28 February 2023
Corporate Governance Report
As a UK listed Company, REL'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 the 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 seven Non-executive Directors (31 December 2021: five),
all of whom, including the Chair of the Board, are independent of the
Company's Investment Manager; Mr Hayden, Mr Firth, Mr Barker, Mrs Whittet, Mr
Roche, Mr Horlick and Mr Thompson. All Directors served during the year, with
Mr Horlick being appointed on 26 October 2022 and Mr Roche being appointed on
14 December 2022. As flagged in the Board Chair's Statement, Mr Hayden and Mr
Baker will not be standing for re-election at the next AGM and the Board will
revert to five members.
The Chair 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 Mr 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. Additionally, since the Company's modified investment strategy was
implemented in 2020, the Board is required to regularly hold meetings to
consent to all new investments brought forward by the Investment Manager.
During the year, the total number of ad hoc and regular meetings was 29.
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
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. Mr Firth has served for more than nine years but
the Board considers him to be independent and he is to remain a Director until
the end of 2023 in order to facilitate a handover period to Mr Roche who will
become the new Audit Chair. 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 Chair of the Board is entitled to annual remuneration of £132,000 (31
December 2021: £132,000). The Chair of the Audit Committee is entitled to
annual remuneration of £82,500 (31 December 2021: £82,500) and the Chair of
the Management Engagement Committee is entitled to annual remuneration of
£71,500 (31 December 2021: £71,500). The other independent Directors are
entitled to annual remuneration of £66,000 (31 December 2021: £66,000). The
Chair of the Nomination Committee is entitled to remuneration of £71,500 with
effect from 1 January 2022.
During the year ended 31 December 2022 and 31 December 2021, the Directors'
remuneration was as follows:
Director 2022 2021
($'000) ($'000)
Peter Barker ((1)) 82 91
Patrick Firth((1)(2)) 102 114
Richard Hayden((1)(3)) 164 182
Jeremy Thompson((1)) 89 91
Claire Whittet((1)(4)) 89 98
Richard Horlick((1)) 15 -
John Roche((1)) 4 -
((1)) Non-executive Independent Director
((2)) Senior Independent Director and Chair of the Audit Committee
((3)) Chair of the Company
((4)) Chair of the Management Engagement Committee
The above fees due to the Directors are for the year ended 31 December 2022
and 31 December 2021, and none were outstanding at 31 December 2022 (31
December 2021: $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 2022. The Chair of the Board 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 Chair of the
Board 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:
Board Audit Nomination Management
Meetings Committee Committee Engagement
Meetings Meetings Committee Tenure as at 31 December 2022
Meetings
Director
Peter Barker((1)) 4 4 4 1 9 years,
4 months
Patrick Firth((1)(2)) 4 4 4 1 9 years,
8 months
Richard Hayden((1)) 4 4 4 1 9 years,
8 months
Claire Whittet((1)) 4 4 4 1 7 years,
8 months
Jeremy Thompson((1)) 4 4 4 1 6 years,
8 months
John Roche((1)) - - - - 0.5 months
Richard Horlick((1)) 1 1 1 1 2 months
((1)) (Non-executive Independent Director)
((2) Non-executive Senior Independent Director)
( )
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.
Board members who are not ordinarily resident in Guernsey were unable to
travel and attend certain Board and committee meetings in person during
2022. 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 (http://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 Chair of the Board of each committee attends the AGM to answer
any questions on their committee's activities.
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, Mrs Whittet, Mr Roche and Mr Horlick. The Chair 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 Thompson and comprises Mr Barker, Mr
Firth, Mr Hayden, Mrs Whittet, Mr Roche and Mr Horlick.
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 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 Nomination Committee met frequently in the second half of the year to
establish a process to identify successors for the Chair of the Board and
Audit Chair. The Committee faced the situation of three retiring directors
during the course of 2023. Mr Hayden and Mr Barker advised that they would not
seek re-election at the May 2023 AGM and would stand down following that
meeting. Mr Firth rather than standing down at the AGM was requested to serve
until December 2023 to allow for a transition period with the incoming Audit
Chair elect. The Committee reviewed the size of the Board and confirmed that
notwithstanding the overlap of key Directors it was the intention that the
Board size would revert to five members.
A comprehensive and rigorous process was undertaken to identify a chair
successor. As a first step in starting the systematic global search (led by
Egon Zehnder) each Director was consulted privately, to enable the design of a
specification that reflected the desired independence, appropriate sector
knowledge and compelling chair skills for a major public company with a
diverse investor base.
More than 30 candidates were researched in depth and considered from both
sides of the Atlantic, in two phases of the search. Following this process
over half were approached. The Committee met with 8 potential candidates, some
excelling in energy transition knowledge; others brought specific strengths in
closed-end funds and PLC governance. The three short listed candidates met
with the Company's principal advisors and Investment Manager prior to the
final interview with the Committee. The recommendation by the Committee to the
Board was that the Company would be best served with the appointment of Mr
Horlick - who combined compelling, demonstrably independent, fund board
leadership skills with meaningful knowledge of the energy transition space.
This recommendation was accepted and ratified by the Board.
The Nomination Committee, working with a leading search firm (FletcherJones),
also commenced a rigorous process to identify a successor to Mr Firth as Audit
Chair elect. Following a process which included a long list and short list
process the Committee interviewed four candidates in person. From this
position the Committee recommended the appointment of Mr Roche, a Guernsey
based former partner of PwC as the preferred candidate. This recommendation
was accepted and adopted by the Board.
The Committee is working to find a successor to Mr Barker and the Board
expects to be in a position to announce his successor prior to the AGM.
The Nomination 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 Nomination 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 Mrs Whittet is on the Boards of five 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 five 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,
and that she has always shown the time commitment to discharge fully and
effectively her duties as a Director.
Mr Firth is a Director and Chair 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.
Although not a requirement for REL, during 2022, the Board agreed to defer the
tri-annual requirement for an independent evaluation until 2023 due to the
changes in the Board's composition.
Accordingly, the Board recommends that Shareholders vote in favour of the
re-election of all Directors at the forthcoming AGM, as noted in the Board
Tenure and Re-election section of the Corporate Governance Report.
Management Engagement Committee
The Management Engagement Committee is chaired by Mrs Whittet and comprises Mr
Barker, Mr Hayden, Mr Firth, Mr Thompson, Mr Roche and Mr Horlick. 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.
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. Whilst the Board is not for a FTSE 350
company, it will be undertaking an external board evaluation during 2023.
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 2022. 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.
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 REL 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 2022, the portfolio
level cost benchmark was in deficit of $95.2 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 2022, ten investments exceeded the hurdle rate and the total
portfolio's Gross IRR is approximately (1) 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 2021, 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. In addition, Mr Firth, as the Senior
Independent Director, is 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
Chair of the Board, 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 Chair of the Board, 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/ (http://www.riverstonerel.com/investors/)
2023 Key Shareholder Engagements
January
Quarterly Portfolio Valuations
February
Full Year Results Approved
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 listed and private equity investments, held
through the Partnership, in the conventional and decarbonisation portfolios.
Initially, there was a particular focus on opportunities in the global E&P
and midstream energy sub-sectors, but since 2020 REL has been exclusively
focussed on pursuing a global strategy across decarbonisation sectors
presented by Riverstone's investment platform. Its principal risks are
therefore related to market conditions in the energy and energy transition
sectors in general, but also to the particular circumstances of the businesses
in which it is invested through the Partnership. The Investment Manager,
through the Partnership, seeks to mitigate these risks through active asset
management initiatives and carrying out due diligence work on potential
targets before entering into any investments.
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 meet all of its legal and regulatory obligations.
The Board is committed to upholding and maintaining 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 Audit Committee and Board meetings.
The Board ensures that effective controls are in place to properly mitigate
these risks to the greatest extent possible and that a satisfactory compliance
regime exists to ensure all applicable local and international laws and
regulations are upheld.
For each material risk, the likelihood and consequences 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. Please note that not all principal risks are
disclosed on the Company's website, only those established at the time of the
Prospectuses.
The Company's current principal areas of risk and mitigating actions being
taken 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 industry and sector concentration
risk.
Under the modified investment strategy, since 2020, the Company has pivoted to
focus on energy transition and decarbonisation and this provides an element of
diversification for the portfolio, albeit with the additional investment risks
noted below. Overall, the valuation risk of the investment portfolio has
also been reduced with an increased portion now being held in listed
investments.
2. The Company's shares have, for a considerable period of time, been
trading at a discount to NAV per share for reasons, including, but not limited
to, general market conditions in the energy sector, liquidity concerns,
perceived issues with the terms of the Investment Management Agreement and
actual or expected Company performance as the Company transitions to maximise
value from the conventional portfolio allowing investment into its
decarbonisation strategy. This persistent discount to NAV has the potential to
lead to material shareholder dissatisfaction where any shareholder or
shareholder group which in aggregate totals 10 per cent or more of the shares
outstanding can call an EGM for a shareholder vote.
The Company has seen a marked improvement in the performance of its share
price since 2020, and over this time it has also been very active in
attempting to narrow this persistent discount with the introduction of a
well-funded and material series of successive buybacks as well as enhanced
shareholder engagement. There is no guarantee that the continued attempts to
mitigate this discount will be successful or that the continued use of
discount control mechanisms will remain possible over time. There is a risk
that through successive buybacks to try and manage the share price discount to
NAV, that the Company may become too small to be viable or to be able to make
new or follow-on investments.
3. The investment portfolio held by the Company in both the conventional
and decarbonisation strategies exposes the Company to a number of specific
investment and valuation risks, the most notable ones being:
· The risks and judgements associated with the fair valuation of the
private equity investments could result in the NAV of the Company being
materially misstated. These private equity investments expose the Company's
valuation models to changes over time in a number of variables including the
price of oil, interest rates, certain public market trading comparables,
transaction comparables, discounted cash flow rates, taxation etc.
Ultimately the success or otherwise of a private equity investment will only
be determined on eventual realisation.
The Investment Manager has an extensive and consistent valuation policy which
is applied each quarter and fair values all private equity investments held.
All quarterly valuations firstly go through the valuation processes adopted by
the Investment Manager and when approved by the Investment Manager are
released to the Board for review and challenge. Quarterly meetings are held by
the Board with the Investment Manager to review the draft valuations ahead of
confirmation and release to the market.
· Potential changes to domestic policy, banking, regulatory and/or
the tax environment of target and existing investments in the Company's chosen
geographies may adversely affect the fair value/market value or liquidity of
those investments, their ability to borrow and transact business plans or
impact the Company's ability to properly realise those investments at
previously intended valuations or timescales.
The Investment Manager closely monitors the sectors and industries in which
the Company invests or intends to target investment. All investment
opportunities proposed only proceed after thorough due diligence processes
prior to acquisition and ongoing monitoring processes are employed while
investments are held in the portfolio.
· The specific investments in the decarbonisation portfolio can
expose the Company to additional investment and operational risks arising from
investment in the build-up and early/development stages where a company may
have little or no operating history, be more vulnerable to financial failure
than more established companies, have requirements to invest in further
funding rounds or suffer dilution/decrease in value, operating in emerging
industries with technologies that are as yet unproven and investments where
the Company is a minority investor with limited access.
· Significant global/regional conflict, such as that in Ukraine, or
the imposition of sanctions or adverse publicity and/or poor ethical practices
of the Company or, more particularly, our portfolio companies, operating in
hazardous industries which are highly regulated by health and safety laws and
where their supply chains could lead to a significant increase in the risk of
disruption to the supply chains that are key for the Company and our portfolio
companies and have an adverse impact on the reputation of the Company and on
the valuations/realisation prospects of our portfolio companies.
The Investment Manager maintains dialogue with the portfolio companies to make
sure that they have appropriate plans and resources in place to prioritise the
health and safety of their employees, as well as to assess their wider
operational and macro environments to include supply chain disruptions and
ensure the normal operations of their businesses and to protect our
valuations. All investments are initially screened and then monitored
against the Investment Manager's ESG policy.
Although this risk is reducing over time, there may be differences in the
investment time horizons and fee provisions between the Company and the
private funds managed by Riverstone where the Company has coinvested and these
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.
4. The Company is heavily reliant on the services provided by the
Investment Manager under the Investment Management Agreement, including
ongoing investment opportunities for REL. The Investment Management
Agreement requires the Investment Manager to provide competent, attentive, and
efficient services and personnel to the Company. If the Investment Manager was
not able to do this or if there was an unacceptable reduction in the service
received or investment competence levels of the personnel employed by the
Investment Manager, then the Company would not able to terminate The
Investment Management Agreement as it does not expressly provide for
termination 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.
Furthermore, it will be costly for the Company to terminate the Investment
Management Agreement as the Company would be required 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 Board has been engaged over time with the Investment Manager to effect
some changes to the Investment Management Agreement most notably in the area
of performance fees. The Board continues to monitor the performance of the
Investment Manager and to discuss potential changes in light of the overall
financial performance of the Company.
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. As at 31 December
2022 and 24 February 2023, respectively, Riverstone and the Company's
Cornerstone Investors, in aggregate, own ~36 per cent. and ~33 per cent, of
outstanding Ordinary Shares, with the largest Cornerstone Investor owning ~17
per cent. at both period-end's.
6. The effects of climate change and the transition to a low carbon economy
could possibly reduce demand for some of the Company's existing investments,
as well as impact their valuations, and may limit future growth opportunities.
General sentiment may affect investor appetite and hence may lead to a
depression of the Company's share price. There is a risk that the change to
ESG investment focus is wrongly perceived by the market as being without
genuine foundation ("greenwashing"). Furthermore, there may be a perceived
over reliance on the Investment Manager's ESG credentials. Riverstone has
adopted what it believes are currently best practices for ESG investing having
become a signatory to the UN-supported Principles for Responsible Investment.
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 regularly reviews its policies, procedures and
defences to mitigate associated risks, as well as receiving confirmation of
the policies, procedures and defences of the Investment Manager, Administrator
and key service providers, and engages market-leading specialists where
appropriate. This is to ensure that the Company is resilient to existing and
emerging threats.
The above 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 advisers, legal advisers, and
environmental advisers. 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.
By order of the Board
Richard Hayden
Chair of the Board
28 February 2023
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 (http://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 Horlick, Mr Hayden, Mr
Thompson, Mrs Whittet and Mr Roche. 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 Chair 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 Board Chair'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 2022, the Audit Committee met formally four
times and maintained ongoing liaison and discussion between the external
auditor and the Chair 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 two occasions since the
year-end through to the date of this report on 23 February 2023 and 28
February 2023. 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 2022 was $723 million (31 December 2021: $674 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
14 October 2022 and 23 February 2023. 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 Report of the Directors, 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
2024, as well as taken into account the below two 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
2024; and
2. Available liquid resources and potential proceeds from investment
realisations versus total potential unfunded commitments of the Partnership.
The Audit Committee, based on the reasons set out in the Report of the
Directors, 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 2025. 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 year 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 tenth 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 periodically. It was decided the audit
services contract will not be put out to tender for the next reporting period
due to mutual benefits of Ernst & Young's external audit contract with the
other Riverstone private funds. 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 2022,
the Committee held private meetings with the external auditor. The Audit
Committee Chair 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 Audit Committee Chair 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.
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 2023.
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 2023. 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
Chair of the Audit Committee
28 February 2023
Statement of Financial Position
As at 31 December 2022
Notes 31 December 31 December
2022 2021
$'000 $'000
Assets
Non-current assets
Investment at fair value through profit or loss 6 723,102 674,439
Total non-current assets 723,102 674,439
Current assets
Trade and other receivables 598 970
Cash and cash equivalents 7 15,755 7,296
Total current assets 16,353 8,266
Total assets 739,455 682,705
Current liabilities
Trade and other payables 665 664
Total current liabilities 665 664
Total liabilities 665 664
Net assets 738,790 682,041
Equity
Share capital 8 1,101,674 1,133,854
Retained deficit (362,884) (451,813)
Total equity 738,790 682,041
Number of Shares in issue at year end 8 50,891,658 54,937,599
Net Asset Value per Share ($) 12 14.52 12.41
The Financial Statements of the Company were approved and authorised for issue
by the Board of Directors on 28 February 2023 and signed on its behalf by:
Richard Hayden Patrick Firth
Chair of the Board Director
The accompanying notes form an integral part of the Company's Financial
Statements.
Statement of Comprehensive Income
For the year ended 31 December 2022
Notes 1 January 1 January
2022 to 2021 to
31 December 31 December
2022 2021
$'000 $'000
Investment profit
Change in fair value of investment at fair value through profit or loss 6
95,939 346,677
Expenses
Directors' fees and expenses 9 (854) (648)
Legal and professional fees (1,036) (426)
Other operating expenses 13 (3,732) (3,270)
Total expenses (5,622) (4,344)
Operating profit for the financial year 90,317 342,333
Finance expense
Foreign exchange loss (1,388) (389)
Total finance expense (1,388) (389)
Profit for the year 88,929 341,944
Total comprehensive income for the year 88,929 341,944
Basic and Diluted Earnings per Share (cents) 12 171.87 561.73
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 2022
Share Retained Total
capital deficit Equity
$'000 $'000 $'000
As at 1 January 2022 1,133,854 (451,813) 682,041
Profit for the financial year - 88,929 88,929
Total comprehensive income for the year - 88,929 88,929
Buyback and cancellation of shares (32,180) - (32,180)
As at 31 December 2022 1,101,674 (362,884) 738,790
Share Retained Total
capital deficit Equity
$'000 $'000 $'000
As at 1 January 2021 1,184,100 (793,757) 390,343
Profit for the financial year - 341,944 341,944
Total comprehensive income for the year - 341,944 341,944
Buyback and cancellation of shares (50,246) - (50,246)
As at 31 December 2021 1,133,854 (451,813) 682,041
The accompanying notes form an integral part of the Company's Financial
Statements.
Statement of Cash Flows
For the year ended 31 December 2022
Notes 1 January 1 January
2022 to 2021 to
31 December 31 December
2022 2021
$'000 $'000
Cash flow used in operating activities
Operating profit for the financial year 90,317 342,333
Adjustments for:
Increase in fair value of investment at fair value through profit or loss 6 (95,939) (346,677)
Decrease in trade and other receivables 372 167
Increase/(Decrease) in trade and other payables 1 (2,526)
Net cash used in operating activities (5,249) (6,703)
Cash flow generated from investing activities
Distribution from the Partnership 47,276 55,827
Net cash generated from investing activities 47,276 55,827
Cash flow used in financing activities
Buyback of shares 8 (32,180) (50,246)
Net cash used in financing activities (32,180) (50,246)
Net movement in cash and cash equivalents during the year 9,847 (1,122)
Cash and cash equivalents at the beginning of the year 7,296 8,807
Effect of foreign exchange rate changes (1,388) (389)
Cash and cash equivalents at the end of the year 15,755 7,296
The accompanying notes form an integral part of the Company's Financial
Statements.
Notes to the Financial Statements
For the year ended 31 December 2022
1. General information
REL 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. 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 2022 have been
prepared in accordance with IFRS and with the Companies (Guernsey) Law, 2008,
(as amended) (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.
The Financial Statements have been prepared on a going concern basis. The
Board has examined areas of possible financial risk, in particular the
projected cash requirements for the Company and the Partnership. After due
consideration, the Directors believe that the Company has adequate financial
resources and suitable management arrangements in place to continue in
operational existence for a period of at least twelve months from the date of
approval of these Financial Statements. Accordingly, the Financial Statements
have been prepared on a going concern basis.
Foreign currencies
The functional currency of the Company is U.S. Dollars reflecting the primary
economic environment in which the Company operates.
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 cash and cash
equivalents 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
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 of the underlying Partnership's
valuations are 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, such as the Founder shares acquired through
the SPAC Sponsor investments (see further below in Unlisted Investments
section and Note 5).
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, volatility of comparable
public traded prices, 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.
For the SPAC Sponsor investments, the Investment Manager values the Founder
Shares based on the closing price of the publicly traded common shares,
subject to applicable discounts for lack of identified target, risk of
unsuccessful closing of the business combination and applicable lock-up
periods post-closing. The Founder Warrants are valued based on a valuation
from a third party, independent valuation specialist.
The Company has determined that the fair value of its investment in the
Partnership is $723 million (31 December 2021: $674 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 comprises cash on hand and demand deposit. Cash
equivalents are held to meet short term cash commitments and comprise 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
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.
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
Statement of Changes in Equity. Share repurchase and cancellation transactions
are accounted for on a trade date basis.
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.
Provisions and Contingent Liabilities
In line with IAS 37 Provisions, Contingent Liabilities and Contingent Assets,
we recognise provisions when the Company has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation and the amount can be
reliably estimated.
Where this criterion is not met we disclose a contingent liability if the
Company has a possible obligation, or has a present obligation with an outflow
that is not probable or which cannot be reliably estimated. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of money and the
risks specific to the liability.
Amended standards and interpretations
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 2022 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
2023 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. Critical 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 critical 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,
which are that:
· it should have more than one investment, to diversify the risk
portfolio and maximise returns;
· it should have multiple investors, who pool their funds to maximise
investment opportunities;
· it should have investors that are not related parties of the entity;
and
· it should have ownership interests in the form of equity or similar
interests.
The Directors are of the opinion that the Company meets the essential criteria
and typical characteristics of an Investment Entity.
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.
Contingent Liabilities - Performance Fee Allocation
In the ordinary course of business, we monitor the performance fee allocation
and provide for anticipated costs where an outflow of resources is considered
probable and a reasonable estimate can be made of the likely outcome.
Where an outflow is not probable but is possible a contingent liability may
still exist and its relevant details will be disclosed.
In January 2020, the management engagement committee of REL, consisting of
REL's independent directors, agreed with RIGL Holdings, LP (formerly
Riverstone International Limited), REL's Investment Manager (the "Investment
Manager"), to amend the terms on which REL is required to pay a performance
allocation (the "Performance Allocation") in respect of REL's investments.
These terms are disclosed in Note 9; Related Party Transactions.
At the reporting date we are not aware of any evidence to indicate that a
present obligation exists, nor is it probable that an outflow of resources
will be required such that any amount should be provided for, even though
there were realisations of certain investments during the period. This is due
to the Portfolio Level Cost Benchmark and 8 per cent. Hurdle Rate not being
met.
Estimates and assumptions
Fair valuation of investment in the Partnership
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.
Climate change
In preparing the financial statements, the Directors have considered the
impact of climate change, particularly in the context of the climate change
risks identified in the ESG Report.
In preparing the financial statements, the Directors have considered the
medium and longer term cash flow impacts of climate change on a number of key
estimates within the financial statements, including the estimates of future
cash flows and future profitability used in the assessment of the fair value
of the underlying investments held by the Partnership.
These considerations did not have a material impact on the financial reporting
estimates and assumptions in the current year. This reflects the conclusion
that climate change is not expected to have a significant impact on the
recognition and separate measurement considerations of the assets or the
Company's short-term cash flows including those considered in the going
concern and viability assessments.
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 £1,200.
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 held through REL
US Corp., the future U.S. tax liability on profits is expected to be in the
range of 21 to 27.5 per cent. (31 December 2021: 21 to 27.5 per cent.).
Additionally, depending on REL US Corp's current and accumulated earnings and
profit, the future U.S. tax liability on distributions from REL US Corp is
expected to be 0 per cent. and 30 per cent., respectively, for those
distributions determined to be return of capital and dividend income. Any
applicable taxes are captured in the Company's NAV through the fair value
movements in the underlying investments held by the Partnership and its
related Investment Undertakings.
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 2022 were $723 million (31 December 2021: $674
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
2022 (31 December 2021: 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, cash equivalents and short-term
money market fixed deposits. Any fluctuation in the value of the Partnership's
investments in addition to cash, cash equivalents 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. For the SPAC Sponsor investments, the Investment Manager
applies discounts to the closing price of the publicly traded shares for lack
of identified target, risk of unsuccessful closing of the business combination
and applicable lock-up periods post-closing. 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 2022, the valuations of the Company's
investments, through the Partnership, are detailed in the Investment Manager's
Report.
Qualitative Information for Level 3 Fair Value Measurements as at 31 December
2022
Industry: Energy
Range
Fair value of Level 3 Investments (in thousands) Valuation technique(s) Unobservable input(s) Low ((1)) High ((1)) Weighted Average ((1)) Sensitivity of the Fair value of Level 3
input to fair value of Investments affected by unobservable input ((3)) (in thousands)
Level 3 investments((2))
$255,797 Public comparables 2023E EV / EBITDA Multiple 16.0x 36.0x 34.1x 25 per cent. weighted average change in the input would result in 1 per cent. 53,156
change in the total fair value of Level 3 investments
2024E EV / EBITDA Multiple((5)) 1.0x 3.0x 1.0x 25 per cent. weighted average change in the input would result in 6 per cent. 118,348
change in the total fair value of Level 3 investments
2022 EV/Revenue Multiple 2.0x 12.4x 7.2x 20 per cent. weighted average change in the input would result in 1 per cent. 40,043
change in the total fair value of Level 3 investments
2023E EV/Revenue Multiple((5)) 2.0x 19.1x 10.9x 20 per cent. weighted average change in the input would result in 1 per cent. 113,406
change in the total fair value of Level 3 investments
Transaction comparables Asset Value ($m/kW) $56 $182 $58 50 per cent. weighted average change in the input would result in 1 per cent. 118,348
change in the total fair value of Level 3 investments
Discounted cash flow Discount Rate((4)) 30% 10% 30% +/-50 per cent. weighted average change in the input would result in -/+1 per 138,348
cent. change in the total fair value of Level 3 investments
$188,795 Other((6))
$444,592 Total
Qualitative Information for Level 3 Fair Value Measurements as at 31 December 2021
Industry: Energy
Fair value of Level 3
Range Investments
Fair value of Valuation technique(s) Unobservable input(s) Low ((1)) High ((1)) Sensitivity of the affected by unobservable input ((3)) (in thousands)
Level 3 Investments input to fair value of
(in thousands) Weighted Average ((1)) Level 3 investments((2))
$330,548 Public comparables 2022EV / EBITDA Multiple 1.0x 24.5x 7.5x 25 per cent. weighted average change in the input would result in 4 per cent. 310,548
change in the total fair value of Level 3 investments
2021 EV /Revenue Multiple((7)) 24.2x 27.9x 25.1x 87,402
10 per cent. weighted average change in the input would result in 1 per cent.
change in the total fair value of Level 3 investments
EV / 2021E Production Multiple ($/Boepd)((8)) $33,200 $41,100 $35,900 141,493
25 per cent. weighted average change in the input would result in 1 per cent.
change in the total fair value of Level 3 investments
EV / 2022E Production Multiple ($/Boepd)((8)) $28,200 $41,100 $32,600 141,493
10 per cent. weighted average change in the input would result in 1 per cent.
change in the total fair value of Level 3 investments
1P Reserve multiple ($/Boe)((8)) $6 $10 $8 25 per cent. weighted average change in the input would result in 1 per cent. 48,172
change in the total fair value of Level 3 investments
2P Reserve multiple ($/Boe)((8)) $4 $5 $4 25 per cent. weighted average change in the input would result in 3 per cent. 93,321
change in the total fair value of Level 3 investments
Transaction comparables Asset Value ($m/kW) $56 $182 $57 50 per cent. weighted average change in the input would result in 2 per cent. 101,653
change in the total fair value of Level 3 investments
Discounted cash flow Oil Price Curve ($/bbl) $61 $67 $63 35 per cent. weighted average change in the input would result in 10 per cent. 141,493
change in the total fair value of Level 3 investments
Gas Price Curve ($/mcfe) $3 $4 $3 35 per cent. weighted average change in the input would result in 11 per cent. 141,493
change in the total fair value of Level 3 investments
Discount Rate 30% 10% 30% +/-50 per cent. weighted average change in the input would result in -/+1 per 101,653
cent. change in the total fair value of Level 3 investments
$52,478 Other((6))
$383,026 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)) Discounted cash flow technique involves the use of a discount factor of
10 per cent.
((5)) As at 31 December 2022, 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 2021.
((6)) 'Other' include certain investments that are not subject to a
sensitivity analysis because they are insensitive to the changes in inputs set
out above as at 31 December 2022 and 31 December 2021, respectively.
((7)) As at 31 December 2021, 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 2020.
((8)) As at 31 December 2022, the sensitivity of this unobservable input to
the total fair value of Level 3 investments was determined to be no longer
significant by applying the same methodology that determined it to be
significant as at 31 December 2021.
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. For the
SPAC Sponsor investments, a reasonable change in the discounts applied (as set
out above) to the closing price of the publicly traded shares have been deemed
not to be material.
The Directors have considered whether a discount or premium should be applied
to the net asset value of the Partnership and have concluded that as the
Partnership's underlying assets are measured at fair value, 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. The table below reconciles the
Company's Level 3 assets during the year.
31 December 31 December
2022 2021
$'000 $'000
Cost
Brought forward 1,094,090 1,149,917
Distribution from the Partnership (47,276) (55,827)
Carried forward 1,046,814 1,094,090
Fair value movement through profit or loss
Brought forward (419,651) (766,328)
Fair value movement during the year - see Summary Income Statement below 95,939 346,677
Carried forward (323,712) (419,651)
Fair value at year end 723,102 674,439
Summary financial information for the Partnership's investments and its
related Investment Undertakings
Summary Balance Sheet 31 December 31 December
2022 2021
$'000 $'000
Investments at fair value (net) 657,040 672,314
Cash and cash equivalents ((1)) 68,483 4,127
Money market fixed deposits - -
Management Fee payable - see Note 9 (2,682) (2,463)
Other net assets 261 461
Fair value of REL's investment in the Partnership 723,102 674,439
( )
((1)) These figures, together with the $35.3 million held at REL US Corp (31
December 2021: $94.4 million), comprise the $103.8 million cash and cash
equivalents held in the Partnership (31 December 2021: $98.5 million).
Reconciliation of Partnership's investments at fair value 31 December 31 December
2022 2021
$'000 $'000
Investments at fair value - Level 1 (gross) 177,136 194,937
Investments at fair value - Level 3 (gross) - see Note 5 444,592 383,026
Investments at fair value (gross) 621,728 577,963
Cash and cash equivalents 35,312 94,351
Partnership's investments at fair value (net) 657,040 672,314
Summary Income Statement 1 January 1 January
2022 to 2021 to
31 December 31 December
2022 2021
$'000 $'000
Unrealised and realised gain on Partnership's investments (net) 108,696 356,805
Interest and other income 1,477 (76)
Management Fee expense - see Note 9 (11,302) (8,874)
Other operating expenses (2,932) (1,178)
Portion of the operating gain for the year attributable to REL's investment in
the Partnership
95,939 346,677
Reconciliation of unrealised and realised gain on Partnership's investments 1 January 1 January
2022 to 2021 to
31 December 31 December
2022 2021
$'000 $'000
Unrealised profit on Partnership's investments (gross) 148,511 619,723
Realised loss on Partnership's investments (gross) (37,235) (260,371)
General Partner's performance allocation - see Note 9 - -
Release of provision for taxation (2,580) (2,547)
Unrealised and realised gain on Partnership's investments (net)
108,696 356,805
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
2022 2021
$'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 2020 (16,958,265) (16,958,265)
Cancelled during year ended 31 December 2021 (8,000,867) (8,000,867)
Cancelled during year ended 31 December 2022 (4,045,941) -
Shares as at year end 50,891,658 54,937,599
Share capital $'000 $'000
Share capital brought forward 1,133,854 1,184,100
Movements for the year:
Cancellation of shares (32,180) (50,246)
Share capital as at year end 1,101,674 1,133,854
The Company has one class of Ordinary Shares. The issued value of the Ordinary
Shares represents 100 per cent. of the total issued 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 £55.0 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 £50.0
million in the value of the Company's Ordinary Shares. During the year 2020,
the Company acquired 16,958,265 Ordinary Shares which were subsequently
cancelled.
On 11 May 2021, the Company announced a share buyback programme for £20.0
million in the value of the Company's Ordinary Shares, which subsequently, on
4 October 2021, was increased to £40 million. During 2021 the Company
acquired 8,000,867 Ordinary Shares which were subsequently cancelled.
On 8 February 2022, the Company announced a share buyback programme for £46.0
million in the value of the Company's Ordinary Shares. During 2022 the Company
acquired 4,045,941 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 50,891,658 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 seven non-executive Directors (31 December 2021: five). The
Chair of the Board is entitled to annual remuneration of £132,000 (31
December 2021: £132,000). The Chair of the Audit Committee is entitled to
annual remuneration of £82,500 (31 December 2021: £82,500) and the Chair of
the Management Engagement Committee is entitled to annual remuneration of
£71,500 (31 December 2021: £71,500). The other independent Directors are
entitled to annual remuneration of £66,000 (31 December 2021: £66,000). The
Chair of the Nomination Committee is entitled to remuneration of £71,500 with
effect from 1 January 2022.
Directors' fees and expenses for the year ended 31 December 2022 amounted to
$854,413 (31 December 2021: $647,815), which resulted in a reduction to the 31
December 2022 quarter-end Management Fee as further discussed below. $nil of
Directors' expenses were outstanding at year-end (31 December 2021: $nil).
Messrs Barker and Hayden have direct or indirect economic interests in Other
Riverstone Funds as investors.
Partnership
In accordance with section 4.1(a) of the Partnership Agreement, the Company
received distributions in aggregate of $47.2 million (31 December 2021: $55.8
million) from the Partnership through the year to 31 December 2022. In
accordance with section 4.1(a) of the Partnership Agreement, in the event of
the Company requiring additional funds for working capital, it is entitled to
receive another distribution from the Partnership.
Investment Manager
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:
Portion of NAV Limit (as a percentage of the then last published NAV)
Up to and including £500 million 0.084 per cent.
From £500 million to and including £600 million 0.084 per cent. at £500 million and thereafter adjusted downwards
proportionately to NAV to 0.07 per cent. at £600 million
From £600 million to and including £700 million 0.07 per cent. at £600 million and thereafter adjusted downwards
proportionately to NAV to 0.06 per cent. at £700 million
Above £700 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 2022, the maximum amount of annual fees,
travel and related expenses of the Directors is $765,682 (31 December 2021:
$553,425). During the year ended 31 December 2022, fees and expenses of the
Directors amounted to $854,413 (31 December 2021: $647,815), resulting in a
reduction of $88,731 to the 31 December 2022 quarter-end Management Fee (31
December 2021: reduction of $94,390 of the quarter-end Management Fee).
During the year ended 31 December 2022, the Partnership incurred Management
Fees of $11,302,322 (31 December 2021: $8,874,492) of which $2,681,729
remained outstanding as at the year-end (31 December 2021: $2,463,262). In
addition, the Company and Partnership, in aggregate, reimbursed the Investment
Manager $2,028,851 in respect of amounts paid on their behalf for the year (31
December 2021: $1,555,093), of which $1,376,733 related to legal and
professional fees of the Company and Partnership (31 December 2021:
$1,273,507), and $192,603 related to travel and other operating expenses of
the Investment Manager (31 December 2021: $27,834), and reimbursable amounts
due to the Investment Manager of $459,515 (31 December 2021: $253,752)
related to expenses incurred 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 Investment Manager is in material breach which has not 12 months The General Partner is entitled to receive a payment equal to four times the
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 if the Company is in material breach which has not 12 months The General Partner is entitled to receive a payment equal to twenty times the
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 General
Partner's option, of the latest quarterly valuation or the actual realisation
value for each investment.
By the Company if the Investment Manager becomes insolvent or resolves to wind Immediate No payment to be made to the Investment Manager or the General Partner.
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). As
announced on 30 October 2020, the Company's independent directors agreed to
closely monitor the Investment Manager's success in repositioning the
Company's existing investment strategy through the modified investment
strategy over the next twenty four months following the previous quarter ended
30 September 2020. In the absence of a significant improvement in the
performance of the Company, taking into account the trading price of the
Ordinary Shares and portfolio performance over that period through 30
September 2022, the independent directors would release an announcement in
November 2022 regarding an EGM to 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 this significant improvement in the
performance of REL and the outlook for further energy transition investment
opportunities from the Investment Manager, the Company's independent directors
did 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. Under both these scenarios, the General Partner would be entitled to
twenty times the most recent quarterly Management Fee payable to the
Investment Manager.
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 2022, the Partnership paid Performance
Allocation of $nil (31 December 2021: $Nil) of which $nil remained outstanding
as at the year-end (31 December 2021: $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 2022, the portfolio
level cost benchmark was in deficit of $95.2 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 2022, ten investments exceeded the hurdle rate and the total
portfolio's Gross IRR was approximately (1) percent.
· 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.
In accordance with the revised terms above, no further Performance Allocation
will be payable until the $95.2 million of realised and unrealised losses to
date at 31 December 2022 are made whole with future gains. The earned
Performance Allocation of $0.8 million at 31 December 2022 has been deferred
and will expire in October 2023 if the aforementioned losses are not made
whole. Since REL has not yet met the appropriate Cost Benchmark at 31 December
2022, $38.0 million in Performance Allocation was not accrued in accordance
with the terms of the current agreement, which would have been accrued under
the prior agreement. The Investment Manager will continue to be required to
apply each Performance Allocation (net of taxes) to acquire ordinary shares of
the Company.
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
volatility in the oil and gas market. 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
2022 2021
$'000 $'000
Financial assets
Investment at fair value through profit or loss:
Investment in the Partnership 723,102 674,439
Other financial assets:
Cash and cash equivalents 15,755 7,296
Trade and other receivables 598 970
Financial liabilities
Financial liabilities:
Trade and other payables (665) (664)
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
4,045,941 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 $621,728,409 (31 December 2021: $577,963,016). Please
refer to Note 5 for quantitative information about the fair value measurements
of the Partnership's Level 3 investments. In addition, there were $177 million
(31 December 2021: $195 million) Level 1 investments which are exposed to
price risk as well. A change of +/- 10% in the Level 1 investments would
result in a +/- $17.7 million change in their fair value (31 December 2021: a
change of +/- 10% in the Level 1 investments would result in a +/- $19.5
million change in their fair value).
(i) The Partnership is exposed to a varietyof 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.) 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 2022, $103.8 ((1)) million or 14.3 per cent. (31 December
2021: $98.5((1)) million or 14.6 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 cash balances held on deposit with
several, A or higher rated, ban
(1) ((1)) These figures are comprised of $68.5 million (2021: $4.1
million) held at the Partnership and $35.3 million (2021: $94.4 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.
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.
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 2022 $ £ Total
Assets $'000 $'000 $'000
Non-current assets
Investment in the Partnership((1)) 723,102 - 723,102
Total non-current assets 723,102 - 723,102
Current assets
Trade and other receivables 572 26 598
Cash and cash equivalents 2,037 13,718 15,755
Total current assets 2,609 13,744 16,353
Current liabilities
Trade and other payables 100 565 665
Total current liabilities 100 565 665
Total net assets 725,611 13,179 738,790
As at 31 December 2021 $ £ Total
Assets $'000 $'000 $'000
Non-current assets
Investment in the Partnership((1)) 674,439 - 674,439
Total non-current assets 674,439 - 674,439
Current assets
Trade and other receivables 938 32 970
Cash and cash equivalents 1,524 5,772 7,296
Total current assets 2,462 5,804 8,266
Current liabilities
Trade and other payables 117 547 664
Total current liabilities 117 547 664
Total net assets 676,784 5,257 682,041
((1)) Includes the fair value of one investment held through the Partnership,
Hammerhead, denominated in CAD and therefore subject to foreign currency risk.
This investment had an aggregate fair value of $153.7 million as at 31
December 2022 (31 December 2021: $128.9 million for Hammerhead and Pipestone
(formerly CNOR)). The impact of a +/- 4% change in CAD/USD exchange rate would
have a +/- $6.6m impact on the profit/loss for this investment (31 December
2021: the impact of a +/- 4% change in CAD/USD exchange rate would have a +/-
$ 5.2m impact on the profit/loss for these investments).
(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 and Treasury Bills 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
2022 2021
$'000 $'000
Non-interest bearing
Cash and cash equivalents 15,755 7,296
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 in aggregate of £39.1 million ($47.3 million) from the
Partnership (2021: $55.8/£40 million) to fund the 2021 share buyback
programme announced on 11 May 2021. 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 eight distributions from the Partnership for working
capital needs. As at 31 December 2022, REL, through the Partnership, had
available liquid resources of $103.8 million in excess of potential unfunded
commitments of $22.9 million, but currently, as of the date of this report,
REL, through the Partnership, has total potential unfunded commitments of up
to $21.9 million. This amount does not exceed its available liquid resources
of $99.9 million as of the date of this report. 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 Enviva and Onyx, which aggregate up to $9.7 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. The Partnership holds marketable securities consisting of
publicly-traded shares of Enviva, Permian Resources, Solid Power, Tritium and
Hyzon for which the aggregate fair value was $177.1 million at 31 December
2022 and $198.0 million as of 27 February 2023.
The Company's financial assets (excluding equity investments) and liabilities
have an expected maturity of less than 12 months from 31 December 2022 (2021:
less than 12 months from 31 December 2021). 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 31 March
2024.
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
2022 2021
Counterparty Location Rating $'000 $'000
Barclays Bank Plc Guernsey A 15,755 7,296
((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:
31 December 2022 Carrying Value and Maximum exposure
$'000
Other financial assets (including cash and cash equivalents but excluding 15,755
prepayments)
31 December 2021 Carrying Value and Maximum exposure
$'000
Other financial assets (including cash and cash equivalents but excluding 7,296
prepayments)
Gearing
As at the date of these Financial Statements the Company itself has no
gearing. The Company may have indirect gearing through the operations of the
underlying investee companies.
11. Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board of
Directors, as a whole. The key measure of performance used by the Board to
assess the Company's performance and to allocate resources is the Total Return
of the Company's Net Asset Value and therefore no reconciliation is required
between the measure of profit or loss used by the Board and that contained in
the Financial Statements.
For management purposes, the Company is organised into one main operating
segment, which invests in one limited partnership.
All of the Company's income is derived from within Guernsey and the Cayman
Islands.
All of the Company's non-current assets are located in the Cayman Islands.
Due to the Company's nature, it has no customers.
12. Earnings per Share and Net Asset Value per Share
Earnings per Share
31 December 2022 31 December 2021
Basic / Diluted Basic / Diluted
Profit for the year ($'000) 88,929 341,944
Weighted average numbers of Shares in issue 51,742,789 60,873,614
EPS (cents) 171.87 561.73
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 2022.
The weighted average number of Shares during the year is 51,742,789 (31
December 2021: 60,873,614).
There are no dilutive Shares in issue as at 31 December 2022 (31 December
2021: nil).
Net Asset Value per Share
31 December 2022 31 December 2021
Basic / Diluted Basic / Diluted
NAV ($'000) 738,790 682,041
Number of Shares in issue 50,891,658 54,937,599
Net Asset Value per Share ($) 14.52 12.41
Net Asset Value per Share (£) 11.99 9.19
Share Price (£) 6.78 4.65
Discount to NAV (per cent.) 43.46 49.40
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:
2022 2021
$'000 $'000
Ernst & Young LLP (United Kingdom) Audit fees 626 603
2022 2021
$'000 $'000
Ernst & Young LLP (United Kingdom) Interim Review fees 211 190
Ernst & Young Non-Audit fees 211 190
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
2022, 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
2022 2021
Expense ratio(1) 2.7% 2.7%
Performance Allocation ratio(1) 0.0% 0.0%
Total Expense and Performance Allocation ratio 2.7% 2.7%
Net investment loss ratio(2) (2.6) % (2.8) %
Internal rate of return(3), beginning of year (5.4) % (13.0) %
Internal rate of return(3), end of year (3.8) % (5.4) %
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 2022 and 2021, the Performance Allocation realised by the General
Partner of the Partnership was $nil and $nil, respectively, and the
Performance Allocation accrued by the General Partner of the Partnership was
approximately $nil and $nil, 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
2022. 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. Post-Year End Update
As a result of the combination of Hammerhead and DCRD, which closed on 23
February 2023, REL's existing Hammerhead ownership converted into 15.4 million
common shares of Hammerhead Energy Inc. (NASDAQ / TSX: HHRS). REL also owns a
5 per cent. stake in the DCRD Sponsor. The DCRD Sponsor is entitled to up to
45 per cent. of the 7.9 million Sponsor Shares subject to Riverstone Fund V
achieving a 1.0x Gross MOIC, as detailed in the F-4 Side Letter. Therefore, at
or above a $10.53 share price, REL will own an additional 0.2 million HHRS
shares. Based on the 15.4 million common shares of HHRS at the HHRS closing
share price of $14.97 as of 27 February 2023, the company's initial day of
trading on NASDAQ and TSX, REL's investments in Hammerhead and the DCRD
Sponsor are valued at $255.8 million, inclusive of previously realised
proceeds of $23.1 million, which is an increase from $179.9 million as at 31
December 2022. There can be no assurance that the closing price as of 27
February 2023 is an indicator of future performance. As the shares of HHRS are
publicly traded, going forward the valuation will be determined based on the
market price, rather than the basis used previously for unquoted investments.
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 Board Chair's
Statement 4 to 7. 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 by the number of Ordinary Shares. A measure of the value of one ordinary share. The net assets as shown on the statement of financial position ($739 million
as at 31 December 2022 and $682 million as at 31 December 2021) divided by the
number of Ordinary Shares in issue as at the calculation date (50,891,658 as
at 31 December 2022 and 54,937,599 as at 31 December 2021).
Ordinary NAV total return The increase/(decrease) in the NAV per ordinary share. A measure of the overall financial performance of the Company. The difference in the NAV per Ordinary Share at the beginning and end of the
year from the statement of financial position ($14.52 for the year ended 31
December 2022 & $12.41 for the year ended 31 December 2021) as a
percentage of the opening NAV per Ordinary Share as shown in the Statement of
Financial Position (being $12.41 per ordinary share as at 31 December 2021
& $6.20 as at 31 December 2020).
Premium/(discount) to NAV The amount by which the ordinary share price is higher/lower than the NAV per A measure of the performance of the Company's share price relative to the NAV The difference between the Company's share price and NAV per Ordinary Share as
Ordinary Share, expressed as a percentage of the NAV per ordinary share. per Ordinary Share. a relative percentage of the NAV per Ordinary Share (43.5 per cent. as at 31
December 2022 and 49.4 per cent. as at 31 December 2021).
Annual total costs' impact on return per year The impact on return each year that total costs, including GP Performance A measure to show how total costs, including GP Performance Allocation, affect Annual total costs of the Company and Partnership as a per cent. of average
Allocation, have on the investment return. the return from the Company. NAV of the Company:
Total annual costs for the year ended 31 December 2022: $19,856,075 (31
December 2021: $14,367,376).
Average NAV of the Company for the year ended 31 December 2022: $742,637,411
(31 December 2021: $603,786,244).
Annual total costs' impact of return per year:
2.6 per cent. as of 31 December 2022 (2.4 per cent. as of 31 December 2021).
Reconciliation of Partnership's investments The annual investment value of the Partnership, including capital deployed A reconciliation of the Partnership's investments on an annual basis. For the year ended 31 December 2022:
into the Company's assets, cash received from the Company's investment
portfolio and the net unrealised change in value. $578 million - Brought Forward
$95 million - Capital Invested
$(164) million - Cash Proceeds
$113 million - Change in Unrealised Gain/ (Loss)
$622 million - Carried Forward
For the year ended 31 December 2021:
$288 million - Brought Forward
$109 million - Capital Invested
$436 million - Cash Proceeds
$617 million - Change in Unrealised Gain/(Loss)
$578 million - Carried Forward
Expense Ratio The impact on return each year that total costs, excluding GP Performance A measure to show how costs, excluding GP Performance Allocation, affect the As shown in Note 14, the expense ratio is calculated using total expenses of
Allocation, have on the investment return. return from the Company. the Company and the Partnership allocated to the Shareholders divided by the
Shareholders' average capital balance for the year presented 2.7 per cent. for
the year ended 31 December 2022 & 2.7 per cent. for the year ended 31
December 2021).
Performance Allocation Ratio The impact on return each year that GP Performance Allocation has on the A measure to show how GP Performance Allocation affects the return from the As shown in Note 14, for the years ended 31 December 2022 and 2021, the
investment return. Company. Performance Allocation realised by the General Partner of the Partnership was
$nil and $nil million, respectively, and the Performance Allocation accrued by
the General Partner of the Partnership was approximately $nil and $nil,
respectively.
Net Investment Loss Ratio The impact on return each year that total costs, net of interest income, have A measure to show how total costs, net of interest income, affect the return As shown in Note 14, the net investment loss ratio is the Shareholders'
on the investment return. from the Company. 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. (2.6 per cent. for the year ended 31 December 2022 & 2.8
per cent. for the year ended 31 December 2021).
Internal Rate of Return The cumulative return on Shareholders' investment. A measure to show the return from the Company. As shown in Note 14, 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
2022. The IRR of the Shareholders is net of all fees and Performance
Allocation to the General Partner of the Partnership.
(3.8) per cent. as of 31 December 2022
(5.4) per cent. as of 31 December 2021
(13.0) per cent. as of 31 December 2020
Net Contributed Capital to Total Capital Commitments The Shareholders' gross capital contributions in relation to total capital A measure to show the remaining unfunded portion of the Shareholders' total As shown in Note 14, net contributed capital is based on the Shareholders'
commitments. capital commitments. gross capital contributions. (100 per cent. as of 31 December 2022 and 2021).
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;
"Anuvia" means Anuvia Plant Nutrients;
"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;
"CAD" or "C$" means Canadian dollar;
"CanEra III" means CanEra Inc.;
"Carrier II" means Carrier Energy Partners II LLC;
"Castex 2005" means Castex Energy 2005 LLC;
"Castex 2014" means Castex Energy 2014 LLC;
"CCUS" means Carbon Capture, Utilisation and Storage;
"Centennial" means Centennial Resource Development, Inc.;
"CNOR" means 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 Corporation" means a C Corporation, under U.S. federal income tax law,
being a corporation that is taxed separately from its owners;
"CRS" means Common Reporting Standard;
"DCRB" means Decarbonisation Plus Acquisition Corporation;
"DCRC" means Decarbonisation Plus Acquisition Corporation III;
"DCRD" means Decarbonisation Plus Acquisition Corporation IV;
"DCRN" means Decarbonisation Plus Acquisition Corporation II;
"Depositary" means Ocorian Depositary Company (UK) Limited (formerly Estera
Depositary Company (UK) Limited);
"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;
"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;
"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;
"EEA" means European Economic Area;
"EGM" means an Extraordinary General Meeting of the Company;
"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;
"GHG" means greenhouse gases;
"GoodLeap" means GoodLeap, LLC;
"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,
Performance Allocation, management fees, taxes and organisational, partnership
or transaction expenses;
"Gross MOIC" means gross multiple of invested capital;
"Hammerhead" means Hammerhead Resources Inc.;
"HHRS" means Hammerhead Energy Inc.;
"Hyzon" means Hyzon Motors, Inc.;
"IAS" means international accounting standards as issued by the Board of the
International Accounting Standards Committee;
"IEA" means International Energy Agency;
"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" or "IM" 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" or "IMA" 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;
"ISA" means International Standards on Auditing (UK);
"ISAE 3402" means International Standard on Assurance Engagements 3402,
"Assurance Reports on Controls at a Service Organisation";
"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;
"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;
"mcfe" means thousand cubic feet equivalent (natural gas);
"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;
"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 MOIC" means gross multiple of invested capital net of taxes and
Performance Allocation 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;
"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;
"ONE" or "Our Next Energy" means Our Next Energy, Inc.;
"Partnership" or "RELIP" means 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;
"Permian Resources" means Permian Resources Corporation;
"PIPE" means private investment in public entity;
"Placing and Open Offer" means the issuance of 8,448,006 new Ordinary Shares
at £8.00 per Ordinary Share on 11 December 2015;
"POI Law" means the Protection of Investors (Bailiwick of Guernsey) Law, 2020;
"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;
"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;
"SEC" means the U.S. Securities and Exchange Commission;
"Sierra" means Sierra Oil and Gas Holdings, L.P.;
"Shareholder" means the holder of one or more Ordinary Shares;
"Solid Power" means Solid Power, Inc.;
"SPAC" means special purpose acquisition company;
"Stewardship Code" means the UK Stewardship Code;
"Target Price" means, as defined in the Articles, £15.00, 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 £55,000,000 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;
"T-REX" or "T-REX Group" means T-REX Group, Inc.;
"Tritium" means Tritium DCFC Limited;
"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;
"£" 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 Secretary English solicitors to the Company
Richard Hayden (Chair of the Board) Ocorian Administration (Guernsey) Limited Hogan Lovells International LLP
Atlantic House
Richard Horlick PO Box 286
Holborn Viaduct
London
Peter Barker Floor 2
EC1A 2FG
Patrick Firth Trafalgar Court
United Kingdom
John Roche Les Banques
Jeremy Thompson St Peter Port
Guernsey advocates to the Company
Claire Whittet Guernsey
Carey Olsen
GY1 4LY
Carey House
Audit Committee Channel Islands
PO Box 98
Patrick Firth (Chair)
Les Banques
Peter Barker Registered office
St Peter Port
Richard Hayden PO Box 286
Guernsey
Richard Horlick Floor 2
GY1 4BZ
John Roche Trafalgar Court
Channel Islands
Jeremy Thompson Les Banques
Claire Whittet St Peter Port
U.S. legal advisors to the Company
Guernsey
Vinson & Elkins LLP
Management Engagement Committee GY1 4LY
1001 Fannin Street
Claire Whittet (Chair) Channel Islands
Suite 2500
Peter Barker
Houston, Texas
Patrick Firth Registrar
TX 77002
Richard Hayden Link Asset Services
United States of America
Richard Horlick 65 Gresham Street
John Roche London
Independent auditor
Jeremy Thompson EC2V 7NQ
Ernst & Young LLP
United Kingdom
PO Box 9, Royal Chambers
Nomination Committee
St Julian's Avenue
Jeremy Thompson (Chair) Principal banker and custodian
St Peter Port
Peter Barker Barclays Bank PLC
Guernsey
Patrick Firth PO Box 41
Le Marchant House GY1 4AF
Richard Hayden
Le Truchot Channel Islands
Richard Horlick
St Peter Port
Guernsey
John Roche
GY1 3BE
Corporate Brokers
Claire Whittet Channel Islands
JP Morgan Cazenove
25 Bank Street
Investment Manager
Canary Wharf
RIGL Holdings, LP
London
190 Elgin Avenue
E15 5JP
George Town
United Kingdom
Grand Cayman
KY1-9005
Numis Securities Limited
Cayman Islands
The London Stock Exchange Building
10 Paternoster Square
Investment Manager's Performance Review Team
London
Pierre Lapeyre
EC4M 7LT
David Leuschen
United Kingdom
Baran Tekkora
Robert Tichio
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 2022 for RIVERSTONE ENERGY LIMITED (the "Fund").
Effective from 20 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 Board Chair'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 Board Chair'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 (http://www.RiverstoneREL.com)
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