REG - Riverstone Energy Ld - Annual Report and Financial Statements 2023
29/02/2024 07:15
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240229:nRSc8603Ea&default-theme=true
RNS Number : 8603E Riverstone Energy Limited 29 February 2024
Riverstone Energy Limited
The Company seeks to achieve superior risk adjusted returns through investing
in the energy sector with a recent focus on energy transition and
decarbonisation of the global economy.
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 $45 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 to
the renewable energy and decarbonisation sectors, across 47 investments
ranging from wind power development to financial software enabling the
deployment of renewable infrastructure projects.
With offices in New York, London, Mexico City and Amsterdam, the firm has
committed to over 200 investments in North America, Latin America, Europe,
Africa, Asia and Australia.
The transition to a low emission 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 2023, REL invested $22.3
million in 5 existing portfolio companies in 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))
Commitments during the year ended 31 December 2023 Commitments increased by a total of $17.8 million((2)) pursuant to
decarbonisation strategy:
(i) $10.0 million in Infinitum Electric Inc.
(ii) $4.0 million in FreeWire Technologies, Inc.
(iii) $3.8 million in T-REX Group, Inc.
Commitment reductions during the year ended 31 December 2023 (i) $12.2 million from Hammerhead Energy Inc. upon sale
Remaining potential unfunded commitments at 31 December 2023 (i) $6.0 million((3)) in Onyx Power
Investments during the year ended 31 December 2023 Invested a total of $22.3 million((2)) pursuant to decarbonisation strategy:
(i) $10.0 million in Infinitum Electric Inc.
(ii) $4.0 million in FreeWire Technologies, Inc.
(iii) $3.8 million in T-REX Group, Inc.
(iv) $3.5 million in Enviva Inc.
(v) $1.0 million in Our Next Energy Inc.
Realisations during the year ended 31 December 2023 Realised a total of $272.2 million((2)) ($271.2 million pursuant to legacy
conventional strategy; $1.0 million pursuant to decarbonisation strategy):
(i) $175.6 million from Hammerhead Energy Inc. sale to
Crescent Point Energy Corp.
(ii) $60.1 million from Onyx Power
(iii) $30.4 million from Permian Resources Corporation (formerly
Centennial Resource Development, Inc.)
(iv) $4.8 million from Carrier II Energy
(v) $1.0 million from Tritium DCFC Limited and Enviva, Inc.
(vi) $0.4 million from Rock Oil Holdings, LLC.
Key Financials
2023 2022
NAV as at 31 December((4)) $674 million / $739 million /
£529 million((5)) £610 million((5))
NAV per Share as at 31 December((4)) $15.96 / £12.53((5)) $14.52 / £11.99 ((5))
Per cent. change in NAV per Share (USD) for the year ended 31 December 9.92 per cent. 17.0 per cent.
Market capitalisation at 31 December $430 million / $418 million /
£338 million ((5)) £345 million ((5))
Share price at 31 December $10.20 / £8.01 $8.21 / £6.78
Per cent. change in Share price (Sterling) for the year ended 31 December 18.1 per cent. 45.8 per cent.
Number of Shares outstanding at 31 December 42,195,789 50,891,658
Share price discount to NAV 36.1 per cent. 43.5 per cent.
Cash and cash equivalents at 31 December $291 million ((6)) / $120 million ((6)) /
£228 million((5)) £99 million((5))
Marketable securities (unrestricted) at 31 December $150 million ((7)) / $177 million ((7)) /
£117 million((5)) £146 million((5))
Marketable securities (restricted) at 31 December $58 million ((8)) / $4 million ((8)) /
£45 million((5)) £3 million((5))
Total comprehensive (loss)/income for the year ended 31 December $(2.3) million $88.9 million
Basic and diluted (loss)/earnings per Share for the year ended 31 December (4.86) cents / (3.82) pence((5)) 171.87 cents / 142.0 pence((5))
8,695,869 4,045,941
Number of shares repurchased through buyback and tender offer/average price $7.24 / £5.75 $7.95 / £6.63
per Share for the year ended 31 December ((9))
( )
((1) ) Amounts shown reflect investment-related activity at the Investment
Undertaking level, not the Company.
((2)) Amounts may vary due to rounding.
((3)) The expected funding of the remaining unfunded commitment to Onyx at 31
December 2023 is $nil in 2024 and $nil in 2025. The residual amounts are to be
funded as needed in 2026 and later years.
((4)) 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 2023 and 31 December 2022.
((5)) Based on exchange rate of 1.2736 $/£ at 31 December 2023 (1.2103 $/£
at 31 December 2022 and 1.606 $/£ at IPO).
((6)) At 31 December 2023 and 2022, respectively, amounts are comprised of
$5.8 million and $15.8 million held at the Company, $283 million and $68.4
million held at the Partnership and $2 million and $35.3 million held at REL
US Corp.
((7)) 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 $150
million at 31 December 2023, and $166 million as of 26 February 2024 (31
December 2022: $177 million).
((8)) Restricted marketable securities held by the Partnership consist of
publicly-traded shares of Crescent Point Energy Corp. for which the aggregate
fair value was $58 million at 31 December 2023 and $59 million as of 26
February 2024 (31 December 2022: $4 million).
((9)) Inception to date total number of shares repurchased through buyback and
tender offer, were 42,284,275 at an average price per share of £5.15 ($6.59)
for a total cost of approximately £217.9 million ($278.8 million).
board Chair's Statement
Dear Shareholder,
Consolidation and scale support sustainable profitability
Over the last couple of years investors - alongside governments - have
developed a renewed appreciation for energy security. This has combined with a
growing awareness that the energy transition will take longer to achieve and
be more costly than previously thought. The consequence of this shift in
priorities is that in 2023 we began to see higher values being put on
conventional energy.
Sustained higher oil prices are one part of what is driving this as well as
greater capital discipline and very low-to-no leverage following the implosion
of demand during the COVID-19 lockdowns. This in turn has helped mitigate the
drag experienced from higher interest rates and helped deliver improved cash
generation.
Higher values in conventional energy have also begun to drive a new wave of
consolidation. We have seen some signs of this in recent years as private
equity-backed Independents sought to combine their businesses to achieve
greater scale, increased relevance, more drilling inventories with stronger
balance sheets, reduced leverage and higher cash flow generation. In 2023 REL
pursued a similar strategy with two of our portfolio companies. Permian
Resources Inc. acquired Earthstone Energy Inc. and Hammerhead Energy was sold
to Crescent Point Energy. Both transactions have created significant value for
our shareholders.
The market reaction in the second half of 2023 to ExxonMobil's acquisition of
Pioneer Natural Resources and Chevron's acquisition of Hess further highlights
the value of this approach. We anticipate this trend for consolidation in
conventional energy will continue into 2024.
In contrast, it was unquestionably a difficult year for the renewable and
decarbonisation sector, marked by substantial valuation compression, even at
large listed businesses in North America and Europe. The dramatic increases in
interest rates and inflationary cost growth have had a knock-on effect on the
ability of companies to generate cash, especially as many projects ordinarily
rely on high levels of leverage to improve returns.
A period of politically and environmentally fuelled growth in renewables -
backed by what was effectively free money - has now given way to a more
disciplined return-driven approach with the realisation that, to be truly
sustainable, companies must be sustainably profitable. There is a dawning
realisation in the sector that, at least for early-stage decarbonisation
companies, we will also need a period of consolidation and rationalisation.
While this shift has undoubtedly presented headwinds to the performance of our
decarbonisation portfolio it also opens up opportunities for us. Just as REL
successfully invested in and restructured its conventional energy portfolio in
the down-cycle to deliver significant value for our shareholders, I have every
confidence that our efforts to do the same in renewables and decarbonisation
will also bear fruit from present levels.
Geopolitics continues to drive oil prices; weaker natural gas and European
power prices
The world is becoming increasingly polarised. Conflict, both economic and
military, is seemingly on the rise. We have seen the Russian and Ukrainian war
continue through 2023. In Asia there is growing concern over potential
flashpoints, notably around Taiwan. We are also witnessing growing unrest and
political instability across the Middle East with potentially grave
consequences for the world's trade and energy flows.
In short, geopolitics as a significant driver of commodity prices is back and
looks to be here to stay. This has meant that while oil prices in 2023 were
lower on average than in 2022, relative to a few years ago oil prices remain
elevated. WTI crude oil prices averaged US$77.58 per barrel in 2023, down 18
per cent. against the 2022 average WTI price of US$94.91 per barrel.
US natural gas was a different story. Henry Hub prices were impacted by a
mixture of oversupply, gas-on-gas competition, a large backlog of pending LNG
export capacity additions and warmer weather. As a result, Henry Hub gas
prices were significantly down in 2023 versus 2022, averaging US$2.57 per
MMbtu in 2023, a 62 per cent. fall versus 2022.
The other area of disappointment was in European power prices. At the end of
the second quarter, Europe removed the power price caps introduced in the
immediate aftermath of Russia's invasion of Ukraine in 2022. However, this was
more than offset by a warmer winter, mild summer season, strong renewable
production and record gas storage across the continent. This would have
negatively impacted the performance of Onyx, our European power producer; had
judicious hedges not been in place.
Inflation and interest rates
Although being below the highs of 2022 and early 2023, inflation has been
more persistent than initially anticipated across the major developed
economies. In response, central banks continued to raise interest rates into
the second half of the year. While the pace of increase had slowed by year
end, our expectation is that we are now in a structurally higher interest rate
environment and will remain in it for several years to come.
As I outlined above, while this poses significant challenges in the near term,
I am pleased that despite the steep rise in rates globally, REL's portfolio
has held up well. In particular, our conventional energy businesses have
continued to generate healthy levels of cash flow through the year even as
higher interest rates have impacted our growth-stage decarbonisation
investments.
This demonstrates the strength of our strategy to invest both in conventional
energy and in our decarbonisation portfolio, as well as our ability to deliver
value for our shareholders through the cycle. Our share price performance for
the year also reflected this, ending the year at 801p/share on 31 December
2023, which was up from 678p/share on 31 December 2022 - an 18 per cent.
increase in the year and outperforming both the FTSE 100 and Dow Jones
Industrial Average.
Board changes
The year saw some big changes to our Board. Following our AGM in May 2023,
Richard Hayden retired from the Board having served for nearly ten years as a
REL Non-Executive Director and as Chair of the Company for almost seven of
those. As I wrote in my interim report, under Richard's stewardship REL
implemented significant adjustments to the Investment Management Agreement and
a pivot into renewable energy and decarbonisation investments. Peter Barker
also retired as a Non-Executive Director after the AGM having brought
significant experience from his decades-long career in investment banking. We
are enormously grateful for the guidance and leadership provided by Richard
and Peter during their time on the REL Board.
We welcomed Karen McClellan to the Board as a Non-Executive Director in May.
Karen brings with her two decades of experience in investment banking and deep
expertise working across carbon policy, clean infrastructure finance and
zero-carbon technologies, having raised and deployed more than £700 million
in renewable energy projects, carbon funds, technology investments and other
transactions.
After the year-end, John Roche was appointed as the new Chair of the Audit
Committee, effective from 1 January 2024, replacing Patrick Firth who will be
retiring before the AGM in 2024 and will not seek re-election. John was
appointed to the Board in December 2022 and is a former managing partner at
PwC.
Investment portfolio summary and performance
As of 31 December, REL's portfolio comprised fourteen active investments, with
eleven companies in the decarbonisation sector and three in conventional
assets. This reflects the sale of Hammerhead Energy in December to Crescent
Point Energy and the ongoing liquidation of Anuvia. Over the course of the
year, NAV per Share increased by 9.9 per cent. to $15.96 per share (4.5 per
cent. to £12.53 per share).
The decarbonisation portfolio continued to be the most impacted with declines
in the total value of $111 million through changes in fair value and $1
million in realisations. On the conventional side, we saw an increase of $141
million, which consisted of $271 million in realisations and changes in fair
value. In addition, REL continued to realise value from its conventional
portfolio as outlined below with Hammerhead Energy.
In 2023, REL invested an aggregate amount of $22.3 million in energy
transition and decarbonisation investments, bringing the total invested in
this area to over $231.5 million across eleven investments, which in aggregate
were valued at $116.3 million, or 0.50x Gross MOIC, as at 31 December 2023.
In August, REL's portfolio company Permian Resources announced it was
acquiring Earthstone Energy Inc in an all-stock transaction valued at
approximately $4.5 billion, inclusive of Earthstone's net debt. The
transaction will strengthen Permian Resources' position as a leading Delaware
Basin independent E&P company with over 400,000 Permian net acres and pro
forma production of approximately 300,000 Boe/d. The transaction completed in
November with REL holding a 1.3 per cent. interest in the combined company.
In November we announced the sale of Hammerhead Energy Inc., a Canadian energy
company with assets in the Montney shale in Alberta. Crescent Point Energy
acquired Hammerhead Energy for an enterprise value of C$2.55 billion with each
Hammerhead Energy share being exchanged for C$15.50 in cash and the equivalent
of C$5.50 in Crescent Point Energy common shares. As a result of the
transaction, the Partnership realised total proceeds of US$175 million in cash
and received 8.3 million shares of Crescent Point Energy common equity, which
were valued at $58 million as of 31 December 2023. The transaction represented
an approximate 23 per cent. uplift to the Gross MOIC as of 31 December 2023 as
compared to 30 September 2023, which was based on US$11.93 per Hammerhead
Energy share on the NASDAQ. The transaction closed in December 2023.
Also during the year, REL was informed that Anuvia Plant Nutrients, one of the
Company's portfolio companies, ceased operations. The Company invested US$20
million in Anuvia in March 2022. Whilst the Series D Investors, including the
Company, are first equity in line to receive proceeds from Anuvia, the
Company's Investment Manager informed the Board in July that no such proceeds
can be reasonably expected given the debt burden on the business.
Our portfolio, although challenged by the current market conditions, is well
diversified across the major industrial verticals that are critical to
decarbonisation if we are to deliver a successful energy transition. Our
investment in Infinitum Electric supports the development of advanced electric
motors that will be crucial to the decarbonisation of global industry. We have
built significant exposure to EV charging through our stake in Tritium and in
new battery technology through Solid Power and Group14. Finally, hydrogen fuel
cell technology offers the potential to electrify heavy transportation, an
area REL has built its exposure to through Hyzon Motors. Taken together, these
companies provide our shareholders with exposure to the technologies critical
to the decarbonisation of vital sectors. While we are confident that we have
backed winning technologies and companies, we remain cautious on other
companies in the portfolio that face funding challenges in the current
environment. T-REX Group and Our Next Energy are businesses that will need
to raise additional capital in the next twelve months if they are to continue
funding their business plans. As we have seen already with Anuvia Plant
Nutrients, the inability to raise capital in an adverse environment can be
fatal.
Tender offer and buyback programme
In August we announced an EGM and Tender Offer to shareholders, reflecting a
significant build up in our cash reserves as a result of strong cash flows and
recent asset disposals. In total the Company determined to use up to £80
million to provide the opportunity for shareholders to exit part of their
shareholding in the Company. The Tender Offer was for up to 13,840,830 of the
Company's ordinary shares, representing approximately 30.4 per cent of its
issued share capital as at 16 August 2023. At the close of the Tender Offer,
shareholders chose to offer only 3,182,196 shares for sale and cancellation.
Separately to the Tender Offer, REL has continued to buy back its shares.
During the course of 2023, the Company returned £31.6 million to shareholders
through the purchase of 5,513,673 shares at a weighted average price of £5.74
($7.35) per share.
As a result of the sale of Hammerhead Energy in November, REL and the
Partnership now has a substantial cash balance of $291.4 million. As announced
on 8 February 2024, the Company proposes to return $200 million (equivalent to
approximately £158 million on the basis of the prevailing USD:GBP exchange
rate) of its excess capital to shareholders by means of a tender offer (the
2024 Tender Offer) at a price of £10.50 per ordinary share. The Tender Price
represents a premium of approximately 31 per cent. to the closing market price
per ordinary share of £8.00 on 7 February 2024 and represents a 16 per cent.
discount to the net asset value per ordinary share of £12.53 as at 31
December 2023 (on the basis of the prevailing USD:GBP exchange rate at 31
December 2023 of 1.2736). The Company launched the 2024 Tender Offer on 23
February 2024 for up to 15,047,619 of the Company's ordinary shares,
representing 36 per cent. of the 'existing shares in issue (excluding any
ordinary shares held in treasury, of which there none currently) and the
Tender Offer will close on 25 March 2024. The 2024 Tender Offer will require
shareholder approval at an extraordinary general meeting of the Company's
shareholders, which is due to be held on 26 March 2024, and will be subject to
other legal, regulatory and customary conditions.
The world needs it all
The International Energy Agency (IEA) estimates that oil demand hit 103
million barrels in the summer of 2023 despite the growth in new sales of
electric vehicles. Absent a material global recession, we expect the
relentless pressure for more energy in the developing parts of the world and
their disproportionately larger populations is likely to drive further demand
for conventional energies despite appropriate climate and renewable goals.
Governments are increasingly focused on controlling energy security and this
is playing an increasing role in greater realism which is extending the likely
timing and increasing the probable costs of the energy transition.
At the same time the IEA is forecasting a trebling of new renewable energy
capacity coming online between 2023 and 2028. This is approximately 3,700 GW
of new renewable production, with solar and wind set to account for 95 per
cent. of this expansion around the world. By the end of 2024 the IEA is
forecasting that wind and solar combined will generate more electricity than
hydropower. By 2025 renewables will become the largest source of electricity
generation around the world - ahead even of coal.
The continued growth of both highlights the truth that the world needs it all;
renewable and conventional energy. But we also need to reduce the
environmental impact of carbon emissions when providing it. If diversity and
diversification is good for the population, for the economy, for companies and
for investment allocation, why then should it not also be good for something
as basic to human progress as energy? Especially at a time when the world is
clearly less hospitable and governments and their economies can no longer run
the risk of relying on the energy of a competitive neighbour.
Thank you for your continued support of REL, its management and its strategy.
I look forward to continuing REL's work and of course speaking with many of
you over the coming year.
Richard Horlick
Chair of the Board
28 February 2024
Environmental, Social and Governance REPORT
The Investment Strategy of the Company, which was originally focussed on the
traditional oil and gas sector, has transitioned towards decarbonisation
assets since 2020. 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.
This shift is reflective of a larger awareness and implementation of
Environmental, Social and Governance ("ESG") policies and is reflected in 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 principles 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.
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. John Roche, a member of the
REL Board and Audit Committee Chair, presently leads the ESG efforts for the
Company after succeeding Patrick Firth as Audit Committee Chair with effect
from 1 January 2024. 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 plans to publish its annual ESG report for 2023 in February 2024.
The sections that follow summarise the key elements for Shareholders which
impact REL's current and future investments. More detail is included in the
full report 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. This report does not include
the companies where Riverstone's ownership is below 10 per cent. and where
Riverstone does not hold one or more board seats. This includes the following
companies: FreeWire, GoodLeap, Group14, Hyzon, Our Next Energy, Permian
Resources, Solid Power and Tritium.
While Riverstone seeks to integrate ESG matters in its overall investment
management processes, including the standards and strategies described below,
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
In an increasingly complex, challenging, and fast-moving world, Riverstone's
mission as a steward of our investors' capital has remained constant: to
deploy capital in a sustainable manner, focusing on delivering the strongest
possible risk-adjusted returns.
The recent politicisation of ESG issues has created challenges for firms like
ours as we navigate an often-polarised topic. Despite this, we remain
committed to our belief that a consistent and transparent approach to ESG
matters of financial relevance to our business and portfolio, and their
integration across our strategies, funds, and investments, is a key component
to our investment approach.
Since Riverstone was founded nearly 24 years ago, we have always believed that
the success of our business begins but does not end with financial returns.
Since 2000, we have helped the businesses in which we invest implement and
institutionalise top quartile ESG policies and practices in order to integrate
core pre-financial risks. We endeavor to achieve outcomes that are positive
in a financial sense, but also in terms of personnel and communities, partner
and regulatory relationships, and the general health of the planet for future
generations.
We do not trade financial returns for these outcomes because we do not need
to. Across the companies we have invested in positive financial outcomes can
correspond to positive outcomes for other stakeholders as well.
Riverstone is proud to share our fifth annual ESG report which we believe
underscores our dedication to managing ESG risks and capitalising on
climate-related opportunities presented by the energy transition.
In our 2022 ESG report, we described the important work we undertook to
support our portfolio companies in measuring greenhouse gas (GHG) emissions
and undertaking of the identification of physical and transition climate
risks. In our most recent report, having listened to our investors and with an
eye on incoming ESG regulation, we have focused on the following:
• Revising our ESG policy and in so doing recalibrating and
redefining how we integrate ESG into our day-to-day processes
• Revising our annual ESG questionnaire and stewardship approach
to align with emerging policies, legal frameworks, and industry-recognised
best practices
• Deeper engagement with our portfolio companies on ESG, including
the use of a technology platform to enable our portfolio companies to improve
collection of accurate ESG data faster, and using that information to update
our portfolio company ESG monitoring scorecards
• Ongoing training and accountability of our investment
professionals to enable them to understand the correlation between ESG and
value creation better equip them in a practical sense to advise and support
portfolio companies on their ESG journeys
• Reducing investor costs on ESG portfolio monitoring and
reporting through a top-down review of our third-party consultants
As a manager of businesses and assets in the energy sector, our focus on
environmental impact is a very important factor. However, we recognise the
importance of a just transition and the critical social and governance factors
needed to achieve this. Transparency, integrity and trust are the cornerstones
of our governance framework and we hold ourselves and encourage our portfolio
companies to hold themselves accountable to ethical and responsible practices.
Our firm's success to date is intertwined with the wellbeing of the
communities and people with whom we and our portfolio companies engage every
day. We aim to encourage the prioritisation of fair labour practices, and a
better corporate culture in all our portfolio companies.
Riverstone encourages its portfolio companies to support causes that align
with its values by actively engaging with their employees to promote their
safety and welfare at all times. By fostering strong relationships with our
stakeholders and focusing on the areas in which we know we can make a material
impact, we aim to create shared value for our investors and society at large.
Our commitment to robust ESG principles is not just a business strategy - it
is a fundamental part of our identity. While we realise there is still much
work to be done, we understand that long-term success depends on our ability
to adapt to and address the ever-evolving needs of society, the environment,
and our stakeholders. We thank our investors, employees, and partners for
sharing this vision with us, and we look forward to the collective journey
ahead guided by these principles of responsible and sustainable investing.
RIVERSTONE'S APPROACH TO ESG
Energy is the world's largest industry and significant capital is required to
meet growing demand needs. Riverstone believes that implementing best-in-class
ESG practices can improve a company's performance and market value over the
long-term. We believe that integrating material ESG factors across an
investment's lifecycle enables us to make well-informed decisions and is
consistent with meeting our fiduciary duty to our investors.
Riverstone recognises that climate change poses a systemic risk to the global
economy, society and ecosystems, and is a driver of investment risk and
opportunity, as the world transitions to a lower-carbon economy. We believe
that our investments in the energy sector can and should have a positive
impact on that transition, and that management of climate-related risk and
opportunity is a core part of our approach to investing. We believe that
operating with transparency and adhering to all applicable laws and
regulations is critical to our reputation within the energy industry as a fair
and trustworthy partner.
Riverstone recognises that scarce resources, changing consumer demands, supply
chain issues, geopolitics, social norms, other ESG factors and ever-tightening
regulations also pose increasing challenges and opportunities to companies
around the world. Riverstone takes these issues into consideration across the
investment lifecycle to help mitigate risks and drive value.
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, which was updated in 2023, 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/1345/2023_riverstone_esg_policy-final.pdf
ESG RESOURCES AT RIVERSTONE
Riverstone has an ESG Committee which meets on a regular basis, provides
leadership on a range of ESG matters within Riverstone and its portfolio
companies, ensures consistent application of Riverstone's ESG policy and
associated ESG initiatives across its activities and operations, and
facilitates communication with its investors and other relevant stakeholders.
Nominated investment team members serve as ESG deal leads and engage with
their respective portfolio companies 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 INTEGRATION
Riverstone integrates ESG factors throughout the investment lifecycle as
outlined below. Its investment teams leverage the templates and processes
outlined in its ESG toolkit to consistently identify and manage material ESG
risks and opportunities for Riverstone's investments. 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.
While there are differences between asset classes due to the nature of those
investments, the below outlines Riverstone's general approach to diligence and
engagement across the platform.
Due Diligence & Investment Committee
• Each Investment Committee memo includes an ESG diligence scorecard,
which assesses pre-investment ESG performance, incorporates Riverstone's
climate change screening questionnaire, describes findings from due diligence
(including key ESG risks, observed good practices and improvement
opportunities) and outlines any ESG actions required for advanced investments
Initial Investment
• In the first 100 days of ownership, Riverstone aims to
collaborate with the portfolio company management teams to execute actions
from the 100-day plans which reflect due diligence findings, and to help those
portfolio companies establish policies, plans and processes to manage ESG
risks and drive value creation
• Riverstone's ESG onboarding pack provides our portfolio companies
with the criteria for meeting our ESG minimum expectations and details of our
programme, and highlights to them the likely touchpoints with Riverstone
Ongoing Monitoring & Portfolio Management
• Riverstone collects data from its portfolio companies through
annual ESG questionnaires to assess alignment with its ESG minimum
expectations, measure changes in ESG performance, and gather ESG key
performance indicators
• Based on ESG questionnaire responses, Riverstone generates annual
ESG monitoring scorecards that summarise each portfolio company's overall ESG
performance against its ESG minimum expectations, frameworks and material
factors; and in subsequent feedback it highlights good ESG practices reported
and recommendations for improvement for portfolio companies
• Riverstone's portfolio is provided support to enhance their
programmes
o It provides a suite of ESG support to help companies make progress in ESG
integration and accelerate value on an ongoing basis
o Its goal is to upskill the portfolio on ESG topics material to them, allow
for the sharing of best practices, and enhancing collaborative opportunities
o It provides its portfolio with insights into how they are viewed
externally by regulators, financial market participants, and other key
stakeholders
o In addition to this overarching support, it also provides targeted
assistance to each company. Following the completion of the annual ESG
assessment, each business receives a tailored report focused on material areas
with recommendations on how to progress and realise its ESG journey
• Riverstone periodically evaluates the climate-related risks and
opportunities in our portfolio and collaborates with portfolio companies to
mitigate risks and leverage opportunities
Exit
• Riverstone deal teams summarise the ESG performance of our
investments and, where appropriate, make relevant ESG disclosures and evaluate
whether potential buyers' ESG standards comply with all applicable laws
CLIMATE CHANGE AND DECARBONISATION
Climate Change
Riverstone acknowledges that climate change is a critical issue which poses a
significant challenge to business and society. As a long-term investor in
private and illiquid markets with influence over our portfolio companies, we
recognise the impact we are able to have, and the role we can play in
mitigating this risk.
Riverstone supports the goals of the Paris Agreement and its objective to
limit global temperature rise to well below 2°C above pre-industrial levels
in this century. We recognise the responsibility to manage assets for our
investors in a way that takes account of all material risks, including the
material effects of climate change. To do this, we align ourselves with the
Taskforce on Climate-Related Financial Disclosures (TCFD) framework.
Riverstone's disclosures aligning with TCFD recommendations can be found in
the following sections. We also align with the Partnership for Carbon
Accounting Financial (PCAF) standards for the financial industry.
While climate change and global warming represent a significant risk; we also
recognise the opportunities that this transition offers. Our task is to manage
these risks proactively as part of our investment process, enabling us to have
visibility and understanding at the investment stage, and work effectively
alongside our portfolio companies as part of our stewardship process. As an
active investor in low-carbon solutions and infrastructure, both in our equity
and credit portfolios, we are committed to providing solutions that will
achieve a sustainable transition as well as drive strong financial returns.
In 2022, Riverstone engaged third-party experts to assist it with a climate
evaluation, the results of which were translated into our overarching climate
strategy and tangible actions. A description of the past external evaluation
process can be found in Riverstone's 2022 ESG report which was issued by
Riverstone in February 2023.
Our disclosures for both our business and operations are divided into the key
areas below:
Governance
At Riverstone, corporate governance is embedded throughout our firm and
championed by our senior leadership team. Our Executive Board has overseen our
strategic position, to be implemented by our ESG committee. Riverstone's ESG
Committee has direct links to the Investment Committee of each fund.
Our ESG Committee monitors the consistent application of our ESG Policy
throughout our firm and the investment cycle. This includes the principles
around which we assess climate related risks and opportunities for each
portfolio company.
Each of our investment teams has a designated ESG deal lead who helps to
screen, assess, and manage climate-related risks and opportunities for each
portfolio company throughout the investment lifecycle. We incorporate external
support as needed to enhance our ESG program and disclosures, as well as
working with third-party subject matter specialists such as Petra Funds Group,
which acts as an external ESG and sustainability consultant to Riverstone
and supports our deal leads with portfolio engagement and stewardship.
Accountability
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.
Awareness
We continually look to enhance our understanding of climate-related risks and
opportunities, to upgrade our training program, to review our current
processes and to provide guidance on the resources available to our staff.
This in turn helps us to inform our teams about the role they play in the
integration of ESG factors across the portfolio. This includes material
climate change risks and opportunities which are appropriately considered
throughout our investment processes.
Strategy
We continue to monitor, revise, and implement a climate strategy based on
physical and transition risks within our portfolio. We work closely with our
portfolio companies to collect key information, improve our understanding of
risks, and drive forward our collective approach to decarbonisation. We use
the following time horizons to assess risk:
· 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 support portfolio companies throughout the
lifecycle of the investments, leveraging their expertise as well as that of
third party advisors.
Climate Risks and Opportunities
Physical Risk
Having carried out an evaluation of Riverstone's physical risks in 2022 for
our highest emitting assets, the study found that, in the short-term, top
climate hazards across select portfolio companies encompass water stress
(including drought), tropical cyclones, wildfires, and flooding risks. Over
medium- and long-term time horizons, the key emerging risks are extreme heat,
water stress, and wildfires. Company-specific risk profiles, which highlight
the key climate hazards facing respective portfolio companies, were developed
and shared with each company that was included in the assessment.
The impacts of climate hazards vary by sector and asset type. Examples of
potential impacts to portfolio company operations include the following:
· Extreme weather events, such as cyclones, wildfires, and flooding,
may damage critical infrastructure, such as 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, which in turn impacts revenue
· If risks are not managed properly, climate-related events could
lead to potential contamination, waste releases, and water pollution in the
local environment
Transition Risk
Transition risks can adversely impact the value, performance, and viability of
certain businesses, and assets in which REL invests. We believe identifying
areas at risk and enables us to we stay ahead of, and in compliance with,
market and regulatory developments is crucial to managing our risks in the
near-, medium-, and long-term. A selection of the transition risks and
opportunities we monitor are outlined below.
Policy and Legal
· Increased carbon taxes, carbon pricing and cap and trade programmes
could add costs to fuel and require companies to make investments to reduce
emissions from operations
· Increased potential for changes to federal regulations relating to
oil and gas operations, such as drilling or methane flaring
· Greater pressure to reduce emissions throughout the supply chain,
including raw materials, construction and product manufacturing stages, may
increase operational costs
Technology and Resource Efficiency
· Decreased fossil fuel demand due to greater clean resource
adoption or advancements in energy efficiency technology could lead to loss of
revenue
· Additional emissions-reducing technology may be required to
decarbonise manufacturing processes and operations, which could potentially
lead to increasing capital cost of investments
Markets
· Decreased fossil fuel demand may result in loss of market share
and revenue for midstream services, exploration and production and power
companies
· Greater adoption of low- or zero-emitting power sources and related
support services and analytics for these intermittent resources could present
market growth opportunities
· Increased transportation electrification resulting in greater
build-out of supportive charging infrastructure could present market growth
opportunities
Reputation
· Further change in customer perceptions or stakeholder pressures
to decarbonise
· Increased shift directly away from carbon-intensive industries
Implementation
We work with portfolio companies on an individual basis leveraging the
findings from our materiality assessments. Each implementation plan developed
by those companies is tailored to the company's individual requirements to
mitigate both their physical and transitional risks.
Going forward, we intend to invest in businesses that support the low-carbon
transition and represent key growth opportunities.
As we continue to 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 capitalise on potential opportunities to increase resilience,
drive value creation, and further encourage the development of reporting
standards across our portfolio.
Throughout the stewardship process we focus on material factors to each
portfolio company, identifying key areas of risk and opportunity. We look to
understand the key areas of environmental impact depending on the sector and
region of operation. This year we have evaluated additional environmental
factors, taking into account areas such as exposure to biodiversity risk,
water consumption, and recycling.
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' ESG performance, Riverstone's deal
teams utilise our climate change screening questionnaire to analyse whether a
company has sufficiently 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 appropriately inform investment
decisions.
As part of our stewardship approach, we work with portfolio companies to
develop actions plans to help portfolio companies meet their overall ESG
performance, including efforts related to climate change.
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. We continue to build
upon our 2022 climate assessment. This assessment formed the basis of our
ongoing implementation plan.
Physical Risk Analysis
To understand physical risk, selected Riverstone portfolio companies,
including certain REL investments, were evaluated against 2030 and 2050
timeframes. Utilising the IPCC as a basis for assessment two 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
The climate risk assessment we undertook in 2022 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.
Details of this assessment can be found in Riverstone's
2022 ESG report.
Transition Risk Analysis
In 2022 we also carried out 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 help 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 to less than 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
Scenario indicators were selected to cover a broad range of transition risks
and opportunities across the economy and REL's 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 risk assessment provides key information for Riverstone and the REL Board
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
As we have strengthened our engagement with portfolio companies, we have a
greater understanding of their goals and progress. For portfolio companies
where we have oversight, we have asked them to share Scope 1 and 2 emissions,
and included partial Scope 3 emissions where possible. Following our
engagement with an external provider in 2022, our portfolio companies where
appropriate have been working independently and with chosen vendors to improve
the scope of their GHG reporting removing reliance on estimated data where
possible.
During 2022, REL financed emissions were 1.2 million metric tons CO2e (Scope 1
and 2).
This figure includes only those companies where Riverstone holds material
influence as described at the outset of the report. GHG accounting was
performed in alignment with the PCAF standard to estimate our Scope 3 category
15 financed emissions across our portfolio. We recognise the increase in
emissions compared to 2022 and this is reflective of the increased reporting
within the portfolio's traditional energy holdings.
Riverstone continues to try and reduce its firmwide footprint. We have chosen
not to report on this figure this year as we look to assess the ESG
materiality of business activities going forward.
RIGL Holdings, LP
28 February 2024
Investment Manager's Report
In many ways 2023 was a year of contrasts. Interest rates rose at rapid levels
across the world as central banks sought to bring significant global
inflationary pressures under control. This has created concern and uncertainty
about the economic impact this would have on a world which has become used to
persistently low levels of interest rates. In addition, the geopolitical
instability created through Russia's invasion of Ukraine and tensions between
the US and China were exacerbated by a renewed period of instability in the
Middle East. Disruption to global shipping and supply lines through the Red
Sea and increasing concern about the risk of an expansion and escalation of
the conflict in the Middle East are adding to an already tense global
political situation.
Against this, and despite all these many causes of concern, the global economy
came through 2023 in good shape, largely avoiding the recession some had
feared and delivering GDP growth of around 3 per cent.. There remain growth
challenges for some major economies but others are seeing an acceleration as
Government spending and hopes for interest rate cuts support a more optimistic
mood amongst consumers and businesses than was evident earlier in the year.
This was reflected in strong equity market performance with the S&P500 up
24 per cent. in 2023, driven in particular by the performance of the
'Magnificent Seven', the giant US technology companies which include Alphabet,
Apple and Microsoft.
The macro-backdrop did not prevent a decline in energy prices in 2023, with
other factors including warmer weather, over-supply in certain parts of the
market and an increase in LNG delivery impacting demand for natural gas in
particular. In 2023, WTI crude oil prices were down 18 per cent. against the
2022 average WTI and Henry Hub gas prices were down 62 per cent. versus 2022
(IEA). This has helped alleviate some of the inflationary and spending
pressure which consumers and businesses were feeling and removes further the
impact of the price spike which occurred in the wake of Russia's invasion of
Ukraine. Even so, average oil prices remain above where they have been in the
years immediately prior to 2022, providing a more favourable environment for
conventional energy companies.
The mixed backdrop In the global economy was reflected in our portfolio with
conventional assets performing well, increasing their value due to their low
indebtedness and strong cash generation. The conventional portfolio, which now
consists of three investments, saw an increase in the values of Permian and
Crescent Point Energy (via disposal of Hammerhead Energy). In addition, Onyx
was marked-up reflecting its strong cash generation and healthy balance sheet.
Overall, the conventional asset portfolio saw an uptick in valuation with the
MOIC of 1.07x as at 31 December 2022 increasing to 1.30x at 31 December 2023.
The active conventional portfolio had realisations totalling $271 million
during the year and the unrealized value of $265 million accounted for
approximately 70 per cent. of the unrealised value in the portfolio overall as
of 31 December 2023.
In contrast, the decarbonisation portfolio, despite its well diversified
investment base, saw a reduction in valuations across the portfolio as
small-cap, high growth assets responded negatively to higher interest rates
and a more cautious approach from investors. This particularly affected the
value of our investments in GoodLeap, Our Next Energy, T-REX Group and
FreeWire along with the publicly listed stakes in Enviva, Solid Power and
Tritium, which were a key driver of the decrease in the MOIC from 1.08x at 31
December 2022 to 0.50x at 31 December 2023. This equates to a reduction in
value of $111 million or £88 million during 2023.
Overall, the NAV per share for the Company has ended the period 31 December
2023 at $15.96 or £12.53, an increase of 9.9 per cent. in USD or 4.5 per
cent. in GBP vs 31 December 2022.
The Investment Manager has continued to invest, consistent with its strategy,
behind the imperative of decarbonisation, providing an additional $22.3
million for investment into decarbonisation assets in 2023. This consisted of
additional investments into Infinitum ($10.0 million), FreeWire ($4.0
million), T-REX Group ($3.8 million) Enviva ($3.5 million) and Our Next Energy
($1.0 million). The long-term outlook for energy demand remains resilient as
populations and economies grow and as energy demands increase. The demand for
renewables looks even stronger as companies and consumers seek to meet their
own decarbonisation goals. The macro-shifts towards electric vehicles,
sustainable fuels and energy storage, to name a few are driving demand for
renewable and clean energy which cannot be met by today's infrastructure,
despite the increasing levels of investment that are being made. In 2023,
$622.5 billion was invested into the energy transition, an 8.1 per cent.
increase on the year before. This provides a sustainable path for investment
and returns for many years to come as the world realises the transition to
clean energy and upgraded infrastructure will take longer and cost more than
originally expected. Our involvement in these trends allows us to spot and
assess areas of interest, to leverage the experience and expertise we have
built up and to participate in the best opportunities. Our total investment in
decarbonisation assets is now $232 million spread across eleven public and
private companies encompassing a diversified range of technologies,
geographies and energy transition exposures.
In the decarbonisation portfolio, several companies took important steps
forward in the year.
· Infinitum made substantial progress in increasing manufacturing
capacity, producing more motors in 1Q23 than in all of 2022. Additionally, the
company acquired Circuit Connect, a printed circuit board (PCB) fabricator
based in New Hampshire. The acquisition supports Infinitum's strategy to
become vertically integrated and increase the production capacity of PCB
stators.
· Tritium became the first fast charger manufacturer in the US to
receive an order funded by the National Electric Vehicle Infrastructure
Program.
· Group14 began construction of the world's largest commercial
factory for advanced silicon battery materials.
· Hyzon Motors announced the completion and factory acceptance testing
of the first single-stack 200KW fuel cell system B samples at its production
centre in Illinois, marking an important milestone toward an on-time
commercial launch of its fuel cell systems.
Counter to this progress, the Company was forced to write down the value of
its investment in Anuvia Plant Nutrients to zero after that company ceased
trading. Anuvia is in the process of realising its assets and it is not yet
certain if or when equity holders will recover any of their investment. Whilst
Series D equity holders are first in line to receive proceeds from Anuvia, the
Investment Manager has informed the Board that no such proceeds can now be
reasonably expected given the debt burden on the business. The Investment
Manager also wrote down its positions in FreeWire and T-REX Group, reflecting
a truncated growth outlook as the two companies slow scaling to conserve cash.
Please see Post Year End Update section for further information on subsequent
markdown of the FreeWire investment. Additionally, ONE will need to raise
additional capital in 2024 to fund its growth plans. These mark-downs
reflect the difficult fund-raising environment for growth stage companies.
Additionally, the decrease in the valuation of GoodLeap was largely driven by
the impact of interest rates on the profitability of the business.
In our conventional assets portfolio, REL continued the trend of realisations
and distributions with $268.9 million from the realisations of Hammerhead
Energy, Permian Resources, Onyx, Carrier II, and Rock Oil. In November, the
sale of Hammerhead Energy to Crescent Point Energy, a Calgary based energy
company, for an enterprise value of C$2.55 billion was announced. REL held
approximately 15.5 million shares in Hammerhead Energy, representing an
approximate 17 per cent. interest. At the agreed transaction price, REL's
interest in Hammerhead Energy was valued at US$260 million, or 0.88x Gross
MOIC inclusive of prior distributions. Total proceeds to REL consisted
of US$175 million of realised cash and approximately 8.3 million shares of
Crescent Point Energy common equity, which were valued at US$58 million as of
31 December 2023.
Current Portfolio - Conventional((13))
Investment (Public/Private) Gross Committed Capital ($mm) Invested Gross Realised Gross Unrealised Value Gross Realised Capital & Unrealised Value ($mm) 31 Dec 2023 Gross MOIC((2)) 31 Dec 2022
Capital ($mm) Capital ($mm)((1)) ($mm)((2)) Gross MOIC((2))
Permian Resources ((4)) (Public) 268 268 225 137 362 1.35x 1.17x
Onyx (Private) 66 60 121 70 191 3.20x 3.00x
Crescent Point Energy (Hammerhead Energy) ((10)) (Public) 296 296 198 58 256 0.87x 0.60x
Total Current Portfolio - Conventional - Public((3)) $564 $564 $423 $195 $618 1.10x 1.17x
Total Current Portfolio - Conventional - Private((3)) $66 $60 $121 $70 $191 3.20x 1.00x
Total Current Portfolio - Conventional - Public & Private((3)) $630 $624 $544 $265 $809 1.30x 1.07x
Current Portfolio - Decarbonisation((13))
Investment (Public/Private) Gross Committed Capital ($mm) Invested Gross Realised Gross Unrealised Value Gross Realised Capital & Unrealised Value ($mm) 31 Dec 2023 31 Dec 2022
Capital ($mm) Capital ($mm)((1)) ($mm)((2)) Gross MOIC((2)) Gross MOIC((2))
GoodLeap (formerly Loanpal) (Private) 25 25 2 29 31 1.25x 2.20x
Infinitum 27 27 - 30 30 1.10x 1.30x
(Private)
T-REX Group (Private) 21 21 - 17 17 0.82x 1.00x
Tritium DCFC((4)(11)) (Public) 25 25 1 11 12 0.46x 0.60x
Solid Power((4)) (Public) 48 48 - 11 11 0.22x 0.39x
Our Next Energy (Private) 13 13 - 3 3 0.25x 1.00x
Group14 4 4 - 4 4 1.00x 1.00x
(Private)
FreeWire (Private) 14 14 - 3 3 0.25x 2.00x
Ionic I & II (Samsung Ventures) (Private) 3 3 - 3 3 1.00x 1.00x
Enviva (Public)((4)) 22 22 0 1 1 0.05x 1.93x
Hyzon Motors (Public) 10 10 - 1 1 0.09x 0.16x
Anuvia Plant Nutrients 20 20 - - - 0.00x 1.00x
(Private)
Total Current Portfolio - Decarbonisation - Public((3)) $105 $105 $1 $23 $24 0.23x 0.72x
Total Current Portfolio - Decarbonisation - Private((3)) $127 $127 $2 $90 $92 0.73x 1.42x
Total Current Portfolio - Decarbonisation - Public & Private((3)) $232 $232 $3 $113 $116 0.50x 1.08x
Total Current Portfolio - Conventional & Decarbonisation - Public & $861 $855 $548 $378 $926 1.08x 1.07x
Private((3))
Cash and Cash Equivalents((9)) $291
Total Liquidity((12)) $509
Total Market Capitalisation $430
Realisations
Investment Gross Committed Capital Invested Gross Realised Gross Unrealised Value Gross Realised Capital & Unrealised Value ($mm) 31 Dec 2023 31 Dec 2022
(Initial Investment Date) ($mm) Capital ($mm) Capital ($mm)((1)) ($mm)((2)) Gross Gross MOIC((2))
MOIC((2))
Rock Oil((5)) 114 114 234 4 238 2.08x 2.07x
(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((6)) 40 40 88 - 88 2.20x 2.20x
(17 Apr 2015)
RCO((7)) 80 80 80 - 80 0.99x 0.99x
(2 Feb 2015)
Carrier II 110 110 67 - 67 0.61x 0.60x
(22 May 2015)
Pipestone Energy (formerly CNOR) 90 90 58 - 58 0.64x 0.64x
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 $1,000 $4 $1,004 1.23x 1.22x
Withdrawn Commitments and Impairments((8)) 350 350 9 - 9 0.02x 0.02x
Total Investments((3)) $2,029 $2,024 $1,557 $382 $1,939 0.96x 0.95x
Total Investments & Cash and Cash Equivalents((3), (9)) $674
((1)) Gross realised capital is total gross proceeds realised on invested
capital. Of the $1,557 million of capital realised to date, $1,194 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 $84.7 million of realised
and unrealised losses to date at 31 December 2023 are made whole with future
gains. Therefore, the earned carried interest of $0.8 million that had been
deferred, has now expired as of October 2023 since the aforementioned losses
were not made whole. Since REL has not yet met the appropriate Cost Benchmark
at 31 December 2023, $32.2 million in performance allocation fees that would
have been due under the prior agreement were not accrued. 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 - 31-12-2023: $13.60 per share / 30-09-2023: $13.96 per share);
Enviva, Inc. (NYSE:EVA - 31-12-2023: $0.9958 per share / 30-09-2023: $7.47 per
share); Solid Power, Inc. (NASDAQ:SLDP - 31-12-2023: $1.45 per share /
30-09-2023: $2.02 per share); Hyzon Motors, Inc. (NASDAQ:HYZN - 31-12-2023:
$0.90 per share / 30-09-2023: $1.25 per share); Tritium DCFC Limited
(NASDAQ:DCFC - 31-12-2023: $0.22 per share / 30-09-2023 $0.30 per share); and
Crescent Point Energy (NASDAQ: CPG - 31-12-2023: $6.93 per share / 30-09-2023:
n/a).
((5)) The unrealised value of the Rock Oil investment consists of rights to
mineral acres.
((6)) Midstream investment.
((7)) Credit investment.
((8)) Withdrawn commitments consist of Origo ($9 million) and CanEra III ($1
million), and impairments consist of Liberty II ($142 million), Fieldwood ($80
million), Eagle II ($62 million) and Castex 2005 ($48 million).
((9)) This figure is comprised of $5.8 million held at the Company, $283.0
million held at the Partnership and $2.0 million held at REL US Corp.
((10)) Crescent Point Energy shares were acquired via realisation of
Hammerhead Energy.
((11)) Tritium consists of publicly traded shares related to original SPAC
Sponsor investment and a further backstop funding ($1 million at 31 December
2023) as well as an additional private loan investment ($10 million at 31
December 2023).
((12)) Total liquidity comprises remaining fair value of all public
investments and all cash held at REL and within RELIP structure.
((13)) The investments in the tables are held within the Partnership.
Investment Portfolio Summary
As of 31 December 2023, REL's portfolio comprised fourteen active investments
including two E&P investments, eleven decarbonisation investments and one
power investment.
Permian Resources (formerly Centennial)
As of 31 December 2023, REL, through the Partnership, has invested in full its
$268 million commitment to Permian Resources. Headquartered in Midland, Texas,
Permian Resources is the largest pure-play E&P company in the Delaware
Basin.
Permian Resources completed the previously announced ~$4.5 billion acquisition
of Earthstone Energy, Inc. (NYSE: ESTE) in November 2023. The transaction
bolsters Permian Resource's leading position in the Delaware Basin and
increases operating size and scale. The transaction further enhances free cash
flow generation and is expected to generate ~$175 million of annual synergies.
The pro-forma company remains committed to achieving an investment grade
rating.
In Q4 2023, Permian Resources announced a quarterly variable cash dividend of
$0.07 per share in addition to the base dividend of $0.05 per share in
November 2023, maintaining its commitment to returning >50 per cent. of
free cash flow to shareholders.
Since the beginning of 2023, Permian Resources remained active in high-grading
its portfolio through a series of bolt-on acquisitions (3), acreage swaps (2),
grassroots acquisitions (>140) and non-core divestitures (2). Overall,
Permian Resources' robust portfolio optimisation efforts added approximately
17,000 Permian net acres, 7,300 Permian net royalty acres and over 200
high-quality, gross operated locations in the core of the Delaware Basin. The
cumulative effect of these transactions resulted in the Company replacing over
100 per cent. of its developed inventory during 2023 on a standalone basis for
less than $100 million net of divestitures.
REL, through the Partnership, owns approximately 10.1 million shares which are
publicly traded (NYSE: PR).
As of 31 December 2023, REL's interest in Permian Resources, through the
Partnership, was valued at 1.35x Gross MOIC((1)) or $362 million (Realised:
$225 million, Unrealised: $137 million). The Gross MOIC((1)), which reflects
the mark-to-market value of REL's shareholding, increased over the year.
Onyx
As of 31 December 2023, 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 2023, REL's interest in Onyx, through the Partnership, was
valued at 3.20x Gross MOIC((1)) or $191 million (Realised: $121 million,
Unrealised: $70 million). The Gross MOIC((1)) increased over the year.
Crescent Point Energy (acquired through the sale of Hammerhead Energy)
As of 31 December 2023, REL, through the Partnership, had invested its $296
million commitment in full to Hammerhead Energy, a company focused on
liquids-rich unconventional resources in the Montney and Duvernay resource
play in Western Canada. REL provided an initial equity commitment to
Hammerhead Energy in 1Q14; since the initial commitment, REL had made several
additional investments into Hammerhead Energy. Prior to the acquisition,
Hammerhead Energy had aggregated a position of ~190,000 net acres in the
Montney and ~100,000 net acres in the Duvernay formations and operated 100 per
cent. of its asset base.
On 6 November 2023, Crescent Point Energy acquired Hammerhead Energy for C$21
per share (C$15.50 cash, C$5.50 stock). Pro forma for the transaction, REL
owns ~1.3 per cent. of Crescent Point Energy. Crescent Point Energy in
combination with Hammerhead Energy is the seventh largest E&P company in
Canada with production of 200,000 Boe/d (65 per cent. liquids) and attractive
drilling opportunities in the Viewfield, Shaunavon, SK Viking, Flat Lake,
Duvernay, and Montney plays. Crescent Point Energy will have a quarterly
dividend of C$0.115 per share, implying an annualised dividend yield of 5.0
per cent.
On 21 December 2023, Crescent Point Energy completed the acquisition of
Hammerhead Energy for a total value of approximately C$2.55 billion, inclusive
of assumed net debt, or C$21.00 per Hammerhead Energy share (approximately
US$15.26 per share based on a ~C$1.38 CAD/USD f/x rate). Each Hammerhead
Energy share was exchanged for (i) C$15.50 (approximately US$11.26) per share
in cash consideration and (ii) C$5.50 (approximately US$4.00) per share in
Crescent Point Energy common shares. The purchase price represented a 4 per
cent. premium to the 9 November closing price per Hammerhead Energy share on
the NASDAQ, a 17 per cent. premium to the five-day volume-weighted average
price (''VWAP'') per Hammerhead Energy share on the NASDAQ, and a 21 per cent.
premium to the 30-day VWAP per Hammerhead Energy share on the NASDAQ. The
transaction represents a gross MOIC for REL of 0.87x, of which 0.67x, or
US$198 million was realised based on the cash portion of the consideration,
and 0.20x, or US$62 million was received in the form of Crescent Point Energy
shares.
As of 31 December 2023, REL's interest in Crescent Point Energy, was valued at
0.87x Gross MOIC((1)) or $256 million (Realised: $198 million, Unrealised: $58
million). The Gross MOIC((1)) increased over the year.
Infinitum
As of 31 December 2023, REL, through the Partnership, has fully invested its
$27.5 million commitment to Infinitum, including $10 million within their
recent $185 million Series E round closed in H2 2023. Infinitum'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 one of the most efficient in the world. Infinitum 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 2023, REL's interest in Infinitum, through the Partnership,
was valued at 1.10x Gross MOIC((1)) or $30.2 million (Realised: nil,
Unrealised: $30.2 million).The Gross MOIC((1)) has decreased slightly over the
year.
GoodLeap (formerly Loanpal)
As of 31 December 2023, 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.
Over the course of 2023, the decrease in the valuation of GoodLeap was largely
driven by the impact of interest rates on the profitability of the business.
The company continues to enforce strategic changes to better navigate market
dynamics such as expanding product partnerships and tightening contractor
payment guidelines.
As of 31 December 2023, REL's interest in GoodLeap, through the Partnership,
was valued at 1.25x Gross MOIC((1)) or $31 million (Realised: $2 million,
Unrealised: $29 million). The Gross MOIC((1)) decreased over the year.
T-REX Group
As of 31 December 2023, REL, through the Partnership, has fully invested its
$21.3 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 modelling, 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. In November
2023, T-REX successfully executed its contract with Blackstone's Private
Credit group, which is currently in a "Pilot" phase.
As of 31 December 2023, REL's interest in T-REX Group, through the
Partnership, was valued at 0.82x Gross MOIC((1)) or $17.4 million (Realised:
nil, Unrealised: $17.4 million). The Gross MOIC((1)) has decreased over the
year.
DCRN/Tritium DCFC
In February 2021, REL, through the Partnership, 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 four years,
produce over 10,000 DC fast chargers units annually, and will ultimately reach
peak production capacity of 30,000 units annually.
In September 2023, Tritium secured a financing commitment of up to $75
million, with an initial funding of $25 million. The company plans to use
proceeds to continue its investment in working capital to meet expected
continued strong customer demand in the 2024 calendar year.
In October 2023, Tritium secured a major order for more than 200 fast chargers
from Driveco, a leading French charging network operator.
In November 2023, Tritium implemented a new strategic plan to achieve a path
to profitability in 2024. The plan improves operational efficiency and margins
by consolidating Tritium's global manufacturing operations into its plant in
Tennessee and reduces SG&A expenses via decreased headcount.
Tritium announced it changed its fiscal year-end from 30 June to 31 December,
effective beginning in the 2024 calendar year. Tritium maintains its
expectation to become EBITDA positive during H1 2024.
As of 31 December 2023, REL's interest in Tritium, through the Partnership,
consisted of the $0.6 million sponsor investment, which was valued at 0.22x
Gross MOIC((1)) or $0.1 million (Realised: nil, Unrealised: $0.1 million), the
$15 million equity investment, which was valued at 0.04x Gross MOIC((1)) or
$0.6 million (Realised: nil, Unrealised: $0.6 million), and the $9.7 million
loan investment, which was valued at 1.12x Gross MOIC((1)) or $10 million
(Realised: $0.8 million, Unrealised: $10.0 million).
Solid Power
As of 31 December 2023, REL, through the Partnership, has fully invested its
$47.8 million commitment to 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, through the Partnership,
committed an additional $20 million to the $165 million PIPE that was raised.
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, of which $27.2 million related to the purchase
of 1.66 million shares of Solid Power.
In addition to the announcement late last year that Solid Power closed on a
$130 million Series B investment raise led by BMW Group, Ford Motor Company,
and Volta Energy Technologies, earlier this year, the company announced that
it received an award from the U.S. Department of Energy (DOE) to continue its
development of nickel- and cobalt-free solid-state battery cells. Solid Power
expects to receive up to $5.6 million to develop battery cells containing a
lithium metal anode and sulphur composite cathode to enable improved energy
and charging performance. The DOE announced $42 million in funding for 12
projects to strengthen the domestic supply chain for advanced batteries that
power electric vehicles (EVs), with Solid Power's award being a portion of
this funding. Projects selected aim to expand US domestic EV adoption by
developing batteries that last longer, charge faster, perform efficiently in
freezing temperatures and have better overall range retention. The company
continues to meet its milestones and has demonstrated a track record of
partnering with leading companies and investors globally.
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".
As of 31 December 2023, REL's interest in Solid Power, through the
Partnership, consisted of the $0.6 million sponsor investment, which was
valued at 1.22x Gross MOIC((1)) or $0.7 million (Realised: nil, Unrealised:
$0.7 million), the $20 million PIPE investment, which was valued at 0.15x
Gross MOIC((1)) or $2.9 million (Realised: nil, Unrealised: $2.9 million), and
the $27.2 million secondary purchase from Samsung Ventures, which was valued
at 0.26x Gross MOIC((1)) or $7.0 million (Realised: nil, Unrealised: $7.0
million).
Our Next Energy (ONE)
In December 2022, REL invested $11.5 million of its $12.5 million commitment
(remaining $1 million funded in January 2023) to Our Next Energy's (ONE) $300
million Series B round. ONE is a Michigan-based energy storage technology
company working to develop batteries for mobility and large-scale storage
applications.
The company had previously agreed to terms with an outside investor in 2H 2023
to lead a Series C round. However this transaction did not proceed. Due to the
ongoing cash burn and liquidity position, ONE needed to pivot to an
insider-led round for Q1 2024. As a result, ONE has adjusted its business plan
to better align commercial offtake with factory scale-up and future financing.
ONE continues to demonstrate its compelling technology through qualification
programmes with automotive customers. The company plans to use the proceeds
from the insider led financing to continue operations. The position was marked
down in the portfolio to reflect the risk that the company runs out of capital
before achieving its larger capital raise.
As of 31 December 2023, REL's interest in ONE, through the Partnership, was
valued at 0.25x Gross MOIC((1)) or $3.1 million (Realised: nil, Unrealised:
$3.1 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 2023, the company continued to build out its manufacturing capacity through
its JV in South Korea and in Washington, as well as acquired a silane plan (a
critical raw material input) in Germany to further accelerate vertical
integration.
As of 31 December 2023, REL's interest in Group14, through the Partnership,
remained at 1.00x Gross MOIC((1)) or $4.0 million (Realised: nil, Unrealised:
$4.0 million).The Gross MOIC remained flat over the year due to continued
strong demand, along with slightly delayed, but ongoing manufacturing build
out.
FreeWire
As of 31 December 2023, REL, through the Partnership, has fully invested its
$14 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, and
recently participated in the company's Series E financing.
FreeWire's primary hardware product is the Boost Charger, which offers
charging speeds of up to 200kW with only a 25kW grid connection by using a
160kWh battery. These specifications support 15-24 fast charging sessions per
day. In addition to hardware sales, FreeWire's software platform offers
recurring revenues, enabling charger management and third-party platform
integration with plans to offer energy management and grid services. The
position was marked down in the portfolio to reflect the company's updated
growth outlook in order to preserve liquidity, as well as the challenging EV
Charging environment (public peers traded down 53 per cent. in 2023).
As of 31 December 2023, REL's interest in FreeWire, through the Partnership,
was valued at 0.25x Gross MOIC((1)) or $3.5 million (Realised: nil,
Unrealised: $3.5 million). The Gross MOIC((1)) decreased by 1.75x over the
year.
On 3 February 2024, a potential acquiror of FreeWire, who had been under
exclusivity, withdrew from the sale process. Given the accelerating cash
constraints and limited runway in combination with the sale process
withdrawal, FreeWire evaluated all alternatives which culminated in a sale of
the company on 20 February 2024 to a private investor. The consideration
with respect to the sale was 100 per cent. assumption of all company
liabilities. As of 20 February 2024, REL, through the Partnership, has a
realized Gross MOIC of 0.00x in the FreeWire investment, which is no longer an
investment in the portfolio.
Ionic I & II
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, of which $2.7 million related to 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 2023, REL's aggregate investment in Ionic Materials through
the Samsung Ventures portfolio, was marked at 1.00x Gross MOIC((1)) or $2.7
million (Realised: nil, Unrealised: $2.7 million). The Gross MOIC((1))
remained flat over the year.
Enviva
As of 31 December 2023, REL, through the Partnership, has invested $22 million
of its $22 million commitment to Enviva, with the final $3.5 million invested
in Q1 2023. 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 metric tons per year.
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. Enviva's decline in stock price from Q3 2023 to Q4 2023 was
driven primarily by the release of third quarter 2023 results. Subsequent to
the close of the third quarter, on 9 November 2023, Enviva's management
released its third quarter 2023 earnings results, announced a comprehensive
review of its capital structure to improve the company's financial position,
and announced a realignment of leadership, including the appointment of Glenn
Nunziata, Chief Financial Officer, as Enviva's interim Chief Executive Officer
as the company focuses on executing a multi-faceted transformation plan. The
company reported lower adjusted EBITDA for third-quarter 2023 of $36.6 million
as compared to $60.6 million for third-quarter 2022, primarily due to lower
revenue from commercial activities.
Since 9 November 2023, Enviva's leadership and advisors have been actively
engaged in negotiations with potential strategic partners, customers, and
other stakeholders in connection with the company's previously announced
comprehensive review of alternatives to strengthen its capital structure,
augment liquidity, address contractual liabilities, and increase long-term
profitability. In January 2024, Enviva elected to utilize its contractual
30-day grace period and not make the semi-annual interest payment of
approximately $24.4 million, with respect to the company's outstanding 6.5 per
cent. Senior Notes due 2026, notwithstanding that the company has sufficient
cash on hand to make the interest payment.
As of 31 December 2023, REL's interest in Enviva, through the Partnership, was
valued at 0.05x Gross MOIC((1)) or $1 million (Realised: $0.4 million,
Unrealised: $1.0 million). The Gross MOIC((1)) decreased over the year.
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
is the industry-leading global supplier of zero-emissions hydrogen fuel cell
powered commercial vehicles.
As of 31 December 2023, REL's interest in Hyzon, through the Partnership, was
valued at 0.09x Gross MOIC((1)) or $1 million (Realised: nil, Unrealised: $1
million). The Gross MOIC((1)) decreased over the year.
Anuvia
Anuvia Plant Nutrients, Inc. has ceased operations and is undergoing
liquidation. Anuvia engaged Evercore to advise on a fundraising or sale
process beginning in Q3 2022. The capital raise effort was ultimately
unsuccessful subsequent to the 31 March 2023 valuation. The investment was
marked down from $20 million to $14 million at the 31 March 2023 valuation to
reflect uncertainty around the potential success of the capital raise. As is
often the case, the capital raise had pathways to be successful until the very
end, but ultimately did not materialise and the company ceased operations on
15 May 2023. Anuvia is in the process of realising its assets. Whilst Series
D equity holders are first equity in line to receive proceeds from Anuvia, the
Investment Manager informed the Board on 10 July 2023 that no such proceeds
can now be reasonably expected given the debt burden on the business.
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, through the Partnership, have tended to be 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 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
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 2023, REL had a cash balance of $5.8 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
$285.6 million held as cash, United States Treasury Bills and short-term money
market fixed deposits, gross of the accrued management fee of $2.2 million.
After the accrued management fee, REL's aggregate cash balance is $289.2
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 further distributions 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 340 basis points during the year ended 31
December 2023. All cash deposits referred to in this paragraph are denominated
in U.S. dollars.
Post-Year End Update
As announced on 8 February 2024, the Company proposes to return $200 million
(equivalent to approximately £158 million on the basis of the prevailing
USD:GBP exchange rate) of its excess capital to shareholders by means of a
tender offer at a price of £10.50 per ordinary share. The Tender Price
represents a premium of approximately 31 per cent. to the closing market price
per ordinary share of £8.00 on 7 February 2024 and represents a 16 per cent.
discount to the net asset value per ordinary share of £12.53 as at 31
December 2023 (on the basis of the prevailing USD:GBP exchange rate at 31
December 2023 of 1.2736). The Company launched the 2024 Tender Offer on 23
February 2024 for up to 15,047,619 of the Company's ordinary shares,
representing 36 per cent. of the existing shares in issue (excluding any
ordinary shares held in treasury, of which there are none currently) and the
2024 Tender Offer will close on 25 March 2024. The 2024 Tender Offer will
require shareholder approval at an extraordinary general meeting of the
Company's shareholders, which is due to be held on 26 March 2024, and will be
subject to other legal, regulatory and customary conditions.
On 3 February 2024, a potential acquiror of FreeWire, who had been under
exclusivity, withdrew from the sale process. Given the accelerating cash
constraints and limited runway in combination with the sale process
withdrawal, FreeWire evaluated all alternatives which culminated in a sale of
the company on 20 February 2024 to a private investor. The consideration
with respect to the sale was 100 per cent. assumption of all company
liabilities. As of 20 February 2024, REL, through the Partnership, has a
realized Gross MOIC of 0.00x in the FreeWire investment, which is no longer an
investment in the portfolio.
Outlook
The themes of global macro-economic uncertainty, geopolitical instability and
tension are likely to remain. On top of this, elections in 64 countries for
around half of the world's total population this year will add to the sense of
uncertainty and the potential for drama. A change in US administration could
see a shift in the rhetoric around the environmental and energy debate but it
will not impact the science or need for continued investment to address
climate change, and to upgrade, modernise and improve the world's energy
infrastructure.
A stable macro-economic outlook, increasing geopolitical tensions and further
disruption to global supply routes could provide a favourable environment for
energy prices. A reduction in interest rates is likely to be reflected
positively in the valuations of small-cap, high growth companies which could
be supportive for our renewables portfolio. The timing, scale and speed of any
reduction in interest rates is still unknown but inflationary pressures across
the world have been reduced, providing optimism that central banks will be
able to cut rates when conditions allow.
RIGL Holdings, LP
28 February 2024
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
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. 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. The Company currently has not
had any indebtedness during the period of this Annual Report.
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 Horlick (64), Chair of the Board and Non-executive Independent
Director
Appointment: Appointed to the Board in October 2022 and appointed as Chair of
the Board in March 2023.
Experience: Richard 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.
Richard 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 and Remuneration
Committee Member; Management Engagement Committee Member.
Patrick Firth (62), Non-executive Senior Independent Director
Appointment: Appointed to the Board in May 2013 and appointed as Senior
Independent Director in May 2016. Due to retire before the Company's next
AGM.
Experience: Patrick 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, including India Capital Growth Fund Limited, CT UK Capital & Income
Investment Trust plc and Next Energy Solar Fund Limited. Patrick Firth is a UK
resident.
Committee Membership: Audit Committee Member (Chair until 31 December 2023);
Nomination and Remuneration Committee Member; Management Engagement Committee
Member.
Karen McClellan (63), Non-executive Independent Director
Appointment: Appointed to the Board in May 2023.
Experience:
Karen McClellan is an advisory board member of TT International's
Environmental Solutions Fund and serves as an appointed expert for the UK
Accelerated Climate Transitions programme, on the Global SDG Council for
Alternative Fuels, and on the Climate Tech Council (London). Karen McClellan
has gained over the last two decades hands-on experience in carbon policy,
clean infrastructure finance and zero-carbon technologies, having raised and
deployed more than £700 million in renewable energy and carbon funds and
transactions. During two decades as an investment banker at Lehman Brothers,
Robert Fleming and the EBRD, Karen McClellan structured investment funds
backed by emission reductions and energy savings and served on their
investment committees. Karen holds degrees from the Stanford Graduate School
of Business (MBA) and Yale University (BA Economics). Karen McClellan is a UK
resident.
Committee Membership: Audit Committee Member; Nomination and Remuneration
Committee Member, Management Engagement Committee Member.
John Roche (58), Non-executive Independent Director
Appointment: Appointed to the Board in December 2022.
Experience:
John 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 in 2009 to
PwC Channel Islands, Guernsey office. 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 focussed on delivering audit services to alternative investment
managers, specialising in private equity, secondaries, private debt,
infrastructure and real estate in the listed and private sectors. John Roche
has been the PwC Channel Islands 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). John Roche is a Guernsey resident.
Committee Membership: Audit Committee Chair (appointed with effect from 1
January 2024); Nomination and Remuneration Committee Member; Management
Engagement Committee Member.
Jeremy Thompson (68), Non-executive Independent Director
Appointment: Appointed to the Board in May 2016 and will become Senior
Independent Director following Patrick Firth's retirement.
Experience: Jeremy 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. Jeremy Thompson is a
resident of Guernsey and has previously lived and worked in the UK, USA and
Germany.
Committee Membership: Audit Committee Member; Nomination and Remuneration
Committee Chair; Management Engagement Committee Member.
Claire Whittet (68), Non-executive Independent Director
Appointment: Appointed to the Board in May 2015.
Experience:
Claire 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 until her retirement in July 2023. Claire 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 boards of two other listed funds (Eurocastle Investment
Limited and Third Point Offshore Investors Limited) and various PE funds.
Claire Whittet is a Guernsey resident.
Committee Membership: Audit Committee Member; Nomination and Remuneration
Committee Member; Management Engagement Committee Chair.
Report of the Directors
The Directors hereby submit the Annual Report and Audited Financial Statements
for the Company for the year ended 31 December 2023. 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 2023 was $674 million (31
December 2022: $739 million).
The Directors do not recommend the payment of a dividend in respect of the
year ended 31 December 2023 (31 December 2022: $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 5,000,000 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
($71 million) in value of the Company's Ordinary Shares. The Company acquired
4,583,333 Ordinary Shares at £12.00 ($15.48) 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 ($62.4 million) to the
programme, which subsequently on 15 May 2023, was increased by a further £30
million ($37.4 million).
In addition to the buyback programme, the Company has acquired 3,182,196
ordinary shares pursuant to the Tender Offer announced on 17 August 2023 at a
total cost of approximately £18.4 million ($23.4 million). Since the
announcement in February 2022, inclusive of the August 2023 tender offer,
12,741,810 ordinary shares have been bought back at a total cost of
approximately £76.9 million ($95.1 million) at an average share price of
approximately £6.04 ($7.47).
As at 31 December 2023, the share capital of the Company is 42,195,789
Ordinary Shares in aggregate.
On 8 February 2024, the Company announced that it proposes to return £158
million ($200 million) of its excess capital to shareholders by means of a
tender offer at a price of £10.50 per ordinary share. The Company launched
the 2024 Tender Offer on 23 February 2024 and the 2024 Tender Offer will close
on 25 March 2024.
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 2023,
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 2023 and 2022 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
2023 2023 2022 2022
Richard Horlick((1)) 10,000 0.024 10,000 0.020
Patrick Firth((2)) 8,000 0.019 8,000 0.016
Jeremy Thompson((1)) 3,751 0.009 3,751 0.007
Claire Whittet((1)(3)) 2,250 0.005 2,250 0.004
John Roche((1)) 2,201 0.005 2,201 0.004
Karen McClellan((1)) - - - -
Richard Hayden((4)) N/A N/A 10,000 0.020
Peter Barker((4)) N/A N/A 5,000 0.010
((1) ) Non-executive Independent Director.
((2) ) Senior Independent Director.
((3)) Ordinary Shares held indirectly with spouse.
((4) ) Retired from Board in May 2023; were no longer
Non-Executive Independent Directors as of 31 December 2023.
In addition, the Company also provides the same information as at 23 February
2024, being the most current information available.
Director Ordinary Per cent.
Shares held Holding at
23 February 2024 23 February 2024
Richard Horlick((1)) 10,000 0.024
Patrick Firth((2)) 8,000 0.019
Jeremy Thompson((1)) 3,751 0.009
Claire Whittet((1)(3)) 2,250 0.005
John Roche((1)) 2,201 0.005
Karen McClellan((1)) - -
((1)) Non-executive Independent Director
((2)) Senior Independent Director
((3)) Ordinary Shares held indirectly with spouse
Directors' Authority to Buyback Shares
At the AGM on 23 May 2023 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 buyback of the Company's Ordinary
Shares will be made subject to Companies Law (''Companies (Guernsey) Law,
2008, (as amended)'') and within any guidelines established from time to time
by the Board. The making and timing of any buybacks 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 100 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 2023, 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
Moore Capital Mgt 8,430,490 19.96 Indirect
Quilter Investors 4,987,702 11.81 Indirect
AKRC Investments LLC 4,777,598 11.31 Direct
SIX Group Ltd. 3,658,421 8.66 Indirect
Riverstone Related Holdings 3,262,619 7.72 Direct
In addition, the Company also provides the same information as at 23 February
2024, being the most current information available.
Shareholder Shareholding Per cent. Nature of
Holding Holding
Moore Capital Mgt 8,430,490 19.98 Indirect
AKRC Investments LLC 4,777,598 11.32 Direct
Quilter Investors 4,757,465 11.27 Indirect
SIX Group Ltd. 3,660,421 8.67 Indirect
Riverstone Related Holdings 3,262,619 7.73 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 2024 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 25 May 2021, 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/investors/reports-and-presentations/ 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 totalling $43,858,530.
Going Concern
The Audit Committee has reviewed the appropriateness of the Company's
Financial Statements being prepared in accordance with Companies 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
2025. 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 2025.
In reaching this conclusion, that the audited Financial Statements are
prepared on a going concern basis, the Directors have considered the principal
risks faced by the Company, the substantial level of cash/cash equivalent
balances held by the Company and the Partnership as at 31 December 2023, the
liquidity of certain listed investments held, the cash flow forecasts for the
Company outlining the requirements to settle current and expected liabilities
(including the funding of the Company's share buyback programme and the 2024
Tender Offer announced post year-end) and the potential unfunded commitments
of the Partnership.
Viability Statement
The Directors, with recommendation from the Audit Committee, have assessed the
prospects of the Company and relevant stresses (i.e. 2024 Tender Offer,
additional funding requirements to existing portfolio companies, share buyback
programme, management fees and expenses) 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
2026 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 ample
cash/cash equivalents available at the Company and the Partnership and other
liquid assets.
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, money market deposits and other liquid investments held 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, which it updates 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.
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 15 May 2023, the Company announced a share buyback programme for £30.0
million in the value of the Company's Ordinary Shares. During 2023, the
Company acquired 5,513,673 Ordinary Shares which were subsequently cancelled.
On 17 August 2023, the Company announced a Tender Offer for £18.4 million in
the value of the Company's Ordinary Shares. The Company acquired 3,182,196
Ordinary Shares which were cancelled on 29 September 2023.
Following the cancellation of Ordinary Shares from the Tender Offer and share
buyback programme, the share capital of the Company is 42,195,789 Ordinary
Shares in aggregate.
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 21 May 2024 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 2023 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 Horlick
Chair of the Board
28 February 2024
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 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 Horlick John Roche
Chair of the Board Director
28 February 2024 28 February 2024
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.
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 listed
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 is
satisfied with the current composition and functioning of its members and
notes a 33 per cent. female representation (rising to 40 per cent. with the
retirement of Patrick Firth before the upcoming AGM), meeting the Hampton
Alexander target. The Board is cognisant that it does not currently have an
ethic minority representation, contrary to the FCA diversity guidelines. 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. The
Board has a Diversity Policy which is actively implemented as part of the
board succession process and whilst the Board has not become more ethnically
diverse as a result of recruitment in 2023, this continues to be a key focus
during future succession planning. To avoid precluding any deserving candidate
from consideration, executive search consultants will be asked to provide
candidates from a diverse range of backgrounds.
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 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 presently consists of six Non-executive Directors all of whom,
including the Chair of the Board, are independent of the Company's Investment
Manager; Richard Horlick, Patrick Firth, Claire Whittet, John Roche, Jeremy
Thompson and Karen McClellan. All Directors served during the year, with
Richard Horlick being appointed as Chair of the Board on 1 March 2023 and
Karen McClellan being appointed to the Board on 25 May 2023. As flagged in the
Board Chair's Statement, Richard Hayden and Peter Barker retired by rotation
at the 2023 AGM. Patrick Firth will be retiring before the Company's next AGM.
The Chair of the Board is independent and is appointed in accordance with the
Company's Articles of Incorporation. Richard Horlick 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 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 26.
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
Administrator, 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. Patrick Firth has served for more than nine years
but the Board considers him to be independent and it has been agreed that he
will retire before the next AGM and will not stand for re-election. 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 Directors reflects the time commitment and
responsibilities of their roles. The remuneration of the 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.
With effect from 1 July 2023, a 10 per cent. increase was applied to the
Directors remuneration.
The Chair of the Board is entitled to annual remuneration of £145,200 (31
December 2022: £132,000). The Chair of the Audit Committee is entitled to
annual remuneration of £90,750 (31 December 2022: £82,500) and the Chair of
the Management Engagement Committee is entitled to annual remuneration of
£78,650 (31 December 2022: £71,500). The Chair of the Nomination and
Remuneration Committee is entitled to remuneration of £78,650 (31 December
2022: £71,500). The other independent Directors are entitled to annual
remuneration of £72,600 (31 December 2022: £66,000).
During the year ended 31 December 2023 and 31 December 2022, the Directors'
remuneration was as follows:
Director 2023 2022
($'000) ($'000)
Richard Horlick((1)(3)) 159 15
Patrick Firth((1)(2)) 108 102
Jeremy Thompson((1)(5)) 93 89
Claire Whittet((1)(4)) 93 89
John Roche((1)) 86 4
Karen McClellan((1)) 54 -
Richard Hayden((6)) 46 164
Peter Barker((6)) 32 82
((1)) Non-executive Independent Director
((2)) Senior Independent Director and Chair of the Audit Committee to
31 December 2023
((3)) Richard Horlick replaced Richard Hayden as Chair of the Company
in 2023
((4)) Chair of the Management Engagement Committee
((5)) Chair of the Nominations and Remuneration Committee
((6)) Retired from the Board in May 2023
The above fees due to the Directors are for the year ended 31 December 2023
and 31 December 2022, and none were outstanding at 31 December 2023 (31
December 2022: $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 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 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 2023. The Chair of the Board meets privately with the
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 Meetings Audit Nomination and Remuneration Management Tenure as at 31 December 2023
Committee Committee Engagement
Meetings Meetings Committee
Meetings
Director
Patrick Firth((1)(2)) 4 4 4 1 10 years and 8 months
Claire Whittet((1)) 4 4 4 1 8 years and 8 months
Jeremy Thompson((1)) 4 4 4 1 7 years and 8 months
John Roche((1)) 3 3 3 1 1 year and 1 month
Richard Horlick((1)) 4 4 4 1 1 year and 2 months
Karen McClellan((1)) 2 2 2 1 8 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
2023. 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).
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 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 was chaired by Patrick Firth until 31 December 2023, and
who remains a member of the Audit Committee until his retirement before the
AGM. John Roche chaired the Audit Committee from 1 January 2024 which
comprises Jeremy Thompson, Claire Whittet, Richard Horlick and Patrick Firth
all who held office throughout the year, as well as Karen McClellan who was
appointed to the Audit Committee on 25 May 2023. 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 and Remuneration Committee
The Nomination and Remuneration Committee is chaired by Jeremy Thompson and
comprises, Claire Whittet, John Roche, Patrick Firth and Richard Horlick, all
who held office throughout the year, as well as Karen McClellan who was
appointed to the Nomination and Remuneration Committee on 25 May 2023. Patrick
Firth remains a member of the Nomination and Remuneration Committee until his
retirement before the AGM.
The Nomination and Remuneration Committee is convened for the purpose of
considering the appointment of additional Directors as and when considered
appropriate. The Nomination and Remuneration 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
and Remuneration 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 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 and Remuneration 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 changed its name to the Nomination and Remuneration
Committee in May 2023 and incorporated additional duties in the terms of
reference to determine and make recommendations to the Board regarding the
remuneration of the Directors. The newly appended Remuneration Committee
utilised the work of a local specialist before recommending a 10 per cent.
increase, which reflected no remuneration increase since 2016 and the
relatively high workload.
The Nomination and Remuneration Committee met frequently in the first half of
the year, and working with a leading search firm (Fletcher Jones), conducted a
rigorous process, including long and short lists, to identify a successor to
Peter Barker as an Independent Director. Following a process which included a
long list and short list process. The Committee interviewed five candidates in
person and recommended the appointment of Karen McClellan, who has vast
experience in the energy and investment sectors, across a wide range of
applications. This recommendation was accepted and adopted by the Board.
In accordance with both Listing Rules and AIC Guidelines the Board composition
is tabulated below. The Board will continue to take diversity into account as
part of its continuing succession planning and recruitment process.
Board Gender Identity at 31 December 2023
Number of Board Members Percentage of the Board Number of Senior Positions on the Board
Men 4((1)) 66.66% 2
Women 2 33.33% -
((1))It is intended that Patrick Firth will retire before the 2024 AGM
Board Ethnic Background at 31 December
2023
Number of Board Members Percentage of the Board Number of Senior Positions on the Board
White British or other white (including minority-white groups) 6((1)) 100% 2
Other ethnic group - - -
((1))It is intended that Patrick Firth will retire before the 2024 AGM
The Nomination and Remuneration 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 and Remuneration
Committee and the Board confirm that they believe that the Board has an
appropriate mix of skills and backgrounds, that all Directors can 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.
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 Claire Whittet and comprises
Jeremy Thompson, John Roche, Patrick Firth and Richard Horlick, all who held
office throughout the year, as well as Karen McClellan who was appointed to
the Management Engagement Committee on 25 May 2023. Patrick Firth remains a
member of the Management Engagement Committee until his retirement before the
AGM. 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.
As part of the 2023 annual review of service providers, all service providers
were asked to complete a Cyber Security Review Questionnaire ("CSRQ"), the
results of which the Committee commissioned Newgate Compliance Limited
("Newgate"), an affiliate company of the Company's Administrator, to review.
Newgate's report was discussed by the MEC in February 2024. None of the CSRQs
indicated significant cybersecurity weaknesses. Recommendations mostly related
to requests for further detail or minor improvements and Newgate concluded
that the Company's service providers had sufficiently detailed their
cybersecurity arrangements and have adequate processes in place.
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 and Remuneration 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 a FTSE 350 company, in 2023, an externally facilitated
review of the Board, its committees and individual Directors (including the
Chair) was undertaken following a review of six potential providers. The Board
evaluation was facilitated by Lintstock Ltd. The 2023 Board effectiveness
review took the form of a structured questionnaire which covered a range of
key topics including composition, skills, knowledge and experience of the
Board, the respective roles and responsibilities of the Directors, quality of
strategic and risk debate, the effectiveness of decision making and
interactions with management together, including the Chair. 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. The
Lintstock evaluation concluded that the priorities for the Board are
identified as increased emphasis on shareholder engagements, clarification of
the Company's investment strategy and assurance that Board succession is fully
compliant with best practice within the industry.
The Board concluded that overall, it had operated effectively throughout 2023
and 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. During 2023 the Administrator
continued to report to the Board on a quarterly basis with respect to their
performance in respect of financial accounting and financial reporting matters
together with other related matters through a compliance report. However,
the Administrator did not produce a 2023 ISAE 3402: Assurance Reports on
Controls at a Service Organisation report and the Audit Committee was required
to undertake certain additional procedures to ensure that the appropriate
levels of comfort were obtained for the 2023 financial year. The Report of
the Audit Committee outlines this additional review work undertaken. 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 relevant operations of the
Administrator or Investment Manager have been identified.
The systems of control referred to above are designed to ensure the
effectiveness and efficient operation of the relevant internal controls over
financial reporting and compliance with laws and regulations. In establishing
the systems of internal control which the Company relies upon, 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 in financial reporting or loss. These processes
at the Administrator and the Investment Manager have been in place for the
year under review and up to the date of approval of this Annual Report and
Financial Statements. These processes are reviewed by the Board, operating
largely via the Audit Committee and are 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 the 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 2023, the portfolio
level cost benchmark was in deficit by $84.7 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 2023, five investments exceeded the hurdle rate with $32.2 million
not being accrued in light of the portfolio level cost benchmark being in
material deficit and additionally, 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, Patrick Firth, as the Senior
Independent Director from May 2016, 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. Claire Whittet, Management
Engagement Committee Chair, is available to discuss matters regarding the
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 is available for 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.
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/)
2024 Key Shareholder Engagements
February
Quarterly Portfolio Valuations
Full Year Results Approved
March
Extraordinary Meeting in regards to 2024 Tender Offer
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 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 Riverstone, 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. Existing or future shareholders could use or obtain a material ownership
in the Company and exert influence through voting rights. During 2022 and 2023
there has been notified shareholder disquiet with the substantial discount to
NAV of the ordinary shares in the market and concern over the pivot of the
investment strategy to decarbonisation investments and performance to date of
that strategy/use of available cash versus the level of the share buyback
programmes.
4. 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 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.
5. 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 be 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 a significant
termination payment presently in the region of $43 million, including if a
Discontinuation Resolution were to be proposed and passed by Shareholders or
if the Company was otherwise wound up. Please refer to Note 9 for details.
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.
6. 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
2023 and 23 February 2024, respectively, Riverstone and the Company's
Cornerstone Investors, in aggregate, own ~8 per cent. and ~31 per cent, of
outstanding Ordinary Shares, with the largest Cornerstone Investor owning ~20
per cent. at both period-ends.
7. 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
adopted the UN Principles for Responsible Investment and Sustainable
Development Goals.
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 Horlick
Chair of the Board
28 February 2024
Report of the Audit Committee
The Audit Committee 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.
John Roche replaced Patrick Firth as Chair of the Audit Committee with effect
from 1 January 2024. Patrick Firth remains on the Audit Committee and the
Board as a Director, retiring from the Board before the AGM at which he will
not stand for re-election. Its other members are Richard Horlick, Jeremy
Thompson, Karen McClellan and Claire Whittet. Members of the Audit Committee
must be independent of the Company's external auditor and Investment Manager.
The Audit Committee will meet no less than three times in a year, and at such
other times as the Audit Committee 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 where
audit planning and approach discussions take place as well as the meetings at
which the Annual Report and Interim Financial Report are considered. These
meetings will at least annually facilitate an opportunity for the external
auditor to meet with the Audit Committee without representatives of the
Investment Manager or Administrator being present.
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 the going
concern status of the Company and the 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 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 & Young LLP in displaying the necessary
professional scepticism their role requires.
Meetings
During the year ended 31 December 2023, the Audit Committee met formally four
times and maintained ongoing liaison and discussion between the external
auditor and the Chair and other members 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
Audit Committee determined appropriate. The Audit Committee, chaired by new
Audit Committee chair, John Roche, has met on one occasion since the year-end
through to the date of this report on 26 February 2024. The matters discussed
at that and the other 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
including the scope of work for the interim review;
· discussion and approval of the fees for the external audit and
the interim review;
· detailed review of the quarterly and year end valuations of the
Company's investment portfolio held by the Partnership and recommendation for
approval by the Board;
· detailed review of the Annual Report and Financial Statements,
Interim Financial Report and the relevant 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 being
relied upon;
· 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 the individual fair 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 held through 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 2023 was $666 million (31 December 2022: $723
million). Market quotations are not available for this financial asset such
that the value of the Company's investment is based on the fair value of the
Company's limited partner capital account with the Partnership, which itself
is based on the fair value of the Partnership's investments as determined by
the Investment Manager, along with the cash, fixed deposits and other short
term fixed interest securities held. The valuation for each individual
portfolio company investment held by the Partnership is determined by
reference to common industry valuation techniques, including reliance on
listed public market prices, comparable public market valuations, comparable
merger and acquisition transaction valuations, and discounted cash flow
valuations, as detailed in the Investment Manager's Report and Note 5 to the
Financial Statements.
The valuation process, methodology adopted and conclusions were variously
discussed with the Investment Manager and with the external auditor at the
Audit Committee meetings held on 19 October 2023 and 26 February 2024. The
Chair of the Audit Committee was also actively involved in discussions with
the Investment Manager challenging and reviewing the individual investment
fair values proposed and finally concluding on the fair values determined for
investments as at 31 December 2023.
During the audit planning and completion phases, members of the Audit
Committee also sat in on various of the valuation meetings between the
Investment Manager and external auditor. During 2023, the Investment Manager
continued to carry out on an investment-by-investment basis, an inhouse
quarterly valuation, providing the overall summary and detailed valuation
papers and models to the Audit Committee and the Company at each quarter end,
including as at 31 December 2023 with all relevant changes in the valuation
processes explained. The Audit Committee has therefore also been active in
reviewing the quarter on quarter and particularly the year end investment
valuations throughout 2023.
The Audit Committee reviewed the Investment Manager's Report.
The external auditor explained the results of their audit work on individual
investment valuations within the scope of the year-end audit.
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 the Report of the Directors, the Audit Committee
has considered the risks that could impact the Company's liquidity and
therefore its ability to meet its obligations as they fall due over the next
period from the date of approval of the Financial Statements up until March
2025.
The Audit Committee, based on the reasons set out in the Report of the
Directors, is 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 2026. The Audit Committee has determined that the period of three
years continues to be 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, such processes being largely reliant on the effective functioning
of the key parties where the Company has outsourced functions, particularly
the outsourced functions provided by the Investment Manager and the
Administrator.
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.
During 2023 and into 2024, the work of the Audit Committee was again driven
primarily by the Company's assessment of its principal risks and uncertainties
as set out in the Corporate Governance Report. That Corporate Governance
Report has noted that the Administrator did not produce an independently
assured controls report covering the 2023 financial year and therefore the
Audit Committee was required to undertake additional procedures during and
after the reporting period to gain the necessary comfort for the purposes of
financial reporting. These additional procedures were undertaken by a member
of the Audit Committee and included:
· meeting with key accounting and secretarial staff at the
Administrator in Guernsey in Q1 2023 as part of an induction and oversight
process to understand the broad accounting and financial reporting operations
for the Company and the Partnership and the key controls operated by the
Administrator with respect to financial reporting, the custody/control of
cash/assets held by the Company, the oversight of investment management fees
etc;
· meeting with key finance staff at the Investment Manager in New
York in Q4 2023 to understand and challenge (i) the process and key activities
undertaken to deal with the operations, accounting and financial reporting for
the Partnership, (ii) the structure through which investments are ultimately
held, and (iii) the top down and bottom up quarterly investment valuation
processes adopted by the Investment Manager prior to releasing investment
valuations for Audit Committee and Board review; and
· detailed discussions with senior management from the
Administrator to understand and seek assurance as to the normal operations of
the key financial and operating controls that the Company relies upon.
The above procedures allowed the Audit Committee to conclude that there were
no material matters to note.
The Audit Committee receives reports from the Investment Manager and
Administrator on their and by association the Company's risk evaluation
processes 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 eleventh year of audit.
The external auditor is required to rotate the audit partner every five years.
As a result, Richard Le Tissier has replaced David Moore as the Ernst &
Young LLP lead audit partner, who started his tenure in 2018 and ended with
the audit of the 2022 Annual Report and Financial Statements. Richard Le
Tissier therefore started his tenure with the audit of the 2023 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 continues to be decided that the audit
services contract will not be put out to tender for the next reporting period
due to mutual benefits and efficiencies of Ernst & Young's external audit
contract for the Company with the audits of 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. The Audit Committee also approved the external
audit terms of engagement and remuneration. During 2023 and into 2024, the
Audit Committee and/or the Audit Committee Chair held formal and ad hoc
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
and scepticism in dealing with material judgemental areas. 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
Audit 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 Audit 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 2024.
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 2024. 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,
John Roche
Chair of the Audit Committee
28 February 2024
Statement of Financial Position
As at 31 December 2023
Note 31 December 31 December
2023 2022
$'000 $'000
Assets
Non-current assets
Investment at fair value through profit or loss 6 666,024 723,102
Total non-current assets 666,024 723,102
Current assets
Trade and other receivables 2,276 598
Cash and cash equivalents 7 5,781 15,755
Total current assets 8,057 16,353
Total assets 674,081 739,455
Current liabilities
Trade and other payables 512 665
Total current liabilities 512 665
Total liabilities 512 665
Net assets 673,569 738,790
Equity
Share capital 8 1,038,721 1,101,674
Retained deficit (365,152) (362,884)
Total equity 673,569 738,790
Number of Shares in issue at year end 8 42,195,789 50,891,658
Net Asset Value per Share ($) 12 15.96 14.52
The Financial Statements of the Company were approved and authorised for issue
by the Board of Directors on 28 February 2024 and signed on its behalf by:
Richard Horlick John Roche
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 2023
Note 1 January 1 January
2023 to 2022 to
31 December 31 December
2023 2022
$'000 $'000
Investment profit
Change in fair value of investment at fair value through profit or loss 6
2,722 95,939
Expenses
Directors' fees and expenses 9 (902) (854)
Legal and professional fees (608) (1,036)
Other operating expenses (3,654) (3,732)
Total expenses (5,164) (5,622)
Operating (loss)/profit for the financial year (2,442) 90,317
Foreign exchange gain/(loss) 174 (1,388)
(Loss)/profit for the year (2,268) 88,929
Total comprehensive (expense)/income for the year (2,268) 88,929
Basic and Diluted (Loss)/Earnings per Share (cents) 12 (4.86) 171.87
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 2023
Share Retained Total
capital deficit equity
$'000 $'000 $'000
As at 1 January 2023 1,101,674 (362,884) 738,790
Loss for the financial year - (2,268) (2,268)
Total comprehensive expense for the year - (2,268) (2,268)
Buyback and cancellation of shares 8 (62,953) - (62,953)
As at 31 December 2023 1,038,721 (365,152) 673,569
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 8 (32,180) - (32,180)
As at 31 December 2022 1,101,674 (362,884) 738,790
The accompanying notes form an integral part of the Company's Financial
Statements.
Statement of Cash Flows
For the year ended 31 December 2023
Note 1 January 1 January
2023 to 2022 to
31 December 31 December
2023 2022
$'000 $'000
Cash flow used in operating activities
(Loss)/Profit for the financial year (2,268) 88,929
Adjustments for:
(Increase) in fair value of investment at fair value through profit or loss 6 (2,722) (95,939)
Foreign exchange gain/(loss) (174) 1,388
(Increase)/Decrease in trade and other receivables (1,678) 372
(Decrease)/Increase in trade and other payables (153) 1
Net cash used in operating activities (6,995) (5,249)
Cash flow generated from investing activities
Distribution from the Partnership 6 59,800 47,276
Net cash generated from investing activities 59,800 47,276
Cash flow used in financing activities
Buyback of shares 8 (62,953) (32,180)
Net cash used in financing activities (62,953) (32,180)
Net movement in cash and cash equivalents during the year (10,148) 9,847
Cash and cash equivalents at the beginning of the year 15,755 7,296
Effect of foreign exchange rate changes 174 (1,388)
Cash and cash equivalents at the end of the year 5,781 15,755
(1) Cash flows from operating activities for the year ended 31 December 2023
are presented by adjusting Loss for the year before tax as opposed to
Operating loss for the year. Cash flows from operating activities for the year
ended 31 December 2022 have been re-presented in the format adopted for the
year ended 31 December 2023.
The accompanying notes form an integral part of the Company's Financial
Statements
Notes to the Financial Statements
For the year ended 31 December 2023
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 and regulated 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 Private Riverstone 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 2023 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. These fair value movements are predominantly driven
by the fair value movements in the Partnership's underlying investments.
The Company has determined that the fair value of its investment in the
Partnership is $666 million (31 December 2022: $723 million), such valuation
being 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.
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.
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.
Assessment as an Investment entity
Although the Company only has one direct investment, it has indirect exposure
to more than one investment held through the underlying Partnership. The
Directors are of the opinion that the Company meets the essential criteria and
typical characteristics of an Investment Entity as defined in IFRS 10.
Amended standards and interpretations
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 following are the new or amended accounting
standards or interpretations applicable to the current accounting period of
the Company:
· Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of
Accounting policies (effective for annual periods beginning on or after 1
January 2023); and
· Amendments to IAS 8 - Definition of Accounting Estimates (issued
on 12 February 2021 and effective for annual periods beginning on or after 1
January 2023);
The impact of these amendments were not material to the reported results and
financial position of the Company.
Certain amendments to accounting standards have been published that are not
mandatory for 31 December 2023 reporting periods and have not been early
adopted by the Company. These amendments are not expected to have a material
impact on the Company in the current or future reporting periods and on
foreseeable future transactions.
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 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 has some influence but does not control the Partnership and
therefore accounts for the Partnership at fair value.
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.
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. 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 and
the valuation techniques and procedures adopted by the Partnership.
A summary of the more relevant aspects of IPEV to the valuation of the
Partnership's underlying 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.
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.
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 included within the Financial Statements.
In line with IFRS the Partnership's investments are valued at fair value.
The Level 1 are valued using quoted prices in active markets and therefore
these reflect a market participants' view of climate change risk. In
determining the value of Partnership's Level 3 investments consideration is
made as to whether there are any specific climate risks which could directly
impact the value of such investments, including the estimates of future cash
flows and future profitability. In the current and previous period there is
no material impact to the value of the Partnership's Level 3 investments.
Having assessed the impact of Climate Change on the Company, the Directors
concluded this is not expected to have a significant impact on 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 2022: 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 2023 were $666 million (31 December 2022: $723
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
2023 (31 December 2022: $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 the limited partnership capital account received from the General
Partner, which is determined on the basis of the fair value of the
Partnership's assets and liabilities, adjusted if necessary, to reflect
liquidity, future commitments, and other specific factors of the Partnership.
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 and other fixed income securities held. Any
fluctuation in the value of the Partnership's investments in addition to cash,
cash equivalents and short-term money market and other fixed income securities
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
valuations, comparable merger and acquisition transaction valuations and
discounted cash flow valuations. 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 held in its structure 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 2023, 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
2023
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))
$157,807 Public comparables 2024E EV / EBITDA multiple 12.5x 27.5x 22.3x 30 per cent. weighted average change in the input would result in 2 per cent. 29,406
change in the total fair value of Level 3 investments
2024E EV / Revenue Multiple ((5)) 1.3x 10.6x 7.4x 40 per cent. weighted average change in the input would result in 5 per cent. 80,493
change in the total fair value of Level 3 investments
2025E EV / Revenue Multiple 1.5x 2.0x 1.9x 20 per cent. weighted average change in the input would result in 1 per cent. 34,250
change in the total fair value of Level 3 investments
2026E EV / Revenue Multiple 1.3x 1.3x 1.3x 30 per cent. weighted average change in the input would result in 1 per cent. 7,125
change in the total fair value of Level 3 investments
2027E EV / Revenue Multiple(() 1.0x 2.0x 1.0x 30 per cent. weighted average change in the input would result in 1 per cent. 3,125
change in the total fair value of Level 3 investments
2027E EV / EBITDA Multiple((5)) 2.0x 6.0x 2.6x 30 per cent. weighted average change in the input would result in 1 per cent. 3,125
change in the total fair value of Level 3 investments
Transaction comparables Precedent M&A Transaction 6.6x 17.8x 12.8x 50 per cent. weighted average change in the input would result in 3 per cent. 17,385
change in the total fair value of Level 3 investments
Discounted cash flow Discount Rate((4)) 30% 10% 18% +/-50 per cent. weighted average change in the input would result in -/+1 per 70,189
cent. change in the total fair value of Level 3 investments
$16,934 Other((6))
$174,741 Total
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))
$255,797 Public comparables 2023E EV / EBITDA Multiple 16.0x 36.0x 34.1x 25 per cent. weighted average change in the input would result in 1 per cent. 53,156
change in the total fair value of Level 3 investments
2024E EV / EBITDA Multiple 1.0x 3.0x 1.0x 25 per cent. weighted average change in the input would result in 6 per cent. 118,348
change in the total fair value of Level 3 investments
2022E EV/Revenue Multiple 2.0x 12.4x 7.2x 20 per cent. weighted average change in the input would result in 1 per cent. 40,043
change in the total fair value of Level 3 investments
2023E EV/Revenue Multiple 2.0x 19.1x 10.9x 20 per cent. weighted average change in the input would result in 1 per cent. 113,406
change in the total fair value of Level 3 investments
Transaction comparables Asset Value ($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
( )
( )
((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)) Some of the Partnership's Level 3 investments are valued using one or
more of the techniques which utilise one or more of the unobservable inputs,
so the amounts in the "Fair value of Level 3 investments" column will not
aggregate to the total fair value of the Partnership's Level 3 investments as
they have not been adjusted to reflect the specific weighting applied to each
method at the year end.
((4)) Discounted cash flow technique involves the use of a discount factor of
10 per cent.
((5)) As at 31 December 2023, 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 2022.
((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 2023 and 31 December 2022, respectively.
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 a number of these 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 certain of these investments may differ from
the fair values reflected in these Financial Statements and incorporated into
the fair value of the Company's investment in the Partnership and the
differences may be significant.
The Board approves the valuations performed by the Investment Manager and
monitors the range of reasonably possible changes in significant observable
inputs on a regular basis with consultation from the Investment Manager. Using
its extensive industry experience, the Investment Manager provides the Board
with its determination of the reasonably possible changes in significant
unobservable inputs in normal market conditions as of the year end.
The Directors have considered whether a discount or premium should be applied
to the net asset value of the Partnership 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
2023 2022
$'000 $'000
Cost
Brought forward 1,046,814 1,094,090
Distribution from the Partnership (59,800) (47,276)
Carried forward 987,014 1,046,814
Fair value movement through profit or loss
Brought forward (323,712) (419,651)
Fair value movement during the year - see Summary Income Statement below 2,722 95,939
Carried forward (320,990) (323,712)
Fair value at year end 666,024 723,102
Summary financial information for the Partnership's investments and its
related Investment Undertakings
Summary Balance Sheet 31 December 31 December
2023 2022
$'000 $'000
Investments at fair value 384,255 657,040
Cash and cash equivalents ((1)) 283,593 68,483
Management fee payable - see Note 9 (2,193) (2,682)
Other net assets 369 261
Fair value of REL's investment in the Partnership 666,024 723,102
( )
((1)) These figures, together with the $2 million held at REL US Corp (31
December 2022: $35.3 million), comprise the $286 million cash and cash
equivalents held in the Partnership (31 December 2022: $103.8 million).
Reconciliation of Partnership's investments at fair value 31 December 31 December
2023 2022
$'000 $'000
Investments at fair value - Level 1 207,495 177,136
Investments at fair value - Level 3 - see Note 5 174,741 464,592
Investments at fair value((1)) 382,236 621,728
Cash and cash equivalents 2,019 35,312
Partnership's investments at fair value 384,255 657,040
((1) ) Partnership holds investments indirectly through
Investment Undertaking
Summary Income Statement 1 January 1 January
2023 to 2022 to
31 December 31 December
2023 2022
$'000 $'000
Unrealised and realised gain on Partnership's investments 5,315 108,696
Interest and other income 9,215 1,477
Management fee expense - see Note 9 (9,431) (11,302)
Other operating expenses (2,377) (2,932)
Portion of the operating gain for the year attributable to REL's investment in
the Partnership
2,722 95,939
Reconciliation of unrealised and realised gain on Partnership's investments 1 January 1 January
2023 to 2022 to
31 December 31 December
2023 2022
$'000 $'000
Unrealised gain on Partnership's investments 48,358 148,511
Realised loss on Partnership's investments (43,024) (37,235)
General Partner's performance allocation - see Note 9 - -
Release of provision for taxation (19) (2,580)
Unrealised and realised gain on Partnership's investments
5,315 108,696
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
2023 2022
$'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 during year ended 31 December 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) (4,045,941)
Cancelled during year ended 31 December 2023 (8,695,869) -
Shares as at year end 42,195,789 50,891,658
Share capital $'000 $'000
Share capital brought forward 1,101,674 1,133,854
Movements for the year:
Cancellation of shares (62,953) (32,180)
Share capital as at year end 1,038,721 1,101,674
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 May 2023, the Company announced a share buyback programme for £30.0
million in the value of the Company's Ordinary Shares. During 2023 the Company
acquired 5,513,673 Ordinary Shares which were subsequently cancelled.
On 17 August 2023, the Company announced a Tender Offer for £18.4 million in
the value of the Company's Ordinary Shares. The Company acquired 3,182,196
Ordinary Shares which were cancelled on 29 September 2023.
Following the cancellation of Ordinary Shares from the Tender Offer and share
buyback programme, the share capital of the Company is 42,195,789 Ordinary
Shares in aggregate.
9. Related party transactions
The following parties are considered to be the Company's related parties as
defined by IFRS.
Directors
The Company has six non-executive Directors (31 December 2022: seven). The
Chair of the Board is entitled to annual remuneration of £145,200 (31
December 2022: £132,000). The Chair of the Audit Committee is entitled to
annual remuneration of £90,750 (31 December 2022: £82,500), the Chair of the
Management Engagement Committee is entitled to annual remuneration of £78,650
(31 December 2022: £71,500) and the Chair of the Nomination and Remuneration
Committee is entitled to remuneration of £78,650 (31 December 2022:
£71,500). The other independent Directors are entitled to annual remuneration
of £72,600 (31 December 2022: £66,000).
Directors' fees and expenses for the year ended 31 December 2023 amounted to
$901,531 (31 December 2022: $854,413) which resulted in a reduction to the 31
December 2023 quarter-end management fee as further discussed below. $nil of
Directors' expenses were outstanding at year-end (31 December 2022: $nil).
Partnership
In accordance with section 4.1(a) of the Partnership Agreement, the Company
received distributions in aggregate of $59.8 million (31 December 2022: $47.2
million) from the Partnership through the year to 31 December 2023. The
Company also received inter-entity loans of $1.7 million from the Partnership
to fund further investments and the Tender Offer. 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 distributions
from the Partnership.
Investment Manager
The Investment Manager, an affiliate of Riverstone, provides advice to the
Company and the General Partner 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 2023, the maximum amount of annual fees,
travel and related expenses of the Directors is $568,574 (31 December 2022:
$765,682). During the year ended 31 December 2023, fees and expenses of the
Directors amounted to $901,531 (31 December 2022: $854,413), resulting in a
reduction of $332,957 to the 31 December 2023 quarter-end management fee (31
December 2022: reduction of $88,731 of the quarter-end management fee).
During the year ended 31 December 2023, the Partnership incurred management
fees of $9,430,572 (31 December 2022: $11,302,322) of which $2,192,927
remained outstanding as at the year-end (31 December 2022: $2,681,729). In
addition, the Company and Partnership, in aggregate, reimbursed the Investment
Manager $2,528,979 in respect of amounts paid on their behalf for the year (31
December 2022: $2,028,851), of which $2,498,492 related to legal and
professional fees of the Company and Partnership ($218,956 specific to the
Company) (31 December 2022: $1,376,733), and $101,386 related to travel and
other operating expenses of the Investment Manager (all specific to the
Company), (31 December 2022: $192,603), and reimbursable amounts from the
Investment Manager of $70,900 (31 December 2022: due to the Investment Manager
of $459,515) related to expenses incurred by portfolio companies (all specific
to the Partnership).
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 ($8,771,708) and an amount equal to the
performance allocation due on the Company's investments on the basis, at the
Company's option, of the latest quarterly valuation ($nil) 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 ($43,858,530) and an amount equal to the
performance allocation due on the Company's investments on the basis, at the
General Partner's option, of the latest quarterly valuation ($nil) 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 Management Agreement will continue in perpetuity
subject to the termination for cause provisions described above. However,
either the Board or Shareholders holding in aggregate 10 per cent. of the
Company's voting securities can call an EGM at any time to vote on the
liquidation of the Company (75 per cent. of the votes cast in favour required)
or run-off of its portfolio (50 per cent. of the votes cast in favour
required).
Under both these scenarios, the General Partner would be entitled to twenty
times the most recent quarterly management fee payable to the Investment
Manager ($43,858,530 as of 31 December 2023).
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 2023, the Partnership paid performance
allocation of $nil (31 December 2022: $nil) of which $nil remained outstanding
as at the year-end (31 December 2022: $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 2023, the portfolio
level cost benchmark was in deficit of $84.7 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 2023, five investments exceeded the hurdle rate and the total
portfolio's Gross IRR was 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.
In accordance with the revised terms above, no further performance allocation
will be payable until the $84.7 million of realised and unrealised losses to
date at 31 December 2023 are made whole with future gains. The earned
performance allocation of $0.8 million at 31 December 2023 expired in October
2023 as the aforementioned losses were not made whole. Since REL has not yet
met the appropriate Cost Benchmark at 31 December 2023, $32.2 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
2023 2022
$'000 $'000
Financial assets
Investment at fair value through profit or loss:
Investment in the Partnership 666,024 723,102
Other financial assets:
Cash and cash equivalents 5,781 15,755
Trade and other receivables 2,276 598
Financial liabilities
Financial liabilities:
Trade and other payables (512) (665)
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
8,695,869 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 $368,027,035 (31 December 2022: $621,728,409). Please
refer to Note 5 for quantitative information about the fair value measurements
of the Partnership's Level 3 investments. There were $207 million (31 December
2022: $177 million) Level 1 investments which are exposed to price risk as
well. A change of +/- 10 per cent. in the Level 1 investments would result in
a +/- $20.7 million change in their fair value (31 December 2022: a change of
+/- 10 per cent. in the Level 1 investments would result in a +/- $17.7
million change in their fair value).
The Partnership is exposed to a variety of risks which may have an impact on
the carrying value of the Company's investment in the Partnership. The
Partnership's risk factors are set out in (a)(i) to (a)(iii) below.
(i) Not actively traded
The Partnership's investments are not generally traded in an active market but
are indirectly exposed to market price risk arising from uncertainties about
future values of the investments held. The underlying investments of the
Partnership vary as to industry sub-sector, geographic distribution of
operations and size, all of which may impact the susceptibility of their
valuation to uncertainty.
Although the investments are in the same industry, this risk is managed
through careful selection of investments within the specified limits of the
investment policy. The investments are monitored on a regular basis by the
Investment Manager.
(ii) Concentration
The Company, through the Partnership, invests in the global energy sector,
with a particular focus on businesses that engage in oil and gas exploration
and production and midstream investments in that sector. This means that the
Company is exposed to the risk of only making investments in the global energy
sector, which 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 2023, $285.6 million((1)) or 42.6 per cent. (31 December
2022: $103.8((1)) million or 14.3 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 and cash equivalent balances, being
a mix of cash balances held on deposit with several A or higher rated banks
and short term fixed rate securities.
((1)) These figures are comprised of $283.6 million (2022: $68.5 million) held
at the Partnership and $2 million (2022: $35.3 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 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 2023 $ £ Total
Assets $'000 $'000 $'000
Non-current assets
Investment in the Partnership((1)) 666,024 - 666,024
Total non-current assets 666,024 - 666,024
Current assets
Trade and other receivables 2,238 38 2,276
Cash and cash equivalents 932 4,849 5,781
Total current assets 3,170 4,887 8,057
Current liabilities
Trade and other payables 110 402 512
Total current liabilities 110 402 512
Total net assets 669,084 4,485 673,569
((1)) Includes the fair value of one investment held through the Partnership,
Crescent Point Energy, denominated in CAD and therefore subject to foreign
currency risk. This investment had an aggregate fair value of $57.2 million as
at 31 December 2023.
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
((1)) Includes the fair value of one investment held through the Partnership,
Hammerhead Energy (now Cresent Point Energy), 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.
(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 cash and cash equivalents were held by the Partnership on interest bearing
fixed deposit accounts and Treasury Bills. 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
2023 2022
$'000 $'000
Non-interest bearing
Cash and cash equivalents 5,781 15,755
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 $59.8 million (£47.1 million) from the
Partnership (2022: $47.3/£39.1 million) to continue to fund the 2022 and 2023
share buyback programmes, 2023 Tender Offer and ongoing expenses. 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 twelve
distributions from the Partnership for working capital needs. As at 31
December 2023, REL, through the Partnership, had available liquid resources of
$286 million in excess of potential unfunded commitments of $6.2 million, but
currently, as of the date of this report, REL, through the Partnership, has
total potential unfunded commitments of up to $6.0 million.
The Company's financial assets (excluding equity investments) and liabilities
have an expected maturity of less than 12 months from 31 December 2023 (2022:
less than 12 months from 31 December 2022). 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
2025.
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
2023 2022
Counterparty Location Rating $'000 $'000
Barclays Bank Plc Guernsey A 5,781 15,755
((1)) The Partnership holds its cash and cash equivalents ($284 million) at
Barclays Bank Plc (Rating: A) and Citibank (Rating: A+).
The Company's maximum exposure to loss of capital from credit risk at the
year-end is shown below:
31 December 2023 Carrying Value and Maximum exposure
$'000
Other financial assets (including cash and cash equivalents but excluding 4,039
prepayments and loan from the Partnership)
31 December 2022 Carrying Value and Maximum exposure
$'000
Other financial assets (including cash and cash equivalents but excluding 15,755
prepayments)
Gearing
As at the date of these Financial Statements the Company itself has no
gearing. The Company may have indirect gearing through the operations of the
underlying investee companies.
11. Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board of
Directors, as a whole. The key measure of performance used by the Board to
assess the Company's performance and to allocate resources is the Total Return
of the Company's Net Asset Value and therefore no reconciliation is required
between the measure of profit or loss used by the Board and that contained in
the Financial Statements.
For management purposes, the Company is organised into one main operating
segment, which invests in one limited partnership.
All of the Company and the Partnership's income is derived from within
Guernsey and the Cayman Islands.
All of the Company's non-current assets are located in the Cayman Islands.
Due to the Company's nature, it has no customers.
12. (Loss)/Earnings per Share and Net Asset Value per Share
(Loss)/Earnings per Share
31 December 2023 31 December 2022
Basic / Diluted Basic / Diluted
(Loss)/Profit for the year ($'000) (2,268) 88,929
Weighted average numbers of Shares in issue 46,651,893 51,742,789
(Loss per share)/EPS (cents) (4.86) 171.87
The (Loss)/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 that year.
The weighted average number of Shares during the year is 46,651,893 (31
December 2022: 51,742,789).
There are no dilutive Shares in issue as at 31 December 2023 (31 December
2022: nil).
Net Asset Value per Share
31 December 2023 31 December 2022
Basic / Diluted Basic / Diluted
NAV ($'000) 673,569 738,790
Number of Shares in issue 42,195,789 50,891,658
Net Asset Value per Share ($) 15.96 14.52
Net Asset Value per Share (£) 12.53 11.99
Share Price (£) 8.01 6.78
Discount to NAV (per cent.) 36.09 43.46
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 but is not limited to all fees payable to the
auditor, which can be analysed as follows:
2023 2022
$'000 $'000
Ernst & Young LLP Audit fees 617 626
2023 2022
$'000 $'000
Ernst & Young LLP Interim Review fees 213 211
Ernst & Young Non-Audit fees 213 211
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
2023, as well as the Shareholders' financial highlights required under US
GAAP.
Assessment as an Investment Entity
As stated in Note 2, 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)
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 accounts for its investment in the Partnership at FVTPL 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. No
additional disclosures are needed, as the applicable fair value valuation
techniques and disclosures are consistent to those made under IFRS.
Shareholders' Financial Highlights
Year Ended Year Ended
31 December 31 December
2023 2022
Expense ratio(1) 2.5% 2.7%
Performance Allocation ratio(1) 0.0% 0.0%
Total Expense and Performance Allocation ratio 2.5% 2.7%
Net investment loss ratio(2) (1.9) % (2.6) %
Internal rate of return(3), beginning of year (3.8) % (5.4) %
Internal rate of return(3), end of year (3.7) % (3.8) %
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 2023 and 2022, 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
2023. 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 announced 8 February 2024, the Company proposes to return $200 million
(equivalent to approximately £158 million on the basis of the prevailing
USD:GBP exchange rate) of its excess capital to shareholders by means of a
tender offer at a price of £10.50 per ordinary share. The Tender Price
represents a premium of approximately 31 per cent. to the closing market price
per ordinary share of £8.00 on 7 February 2024 and represents a 16 per cent.
discount to the unaudited net asset value per ordinary share of £12.53 as at
31 December 2023 (on the basis of the prevailing USD:GBP exchange rate at 31
December 2023 of 1.2736). The Company launched the 2024 Tender Offer on 23
February 2024 for up to 15,047,619 of the Company's ordinary shares,
representing 36 per cent. of the existing shares in issue (excluding any
ordinary shares held in treasury, of which there are none currently) and the
2024 Tender Offer will close on 25 March 2024. The 2024 Tender Offer will
require shareholder approval at an extraordinary general meeting of the
Company's shareholders, which is due to be held on 26 March 2024, and will be
subject to other legal, regulatory and customary conditions.
On 3 February 2024, a potential acquiror of FreeWire, who had been under
exclusivity, withdrew from the sale process. Given the accelerating cash
constraints and limited runway in combination with the sale process
withdrawal, FreeWire evaluated all alternatives which culminated in a sale of
the company on 20 February 2024 to a private investor. The consideration with
respect to the sale was 100 per cent. assumption of all company liabilities.
As of 20 February 2024, REL, through the Partnership, has a realized Gross
MOIC of 0.00x in the FreeWire investment, which is no longer an investment in
the portfolio.
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. 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.
For the 2023 Annual Report, the APMs, Performance Allocation Ratio and Net
Contributed Capital to Total Capital Commitments are no longer deemed relevant
and have been removed from the below table. The performance allocation has
been nil since amendments to the Investment Management Agreement in 2020, as
the portfolio level cost benchmark has remained in deficit. The Shareholders'
gross capital contributions have remained at 100 per cent. for many years.
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 ($674 million
as at 31 December 2023 and $739 million as at 31 December 2022) divided by the
number of Ordinary Shares in issue as at the calculation date (42,195,789 as
at 31 December 2023 and 50,891,658 as at 31 December 2022).
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 ($15.96 for the year ended 31
December 2023 & $14.52 for the year ended 31 December 2022) as a
percentage of the opening NAV per Ordinary Share as shown in the Statement of
Financial Position (being $14.52 per ordinary share as at 31 December 2022
& $12.41 as at 31 December 2021).
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 (36.1 per cent. as at 31
December 2023 and 43.5 per cent. as at 31 December 2022).
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 2023: $16,989,622 (31
December 2022: $19,856,075).
Average NAV of the Company for the year ended 31 December 2023: $666,773,589
(31 December 2022: $742,637,411).
Annual total costs' impact of return per year:
2.6 per cent. as of 31 December 2023 (2.6 per cent. as of 31 December 2022).
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 2023:
into the Company's assets, cash received from the Company's investment
portfolio and the net unrealised change in value. $622 million - Brought Forward
$22 million - Capital Invested
$(272) million - Cash Proceeds
$10 million - Change in Unrealised Gain/ (Loss)
$382 million - Carried Forward
For the year ended 31 December 2022:
$578 million - Brought Forward
$95 million - Capital Invested
$(164) million - Cash Proceeds
$113 million - Change in Unrealised Gain/(Loss)
$622 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 1.9 per cent. for
the year ended 31 December 2023 & 2.7 per cent. for the year ended 31
December 2022).
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. (1.9 per cent. for the year ended 31 December 2023 & 2.6
per cent. for the year ended 31 December 2022).
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
2023. The IRR of the Shareholders is net of all fees and performance
allocation to the General Partner of the Partnership.
(3.7) per cent. as of 31 December 2023
(3.8) per cent. as of 31 December 2022
(5.4) per cent. as of 31 December 2021
Glossary of Capitalised Defined Terms
"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;
"APMs" means Alternative Performance Measures;
"Articles of Incorporation" or "Articles" means the articles of incorporation
of the Company, as amended from time to time;
"ASC 946" means per US GAAP (Financial Services - Investment Companies (Topic
946): Amendments to the Scope, Measurement, and Disclosure Requirements;
"Audit Committee" means a formal committee of the Board with defined terms of
reference;
"Board" or "Directors" means the directors of the Company;
"Boe/d" means Barrels of Oil Equivalent 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;
"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 Deutsche Numis;
"C Corporation" means a C Corporation, under U.S. federal income tax law,
being a corporation that is taxed separately from its owners;
"Crescent Point Energy" means Crescent Point Energy Corp;
"CRS" means Common Reporting Standard;
"DCRB" means Decarbonisation Plus Acquisition Corporation;
"DCRC" means Decarbonisation Plus Acquisition Corporation III
"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" or ''Loss per Share'' means the Earnings or Loss
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;
"ESG" means Environmental, Social and Governance;
"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;
"Group14" means Group14 Technologies, Inc.;
"Hammerhead Energy" means Hammerhead Energy Inc.;
"Henry Hub" means a pipeline interchange of natural gas in North America used
as a benchmark in gas pricing;
"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;
"Infinitum Electric" means Infinitum Electric, Inc.;
"IRR" means the internal rate of return since the commencement of operations;
"Interim 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), the 2(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;
"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.;
"Mmbtu" means one million British thermal units;
"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 and Remuneration 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;
"ONE" or "Our Next Energy" means Our Next Energy, Inc.;
"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;
"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;
"POI Law" means the Protection of Investors (Bailiwick of Guernsey) Law, 2020,
as amended;
"Private Riverstone Funds" means Fund V and all other private multi-investor,
multi-investment funds that are launched after Admission and are managed or
advised by the Investment Manager (or one or more of its affiliates) and
excludes Riverstone employee co-investment vehicles and any Riverstone managed
or advised private co-investment vehicles that invest alongside either Fund V
or any multi-investor multi-investment funds that the Investment Manager (or
one or more of its affiliates) launches after Admission;
"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;
"SaaS" means Software as a Service;
"Samsung Portfolio" means Samsung Ventures' battery technology focused venture
capital portfolios;
"Shareholder" means the holder of one or more Ordinary Shares;
"Sierra" means Sierra Oil and Gas Holdings, L.P.;
"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 the £18.4 million in value of ordinary shares acquired
by the Company in 2023;
"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;
"UCITS" means undertakings for collective investment in transferable
securities;
"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;
"VWAP" means Volume-Weighted Average Price;
"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 Horlick (Chair of the Board from 1 March 2023) Ocorian Administration (Guernsey) Limited Hogan Lovells International LLP
Atlantic House
Patrick Firth PO Box 286
Holborn Viaduct
London
Karen McClellan (from 25 May 2023) Floor 2
EC1A 2FG
John Roche Trafalgar Court
United Kingdom
Jeremy Thompson Les Banques
Claire Whittet St Peter Port
Guernsey advocates to the Company
Guernsey
Carey Olsen
Audit Committee GY1 4LY
Carey House
Patrick Firth (Chair of the Committee until 31 December 2023) Channel Islands
PO Box 98
John Roche (Chair of the Committee from 1 January 2024)
Les Banques
Richard Horlick Registered office
St Peter Port
Karen McClellan (from 25 May 2023) PO Box 286
Guernesey
Jeremy Thompson Floor 2
GY1 4BZ
Claire Whittet Trafalgar Court
Channel Islands
Les Banques
Management Engagement Committee St Peter Port
U.S. legal advisors to the Company
Claire Whittet (Chair) Guernsey
Vinson & Elkins LLP
Patrick Firth GY1 4LY
1001 Fannin Street
Richard Horlick Channel Islands
Suite 2500
Karen McClellan (from 25 May 2023)
Houston, Texas
John Roche Registrar
TX 77002
Jeremy Thompson Link Asset Services
United States of America
65 Gresham Street
Nomination and Remuneration Committee London
Independent auditor
Jeremy Thompson (Chair) EC2V 7NQ
Ernst & Young LLP
Patrick Firth United Kingdom
PO Box 9, Royal Chambers
Richard Horlick
St Julian's Avenue
Karen McClellan (from 25 May 2023) Principal banker and custodian
St Peter Port
John Roche Barclays Bank PLC
Guernsey
Claire Whittet PO Box 41
Le Marchant House GY1 4AF
Le Truchot Channel Islands
Investment Manager
St Peter Port
Guernsey
RIGL Holdings, LP
GY1 3BE
Corporate Brokers
190 Elgin Avenue Channel Islands
JP Morgan Cazenove
George Town
25 Bank Street
Grand Cayman
Canary Wharf
KY1-9005
London
Cayman Islands
E15 5JP
United Kingdom
Investment Manager's Performance Review Team
Pierre Lapeyre
Deutsche Numis
David Leuschen
The London Stock Exchange Building
Baran Tekkora
10 Paternoster Square
London
Website: www.RiverstoneREL.com
EC4M 7LT
ISIN: GG00BBHXCL35
United Kingdom
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 2023 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)
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR SESFAAELSEFERecent news on Riverstone Energy
See all newsREG - Riverstone Energy Ld - Variation of Corporate Broker Services
AnnouncementREG - Riverstone Energy Ld - Notice of Annual General Meeting
AnnouncementREG - Riverstone Energy Ld Barclays PLC - Holding(s) in Company
AnnouncementREG - Riverstone Energy Ld - Holding(s) in Company
AnnouncementREG - Riverstone Energy Ld - Holding(s) in Company
Announcement