REG - Riverstone Energy Ld - Annual Report and Financial Statements
24/02/2022 07:00
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RNS Number : 6455C Riverstone Energy Limited 24 February 2022
Annual Report and Financial Statements
for the year ended 31 December 2021
Riverstone
Energy
Powering a shift toward energy transition Limited
(LSE: RSE)
Who We Are…
Riverstone Energy Limited
The Company's investment manager is RIGL Holdings, LP, which is majority-owned
and controlled by affiliates of Riverstone.
Riverstone is an energy and power-focussed private investment firm founded in
2000 by David M. Leuschen and Pierre F. Lapeyre with approximately $43 billion
of capital raised. Riverstone conducts buyout and growth capital investments
in the E&P, midstream, oilfield services, power and renewable sectors of
the energy industry. Since 2009, Riverstone has invested over $6 billion in
renewable energy and decarbonisation, across 26 investments in technologies
ranging from wind development to financial software facilitating renewable
deployment. With offices in New York, London, Houston, Mexico City, Amsterdam
and Menlo Park, the firm has committed to over 200 investments in North
America, Latin America, Europe, Africa, Asia and Australia.
Riverstone Energy Limited seeks to achieve superior risk adjusted returns
through investing in the energy sector with a specific focus on energy
transition and decarbonisation of the global economy.
The transition to a clean mix of energy sources will require unprecedented
investment in new technologies and infrastructure. REL is poised to power that
momentum by supporting its legacy positions and by executing on its modified
investment programme. In 2021, REL invested $97 million in eight companies
located at diverse junctions of the energy transition value chain.
The registered office of the Company is PO Box 286, Floor 2, Trafalgar
Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.
Financial and Operational Highlights((1))
Commitments during the year ended 31 December 2021 Commitments increased by a total of $97 million ($97 million pursuant to
decarbonisation strategy):
(i) $30 million in Samsung Ventures
(ii) $25 million in GoodLeap, LLC (formerly Loanpal, LLC)
(iii) $20 million in Solid Power, Inc.
(iv) $10 million in Hyzon Motors, Inc.
(v) $10 million in FreeWire Technologies, Inc.
(vi) $0.6 million in Decarbonization Plus Acquisition Corp. II/Tritium
DCFC Limited((2))
(vii) $0.6 million in Decarbonization Plus Acquisition Corp. III/Solid
Power Inc.((2))
(viii) $0.6 million in Decarbonization Plus Acquisition Corp. IV((2))
Remaining potential unfunded commitments at 31 December 2021 $13 million((3)(4)) ($7 million pursuant to decarbonisation strategy and $6
million pursuant to legacy conventional strategy):
(i) $7 million in Enviva Holdings, LP
(ii) $6 million in Onyx Power
Investments during the year ended 31 December 2021 Invested a total of $108 million((3)) ($97 million pursuant to decarbonisation
strategy and $11 million pursuant to legacy conventional strategy):
(i) $30 million in Samsung Ventures
(ii) $25 million in GoodLeap, LLC (formerly Loanpal, LLC)
(iii) $20 million in Solid Power, Inc.
(iv) $10 million in FreeWire Technologies, Inc.
(v) $10 million in Hyzon Motors, Inc.
(vi) $7 million in Onyx Power
(vii) $4 million in ILX Holdings III, LLC
(viii) $0.6 million in Decarbonization Plus Acquisition Corp. II
(ix) $0.6 million in Decarbonization Plus Acquisition Corp. III
(x) $0.6 million in Decarbonization Plus Acquisition Corp. IV
Realisations during the year ended 31 December 2021 Realised a net total of $176 million((3)) ($175 million pursuant to legacy
conventional strategy and $1 million pursuant to decarbonisation strategy):
(i) $167 million in ILX Holdings III, LLC
(ii) $6 million in Castex Energy 2014, LLC
(iii) $2 million in Meritage Midstream Services III, L.P.
(iv) $3 million in aggregate from GoodLeap, LLC (formerly Loanpal,
LLC), Rock Oil Holdings, LLC and Ridgebury H3 LLC
(v) ($2 million) in Sierra Oil & Gas Holdings, L.P.
Key Financials
2021 2020
NAV as at 31 December $682 million / $390 million /
£506 million((5)) £286 million((5))
NAV per Share as at 31 December $12.41 / £9.19 ((5)) $6.20 / £4.55((5))
Market capitalisation at 31 December $345 million / $255 million /
£255 million((5)) £187 million((5))
Cash and cash equivalents at 31 December $106 million((6)) / $99 million((6)) /
£78 million((5)) £73 million((5))
Marketable securities (unrestricted) at 31 December $195 million((7)) / $31 million((7)) /
£144 million((5)) £23 million((5))
Marketable securities (restricted) at 31 December $47 million((8)) / n/a
£35 million((5))
Share price at 31 December $6.28 / £4.65((5)) $4.05 / £2.97((5))
Total comprehensive income/(loss) for the year ended 31 December $341.9 million $(318.9) million
Basic and diluted Earnings/(Loss) per Share for the year ended 31 December 561.73 cents (442.25) cents
Number of Shares repurchased/average price per Share for the year ended 31 8,000,867 16,958,265
December ((9))
$6.28 / £4.60 $3.68 / £2.90
Number of Shares outstanding at 31 December 54,937,599 62,938,466
Per cent. change in Share price for the year ended 31 December 56.6 per cent. (28.3) per cent.
( )
((1) ) Amounts shown reflect investment-related activity at the Partnership,
not the Company.
((2)) Represents investment in Founder Shares and Warrants consistent with
Sponsor economics for DCRN and DCRC of $0.0025 cost per Founder Share and
$1.50 cost per Founder Warrant, which is exercisable on a one-for-one basis,
and for DCRD of $0.0022 cost per Founder Share and $1.00 cost per Founder
Warrant, which is exercisable on a one-for-one basis.
((3)) Amounts may vary due to rounding.
((4)) Excludes the remaining unfunded commitments for Carrier II and
Hammerhead of $36 million, in aggregate, which are not expected to be funded.
The expected funding of the remaining unfunded commitments at 31 December 2021
are $nil in 2022, 2023 and 2024. The residual amounts are to be funded as
needed in 2025 and later years.
((5)) Based on exchange rate of 1.3503 $/£ at 31 December 2021 (1.3643 $/£
at 31 December 2020 and 1.606 $/£ at IPO).
((6)) At 31 December 2021 and 2020, respectively, amounts are comprised of
$7.3 million and $8.8 million held at the Company, $4.5 million and $90.3
million held at the Partnership and $94.0 million and $nil held at REL US
Corp.
((7)) Unrestricted marketable securities held by the Partnership consist of
publicly-traded shares of Centennial, Pipestone, Enviva, Solid Power, Hyzon
and Talos for which the aggregate fair value was $195 million at 31 December
2021, and $180 million as of 22 February 2022, exclusive of the sale of
Pipestone for proceeds of $41.7 million. (31 December 2020: Centennial,
Pipestone and Talos).
((8)) Restricted marketable securities held by the Partnership consist of
publicly-traded shares of Solid Power, DCRN/Tritium and DCRD for which the
aggregate fair value was $47 million at 31 December 2021 and $42 million as of
22 February 2022. (31 December 2020: n/a).
((9)) Inception to date total number of shares repurchased were 24,959,132 at
an average price per share of £3.45 ($4.52).
Chairman's Statement
While it hasn't been without its challenges, there was much to be optimistic
about in 2021. It is perhaps too early to call an end to the COVID-19
pandemic, but real progress on vaccination has been made and it is encouraging
to see economies around the world return to growth. At the same time, we have
seen a huge increase in national and international commitments to
decarbonisation, not just of the energy sector but across construction,
logistics, agriculture and heavy industry. Further, the current situation
between Russia and Ukraine continues to create uncertainty in the global
energy markets. While international efforts to find a peaceful solution
persist, any further escalations are likely to push energy prices higher.
After several years of restructuring and reorienting our investment portfolio,
I believe that REL is now well placed to capitalise on these changes. While
improving the cost efficiency of our commodity-linked portfolio we have picked
up the pace of our investments into the businesses that are developing and
installing the technologies and infrastructure that will help the world to
meet its net zero commitments.
Committed to accelerating the transition in a pivotal year for climate
Without doubt, 2021 has been an important year for climate - one in which the
world signed up to bigger and bolder emissions reduction targets in an effort
to achieve net zero. In the run up to COP26 in Glasgow in November we saw a
number of major commitments from governments around the world.
President Biden's Leaders' Summit on Climate in April brought together over 40
Heads of State to announce a series of new climate ambitions - notably China's
decision to begin phasing out coal use over the 2026-2030 period. The US,
Japan, UK and Australia all announced new mid-term CO2 reduction targets and
the IEA highlighted the need for radical action if the world is serious about
tackling climate change in its new "Net Zero by 2050" scenario.
The focus for COP26 itself was on making enough progress in talks to keep open
a credible path to limiting global rises in temperature to 1.5 degrees
centigrade by the end of the century. Following the event, it is now estimated
that 90 per cent. of the global economy is covered by a net zero target - with
India among the most significant additions to the list. A commitment was also
made to phase down the use of coal, reduce methane emissions, and tackle
deforestation and land use. The establishment of the Glasgow Financial
Alliance for Net Zero also saw banks, asset managers and owners with $130
trillion under management commit to align themselves with net zero over time.
Focusing on decarbonisation
Momentum on climate grew rapidly in 2021 and the new global consensus on net
zero acts as a powerful tailwind to REL's own investment strategy. Our
Investment Manager has been working in the renewable energy sector for over 15
years. Back then, it was clear to Riverstone that the challenge posed by
climate change meant the long-term future for the energy sector would be in
renewables and, more recently, in the decarbonisation of other sectors. I am
proud of the leading track record we have since built up in investing at an
early stage in world-class businesses that play a meaningful role in tackling
climate change. For instance, Enviva, a biomass industry pioneer which
produces wood pellets as an alternative to coal and so helps reduce power
producers' GHG emissions by up to 85 per cent., while GoodLeap (formerly
Loanpal) is now the leading U.S. lender for residential solar installations.
In July 2020, we took the decision to reorientate our portfolio to further
lean into the opportunities offered by the energy transition. We decided to
focus on the need to decarbonise not just energy, but also other key sectors
including industrials, transportation, commercial and residential property,
and agriculture.
Our research shows that the process of decarbonisation will require
approximately $6 trillion in annual investment worldwide by 2030. As a result,
we have identified five key areas of focus for our future investment: grid
flexibility and resilience; electrification of transport; agriculture; next
generation liquid fuels such as hydrogen; and next horizon resource use plays,
for instance in smart building and the digitisation of global supply chains.
Taken together, we expect these five areas to require over $3 trillion in
annual investment by 2030 - a tripling of current spending levels.
This represents an enormous opportunity for investors and the start of what we
believe will be a multi-decade trend that will impact every part of the
economy. Reflecting our ability to identify and execute on attractive
opportunities in a competitive market, we now have eight active investments in
decarbonisation, with seven added in 2021.
GoodLeap is a technology-enabled sustainable home improvement loan originator
and the leading point-of-sale platform for sustainable home solutions in
America. FreeWire is the leading provider of battery-integrated DC fast
chargers, while Hyzon is the industry-leading global supplier of zero-emission
hydrogen fuel cell powered commercial vehicles. Finally, through Samsung
Ventures we acquired two battery breakthrough platforms, Solid Power and Ionic
Materials.
Following these investments 35 per cent. of the current portfolio's gross
unrealised value is now in decarbonisation investments, rising to 37 per cent.
when we include the recent investments in T-REX Group, Tritium and the first
closing of an electric motor company's latest financing round (see Post-Year
End Updates section of the Investment Manager's Report for further details).
This represents a demonstrable delivery in the year towards our stated
strategy to move the Company's focus progressively through a transition stage
towards decarbonisation assets.
Improved commodity price outlook
While uncertainty remains about the future trajectory of COVID-19 - and the
emergence of Omicron in Q4 reminds us of the ongoing risk of new variants -
enormous progress was made during the year on vaccination delivery. This has
meant, in advanced economies at least, that economic growth has bounced back.
The return to growth has, in turn, led to a dramatic improvement in commodity
prices. Over full year 2021, the WTI price averaged £50.50 ($68.18) per
barrel, an increase of 41 per cent. versus the full year 2020 average of
£28.75 ($39.19). At the same time natural gas prices rose sharply in a number
of regions, but especially in Europe.
These improvements in commodity prices have contributed to an improved
performance in our legacy commodity-linked portfolio over the course of the
year. This is testament to the hard work undertaken by our teams to reduce
costs, preserve liquidity and allocate capital to the strategies that will
maximise value for our shareholders. While we remain cautious on the outlook
for commodity prices our portfolio is now better positioned both to capitalise
on a world of $80 per barrel oil and weather one of $40 per barrel allowing us
to maximise value in the Company's transition to a decarbonisation asset base.
It is important, though, to recognise the strain these much higher prices -
and in particular those we have seen for natural gas - can have on some of the
poorest in our societies. It is a salutary reminder of what happens when too
much focus is put on reducing supply without either providing alternative
clean power production or improving energy efficiency to reduce demand. It is
vital that the transition to a low carbon economy is a just and orderly one if
we are to reach net zero while preserving peoples' standard of living.
Buyback programme increased to £90 million
We completed a £50 million share buyback programme in March 2021, during
which a total of 17,214,197 ordinary shares were bought back at an average
price of £2.90 per ordinary share.
The Board and Investment Manager continue to believe in the attractiveness of
buybacks to return excess cash to Shareholders while the shares trade at steep
discounts to NAV and intrinsic value. A further £20 million programme was
announced in May 2021 which was extended by another £20 million in October
2021. As at 31 December 2021, a total of 7,744,935 ordinary shares have been
bought back at an approximate cost of £36 million ($50 million) at an average
price of £4.65 ($6.40) per ordinary share, leaving £4 million outstanding
which we expect to complete in the first half of 2022.
Post year-end, on 8 February 2022, the Company announced that the Board and
Investment Manager agreed to allocate an additional £46.0 million to the
programme. As the Company currently has the authority to repurchase 1,799,944
shares pursuant to the authority granted at its 2021 annual general meeting,
the Board is convening an EGM on 4 March 2022 to seek shareholder approval to
renew the Company's authority to repurchase up to 14.99 per cent. of the
shares outstanding as at the date of the meeting.
Portfolio valuation
REL ended the period to 31 December 2021 with a NAV of $12.41 (£9.19) per
share, a 100.2 per cent and 102.0 per cent increase in USD and GBP,
respectively, compared to the 31 December 2020 NAV of $6.20 (£4.55) per
share. REL ended the period with an aggregate gross cash balance of $105.8
million (£78.1 million) across the Company, Partnership and REL US Corp.
Reflecting the continued improvement in the commodity price environment and
the extension of the share buyback programme, shares traded up 56 per cent.
during the full year 2021.
REL's largest investments by gross unrealised value either maintained or
improved their marks quarter on quarter. GoodLeap and Enviva, two of REL's
decarbonisation investments, were marked up from 2.50x to 2.75x, and from
1.70x to 2.45x Gross MOIC, respectively. Onyx improved substantially as well,
moving from a 1.00x to 1.70x Gross MOIC valuation due, in part, to the
company's strong fourth quarter financial performance driven by favourable
conditions in European energy markets. Although flat quarter on quarter, REL's
legacy oil and gas investments continued to benefit from supportive energy
prices, robust demand, and improved operations.
The valuation of REL's investments is conducted quarterly by the Investment
Manager and is subject to approval by the Independent Directors. Furthermore,
the valuations are subject to an audit by Ernst and Young LLP in connection
with the annual audit of the Company's Financial Statements. The
Company's valuation policy is compliant with both IFRS and IPEV Valuation
Guidelines and has been applied consistently from period to period since
inception. As the Company's investments are generally not publicly quoted,
valuations require meaningful judgement to establish a range of values. The
ultimate value at which an investment is realised may differ from its most
recent valuation and the difference may be significant. Further information on
the Company's valuation policy can be found in the Investment Manager's
Report.
Investments and performance
For full year 2021, through the Partnership, REL received approximately $176
million in gross proceeds from its portfolio. This was principally due to the
exit from ILX III in the third quarter which generated proceeds of $168
million net to REL, representing a 23 per cent. premium to the 31 December
2020 valuation, and the proceeds from the sale of the Talos shares received
from the prior sale of the Castex 2014 investment.
Demonstrating good progress on our strategy to realign the portfolio to
benefit from the opportunities created by the energy transition, REL invested
a total of $108 million in the course of 2021. This was primarily focused on
our growing portfolio of decarbonisation investments. Our investments included
a $30 million acquisition of an interest in a Samsung Ventures' portfolio
focused on battery technologies in August, with the majority of the value
associated with Solid Power, Inc. In December, Solid Power was combined with
Decarbonization Plus Acquisition Corporation III (DCRC), an REL-sponsored
SPAC, and in so doing became the only pure-play solid-state battery company to
trade on the public markets. In connection with the Solid Power / DCRC
business combination, REL invested an additional $20 million through a PIPE
transaction.
Elsewhere in 2021, REL made an $25 million investment in GoodLeap, with $10
million invested in Decarbonization Plus Acquisition Corporation (DCRB) in
July. Our investment in DCRB occurred simultaneously with the closing of
DCRB's merger with Hyzon Motors Inc. Hyzon is an industry-leading global
supplier of hydrogen fuel cell powered commercial vehicles.
A further $10 million and $7 million was invested in FreeWire and Onyx,
respectively. In addition, REL invested $0.6 million into Decarbonization Plus
Acquisition Corporation IV (DCRD), a SPAC which seeks to capitalise further on
the opportunities offered by decarbonisation across multiple sectors,
including energy, agriculture, industrials, transport and commercial and
residential property. This investment in DCRD, as well as the Company's
investments in DCRN/Tritium and DCRC/Solid Power, represents Founder Shares
and Warrants consistent with Sponsor economics of $0.0025 cost per Founder
Share and $1.50 cost per Founder Warrant, which is exercisable on a
one-for-one basis.
Investment Management Agreement
During the full year period to 31 December 2021, REL, through the Partnership,
incurred Management Fees of $8.9 million (31 December 2020: $5.6 million).
This increase was due to the improvement in the NAV over that period. Of the
$8.9 million, $2.5 million remained outstanding at the period end. The annual
Management Fee is 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.
Following the revised terms of the Investment Management Agreement which were
announced on 3 January 2020 (and effective from 30 June 2019), approximately
$28.7 million in performance fees, based upon realised and unrealised gains of
$143 million as at 31 December 2021, that would have been due under the prior
agreement were not paid or accrued. This is because REL did not meet the
appropriate Cost Benchmark at year end. In addition, the Investment Manager
has agreed that REL may repurchase shares or pay dividends for an amount equal
to 20 per cent. of the net gains on dispositions. Finally, under the revised
agreement no further carried interest will be payable until the remaining
realised and unrealised losses are made whole with future gains. REL has made
considerable progress in making whole these losses, with realised and
unrealised losses reduced from $565 million as at 31 December 2020 to $208
million as at 31 December 2021. The Board considered these changes to the IMA
to be significantly value enhancing for Shareholders. In addition, there is
now an 8 per cent. annual, cumulative hurdle for each investment. After three
years, if REL has not met the Cost Benchmark for four consecutive quarters,
any accrued but unpaid performance fees will expire.
As with the original IMA, any performance fees payable to the General Partner
will be used for share purchases. At year end, affiliates of Riverstone own
6.6 per cent. of REL shares outstanding of which 4.8 per cent. are owned by
the Riverstone Co-Founders.
In addition, the Board committed to review the Investment Manager's
performance with the decarbonisation strategy and decide prior to 31 December
2022 whether or not it would be in the best interest of Shareholders to seek
their approval for a wind-up of the Company. Based upon the significant
improvement in the performance of REL, it is extremely unlikely that the
Independent Directors will seek such approval before 31 December 2022 for a
managed wind-down of the Company. However, a final decision is yet to be made
by the Board.
Even though the IMA is perpetual, it is important to note, that the Board and
any 10 per cent. Shareholder or group can call for an EGM to vote to on a
wind-up of the Company at any time. However, such a vote to wind-up, if
passed, would trigger an exit fee equal to twenty times the most recent
quarterly Management Fee (see Note 9 for further details). At year end, such
amount payable to the Investment Manager would have been approximately $49
million.
The IMA does not provide for the Company to terminate the agreement without
cause, and poor investment performance, departure of key Riverstone
executives, or change of control, do not constitute cause. The Company may
terminate the IMA, if the IM is in material breach which has not been
rectified. The IM would then be entitled to receive a payment equal to four
times the most recent quarterly Management Fee. At year end, such amount
payable to the Investment Manager would have been approximately $10 million.
Another change has been the active participation of the Board in approving new
decarbonisation investments which are no longer part of the co-investment
programme with Riverstone Private Funds V and VI, which are now fully
invested. During 2021, the Board had four Board/Committee meetings and fifteen
ad hoc meetings to review and consent to or decline investment opportunities.
REL no longer invests alongside Riverstone's Fund V and Fund VI as originally
contemplated by its investment policy but the Investment Manager has stated
that it intends to use its best efforts to provide REL with investment
opportunities whenever REL has capacity to do so. During 2021, the Investment
Manager recommended nine investment opportunities, of which eight received
consent from the Board. All of these were outside of the legacy Fund V and VI
deal flow contractual right.
Board succession
Lastly, Peter Barker, Patrick Firth and I will be reaching our ninth year as
Non-Executive Directors and will be retiring from the Board in advance of the
Company's Annual General Meeting in 2023, but most likely sometime before
then. The search for replacements has already started and we expect an orderly
transition to be completed after the date when the Board could call a vote
regarding a potential wind-down of the Company, of which the likelihood is
remote as of the date of this report (see Board Tenure and Re-election section
of the Corporate Governance Report for further details).
Conclusion
I am pleased with the real progress that REL has made in reorientating our
portfolio further into decarbonisation opportunities and am excited about what
the future holds. The Investment Manager's long experience in sourcing and
executing value accretive investments in companies focused on renewable energy
and wider decarbonisation positions REL well. We are now able to help the
world meet its net zero commitments and take advantage of the opportunities
offered by this dramatic shift in the global economy over the coming
decades.
Richard Hayden
Chairman
23 February 2022
Environmental, Social and Governance REPORT
The Investment Policy of the Company, which was originally focussed on the
traditional oil and gas sector, has been transitioned towards decarbonisation
assets since 2020. This shift is reflective of a larger awareness and
implementation of Environmental, Social and Governance ("ESG") policies and is
a clear statement of the Company's focus on this area. The Company's focus on
ESG not only guides its new investments, but also extends to its legacy
portfolio, which has made demonstrable progress in the pursuit of improvement
of ESG policies and performance.
The Company itself, led by its independent Board, views ESG as a core element
in the management of Riverstone Energy Limited. In order to put ESG into
practice, the Board relies on its Investment Manager to design and implement
an ESG policy which applies to their operations and those of the investee
companies. This policy and examples of its application are highlighted below.
The Company utilises the services of Riverstone as the Investment Manager to
take appropriate ESG principles into account in its investment decisions and
in the ongoing management of the portfolio. In order to ensure the robustness
of these principles, the Board engages with the Investment Manager on ESG
matters and monitors compliance of REL's portfolio companies with Riverstone's
ESG policy. Patrick Firth, a member of the REL Board and Audit Committee
Chair, leads the ESG efforts for the Company. The Board receives periodic
updates from the Investment Manager on the Investment Manager's ESG programme
and on ESG matters related to the REL investment portfolio. The Board takes
its fiduciary responsibility to Shareholders seriously and engages with
Riverstone on corporate governance matters as evidenced by the changes to the
Investment Management Agreement agreed in January 2020.
Riverstone published its annual ESG report in February 2022. The pages that
follow summarise the key elements for investors which impact REL current and
future investments. More detail is included in the full report, which is
available on Riverstone's website:
https://www.riverstonellc.com/en/responsible-investing/.
Statement from the Investment Manager
In so many ways, 2021 was a year in which the importance of ESG issues were
underlined and on a scale we have never seen before. As we emerge from the
second year of the COVID-19 pandemic, the focus on ESG has never been greater.
Riverstone's focus has been on further enhancing its ESG programme by
delivering on the objectives we set ourselves in 2021 - both at firm level as
well as across our investment portfolio - not only by managing material ESG
risks but also by seeking to capitalise on a number of important ESG
opportunities.
CONTINUED DECARBONISATION FOCUS
As one of the largest asset managers in the energy, power and infrastructure
sectors, we are acutely aware of the existential threat posed by climate
change and the need to rapidly decarbonise the global economy. This was
underlined in last year's report by the Intergovernmental Panel on Climate
Change (IPCC) which gave the starkest reminder to date of how fragile our life
on this planet is. This was followed up by the United Nations Climate Change
Conference (COP 26) which made certain achievements (notably around methane
emissions and deforestation) but arguably did not deliver on other key issues.
To Riverstone, the science is very clear - action is required now if we are to
stand a chance of limiting the global temperature rise to 1.5°C above
pre-industrial levels by 2050.
In our businesses, this translates to us seeking to help our portfolio
companies to reduce the emission of GHGs while simultaneously implementing
ways in which more carbon can be sequestered from the atmosphere. This is not
a straightforward exercise with some of our portfolio companies, however, we
are encouraged by the steps a lot of them have taken to decarbonise, as well
as their broader ESG efforts.
As you will have seen by the investments we have made over the last two years
(including FreeWire, Hyzon, Solid Power and Tritium), our plan going forward
is to invest only in those businesses that support decarbonisation and the
transition to net zero. In terms of our current portfolio, a priority for us
in 2022 will be gaining a more complete understanding of our portfolio's GHG
emissions and taking active steps to help our portfolio companies reduce their
emissions.
PROGRAMME ENHANCEMENTS
Outside of our ongoing decarbonisation investment programme, another key focus
last year has been working with our existing portfolio companies to help them
improve their approach to ESG risks and opportunities. As you will see from
the Riverstone ESG report, we have seen an improvement by the majority of our
portfolio against our ESG minimum expectations and plan to raise the bar on a
number of these in 2022. Further, we have been pleased by the level of
sophistication of a number of our portfolio companies' ESG programmes
manifested by the increased number of them making their own voluntary ESG
disclosures in 2021.
ESG INDUSTRY COLLABORATION
Since last year, Riverstone has made a deliberate effort to be more engaged in
the fast-moving dialogue around ESG. As a firm, we are keen to participate in
some of the groups and projects that many of our peers are involved in. We are
a signatory of the UN-supported Principles of Responsible Investment (UNPRI)
but feel we have more to give in terms of the dialogue around how ESG
monitoring and disclosure will evolve. Last year we became a member of the
PRI-supported Initiative Climat International (iCI) and the Institutional
Limited Partners Association's (ILPA) Diversity In Action initiative. We have
also joined the ILPA-led ESG Data Convergence Project in the hope that we can
contribute to a consensus around a standardised set of ESG metrics and
procedures to enable us and other asset managers to gather and disclose
better, more informed ESG data.
LOOKING FORWARD
We are encouraged by the improvements we have made to our ESG programme in
2021. However, we are not complacent and, particularly against the backdrop of
the heightened focus on ESG (and in particular on climate change issues) by
the SEC and other regulators, we recognise there is much more work required,
in partnership with you, our investors, our management teams, regulators and
other important stakeholders. We will continue to prioritise our commitment to
being responsible investors and look forward to providing further updates on
our ESG activities in the year to come.
As Riverstone continues to focus on increasing investment exposure to
opportunities arising from energy transition and decarbonisation, the firm
remains committed to continue growing our ESG programme and embedding it in
our culture. In 2022 and beyond, the firm will look to build on the successes
of the past year across five overarching themes.
In parallel we will continue to make progress across the elements of our ESG
programme: Risk Management (formerly Due Diligence & Initial Investment),
Portfolio Engagement, ESG at Riverstone, Climate Change, and ESG Reporting,
and report progress in next year's ESG report.
However, in line with our focus, our objectives for 2022 and 2023 are centered
on our response to climate change, namely to:
· Complete actions to align Riverstone's reporting with the
recommendations of the TCFD
· Update and expand our scenario analysis to all portfolio
companies and future investments using the latest climate projections
(including using the results of the analysis to deepen our engagement and
build climate resilience and support our portfolio companies in leveraging the
opportunities presented by the energy transition)
· Continue to calculate Riverstone's GHG footprint and engage with
our portfolio companies to set targets for annual reductions
· Engage a third party to help our portfolio companies complete a
GHG footprint and engage with portfolio companies regarding individual
reduction targets
· Build ESG capacity at all levels in Riverstone through training
Riverstone's Approach to ESG
As one of the most experienced private investment firms within the energy,
power and infrastructure sectors, Riverstone recognises the ever-increasing
importance of ESG and has made the proactive implementation of ESG initiatives
one of its highest priorities. Riverstone takes its fiduciary responsibility
to investors very seriously and believes that a strong commitment to
addressing ESG factors is critical to the success of its funds, portfolio
companies and firm. By devoting substantial internal and external resources
towards ESG matters, Riverstone has developed clear processes that take
account of leading industry standards. Riverstone believes this effort helps
it to make sustainable, ethical and socially responsible decisions over the
long run.
ESG OBJECTIVES
Riverstone has established institutional ESG processes that support the high
standards that it has set for itself. These procedures were developed to
achieve several key objectives related to ESG, including:
· Providing Riverstone personnel and its portfolio companies with
training and the resources to ensure that those portfolio companies can
provide the necessary ESG support appropriately
· Identifying potential risks and mitigants before an investment is
made
· Immediate assistance with the identification of any issues that
may arise and 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
In support of meeting its ESG objectives, Riverstone has an ESG policy that
sets out its approach to handling key ESG factors, including inter alia
natural resource management, health and safety, community and stakeholder
impact, climate change, GHG emissions and governance. This policy helps inform
the ESG considerations that are relevant to the management of Riverstone's
portfolio companies from initial due diligence all the way through to an exit,
and the operation of Riverstone's own business. Since inception, Riverstone
has continuously evolved its ESG policy in conjunction with third party ESG
experts to strive towards best practices across the board. A copy of
Riverstone's ESG policy is available online:
https://www.riverstonellc.com/media/1189/Riverstone_ESG_Policy_Statement.pdf
(https://www.riverstonellc.com/media/1189/Riverstone_ESG_Policy_Statement.pdf)
ESG RESOURCES AT RIVERSTONE
Riverstone's ESG Committee comprises a cross-functional set of leaders and our
external ESG advisor, ERM. The ESG Committee meets on a quarterly basis to
continually develop our ESG strategy, support ESG initiatives across the firm
and its portfolio companies, grow the capabilities of the investment teams on
which REL relies, and analyse and benchmark ESG performance and trends using
data from portfolio company operations.
To facilitate engagement with portfolio companies on ESG matters, the
Investment Manager has nominated one person on each investment team to serve
as ESG deal lead responsible for liaising with portfolio companies on ESG
matters and generally keeping ESG matters on the agenda. As ESG deal lead,
nominated investment team members are accountable for their respective
company's ESG management and performance. The quality of the engagement by
each ESG deal lead is assessed as part of Riverstone's annual performance
reviews which drive decisions around the individual's compensation and
promotion at Riverstone.
ESG in Practice
The careful evaluation of ESG issues is a mandatory component for the
underwriting of all REL investments. Furthermore, Riverstone investment
professionals conduct a comprehensive evaluation of ESG considerations
throughout the lifecycle of an investment. These steps are summarised below:
RISK IDENTIFICATION
· Use Riverstone's deep industry expertise and its proprietary ESG
toolkit to identify and manage material ESG risks and value creation
opportunities in a consistent manner for each new potential investment
DUE DILIGENCE
· Early engagement with the management team and advisors to
understand the "ESG landscape" for a potential investment
· Engage third party experts to evaluate specific risks and areas
of concern
· Thorough evaluation of key ESG risks for each potential
investment and determination of whether appropriate mitigants can be
implemented
INVESTMENT COMMITTEE
· Complete ESG risk assessment as part of the Investment Committee
memo for potential investments, within the context of the investment's broader
risk analysis
· Review third party ESG assessments and reference checks
· Determine whether a potential investment has any ESG risks that
are "deal-breakers"
· Robust discussion at Investment Committee of the ESG risk
evaluation scorecard
· Go/no go investment decision
ONGOING MONITORING AND PORTFOLIO MANAGEMENT
· Health, safety, environmental (HSE) and other material ESG issues
as part of Riverstone's participation on the board of portfolio companies
· Annual portfolio review through ESG questionnaires with portfolio
company follow-up based on responses received
· All portfolio companies are subject to periodic assessment of
foreign bribery risks and regular reporting and training required for those
portfolio companies identified as facing higher levels of risk
· Portfolio companies ensure regular training and compliance
reviews are undertaken including, where necessary, by third party legal teams
EXIT
· Where appropriate, make relevant ESG disclosures and evaluate
whether potential buyers' ESG standards comply with all applicable laws with
regard to, for example, employees and decommissioning of assets and
infrastructure
ESG: 2021 in Review
In our 2020 ESG report, we established a number of overarching ESG objectives
for 2021. Our progress through 2021 against these objectives, and other ESG
issues addressed during the year, are summarised below and presented in more
detail throughout this report.
DUE DILIGENCE AND INITIAL INVESTMENT
· Expanded the scope and coverage of our ESG toolkit to promote
consistency in the way ESG opportunities are managed at Riverstone
PORTFOLIO MONITORING
· Increased frequency of engagement with portfolio companies on ESG
matters
· Marked improvements in performance across portfolio companies
against ESG Minimum Expectations (or 'ESG-MEs')
· Reviewed and expanded our ESG-MEs and metrics for portfolio
companies to launch in 2022
CLIMATE CHANGE
· Conducted a gap analysis to determine Riverstone's current
position against the Task Force on Climate-Related Financial Disclosures
(TCFD) recommendations with the intent of setting actions to bring the firm
towards alignment over the next two years
· Supported our portfolio companies in increasing their level of
Scope 1 and Scope 2 GHG emissions in line with our ESG-MEs
· Formalised climate screening in our ESG toolkit and Investment
Committee template so that it is consistently applied to all new investments
· Joined the UN PRI-backed Initiative Climat International (iCI)
ESG REPORTING
· Submission of voluntary reporting to PRI
· Signed up to the ILPA's ESG Data Convergence Project
ESG AT RIVERSTONE
· Became member of ILPA's Diversity in Action
· Instituted internship programme with a Historically Black College
and University (HBCU) in the U.S.
· Calculated our firm's GHG footprint
· Produced Energy Expansion webcasts for our website with insights
and trends from experts in energy, power, infrastructure and decarbonisation
Climate Change
At Riverstone, we recognise climate change and the transition to a low carbon
economy as our greatest risk and our largest opportunity. This reality is
reflected in the way that the Investment Manager and REL conducts business.
In last year's Riverstone ESG report, we acknowledged the importance of the
recommendations published by the TCFD in helping companies improve
transparency on climate-related risks and opportunities, and over the course
of 2021, we have been working on ways to adopt the framework.
GOVERNANCE
Our ESG Committee comprises a cross-functional set of leaders and our external
ESG advisor, ERM. The committee is responsible for our climate strategy, our
greenhouse gas (GHG) footprinting effort, and more broadly our firm's response
to climate change.
At the portfolio-level, each of our investment teams has a designated ESG lead
to ensure that climate-related risks and opportunities are appropriately
screened, assessed, and managed throughout the investment process. During
pre-investment, this information is presented to the Investment Committee when
making investment decisions. The ESG leads are supported by the ESG committee
and ERM as required.
STRATEGY
We have continued to evolve our thinking around our climate strategy which
includes integrating updates to market and regulatory drivers. Our climate
strategy is centered on two broad pillars:
· Continuing to invest in low carbon forms of energy through our
decarbonisation platform
· Working with our portfolio companies to decarbonise and build
resilience to climate-related issues
Our investments in the energy sector and our work with our portfolio companies
enable Riverstone to have a positive impact on the low carbon economy
transition. Management of climate-related risk and opportunity is a core part
of our approach to investing, and is reflected by our growing contributions to
a fair and just transition in the energy sector, which continues to create new
opportunities for Riverstone and REL.
Over the next two years, we will start implementing actions to align ourselves
to the recommendations of the TCFD.
In 2021 we joined Initiative Climat International (iCI), which is led by a
group of leading private equity firms and is supported by the PRI. The purpose
of the iCI is to analyse, manage, and mitigate climate-related financial risk
and GHG emissions in private equity portfolios in line with the
recommendations of the TCFD.
Riverstone recognises the need to collaborate and build industry best
practices, and is keen to make a meaningful contribution to iCI. The nature of
our investments can bring a specific insight to the decarbonisation of the
energy sector, from which we will build towards our ambition of becoming a
leader in climate change mitigation.
RISK MANAGEMENT
We continue to identify and assess climate-related risks in our portfolio and
for potential future investments. We have updated our ESG toolkit so that this
is more consistently applied in our investment process. This includes our
climate change screening questionnaire and our Investment Committee templates
requiring identification of climate-related risks and opportunities during our
pre-investment process. These tools actively engage portfolio company
management and help them focus on reducing GHG emissions and managing
climate-related risks and opportunities.
For ownership, this includes an assessment that was conducted for a number of
representative companies across sectors and geographies in which we operate.
The assessment covered the risks arising from changes to the climate itself,
as well as the risks and opportunities associated with the low carbon energy
transition. The guidance has helped our investment teams to:
· Ensure our portfolio companies are positioned to undertake timely
and appropriate mitigation and management of climate risk
· Support our portfolio companies in capturing transition-related
opportunities where they exist
METRICS AND TARGETS
Our strategy also requires us to look at the climate impact of our own
activities. For our firm this means calculating our GHG emissions and looking
for ways to reduce or offset our carbon footprint. Similarly for our
portfolio, one of our ESG-MEs requires portfolio companies to calculate their
GHG baseline for Scope 1 (direct emissions) and Scope 2 (purchased energy),
and annually report and monitor GHG emissions. The number of Riverstone
portfolio companies that are meeting this ESG-ME fully has increased since
last year from 39 per cent. to 64 per cent. However, we recognise there is
room for improvement and it remains a key area of focus for us. Using the
results of the 2021 survey, we will prioritise companies for engagement and
offer additional support to our companies to establish a complete baseline for
our portfolio with a view of setting credible GHG reduction targets.
RIVERSTONE'S DECARBONISATION ROADMAP
The risks and impacts of climate change have brought decarbonisation of the
energy industry to the fore as essential to the low carbon economy. Tighter
access to bank capital, new capital demands to fund decarbonisation, and
emission reduction investments among other market changes are shifting
conventional energy investment strategies and forcing some companies to
reposition their entire business.
These transitions take time, and we are committed to evolving our global
energy expertise to scale businesses and our activity in renewable energy into
growing our decarbonisation platform. We expect this will quickly become our
dominant investment platform.
RIVERSTONE'S DECARBONISATION PLATFORM
The Riverstone decarbonisation platform's focus is specifically on reducing
the impact carbon has on the climate. This focus represents many new and
attractive business models that are insulated from commodity prices. We are
focused on the following five core areas and have executed successful
investments in four of these to date:
· Grid flexibility and resilience - balancing the grid and battery
storage
· Electrification of transportation - EV infrastructure, batteries,
and supply chain
· Next generation green liquid fuels - hydrogen, RAE diesel,
gasoline, and jet
· Efficiency of use - smart software/devices and digitisation
· Proven agriculture and resource plays
These core areas offer profitable scale solutions for climate impact, are
investable today, enjoy strong policy and societal support, and meet the ESG
criteria demanded by the institutional capital flows which are key to driving
meaningful contribution from the private sector. We are focused on growth
capital investments in proven companies and technologies with demonstrated
commercial success to accelerate growth and value creation.
ESG in Practice within REL's Portfolio: FreeWire Technologies
FreeWire Technologies is a leading U.S.-based provider of fully-integrated
electric vehicle (EV) charging stations and power solutions. FreeWire's
combination of proprietary battery and power conversion technology enables
ultrafast charging at all locations, freeing customers from the limitations of
the traditional power grid. The company is well-positioned for further growth,
helping customers reach decarbonisation goals and catalysing the global
transition to sustainable electrification.
Upgrading the electric grid and individual site power infrastructure to
rapidly meet charging demand is a costly and time-intensive process with each
installation often requiring eight to 12 months for completion, slowing
efforts to address environmental goals
(Source: https://www.canarymedia.com/articles/ev-charging/ev-charger-installations-in-california-are-bogged-down-by-local-permitting
(https://www.canarymedia.com/articles/ev-charging/ev-charger-installations-in-california-are-bogged-down-by-local-permitting)
). Upgrading electrical infrastructure to support multiple fast chargers would
require significant permitting and coordination with the local utility. USA's
aging, disaster-prone electric grids will come under increasing strain,
potentially threatening to short-circuit the country's progress toward
decarbonisation.
In 2021 alone, FreeWire contributed to emissions reductions with the launch of
its latest product, Boost Charger, resulting in the following benefits:
· 9,910 charges delivered to EVs
· 281 MWh of energy provided
· 8,338 gallons of gas avoided
· 205,955 gas-free miles delivered
FreeWire's ultrafast charging technology solves grid constraints by packaging
charging infrastructure, grid infrastructure, and energy storage in a
fully-integrated solution. The company's Boost Charger plugs into existing
low-voltage utility service and delivers high-power charging in areas that
typically require extensive grid upgrades. This is especially important for
expanding electrification in economically disadvantaged areas where EV
adoption is slower and there are typically higher levels of pollutants.
The integrated system unlocks an entirely new category of distributed energy
services that conventional charging solutions cannot provide, and is only
partially addressed by standalone energy storage. Further, chargers paired
with energy storage will optimise renewable energy sources and provide
additional grid resiliency, allowing EVs to recharge and support critical
facilities when power is out.
FreeWire has deployed battery-integrated chargers with Fortune 100 companies,
commercial customers, fleets, retail locations, and gas stations. In addition
to its partnership with bp pulse, FreeWire and ampm, a bp subsidiary and
convenience store chain with over 1,000 locations, have already deployed
multiple public charging stations in the U.S.
The ability to address barriers to mass EV adoption, reduce GHG emissions from
transportation, and enable less strain on the electric grid with
ready-to-deploy ultrafast charging and power solutions may very well be the
missing link in the energy transition.
FreeWire is deploying next-generation charging infrastructure and power
solutions more quickly, at a lower cost, and in more locations than
competitors. The ability to address barriers to mass EV adoption, reduce GHG
emissions from transportation, and enable less strain on the electric grid
with ready-to-deploy ultrafast charging and power solutions may very well be
the missing link in the energy transition.
Investment Manager's Report
Positioned for Growth
The post-pandemic recovery in 2021 was uneven, benefiting wealthy nations,
with privileged access to vaccines. Despite disparities in access, the rate of
post-recession economic recovery was one of the highest in nearly a
century. 1 As pent-up demand for consumer goods and travel roared to life,
suppliers met spikes in demand for crude oil with gradual increases in supply.
Consequently, WTI prices soared to over $80 during 2H 2021, ending the year at
$76.83 per barrel representing a 59 per cent. year over year rise. Brent crude
performed similarly, ending the year at $77.24 per barrel, increasing by 51
per cent. over the year. This recovery, while welcome, proved an unanticipated
challenge for some regions as increased economic activity coincided with
unusually cool temperatures and widespread fuel shortages. However, the
current situation between Russia and Ukraine continues to create uncertainty
in the global energy markets. While international efforts to find a peaceful
solution persist, any further escalations are likely to push energy prices
higher.
In Europe, long-term energy transition efforts have included shuttering
coal-fired power plants in favour of increased reliance on cleaner-burning,
imported natural gas and renewables. The EU, a net importer of natural gas,
was left vulnerable to increased global demand, and Russian and
OPEC-restricted supply. As a result, the EU's fuel storage sites fell to just
56 per cent. of full capacity, 15 percentage points below their ten-year
average. 2 Between increasing demand, lower-than-forecasted turbine-generated
power and higher costs of fuel, power prices in late 2021 hit 182 euros per
megawatt-hour on average, an all-time high. 3
While countries across Europe resorted to powering base loads with cheaper
coal, investment into cleantech, green shift technologies and the broader
energy transition reached new heights. Wind and solar developers added 40GW of
renewable energy capacity to Europe's grid in 2021.(3) Consumers across the
globe demonstrated their support for the transition with their pocketbooks,
purchasing electric vehicles (EV), with increases in sales of 17 per cent.
from Q3 to Q4 of 2021, and by 34 per cent. year on year.(3) Institutional
investors, too, joined the bandwagon, as global sustainable debt issuances hit
$1.6 trillion, more than doubling the value of issuances in 2020.(3)
REL has adjusted its investment strategy and is working on repositioning its
portfolio to capture these trends. Prior to the resurgence in oil prices
during the second half of 2021, REL has been managing its legacy
commodity-linked portfolio companies to reduce costs, preserve liquidity and
position its companies to operate in an oil price environment of around $45-60
per barrel. The current prices of crude and natural gas have exceeded
forecasts and bode well for sustained performance from our companies despite
ongoing headwinds facing the industry.
In July, REL took advantage of improving market conditions to exit its
position in ILX III, a Gulf of Mexico producer. The exit provided REL with an
additional $168 million in liquidity to both accelerate REL's new investment
programme, transitioning the portfolio away from E&P investments, and
toward energy transition and decarbonisation of the global economy. We believe
that these themes have become secular trends. The accelerating transition to
cleaner energy supports our investment thesis and underlines our confidence in
the investment opportunity and its associated returns.
Over the course of the year, REL deployed over $95 million in seven different
decarbonisation investments, including GoodLeap (formerly Loanpal), FreeWire,
Hyzon Motors, DCRN (Tritium), DCRC (Solid Power), Samsung Ventures, and DCRD.
Our work over the last two years to reposition the portfolio allowed
shareholders to benefit two-fold: an increase in consumer adoption of the
energy transition and energy market volatility driven by the transition to a
lower carbon future.
Investment Strategy
Historically, the Investment Manager's objective was to achieve superior risk
adjusted after tax returns by making privately negotiated investments in the
E&P, midstream, services and power (including renewables) sectors,
representing a significant component of the global economy. Long-term market
drivers of economic expansion, population growth, deregulation, privatisation
and continued commodity price volatility will continue to create opportunities
for REL.
The Investment Manager continues to reposition REL's portfolio away from
commodity price-sensitive oil and gas investments towards a focus on renewable
and the decarbonisation thematic. This shift in the portfolio began in the
summer of 2020 with the Company investing $18 million to recapitalise Enviva
Holdings, and the Company's $25 million and $10 million commitments announced
in January 2021 to GoodLeap, LLC and FreeWire Technologies, Inc.,
respectively. Further, in February 2021, REL announced a $10 million
commitment to DCRB, via a private placement, and a $0.6 million commitment to
DCRN, via an initial public offering. Similarly, in March 2021, REL announced
a $0.5 million commitment to DCRC, via an initial public offering, followed in
June 2021 by a further $20 million commitment, via a private placement. The
Company believes that each of these commitments provides an opportunity to
create shareholder value while supporting REL's long-term focus on ESG and
energy transition investments. Going forward, REL expects to continue to
increase its exposure in areas that support decarbonisation across the entire
investment spectrum, from traditional power generation to technology-enabled
solutions that facilitate increased renewables adoption and helps the global
economy reach its climate change goals.
The Company's Board is supportive of the modified investment strategy and will
continue to monitor the Investment Manager's success in repositioning the
Company's portfolio through the modified investment strategy. At the EGM last
year, the Board committed to review the Company's performance and, before 31
December 2022, decide whether or not it would be in the best interest of all
shareholders to request an EGM to vote on a run-off of its portfolio.
Key Drivers of Investment Strategy:
• Capital constraints among companies with high levels of leverage
and/or limited access to public markets;
• Industry distress and pressures to rationalise assets;
• Increases in ability to extract hydrocarbons from oil and gas-rich
shale formations;
• Historical under-investment in energy infrastructure; and
• Rapid growth in electricity consumption and energy transition.
The Investment Manager, through its affiliates, has a strong track record of
building businesses with management teams. The Company aims to capitalise on
the opportunities presented by Riverstone's pipeline of investments, as well
as through its modified investment strategy implemented in 2019. This can be
seen through the Company's investments, through the Partnership, in Ridgebury
H3 in 2019, Enviva in 2020 and DCRB, DCRN, DCRC & DCRD SPAC investments in
2021, as the Private Riverstone Funds did not participate.
The Investment Manager, having made over 200 investments globally in the
energy sector since being founded in 2000, utilises its extensive industry
expertise and relationships to thoroughly evaluate investment opportunities
and uses its significant experience in conducting due diligence, valuing
assets and all other aspects of deal execution, including financial and legal
structuring, accounting and compensation design. The Investment Manager also
draws upon its extensive network of relationships with industry-focussed
professional advisory firms to assist with due diligence in other areas such
as accounting, tax, legal, employee benefits, environmental, engineering and
insurance.
Current Portfolio - Conventional
Investment (Public/Private) Gross Committed Capital ($mm) Invested Gross Realised Gross Unrealised Value Gross Realised Capital & Unrealised Value ($mm) 31 Dec 2021 Gross MOIC((2)) 31 Dec 2020
Capital ($mm) Capital ($mm)((1)) ($mm)((2)) Gross MOIC((2))
Centennial (Public) 268 268 172 91 263 0.98x 0.73x
Hammerhead Resources (Private) 307 295 23 93 116 0.39x 0.15x
Onyx (Private) 66 60 - 102 102 1.70x 1.00x
Carrier II (Private) 133 110 29 48 77 0.70x 0.40x
Pipestone Energy (formerly CNOR) (Public) 90 90 16 36 52 0.58x 0.25x
Total Current Portfolio - Conventional - Public((3)) $358 $358 $188 $126 $314 0.88x 0.61x
Total Current Portfolio - Conventional - Private((3)) $507 $465 $52 $243 $295 0.63x 0.31x
Current Portfolio - Decarbonisation
Investment (Public/Private) Gross Committed Capital ($mm) Invested Gross Realised Gross Unrealised Value Gross Realised Capital & Unrealised Value ($mm) 31 Dec 2021 31 Dec 2020
Capital ($mm) Capital ($mm)((1)) ($mm)((2)) Gross MOIC((2)) Gross MOIC((2))
GoodLeap (formerly Loanpal) (Private) 25 25 1 67 68 2.75x n/a
Solid Power (Public) 48 48 - 59 59 1.24x n/a
Enviva (Public) 25 18 - 44 44 2.45x 1.60x
FreeWire (Private) 10 10 - 20 20 2.00x n/a
Hyzon Motors (Public) 10 10 - 6 6 0.65x n/a
DCRN((5) ) (Public) 1 1 - 4 4 6.46x n/a
Ionic I & II (Samsung Ventures) (Private) 3 3 - 3 3 1.00x n/a
DCRD((5) )(Public) 1 1 - 1 1 1.00x n/a
Total Current Portfolio - Decarbonisation - Public((3),(5)) $84 $77 $- $115 $115 1.49x 1.60x
Total Current Portfolio - Decarbonisation - Private((3)) $38 $38 $1 $90 $91 2.42x n/a
Cash and Cash Equivalents((11)) $106
Total Liquidity $347
Total Market Capitalisation $345
Realisations
Investment Gross Committed Capital Invested Gross Realised Gross Unrealised Value Gross Realised Capital & Unrealised Value ($mm) 31 Dec 2021 31 Dec 2020
(Initial Investment Date) ($mm) Capital ($mm) Capital ($mm)((1)) ($mm)((2)) Gross Gross MOIC((2))
MOIC((2))
Rock Oil((6)) 114 114 232 3 235 2.06x 2.04x
(12 Mar 2014)
Three Rivers III 94 94 204 - 204 2.17x 2.17x
(7 Apr 2015)
ILX III((7)) 179 179 171 1 172 0.96x 0.80x
(8 Oct 2015)
Meritage III((8)) 40 40 86 - 86 2.16x 2.10x
(17 Apr 2015)
RCO((9)) 80 80 80 - 80 0.99x 0.99x
(2 Feb 2015)
Sierra 18 18 38 - 38 2.06x 2.15x
(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 0.20x
(3 Sep 2014)
Total Realisations((3)) $619 $619 $871 $4 $875 1.41x 1.36x
Withdrawn Commitments and Impairments((10)) 350 350 9 - 9 0.02x 0.02x
Total Investments((3),(11) ) 1,955 1,906 1,121 578 1,699 0.89x 0.69x
Total Investments & Cash and Cash Equivalents((3)) $684
( )
((1)) Gross realised capital is total gross proceeds realised on invested
capital. Of the $1,121 million of capital realised to date, $823 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 $208 million of realised
and unrealised losses to date at 31 December 2021 are made whole with future
gains, so the earned carried interest of $0.8 million at 31 December 2021 has
been deferred and will expire in October 2023 if the aforementioned losses are
not made whole. Since REL has not yet met the appropriate Cost Benchmark at 31
December 2021, $28.7 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 of
Centennial Resource Development, Inc. (NASDAQ:CDEV - 31 December 2021: $5.98
price per share) for Centennial investment, as well as USD-equivalent closing
price per share for Pipestone Energy Corp. (TSX-V:PIPE - 31 December 2021:
$3.04 price per share) for Pipestone Energy (formerly CNOR) investment.
((5)) SPAC Sponsor investment for Decarbonization Plus Acquisition Corporation
II (NASDAQ:DCRN) and Decarbonization Plus Acquisition Corporation IV
(NASDAQ:DCRD).
((6)) The unrealised value of the Rock Oil investment consists of rights to
mineral acres.
((7)) The unrealised value of the ILX III investment consists of 43,333 shares
of Talos Energy Inc stock (NYSE:TALO) in connection with its former investment
in ILX III.
((8)) Midstream investment.
((9)) Credit investment.
((10)) Withdrawn commitments consist of Origo ($9 million) and CanEra III ($1
million), and impairments consist of Liberty II ($142 million), Fieldwood ($80
million), Eagle II ($62 million) and Castex 2005 ($48 million).
((11)) This figure is comprised of $7.3 million held at the Company, $4.1
million held at the Partnership and $94.4 held at REL US Corp.
Investment Portfolio Summary
As of 31 December 2021, REL's portfolio comprised fourteen active investments
including four E&P investments, nine decarbonisation investments and one
power investment.
Onyx
As of 31 December 2021, 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 2021, REL's interest in Onyx, through the Partnership, was
valued at 1.70x Gross MOIC((1)) or $102 million (Realised: $- million,
Unrealised: $102 million). The Gross MOIC((1)) increased over the period.
Hammerhead
As of 31 December 2021, REL, through the Partnership, has invested $295
million of its $307 million commitment to Hammerhead. Hammerhead is a private
E&P company focused on liquids-rich unconventional resources in the
Montney and Duvernay resource play in Western Canada. Since its establishment
in 2010, Hammerhead has aggregated one of the largest and most advantaged land
positions in the emerging Montney and Duvernay formations of Western Canada's
Deep Basin. The company controls and operates 100 per cent. of this asset
base, which comprises over 1,800 net drilling locations across approximately
~112,000 Montney net acres. Since Riverstone's initial investment, Hammerhead
has increased production almost ten-fold and has significantly grown reserves
to 309 mmboe. As of 31 December 2021, the company was currently producing
approximately 29,500 boepd.
The company continues to focus on ramping development within cash flow in the
near term and paying down debt. The company elected to increase development
pace in 2H 2021 on the back of higher commodity prices, and the company will
continue to ramp development in 2022. As of 31 December 2021, Hammerhead had
hedged approximately 46 per cent. of forecasted 2022 oil production at a
weighted average price of CAD$87/bbl.
As of 31 December 2021, REL's interest in Hammerhead, through the Partnership,
was valued at 0.4x Gross MOIC((1)) or $116 million (Realised: $23 million,
Unrealised: $93 million). The Gross MOIC((1)) was held flat to the prior
quarter.
Centennial (CDEV)
As of 31 December 2021, REL, through the Partnership, has invested in full its
$268 million commitment to Centennial. Centennial, based in Denver, Colorado,
is an E&P company focussed on the acquisition and development of oil and
liquids-rich natural gas resources in the Permian Delaware Basin, West Texas.
The company has rapidly aggregated an 75,500 net acre position in its targeted
basin (adjusted for a pending ~6,200 net acre Southern Delaware divestiture).
In 2021, CDEV has been committed to running a two-rig operated drilling
programme, with a focus on capital efficiency and operational improvements.
Increased drilling efficiencies via longer laterals and larger well packages
have contributed to a structural reduction in well costs. These improvements,
as well as the strong commodity environment, have led to strong free cash flow
generation. In 3Q 2021, Centennial generated record free cash flow of ~$77
million, its fifth consecutive quarter of positive free cash flow.
For FY 2021, Centennial has provided guidance of 60,500-61,850 barrels of oil
equivalent per day of production, $300-$315 million of capital expenditures,
and $200-$220 million of free cash flow. In addition, CDEV has made
significant progress deleveraging, and is currently targeting Net Debt / LTM
EBTIDAX of 1.5x by year end (down from 4.3x in Q1 2021).
To-date, Centennial has hedged approximately 10,972 barrels per day of
forecasted oil production in 2022 at a weighted average price of $65.31, and
6,459 barrels of oil equivalent per day of forecasted gas production in 2022
at a weighted average price of $3.29.
REL, through the Partnership, owns approximately 15.2 million shares which are
publicly traded (NASDAQ:CDEV) at a 60-day volume weighted average price of
$6.70.
As of 31 December 2021, REL's interest in Centennial, through the Partnership,
was valued at 0.98x Gross MOIC((1)) or $263 million (Realised: $172 million,
Unrealised: $91 million). The Gross MOIC((1)), which reflects the
mark-to-market value of REL's shareholding, increased over the period.
GoodLeap (formerly Loanpal)
As of 31 December 2021, 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.
In June 2021, Loanpal formally rebranded as GoodLeap, signifying the company's
growth into a broader sustainable solutions marketplace. This followed
GoodLeap's entrance into the broader market for sustainable home upgrades in
early 2021.
As of 31 December 2021, REL's interest in GoodLeap, through the Partnership,
was valued at 2.75x Gross MOIC((1)) or $68 million (Realised: $1 million,
Unrealised: $67 million). The Gross MOIC((1)) increased over the period.
Carrier II
As of 31 December 2021, REL, through the Partnership, has invested $110
million of its $133 million commitment to Carrier II. Carrier II is focussed
on the acquisition and exploitation of upstream oil and gas assets by
partnering with select operators that are developing both unconventional and
conventional reservoirs in North America. Shortly after its establishment in
May 2015, Carrier II entered into a joint venture agreement with a highly
experienced operator group made up of Henry Resources, LLC and PT Petroleum,
LLC, targeting 19,131 net acres for development in the southern Midland Basin
(subsequently increased to 20,260 net acres). In addition, through three
separate acquisitions, the company has acquired 3,892 net acres in Karnes
County in the Eagle Ford basin, targeting the Sugarloaf Project and the
Chisholm Project, both operated by Marathon Oil Corp.
During the fourth quarter of 2019, Carrier successfully completed the sale of
its Southern Midland Basin assets and brought six additional Eagle Ford wells
online, resulting in a total of 34 new wells in 2019. As of 31 December 2021,
Carrier II was producing approximately 3,479 boepd and the company had hedged
approximately 64 percent and 68 percent of forecasted 2022 oil and gas
production, respectively, at a weighted average price of $57.59 per barrel and
$2.88 per mmbtu.
Since inception, Carrier II has distributed $29 million through dividends to
REL, through the Partnership, representing approximately 26 per cent. of REL's
invested capital. As of 31 December 2021, REL's interest in Carrier II,
through the Partnership, was valued at 0.70x Gross MOIC((1)) or $77 million
(Realised: $29 million, Unrealised: $48 million). The Gross MOIC((1)) remained
flat over the period.
Enviva
As of 31 December 2021, REL, through the Partnership, has invested $18 million
of its $25 million commitment to Enviva. Enviva, based in Bethesda, Maryland,
is the world's largest supplier of wood pellets to major utilities and heat
and power generators, principally in Europe and Japan. Through its
subsidiaries, Enviva owns and operates nine plants with a combined wood pellet
production capacity of approximately 6.2 million MTPY.
On 3 November 2021, Enviva announced its first direct contract with an
industrial customer, a European counterparty that processes solid biomass into
refined liquid fuels. 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.
As of 31 December 2021, REL's interest in Enviva, through the Partnership, was
valued at 2.45x Gross MOIC((1)) or $44 million (Realised: $- million,
Unrealised: $44 million). The Gross MOIC((1)) increased over the period.
Samsung Ventures
On 17 August 2021, REL announced the purchase of an interest in one of Samsung
Ventures' battery technology focused venture capital portfolios (the "Samsung
Portfolio") for $30.0 million. The majority of the Samsung Portfolio consists
of 1.66 million shares of Solid Power, Inc., which successfully completed its
business combination with DCRC on December 8, 2021. Gross proceeds to Solid
Power from the transaction amounted to $542.9 million from a fully committed
$195 million PIPE and $347.9 million of cash held in trust net of redemptions;
only 0.6 per cent. of shares held by public stockholders of DCRC were
redeemed. Of the shares voted at the special meeting of DCRC's stockholders,
over 99.9 per cent. voted to approve the business combination.
The remainder of the portfolio is held in shares of Ionic Materials (Ionic I
& II), a material science company that manufactures transformative
polymers for use in solid-state batteries, healthcare and 5G applications.
Ionic Materials' solid polymer is believed to be the first of its kind to
conduct ions at room temperature, a critical enabler of solid-state batteries.
REL's aggregate investment in the Samsung Portfolio is marked at 1.35x Gross
MOIC((1)) at 31 December 2021.
Pipestone
As of 31 December 2021, REL, through the Partnership, has invested in full its
$90 million commitment to Pipestone (fka CNOR). Pipestone is a Calgary-based
oil and gas company focussed on the Western Canadian Sedimentary Basin. CNOR
had invested in a joint venture with Tourmaline Oil Corp. targeting the Peace
River High area (126,000 net acres), which it sold in 3Q19 for C$175 million.
Earlier in 2019, CNOR closed on a strategic combination with publicly-traded
Blackbird Energy to consolidate its ~25,000 net acre Pipestone Montney
position with that of Blackbird's offsetting ~73,000 acres. The pro forma
company is named Pipestone Energy Corporation and trades under TSX: PIPE.
During the third quarter of 2019, Pipestone completed the build-out of
required infrastructure needed to expand its future operations and has since
been working towards bringing incremental production online. During 2021, the
company is expected to average production of approximately 25m boepd.
As of 31 December 2021, REL's interest in Pipestone, through the Partnership,
was valued at 0.58x Gross MOIC((1)) or $52 million (Realised: $16 million,
Unrealised: $36 million). The Gross MOIC((1)) increased over the period. As
further detailed in the Post-Year End Updates section of the Investment
Manager's Report, the Company fully realised its investment in Pipestone in
February 2022.
FreeWire Technologies
As of 31 December 2021, REL, through the Partnership, has fully invested its
$10 million commitment to FreeWire Technologies, Inc. FreeWire is the leading
provider of battery-integrated DC fast chargers (DCFCs) and their associated
software. Riverstone led the Company's $50 million Series C round in January
2021.
Their primary hardware product is the Boost Charger, a unitised, turnkey DCFC
that offers charging speeds of up to 120kW with only a 20kW grid connection by
using a 160kWh battery. These specifications support 15-24 fast charging
sessions per day. The current software platform, AMP Connect, allows for
charger management and integration with existing customer platforms with
broader services in development.
As of 31 December 2021, REL's interest in FreeWire, through the Partnership,
was valued at 2.00x Gross MOIC((1)) or $20 million (Realised: $- million,
Unrealised: $20 million).
Hyzon
In connection with the closing of the previously announced merger between DCRB
and Hyzon Motors Inc. (NASDAQ: HYZN), REL purchased $10 million of DCRB common
stock in a private placement transaction at $10 per share in July 2021. Hyzon,
headquartered in Rochester, New York, is the industry-leading global supplier
of zero-emissions hydrogen fuel cell powered commercial vehicles.
Hyzon recorded first vehicle revenues during 3Q 2021 as anticipated, despite
the challenging supply chain environment, and exceeded its forecast for 85
vehicles shipped before 31 December 2021 with 87 vehicles delivered in 2021.
As of 31 December 2021, REL's interest in Hyzon, through the Partnership, was
valued at 0.65x Gross MOIC((1)) or $6 million (Realised: $- million,
Unrealised: $6 million). The Gross MOIC((1)) increased over the period.
DCRN/Tritium
Again in February, REL invested $0.6 million in the Founder Shares and
Warrants of Decarbonization 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.
As of 31 December 2021, REL's interest in DCRN/Tritium, through the
Partnership, was valued at 6.46x Gross MOIC((1)) or $4 million (Realised: $-
million, Unrealised: $4 million).
DCRC/Solid Power
As of 31 December 2021, REL, through the Partnership, has fully invested its
$20.6 million commitment to DCRC/Solid Power. Riverstone sponsored DCRC's $350
million IPO on 23 March 2021. REL made a $0.6 million investment in DCRC at
the time of the IPO, as the blank check company began to pursue merger
candidates. On 15 June 2021, DCRC announced its business combination agreement
with Solid Power, a Louisville, Colorado based producer of all solid-state
batteries for electric vehicles, to which REL committed an additional $20
million to the $165 million PIPE that was raised.
Between DCRC's IPO and announcing the business combination with Solid Power,
Solid Power closed on a $130 million Series B investment raise led by BMW
Group, Ford Motor Company, and Volta Energy Technologies. In conjunction with
the Series B raise, BMW and Ford expanded their existing joint development
agreements with the Company to secure all solid-state batteries for future
electric vehicles. Both Ford and BMW will receive full-scale 100 Ah cells for
automotive qualification testing and vehicle integration beginning in 2022.
Solid Power's all solid-state platform technology allows for the production of
unique cell designs expected to meet performance requirements for each
automotive partner.
The business combination between DCRC and Solid Power closed on 8 December
2022, with Solid Power beginning to trade on NASDAQ under the ticker "SLDP".
Gross proceeds to Solid Power from the transaction amounted to $542.9 million
from a fully committed $195 million PIPE and $347.9 million of cash held in
trust net of redemptions; only 0.6 per cent. of shares held by public
stockholders of DCRC were redeemed. Of the shares voted at the special meeting
of DCRC's stockholders, over 99.9 per cent. voted to approve the business
combination
As of 31 December 2021, REL's interest in Solid Power, through the
Partnership, consisted of the $0.6 million sponsor investment, which was
valued at 7.4x Gross MOIC((1)) or $4 million (Realised: $- million,
Unrealised: $4 million), and the $20 million PIPE investment, which was valued
at 0.87x Gross MOIC((1)) or $17 million (Realised: $- million, Unrealised: $17
million).
DCRD
Also, in August 2021, REL announced an investment of $0.6 million in DCRD, a
special purpose acquisition vehicle sponsored by an affiliate of REL's
investment manager which raised over $316 million in its IPO.
As of 31 December 2021, REL's interest in DCRD, through the Partnership, was
valued at 1.00x Gross MOIC((1)) or $0.6 million (Realised: $- million,
Unrealised: $0.6 million).
Realised Investments
ILX III
ILX III, based in Houston, Texas, is a joint-venture with Ridgewood Energy
Corporation and pursues a strategy of acquiring non-operated working interests
in oil-focussed exploration projects in the Gulf of Mexico. To date, the
company has participated in nine commercial discoveries, of which four are
currently producing oil, and one is temporarily shut in.
In July 2021, REL sold its one-third ownership interest in ILX III to an
institutional investment fund managed by Ridgewood Energy Corporation for net
proceeds of $168 million. With this transaction, REL no longer owns any
interest in ILX III, but will continue to own 43,333 shares of Talos Energy
Inc stock (NYSE:TALO) in connection with its former investment in ILX III.
As of 31 December 2021, REL's interest in ILX III, through the Partnership,
was valued at 0.96x Gross MOIC((1)) or $171 million (100 per cent. realised).
Valuation
The Investment Manager is charged with proposing the valuation of the assets
held by REL through the Partnership. The Partnership has directed that
securities and instruments be valued at their fair value. REL's valuation
policy is compliant with IFRS and IPEV Valuation Guidelines and has been
applied consistently from period to period since inception. As the Company's
investments are generally not publicly quoted, valuations require meaningful
judgement to establish a range of values, and the ultimate value at which an
investment is realised may differ from its most recent valuation and the
difference may be significant.
The Investment Manager values each underlying investment in accordance with
the Riverstone valuation policy, the IFRS accounting standards and IPEV
Valuation Guidelines. The value of REL's portion of that investment is derived
by multiplying its ownership percentage by the value of the underlying
investment. If there is any divergence between the Riverstone valuation policy
and REL's valuation policy, the Partnership's proportion of the total holding
will follow REL's valuation policy. Valuations of REL's investments through
the Partnership are determined by the Investment Manager and disclosed
quarterly to investors, subject to Board approval.
Riverstone values its investments using common industry valuation techniques,
including comparable public market valuation, comparable merger and
acquisition transaction valuation, and discounted cash flow valuation.
For development-type investments, Riverstone also considers the recognition of
appreciation or depreciation of subsequent financing rounds, if any. For those
early stage privately held companies where there are other indicators of a
decline in the value of the investment, Riverstone will value the investment
accordingly even in the absence of a subsequent financing round.
Riverstone reviews the valuations on a quarterly basis with the assistance of
the Riverstone Performance Review Team ("PRT") as part of the valuation
process. The PRT was formed to serve as a single structure overseeing the
existing Riverstone portfolio with the goal of improving operational and
financial performance.
The Audit Committee reviews the valuations of the Company's investments held
through the Partnership and makes a recommendation to the Board for formal
consideration and acceptance.
Uninvested Cash
As of 31 December 2021, REL had a cash balance of $7.3 million and the
Partnership, including its wholly-owned subsidiaries, REL Cayman Holdings, LP,
REL US Corp and REL US Centennial Holdings, LLC, had uninvested funds of over
$98.5 million held as cash and money market fixed deposits, gross of the
accrued Management Fee of $2.5 million. As in prior years, in accordance with
the Partnership Agreement, if the Company requires additional funds for
working capital, it is entitled to receive another distribution from the
Partnership. The Partnership maintains deposit accounts with several leading
international banks. In addition, the Partnership invests a portion of its
cash deposits in short-term money market fixed deposits. REL's treasury policy
seeks to protect the principal value of cash deposits utilising low risk
investments with top-tier counterparts. Uninvested cash earned approximately
16 basis points during the year ended 31 December 2021.
On 9 March 2021, the Board was pleased to confirm that the Share Buyback
Programme had successfully completed with a total of 17,214,197 ordinary
shares having been bought back at an average price of approximately £2.90 per
ordinary share. On 11 May 2021, the Company announced a buyback programme with
the intention of returning £20 million to Shareholders via on market
buybacks, subsequently, on 4 October 2021, the Company announced an increase
in the buyback programme from £20 million to £40 million. Since the
announcement, the Company has purchased 7,744,935 shares, in aggregate, for
£36.0 million ($50.0 million) at an average share price of £4.65 ($6.40).
After these share buybacks and the accrued Management Fee, REL's aggregate
cash balance is $103.3 million.
As of 31 December 2021, REL, through the Partnership, had potential unfunded
commitments of $49.1 million. In connection with the listing of REL on the
London Stock Exchange, all proceeds of the offering were converted to U.S.
dollars at an average rate of 1.606 at inception. All cash deposits referred
to above are denominated in U.S. dollars. Additionally, REL's functional
currency and Financial Statements are all presented in U.S. dollars. The
Partnership's commitments are denominated in U.S. dollars, except Hammerhead
and CNOR which are denominated in Canadian dollars.
Post-Year End Updates
Subsequent to year-end, REL, through the Partnership, funded four new
investments in keeping with its modified investment programme, as well as
realised its investment in Pipestone (see details below). Additionally, on 8
February 2022, the Company announced that the Board and Investment Manager
agreed to allocate an additional £46.0 million to the share buyback
programme. As the Company currently has the authority to repurchase 1,799,944
shares pursuant to the authority granted at its 2021 annual general meeting,
the Board is convening an EGM on 4 March 2022 to seek shareholder approval to
renew the Company's authority to repurchase up to 14.99 per cent. of the
shares outstanding as at the date of the meeting.
Tritium
Tritium's merger vote with DCRN was held and closed on 12 January 2022,
resulting in Tritium becoming a publicly traded company. DCRN, a blank-check
company formed for the purpose of effecting a merger, capital stock exchange,
or asset acquisition, stock purchase, reorganisation or similar business
combination with a target whose principal effort is developing and advancing a
platform that decarbonises the most carbon-intensive sectors. Due to large
numbers of DCRN shareholder redemptions, an additional $15 million commitment
to Tritium was funded on 11 February 2022.
T-REX Group
On 19 January 2022, REL funded a $17.5 million preferred equity investment in
conjunction with the closing of T-REX Group's $40 million Series C funding
round. 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. The company
was founded to address the absence of modern technology to power complex asset
finance and the emerging need for tools to accelerate investment into the
energy transition. T-REX Group's platform gives institutions the modernised
tools and validation they require to deploy capital, thereby facilitating
increased investment allocations into sustainable, decarbonisation-related
assets.
Electric motor company
On 1 February 2022, REL funded $17.0 million of a $17.5 million commitment in
conjunction with the first closing of an electric motor company's latest
financing round. The electric motor company engineers and manufactures
innovative axial flux, permanent magnet electric motors for commercial,
industrial and mobility applications. The company's electric motors meet the
industry's highest efficiency standards (IE5) at less than half the size and
weight of comparable motors, and facilitate decarbonisation by consuming less
electricity and raw material than do existing models.
Pipestone
On 4 February 2022, REL sold its entire position in Pipestone Energy Corp.
for CAD 4.55 per share or CAD 53.0 million ($41.7 million) in net
proceeds. The 11.72 million block sale resulted in an aggregate Gross MOIC of
0.64x, inclusive of previously realised proceeds, which is slightly higher
than its fourth-quarter 2021 mark of 0.58x.
Anuvia
On 18 February 2022, REL committed to invest up to $20 million in Anuvia Plant
Nutrients' $70 million Series D Round. Anuvia manufactures a premium organic
fertiliser that uses bio-waste as a manufacturing input, which sequesters
carbon and improves soil health. The company's products displace
emissions-intensive synthetic fertilisers, increase crop yields by 3-6 per
cent., and provide growers with a 3-4x return on the incremental investment.
Outlook
The Investment Manager continues to work with its portfolio companies and
management teams to navigate changing market conditions given the ongoing
pandemic, shifting commodity market conditions, and the rapidly evolving
energy transition. While we expect the next year to be unpredictable, we look
forward to watching the portfolio perform. We believe our work over the last
year, reducing exposure to commodity risk and increasing exposure to emergent
green technologies, has positioned the portfolio to capitalise on the upside
of energy market volatility and the technological and the global
infrastructural sea change associated with the energy transition. We expect
portfolio companies to continue to pay down debt and renegotiate covenants, to
manage existing liquidity with discipline, and to increase strategic capital
expenditure where appropriate. The Investment Manager will continue to execute
on the modified investment programme, identifying new decarbonisation
investments that present attractive risk-reward profiles supporting value
creation for shareholders.
RIGL Holdings, LP
23 February 2022
((1)) Gross Unrealised Value and Gross MOIC (Gross Multiple of Invested
Capital) are before transaction costs, taxes (approximately 21 to 27.5 per
cent. of U.S. sourced taxable income) and 20 per cent. carried interest on
applicable gross profits in accordance with the revised terms announced on 3
January 2020, but effective 30 June 2019. Since there was no netting of losses
against gains before the aforementioned revised terms, the effective carried
interest rate on the portfolio as a whole will be greater than 20 per cent. No
further carried interest will be payable until the $208 million of realised
and unrealised losses to date at 31 December 2021 are made whole with future
gains, so the earned carried interest of $0.8 million at 31 December 2021 has
been deferred and will expire in October 2023 if the aforementioned losses are
not made whole. Since REL has not yet met the appropriate Cost Benchmark at 31
December 2021, $28.7 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
Investment Policy
The Investment Manager continues to reposition REL's portfolio away from
commodity price-sensitive oil and gas investments towards a focus on renewable
and the decarbonisation thematic. This shift in the portfolio began in the
summer of 2020 with the Company investing $18 million to recapitalise Enviva
Holdings, and the Company's $25 million and $10 million commitments announced
in January 2021 to GoodLeap, LLC and FreeWire Technologies, Inc.,
respectively. Further, in February 2021, REL announced a $10 million
commitment to DCRB, via a private placement, and a $0.6 million commitment to
DCRN, via an initial public offering. Similarly, in March 2021, REL announced
a $0.5 million commitment to DCRC, via an initial public offering, followed in
June 2021 by a further $20 million commitment, via a private placement. The
Company believes that each of these investments provides an opportunity to
create shareholder value while supporting REL's long-term focus on ESG and
energy transition investments. Going forward, REL expects to continue to
increase its exposure in areas that support decarbonisation across the entire
investment spectrum, from traditional power generation to technology-enabled
solutions that facilitate increased renewables adoption and helps the global
economy reach its climate change goals.
The Company's independent directors are supportive of the continuation of the
Investment Manager's modified investment strategy for the immediate future.
The independent directors will continue to monitor the Investment Manager's
success in repositioning the Company's existing investment policy through the
modified investment strategy. At the EGM in 2020, the Board committed to
review the Company's performance and, before 31 December 2022, decide whether
or not it would be in the best interests of all Shareholders to request an EGM
to vote on a run-off of its portfolio. Based on the significant improvement in
the performance of REL, taking into account the trading price of the Ordinary
Shares and portfolio performance from 30 September 2020 to the date of this
report, the likelihood is remote that the Company's independent Directors
would seek Shareholder approval before 31 December 2022 to amend the
Company's investment policy to provide for the managed wind-down of the
Company.
Since REL, through the Partnership, has the right to invest alongside the
Private Riverstone Funds V and VI, as well as in investments consistent with
its modified investment strategy, REL presents a unique opportunity for public
market investors to gain exposure to Riverstone's investments in the
attractive global energy transition sector. For decarbonisation investments
outside this historical framework with the Private Riverstone Funds V and VI,
the Investment Manager has advised the Board that Riverstone is fully
committed to use its best efforts to have REL participate in its deal flow,
whenever there is available capacity.
The Investment Manager intends to manage investments for the benefit of all of
its investors. If any matter arises that the Investment Manager determines in
its good faith judgement constitutes an actual conflict of interest, the
Investment Manager may take such actions as may be necessary or appropriate,
having regard to all relevant terms of the Investment Management Agreement, to
manage the conflict (and upon taking such actions the Investment Manager will
be considered to have discharged responsibility for managing such conflict).
The Directors are required by the Registered Collective Investment Schemes
Rules 2018 issued by the GFSC to take all reasonable steps to ensure that
there is no breach of the conflicts of interest requirements of those rules.
Asset Allocation
The Company acquires its interests in each Qualifying Investment at the same
time (or as near as practicable thereto) as, and on substantially the same
economic and financial terms as, the relevant Private Riverstone Funds.
The Company and the current Private Riverstone Funds, (Fund V and Fund VI)
invest in each Qualifying Investment in which the Private Riverstone Funds
participate in a ratio of one-third to REL to two-thirds to the Private
Riverstone Funds. This investment ratio is subject to adjustment on a
case-by-case basis (a) to take account of the liquid assets available to each
of the Company and the Private Riverstone Funds for investment at the relevant
time and any other investment limitations applicable to either of them or
otherwise and (b) if both (i) a majority of the Company's independent
Directors and (ii) the Investment Manager agree that the investment ratio
should be adjusted for specific Qualifying Investments.
For each Private Riverstone Fund subsequent to Fund V and Fund VI which is of
a similar size and has a similar investment policy to the Company, Riverstone
will seek to ensure that, subject to the investment capacity of the Company at
the time, the Company and the Private Riverstone Fund invest in Qualifying
Investments in an investment ratio of one-third to REL to two-thirds to the
Private Riverstone Fund or in such other ratio as the Company's independent
Directors and the Investment Manager agree at or prior to the first closing of
such Private Riverstone Fund.
Such investment ratio may be adjusted by agreement between the Company's
independent Directors and the Investment Manager on subsequent closings of a
Private Riverstone Fund having regard to the total capital commitments raised
by that Private Riverstone Fund during its commitment period, the liquid
assets available to the Company at that time and any other investment
limitations applicable to either of them. For decarbonisation investments
outside this historical framework with the Private Riverstone Funds V and VI,
the Investment Manager has advised the Board that Riverstone is fully
committed to use its best efforts to have REL participate in its deal flow,
whenever there is available capacity.
The Investment Manager typically seeks to ensure that the Company and the
Private Riverstone Funds dispose of their interests in Qualifying Investments
at the same time, on substantially the same terms, and in the case of partial
disposals, in the same ratio as the relevant Qualifying Investment was
acquired, but this may not always be the case.
In addition, the Company may at any time make investments consistent with its
investment policy independent from Private Riverstone Funds, which may include
investments alongside Riverstone employee co-investment vehicles or other
Riverstone managed or advised co-investment vehicles. In such cases, consent
to the Investment Manager's recommendation is required by the Board.
The Company invests in public or private securities, may hold controlling or
non-controlling positions in its investments and may make investments in the
form of equity, equity-related instruments, indebtedness or derivatives (or a
combination of any of them). The Company does not permit any investments to be
the subject of stock lending or sale and repurchase of shares.
Diversification
Save for the Company's investment in Hammerhead, which may represent up to 35
per cent. of the Company's gross assets, including cash holdings, measured at
the time the investment is made, no one investment made by the Company,
through the Partnership, may (at the time of the relevant investment)
represent more than 25 per cent. of the Company's gross assets, including cash
holdings, measured at the time the investment is made. As at 31 December 2021,
the Company's investment in Hammerhead represented approximately 14 per cent.
of the Company's gross assets, including cash holdings. The Company utilises
the Partnership and its subsidiary undertakings or other similar investment
holding structures to make investments and this limitation does not apply to
its ownership interest in any such subsidiary undertaking (nor, for the
avoidance of doubt, to the Company's interest in the Partnership).
Gearing
The Company can, but is not required to, incur indebtedness for investment
purposes, to the extent that such indebtedness is a precursor to an ultimate
equity investment, working capital requirements and to fund own-share
purchases or retentions up to a maximum of 30 per cent. of the last published
NAV as at the time of the borrowing unless approved by the Company by an
ordinary resolution. This limitation does not apply to portfolio level
entities in respect of which the Company is invested but it does apply to all
subsidiary undertakings utilised by the Company or the Partnership for the
purposes of making investments. The consent of a majority of the Company's
Directors, with consent of the Investment Manager, shall be required for the
Company or the Partnership to enter into any credit or other borrowing
facility.
The Company must at all times comply with its published investment policy. For
so long as the Ordinary Shares are listed on the Official List, no material
change may be made to the Company's investment policy other than with the
prior approval of both the Company's Shareholders and a majority of the
independent Directors of the Company, and otherwise in accordance with the
Listing Rules.
Investment Restrictions
The Company is subject to the following investment restrictions:
· for so long as required by the Listing Rules, it will at all
times seek to ensure that the Investment Manager invests and manages the
Company's and the Partnership's assets in a way which is consistent with the
Company's objective of spreading risk and in accordance with the Company's
investment policy;
· for so long as required by the Listing Rules, it must not conduct
a trading activity which is significant in the context of the Company and its
Investment Undertakings;
· for so long as required by the Listing Rules, not more than 10
per cent. of the value of its total assets will be invested in other UK-listed
closed-ended investment funds, except for those which themselves have
published investment policies to invest not more than 15 per cent. of their
total assets in other UK-listed closed-ended investment funds; 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.
The COMPANY INVESTS IN THE GLOBAL ENERGY AND INFRASTRUCTURE INDUSTRY ACROSS SUBSECTORS AND IS WELL-POSITIONED TO CAPITALISE ON OPPORTUNITIES ARISING FROM THE SHIFT TOWARDs energy transition and decarbonisation over the long-term.
Board of Directors
Richard Hayden (76), Chairman and Non-executive Independent Director
Appointment: Appointed to the Board in May 2013 and appointed as Chairman in
May 2016.
Experience: Mr Hayden serves as non-executive Chairman of TowerBrook Capital
Partners Advisory Board and member of the Investment Committee. Prior to
joining TowerBrook in 2009, Mr Hayden was Vice Chairman of GSC Group Inc and
Global Head of the CLO and Mezzanine Debt business. Previously, Mr Hayden was
with Goldman Sachs from 1969 to 1999. Mr Hayden held a variety of senior
positions during his time at Goldman Sachs, including Deputy Chairman of
Goldman Sachs International Ltd and Chairman of the Global Credit Committee.
Mr Hayden has served on a number of corporate and advisory boards including
CQS Capital Management, Haymarket Financial, Deutsche Borse and Abbey National
Bank. Mr Hayden is currently on the Finance and Investment Committee of the
Children's Investment Fund Foundation. Mr Hayden is a UK resident.
Committee Membership: Audit Committee Member; Nomination Committee Chairman;
Management Engagement Committee Member.
Peter Barker (73), Non-executive Independent Director
Appointment: Appointed to the Board in September 2013.
Experience: Mr Barker was California Chairman of JPMorgan Chase & Co., a
global financial services firm, from September 2009 until his retirement on 31
January 2013, and a member of its Executive Committee in New York. Mr Barker
was also an Advisory Director of Goldman, Sachs & Co. from December 1998
until his retirement in May 2002, and a Partner of Goldman, Sachs & Co.
from 1982 to 1998, heading up Investment Banking on the West Coast, having
joined Goldman, Sachs & Co. in 1971. Mr Barker is President of the
Fletcher Jones Foundation and has held numerous directorships. He is currently
on the board of Avery Dennison Corporation, the W. M. Keck Foundation, the
Irvine Company, and the Automobile Club of Southern California. Mr Barker is
also a Trustee of Claremont McKenna College, having formerly been its
Chairman, and was previously Chair of the Los Angeles Area Council of the Boy
Scouts of America. Mr Barker is a U.S. resident.
Committee Membership: Audit Committee Member; Nomination Committee Member;
Management Engagement Committee Member.
Patrick Firth (60), Non-executive Senior Independent Director
Appointment: Appointed to the Board in May 2013 and appointed as Senior
Independent Director in May 2016.
Experience: Mr Firth qualified as a Chartered Accountant with KPMG Guernsey in
1991 and is also a member of the Chartered Institute for Securities and
Investment. He has worked in the fund industry in Guernsey since joining
Rothschild Asset Management (CI) Limited in 1992 before moving to become
Managing Director at Butterfield Fund Services (Guernsey) Limited
(subsequently Butterfield Fulcrum Group (Guernsey) Limited), a company
providing third party fund administration services, where he worked from April
2002 until June 2009. He is a non-executive Director of a number of investment
funds and management companies, including India Capital Growth Fund Limited
and NextEnergy Solar Fund Limited. Mr Firth is a UK resident.
Committee Membership: Audit Committee Chairman; Nomination Committee Member;
Management Engagement Committee Member.
Jeremy Thompson (66), Non-executive Independent Director
Appointment: Appointed to the Board in May 2016.
Experience: Mr Thompson has sector experience in Finance, Telecoms,
Engineering and Oil & Gas. He acts as an independent non-executive
director for both listed, including DP Aircraft 1 Limited, and PE funds. Prior
to that, he has worked in private equity and was CEO of four autonomous global
businesses within Cable & Wireless Plc (operating in both regulated and
unregulated markets), and earlier held CEO roles within the Dowty Group. He
currently serves as chairman of the States of Guernsey Renewable Energy Team
and is a commissioner of the Alderney Gambling Control Commission. He is also
an independent member of the Guernsey Tax Tribunal panel. He is a graduate of
Brunel (B.Sc), Cranfield (MBA) and Bournemouth (M.Sc) Universities and was an
invited member to the UK's senior defence course RCDS (Royal College of
Defence Studies). He is a member of the IoD and holds the IoD's Certificate
and Diploma in Company Direction, is an associate of the Chartered Institute
of Arbitration and a chartered Company Secretary. Mr Thompson is a resident
of Guernsey and has previously lived and worked in the UK, USA and Germany.
Committee Membership: Audit Committee Member; Nomination Committee Member;
Management Engagement Committee Member.
Claire Whittet (66), Non-executive Independent Director
Appointment: Appointed to the Board in May 2015.
Experience:
Mrs Whittet has over 40 years of experience in the financial services
industry. After obtaining a MA (Hons) in Geography from the University of
Edinburgh, she joined the Bank of Scotland for 19 years and undertook a wide
variety of roles. She moved to Guernsey in 1996 and was Global Head of Private
Client Credit for Bank of Bermuda before joining the Board of Rothschild &
Co Bank International Limited in 2003, initially as Director of Lending and
latterly as Managing Director and Co-Head until May 2016 when she became a
non-executive Director. Mrs Whittet is an ACIB member of the Chartered
Institute of Bankers in Scotland, a Chartered Banker, a member of the
Chartered Insurance Institute and holds an IoD Diploma in Company Direction.
She is an experienced non-executive Director of five other listed funds (BH
Macro Limited, Eurocastle Investment Limited, International Public
Partnerships Limited, Third Point Offshore Investors Limited and TwentyFour
Select Monthly Income Fund Limited) and various PE funds. Mrs Whittet is a
Guernsey resident.
Committee Membership: Audit Committee Member; Nomination Committee Member;
Management Engagement Committee Chairman.
Report of the Directors
The Directors hereby submit the Annual Report and Audited Financial Statements
for the Company for the year ended 31 December 2021. This Report of the
Directors should be read together with the Corporate Governance Report.
General Information
Riverstone Energy Limited is a company limited by shares, which was
incorporated on 23 May 2013 in Guernsey with an unlimited life and registered
with the Commission as a Registered Closed-ended Collective Investment Scheme
pursuant to the POI Law. It has been listed on the London Stock Exchange since
29 October 2013. The registered office of the Company is PO Box 286, Floor 2,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.
Principal Activities
The principal activity of the Company is to act as an investment entity
through the Partnership and make privately negotiated equity investments in
the energy sector.
The Company's investment objective is to generate long-term capital growth by
investing in the global energy sector, with a particular focus on
opportunities in the global exploration and production and midstream energy
sub-sectors. The Company may also make investments in other energy sub-sectors
(including transportation energy services and power and coal).
Business Review
A review of the Company's business and its likely future development is
provided in the Chairman's Statement and in the Investment Manager's Report.
Listing Requirements
Since being admitted on 29 October 2013 to the Official List of the UK Listing
Authority, maintained by the FCA, the Company has complied with the applicable
Listing Rules.
Results and Dividend
The results of the Company for the year are shown in the audited Statement of
Comprehensive Income.
The Net Asset Value of the Company as at 31 December 2021 was $682 million (31
December 2020: $390 million).
The Directors do not recommend the payment of a dividend in respect of the
year ended 31 December 2021 (31 December 2020: $nil).
Share Capital
At incorporation on 23 May 2013, the Company issued one founder Ordinary Share
of no par value. On 29 October 2013, the Company issued 71,032,057 Ordinary
Shares of no par value at £10 per Ordinary Share in an initial public
offering raising a total of $1,138 million.
KFI, one of the Cornerstone Investors in the Company, paid for and acquired 10
million Ordinary Shares in two equal tranches of £50 million. The first
tranche was paid on Admission and the second tranche of 5 million Ordinary
Shares was paid on 26 September 2014.
On 11 December 2015, the Company raised £67.6 million ($102.3 million)((1))
through the issuance of 8,448,006 new Ordinary Shares at £8.00 per Ordinary
Share.
On 15 October 2018, the Company announced a Tender Offer for £55.0 million in
value of the Company's Ordinary Shares. The Company acquired 4,583,333
Ordinary Shares 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. 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 9 March 2021, the Board was pleased to confirm that the Share Buyback
Programme had successfully completed with a total of 17,214,197 ordinary
shares having been bought back at an average price of approximately £2.90
($3.67) per ordinary share. 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).
As at 31 December 2021, the share capital of the Company is 54,937,599
Ordinary Shares in aggregate.
Post year-end, on 8 February 2022, the Company announced that the Board and
Investment Manager agreed to allocate an additional £46.0 million to the
programme. As the Company currently has the authority to repurchase 1,799,944
shares pursuant to the authority granted at its 2021 annual general meeting,
the Board is convening an EGM on 4 March 2022 to seek shareholder approval to
renew the Company's authority to repurchase up to 14.99 per cent. of the
shares outstanding as at the date of the meeting.
The Company has one class of Ordinary Shares. The issued nominal value of the
Ordinary Shares represents 100 per cent. of the total issued nominal value of
all share capital. Under the Company's Articles of Incorporation, on a show of
hands, each Shareholder present in person or by proxy has the right to one
vote at general meetings. On a poll, each Shareholder is entitled to one vote
for every share held.
Shareholders are entitled to all dividends paid by the Company and, on a
winding up, provided the Company has satisfied all of its liabilities, the
Shareholders are entitled to all of the surplus assets of the Company. The
Company has not declared or paid dividends from inception to 31 December 2021,
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 2021 and 2020 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
2021 2021 2020 2020
Richard Hayden((1)) 10,000 0.018 10,000 0.016
Peter Barker((1)(2)) 5,000 0.009 5,000 0.008
Patrick Firth((3)) 8,000 0.015 8,000 0.013
Jeremy Thompson((1)) 3,751 0.007 3,751 0.006
Claire Whittet((1)(4)) 2,250 0.004 2,250 0.004
((1) ) Non-executive Independent Director.
((2)) Ordinary Shares held jointly with spouse.
((3) ) Senior Independent Director.
((4)) Ordinary Shares held indirectly with spouse.
In addition, the Company also provides the same information as at 23 February
2022, being the most current information available.
Director Ordinary Per cent.
Shares held Holding at
23 February 2022 23 February 2022
Richard Hayden((1)) 10,000 0.018
Peter Barker((1)(2)) 5,000 0.009
Patrick Firth((3)) 8,000 0.015
Jeremy Thompson((1)) 3,751 0.007
Claire Whittet((1)(4)) 2,250 0.004
((1)) Non-executive Independent Director
((2)) Ordinary Shares held jointly with spouse
((3)) Senior Independent Director
((4)) Ordinary Shares held indirectly with spouse
Directors' Authority to Buy Back Shares
At the AGM on 25 May 2021 in St Peter Port, Guernsey, the Company renewed the
authority to make market purchases of up to a maximum of 14.99 per cent. of
the issued share capital of the Company. Any buy back of the Company's
Ordinary Shares will be made subject to Companies Law and within any
guidelines established from time to time by the Board. The making and timing
of any buy backs will be at the absolute discretion of the Board, with consent
of the Investment Manager, and not at the option of the Shareholders.
Purchases of the Company's Ordinary Shares will only be made through the
market for cash at prices below the prevailing Net Asset Value of the
Company's Ordinary Shares (as last calculated) where the Directors believe
such purchases will enhance Shareholder value. Such purchases will also only
be made in accordance with the Listing Rules.
In accordance with the Company's Articles of Incorporation and Companies Law,
up to 10 per cent. of the Company's Ordinary Shares may be held as treasury
shares.
Post year-end, on 8 February 2022, the Company announced that the Board and
Investment Manager agreed to allocate an additional £46.0 million to the
programme. As the Company currently has the authority to repurchase 1,799,944
shares pursuant to the authority granted at its 2021 annual general meeting,
the Board is convening an EGM on 4 March 2022 to seek shareholder approval to
renew the Company's authority to repurchase up to 14.99 per cent. of the
shares outstanding as at the date of the meeting.
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 2021, the Company had been notified, in accordance with
Chapter 5 of the Disclosure Guidance and Transparency Rules, of the following
substantial voting rights as Shareholders of the Company.
Shareholder Shareholding Per cent. Nature of
Holding Holding
Quilter Investors 12,292,141 22.4% Indirect
AKRC Investments LLC((1)) 10,938,666 19.9% Direct
MMF MLP, Ltd((1)(2)) 8,430,490 15.3% Indirect
Riverstone Related Holdings 3,615,170 6.6% Direct
SIX Group Ltd. 2,579,247 4.7% Indirect
In addition, the Company also provides the same information as at 22 February
2022, being the most current information available.
Shareholder Shareholding Per cent. Nature of
Holding Holding
Quilter Investors 12,292,141 22.4% Indirect
MMF MLP, Ltd((1)(2)) 8,430,490 15.3% Indirect
AKRC Investments LLC((1)) 6,308,990 11.5% Direct
SIX Group Ltd. 4,255,721 7.8% Indirect
Riverstone Related Holdings 3,615,170 6.6% Direct
((1) ) Held by a Cornerstone Investor.
((2)) Formerly known as Kendall Family Investments LLC.
The Directors confirm that there are no securities in issue that carry special
rights with regards to the control of the Company.
Independent External Auditor
Ernst & Young LLP has been the Company's external auditor since
incorporation. The Audit Committee reviews the appointment of the external
auditor, its effectiveness and its relationship with the Company, which
includes monitoring the use of the external auditor for non-audit services and
the balance of audit and non-audit fees paid. Following a review of the
independence and effectiveness of the external auditor, a resolution will be
proposed at the 2022 Annual General Meeting to reappoint Ernst & Young
LLP. Each Director believes that there is no relevant information of which the
external auditor is unaware. Each has taken all steps necessary, as a
Director, to be aware of any relevant audit information and to establish that
Ernst & Young LLP is made aware of any pertinent information. This
confirmation is given and should be interpreted in accordance with the
provisions of Section 249 of the Companies Law. Further information on the
work of the external auditor is set out in the Report of the Audit Committee.
Articles of Incorporation
The Company's Articles of Incorporation may only be amended by special
resolution of the Shareholders. At the AGM on 22 May 2018, the Company adopted
Amended and Restated Articles.
AIFMD
REL is regarded as an externally managed non-EEA AIF under the AIFM Directive.
RIGL is the Investment Manager of the Company as its non-EEA AIFM. The AIFMD
outlines the required information which has to be made available to investors
in an AIF and directs that material changes to this information be disclosed
in the Annual Report of the AIF. All information required to be disclosed
under the AIFMD is either disclosed in this Annual Report or is detailed in
the Appendix entitled AIFMD Disclosures on page 178 in REL's latest Prospectus
which can be obtained through the Company's website www.RiverstoneREL.com
(http://www.RiverstoneREL.com) . The AIFM has no remuneration within the
current or prior year that falls within the scope of Article 22 of the
Directive.
RIGL provides AIFMD compliant management services to REL. The AIFM acting on
behalf of the AIF, has appointed Ocorian Depositary Company (UK) Limited to
provide depositary services to the AIF. The appointment of the Depositary is
intended to adhere to, and meet the conditions placed on the Depositary and
the AIFM under Article 21 and other related articles of the AIFMD. The
Depositary shall only provide depositary services to the AIF should it admit
one or more German and/or Danish investors following marketing activity
towards them. At that time, the Depositary shall observe and comply with the
Danish and German regulations applying to the provision of depositary services
to a non-EEA AIF marketed in Denmark or Germany, as the case may be, by a
non-EEA AIFM.
UCITS Eligibility
The Investment Manager is a relying adviser of Riverstone Investment Group
LLC. Riverstone Investment Group LLC is registered as an investment adviser
with the SEC under the U.S. Investment Advisers Act. As such, the Investment
Manager is subject to Riverstone Investment Group LLC's supervision and
control, the advisory activities of the Investment Manager are subject to the
U.S. Investment Advisers Act and the rules thereunder and the Investment
Manager is subject to examination by the SEC. Accordingly the Company has been
advised that its Ordinary Shares should be "transferable securities" and,
therefore, should be eligible for investment by authorised funds in accordance
with the UCITS Directive or NURS on the basis that:
· the Company is a closed end investment company;
· the Ordinary Shares are admitted to trading on the Main Market of
the London Stock Exchange; and
· the Ordinary Shares have equal voting rights.
However, the manager of the relevant UCITS or NURS should satisfy itself that
the Ordinary Shares are eligible for investment by the relevant UCITS or NURS.
AEOI Rules
Under AEOI Rules the Company continues to comply with both FATCA and CRS
requirements to the extent applicable to the Company.
General Partner's Performance Allocation and Management Fees
The General Partner's Performance Allocation is equal to 20 per cent. of all
applicable realised pre-tax profits, in accordance with the revised terms
announced on 3 January 2020, but effective 30 June 2019 (see Note 9 for
further detail). In particular, taxes on realised gains from ECI investments,
as shown in the Investment Manager's Report, in excess of existing net
operating losses, can be substantial at rates up to 27.5 per cent. The Company
is not an umbrella collective investment undertaking and therefore has no
gross liability. In the normal course of business, REL may form wholly-owned
subsidiaries, to be treated as C Corporations for U.S. tax purposes. The C
Corporations serve to protect REL's public investors from incurring U.S. ECI.
The C Corporations file U.S. corporate tax returns with the U.S. IRS and pay
U.S. corporate taxes on its taxable income.
The General Partner's Performance Allocation is calculated under the
aforementioned revised terms of the Partnership Agreement announced on 3
January 2020, but effective 30 June 2019, and as described in the
Prospectuses.
The accrued Performance Allocation is calculated on a quarterly basis, which
is taken into account when calculating the fair value of the Company's
investment in the Partnership, as described in Note 10. The fair value of the
Company's investment in the Partnership is after the calculation of Management
Fees, as described in Note 9.
The financial effect of the General Partner's Performance Allocation,
Management Fees and any taxes on ECI investments is shown in Note 6. The
Investment Management Agreement continues into perpetuity post the seventh
year anniversary as the Discontinuation Resolution was not passed in 2020,
subject to the termination for cause provisions described in Note 9.
However, either the Board or a 10 per cent. Shareholder or group can request
an EGM to vote on a wind-up of the Company at any time. If passed, such
actions would trigger an exit fee equal to 20 times the most recent quarterly
management fee.
Going Concern
The Audit Committee has reviewed the appropriateness of the Company's
Financial Statements being prepared in accordance with Guernsey law and IFRS
and presented on a going concern basis, which it has recommended to the Board.
As further disclosed in the Corporate Governance Report, the Company is a
member of the AIC and complies with the AIC Code. The Financial Statements
have been prepared on a going concern basis for the reasons set out below and
as the Directors, with the recommendation from the Audit Committee, have a
reasonable expectation that the Company has adequate resources to continue in
operational existence up until 31 March 2023. 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 2023, as well
as taken into account the following five key considerations, which are
discussed further below.
1. Available liquid resources and potential proceeds from
investment realisations versus current and expected liabilities of the Company
over the period from the date of approval of the Financial Statements up until
31 March 2023;
2. Available liquid resources and potential proceeds from
investment realisations versus total potential unfunded commitments of the
Partnership;
3. Recent NAV & Share Price Performance of the Company;
4. Discount to NAV of the Company; and
5. Ongoing Impact of COVID-19.
1. Available liquid resources and potential proceeds from investment
realisations versus current and expected liabilities of the Company over the
period from the date of approval of the Financial Statements up until 31 March
2023
The Company retained $11.5 million of cash in the IPO and Placing and Open
Offer for the initial three years post-listing and has requested and received
seven distributions for working capital needs in aggregate of $24.3 million
from the Partnership cumulatively through 31 December 2021. During 2021, the
Company requested and received distribution requests in aggregate of £40
million ($55.8 million) for the share buyback programme, of which $7.3 million
remains at 31 December 2021 (31 December 2020: $8.8 million). This cash
balance is sufficient to cover the Company's existing liabilities at 31
December 2021 of $0.7 million and the remaining portion of the aforementioned
share buyback programme approved by the Board of $5.4 million, but will need
an additional distribution of $3.1 million from the Partnership for the
Company's forecasted annual expenses of approximately $4.3 million.
Additionally, REL will need additional distributions of approximately $62
million from the Partnership to fulfil the incremental share buyback programme
amount of £46 million, which was announced by the Company on 8 February 2022
and for which the buyback authority is subject to shareholder approval at the
EGM on 4 March 2022. As in prior years, in accordance with the Partnership
Agreement, if the Company requires additional funds for working capital, it is
entitled to receive another distribution from the Partnership. In order to do
so, the Company would submit a distribution request approved by the Board to
the Partnership, which would then be required to arrange for the payment of
the requested amount. Since REL's inception, the Company has requested and
received seven distributions from the Partnership for working capital needs.
As detailed further in section 2 below, REL, through the Partnership, had
available liquid resources of $98.5 million in excess of potential unfunded
commitments of $49.1 million at 31 December 2021, but currently, as of the
date of this report, REL, through the Partnership, has total potential
unfunded investment commitments of up to $69.6 million, which does not exceed
its available liquid resources of $88.5 million. However, based on the
Investment Manager's cash flow forecast for the next three years to 31
December 2024, the expectation is that, if needed, the Partnership will only
fund the remaining investment commitments to Anuvia, Enviva, Onyx and the
first closing of an electric motor company's latest financing round, which
aggregate up to $33.7 million as of the date of this report.
2. Available liquid resources and potential proceeds from investment
realisations versus total potential unfunded commitments of the Partnership
As at 31 December 2021, REL and the Partnership, including its wholly-owned
subsidiaries, REL Cayman Holdings, LP, REL US Corp and REL US Centennial
Holdings, LLC, had $105.8 million of uninvested funds held as cash (31
December 2020: $99.1 million). This amount is comprised of $98.5 million held
at the Partnership and $7.3 million held at REL. In 2022, the Company, through
the Partnership, invested $49.5 million held at the Partnership in T-REX Group
($17.5 million), the first closing of an electric motor company's latest
financing round ($17.0 million) and Tritium ($15.0 million), paid the Q4 2021
Management Fee ($2.5 million) and realised $42.1 million in proceeds from the
sale of Pipestone Energy ($41.7 million) and GoodLeap dividends ($0.4
million), bringing the uninvested funds at the Partnership level down to $88.5
million as at the date of this report. In accordance with the revised terms
for REL's GP Performance Allocation announced in January 2020, REL did not
meet the portfolio level cost benchmark at 31 December 2021; therefore, any
unrealised performance allocation has been deferred. If these changes had not
been accepted, then the accrued GP Performance Allocation would have been
$28.7 million as of 31 December 2021. No performance fees will be payable
until the $208 million realised and unrealised losses to date at 31 December
2021 are offset with future gains. If these realised and unrealised losses
have not been offset, any such accrued fees will no longer be payable after
three years from each respective accrual date.
The Company's total potential unfunded investment commitments of $49.1 million
as at 31 December 2021 (31 December 2020: $83.2 million), through the
Partnership, did not exceed its available liquid resources as at 31 December
2021. In 2022, REL, through the Partnership, fully funded its commitments to
new investments in T-REX Group ($17.5 million) and Tritium ($15.0 million), as
well as funded $17.0 million of the Company's new $17.5 million commitment to
the first closing of an electric motor company's latest financing round and
committed up to $20.0 million to Anuvia, bringing total potential unfunded
commitments up to $69.6 million. This amount does not exceed the Partnership's
available liquid resources of $88.5 million as of the date of this report,
which includes $42.1 million of proceeds from the sale of Pipestone Energy
($41.7 million) and GoodLeap dividends received in 2022 ($0.4 million). It is
not expected that all potential unfunded investment commitments will be drawn
due to a variety of factors, such as the ability for the commitment to be
reduced and/or cancelled by the Investment Manager with consideration from the
Board, the present market conditions do not warrant presently further capital
expenditure as the returns would not be incrementally positive, a portfolio
company being sold earlier than anticipated or a targeted investment
opportunity changing or disappearing. Based on the Investment Manager's cash
flow forecast for the next three years to 31 December 2024, the expectation is
that, if needed, the Partnership will only fund the remaining commitments to
Anuvia, Enviva, Onyx and the first closing of an electric motor company's
latest financing round, which aggregate up to $33.7 million as of the date of
this report. However, if the Board decides to fund any of the Partnership's
unfunded commitments to the other active investments, the Partnership can
execute a reactionary measure to provide liquidity as discussed further below.
As at 31 December 2021, the Company, through the Partnership, has realised
nine investments for $872 million of gross proceeds on invested capital of
$619 million, respectively in aggregate, resulting in an average Gross MOIC of
approximately 1.4x. The initial commitments to these nine investments were in
excess of $934 million, so approximately 66 per cent. had been funded before
realisation. In addition, the board of each underlying portfolio company, more
often than not are controlled by Riverstone, which has discretion over whether
or not that capital is ultimately invested. Moreover, REL's arrangements with
Riverstone allow the Company's potential unfunded commitments to be reduced
and/or cancelled by the Investment Manager with consideration from the Board,
although this has yet to happen. Moreover, any proposed investments outside of
those made with Fund V and VI can be unilaterally declined by the Board.
Finally, as a reactionary measure, the Partnership's investments in the
publicly-traded shares of the portfolio companies could always be sold, or
used as collateral to secure asset-backed financing, to fund the Partnership's
shortfall of liquid resources and potential proceeds from investment
realisations versus potential unfunded commitments. The Partnership holds
marketable securities consisting of publicly-traded shares of Centennial,
Enviva, Pipestone (sold in February 2022), Solid Power, Hyzon Motors and
Talos, for which the aggregate fair value was $195 million at 31 December 2021
and $180 million as of 22 February 2022, exclusive of the sale of Pipestone
for proceeds of $41.7 million.
3. Recent NAV & Share Price Performance of the Company
As announced on 30 October 2020, the Company's independent directors agreed to
closely monitor the Investment Manager's success in repositioning the
Company's existing investment policy through the modified investment strategy
over the next twenty four months following the previous quarter ended 30
September 2020. In the absence of a significant improvement in the
performance of the Company, taking into account the trading price of the
Ordinary Shares and portfolio performance over that period through 30
September 2022, the independent directors would release an announcement in
November 2022 regarding an EGM to seek Shareholder approval before 31
December 2022 to amend the Company's investment policy to provide for the
managed wind-down of the Company.
As at 31 December 2021, REL had a NAV per Share of $12.41 (£9.19), an
increase in USD and GBP of 106 & 116 per cent., respectively, compared to
$5.74 (£4.46) as at 30 September 2020, which is the most recent quarter end
prior to the aforementioned announcement and being used as a proxy for
comparative purposes. The year end closing trading price of the Ordinary
Shares was $6.28 (£4.65), an increase of 61 & 54 per cent., respectively,
compared to $3.90 (£3.03) as at 30 September 2020. Subsequently, from
year-end through 22 February 2022, the Company's NAV per Share and closing
trading price of the Ordinary Shares have remained relatively unchanged at
$12.81 (£9.43) and $7.56 (£5.56), respectively.
Based on this significant improvement in the performance of REL, as of the
date of this report, it is deemed to be extremely unlikely that the Company's
independent Directors will seek Shareholder approval before 31 December
2022 to amend the Company's investment policy to provide for the managed
wind-down of the Company. The chance of this happening may therefore be
assessed as remote, but the Board will continue to monitor the Company's
performance through the aforementioned twenty four month period until 30
September 2022.
4. Discount to NAV of the Company
Since its inception, the Company's trading discount to NAV percentage has
remained consistent with a population of comparable publicly‐traded PE funds
as their life to date average trading discount percentages are 23.8 per cent.
And 21.4 per cent., respectively. However, from December 2015 to January 2016
and November 2018 to December 2018, as well as from December 2019 to November
2020, declines in the price of oil adversely impacted the market sentiment for
energy companies, which resulted in the Company's trading discount percentage
increasing at a faster rate than the population of comparable publicly-traded
PE funds, as it is solely invested in the global energy industry across all
sectors. In order to return uninvested capital to Shareholders and attempt to
reduce REL's trading discount percentage, on 11 May 2021, the Company
announced a buyback programme with the intention of returning £20 million to
shareholders via market buybacks, which was subsequently 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), which has attributed to the narrowing of the Company's trading
discount from 55.0 per cent. At 31 March 2021 to 49.4 per cent. At 31 December
2021 (or from 61.8 per cent. To 58.4 per cent., respectively, on a
cash-adjusted basis). From year-end through 22 February 2022, reflecting $41.7
million of proceeds from the sale of Pipestone Energy and a $20.8 million
increase in the fair value of the Company's unrestricted marketable
securities, the Company's pro forma trading discount has decreased and was
41.0 per cent. As of 22 February 2022 (or 43.9 per cent. On a cash-adjusted
basis).
The Board, with consultation of the Investment Manager, regularly monitors the
Company's trading discount percentage and, when possible, executes corporate
actions aimed at managing it, such as the aforementioned share buyback
programme and Tender Offer share repurchase in November 2018, which attributed
to a 1.5 per cent. Increase in the Company's NAV, and partially offset the
increase of the trading discount percentage.
5. Ongoing Impact of COVID-19
The Board and Investment Manager have been in continuous dialogue regarding
the ongoing impact of COVID-19 and appropriate disclosures within the
Company's Financial Statements, given that it's a continuously evolving
situation. In 2020, the Company's Management Engagement Committee requested
and received updates from REL's key service providers, including the
Investment Manager, regarding their initial response to COVID-19, including an
update on their respective business continuity plans.
At the outset of COVID-19, the Investment Manager activated its business
continuity plan and its regular working pattern changed to remote working.
Whilst staff had assumed their day-to-day responsibilities remotely, weekly
virtual calls across teams took place. In mid-2021, a significant proportion
of the staff began transitioning back to the in-person work environment, but
did revert back to remote working for periods of time due to spikes in cases
caused by the Delta and Omicron variants. The Investment Manager has
maintained dialogue with its portfolio companies to make sure that they have
the appropriate plans and resources in place to prioritise the health and
safety of their employees, as well as to assess supply chain disruptions and
ensure the normal operations of our businesses.
Directors' Assessment of Going Concern
Based on the reasons outlined above, on balance, the Directors are satisfied,
as of the date of this report, that it is appropriate to adopt the going
concern basis in preparing the Financial Statements.
Viability Statement
The Directors, with recommendation from the Audit Committee, have assessed the
prospects of the Company over a longer period than required by the going
concern provision. With recommendation from the Audit Committee, the Board
chose to conduct a review for a period of three years to 31 December 2024 as
it was determined to be an appropriate timeframe based on the historical
investment cycle of the Company's investments, through the Partnership, and
its financial planning processes. On a rolling basis the Directors evaluate
the outcome of the investments and the Company's financial position as a
whole. While an unprecedented and long‐term decline in global oil and gas
consumption could threaten the Company's performance, it would not
necessarily threaten its viability, not least as a result of the Company's
progressive shift to decarbonisation asset investments.
In support of this statement, the Audit Committee recommended to the Directors
to take into account all of the principal risks and their mitigation as
identified in the Principal Risk and Uncertainties section of the Corporate
Governance Report, the nature of the Company's business; including the cash
reserves and money market deposits at the Partnership, the potential of its
portfolio of investments to generate future income and capital proceeds, and
the ability of the Directors to minimise the level of cash outflows, if
necessary. The most relevant potential impacts of the identified Principal
Risks and Uncertainties on viability were determined to be:
· An investment's capital requirements may exceed the Company's
ability to provide capital; and
· The Company may not have sufficient capital available to
participate in all investment opportunities presented.
Each quarter, the Directors, through the Audit Committee, review threats to
the Company's viability utilising the risk matrix and update as required due
to recent developments and/or changes in the global market. The Board relies
on periodic reports provided by the Investment Manager and Administrator
regarding risks faced by the Company. When required, experts are utilised to
gather relevant and necessary information, regarding tax, legal, and other
factors.
The Investment Manager considers the future cash requirements of the Company
before funding portfolio companies. Furthermore, the Board receives regular
updates from the Investment Manager on the Company's cash position, which
allows the Board to maintain their fiduciary responsibility to the
Shareholders and, if required, limit funding for existing commitments.
The Board, with recommendation from the Audit Committee, considered the
Company's viability over the three year period, based on a working capital
model prepared by the Investment Manager. Given the significant improvement in
the performance of the Company, taking into account the trading price of the
Ordinary Shares and portfolio performance from 30 September 2020 to the date
of this report, it is deemed to be extremely unlikely that the Company's
independent directors will seek Shareholder approval before 31 December 2022
to amend the Company's investment policy to provide for the managed wind-down
of the Company and therefore the chance of this happening may therefore be
assessed as remote. The working capital model forecasts key cash flow drivers
such as capital deployment rate, investment returns, Management Fees and
operating expenses. In connection with the preparation of the working capital
model, capital raises, realisations, and, dividend payments and/or share
repurchases were assumed to not occur during the three year period, unless
already predetermined. In addition, the Board reviews credit market
availability, but no such financing has been assumed.
If all factors apart from capital deployment rate remain constant,
accelerating the capital deployment rate (which is the most critical aspect of
the Company's operations) by approximately 67 per cent., from 36 months to 12
months, in a worst case scenario, would result in the Company being directed
by the Board, and the Investment Manager recommending, to preserve working
capital and postpone future investments after 6 months, rather than 36 months;
unless a financing, capital raise or realisation of marketable securities was
completed. In both scenarios, the Company is forecasted to preserve its
ability to maintain sufficient working capital for the three year period.
The Investment Manager believes that the investment outlook for the Company
remains attractive, in particular in light of its modified investment
programme for the Company (adopted in 2019) which seeks to give the Company
greater autonomy from the private funds managed by affiliates of the
Investment Manager and to diversify the Company's investments. The Investment
Manager continues to reposition the Company's focus away from oil and gas
investments in the exploration and production sector and to increase its focus
on renewable, decarbonisation and selective infrastructure investments, in
each case with strong ESG processes in place. This includes the Company's $97
million aggregate commitments announced and funded in 2021 to GoodLeap
(formerly Loanpal), FreeWire, Hyzon Motors, Solid Power, Samsung Ventures, and
the DCRN, DCRC & DCRD SPAC investments, as well as up to $70 million in
aggregate commitments during 2022 to Anuvia (up to $20.0 million), T-REX Group
($17.5 million), the first closing of an electric motor company's latest
financing round ($17.5 million) and Tritium ($15.0 million).
The Company's fully independent Board is supportive of the continuation of the
Investment Manager's modified investment strategy for the immediate future and
will continue to monitor the Investment Manager's success in repositioning the
Company's existing investment policy through the modified investment strategy.
At the EGM in 2020, the Board committed to review the Company's performance
and, before 31 December 2022, decide whether or not it would be in the best
interests of all Shareholders to request an EGM to vote on a run-off of its
portfolio. As mentioned above, based on the significant improvement in the
performance of REL, taking into account the trading price of the Ordinary
Shares and portfolio performance from 30 September 2020 to the date of this
report, it is deemed to be extremely unlikely that the Company's independent
Directors will seek Shareholder approval before 31 December 2022 to amend
the Company's investment policy to provide for the managed wind-down of the
Company and therefore the chance of this happening may therefore be assessed
as remote.
Based on the aforementioned procedures and the existing internal controls of
the Company and Investment Manager, the Board, with recommendation from the
Audit Committee, has concluded there is a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the three-year period of the assessment.
Directors' Responsibilities
Although the Company is domiciled in Guernsey, in accordance with the guidance
set out in the AIC Code, the Directors describe in this Annual Report how the
matters set out in Section 172 of the UK Companies Act 2006 have been
considered in their board discussions and decision-making. Section 172 of
the Companies Act requires that the directors of a company act in the way that
they consider, in good faith, is most likely to promote the success of the
company for the benefit of its members as a whole, and in doing so have regard
(amongst other matters) to the likely consequences of any decision in the long
term and the interests of all the Company's stakeholders.
The Board seeks to encourage engagement between the Company's Shareholders and
the Chairman of the Board, the Chairs of the Audit and Management Engagement
Committees and the Senior Independent Director, which has been facilitated
throughout the year. Up to date quarterly reporting also provides the Board
with accurate, timely information on shareholder sentiment and direct feedback
from service providers, impacted by the Company's operations, and is canvassed
at least annually by the Chair of the Management Engagement Committee. It is
against this backdrop that key decisions which are either material to the
Company or are significant to any of the Company's key stakeholders are taken.
The below key decisions were made or approved by the Directors during the
year, with the overall aim of promoting the success of the Company, having
regard to the long term, while considering the impact on its members,
stakeholders and the wider society as outlined in the ESG section.
Engagement with Shareholders
The Company reports to Shareholders in a number of formal ways, including its
Annual Report, Interim Report and regulatory news releases, all of which are
approved by the Board. In addition, the Company's website contains
comprehensive information for Shareholders. Due to potential travel
restrictions as a result of COVID-19, the Directors are keeping the 2022 AGM
location and date under review and will make announcements as information
becomes available. Further details will be included in the AGM Notice and Form
of Proxy, which will be published on the Company's website in advance of the
AGM.
On 11 May 2020, the Company announced a buyback programme with the intention
of returning £20 million to Shareholders via on market buybacks, which
subsequently, on 4 October 2021, was increased to £40 million. 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).
Post year-end, on 8 February 2022, the Company announced that the Board and
Investment Manager agreed to allocate an additional £46.0 million to the
programme. As the Company currently has the authority to repurchase 1,799,944
shares pursuant to the authority granted at its 2021 annual general meeting,
the Board is convening an EGM on 4 March 2022 to seek shareholder approval to
renew the Company's authority to repurchase up to 14.99 per cent. Of the
shares outstanding as at the date of the meeting.
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.
Post-Year End Updates
Post-year end updates are disclosed in Note 15.
Annual General Meetings
The AGM of the Company will be held at 15:30 pm BST on 24 May 2022 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 2021 together with this Annual Report. As a matter of good
practice, all resolutions will be conducted on a poll and the results will be
announced to the market as soon as possible after the meeting.
Due to potential travel restrictions as a result of COVID-19, the Directors
are keeping the 2022 AGM location and date under review and will make
announcements as information becomes available. Further details will be
included in the AGM Notice and Form of Proxy, which will be published on the
Company's website in advance of the AGM.
Members of the Board, including the Chairman and the Chairperson of each
Committee, intend to be in attendance at the AGM if COVID-19 restrictions
allow, and will be available to answer Shareholder questions. Additionally,
Shareholders can submit questions in advance to IR@RiverstoneREL.com addressed
for the attention of the Board.
By order of the Board
Richard Hayden
Chairman
23 February 2022
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
The Companies Law requires the Directors to prepare Financial Statements for
each financial year. Under the Companies Law, the Directors must not approve
the Financial Statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the profit or loss of
the Company for that period. In preparing these Financial Statements, the
Directors are required to:
· select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and then apply
them consistently;
· make judgements and estimates that are reasonable and prudent;
· present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific
requirements in IFRS are insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the Company's
financial position and financial performance;
· state that the Company has complied with IFRS, subject to any
material departures disclosed and explained in the Financial Statements; and
· prepare the Financial Statements on a going concern basis unless
it is inappropriate to presume that the Company will continue in business.
The Directors confirm that they have complied with the above requirements in
preparing the Financial Statements.
The Directors are responsible for keeping proper accounting records, which
disclose with reasonable accuracy at any time, the financial position of the
Company and to enable them to ensure that the Financial Statements comply with
Companies Law. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud, error and non-compliance with law and regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website
(www.RiverstoneREL.com). The work carried out by the external auditor does not
involve considerations of these matters and, accordingly, the external auditor
accepts no responsibility for any changes that may have occurred to the
Financial Statements since they were initially presented on the website.
Legislation in Guernsey governing the preparation and dissemination of the
Financial Statements may differ from legislation in other jurisdictions.
Responsibility Statement of the Directors in Respect of the Annual Report under the Disclosure GUIDANCE and Transparency Rules
Each of the Directors confirms to the best of their knowledge and belief that:
· the Financial Statements, prepared in accordance with IFRS, give
a true and fair view of the assets, liabilities, financial position and profit
or loss of the Company;
· the Annual Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties faced; and
· the Annual Report and Financial Statements include information
required by the UK Financial Conduct Authority so that the Company complies
with the provisions of the Listing Rules, Disclosure Guidance and Transparency
Rules of the UK Listing Authority. With regard to corporate governance, the
Company is required to disclose how it has applied the principles, and
complied with the provisions of the corporate governance code applicable to
the Company.
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations. As part of the
preparation of the Annual Report and Financial Statements, the Directors have
received reports and information from the Company's Administrator and
Investment Manager. The Directors have considered, reviewed and commented upon
the Annual Report and Financial Statements throughout the drafting process in
order to satisfy itself in respect of the content. Having taken advice from
the Investment Manager, the Directors consider the Annual Report and Financial
Statements, taken as a whole, as fair, balanced and understandable and that it
provides the information necessary for Shareholders to assess the Company's
performance, business model and strategy.
By order of the Board
Richard Hayden Patrick Firth
Chairman Director
23 February 2022 23 February 2022
Corporate Governance Report
As a UK listed Company, Riverstone Energy Limited's governance policies and
procedures are based on the principles of the UK Code as required under the
Listing Rules. The UK Code is available on the Financial Reporting Council's
website, www.frc.org.uk.
The Company is subject to the GFSC Code, which applies to all companies
registered as collective investment schemes in Guernsey. The GFSC has also
confirmed that companies that report against the UK Code or AIC Code are
deemed to meet the GFSC Code.
Although not required as the Company is no longer within the FTSE 350, the
Board monitors developments in corporate governance to ensure the Board
remains aligned with best practice especially with respect to the increased
desired focus on greater gender and ethnic diversity on the boards of FTSE 350
companies. The Board recognises and supports the Hampton Alexander Review and
the Parker Review, and acknowledges the importance of having a variety of
backgrounds and experiences represented in the boardroom for the effective
functioning of the Board. It is the ongoing aspiration of the Board to have a
well-diversified representation. The Board also values diversity of business
skills and experience because Directors with diverse skills sets, capabilities
and experience gained from different geographical backgrounds enhance the
Board by bringing a wide range of perspectives to the Company. The Board's
view has been and, continues to be, that all appointments to the Board should
be merit based, assessed against objective selection criteria. To avoid
precluding any deserving candidate from consideration, executive search
consultants will be asked to provide candidates from a diverse range of
backgrounds and that these lists are gender neutral. With Peter Barker,
Patrick Firth and Richard Hayden retiring from the Board in advance of the
Company's annual general meeting in 2023, but most likely sometime before
then, this will be at the forefront of the Board's transition planning. The
search for replacements has already started and we expect an orderly
transition to be completed after the date when the Board could call a vote
regarding a potential wind-down of the Company, of which the likelihood is
remote as of the date of this report (see Board Tenure and Re-election section
of the Corporate Governance Report for further details).
The AIC Code addresses all the principles set out in the UK Code, as well as
setting out additional principles and recommendations on issues that are of
specific relevance to investment companies such as the Company. The Board
considers that reporting against the principles and recommendations of the AIC
Code provides better information to Shareholders.
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Code, except as set out below.
The UK Code includes provisions relating to:
· the role of the chief executive;
· executive directors' remuneration; and
· the need for an internal audit function.
As explained in the UK Code, the Board considers that the above provisions are
not currently relevant to the position of the Company, being an externally
managed investment company, which delegates most day-to-day functions to third
parties.
The Company does not have a chief executive or any executive directors. The
Company has not established a separate remuneration committee as the Company
has no executive officers and the Board is satisfied that any relevant issues
that arise can be properly considered by the Board.
The Company has no employees or internal operations and has therefore not
reported further in respect of these provisions. The need for an internal
audit function is discussed in the Audit Committee report.
The Board
The Company is led and controlled by a Board of Directors, which is
collectively responsible for the long-term sustainable success of the Company.
It does so by creating and preserving value, and has as its foremost principle
acting in the interests of Shareholders as a whole and the Company's
stakeholders.
The Company believes that the composition of the Board is a fundamental driver
of its success as the Board must provide strong and effective leadership of
the Company. The current Board was selected, as their biographies illustrate,
to bring a breadth of knowledge, skills and business experience to the
Company. The non-executive Directors provide independent challenge and review,
bringing wide experience, specific expertise and a fresh objective
perspective.
The Board consists of five Non-executive Directors (31 December 2020: five),
all of whom, including the Chairman, are independent of the Company's
Investment Manager; Mr Hayden, Mr Firth, Mr Barker, Mrs Whittet and Mr
Thompson (31 December 2020: five). All Directors served throughout the year.
The Chairman of the Board is independent and is appointed in accordance with
the Company's Articles of Incorporation. Mr Hayden is considered to be
independent because he:
· has no current or historical employment with the Investment
Manager;
· has no current directorships or partnerships in any other
investment funds managed by the Investment Manager; and
· is not an executive of a self-managed company or an ex-employee
who has left the executive team of a self-managed company within the last five
years.
The Board is fully satisfied that Patrick Firth demonstrates complete
independence and robustness of character and judgement in his capacity as
Senior Independent Director. The Board is of the view that no individual or
group of individuals dominates decision making.
New Directors receive an induction from the Investment Manager and all
Directors receive other relevant training as necessary.
At each subsequent Annual General Meeting of the Company, each of the
Directors at the date of the notice convening the Annual General Meeting shall
retire from office and may offer themselves for election or re-election by the
Shareholders.
The Board meets at least four times a year for regular, scheduled meetings and
should the nature of the activity of the Company require it, additional
meetings may be held, some at short notice. At each meeting the Board follows
a formal agenda that covers the business to be discussed. The primary focus at
Board meetings is a review of investment performance and associated matters
such as asset allocation, share price discount/premium management, investor
relations, peer group information, gearing, industry issues and principal
risks and uncertainties in particular those identified at the end of this
report.
Pre COVID-19, between meetings the Board visits the Investment Manager at
least annually, and there is regular contact with the Administrator. The Board
requires to be supplied in a timely manner with information by the Investment
Manager, the Company Secretary and other advisers in a form and of a
sufficient quality to enable it to discharge its duties.
The Company has adopted a share dealing code for the Board and will seek to
ensure compliance by the Board and relevant personnel of the Investment
Manager and other third party service providers with the terms of the share
dealing code.
Board Tenure and Re-election
No member of the Board has served for longer than nine years as the Company
was incorporated on 23 May 2013. As such, no issue has arisen to be considered
by the Board with respect to long tenure. In accordance with the AIC Code,
when and if any director shall have been in office (or on re-election would at
the end of that term of office) for more than nine years, the Company will
consider further whether there is a risk that such a director might reasonably
be deemed to have lost independence through such long service. The Board
considers its composition and succession planning on an ongoing basis. All
Directors stand for annual re-election at the AGM.
A Director who retires at an Annual General Meeting may, if willing to
continue to act, be elected or re-elected at that meeting. If, at a general
meeting at which a Director retires, the Company neither re-elects that
Director nor appoints another person to the Board in the place of that
Director, the retiring Director shall, if willing to act, be deemed to have
been re-elected unless at the general meeting it is resolved not to fill the
vacancy or unless a resolution for the re-election of the Director is put to
the meeting and not passed.
Directors are appointed under letters of appointment, copies of which are
available at the registered office of the Company. The Board considers its
composition and succession planning on an ongoing basis.
As announced by the Company in October 2020, the Board has committed to
monitor the Investment Manager's success in implementing the Company's
modified investment strategy over the twenty four months to November 2022.
In the absence of a significant improvement in the performance of the Company,
the Board has committed to seek Shareholder approval before 31 December 2022
to amend the Company's investment policy to provide for the managed wind-down
of the Company prior to its liquidation (a "Wind-down Vote").
Each of Richard Hayden, Patrick Firth and Peter Barker were appointed to the
Board during 2013 and, accordingly, will have served on the Board for more
than nine years at the time of any Wind-down Vote. The Board is considering
appropriate succession measures in respect of each of Mr Hayden, Mr Firth and
Mr Barker, although the precise timing of any changes to the composition of
the Board and the identity of any replacement directors will depend on whether
a Wind-down Vote is passed by the Shareholders. If a Wind-down Vote is not
proposed, or is not passed, each of Mr Hayden, Mr Firth and Mr Barker intends
to step down from the Board in conjunction with the appointment of their
respective successors in advance of the Company's annual general meeting in
2023. If, however, the Directors decide to call an EGM and a Wind-down Vote is
approved by the Shareholders, one or more of Mr Hayden, Mr Firth and Mr Barker
may stand for re-election at the Company's 2023 annual general meeting with a
view to remaining on the Board while the run-off of the Company's assets is
managed pending its liquidation.
Directors' Remuneration
The level of remuneration of the Non-executive Directors reflects the time
commitment and responsibilities of their roles. The remuneration of the
Non-executive Directors does not include any share options or other
performance related elements and there are no plans to seek any Shareholder
waivers to deviate from this.
The Chairman is entitled to annual remuneration of £132,000 (31 December
2020: £132,000). The Chairman of the Audit Committee is entitled to annual
remuneration of £82,500 (31 December 2020: £82,500) and the Chairman of the
Management Engagement Committee is entitled to annual remuneration of £71,500
(31 December 2020: £71,500). The other independent Directors are entitled to
annual remuneration of £66,000 (31 December 2020: £66,000).
During the year ended 31 December 2021 and 31 December 2020, the Directors'
remuneration was as follows:
Director 2021 2020
($'000) ($'000)
Peter Barker ((1)) 91 85
Patrick Firth((1)(2)) 114 106
Richard Hayden((1)(3)) 182 170
Jeremy Thompson((1)) 91 85
Claire Whittet((1)(4)) 98 92
((1)) Non-executive Independent Director
((2)) Senior Independent Director and Chairman of the Audit Committee
((3)) Chairman of the Company
((4)) Chairman of the Management Engagement Committee
The above fees due to the Directors are for the year ended 31 December 2021
and 31 December 2020, and none were outstanding at 31 December 2021 (31
December 2020: $nil).
Duties and Responsibilities
The Board is responsible to Shareholders for the overall management of the
Company. The duties and powers reserved for the Board include decisions
relating to the determination of investment policy and approval of investments
in certain instances, strategy, capital raising, statutory obligations and
public disclosure, financial reporting and entering into any material
contracts by the Company.
The Board retains direct responsibility for certain matters, including (but
not limited to):
· approving the Company's long term objective and any decisions of
a strategic nature including any change in investment objective, policy and
restrictions, including those which may need to be submitted to Shareholders
for approval;
· reviewing the performance of the Company in light of the
Company's strategy objectives and budgets ensuring that any necessary
corrective action is taken;
· the appointment, overall supervision and removal of key service
providers and any material amendments to the agreements or contractual
arrangements with any key delegates or service providers;
· approving any transactions with ''related parties'' for the
purposes of the Company's voluntary compliance with the applicable sections of
the UK Listing Rules;
· the review of the Company's valuation policy;
· the review of the Company's corporate governance arrangements;
and
· approving any actual or potential conflicts of interest.
The Directors have access to the advice and services of the Administrator, who
is responsible to the Board for ensuring that Board procedures are followed
and that it complies with Companies Law and applicable rules and regulations
of the GFSC and the LSE. Where necessary, in carrying out their duties, the
Directors may seek independent professional advice and services at the expense
of the Company. The Company maintains directors' and officers' liability
insurance in respect of legal action against its Directors on an ongoing
basis.
The Board's responsibilities for the Annual Report are set out in the
Directors' Responsibility Statement. The Board is also responsible for issuing
appropriate half-yearly financial reports, quarterly portfolio valuations and
other price-sensitive public reports.
Directors' attendance at Board and Committee Meetings:
One of the key criteria the Company uses when selecting Non-executive
Directors is their confirmation prior to their appointment that they will be
able to allocate sufficient time to the Company to discharge their
responsibilities in a timely and effective manner.
The Board formally met four times during the year. The Board has held a number
of ad hoc meetings, and the sub committees of the Board have met frequently,
during the course of 2021. The Chairman meets privately with the Non-executive
Directors before each scheduled Board meeting. Directors are encouraged when
they are unable to attend a meeting to give the Chairman their views and
comments on matters to be discussed, in advance. In addition to their meeting
commitments, the Non-executive Directors also liaise with the Investment
Manager whenever required and there is regular contact outside the Board
meeting schedule. In addition to the Board members, members of the Investment
Manager attend relevant sections of the Board meetings by invitation.
Attendance is further set out below:
Board Audit Nomination Management
Meetings Committee Committee Engagement
(max 4) Meetings Meetings Committee Tenure as at 31 December 2021
(max 5) (max 1) Meetings
(max 1)
Director
Peter Barker((1)) 4 5 1 1 8 years,
4 months
Patrick Firth((1)(2)) 4 5 1 1 8 years,
8 months
Richard Hayden((1)) 4 5 1 1 8 years,
8 months
Claire Whittet((1)) 4 4 1 1 6 years,
8 months
Jeremy Thompson((1)) 4 5 1 1 5 years,
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.
Travel restrictions imposed as a result of the global COVID-19 pandemic
resulted in Board members who are not ordinarily resident in Guernsey being
unable to travel and attend certain Board and committee meetings in person
during 2021. In those cases, the relevant Board members attended those
meetings by telephone or video link (and are shown as being in attendance at
the relevant meeting in the table above), although only the Directors who were
physically present in Guernsey were treated as being present at the meeting
for the quorum and voting provisions applicable to Board and committee
meetings contained in the Company's Articles.
Conflicts of interest
A Director has a duty to avoid a situation in which he or she has, or can
have, a direct or indirect interest that conflicts, or possibly may conflict,
with the interests of the Company. The Board requires Directors to declare all
appointments and other situations that could result in a possible conflict of
interest and has adopted appropriate procedures to manage and, if appropriate,
approve any such conflicts. The Board is satisfied that there is no compromise
to the independence of those Directors who have appointments on the boards of,
or relationships with, companies outside the Company.
Committees of the Board
The Board believes that it and its committees have an appropriate composition
and blend of skills, experience, independence and diversity of backgrounds to
discharge their duties and responsibilities effectively. The Board keeps its
membership, and that of its committees, under review to ensure that an
acceptable balance is maintained, and that the collective skills and
experience of its members continue to be refreshed. It is satisfied that all
Directors have sufficient time to devote to their roles and that undue
reliance is not placed on any individual.
Each committee of the Board has written terms of reference, approved by the
Board, summarising its objectives, remit and powers, which are available on
the Company's website (www.RiverstoneREL.com (http://www.RiverstoneREL.com) )
and reviewed on an annual basis. All committee members are provided with
appropriate induction on joining their respective committees, as well as
on-going access to training. Minutes of all meetings of the committees (save
for the private sessions of committee members at the end of meetings) are made
available to all Directors and feedback from each of the committees is
provided to the Board by the respective committee Chairmen at the next Board
meeting. The Chairman of each committee attends the AGM to answer any
questions on their committee's activities. Due to potential COVID-19 travel
restrictions, the Directors are keeping the 2022 AGM location and date under
review and will make announcements as information becomes available. Further
details will be included in the AGM Notice and Form of Proxy, which will be
published on the Company's website in advance of the AGM.
The Board and its committees are supplied with regular, comprehensive and
timely information in a form and of a quality that enables them to discharge
their duties effectively. All Directors are able to make further enquiries of
management whenever necessary and have access to the services of the Company
Secretary.
Audit Committee
The Audit Committee is chaired by Mr Firth and comprises Mr Barker, Mr Hayden,
Mr Thompson and Mrs Whittet. The Chairman of the Audit Committee, the
Investment Manager and the external auditor, Ernst & Young LLP, have held
discussions regarding the audit approach and identified risks. The external
auditors attend Audit Committee meetings and a private meeting is routinely
held with the external auditors to afford them the opportunity of discussions
without the presence of management. The Audit Committee activities are
contained in the Report of the Audit Committee.
Nomination Committee
The Nomination Committee is chaired by Mr Hayden and comprises Mr Barker, Mr
Firth, Mr Thompson and Mrs Whittet.
The Nomination Committee meets at least once a year pursuant to its terms of
reference and met on 23 February 2021. The Nomination Committee is convened
for the purpose of considering the appointment of additional Directors as and
when considered appropriate. The Nomination Committee recognises the
continuing importance of planning for the future and ensuring that succession
plans are in place. In considering appointments to the Board, the Nomination
Committee takes into account the ongoing requirements of the Company and
evaluates the balance of skills, experience, independence, and knowledge of
each candidate. Appointments are therefore made on personal merit and against
objective criteria with the aim of bringing new skills and different
perspectives to the Board whilst taking into account the existing balance of
knowledge, experience and diversity.
In the case of candidates for Non-executive Directorships, care is taken to
ascertain that they have sufficient time to fulfil their Board and, where
relevant, committee responsibilities. The Board believes that the terms of
reference of the Nomination Committee ensure that it operates in a rigorous
and transparent manner. The Board believes that, as a whole, it comprises an
appropriate balance of skills, experience and knowledge. The Board also
believes that diversity of experience and approach, including gender
diversity, amongst Board members is of great importance and it is the
Company's policy to give careful consideration to issues of Board balance and
diversity when making new appointments. The Board remains focussed on the
guidelines outlined by the Hampton-Alexander Review and The Parker Review.
The Nomination Committee has reviewed the composition, structure and diversity
of the Board, succession planning, the independence of the Directors and
whether each of the Directors has sufficient time available to discharge their
duties effectively. The Nomination Committee and the Board confirm that they
believe that the Board has an appropriate mix of skills and backgrounds and
was selected with that in mind, that all Directors should be considered as
Independent in accordance with the provisions of the AIC Code and that all
Directors have the time available to discharge their duties effectively.
Notwithstanding that Claire Whittet is on the Boards of six companies listed
on the London Stock Exchange or Euronext, the Committee noted that she is a
full-time non-executive director and that all of the six companies are listed
investment companies where the level of complexity and time commitment
required is lower than larger trading companies. Further, they noted that Mrs
Whittet has attended all Board and main committee meetings during the year,
except for one Audit Committee meeting, and that she has always shown the time
commitment to discharge fully and effectively her duties as a Director.
Patrick Firth is a director and Chairman of the Audit Committee of four
companies listed on the London Stock Exchange. He is also a full-time
non-executive director and all of the four companies are listed investment
companies. Further, they noted that Mr Firth has attended all Board and main
committee meetings during the year and that he has always demonstrated the
time commitment to discharge fully and effectively his duties as a Director.
Accordingly, the Board recommends that Shareholders vote in favour of the
re-election of all Directors at the forthcoming AGM, as noted in the Board
Tenure and Re-election section of the Corporate Governance Report.
Management Engagement Committee
The Management Engagement Committee is chaired by Mrs Whittet and comprises Mr
Barker, Mr Hayden, Mr Firth and Mr Thompson. The Management Engagement
Committee meets at least once a year pursuant to its terms of reference.
The Management Engagement Committee provides a formal mechanism for the review
of the performance of the Investment Manager and the Company's other advisors
and service providers. It carries out this review through consideration of a
number of objective and subjective criteria and through a review of the terms
and conditions of the advisors' appointments with the aim of evaluating
performance, identifying any weaknesses and ensuring value for money for the
Shareholders. During 2021, all service providers confirmed on two occasions
that their Business Continuity Plans were performing well under COVID-19
restrictions and the Board noted that there was no disruption to the quality
of service received.
Board Performance and Evaluation
In accordance with Provision 26 of the AIC Code which requires a formal and
rigorous annual evaluation of its performance, the Board formally reviews its
performance annually through an internal process. Internal evaluation of the
Board, the Audit Committee, the Nomination Committee, the Management
Engagement Committee and individual Directors has taken the form of
self-appraisal questionnaires and discussions to determine effectiveness and
performance in various areas as well as the Directors' continued independence.
The Board believes that annual evaluations are helpful and provide a valuable
opportunity for continuous improvement.
All Directors participated in the evaluation, and the findings were
collectively considered by the Board. No significant areas of weaknesses were
highlighted during the evaluation and the Board concluded that it had operated
effectively throughout 2021. The Board is confident in its ability to continue
effectively to lead the Company and oversee its affairs. The Board believes
that the current mix of skills, experience, knowledge and age of the Directors
is appropriate to the requirements of the Company.
The Board commissions an independent evaluation of its performance every three
years. The next independent evaluation is due in 2022.
New Directors receive an induction on joining the Board and regularly meet
with the senior management employed by the Investment Manager both formally
and informally to ensure that the Board remains regularly updated on all
issues. All members of the Board are members of professional bodies and serve
on other Boards, which ensures they are kept abreast of the latest technical
developments in their areas of expertise.
The Board arranges for presentations from the Investment Manager, the
Company's brokers and other advisors on matters relevant to the Company's
business. The Board assesses the training needs of Directors on an annual
basis.
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible for establishing and
maintaining the Company's system of internal control and reviewing its
effectiveness. Internal control systems are designed to manage rather than
eliminate the failure to achieve business objectives and can only provide
reasonable but not absolute assurance against material misstatements or loss.
However, the Board's objective is to ensure that Riverstone Energy Limited has
appropriate systems in place for the identification and management of risks.
The Directors carry out a robust assessment of the principal risks facing the
Company, including those that would threaten its business model, future
performance, solvency or liquidity. The key procedures which have been
established to provide internal control are that:
· the Board has delegated the day-to-day operations of the Company
to the Administrator and Investment Manager; however, it retains
accountability for all functions it delegates;
· the Board clearly defines the duties and responsibilities of the
Company's agents and advisors and appointments are made by the Board after due
and careful consideration. The Board monitors the ongoing performance of such
agents and advisors and will continue to do so through the Management
Engagement Committee;
· the Board monitors the actions of the Investment Manager at
regular Board meetings and is given frequent updates on developments arising
from the operations and strategic direction of the underlying investee
companies;
· the Administrator provides administration and company secretarial
services to the Company.
The Administrator maintains a system of internal control on which they report
to the Board; and
· the Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the Administrator
and Investment Manager, including their own internal controls and procedures,
provide sufficient assurance that an appropriate level of risk management and
internal control, which safeguards Shareholders' investment and the Company's
assets, is maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
Internal controls over financial reporting are designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of Financial Statements for external reporting purposes. The Administrator and
Investment Manager both operate risk controlled frameworks on a continual
ongoing basis within a regulated environment. The Administrator has undertaken
an ISAE 3402: Assurance Reports on Controls at a Service Organisation audit
and formally reports to the Board quarterly through a compliance report. The
Investment Manager formally reports to the Board quarterly including updates
within Riverstone and also engages with the Board on an ad-hoc basis as
required. No weaknesses or failings within the Administrator or Investment
Manager have been identified.
The systems of control referred to above are designed to ensure effectiveness
and efficient operation, internal control and compliance with laws and
regulations. In establishing the systems of internal control, regard is paid
to the materiality of relevant risks, the likelihood of costs being incurred
and costs of control. It follows therefore that the systems of internal
control can only provide reasonable but not absolute assurance against the
risk of material misstatement or loss. This process has been in place for the
year under review and up to the date of approval of this Annual Report and
Financial Statements. It is reviewed by the Board and is in accordance with
the FRC's internal control publication: Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting.
Investment Management Agreement
The Investment Manager is the sole investment manager of the Company and the
Partnership. Pursuant to the Investment Management Agreement, the Investment
Manager has responsibility for and discretion over investing and managing the
Company's and the Partnership's direct and indirect assets, subject to and in
accordance with the Company's investment policy. The Investment Manager is
entitled to delegate all or part of its functions under the Investment
Management Agreement to one or more of its affiliates.
The Company has delegated the provision of all services to external service
providers whose work is overseen by the Management Engagement Committee at its
regular scheduled meetings. Each year, a detailed review of performance
pursuant to their terms of engagement is undertaken by the Management
Engagement Committee. In particular, during 2019, the Management Engagement
Committee and the Investment Manager discussed fees, termination provisions,
capital structure management, the performance of the Company, and the basis
of the Company's and the Investment Manager's relationship and alignment of
interests at length, including the benefits to the Company of Riverstone's
extensive participation in the management of all of the Company's investments
and the significant equity commitment of Riverstone to the Company as one of
its major Shareholders.
In accordance with Listing Rule 15.6.2(2)R and having formally appraised the
performance and resources of the Investment Manager, in the opinion of the
Directors the continuing appointment of the Investment Manager on the terms
agreed is in the interests of the Shareholders as a whole.
On 3 January 2020, the Company announced amendments to Performance Allocation
arrangements under the Investment Management Agreement that are effective from
30 June 2019. The amended terms on which the Company is required to pay a
Performance Allocation in respect of its investment are as follows:
· Portfolio level cost benchmark: A Performance Allocation will
only be distributed in respect of a realised investment if, at the time of the
realisation of the relevant investment, the aggregate of the fair market value
of all of the Company's then unrealised investments and the proceeds of all of
its realised investments since inception exceeds the aggregate acquisition
price of all of the Company's unrealised and realised investments. If this
portfolio level cost benchmark is not met at the time of realisation of the
relevant investment, distribution of the Performance Allocation is subject to
deferment as described further below. As of 31 December 2021, the portfolio
level cost benchmark was in deficit of $208 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 2021, the Ridgebury H3, Onyx, Enviva, GoodLeap, FreeWire,
DCRN/Tritium, DCRC/Solid Power and Samsung Ventures investments exceeded the
hurdle rate and the total portfolio's Gross IRR is approximately -3.7 per
cent.
· Full realisation: A Performance Allocation will only be
calculated and accrued on the full realisation of the entire interest in an
investment, unless a partial realisation results in the full return of all
capital invested in such investment. Otherwise, no Performance Allocation
will be payable on partial disposals and the ability for the Investment
Manager to elect to receive a Performance Allocation on an investment that has
been held by the Company for at least seven years (but not sold) has been
removed.
· Deferral: If the portfolio level cost benchmark is not met at the
time of full realisation of the relevant investment, it will be retested on a
quarterly basis for the following three years. If, at any time during those
three years, the benchmark is satisfied for four continuous quarters, the
relevant Performance Allocation will then become distributable without
interest. Any accrued but undistributed Performance Allocation that has been
deferred due to the portfolio level cost benchmark test will expire after 36
months.
The Investment Manager will continue to be required to apply each Performance
Allocation (net of taxes) to acquire ordinary shares of the Company.
During the year, in compliance with the laws of the Cayman Islands, the
Company and its existing Investment Manager, Riverstone International Limited,
a Cayman Islands exempted company, assigned its investment advisory rights and
obligations under the Company's Investment Management Agreement to RIL's
immediate parent entity, RIGL Holdings, LP, a Cayman Islands exempted limited
partnership.
Furthermore, on 9 December 2020, the Company's Investment Management Agreement
has been amended to remove the Investment Manager's ability to nominate
directors of the Company and to replace it with the ability to request that
its representatives attend Board meetings as observers instead, except in
circumstances where matters specifically regarding the Investment Manager and
its affiliates are being considered.
Distribution of Investment Proceeds
In addition, the Company and the Investment Manager have agreed that, going
forward, 20 per cent. Of the Net Profits attributable to each fully realised
investment, net of taxes, withholdings or reserves for taxes will, at the
discretion of the Company, be available for distribution to the Company's
Shareholders, whether by dividend or share repurchases.
Our Culture
The Board has determined that the Company's culture is built around that of
the Investment Manager, with a focus on long lasting relationships with a
diverse investor base; sustainable investment excellence; and a world class
team demonstrating extensive industry knowledge. The Board monitors the
Company's culture on an annual basis through continued engagement with
Shareholders and management.
Relations with Shareholders
The Board welcomes Shareholders' views and places great importance on
communication with its Shareholders. Due to potential COVID-19 travel
restrictions, the Directors are keeping the 2022 AGM location and date under
review and will make announcements as information becomes available. Further
details will be included in the AGM Notice and Form of Proxy, which will be
published on the Company's website in advance of the AGM. In addition, Mr
Firth, as the Senior Independent Director, is also available to Shareholders
if they have concerns which contact through the normal channels has failed to
resolve or for which such contact would be inappropriate. Mrs Whittet,
Management Engagement Committee Chair, is available to discuss matters
regarding service providers of REL. The Chairman, Senior Independent Director
and other Directors are also available to meet with Shareholders at other
times, if required. At the request of several Shareholders, the Chairman,
Senior Independent Director and other Directors arranged meetings and
addressed direct correspondence raised at the quarterly Board meetings during
the year.
The Company reports formally to Shareholders in a number of ways; regulatory
news releases through the London Stock Exchange's Regulatory News Service,
announcements are issued in response to events or routine reporting
obligations. Also, an Interim Report will be published each year outlining
performance to 30 June and the Annual Report will be published each year for
the year ended 31 December, both of which will be made available on the
Company's website. In addition, the Company's website contains comprehensive
information, including company notifications, share information, financial
reports, investment objectives and policy, investor contacts and information
on the Board and corporate governance. Shareholders and other interested
parties can subscribe to email news updates by registering online on the
website.
The Investment Manager has regular contact with Shareholders, including the
Cornerstone Investors, and any views that they may have are communicated to
the Board and vice versa. No sensitive information is provided to the
Cornerstone Investors that is not provided to the Shareholders as a whole and
at the same time. The Board is also kept fully informed of all relevant market
commentary on the Company by the Investment Manager and the Corporate Brokers.
The Directors and Investment Manager receive informal feedback from analysts
and investors, which is presented to the Board by the Company's Broker. The
Company Secretary also receives informal feedback via queries submitted
through the Company's website and these are addressed by the Board, the
Investment Manager or the Company Secretary, where applicable.
Over the year, the Investment Manager's investor relations team and senior
management held several roadshows and meetings with investors and equity
research analysts.
Financial results, events, corporate reports, webcasts and fact books are all
stored in the Investor Relations section of our website:
www.riverstonerel.com/investors/ (http://www.riverstonerel.com/investors/)
2022 KEY SHAREHOLDER ENGAGEMENTS
January
Quarterly Portfolio Valuations
February
Full Year Results
April
Notice of Annual General Meeting
Quarterly Portfolio Valuations
May
Annual General Meeting
July
Quarterly Portfolio Valuations
August
Half Year Results
October
Quarterly Portfolio Valuations
Engagement with Stakeholders
The wider stakeholders of the Company comprise its service providers, investee
companies and suppliers and the Board recognises and values these
stakeholders.
The Company's relationship with its service providers, including the
Investment Manager, is of particular importance. Service providers have been
selected and engaged based on due diligence and references including
consideration of their internal controls and expertise. The Company has a
Management Engagement Committee, who will review the performance of each
service provider annually and provide feedback as appropriate, to maintain
good working relationships.
Responsible investing principles have been applied to each of the investments
made, which ensures that appropriate due diligence has been conducted and that
the terms of the investments are clearly set out and agreed with investee
companies in advance.
The Board recognises that relationships with suppliers are enhanced by prompt
payment and the Company's Administrator, in conjunction with the Investment
Manager, ensures all payments are processed within the contractual terms
agreed with the individual suppliers.
Relations with Other Stakeholders
The Investment Manager conducts presentations with analysts and investors to
coincide with the announcement of the Company's full and half year results,
providing an opportunity for discussions and queries on the Company's
activities, performance and key metrics. In addition to these semi-annual
presentations, the Investment Manager meets regularly with analysts and
investors to provide further updates with how the Company and the investment
portfolio are performing.
The Directors and Investment Manager receive informal feedback from analysts
and investors, which is presented to the Board by the Company's Brokers. The
Company Secretary also receives informal feedback via queries submitted
through the Company's website and these are addressed by the Board, the
Investment Manager or the Company Secretary, where applicable.
The Directors recognise that the long term success of the Company is linked to
the success of the communities in which the Group, and its investee companies,
operate.
Whistleblowing
The Board has considered arrangements by which staff of the Investment Manager
or Administrator may, in confidence, raise concerns within their respective
organisations about possible improprieties in matters of financial reporting
or other matters. It has concluded that adequate arrangements are in place for
the proportionate and independent investigation of such matters and, where
necessary, for appropriate follow-up action to be taken within their
organisation.
Principal Risks and Uncertainties
The Company's assets consist of investments, through the Partnership, within
the global energy industry, with a particular focus on opportunities in the
global exploration and production and midstream energy sub-sectors. Its
principal risks are therefore related to market conditions in the energy and
energy transition sectors in general, but also the particular circumstances of
the businesses in which it is invested through the Partnership. The Investment
Manager to the Partnership seeks to mitigate these risks through active asset
management initiatives and carrying out due diligence work on potential
targets before entering into any investments.
Each Director is fully aware of the risks inherent in the Company's business
and understands the importance of identifying, evaluating and monitoring these
risks. The Board has adopted procedures and controls that enable it to carry
out a robust assessment of the risks facing the Company, manage these risks
within acceptable limits and to meet all of its legal and regulatory
obligations. The Board is committed to upholding and maintaining our zero
tolerance towards the criminal facilitation of tax evasion.
The Board thoroughly considers the process for identifying, evaluating and
managing any significant risks faced by the Company on an ongoing basis and
these risks are reported and discussed at Board meetings. It ensures that
effective controls are in place to mitigate these risks and that a
satisfactory compliance regime exists to ensure all applicable local and
international laws and regulations are upheld. The Board and Investment
Manager have been in continuous dialogue regarding the impact of COVID-19 and
appropriate disclosures within the Company's 2021 Annual Report and Financial
Statements, including necessary updates to the key areas of risk faced by the
Company as certain risks have been elevated in terms of importance for the
immediate near-term. With regards to the continuing impact of COVID-19, the
inherent risk of the global energy sector has been included below, as well as
the corresponding measures taken by the Board, through the Management
Engagement Committee, and the Investment Manager to mitigate the impact of
this risk.
For each material risk, the likelihood and consequence are identified,
management controls and frequency of monitoring are confirmed, and results
reported and discussed at the quarterly Board meetings.
The Company's principal risk factors are fully discussed in the Prospectuses,
available on the Company's website (www.RiverstoneREL.com) and should be
reviewed by Shareholders.
The key areas of risk faced by the Company are summarised below:
1. The Company initially intended to only invest in the global energy
sector, with a particular focus on oil and gas exploration and production, and
midstream investments, which exposed it to concentration risk. Under the
modified investment strategy, the Company has pivoted to focus on energy
transition and decarbonisation, and the investment portfolio has therefore
been diversified.
2. The Ordinary Shares have traded at a Discount to NAV per Share for
reasons including but not limited to: market conditions, liquidity concerns
and actual or expected Company performance. As such, there is no guarantee
that attempts to mitigate such discount will be successful or that the use of
discount control mechanisms will be possible, advisable or adopted by the
Company. There is a risk that through successive buybacks to try and manage
the market discount to NAV, the Company may become too small to be able to
make new investments or follow-on investments.
3. Investments in the exploration and production and midstream sectors of
the global energy sector involve a degree of inherent risk.
· The countries in which the Company invests may be exposed to
domestic policy changes and geopolitical risks.
· The change in the price of oil could adversely affect the
investment valuations through the public market trading and transaction
comparables, the discounted cash flow rates, and potentially limit exit
opportunities.
· A change in interest rates could adversely affect efficient access
to debt as a source of capital for both portfolio investments and potential
buyers of portfolio investments.
· The regulatory and tax environment of the Company's target
investments is potentially subject to change, which may adversely affect the
value or liquidity of investments held by the Company or its ability to obtain
leverage.
· The Company will be exposed to increased risk by investing in
build-up and early-stage investments that have little or no operating history
and are comparably more vulnerable to financial failure than more established
companies. The investor should be aware there can be no assurance that losses
generated by these types of entities will be offset by gains (if any) realised
on the Company's other investments.
· An investment's requirements for additional capital may require the
Company to invest more capital than it had originally planned or result in the
dilution of the Company's investment or a decrease in the value of that
investment.
· The Company is now investing in decarbonisation assets which are
within an emerging industry. Some of the technologies are unproven, leading to
some level of risk.
· Current regulations require SIFIs, specifically large banks, to
hold sufficient capital as a buffer against trading losses, or CAR / CRAR.
Since commodities are more volatile / risky in the current market, it could
strip large banks of commodity trading operations to alleviate the capital
required to maintain their CAR / CRAR. This could in turn impact the commodity
prices and therefore the value of REL's portfolio companies.
· Some of REL's portfolio companies operate in hazardous industries,
which are highly regulated by safety and health laws. Failure to provide a
safe working environment may result in harm to employees and local
communities. Governments may force closure of facilities or refuse future
drilling right applications.
· The ongoing coronavirus pandemic has led to reductions in the
near-term demand for energy especially within oil and gas, and long-term
impacts remain unknown. However, the pivot towards energy transition assets
should help to alleviate this risk.
· Allegations of human rights abuse within the supply chain of the
production of solar panels in the Xinjiang region in China could result in
operational challenges and reputational damage.
The Company invests broadly across various energy subsectors and going forward
those with de-carbonisation strategies. The Company will make investments that
are compliant with the Investment Manager's ESG policy.
4. It will be costly for the Company to terminate its Investment
Management Agreement as it has to make significant payments, including if a
Discontinuation Resolution were to be proposed and passed by Shareholders or
if the Company was otherwise wound up. The Investment Management Agreement
does not provide for the Company to terminate the agreement on notice without
specific cause, and poor investment performance, the departure of key
Riverstone executives or a change of control of Riverstone do not constitute
cause for these purposes.
5. Affiliates of the Investment Manager and the Company's Cornerstone
Investors would be entitled to vote on any Discontinuation Resolution that may
be proposed. As the Investment Manager and its affiliates (and, indirectly,
the Cornerstone Investors) receive fees from the Company, they will most
probably be incentivised to vote against such resolution. Riverstone and the
Company's Cornerstone Investors, in aggregate, own ~35 per cent. Of
outstanding Ordinary Shares, with the largest investor owning ~20 per cent. As
at 31 December 2021.
6. Differences in the investment time horizons and fee provisions between
the Company and the private funds managed by Riverstone may create conflicts
regarding the allocation of investment opportunities and holding periods
between the Company and those funds, in particular as a result of step-downs
in fees payable by a private fund part way through its duration. The
investments made via Special Purpose Acquisition Companies ("SPACs") may
attract a degree of liquidity risk of the SPAC vehicle itself. In addition,
companies in the oil and gas sector are suffering from Capital Starvation and
may have difficulties in securing finance in the future. For this reason,
investment disposals by sale within the industry can be increasingly more
difficult.
7. Climate change and the transition to a lower carbon economy could
possibly reduce demand for the Company's existing investments and limit future
growth opportunities. General sentiment may affect investor appetite and hence
lead to a depression of the share price. The Company may be subject to the
risk of Perceived Green Washing. There is a risk that the change to ESG
investment focus is wrongly perceived by the market as being without genuine
foundation having been adopted late in the lifetime of the fund.
Furthermore, there may be a perceived over reliance on the Investment
Manager's ESG credentials. Riverstone has adopted well publicised and
market-leading credentials for ESG investing having become a signatory to the
UN Principles for Responsible Investment. These are explained at length in the
Annual Report and the Riverstone website. There is a risk that these are not
tested and examined at the level of the Board.
The Company (as with all companies) continues to be exposed to external
cyber-security threats. The Company recognises the increased incidence of
cyber-security threats and has recently reviewed its policies, procedures and
defences to mitigate associated risks, as well as those of the Investment
Manager, Administrator and key service providers; engaging market-leading
specialists where appropriate. We continually develop our IT infrastructure,
and monitor those of the Investment Manager, Administrator and key service
providers, to ensure the Company is resilient to existing and emerging
threats.
The above key risks are mitigated and managed by the Board through continual
review, policy setting and updating of the Company's risk matrix at each Audit
Committee Meeting to ensure that procedures are in place with the intention of
minimising the impact of the above mentioned risks. The Board relies on
periodic reports provided by the Investment Manager and Administrator
regarding risks that the Company faces. When required, experts will be
employed to gather information, including tax advisors, legal advisors, and
environmental advisors. As it is not possible to eliminate risks completely,
the purpose of the Company's risk management policies and procedures is not to
eliminate risks, but to reduce them and to ensure that the Company is
adequately prepared to respond to such risks and to minimise any impact if the
risk develops.
Over the Company's viability period of the next three years, the Investment
Manager continues to seek monetisation of the Company's existing E&P
investments and reinvest in new investments that span the entire energy value
chain, with a specific focus on investments that support energy transition and
decarbonisation. The green washing risk and perceived over reliance of the ESG
credentials of the Investment Manager is mitigated by the experience,
background and ESG credentials of the Board, the adoption of specific
Environmental, Social and Corporate Governance criteria, independently of the
Investment Manager, with which to assess and review investee companies and
monitor them on an ongoing basis at each quarterly Board meetings, and
consideration to exclude certain activities as being out of scope. The ESG
credentials of the Company will be further enhanced by the publication on the
AIC website of the ESG principles adopted by the Company, detailed explanation
of ESG principles broken down and applied to the fund's new investments, as
reported in this Annual Report. The Board is undertaking a strong analysis of
the ESG principles adopted by the Company as part of the deal due diligence
and ongoing monitoring of investments.
The Company's Management Engagement Committee continues to receive updates
from REL's key service providers, including the Investment Manager, regarding
their ongoing response to COVID-19, including an update on their respective
business continuity plans. The Investment Manager activated its business
continuity plan and its regular working pattern has changed to remote working,
though all staff are continuing to assume their day-to-day responsibilities
remotely. There has been regular communication with its employees, as well as
its investors. In addition, the Investment Manager's partners are hosting
regular calls on potential investment opportunities in this new environment
(caused by COVID and OPEC+ news), so that Riverstone can best position the
portfolio for the future. The Investment Manager has contacted its portfolio
companies to make sure that they have the appropriate plans and resources in
place to prioritise the health and safety of their employees, as well as to
assess supply chain disruptions and ensure the normal operations of our
businesses.
The Company's financial instrument risks are discussed in Note 10 to the
Financial Statements.
By order of the Board
Richard Hayden
Chairman
23 February 2022
Report of the Audit Committee
The Audit Committee, chaired by Mr Firth, operates within clearly defined
terms of reference, which are available from the Company's website
www.RiverstoneREL.com (http://www.RiverstoneREL.com) , and include all matters
indicated by Disclosure Guidance and Transparency Rule 7.1, the AIC Code and
the UK Code. Its other members are Mr Barker, Mr Hayden, Mr Thompson and Mrs
Whittet. Members of the Audit Committee must be independent of the Company's
external auditor and Investment Manager. The Audit Committee will meet no less
than three times in a year, and at such other times as the Audit Committee
Chairman shall require, and will meet the external auditor at least once a
year.
The Committee members have considerable financial and business experience and
the Board has determined that the membership, as a whole, has sufficient
recent and relevant sector and financial experience to discharge its
responsibilities and that at least one member has competence in accounting or
auditing having a background as a chartered accountant.
Responsibilities
The main duties of the Audit Committee are:
· to monitor the integrity of the Company's Financial Statements
and regulatory announcements relating to its financial performance and review
significant financial reporting judgements;
· to report to the Board on the appropriateness of the Company's
accounting policies and practices;
· to review the valuations of the Company's investments prepared by
the Investment Manager, and provide a recommendation to the Board on the
valuation of the Company's investments;
· to oversee the relationship with the external auditors, including
agreeing their remuneration and terms of engagement, monitoring their
independence, objectivity and effectiveness, ensuring that policy surrounding
their engagement to provide non-audit services is appropriately applied, and
making recommendations to the Board on their appointment, reappointment or
removal, for it to put to the Shareholders in general meeting;
· to monitor and consider annually whether there is a need for the
Company to have its own internal audit function;
· to keep under review the effectiveness of the Company's internal
controls, including financial controls and risk management systems;
· to review and consider the UK Code, the AIC Code, the GFSC Code,
the AIC Guidance on Audit Committees and the Stewardship Code; and
· to report to the Board on how it has discharged its
responsibilities.
The Audit Committee is aware that the Annual Report is not subject to formal
statutory audit, including the Chairman's Statement and the Investment
Manager's Report. Financial information in these sections is reviewed by the
Audit Committee.
The Audit Committee is required to report its findings to the Board,
identifying any matters on which it considers that action or improvement is
needed, and make recommendations on the steps to be taken.
The external auditor is invited to attend the Audit Committee meetings at
which the Annual Report and Interim Financial Report are considered and at
which they have the opportunity to meet with the Committee without
representatives of the Investment Manager or Administrator being present at
least once per year.
Financial Reporting
The primary role of the Audit Committee in relation to financial reporting is
to review with the Administrator, Investment Manager and the external auditor
and report to the Board on the appropriateness of the Annual Report and
Financial Statements and Interim Financial Report, concentrating on, amongst
other matters:
· the quality and acceptability of accounting policies and
practices;
· the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
· material areas in which significant judgements have been applied
or there has been discussion with the external auditor including going concern
and viability statement;
· whether the Annual Report and Financial Statements, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Company's performance, business model
and strategy; and
· any correspondence from regulators in relation to our financial
reporting.
To aid its review, the Audit Committee considers reports from the
Administrator and Investment Manager and also reports from the external
auditor on the outcomes of their half-year review and annual audit. The Audit
Committee supports Ernst and Young LLP in displaying the necessary
professional scepticism their role requires.
Meetings
During the year ended 31 December 2021, the Audit Committee met formally five
times and maintained ongoing liaison and discussion between the external
auditor and the Chairman of the Audit Committee with regards to the audit
approach and the identified risks. Additional ad hoc meetings or informal
discussions have been convened at other times during the year as the Committee
determined appropriate. The Audit Committee has met on one occasion since the
year-end through to the date of this report on 22 February 2022. The matters
discussed at those meetings include:
· review of the terms of reference of the audit committee for
approval by the Board;
· review of the accounting policies and format of the Financial
Statements;
· review and approval of the audit plan of the external auditor;
· discussion and approval of the fee for the external audit;
· detailed review of the valuations of the Company's investment
portfolio and recommendation for approval by the Board;
· detailed review of the Annual Report and Financial Statements,
Interim Financial Report and quarterly portfolio valuations, and
recommendation for approval by the Board;
· assessment of the independence of the external auditor;
· assessment of the effectiveness of the external audit process as
described below;
· review of the Company's key risks and internal controls;
· consideration of going concern applicability;
· focus on ESG; and
· application of any IFRS changes.
Significant Areas of Judgement Considered by the Audit Committee
The Audit Committee has determined that a key risk of misstatement of the
Company's Financial Statements relates to the valuation of the investment in
the Partnership at fair value through profit or loss, in the context of the
judgements necessary to evaluate market values of the underlying investments
held through the Partnership.
The Directors have considered whether any discount or premium should be
applied to the net asset value of the Partnership, which is based on the fair
value of its underlying investments. In view of the Company's investment in
the Partnership and the nature of the Partnership's assets, no adjustment to
the net asset value of the Partnership has been made, as this is deemed
equivalent to fair value.
The Audit Committee reviews, considers and, if thought appropriate, recommends
for the purposes of the Company's Financial Statements, valuations prepared by
the Investment Manager in respect of the investments of the Partnership. As
outlined in Note 6 to the Financial Statements, the total carrying value of
the investment in the Partnership at fair value through profit or loss at 31
December 2021 was $674 million (31 December 2020: $384 million). Market
quotations are not available for this financial asset such that the value of
the Company's investment is based on the value of the Company's limited
partner capital account with the Partnership, which itself is based on the
value of the Partnership's investments as determined by the Investment
Manager, along with the cash and fixed deposits held. The valuation for each
individual investment held by the Partnership is determined by reference to
common industry valuation techniques, including comparable public market
valuation, comparable merger and acquisition transaction valuation, and
discounted cash flow valuation, as detailed in the Investment Manager's Report
and Note 5 to the Financial Statements.
The valuation process and methodology was discussed with the Investment
Manager and with the external auditor at the Audit Committee meetings held on
26 October 2021 and 23 February 2022. The Investment Manager has carried out a
valuation quarterly and provided a detailed valuation report to the Company at
each quarter.
The Audit Committee reviewed the Investment Manager's Report.
The external auditor explained the results of their audit work on valuations.
There were no adjustments proposed that were material in the context of the
Annual Report and Financial Statements as a whole.
The Audit Committee considers, and if thought appropriate, recommends that the
Board adopts the going concern basis for preparing the Company's Financial
Statements. As outlined in Note 3 to the Financial Statements, the Audit
Committee has considered the risks that could impact the Company's liquidity
over the next period from the date of approval of the Financial Statements up
until March 2023, as well as taken into account the below four key
considerations.
1. Available liquid resources and potential proceeds from investment
realisations versus current and expected liabilities of the Company over the
period from the date of approval of the Financial Statements up until 31 March
2023;
2. Available liquid resources and potential proceeds from investment
realisations versus total potential unfunded commitments of the Partnership;
3. Recent NAV & Share Price Performance of the Company;
4. Discount to NAV of the Company; and
5. Ongoing Impact of COVID-19.
The Audit Committee, based on the reasons set out in Note 3 to the Financial
Statements, are satisfied, as of today's date, that it is appropriate to adopt
the going concern basis in preparing these Financial Statements and has
recommended this approach is adopted by the Board.
The Audit Committee considers, and if thought appropriate, recommends that the
Board considers the Company's viability over a period of three years to 31
December 2024. The Audit Committee has determined that the period of three
years was deemed to be an appropriate timeframe and that there is a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over this period of assessment, as further
outlined in the Report of the Directors. Accordingly, the Audit Committee has
recommended the three period of assessment for the Company's longer term
viability is adopted by the Board.
Risk Management
The Board is accountable for carrying out a robust assessment of the principal
risks facing the Company, including those threatening its business model,
future performance, solvency and liquidity. On behalf of the Board, the Audit
Committee reviews the effectiveness of the Company's risk management
processes. The Company's risk assessment process and the way in which
significant business risks are managed is a key area of focus for the Audit
Committee. The work of the Audit Committee was driven primarily by the
Company's assessment of its principal risks and uncertainties as set out in
the Corporate Governance Report. The Audit Committee receives reports from the
Investment Manager and Administrator on the Company's risk evaluation process
and reviews changes to significant risks identified.
Internal Audit
The Audit Committee shall consider at least once a year whether or not there
is a need for an internal audit function. Currently, the Audit Committee does
not consider there to be a need for an internal audit function, given that
there are no employees in the Company and all outsourced functions are with
parties who have their own internal controls and procedures.
External Audit
Ernst & Young LLP has been the Company's external auditor since the
Company's incorporation. This is the ninth year of audit.
The external auditor is required to rotate the audit partner every five years.
The current Ernst & Young LLP lead audit partner, David Moore, started his
tenure in 2018 and his current rotation will end with the audit of the 2022
Annual Report and Financial Statements. There are no contractual obligations
restricting the choice of external auditor and the Company will put the audit
services contract out to tender at least every ten years. Under Companies Law,
the reappointment of the external auditor is subject to Shareholder approval
at the Annual General Meeting.
The Audit Committee assessed the qualifications, expertise and resources, and
independence of the external auditor as well as the effectiveness of the audit
process. This review covered all aspects of the audit service provided by
Ernst & Young LLP, including obtaining a report on the audit firm's own
internal quality control procedures and consideration of the audit firm's
annual transparency reports in line with the UK Code. The Audit Committee also
approved the external audit terms of engagement and remuneration. During 2021,
the Committee held private meetings with the external auditor. The Audit
Committee Chairman also maintained regular contact with the audit partner
throughout the year. These meetings provide an opportunity for open dialogue
with the external auditor without management being present. Matters discussed
included the auditor's assessment of significant financial risks and the
performance of management in addressing these risks, the auditor's opinion of
management's role in fulfilling obligations for the maintenance of internal
controls, the transparency and responsiveness of interactions with management,
confirmation that no restrictions have been placed on them by management,
maintaining the independence of the audit, and how they have exercised
professional challenge. The Audit Committee will continue to monitor the
performance of the external auditor on an annual basis and will consider their
independence and objectivity, taking account of appropriate guidelines. In
addition, the Committee Chairman will continue to maintain regular contact
with the lead audit partner outside the formal Committee meeting schedule, not
only to discuss formal agenda items for upcoming meetings, but also to review
any other significant matters. Members of the Audit Committee also sat in on
the valuation meetings between the Investment Manager and external auditor.
The Audit Committee reviews the scope and results of the audit, its cost
effectiveness and the independence and objectivity of the external auditor,
with particular regard to the level of non-audit fees. The Audit Committee is
also monitoring developments, in this regard, with respect to the Crown
Dependencies' Audit Rules and Guidance. Notwithstanding such services the
Audit Committee considers Ernst & Young LLP to be independent of the
Company and that the provision of such non-audit services is not a threat to
the objectivity and independence of the conduct of the audit.
To further safeguard the objectivity and independence of the external auditor
from becoming compromised, the Audit Committee has a formal policy governing
the engagement of the external auditor to provide non-audit services. This
precludes Ernst & Young LLP from providing certain services such as
valuation work or the provision of accounting services and also sets a
presumption that Ernst & Young LLP should only be engaged for non-audit
services where Ernst & Young LLP are best placed to provide the non-audit
service for example, the interim review. Note 13 details services provided by
Ernst & Young LLP. In addition to processes put in place to ensure
segregation of audit and non-audit roles, Ernst & Young LLP is required,
as part of the assurance process in relation to the audit, to confirm to the
Committee that it has both the appropriate independence and the objectivity to
allow it to continue to serve the members of the Company. This confirmation is
received every six months and no matters of concern were identified by the
Committee.
To fulfil its responsibility regarding the independence of the external
auditor, the Audit Committee considers:
· discussions with or reports from the external auditor describing
its arrangements to identify, report and manage any conflicts of interest; and
· the extent of non-audit services provided by the external
auditor.
To assess the effectiveness of the external auditor, the committee reviews:
· the external auditor's fulfilment of the agreed audit plan and
variations from it;
· discussions or reports highlighting the major issues that arose
during the course of the audit; and
· feedback from other service providers evaluating the performance
of the audit team.
In respect of the year ended 31 December 2019, the audit of the Company was
subject to review by the FRC's Audit Quality Review team as part of its
routine programme of audit firm quality inspections. The Audit Committee
considered the review team's findings noting that there were no key findings
reported. The Audit Committee Chairman discussed the review with the audit
engagement partner in November 2020
The Audit Committee is satisfied with Ernst & Young LLP's effectiveness
and independence as external auditor having considered the degree of diligence
and professional scepticism demonstrated by them. Having carried out the
review described above and having satisfied itself that the external auditor
remains independent and effective, the Audit Committee has recommended to the
Board that Ernst & Young LLP be reappointed as external auditor for the
year ending 31 December 2022.
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 2022. Accordingly, a resolution
proposing the reappointment of Ernst & Young LLP as our external auditor
will be put to Shareholders at the Annual General Meeting.
On behalf of the Audit Committee
Patrick Firth
Chairman of the Audit Committee
23 February 2022
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF RIVERSTONE ENERGY LIMITED
Opinion
We have audited the Financial Statements of Riverstone Energy Limited for the
year ended 31 December 2021 which comprise the Statement of Financial
Position, the Statement of Comprehensive Income, the Statement of Changes in
Equity, the Statement of Cash Flows and the related notes 1 to 15, including a
summary of significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and International
Financial Reporting Standards as adopted by the European Union ('IFRS').
In our opinion, the Financial Statements:
" give a true and fair view of the state of the Company's affairs as at 31
December 2021 and of its profit for the year then ended;
" have been properly prepared in accordance with IFRS; and
" have been prepared in accordance with the requirements of The Companies
(Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ('ISAs (UK)') and applicable law. Our responsibilities under those
standards are further described in the "Auditor's responsibilities for the
audit of the Financial Statements section" of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements
that are relevant to our audit of the Financial Statements, including the UK
FRC's Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these
requirements.
The non-audit services prohibited by the FRC's Ethical Standard were not
provided to the Company and we remain independent of the Company in conducting
the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the Directors'
assessment of the Company's ability to continue to adopt the going concern
basis of accounting included:
Ø The audit engagement partner directed and supervised the audit procedures
on going concern, including internal consultations where deemed necessary;
Ø We assessed the determination made by the Board of Directors of the Company
and the Investment Manager that the Company is a going concern, including
sensitivity disclosures and their assessment of any ongoing COVID-19 impacts
up until 31 March 2023, and hence the appropriateness of the financial
statements to be prepared on a going concern basis;
Ø We obtained the cash flow forecasts and sensitivities prepared by the
Investment Manager and tested the arithmetical accuracy of the models;
Ø We challenged the appropriateness of the Investment Manager's forecasts by
assessing historical forecasting accuracy, challenging their consideration of
downside sensitivity analysis and applying further sensitivities to understand
the impact on liquidity of the Company;
Ø We assessed whether available funds compared to commitments made to
underlying investments, taking account of the existing arrangements with the
Riverstone Energy Investment Partnership, L.P. ("the underlying Partnership")
and continued share buy-backs, cast significant doubt over the going concern
status of the Company;
Ø We considered the movement in the NAV and share price since the
notification to Shareholders that the Board may seek Shareholder approval
before 31 December 2022 to amend the Company's investment policy to provide
for the managed run-off of the Company's portfolio;
Ø We obtained the Board's assessment of the probability that they would
request such an approval and the associated disclosures in the Annual Report
and audited Financial Statements; and
Ø We assessed the disclosures in the Annual Report and Financial Statements
relating to going concern to ensure they were fair, balanced and
understandable and in compliance with IAS1.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability to continue
as a going concern from the date the Financial Statements are authorised for
issue up until 31 March 2023.
In relation to the Company's reporting on how they have applied the UK
Corporate Governance Code, we have nothing material to add or draw attention
to in relation to the Directors' Statement in the financial statements about
whether the Directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
However, because not all future events or conditions can be predicted, this
statement is not a guarantee as to the Company's ability to continue as a
going concern.
Overview of our audit approach
Key audit matters · Misstatement or manipulation of the valuation of the Company's
investment in Riverstone Energy Investment Partnership, L.P. ("the Underlying
Partnership")
Materiality · Overall materiality of $13.2 million which represents 2 per cent.
of equity.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation
of performance materiality determine our audit scope for the Company. This
enables us to form an opinion on the Financial Statements. We take into
account size, risk profile, the organisation of the Company and effectiveness
of controls, including controls and changes in the business environment when
assessing the level of work to be performed.
All audit work was performed directly by the audit engagement team. The audit
was led from Guernsey, and the audit team included individuals from the
Guernsey and New York offices of Ernst & Young and operated as an
integrated audit team. In addition, we engaged our Valuation, Modelling and
Economics ("VME") industry valuation specialists from the Houston and London
offices, who assisted us in auditing the valuation of unquoted investments.
The scope of their work was consistent with the prior year.
Climate change
The Company has explained climate-related risks in the 'Climate Change'
section of their Environmental, Social and Governance ("ESG") Report. These
have been summarised from the Investment Manager's Annual ESG report issued in
February 2022, and form part of the "Other information", rather than the
audited Financial Statements. Our procedures on these disclosures therefore
consisted solely of considering whether these disclosures are materially
inconsistent with the Company's Financial Statements, or our knowledge
obtained in the course of the audit, or otherwise appear to be materially
misstated.
Our audit effort was focused on the significant assumptions used in estimating
the valuation of the Company's investment in the underlying Partnership.
Details of our procedures and findings are included in our key audit matters
below.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the Financial Statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in our opinion thereon, and we do not
provide a separate opinion on these matters.
Risk Our response to the risk Key observations communicated to the Audit Committee
Misstatement or manipulation Our audit procedures consisted of: We reported to the Audit Committee that, overall, the valuation of the
Company's investment in the underlying Partnership was materially correct, in
of the valuation of the Company's investment in the underlying Partnership Ø Updating and confirming our understanding of the Company's processes and accordance with IFRS and within our estimated valuation range.
($674 million; 2020 $384 million) methodologies, including the use of industry specific measures, and policies
for valuing investments held by the underlying Partnership;
Ø Obtaining and inspecting the valuation papers and supporting data to assess
The fair value of the Company's investment in the underlying Partnership is whether the data used is appropriate and relevant, and discussing these with
based on the Net Asset Value of the underlying Partnership which, in turn, is the Investment Manager to evaluate whether the fair value of the Company's
based on the fair values of its net assets including the underlying investment in the underlying Partnership approximates to the net asset value
investments held by the underlying Partnership through the investment of the underlying Partnership, challenging the assumptions made by the
structures. A number of the underlying investments are level three investments Investment Manager and Board of Directors of the Company;
as defined in the IFRS hierarchy. Valuing such investments requires
significant judgement and estimation as explained in Note 3 to the Financial Ø Attending fair value discussions in relation to 30 September and 31
Statements and in the Audit Committee Report on page 48. It also requires December 2021 valuations. These included the Investment Manager, EY Guernsey
significant industry expertise. and EY New York audit teams, EY Houston VME and EY London VME teams;
Ø Obtaining management's calculations and supporting documents with regards
to the discounts applied to the SPAC sponsor investments and assessing the
The values of unquoted investments may be misstated due to the application of reasonableness of the discounts applied. Our procedures included, on a sample
inappropriate methodologies, inputs to the valuation, discount/premiums basis, independently sourcing the model and inputs to re-calculate the
applied at the underlying Partnership level and/or inappropriate judgmental discounts, and testing the arithmetical accuracy of the Company's
factors. calculations;
Ø Vouching valuation inputs that do not require specialist knowledge to
independent sources and testing the arithmetical accuracy of the Company's
There is also a risk that proper adjustments are not made in the fair value calculations;
calculations for the
Ø For a sample of investments, engaging EY Houston and EY London VME teams as
effects that tax and General Partner performance allocation will have on valuation specialists to:
realised and unrealised gains of underlying investments.
a) use their knowledge of the market to corroborate the Investment
Manager's mark, and their related judgements and valuation inputs including
discount rates, forward oil price, production values and recent relevant
transaction data; and
b) assist us to determine whether the methodologies used to value
investments were in accordance with methods, particularly those specific to
the industry, usually used by market participants.
Ø Updating our previous discussions with the Investment Manager with respect
to the qualitative factors and other information used to value investments;
Ø Performing roll forward procedures to capture fair value changes between 30
September and 31 December 2021, with specific focus on changes in macro
factors such as oil prices, geopolitical events and Company specific events;
Ø Assessing levels of taxation and performance fee/incentive accruals in
investment valuations;
Ø Reporting to the Audit Committee on the calibration of investment
valuations against EY's ranges and comment on those ranges against other
market participants. In addition, we commented on any specific movements of
valuation marks in those ranges' vs prior periods; and
Ø Identifying the key unobservable inputs to valuations and reviewing and
assessing the reasonableness of the sensitivity workings and disclosures,
comparing the Investment Adviser's position with EY's range of acceptable
inputs.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in
evaluating the effect of identified misstatements on the audit and in forming
our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the
aggregate, could reasonably be expected to influence the economic decisions of
the users of the Financial Statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the Company to be $13.2 million (2020: $7.5
million), which is approximately 2 per cent. (2020: 2 per cent.) of equity.
We believe that equity provides us with Company's primary performance measures
for internal and external reporting.
Performance materiality
The application of materiality at the individual account or balance level.
It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our assessment of the
Company's overall control environment, our judgement was that performance
materiality was 75 per cent. (2020: 75 per cent.) of our materiality, namely
$9.9 million (2020: $5.6 million). We have set performance materiality at
this percentage to ensure that the total uncorrected and undetected audit
differences in the Financial Statements did not exceed our materiality level.
Reporting threshold
An amount below which identified misstatements are considered as being clearly
trivial.
We agreed with the Audit Committee that we would report to them all
uncorrected audit differences in excess of $0.7 million (2020: $0.4 million),
which is set at 5 per cent. of materiality, as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the Annual Report,
other than the Financial Statements and our auditor's report thereon. The
Directors are responsible for the other information contained within the
Annual Report.
Our opinion on the Financial Statements does not cover the other information
and, except to the extent otherwise explicitly stated in this report, we do
not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the Financial
Statements or our knowledge obtained in the course of the audit or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the Financial
Statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to
which The Companies (Guernsey) Law, 2008 requires us to report to you if, in
our opinion:
• adequate accounting records have not been kept by the Company; or
• the Financial Statements are not in agreement with the Company's
accounting records and returns; or
• we have not received all the information and explanations we require
for our audit
Corporate Governance Statement
We have reviewed the Directors' statement in relation to going concern,
longer-term viability and that part of the Corporate Governance Statement
relating to the Company's compliance with the provisions of the UK Corporate
Governance Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the Financial Statements or our knowledge obtained during the
audit:
· Directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material uncertainties
identified;
· Directors' explanation as to its assessment of the Company's
prospects, the period this assessment covers and why the period is
appropriate;
· Director's statement on whether it has a reasonable expectation
that the Company will be able to continue in operation and meets its
liabilities;
· Directors' statement on fair, balanced and understandable;
· Board's confirmation that it has carried out a robust assessment
of the emerging and principal risks;
· The section of the annual report that describes the review of
effectiveness of risk management and internal control systems; and
· The section describing the work of the audit committee.
Responsibilities of directors
As explained more fully in the Directors' Responsibilities Statement, the
Directors are responsible for the preparation of the Financial Statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
Financial Statements that are free from material misstatement, whether due to
fraud or error.
In preparing the Financial Statements, the Directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the Financial
Statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these Financial Statements.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect irregularities, including fraud. The risk of not detecting
a material misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through collusion. The
extent to which our procedures are capable of detecting irregularities,
including fraud, are detailed below.
However, the primary responsibility for the prevention and detection of fraud
rests with both those charged with governance of the Company and Management.
· We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and determined that the most
significant are:
Ø Financial Conduct Authority ("FCA") Listing Rules
Ø Disclosure Guidance and Transparency Rules ("DTR") of the FCA
Ø The 2018 UK Corporate Governance Code
Ø The 2019 AIC Code of Corporate Governance
Ø The Companies (Guernsey) Law, 2008, as amended
Ø The Protection of Investors (Bailiwick of Guernsey) Law, 2020 (including
Registered Collective Investment Schemes (RCIS) Rules 2021)
· We understood how the Company is complying with those frameworks
by:
Ø Discussing the processes and procedures used by the Directors, the
Investment Manager, the Company Secretary and Administrator to ensure
compliance with the relevant frameworks;
Ø Reviewing internal reports that evidenced quarterly compliance testing; and
Ø Inspecting any correspondence with regulators.
· We assessed the susceptibility of the Company's Financial
Statements to material misstatement, including how fraud might occur by
undertaking the audit procedures set out in Key Audit Matter section above and
reading the Financial Statements to check that the disclosures are consistent
with the relevant regulatory requirement; and.
· Based on this understanding we designed our audit procedures to
identify non-compliance with such laws and regulations. Our procedures
involved:
Ø Through discussion, gaining an understanding of how those charged with
governance, the Investment Manager, the Company Secretary and Administrator
identify instances of non-compliance by the Company with relevant laws and
regulations;
Ø Inspecting the relevant policies, processes and procedures to further our
understanding;
Ø Holding discussions with the Company's nominated Compliance Officer;
Ø Reviewing internal compliance reporting, Board and Audit Committee minutes;
Ø Inspecting correspondence with regulators; and
Ø Obtaining relevant written representations from the Board of Directors.
A further description of our responsibilities for the audit of the financial
statements is located on the
Financial Reporting Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor's report.
Other matters we are required to address
" Following the recommendation from the audit committee, we were appointed by
the Company to audit the financial statements for the year ending 31 December
2013 and subsequent financial periods. We signed an engagement letter on 28
January 2014.
The period of total uninterrupted engagement including previous renewals and
reappointments is nine years, covering the years ending 31 December 2013 to 31
December 2021.
" The audit opinion is consistent with the additional report to the audit
committee.
Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the Company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
David Robert John Moore, ACA
For and on behalf of Ernst & Young LLP
Guernsey
23 February 2022
Notes:
((1) )The maintenance and integrity of the Company's website is the sole
responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditor accepts
no responsibility for any changes that may have occurred to the Financial
Statements since they were initially presented on the website.
((2) )Legislation in Guernsey governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
REPORT OF INDEPENDENT AUDITORS TO THE DIRECTORS OF RIVERSTONE ENERGY LIMITED
Opinion
We have audited the Financial Statements of Riverstone Energy Limited (the
"Company"), which comprise the Statement of Financial Position as of 31
December 2021 and 2020, and the related Statements of Comprehensive Income,
the Statements of Changes in Equity, the Statements of Cash Flows for the
years then ended, and the related notes (collectively referred to as the
"Financial Statements").
In our opinion, the accompanying Financial Statements present fairly, in all
material respects, the financial position of the Company at 31 December 2021
and 2020, and the results of its operations, changes in equity, and its cash
flows for the years then ended, in conformity with International Financial
Reporting Standards as adopted by the European Union ("IFRS").
Basis for Opinion
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America (GAAS). Our responsibilities under
those standards are further described in the Auditor's Responsibilities for
the Audit of the Financial Statements section of our report. We are required
to be independent of the Company and to meet our other ethical
responsibilities in accordance with the relevant ethical requirements relating
to our audit. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the
Financial Statements in accordance with IFRS and for the design,
implementation, and maintenance of internal control relevant to the
preparation and fair presentation of Financial Statements that are free of
material misstatement, whether due to fraud or error.
In preparing the Financial Statements, management is required to evaluate
whether there are conditions or events, considered in the aggregate, that
raise substantial doubt about the Company's ability to continue as a going
concern for one year after the date that the Financial Statements are
available to be issued.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial
Statements as a whole are free of material misstatement, whether due to fraud
or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not absolute
assurance and therefore is not a guarantee that an audit conducted in
accordance with GAAS will always detect a material misstatement when it
exists. The risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a
substantial likelihood that, individually or in the aggregate, they would
influence the judgment made by a reasonable user based on the Financial
Statements.
In performing an audit in accordance with GAAS, we:
· Exercise professional judgment and maintain professional
scepticism throughout the audit.
· Identify and assess the risks of material misstatement of the
Financial Statements, whether due to fraud or error, and design and perform
audit procedures responsive to those risks. Such procedures include examining,
on a test basis, evidence regarding the amounts and disclosures in the
Financial Statements.
· Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control. Accordingly, no such opinion is expressed.
· Evaluate the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well
as evaluate the overall presentation of the Financial Statements.
· Conclude whether, in our judgment, there are conditions or
events, considered in the aggregate, that raise substantial doubt about the
Company's ability to continue as a going concern for a reasonable period of
time.
We are required to communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit, significant
audit findings, and certain internal control-related matters that we
identified during the audit.
Other Information
The Directors are responsible for the other information. The other information
comprises the information included in the Annual Report, but does not include
the Financial Statements and our auditor's report thereon. Our opinion on
the Financial Statements does not cover the other information, and we do not
express an opinion or any form of assurance thereon.
In connection with our audit of the Financial Statements, our responsibility
is to read the other information and consider whether a material inconsistency
exists between the other information and the Financial Statements, or the
other information otherwise appears to be materially misstated. If, based on
the work performed, we conclude that an uncorrected material misstatement of
the other information exists, we are required to describe it in our report.
Ernst & Young LLP
Guernsey, Channel Islands
23 February 2022
Statement of Financial Position
As at 31 December 2021
Notes 31 December 31 December
2021 2020
$'000 $'000
Assets
Non-current assets
Investment at fair value through profit or loss 6 674,439 383,589
Total non-current assets 674,439 383,589
Current assets
Trade and other receivables 970 1,137
Cash and cash equivalents 7 7,296 8,807
Total current assets 8,266 9,944
Total assets 682,705 393,533
Current liabilities
Trade and other payables 664 3,190
Total current liabilities 664 3,190
Total liabilities 664 3,190
Net assets 682,041 390,343
Equity
Share capital 8 1,133,854 1,184,100
Retained deficit (451,813) (793,757)
Total equity 682,041 390,343
Number of Shares in issue at year end 8 54,937,599 62,938,466
Net Asset Value per Share ($) 12 12.41 6.20
The Financial Statements of the Company were approved and authorised for issue
by the Board of Directors on 23 February 2022 and signed on its behalf by:
Richard Hayden Patrick Firth
Chairman Director
The accompanying notes form an integral part of the Company's Financial
Statements.
Statement of Comprehensive Income
For the year ended 31 December 2021
Notes 1 January 1 January
2021 to 2020 to
31 December 31 December
2021 2020
$'000 $'000
Investment profit/(loss)
Change in fair value of investment at fair value through profit or loss 6 (315,879)
346,677
Expenses
Directors' fees and expenses 9 (648) (684)
Legal and professional fees (426) (66)
Other operating expenses 13 (3,270) (2,396)
Total expenses (4,344) (3,146)
Operating profit/(loss) for the financial year 342,333 (319,025)
Finance (expense)/income
Foreign exchange (loss)/gain (389) 135
Total finance (expense)/income (389) 135
Profit/(loss) for the year 341,944 (318,890)
Total comprehensive income/(loss) for the year 341,944 (318,890)
Basic Earnings/(Loss) per Share (cents) 12 561.73 (442.25)
Diluted Earnings/(Loss) per Share (cents) 12 561.73 (442.25)
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 2021
Share Retained Total
capital deficit Equity
$'000 $'000 $'000
As at 1 January 2021 1,184,100 (793,757) 390,343
Profit for the financial year - 341,944 341,944
Total comprehensive income for the year - 341,944 341,944
Buyback and cancellation of shares (50,246) - (50,246)
As at 31 December 2021 1,133,854 (451,813) 682,041
Share Retained Total
capital deficit Equity
$'000 $'000 $'000
As at 1 January 2020 1,246,559 (474,867) 771,692
Loss for the financial year - (318,890) (318,890)
Total comprehensive loss for the year - (318,890) (318,890)
Buyback and cancellation of shares (62,459) - (62,459)
As at 31 December 2020 1,184,100 (793,757) 390,343
The accompanying notes form an integral part of the Company's Financial
Statements.
Statement of Cash Flows
For the year ended 31 December 2021
Notes 1 January 1 January
2021 to 2020 to
31 December 31 December
2021 2020
$'000 $'000
Cash flow used in operating activities
Operating profit/(loss) for the financial year 342,333 (319,025)
Adjustments for:
Change in fair value of investment at fair value through profit or loss 6 (346,677) 315,879
Movement in trade and other receivables 167 (544)
Movement in trade and other payables (2,526) (1,208)
Net cash used in operating activities (6,703) (4,898)
Cash flow generated from investing activities
Distribution from the Partnership 55,827 73,254
Net cash generated from investing activities 55,827 73,254
Cash flow used in financing activities
Buyback of shares 8 (50,246) (59,895)
Net cash used in financing activities (50,246) (59,895)
Net movement in cash and cash equivalents during the year (1,122) 8,461
Cash and cash equivalents at the beginning of the year 8,807 211
Effect of foreign exchange rate changes (389) 135
Cash and cash equivalents at the end of the year 7,296 8,807
The accompanying notes form an integral part of the Company's Financial
Statements.
Notes to the Financial Statements
For the year ended 31 December 2021
1. General information
Riverstone Energy Limited is a company limited by shares, which was
incorporated on 23 May 2013 in Guernsey with an unlimited life and registered
with the GFSC as a Registered Closed-ended Collective Investment Scheme
pursuant to the POI Law. The Company's Ordinary Shares were admitted to the UK
Listing Authority's Official List and to trading on the London Stock Exchange
as part of its IPO which completed on 29 October 2013. The registered office
of the Company is PO Box 286, Floor 2, Trafalgar Court, Les Banques, St Peter
Port, Guernsey, GY1 4LY.
The Company makes its investments through the Partnership, a Cayman Islands
registered exempted limited partnership, in which the Company is the sole
limited partner. The principal place of business of the Partnership is the
Cayman Islands. Both the Company and the Partnership are subject to the
Investment Management Agreement with the Investment Manager, a partnership
registered in the Cayman Islands.
The Partnership has the right to invest alongside the Private Riverstone Funds
in all Qualifying Investments in which the Private Riverstone Funds
participate. These funds are managed and advised by affiliates of the
Investment Manager. 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 2021 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 with the addition of the below accounting policy
adopted within these Financial Statements.
Valuation of SPAC Sponsor Investments
For the SPAC Sponsor investments, the Investment Manager values the Founder
Shares based on the closing price of the publicly traded common shares,
subject to applicable discounts for lack of identified target, risk of
unsuccessful closing of the business combination and applicable lock-up
periods post-closing. The Founder Warrants are valued based on a valuation
from a third party, independent valuation specialist.
Foreign currencies
The functional currency of the Company is U.S. Dollars reflecting the primary
economic environment in which the Company operates, that being the exploration
and production and midstream energy sectors, where most transactions are
expected to take place in U.S. Dollars.
The Company has chosen U.S. Dollars as its presentation currency for financial
reporting purposes.
Transactions during the year, including purchases and sales of investments,
income and expenses are translated into U.S. Dollars at the rate of exchange
prevailing on the date of the transaction. Monetary assets and liabilities
denominated in currencies other than U.S. Dollars are retranslated at the
functional currency rate of exchange ruling at the reporting date.
Non-monetary items that are measured in terms of historical cost in a currency
other than U.S. Dollars are translated using the exchange rates as at the
dates of the initial transactions. Non-monetary items measured at fair value
in a currency other than U.S. Dollars are translated using the exchange rates
at the date when the fair value was determined. Foreign currency transaction
gains and losses on financial instruments classified as at fair value through
profit or loss are included in profit or loss in the Statement of
Comprehensive Income as part of the "Change in fair value of investments at
fair value through profit or loss". Exchange differences on other financial
instruments are included in profit or loss in the Statement of Comprehensive
Income as "Foreign exchange gain/(loss)".
Financial instruments
In accordance with IFRS 9, financial assets and financial liabilities are
recognised in the Company's Statement of Financial Position when the Company
becomes a party to the contractual provisions of the instrument.
Financial assets
At initial recognition, financial assets are classified based on the Company's
business model for managing the financial assets and the contractual cash flow
characteristics of the financial asset. The Company initially measures a
financial asset at its fair value.
a) Investment at fair value through profit or loss
i. Classification
Financial assets classified at FVTPL are those that do not meet the
contractual cash flow test and are managed with their performance evaluated on
a fair value basis in accordance with the Company's investment strategy. The
Company includes in this category its only investment, being the Partnership.
ii. Measurement
Investments made by the Company in the Partnership are measured initially and
subsequently at fair value, with changes in fair value taken to the Statement
of Comprehensive Income.
iii. Fair value estimation
A summary of the more relevant aspects of IPEV valuations is set out below:
Marketable (Listed) Securities - where an active market exists for the
security, the value is stated at the bid price on the last trading day in the
period. Marketability discounts are not generally applied unless there is some
contractual, governmental or other legally enforceable restriction preventing
realisation at the reporting date, such as the Founder shares acquired through
the SPAC Sponsor investments (see further below in Unlisted Investments
section and Note 5).
Unlisted Investments - are carried at such fair value as the Investment
Manager considers appropriate, and as approved or adjusted by the Board,
taking into account the performance of each investee company and the exercise
of ratchets, options or other incentive schemes. Methodologies used in
arriving at the fair value include prices of recent investment, earnings
multiples, net assets, discounted cash flows analysis and industry valuation
benchmarks. Valuations may be derived by reference to observable valuation
measures for comparable companies or transactions (examples include discount
rates, forward oil prices, production multiples, volatility of comparable
public traded prices, and multiplying a key performance metric of the investee
company such as estimated, unobservable EBITDA by a relevant valuation
multiple observed in the range of comparable companies or transactions),
adjusted for differences between the investment and the referenced comparable.
For the SPAC Sponsor investments, the Investment Manager 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 Company has determined that the fair value of its investment in the
Partnership is $674 million (31 December 2020: $384 million) and is calculated
in accordance with applicable IFRS accounting standards and IPEV Valuation
Guidelines. No adjustment to the net asset value of the Partnership has been
made, as this is deemed equivalent to fair value.
b) Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are held to
meet short term cash commitments and comprise other short-term highly liquid
investments with an original maturity of three months or less that are readily
convertible to a known amount of cash and are subject to an insignificant risk
of changes in value.
c) Trade and other receivables
Trade receivables are classified as financial assets at amortised cost. They
are measured at amortised cost less impairment assessed using the simplified
approach of the expected credit loss model based on experience of previous
losses and expectations of future losses.
A financial asset is derecognised (in whole or in part) either:
· when the Company has transferred substantially all the risks and
rewards of ownership; or
· when it has neither transferred nor retained substantially all the
risks and rewards and when it no longer has control over the assets or a
portion of the asset; or
· when the contractual right to receive cash flow has expired.
Financial liabilities
Trade and other payables
Trade payables are classified as financial liabilities at amortised cost.
Equity
The Company's Ordinary Shares are classified as equity and upon issuance, the
fair value of the consideration received is included in equity, net of share
issue costs (excluding share issue costs of the IPO). All formation and
initial expenses of the Company, including the share issue costs of its IPO,
have been borne by the Investment Manager.
Repurchase of Ordinary Shares for cancellation
The cost of repurchasing Ordinary Shares, including any related stamp duty and
transaction costs, is charged to 'Share Capital' and dealt with in the
Condensed Statement of Changes in Equity. Share repurchase and cancellation
transactions are accounted for on a trade date basis.
Finance income
Interest income is recognised on a time apportioned basis.
Expenses
Expenses include legal, accounting, auditing and other operating expenses.
They are recognised on an accruals basis in the Statement of Comprehensive
Income in the period in which they are incurred.
Amended standards and interpretations
New and amended standards and interpretations applied in these Financial
Statements
There were no new standards or interpretations effective for the first time
for periods beginning on or after 1 January 2021 that had a significant effect
on the Company's Financial Statements. Furthermore, none of the amendments to
standards that are effective from that date had a significant effect on these
Financial Statements.
New and amended standards and interpretations not applied in these Financial
Statements (issued but not yet effective)
Other accounting standards and interpretations have been published and will be
mandatory for the Company's accounting periods beginning on or after 1 January
2022 or later periods. The impact of these standards is not expected to be
material to the reported results and financial position of the Company.
3. Significant accounting judgements, estimates and assumptions
The preparation of Financial Statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income
and expenses.
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
Judgements
In the process of applying the Company's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the Financial Statements:
Assessment as an Investment Entity
The Company meets the definition of an investment entity on the basis of the
following criteria:
1. the Company obtains funds from multiple investors for the purpose of
providing those investors with investment management services;
2. the Company commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both; and
3. the Company measures and evaluates the performance of substantially all
of its investments on a fair value basis.
To determine that the Company meets the definition of an investment entity,
further consideration is given to the characteristics of an investment entity
that are demonstrated by the Company.
Assessment of control over the Partnership
The Company makes its investments through the Partnership in which it is the
sole limited partner.
The Board has assessed whether the Company has all the elements of control as
prescribed by IFRS 10 in relation to the Company's investment in the
Partnership and has concluded that although the Company is the sole limited
partner, it does not control the Partnership but instead has significant
influence and therefore accounts for the Partnership as an investment in
associate at fair value in accordance with IAS 28.
Assessment of the Partnership as a structured entity
The Company considers the Partnership to be a structured entity under IFRS 12.
Transfer of funds by the Partnership to the Company is determined by the
General Partner (see Note 9). The risks associated with the Company's
investment in the Partnership are disclosed in Note 10. The summarised
financial information for the Company's investment in the Partnership is
disclosed in Note 6.
Going concern
The Financial Statements have been prepared on a going concern basis for the
reasons set out below and as the Directors, with recommendation from the Audit
Committee, have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future,
which is defined as the period from the date of approval of the Financial
Statements up until 31 March 2023. In reaching this conclusion, the Directors,
with recommendation from the Audit Committee, have considered the risks that
could impact the Company's liquidity over the period from the date of approval
of the Financial Statements up until 31 March 2023, as well as taken into
account the following five key considerations, which are discussed further
below.
1. Available liquid resources and potential proceeds
from investment realisations versus current and expected liabilities of the
Company over the period from the date of approval of the Financial Statements
up until 31 March 2023;
2. Available liquid resources and potential proceeds
from investment realisations versus total potential unfunded commitments of
the Partnership;
3. Recent NAV & Share Price Performance of the
Company;
4. Discount to NAV of the Company; and
5. Ongoing Impact of COVID-19.
1. Available liquid resources and potential proceeds from investment
realisations versus current and expected liabilities of the Company over the
period from the date of approval of the Financial Statements up until 31 March
2023
The Company retained $11.5 million of cash in the IPO and Placing and Open
Offer for the initial three years post-listing, and has requested and received
seven distributions for working capital needs in aggregate of $24.3 million
from the Partnership cumulatively through 31 December 2021. During 2021, the
Company requested and received distribution requests in aggregate of £40
million ($55.8 million) for the share buyback programme, of which $7.3 million
remains at 31 December 2021 (31 December 2020: $8.8 million). This cash
balance is sufficient to cover the Company's existing liabilities at 31
December 2021 of $0.7 million and the remaining portion of the aforementioned
share buyback programme approved by the Board of $5.4 million, but will need
an additional distribution of $3.1 million from the Partnership for the
Company's forecasted annual expenses of approximately $4.3 million.
Additionally, REL will need additional distributions of approximately $62
million from the Partnership to fulfil the incremental share buyback programme
amount of £46 million, which was announced by the Company on 8 February 2022
and for which the buyback authority is subject to shareholder approval at the
EGM on 4 March 2022. As in prior years, in accordance with the Partnership
Agreement, if the Company requires additional funds for working capital, it is
entitled to receive another distribution from the Partnership. In order to do
so, the Company would submit a distribution request approved by the Board to
the Partnership, which would then be required to arrange for the payment of
the requested amount. Since REL's inception, the Company has requested and
received seven distributions from the Partnership for working capital needs.
As detailed further in section 2 below, REL, through the Partnership, had
available liquid resources of $98.5 million in excess of potential unfunded
investment commitments of $49.1 million at 31 December 2021, but currently, as
of the date of this report, REL, through the Partnership, has total potential
unfunded commitments of up to $69.6 million, which does not exceed its
available liquid resources of $88.5 million. However, based on the Investment
Manager's cash flow forecast for the next three years to 31 December 2024, the
expectation is that, if needed, the Partnership will only fund the remaining
investment commitments to Anuvia, Enviva, Onyx and the first closing of an
electric motor company's latest financing round, which aggregate up to $33.7
million as of the date of this report.
2. Available liquid resources and potential proceeds from investment
realisations versus total potential unfunded commitments of the Partnership
As at 31 December 2021, REL and the Partnership, including its wholly-owned
subsidiaries, REL Cayman Holdings, LP, REL US Corp and REL US Centennial
Holdings, LLC, had $105.8 million of uninvested funds held as cash (31
December 2020: $99.1 million). This amount is comprised of $98.5 million held
at the Partnership and $7.3 million held at REL. In 2022, the Company, through
the Partnership, invested $49.5 million held at the Partnership in T-REX Group
($17.5 million), the first closing of an electric motor company's latest
financing round ($17.0 million) and Tritium ($15.0 million), paid the Q4 2021
Management Fee ($2.5 million) and realised $42.1 million in proceeds from the
sale of Pipestone Energy ($41.7 million) and GoodLeap dividends ($0.4
million), bringing the uninvested funds at the Partnership level down to $88.5
million as at the date of this report. In accordance with the revised terms
for REL's GP Performance Allocation announced in January 2020, REL did not
meet the portfolio level cost benchmark at 31 December 2021; therefore, any
unrealised performance allocation has been deferred. If these changes had not
been accepted, then the accrued GP Performance Allocation would have been
$28.7 million as of 31 December 2021. No performance fees will be payable
until the $208 million realised and unrealised losses to date at 31 December
2021 are offset with future gains. If these realised and unrealised losses
have not been offset, any such accrued fees will no longer be payable after
three years from each respective accrual date.
The Company's total potential unfunded investment commitments of $49.1 million
as at 31 December 2021 (31 December 2020: $83.2 million), through the
Partnership, did not exceed its available liquid resources as at 31 December
2021. In 2022, REL, through the Partnership, fully funded its commitments to
new investments in T-REX Group ($17.5 million) and Tritium ($15.0 million), as
well as funded $17.0 million of the Company's new $17.5 million commitment to
the first closing of an electric motor company's latest financing round and
committed up to $20.0 million to Anuvia, bringing total potential unfunded
investment commitments up to $69.6 million. This amount does not exceed the
Partnership's available liquid resources of $88.5 million as of the date of
this report, which includes $42.1 million of proceeds from the sale of
Pipestone Energy ($41.7 million) and GoodLeap dividends received in 2022 ($0.4
million). It is not expected that all potential unfunded investment
commitments will be drawn due to a variety of factors, such as the ability for
the commitment to be reduced and/or cancelled by the Investment Manager with
consideration from the Board, the present market conditions do not warrant
presently further capital expenditure as the returns would not be
incrementally positive, a portfolio company being sold earlier than
anticipated or a targeted investment opportunity changing or disappearing.
Based on the Investment Manager's cash flow forecast for the next three years
to 31 December 2024, the expectation is that, if needed, the Partnership will
only fund the remaining commitments to Anuvia, Enviva, Onyx and the first
closing of an electric motor company's latest financing round, which aggregate
up to $33.7 million as of the date of this report. However, if the Board
decides to fund any of the Partnership's unfunded commitments to the other
active investments, the Partnership can execute a reactionary measure to
provide liquidity as discussed further below.
As at 31 December 2021, the Company, through the Partnership, has realised
nine investments for $872 million of gross proceeds on invested capital of
$619 million, respectively in aggregate, resulting in an average Gross MOIC of
approximately 1.4x. The initial commitments to these nine investments were in
excess of $934 million, so approximately 66 per cent. had been funded before
realisation. In addition, the board of each underlying portfolio company, more
often than not are controlled by Riverstone, which has discretion over whether
or not that capital is ultimately invested. Moreover, REL's arrangements with
Riverstone allow the Company's potential unfunded commitments to be reduced
and/or cancelled by the Investment Manager with consideration from the Board,
although this has yet to happen. Moreover, any proposed investments outside of
those made with Fund V and VI can be unilaterally declined by the Board.
Finally, as a reactionary measure, the Partnership's investments in the
publicly-traded shares of the portfolio companies could always be sold, or
used as collateral to secure asset-backed financing, to fund the Partnership's
shortfall of liquid resources and potential proceeds from investment
realisations versus potential unfunded commitments. The Partnership holds
marketable securities consisting of publicly-traded shares of Centennial,
Enviva, Pipestone (sold in February 2022), Solid Power, Hyzon Motors and
Talos, for which the aggregate fair value was $195 million at 31 December 2021
and $180 million as of 22 February 2022, exclusive of the sale of Pipestone
for proceeds of $41.7 million.
3. Recent NAV & Share Price Performance of the Company
As announced on 30 October 2020, the Company's independent directors agreed to
closely monitor the Investment Manager's success in repositioning the
Company's existing investment policy through the modified investment strategy
over the next twenty four months following the previous quarter ended 30
September 2020. In the absence of a significant improvement in the
performance of the Company, taking into account the trading price of the
Ordinary Shares and portfolio performance over that period through 30
September 2022, the independent directors would release an announcement in
November 2022 regarding an EGM to seek Shareholder approval before 31
December 2022 to amend the Company's investment policy to provide for the
managed wind-down of the Company.
As at 31 December 2021, REL had a NAV per Share of $12.41 (£9.19), an
increase in USD and GBP of 106 & 116 per cent., respectively, compared to
$5.74 (£4.46) as at 30 September 2020, which is the most recent quarter end
prior to the aforementioned announcement and being used as a proxy for
comparative purposes. The year end closing trading price of the Ordinary
Shares was $6.28 (£4.65), an increase of 61 & 54 per cent., respectively,
compared to $3.90 (£3.03) as at 30 September 2020. Subsequently, from
year-end through 22 February 2022, the Company's NAV per Share and closing
trading price of the Ordinary Shares have remained relatively unchanged at
$12.81 (£9.43) and $7.56 (£5.56), respectively.
Based on this significant improvement in the performance of REL, as of the
date of this report, it is deemed to be extremely unlikely that the Company's
independent Directors will seek Shareholder approval before 31 December
2022 to amend the Company's investment policy to provide for the managed
wind-down of the Company. The chance of this happening may therefore be
assessed as remote, but the Board will continue to monitor the Company's
performance through the aforementioned twenty four month period until 30
September 2022.
4. Discount to NAV of the Company
Since its inception, the Company's trading discount to NAV percentage has
remained consistent with a population of comparable publicly‐traded PE funds
as their life to date average trading discount percentages are 23.8 per cent.
and 21.4 per cent., respectively. However, from December 2015 to January 2016
and November 2018 to December 2018, as well as from December 2019 to November
2020, declines in the price of oil adversely impacted the market sentiment for
energy companies, which resulted in the Company's trading discount percentage
increasing at a faster rate than the population of comparable publicly-traded
PE funds, as it is solely invested in the global energy industry across all
sectors. In order to return uninvested capital to Shareholders and attempt to
reduce REL's trading discount percentage, on 11 May 2021, the Company
announced a buyback programme with the intention of returning £20 million to
shareholders via market buybacks, which was subsequently 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), which has attributed to the narrowing of the Company's trading
discount from 55.0 per cent. at 31 March 2021 to 49.4 per cent. at 31 December
2021 (or from 61.8 per cent. to 58.4 per cent., respectively, on a
cash-adjusted basis). From year-end through 22 February 2022, reflecting $41.7
million of proceeds from the sale of Pipestone Energy and a $20.8 million
increase in the fair value of the Company's remaining unrestricted marketable
securities, the Company's pro forma trading discount has remained relatively
unchanged and was 41.0 per cent. as of 22 February 2022 (or 43.9 per cent. on
a cash-adjusted basis).
The Board, with consultation of the Investment Manager, regularly monitors the
Company's trading discount percentage and, when possible, executes corporate
actions aimed at managing it, such as the aforementioned share buyback
programme and Tender Offer share repurchase in November 2018, which attributed
to a 1.5 per cent. increase in the Company's NAV, and partially offset the
increase of the trading discount percentage.
5. Ongoing Impact of COVID-19
The Board and Investment Manager have been in continuous dialogue regarding
the ongoing impact of COVID-19 and appropriate disclosures within the
Company's Financial Statements, given that it's a continuously evolving
situation. In 2020, the Company's Management Engagement Committee requested
and received updates from REL's key service providers, including the
Investment Manager, regarding their initial response to COVID-19, including an
update on their respective business continuity plans.
At the outset of COVID-19, the Investment Manager activated its business
continuity plan and its regular working pattern changed to remote working.
Whilst staff had assumed their day-to-day responsibilities remotely, weekly
virtual calls across teams took place. In mid-2021, a significant proportion
of the staff began transitioning back to the in-person work environment, but
did revert back to remote working for periods of time due to spikes in cases
caused by the Delta and Omicron variants. The Investment Manager has
maintained dialogue with its portfolio companies to make sure that they have
the appropriate plans and resources in place to prioritise the health and
safety of their employees, as well as to assess supply chain disruptions and
ensure the normal operations of our businesses.
Directors' Assessment of Going Concern
Based on the reasons outlined above, on balance, the Directors are satisfied,
as of the date of this report, that it is appropriate to adopt the going
concern basis in preparing the Financial Statements.
Estimates and assumptions
The area involving a high degree of judgement or complexity and where
assumptions and estimates are significant to the Financial Statements has been
identified as the risk of misstatement of the valuation of the investment in
the Partnership (see Note 5). Revisions to accounting estimates are recognised
in the period in which the estimate is revised and in any future periods
affected. The Board's determination that no discount or premium should be
applied to the net asset value of the Partnership involves a degree of
judgement due to the nature of the Partnership's investments and other assets
and liabilities (see Note 2: Financial assets a) iii.) and the valuation
techniques and procedures adopted by the Partnership.
The resulting accounting estimates will, by definition, seldom equal the
related actual results.
4. Taxation
The Company has made an election to, and currently expects to conduct its
activities so as to be treated as a partnership for U.S. federal income tax
purposes. Therefore, the Company expects that it generally will not be liable
for U.S. federal income taxes. In the normal course of business, REL may form
wholly owned subsidiaries, to be treated as C Corporations for U.S. tax
purposes. The C Corporations serve to protect REL's public investors from
incurring U.S. ECI. The C Corporations file U.S. corporate tax returns with
the U.S. IRS and pay U.S. corporate taxes on its income. Each of the Company's
Shareholders who are liable for U.S. taxes will take into account their
respective share of the Company's items of income, gain, loss and deduction in
computing its U.S. federal income tax liability as if such Shareholder had
earned such income directly, even if no cash distributions are made to the
Shareholder.
The Company is exempt from taxation in Guernsey under the provisions of the
Income Tax (Exempt Bodies) (Guernsey) Ordinance, 2008 and is charged an annual
exemption fee of £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 2020: 21 to 27.5 per cent.).
5. Fair value
IFRS 13 'Fair Value Measurement' requires disclosure of fair value measurement
by level. The level in the fair value hierarchy within which the financial
assets or financial liabilities are categorised is determined on the basis of
the lowest level input that is significant to the fair value measurement,
adjusted if necessary.
Financial assets and financial liabilities are classified in their entirety
into only one of the three levels:
· Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities;
· Level 2 - inputs other than quoted prices included within Level 1
that are observable for the assets or liabilities, either directly (i.e. as
prices) or indirectly (i.e. derived from prices);
· Level 3 - inputs for the assets or liabilities that are not based
on observable market data (unobservable inputs).
The Company's only financial instrument carried at fair value is its
investment in the Partnership which has been classified within Level 3 as it
is derived using unobservable inputs. Amounts classified under Level 3 for the
year ended 31 December 2021 were $674 million (31 December 2020: $384
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
2021 (31 December 2020: nil). Any transfers between the levels will be
accounted for on the last day of each financial period. Due to the nature of
the investment in the Partnership, it is always expected to be classified
under Level 3.
Valuation methodology and process
The Directors base the fair value of the investment in the Partnership on the
value of its limited partnership capital account received from the General
Partner, which is determined on the basis of the fair value of its assets and
liabilities, adjusted if necessary, to reflect liquidity, future commitments,
and other specific factors of the Partnership and Investment Manager. This is
based on the components within the Partnership, principally the value of the
Partnership's investments in addition to cash and short-term money market
fixed deposits. Any fluctuation in the value of the Partnership's investments
in addition to cash and short-term money market fixed deposits held will
directly impact on the value of the Company's investment in the Partnership.
The Partnership's investments are valued using the techniques described in the
Company's valuation policy. The Investment Manager's assessment of fair value
of investments held by the Partnership, through Investment Undertakings, is
determined in accordance with IPEV Valuation Guidelines. When valuing the
Partnership's investments, the Investment Manager reviews information provided
by the underlying investee companies and other business partners and applies
IPEV methodologies, to estimate a fair value as at the date of the Statement
of Financial Position, subject to Board approval. It is the opinion of the
Directors, that the IPEV valuation methodology used in deriving a fair value
is generally not different from the fair value requirements of IFRS 13. In the
event that there is a difference, the requirements of IFRS 13 override the
IPEV requirements.
The Investment Manager values the investments on a quarterly basis using
common industry valuation techniques, including comparable public market
valuation, comparable merger and acquisition transaction valuation and
discounted cash flow valuation. For early stage private investments,
Riverstone's investment due diligence process includes assumptions about
short-term financial results in determining the appropriate purchase price for
the investment. For the SPAC Sponsor investments, the Investment Manager
applies discounts to the closing price of the publicly traded shares for lack
of identified target, risk of unsuccessful closing of the business combination
and applicable lock-up periods post-closing. The techniques used in
determining the fair value of the Company's investments through the
Partnership are selected on an investment by investment basis so as to
maximise the use of market based observable inputs.
REL's valuation policy is compliant with both IFRS and IPEV Valuation
Guidelines and is applied consistently from period to period. As the
Company's investments are generally not publicly quoted, valuations require
meaningful judgement to establish a range of values, and the ultimate value at
which an investment is realised may differ from its most recent valuation and
the difference may be significant.
For the year ended 31 December 2021, the valuations of the Company's
investments, through the Partnership, are detailed in the Investment Manager's
Report.
Quantitative information about Level 3 fair value measurements as at 31 December 2021
Industry: Energy
Fair value of Level 3 Sensitivity of the Fair value of Level 3
Investments Valuation Unobservable Range Weighted Average ((1)) input to fair value of Investments affected by unobservable input ((3))
(in thousands) technique(s) input(s) Low ((1)) High ((1)) Level 3 investments((2)) (in thousands)
$330,548 Public comparables 2022 EV / EBITDA Multiple 1.0x 24.5x 7.5x 25 per cent. weighted average change in the input would result in 4 per cent. 310,548
change in the total fair value of Level 3 investments
2021E EV/Revenue Multiple((4)) 24.2x 27.9x 25.1x 87,402
10% weighted average change in the input would result in 1% change in the
total fair value of Level 3 investments
$33,200 $41,100 $35,900 141,493
EV / 2021E Production Multiple ($/Boepd) 25 per cent. weighted average change in the input would result in 1 per cent.
change in the total fair value of Level 3 investments
$28,200 $41,100 $32,600 141,493
EV / 2022E Production Multiple ($/Boepd)((4)) 10 per cent. weighted average change in the input would result in 1 per cent.
change in the total fair value of Level 3 investments
$6 $10 $8 25 per cent. weighted average change in the input would result in 1 per cent. 48,172
change in the total fair value of Level 3 investments
1P Reserve multiple ($/Boe)
$4 $5 $4 25 per cent. weighted average change in the input would result in 3 per cent. 93,321
change in the total fair value of Level 3 investments
2P Reserve multiple ($/Boe)
Transaction comparables Asset Value ($m/kW) $56 $182 $57 101,653
50 per cent. weighted average change in the input would result in 2 per cent.
change in the total fair value of Level 3 investments
Discounted cash flow Oil Price Curve ($/bbl)((5)) $61 $67 $63 141,493
35 per cent. weighted average change in the input would result in 10 per cent.
change in the total fair value of Level 3 investments
Gas Price Curve ($/mcfe)((5)) $3 $4 $3 141,493
35 per cent. weighted average change in the input would result in 11 per cent.
change in the total fair value of Level 3 investments
Discount Rate 30% 10% 30% 101,653
+/-50 per cent. weighted average change in the input would result in -/+1 per
cent. change in the total fair value of Level 3 investments
$52,478 Other((6))
$383,026 Total
Quantitative information about Level 3 fair value measurements as at 31 December 2020
Industry: Energy
Fair value of Level 3 Sensitivity of the Fair value of Level 3
Investments Valuation Unobservable Range Weighted Average ((1)) input to fair value of Investments affected by unobservable input ((3))
(in thousands) technique(s) input(s) Low ((1)) High ((1)) Level 3 investments((2)) (in thousands)
$254,017 Public comparables 2020 EV / EBITDA Multiple 4.0x 6.0x 4.3x 10 per cent. weighted average change in the input would result in 1 per cent. 22,124
change in the total fair value of Level 3 investments
2021 EV / EBITDA Multiple((7)) 3.8x 3.9x 3.9x 37,423
10 per cent. weighted average change in the input would result in 1 per cent.
change in the total fair value of Level 3 investments
2022 EV / EBITDA Multiple((7)) 3.5x 6.5x 5.0x 52,740
30 per cent. weighted average change in the input would result in 1 per cent.
change in the total fair value of Level 3 investments
$16,500 $29,200 $21,700 37,423
EV / 2020E Production Multiple ($/Boepd) 10 per cent. weighted average change in the input would result in 1 per cent.
change in the total fair value of Level 3 investments
$16,500 $29,200 $21,700 37,423
EV / 2021E Production Multiple ($/Boepd)((7)) 10 per cent. weighted average change in the input would result in 1 per cent.
change in the total fair value of Level 3 investments
$4 $8 $6 30 per cent. weighted average change in the input would result in 1 per cent. 15,299
change in the total fair value of Level 3 investments
1P Reserve multiple ($/Boe)
$2 $4 $2 10 per cent. weighted average change in the input would result in 2 per cent. 22,124
change in the total fair value of Level 3 investments
2P Reserve multiple ($/Boe)
Transaction comparables $2,900 $4,000 $3,000 10 per cent. weighted average change in the input would result in 2 per cent. 22,124
change in the total fair value of Level 3 investments
Acreage Multiple ($/Boepd per Acre)
2P / 2C Reserve multiple ($/Boe) $5 $10 $7 135,040
30 per cent. weighted average change in the input would result in 9 per cent.
change in the total fair value of Level 3 investments
Asset Value ($m/kW)((7)) $56 $182 $119 52,740
50 per cent. weighted average change in the input would result in 2 per cent.
change in the total fair value of Level 3 investments
Discounted cash flow Oil Price Curve ($/bbl)((5)) $38 $43 $43 172,462
20 per cent. weighted average change in the input would result in 12 per cent.
change in the total fair value of Level 3 investments
Gas Price Curve ($/mcfe)((5)) $2 $2 $2 172,462
15 per cent. weighted average change in the input would result in 2 per cent.
change in the total fair value of Level 3 investments
Discount Rate((7)) 30% 10% 20% 52,740
50 per cent. weighted average change in the input would result in 2 per cent.
change in the total fair value of Level 3 investments
GP Distribution Yield Per cent.((7)) 7% 5% 6% 28,815
20 per cent. weighted average change in the input would result in 1 per cent.
change in the total fair value of Level 3 investments
$8,552 Other
$262,569 Total
((1) )Calculated based on fair values of the Partnership's Level 3
investments.
((2)) Based on its professional experience and recent market conditions, the
Investment Manager has provided the Board with these weighted average change
in the inputs with a forecasted time period of 6 to 12 months.
((3)) The Partnership's Level 3 investments are valued using one or more of
the techniques which utilise one or more of the unobservable inputs, so the
amounts in the "Fair value of Level 3 investments" column will not aggregate
to the total fair value of the Partnership's Level 3 investments.
((4) )As at 31 December 2021, the sensitivity of this unobservable input to
the total fair value of Level 3 investments was determined to be significant
by applying the same methodology that determined it to be significant as at 31
December 2020.
((5)) Discounted cash flow technique involves the use of a discount factor of
10 per cent..
((6) )Includes $47 million of restricted marketable securities held by the
Partnership consisting of publicly-traded shares of Solid Power, DCRN/Tritium
and DCRD, subject to discounts to the closing price of the publicly traded
shares during the period leading up to the announcement and closing of the
business combination, as well as applicable lock-up periods post-closing
((7)) As at 31 December 2020, the sensitivity of this unobservable input to
the total fair value of Level 3 investments was determined to be significant
by applying the same methodology that determined it not to be significant as
at 31 December 2019.
The Board reviews and considers the fair value of each of the Partnership's
investments arrived at by the Investment Manager before incorporating such
values into the fair value of the Partnership. The variety of valuation bases
adopted, quality of management information provided by the underlying investee
companies and the lack of liquid markets for the investments mean that there
are inherent difficulties in determining the fair value of these investments
and such difficulties cannot be eliminated. Therefore, the amounts realised on
the sale of investments may differ from the fair values reflected in these
Financial Statements and the differences may be significant.
The Board approves the valuations performed by the Investment Manager and
monitors the range of reasonably possible changes in significant observable
inputs on a regular basis with consultation from the Investment Manager. Using
its extensive industry experience, the Investment Manager provides the Board
with its determination of the reasonably possible changes in significant
unobservable inputs in normal market conditions as of the year end. For the
SPAC Sponsor investments, a reasonable change in the discounts applied (as set
out above) to the closing price of the publicly traded shares have been deemed
not to be material.
The Directors have considered whether a discount or premium should be applied
to the net asset value of the Partnership. In view of the investment in the
Partnership and the nature of the Partnership's assets, no adjustment to the
net asset value of the Partnership has been deemed to be necessary (see Note
3).
6. Investment at fair value through profit or loss
The movement in fair value is derived from the fair value movements in the
underlying investments held by the Partnership, net of income and expenses of
the Partnership and its related Investment Undertakings, including any
Performance Allocation and applicable taxes. The table below reconciles the
Company's level 3 assets during the year.
31 December 31 December
2021 2020
$'000 $'000
Cost
Brought forward 1,149,917 1,223,171
Distribution from the Partnership (55,827) (73,254)
Carried forward 1,094,090 1,149,917
Fair value movement through profit or loss
Brought forward (766,328) (450,449)
Fair value movement during the year - see Summary Income Statement below 346,677 (315,879)
Carried forward (419,651) (766,328)
Fair value at year end 674,439 383,589
Summary financial information for the Partnership
Summary Balance Sheet 31 December 31 December
2021 2020
$'000 $'000
Investments at fair value (net) 672,314 288,237
Cash and cash equivalents 4,127 13,666
Money market fixed deposits - 76,675
Management Fee payable - see Note 9 (2,463) (1,181)
Other net assets/(liabilities) 461 6,192
Fair value of REL's investment in the Partnership 674,439 383,589
Reconciliation of Partnership's investments at fair value 31 December 31 December
2021 2020
$'000 $'000
Investments at fair value - Level 1 (gross) 194,937 25,668
Investments at fair value - Level 3 (gross) - see Note 5 383,026 262,569
Investments at fair value (gross) 577,963 288,237
Cash and cash equivalents 94,351 -
Partnership's investments at fair value (net) 672,314 288,237
Summary Income Statement 1 January 1 January
2021 to 2020 to
31 December 31 December
2021 2020
$'000 $'000
Unrealised and realised gain/(loss) on Partnership's investments (net) 356,805 (310,312)
Interest and other income (76) 2,152
Management Fee expense - see Note 9 (8,874) (5,594)
Other operating expenses (1,178) (2,125)
Portion of the operating gain/(loss) for the year attributable to REL's 346,677 (315,879)
investment in the Partnership
Reconciliation of unrealised and realised loss on Partnership's investments 1 January 1 January
2021 to 2020 to
31 December 31 December
2021 2020
$'000 $'000
Unrealised profit/(loss) on Partnership's investments (gross) 619,723 (311,459)
Realised (loss)/gain on Partnership's investments (gross) (260,371) 457
General Partner's performance allocation - see Note 9 - (91)
Release of provision for taxation (2,547) 781
Unrealised and realised gain/(loss) on Partnership's investments (net) 356,805 (310,312)
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
2021 2020
$'000 $'000
Authorised:
Ordinary Shares of no par value Unlimited Unlimited
Total Total
No. No.
Issued and fully paid:
Unlimited Shares of no par value
Shares as at inception - -
Issued on 23 May 2013 1 1
Issued on 29 October 2013 71,032,057 71,032,057
Issued on 10 October 2014 5,000,000 5,000,000
Issued on 11 December 2015 8,448,006 8,448,006
Cancelled on 23 November 2018 (4,583,333) (4,583,333)
Cancelled during year ended 31 December 2020 (16,958,265) (16,958,265)
Cancelled during year ended 31 December 2021 (8,000,867) -
Shares as at year end 54,937,599 62,938,466
Share capital $'000 $'000
Share capital brought forward 1,184,100 1,246,559
Movements for the period:
Cancellation of shares (50,246) (62,459)
Share capital as at year end 1,133,854 1,184,100
The Company has one class of Ordinary Shares. The issued nominal value of the
Ordinary Shares represents 100 per cent. of the total issued nominal value of
all share capital. Under the Company's Articles of Incorporation, on a show of
hands, each Shareholder present in person or by proxy has the right to one
vote at general meetings. On a poll, each Shareholder is entitled to one vote
for every Share held.
Shareholders are entitled to all dividends paid by the Company and, on a
winding up, providing the Company has satisfied all of its liabilities, the
Shareholders are entitled to all of the surplus assets of the Company. The
Ordinary Shares have no right to fixed income.
On 15 October 2018, the Company announced a Tender Offer for £55.0 million in
the value of the Company's Ordinary Shares. The Company acquired 4,583,333
Ordinary Shares which were cancelled on 23 November 2018.
On 1 May 2020, the Company announced a share buyback programme for £50.0
million in the value of the Company's Ordinary Shares. During the year 2020,
the Company acquired 16,958,265 Ordinary Shares which were subsequently
cancelled.
On 11 May 2021, the Company announced a share buyback programme for £20.0
million in the value of the Company's Ordinary Shares, which subsequently, on
4 October 2021, was increased to £40 million. During the year, the Company
acquired 8,000,867 Ordinary Shares which were subsequently cancelled.
Following the cancellation of Ordinary Shares from the Tender Offer and share
buyback programme, the share capital of the Company is 54,937,599 Ordinary
Shares in aggregate.
9. Related party transactions
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the party in making
financial or operational decisions.
Directors
The Company has five Non-executive Directors (31 December 2020: five). The
Chairman is entitled to annual remuneration of £132,000 (31 December 2020:
£132,000). The Chairman of the Audit Committee is entitled to annual
remuneration of £82,500 (31 December 2020: £82,500) and the Chairman of the
Management Engagement Committee is entitled to annual remuneration of £71,500
(31 December 2020: £71,500). The other independent Directors are entitled to
annual remuneration of £66,000 (31 December 2020: £66,000).
Directors' fees and expenses for the year ended 31 December 2021 amounted to
$647,815 (31 December 2020: $684,182), which resulted in a reduction to the 31
December 2021 quarter-end Management Fee as further discussed below. $nil of
Directors' expenses were outstanding at year-end (31 December 2020: $nil).
Messrs Barker and Hayden have direct or indirect economic interests in Other
Riverstone Funds as investors.
Partnership
In accordance with section 4.1(a) of the Partnership Agreement, the Company
received distributions in aggregate of $55.8 million (31 December 2020: $73.3
million) from the Partnership through the year to 31 December 2021. In
accordance with section 4.1(a) of the Partnership Agreement, in the event of
the Company requiring additional funds for working capital, it is entitled to
receive another distribution from the Partnership.
Investment Manager
The Investment Manager, an affiliate of Riverstone, provides advice to the
Company and the Partnership on the origination and completion of new
investments, on the management of the portfolio and on realisations, as well
as on funding requirements, subject to Board approval. For the provision of
services under the Investment Management Agreement, the Investment Manager is
paid in cash out of the assets of the Partnership an annual Management Fee
equal to 1.5 per cent. per annum of the Company's Net Asset Value (including
cash). The fee is payable quarterly in arrears and each payment is calculated
using the quarterly Net Asset Value as at the relevant quarter end.
The Investment Manager has agreed to deduct from its annual Management Fee all
fees, travel costs and related expenses of the Directors exceeding the
following annual limits:
Portion of NAV Limit (as a percentage of the then last published NAV)
Up to and including £500 million 0.084 per cent.
From £500 million to and including £600 million 0.084 per cent. at £500 million and thereafter adjusted downwards
proportionately to NAV to 0.07 per cent. at £600 million
From £600 million to and including £700 million 0.07 per cent. at £600 million and thereafter adjusted downwards
proportionately to NAV to 0.06 per cent. at £700 million
Above £700 million 0.06 per cent.
The above limits are subject to adjustment by agreement between the Investment
Manager and the Company acting by its independent Directors. Based on the last
published NAV as of 31 December 2021, the maximum amount of annual fees,
travel and related expenses of the Directors is $553,425 (31 December 2020:
$401,721). During the year ended 31 December 2021, fees and expenses of the
Directors amounted to $647,815 (31 December 2020: $684,182), resulting in a
reduction of $94,390 to the 31 December 2021 quarter-end Management Fee (31
December 2020: reduction of $282,461 of the quarter-end Management Fee).
During the year ended 31 December 2021, the Partnership incurred Management
Fees of $8,874,492 (31 December 2020: $5,593,907) of which $2,463,262 remained
outstanding as at the year-end (31 December 2020: $1,181,324). In addition,
the Company and Partnership, in aggregate, reimbursed the Investment Manager
$1,555,093 in respect of amounts paid on their behalf for the year (31
December 2020: $1,244,542), of which $1,273,507 related to legal and
professional fees of the Company and Partnership, and $27,834 related to
travel and other operating expenses of the Investment Manager (31 December
2020: $32,951), and a debit balance with the Investment Manager of $253,752
related to expenses incurred by portfolio companies.
The circumstances in which the Company and the Investment Manager may
terminate the Investment Management Agreement are as follows:
Event Notice period Consequences of termination
By the Company if the Investment Manager is in material breach which has not 12 months The General Partner is entitled to receive a payment equal to four times the
been rectified quarterly Management Fee payable to the Investment Manager on the basis of the
Company's most recent Net Asset Value and an amount equal to the Performance
Allocation due on the Company's investments on the basis, at the Company's
option, of the latest quarterly valuation or the actual realisation value for
each investment.
By the Investment Manager if the Company is in material breach which has not 12 months The General Partner is entitled to receive a payment equal to twenty times the
been rectified quarterly Management Fee payable to the Investment Manager on the basis of the
Company's most recent Net Asset Value and an amount equal to the Performance
Allocation due on the Company's investments on the basis, at the General
Partner's option, of the latest quarterly valuation or the actual realisation
value for each investment.
By the Company if the Investment Manager becomes insolvent or resolves to wind Immediate No payment to be made to the Investment Manager or the General Partner.
up or if the Investment Manager commits an act of fraud or wilful default in
relation to the Company which results in material harm to the Company
The Investment Management Agreement cannot be terminated by either the Company
or the Investment Manager without cause.
Following the seventh anniversary of the Company's London listing on 29
October 2020, a discontinuation resolution was proposed and not passed,
therefore the Investment Manager Agreement will continue in perpetuity subject
to the termination for cause provisions described above. However, either the
Board or Shareholders holding in aggregate 10 per cent. of the Company's
voting securities can call an EGM at any time to vote on the liquidation of
the Company (75 per cent. of the votes cast in favour required) or run-off of
its portfolio (50 per cent. of the votes cast in favour required). As
announced on 30 October 2020, the Company's independent directors agreed to
closely monitor the Investment Manager's success in repositioning the
Company's existing investment policy through the modified investment strategy
over the next twenty four months following the previous quarter ended 30
September 2020. In the absence of a significant improvement in the
performance of the Company, taking into account the trading price of the
Ordinary Shares and portfolio performance over that period through 30
September 2022, the independent directors would release an announcement in
November 2022 regarding an EGM to seek Shareholder approval before 31
December 2022 to amend the Company's investment policy to provide for the
managed wind-down of the Company. Under both these scenarios, the General
Partner would still be entitled to twenty times the most recent quarterly
Management Fee payable to the Investment Manager.
General Partner
The General Partner makes all management decisions, other than investment
management decisions, in relation to the Partnership and controls all other
actions by the Partnership and is entitled to receive a Performance
Allocation, calculated and payable at the underlying investment holding
subsidiary level, equal to 20 per cent. of the gross realised profits (if any)
in respect of a disposal, in whole or in part, of any underlying asset of the
Company.
The General Partner is entitled to receive its Performance Allocation in cash,
all of which, after tax, Riverstone, through its affiliate RELCP, reinvests in
Ordinary Shares of the Company on the terms summarised in Part I and Part VIII
of the IPO Prospectus.
During the year ended 31 December 2021, the Partnership paid Performance
Allocation of $nil (31 December 2020: $91,340) of which $nil remained
outstanding as at the year end (31 December 2020: $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 2021, the portfolio
level cost benchmark was in deficit of $208 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 2021, the Ridgebury H3, Onyx, Enviva, GoodLeap, FreeWire,
DCRN/Tritium, DCRC/Solid Power and Samsung Ventures investments exceeded the
hurdle rate and the total portfolio's Gross IRR was approximately -4 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.
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 and COVID-19. The Company makes the
investment in order to generate returns in accordance with its investment
policy and objectives.
The most important types of financial risks to which the Company is exposed
are market risk (including price, interest rate and foreign currency risk),
liquidity risk and credit risk. The Board of Directors has overall
responsibility for the determination of the Company's risk management and sets
policy to manage that risk at an acceptable level to achieve those objectives.
The policy and process for measuring and mitigating each of the main risks are
described below.
The Investment Manager and the Administrator provide advice to the Company
which allows it to monitor and manage financial risks relating to its
operations through internal risk reports which analyse exposures by degree and
magnitude of risks. The Investment Manager and the Administrator report to the
Board on a quarterly basis.
Categories of financial instruments
31 December 31 December
2021 2020
$'000 $'000
Financial assets
Investment at fair value through profit or loss:
Investment in the Partnership 674,439 383,589
Other financial assets:
Cash and cash equivalents 7,296 8,807
Trade and other receivables 970 1,137
Financial liabilities
Financial liabilities:
Trade and other payables (664) (3,190)
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
8,000,867 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 $577,963,016 (31 December 2020: $288,237,082). Please
refer to Note 5 for quantitative information about the fair value measurements
of the Partnership's Level 3 investments.
The Partnership is exposed to a variety of risks which may have an impact on
the carrying value of the Company's investment in the Partnership. The
Partnership's risk factors are set out in (a)(i) to (a)(iii) below.
(i) Not actively traded
The Partnership's investments are not generally traded in an active market but
are indirectly exposed to market price risk arising from uncertainties about
future values of the investments held. The underlying investments of the
Partnership vary as to industry sub-sector, geographic distribution of
operations and size, all of which may impact the susceptibility of their
valuation to uncertainty.
Although the investments are in the same industry, this risk is managed
through careful selection of investments within the specified limits of the
investment policy. The investments are monitored on a regular basis by the
Investment Manager.
(ii) Concentration
The Company, through the Partnership, invests in the global energy sector,
with a particular focus on businesses that engage in oil and gas exploration
and production and midstream investments in that sector. This means that the
Company is exposed to the concentration risk of only making investments in the
global energy sector, which concentration risk may further relate to
sub-sector, geography, and the relative size of an investment or other
factors. Whilst the Company is subject to the investment and diversification
restrictions in its investment policy, within those limits, material
concentrations of investments have arisen.
The Board and the Investment Manager monitor the concentration of the
investment in the Partnership on a quarterly basis to ensure compliance with
the investment policy.
(iii) Liquidity
The Company's underlying investments through the Partnership are dynamic in
nature. The Partnership will maintain flexibility in funding by keeping
sufficient liquidity in cash and cash equivalents which may be invested on a
temporary basis in line with the cash management policy as agreed by the Board
from time to time.
As at 31 December 2021, $98.5((1)) million or 14.6 per cent. (31 December
2020: $90.3((1)) million or 23.6 per cent.) of the Partnership's financial
assets, including those held by its wholly-owned subsidiaries, REL US Corp and
REL US Centennial Holdings, LLC, were cash balances held on deposit with
several, A or higher rated, banks.
((1)) These figures are comprised of $4.1 million (2020: $90.3 million) held
at the Partnership and $94.4 (2020: $nil) held at REL US Corp.
(b) Foreign currency risk
The Company has exposure to foreign currency risk due to the payment of some
expenses in Pounds Sterling. Consequently, the Company is exposed to risks
that the exchange rate of its currency relative to other foreign currencies
may change in a manner that has an adverse effect on the value of that portion
of the Company's assets or liabilities denominated in currencies other than
the U.S. Dollar.
The Directors do not consider that the foreign currency exchange risk at the
balance sheet date is material and therefore sensitivity analysis for the
foreign currency risk has not been provided.
The following tables set out, in U.S. Dollars, the Company's total exposure to
foreign currency risk and the net exposure to foreign currencies of the
monetary assets and liabilities:
As at 31 December 2021 $ £ Total
$'000 $'000 $'000
Assets
Non-current assets
Investment in the Partnership((1)) 674,439 - 674,439
Total non-current assets 674,439 - 674,439
Current assets
Trade and other receivables 938 32 970
Cash and cash equivalents 1,524 5,772 7,296
Total current assets 2,462 5,804 8,266
Current liabilities
Trade and other payables 117 547 664
Total current liabilities 117 547 664
Total net assets 676,784 5,257 682,041
As at 31 December 2020 $ £ Total
$'000 $'000 $'000
Assets
Non-current assets
Investment in the Partnership((1)) 383,589 - 383,589
Total non-current assets 383,589 - 383,589
Current assets
Trade and other receivables 1,136 1 1,137
Cash and cash equivalents 4,983 3,824 8,807
Total current assets 6,119 3,825 9,944
Current liabilities
Trade and other payables 150 3,040 3,190
Total current liabilities 150 3,040 3,190
Total net assets 389,558 785 390,343
((1)) Includes the fair value of two investments held through the Partnership,
Hammerhead and CNOR, denominated in CAD and therefore subject to foreign
currency risk. These two investments had an aggregate fair value of $128.9
million as at 31 December 2021 (31 December 2020: $67.5 million).
(c) Interest Rate Risk
The Company's exposure to interest rate risk relates to the Company's cash and
cash equivalents held through the Partnership. The Company is subject to risk
due to fluctuations in the prevailing levels of market interest rates. Any
excess cash and cash equivalents are invested at short-term market interest
rates. As at the date of the Statement of Financial Position, the majority of
the Company's cash and cash equivalents were held on interest bearing fixed
deposit accounts at the Partnership. Any exposure to interest rate risk at the
underlying investment level is captured within price risk.
The Company has no other interest-bearing assets or liabilities as at the
reporting date. As a consequence, the Company is only exposed to minimal
variable market interest rate risk. Management does not expect any residual
interest rate risk to be material, and therefore sensitivity analysis has not
been provided.
31 December 31 December
2021 2020
$'000 $'000
Non-interest bearing
Cash and cash equivalents 7,296 8,807
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 £40 million ($55.8 million) from the
Partnership (2020: $73.3 million) to fund the 2021 share buyback programme
announced on 11 May 2021. As in prior years, in accordance with the
Partnership Agreement, if the Company requires additional funds for working
capital, it is entitled to receive further distributions from the Partnership.
In order to do so, the Company would submit a distribution request approved by
the Board to the Partnership, which would then be required to arrange for the
payment of the requested amount. Since REL's inception, the Company has
requested and received seven distributions from the Partnership for working
capital needs. As at 31 December 2021, REL, through the Partnership, had
available liquid resources of $98.5 million in excess of potential unfunded
commitments of $49.1 million, but currently, as of the date of this report,
REL, through the Partnership, has total potential unfunded commitments of up
to $69.6 million. This amount does not exceed its available liquid resources
of $88.5 million as of the date of this report, which includes $42.1 million
of proceeds from the sale of Pipestone Energy ($41.7 million) and GoodLeap
dividends received in 2022 ($0.4 million). However, based on the Investment
Manager's cash flow forecast for the next three years, the expectation is
that, if needed, the Partnership will only fund the remaining commitments to
Anuvia, Enviva, Onyx and the first closing of an electric motor company's
latest financing round, which aggregate up to $33.7 million as of the date of
this report. In order to enable the Partnership to satisfy an additional
distribution request from the Company, as a reactionary measure, the
Partnership's investments in the publicly-traded shares of portfolio companies
could always be sold, or used as collateral to secure asset-backed financing,
to fund the Partnership's shortfall of liquid resources and potential proceeds
from investment realisations versus potential unfunded commitments. The
Partnership holds marketable securities consisting of publicly-traded shares
of Centennial, Enviva, Pipestone, Solid Power, Hyzon Motors and Talos, for
which the aggregate fair value was $195 million at 31 December 2021 and $180
million as of 22 February 2022, exclusive of the sale of Pipestone for
proceeds of $41.7 million.
The Company's financial assets (excluding equity investments) and liabilities
have an expected maturity of less than 12 months from 31 December 2021 (2020:
less than 12 months from 31 December 2020). 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
2023.
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
2021 2020
Counterparty Location Rating $'000 $'000
Barclays Bank Plc Guernsey A 7,296 8,807
((1)) The Partnership hold its cash and cash equivalents at Barclays Bank Plc
(Rating: A), Citibank (Rating: A) and JPMorgan Bank Luxembourg S.A. (Rating
A+).
The Company's maximum exposure to loss of capital from credit risk at the
year-end is shown below:
31 December 2021 Carrying Value and Maximum exposure
$'000
Other financial assets (including cash and cash equivalents but excluding 7,296
prepayments)
31 December 2020 Carrying Value and Maximum exposure
$'000
Other financial assets (including cash and cash equivalents but excluding 8,807
prepayments)
Gearing
As at the date of these Financial Statements the Company itself has no
gearing. The Company may have indirect gearing through the operations of the
underlying investee companies.
11. Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board of
Directors, as a whole. The key measure of performance used by the Board to
assess the Company's performance and to allocate resources is the Total Return
of the Company's Net Asset Value and therefore no reconciliation is required
between the measure of profit or loss used by the Board and that contained in
the Financial Statements.
For management purposes, the Company is organised into one main operating
segment, which invests in one limited partnership.
All of the Company's income is derived from within Guernsey and the Cayman
Islands.
All of the Company's non-current assets are located in the Cayman Islands.
Due to the Company's nature, it has no customers.
12. Earnings/(Loss) per Share and Net Asset Value per Share
Earnings/(Loss) per Share
31 December 2021 31 December 2020
Basic / Diluted Basic / Diluted
Profit/(loss) for the year ($'000) 341,944 (318,890)
Weighted average numbers of Shares in issue 60,873,614 72,106,969
EPS (cents) 561.73 (442.25)
The Earnings per Share is based on the profit or loss of the Company for the
year and on the weighted average number of Shares the Company had in issue for
the year ended 31 December 2021.
The weighted average number of Shares during the year is 60,873,614.
There are no dilutive Shares in issue as at 31 December 2021.
Net Asset Value per Share
31 December 2021 31 December 2020
Basic / Diluted Basic / Diluted
NAV ($'000) 682,041 390,343
Number of Shares in issue 54,937,599 62,938,466
Net Asset Value per Share ($) 12.41 6.20
Net Asset Value per Share (£) 9.19 4.55
Discount to NAV (per cent.) 49.40 34.68
The Net Asset Value per Share is arrived at by dividing the net assets as at
the date of the Statement of Financial Position by the number of Ordinary
Shares in issue at that date. The Discount to NAV is arrived at by calculating
the percentage discount of the Company's Net Asset Value per Share to the
Company's closing Share price as at the date of the Statement of Financial
Position.
13. Auditor's Remuneration
Other operating expenses include all fees payable to the auditor, which can be
analysed as follows:
2021 2020
$'000 $'000
Ernst & Young LLP Audit fees 603 538
2021 2020
$'000 $'000
Ernst & Young LLP (United Kingdom) Interim Review fees 190 157
Ernst & Young Business Services S.à r.l Non-Assurance services - 2
Ernst & Young Non-Audit fees 190 159
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
2021, as well as the Shareholders' financial highlights required under US
GAAP.
Assessment as an Investment Entity
As stated in Note 3, REL meets the definition of an investment entity under
IFRS 10. Per US GAAP (Financial Services - Investment Companies (Topic 946):
Amendments to the Scope, Measurement, and Disclosure Requirements or "ASC
946"), REL meets the definition of an investment company, and as required by
ASC 946, REL measures its investment in the Partnership at FVTPL, which in
turn measures its investment in the underlying investments at FVTPL.
REL's Investment in the Partnership
As stated in Note 3, although the Company is the sole limited partner, it does
not control the Partnership (as that is attributable to the General Partner),
but instead has significant influence. Therefore, REL accounts for the
Partnership as an investment in associate in accordance with IAS 28 -
Investment in Associates and Joint Ventures, and, since REL meets the
definition of an investment company in accordance with IFRS 10, it measures
its investment in the Partnership at FVTPL. Taking into consideration all
applicable US GAAP requirements (ASC 946 and ASC 323), REL is permitted to not
consolidate its investment in the Partnership and account for it at FVTPL as
required by ASC 946 and ASC 323, which is similar to the IFRS 10 requirements.
Fair Value Measurements
The fair value of the underlying investments held by the Partnership are
determined based on valuation techniques and inputs that are observable and
unobservable in the market which market participants have access to and will
use to determine the exit price or selling price of the investments. The
change in valuation of REL's investments held by the Partnership is then
reflected in the fair value of REL's investment in the Partnership.
Shareholders' Financial Highlights
Year Ended Year Ended
31 December 31 December
2021 2020
Expense ratio(1) 2.7% 2.3%
Performance Allocation ratio(1) 0.0% 0.0%
Total Expense and Performance Allocation ratio 2.7% 2.3%
Net investment loss ratio(2) (2.8)% (1.8)%
Internal rate of return(3), beginning of year (13.0)% (7.4)%
Internal rate of return(3), end of year (5.4)% (13.0)%
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 2021 and 2020, the Performance Allocation realised by the
General Partner of the Partnership was $nil and $0.1 million, 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
2021. 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 Updates
Subsequent to year-end, REL, through the Partnership, funded four new
investments in keeping with its modified investment programme, as well as
realised its investment in Pipestone (see details below). Additionally, on 8
February 2022, the Company announced that the Board and Investment Manager
agreed to allocate an additional £46.0 million to the share buyback
programme. As the Company currently has the authority to repurchase 1,799,944
shares pursuant to the authority granted at its 2021 annual general meeting,
the Board is convening an EGM on 4 March 2022 to seek shareholder approval to
renew the Company's authority to repurchase up to 14.99 per cent. of the
shares outstanding as at the date of the meeting.
Tritium
Tritium's merger vote with DCRN was held and closed on 12 January 2022,
resulting in Tritium becoming a publicly traded company. DCRN, a blank-check
company formed for the purpose of effecting a merger, capital stock exchange,
or asset acquisition, stock purchase, reorganisation or similar business
combination with a target whose principal effort is developing and advancing a
platform that decarbonises the most carbon-intensive sectors. Due to large
numbers of DCRN shareholder redemptions, an additional $15 million commitment
to Tritium was funded on 11 February 2022.
T-REX Group
On 19 January 2022, REL funded a $17.5 million preferred equity investment in
conjunction with the closing of T-REX's $40 million Series C funding round.
T-REX, 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. The company was founded to
address the absence of modern technology to power complex asset finance and
the emerging need for tools to accelerate investment into the energy
transition. T-REX's platform gives institutions the modernised tools and
validation they require to deploy capital, thereby facilitating increased
investment allocations into sustainable, decarbonisation-related assets.
Electric motor company
On 1 February 2022, REL funded $17.0 million of a $17.5 million commitment in
conjunction with the first closing of an electric motor company's latest
financing round. The electric motor company engineers and manufactures
innovative axial flux, permanent magnet electric motors for commercial,
industrial and mobility applications. The company's electric motors meet the
industry's highest efficiency standards (IE5) at less than half the size and
weight of comparable motors, and facilitate decarbonisation by consuming less
electricity and raw material than do existing models.
Pipestone
On 4 February 2022, REL sold its entire position in Pipestone Energy Corp.
for CAD 4.55 per share or CAD 53.0 million ($41.7 million) in net proceeds.
The 11.72 million block sale resulted in an aggregate Gross MOIC of 0.64x,
inclusive of previously realised proceeds, which is slightly higher than its
fourth-quarter 2021 mark of 0.58x.
Anuvia
On 18 February 2022, REL committed to invest up to $20 million in Anuvia Plant
Nutrients' $70 million Series D Round. Anuvia manufactures a premium organic
fertiliser that uses bio-waste as a manufacturing input, which sequesters
carbon and improves soil health. The company's products displace
emissions-intensive synthetic fertilisers, increase crop yields by 3-6 per
cent., and provide growers with a 3-4x return on the incremental investment.
Alternative performance measures ("APMs")
This Annual Report and Accounts contain APMs, which are financial measures not
defined in IFRS. These include certain financial and operational highlights
and key financials, as well as in the performance section of the Chairman's
Statement. The definition of each of these APMs is shown below.
The Company assesses its performance using a variety of measures that are not
specifically defined under IFRS and are therefore termed APMs. The APMs that
the Company uses may not be directly comparable with those used by other
companies. These APMs are used to present a clearer picture of how the Company
has performed over the year and are all financial measures of historical
performance.
The table below defines our APMs.
APM Definition Purpose Calculation and (where relevant) reconciliation to IFRS
NAV per Ordinary Share The Company's NAV divided 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 ($682 million
as at 31 December 2021 and $390 million as at 31 December 2020) divided by the
number of Ordinary Shares in issue as at the calculation date (54,937,599 as
at 31 December 2021 and 62,938,466 as at 31 December 2020).
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 ($12.41 for the year ended 31
December 2021 & $6.20 for the year ended 31 December 2020) as a percentage
of the opening NAV per Ordinary Share as shown in the Statement of Financial
Position (being $6.20 per ordinary share as at 31 December 2020 & $9.66 as
at 31 December 2019).
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 (49.4 per cent. as at 31
December 2021 and 34.7 per cent. as at 31 December 2020).
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 2021: $14,367,376 (31
December 2020: $10,917,596).
Average NAV of the Company for the year ended 31 December 2021: $603,786,244
(31 December 2020: $467,768,254).
Annual total costs' impact of return per year:
2.4 per cent. as of 31 December 2021 (2.3 per cent. as of 31 December 2020).
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 2021:
into the Company's assets, cash received from the Company's investment
portfolio and the net unrealised change in value. $288 million - Brought Forward
109 million - Capital Invested
436 million - Cash Proceeds
617 million - Change in Unrealised
Gain/(Loss)
$578 million - Carried Forward
For the year ended 31 December 2020:
$593 million - Brought Forward
59 million - Capital Invested
(53) million - Cash Proceeds
(311) million - Change in Unrealised
Gain/(Loss)
$288 million - Carried Forward
Expense Ratio The impact on return each year that total costs, excluding GP Performance A measure to show how costs, excluding GP Performance Allocation, affect the As shown in Note 14, the expense ratio is calculated using total expenses of
Allocation, have on the investment return. return from the Company. the Company and the Partnership allocated to the Shareholders divided by the
Shareholders' average capital balance for the year presented (2.7 per cent.
for the year ended 31 December 2021 & 2.3 per cent. for the year ended 31
December 2020).
Performance Allocation Ratio The impact on return each year that GP Performance Allocation has on the A measure to show how GP Performance Allocation affects the return from the As shown in Note 14, for the years ended 31 December 2021 and 2020, the
investment return. Company. Performance Allocation realised by the General Partner of the Partnership was
$nil and $0.1 million, respectively, and the Performance Allocation accrued by
the General Partner of the Partnership was approximately $nil and $nil,
respectively.
Net Investment Loss Ratio The impact on return each year that total costs, net of interest income, have A measure to show how total costs, net of interest income, affect the return As shown in Note 14, the net investment loss ratio is the Shareholders'
on the investment return. from the Company. investment income of the Company and Partnership reduced by total expenses of
the Company and the Partnership divided by the Shareholders' average capital
balance for the year presented. However, net investment loss does not include
any realised or unrealised gains/losses generated from the sale or
recapitalisation of an investment of the Partnership. Thus, net investment
loss includes dividend and interest income of the Company and the Partnership
less the total expenses of the Company and the Partnership incurred during the
year presented. (2.8 per cent. for the year ended 31 December 2021 & 1.8
per cent. for the year ended 31 December 2020).
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
2021. The IRR of the Shareholders is net of all fees and Performance
Allocation to the General Partner of the Partnership.
(5.4) per cent. as of 31 December 2021
(13.0) per cent. as of 31 December 2020
(7.4) per cent. as of 31 December 2019
Net Contributed Capital to Total Capital Commitments The Shareholders' gross capital contributions in relation to total capital A measure to show the remaining unfunded portion of the Shareholders' total As shown in Note 14, net contributed capital is based on the Shareholders'
commitments. capital commitments. gross capital contributions. (100 per cent. as of 31 December 2021 and 2020).
Glossary of Capitalised Defined Terms
"1P reserve" means proven reserves;
"2P reserve" means proven and probable reserves;
"Administrator" means Ocorian Administration (Guernsey) Limited (formerly
Estera International Fund Managers (Guernsey) Limited);
"Admission" means admission, on 29 October 2013, to the Official List and/or
admission to trading on the London Stock Exchange, as the context may require,
of the Ordinary Shares becoming effective in accordance with the Listing Rules
and/or the LSE Admission Standards as the context may require;
"AEOI Rules" means Automatic Exchange of Information;
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Code of Corporate Governance;
"AIF" means Alternative Investment Funds;
"AIFM" means AIF Manager;
"AIFMD" means EU Alternative Investment Fund Managers Directive (No.
2011/61EU);
"Aleph Midstream" means Aleph Midstream S.A;
"Annual General Meeting" or "AGM" means the general meeting of the Company;
"Annual Report and Financial Statements" means the annual publication of the
Company provided to the Shareholders to describe their operations and
financial conditions, together with their Financial Statements;
"Anuvia" means Anuvia Plant Nutrients;
"Articles of Incorporation" or "Articles" means the articles of incorporation
of the Company, as amended from time to time;
"Audit Committee" means a formal committee of the Board with defined terms of
reference;
"bbl" means barrel of crude oil;
"Board" or "Directors" means the directors of the Company;
"boepd" means barrels of equivalent oil per day;
"bopd" means barrels of oil per day;
"bw/d" means barrels of water per day;
"CAD" or "C$" means Canadian dollar;
"CanEra III" means CanEra Inc.;
"CAR" means Capital Adequacy Ratio;
"Carrier II" means Carrier Energy Partners II LLC;
"Castex 2005" means Castex Energy 2005 LLC;
"Castex 2014" means Castex Energy 2014 LLC;
"Centennial" means Centennial Resource Development, Inc.;
"CNOR" means Canadian Non-Operated Resources LP;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as amended);
"Company" or "REL" means Riverstone Energy Limited;
"Company Secretary" means Ocorian Administration (Guernsey) Limited (formerly
Estera International Fund Managers (Guernsey) Limited);
"Cornerstone Investors" means those investors who have acquired Ordinary
Shares and acquired a minority economic interest in the General Partner and in
the Investment Manager, being AKRC Investments LLC, Casita, L.P., KFI and
McNair;
"Corporate Brokers" means JP Morgan Cazenove and Numis Securities Limited;
"C Corporations" means a C Corporation, under U.S. federal income tax law,
being a corporation that is taxed separately from its owners;
"CRAR" means Capital to Risk (Weighted) Assets Ratio;
"CRS" means Common Reporting Standard;
"DCRB" means Decarbonization Plus Acquisition Corporation;
"DCRC" means Decarbonization Plus Acquisition Corporation III;
"DCRD" means Decarbonization Plus Acquisition Corporation IV;
"DCRN" means Decarbonization Plus Acquisition Corporation II;
"DEA" means Deutsche Erdoel AG, an international independent exploration and
production company headquartered in Germany;
"Depositary" means Ocorian Depositary Company (UK) Limited (formerly Estera
Depositary Company (UK) Limited);
"Disclosure Guidance and Transparency Rules" or "DTRs" mean the disclosure
guidance published by the FCA and the transparency rules made by the FCA under
section 73A of FSMA;
"Discontinuation Resolution" means a special resolution that was proposed and
not passed by the Company's Shareholders to discontinue the Company within six
weeks of the seventh anniversary of the Company's first Admission if the
trading price has not met the Target Price, and the Invested Capital Target
Return has not been met;
"Discount to NAV" means the situation where the Ordinary shares of the Company
are trading at a price lower than the Company's Net Asset Value;
"E&P" means exploration and production;
"Eagle II" means Eagle Energy Exploration, LLC;
"Earnings per Share" or "EPS" means the Earnings per Ordinary Share and is
expressed in U.S. dollars;
"EBITDA" means earnings before interest, taxes, depreciation and amortisation;
"ECI" means effectively connected income, which refers to all income from
sources within the United States connected with the conduct of a trade or
business;
"ECL" means expected credit loss;
"EEA" means European Economic Area;
"EGM" means an Extraordinary General Meeting of the Company;
"EIA" means the U.S. Energy Information Administration;
"Enviva" means Enviva Holdings, LP;
"EU" means the European Union;
"EV" means enterprise value;
"FATCA" means Foreign Account Tax Compliance Act;
"FCA" means the UK Financial Conduct Authority (or its successor bodies);
"Fieldwood" means Fieldwood Energy LLC;
"Financial Statements" means the audited financial statements of the Company,
including the Statement of Financial Position, the Statement of Comprehensive
Income, the Statement of Cash Flows, the Statement of Changes in Equity and
associated notes;
"FRC" means Financial Reporting Council;
"FreeWire" means FreeWire Technologies, Inc.;
"Fund V" means Riverstone Global Energy & Power Fund V, L.P.;
"Fund VI" means Riverstone Global Energy & Power Fund VI, L.P.;
"FVTPL" means Fair Value through the profit or loss;
"General Partner" means REL IP General Partner LP (acting through its general
partner, REL IP General Partner Limited), the general partner of the
Partnership and a member of the Riverstone group;
"GFSC" or "Commission" means the Guernsey Financial Services Commission;
"GFSC Code" means the GFSC Finance Sector Code of Corporate Governance;
"GHG" means greenhouse gases;
"GoodLeap" means GoodLeap, LLC;
"GoM" means the Gulf of Mexico;
"Gross IRR" means an aggregate, annual, compound, gross internal rate of
return on investments. Gross IRR does not reflect expenses to be borne by the
relevant investment vehicle or its investors including, without limitation,
carried interest, management fees, taxes and organisational, partnership or
transaction expenses;
"Gross MOIC" means gross multiple of invested capital;
"Hammerhead" means Hammerhead Resources Inc.;
"Hunt" means Hunt REL Holdings LLC together with various members of Ray L.
Hunt's family and their related entities;
"Hyzon" means Hyzon Motors, Inc.;
"IAS" means international accounting standards as issued by the Board of the
International Accounting Standards Committee;
"IEA" means International Energy Agency;
"IFRS" means the International Financial Reporting Standards as adopted by the
European Union, being the principles-based accounting standards,
interpretations and the framework by that name issued by the International
Accounting Standards Board;
"ILX III" means ILX Holdings III LLC;
"IMO" means the International Maritime Organization (IMO), an agency of the
United Nations which has been formed to promote maritime safety;
"Interim Financial Report" means the Company's half yearly report and
unaudited interim condensed financial statements for the period ended 30 June;
"Investment Manager" means RIL (effective through 17 August 2020) and RIGL
(effective after 17 August 2020) which are both majority-owned and controlled
by Riverstone;
"Investment Management Agreement" or "IMA" means the investment management
agreement dated 24 September 2013 between RIL, the Company and the Partnership
(acting through its General Partner) under which RIL is appointed as the
Investment Manager of both the Company and the Partnership (effective 17
August 2020), the2(nd) Amended & Restated investment management agreement
effective after 17 August 2020 between RIGL, the Company and the Partnership
(acting through its General Partner) under which RIGL is appointed as the
Investment Manager of both the Company and the Partnership and the 3(rd)
Amended & Restatement investment management agreement effective 9 December
2020 between RIGL, the Company and the Partnership (acting through its General
Partner);
"Invested Capital Target Return" means, as defined in the Articles, the Gross
IRR of 8 per cent. on the portion of the proceeds of the Issue (as such term
is defined in the Company's Prospectus) that have been invested or committed
to an investment ("Invested Capital") in respect of the period from the dates
of investment or commitment of that Invested Capital (being the dates from
which a Management Fee has been paid in respect of that Invested Capital) to
the seventh anniversary of the first Admission, calculated by reference to the
prevailing U.S. dollar valuations (as of the seventh anniversary of the first
Admission (or earlier disposal)) of the investment acquired with that Invested
Capital and sales proceeds of investments that have been disposed of prior to
such seventh anniversary and taking account of any distributions made on those
investments prior to the seventh anniversary of the first Admission;
"Investment Undertaking" means the Partnership, any intermediate holding or
investing entities that the Company or the Partnership may establish from time
to time for the purposes of efficient portfolio management and to assist with
tax planning generally and any subsidiary undertaking of the Company or the
Partnership from time to time;
"IPEV Valuation Guidelines" means the International Private Equity and Venture
Capital Valuation Guidelines;
"IPO" means the initial public offering of shares by a private company to the
public;
"IRS" means the Internal Revenue Service, the revenue service of the U.S.
federal government;
"ISA" means International Standards on Auditing (UK);
"ISAE 3402" means International Standard on Assurance Engagements 3402,
"Assurance Reports on Controls at a Service Organisation";
"ISIN" means an International Securities Identification Number;
"KFI" means Moore Capital Management, formerly known as Kendall Family
Investments, LLC, a cornerstone investor in the Company;
"Liberty II" means Liberty Resources II LLC;
"Listing Rules" means the listing rules made by the UK Listing Authority under
section 73A Financial Services and Markets Act 2000;
"Loanpal" means Loanpal, LLC;
"London Stock Exchange" or "LSE" means London Stock Exchange plc;
"LSE Admission Standards" means the rules issued by the London Stock Exchange
in relation to the admission to trading of, and continuing requirements for,
securities admitted to the Official List;
"M&A" means mergers and acquisitions;
"Management Engagement Committee" means a formal committee of the Board with
defined terms of reference;
"Management Fee" means the management fee to which the Investment Manager is
entitled;
"mcfe" means thousand cubic feet equivalent (natural gas);
"McNair" means RCM Financial Services, L.P. for the purposes of acquiring
Ordinary Shares and Palmetto for the purposes of acquiring a minority economic
interest in the General Partner and the Investment Manager;
"Meritage III" means Meritage Midstream Services III, L.P.;
"mmboe" means million barrels of oil equivalent;
"mmcfepd" means million cubic feet equivalent (natural gas) per day;
"NASDAQ" means National Association of Securities Dealers Automated Quotations
Stock Market;
"NAV per Share" means the Net Asset Value per Ordinary Share;
"Net Asset Value" or "NAV" means the value of the assets of the Company less
its liabilities as calculated in accordance with the Company's valuation
policy and expressed in U.S. dollars;
"Net IRR" means an aggregate, annual, compound, gross internal rate of return
on investments, net of taxes and carried interest on gross profit;
"Net MOIC" means gross multiple of invested capital net of taxes and carried
interest on gross profit;
"Net Profits" means the proceeds received from each realised investment (after
the expenses related to its disposal) minus the acquisition price of that
realised investment;
"Nomination Committee" means a formal committee of the Board with defined
terms of reference;
"NURS" means non-UCITS retail schemes;
"NYSE" means The New York Stock Exchange;
"Official List" is the list maintained by the Financial Conduct Authority
(acting in its capacity as the UK Listing Authority) in accordance with
Section 74(1) of the Financial Services and Markets Act 2000;
"Onyx Power" means Onyx Strategic Investment Management I BV;
"OPEC" means Organisation of the Petroleum Exporting Countries;
"Ordinary Shares" means redeemable ordinary shares of no par value in the
capital of the Company issued and designated as "Ordinary Shares" and having
the rights, restrictions and entitlements set out in the Articles;
"Origo" means Origo Exploration Holding AS;
"Other Riverstone Funds" means other Riverstone-sponsored, controlled or
managed entities, including Fund V/VI, which are or may in the future be
managed or advised by the Investment Manager or one or more of its affiliates,
excluding the Partnership;
"Partnership" or "RELIP" means 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;
"PIPE" means private investment in public entity;
"Placing and Open Offer" means the issuance of 8,448,006 new Ordinary Shares
at £8.00 per Ordinary Share on 11 December 2015;
"POI Law" means the Protection of Investors (Bailiwick of Guernsey) Law, 2020;
"Private Riverstone Funds" means Fund V and all other private multi-investor,
multi-investment funds that are launched after Admission and are managed or
advised by the Investment Manager (or one or more of its affiliates) and
excludes Riverstone employee co-investment vehicles and any Riverstone managed
or advised private co-investment vehicles that invest alongside either Fund V
or any multi-investor multi-investment funds that the Investment Manager (or
one or more of its affiliates) launches after Admission;
"Prospectuses" means the prospectus published on 24 September 2013 by the
Company in connection with the IPO of Ordinary Shares and further prospectus
published on 23 November 2015;
"PRT" means Riverstone Performance Review Team;
"PSA" means a public service announcement;
"Qualifying Investments" means all investments in which Private Riverstone
Funds participate which are consistent with the Company's investment objective
where the aggregate equity investment in each such investment (including
equity committed for future investment) available to the relevant Private
Riverstone Fund and the Company (and other co-investees, if any, procured by
the Investment Manager or its affiliates) is $100 million or greater, but
excluding any investments made by Private Riverstone Funds where both (a) a
majority of the Company's independent directors and (b) the Investment Manager
have agreed that the Company should not participate;
"RCO" means Riverstone Credit Opportunities, L.P.;
"RELCP" means Riverstone Energy Limited Capital Partners, LP (acting by its
general partner Riverstone Holdings II (Cayman) Ltd.) a Cayman exempted
limited partnership controlled by affiliates of Riverstone;
"Ridgebury H3" means Ridgebury H3, LLC;
"RIGL" means RIGL Holdings, LP;
"RIL" means Riverstone International Limited;
"Riverstone" means Riverstone Holdings LLC and its affiliated entities (other
than the Investment Manager and the General Partner), as the context may
require;
"Rock Oil" means Rock Oil Holdings, LLC;
"S&P Index" means the Standard & Poor's 500 Index;
"S&P Oil & Gas E&P Index" means the Standard & Poor's Oil
& Gas Exploration & Production Select Industry Index;
"SCOOP" means South Central Oklahoma Oil Province;
"SEC" means the U.S. Securities and Exchange Commission;
"Sierra" means Sierra Oil and Gas Holdings, L.P.;
"SIFI" means Systemically Important Financial Institutions;
"Shareholder" means the holder of one or more Ordinary Shares;
"Solid Power" means Solid Power, Inc.;
"SPAC" means special purpose acquisition company;
"SPPI" means solely payments of principal and interest;
"Standing Committee" means a formal committee of the Board with defined terms
of reference;
"Stewardship Code" means the UK Stewardship Code;
"Target Price" means, as defined in the Articles, £15.00, subject to (a)
downward adjustment in respect of the amount of all dividends and other
distributions, stock splits and equity issuances below the prevailing NAV per
Ordinary Share made following the first Admission and (b) upward adjustment to
take account of any share consolidations made following the first Admission;
"Tender Offer" means up to £55,000,000 in value of Ordinary Shares made by
the Company in 2018;
"Three Rivers III" means Three Rivers Natural Resources Holdings III LLC;
"Total Return of the Company's Net Asset Value" means the capital appreciation
of the Company's Net Asset Value plus the income received from the Company in
the form of dividends;
"T-REX Group" means T-REX Group, Inc.;
"TRIF" means Total Recordable Incident Frequency;
"Tritium" means Tritium DCFC Limited;
"TSX" means Toronto Stock Exchange;
"UCITS" means undertakings for collective investment in transferable
securities;
"United States Bankruptcy Code" means the source of bankruptcy law in the
United States Code;
"United States Code" means the consolidation and codification by subject
matter of the general and permanent laws of the United States;
"UNPRI" means UN-supported Principles of Responsible Investment;
"UK" or "United Kingdom" means the United Kingdom of Great Britain and
Northern Ireland;
"UK Code" means The UK Corporate Governance Code 2018, issued by the FRC;
"UK Listing Authority" or "UKLA" means the Financial Conduct Authority;
"U.S." or "United States" means the United States of America, its territories
and possessions, any state of the United States and the District of Columbia;
"US GAAP" means the accounting principles generally accepted in the United
States;
"WTI" means West Texas Intermediate which is a grade of crude oil used as a
benchmark in oil pricing;
"£" or "Pounds Sterling" or "Sterling" means British pound sterling and
"pence" means British pence; and
"$" means United States dollars and "cents" means United States cents.
Directors and General Information
Directors Administrator and Company Secretary English solicitors to the Company
Richard Hayden (Chairman) Ocorian Administration (Guernsey) Limited Hogan Lovells International LLP
Atlantic House
Peter Barker PO Box 286
Holborn Viaduct
London
Patrick Firth Floor 2
EC1A 2FG
Jeremy Thompson Trafalgar Court
United Kingdom
Claire Whittet Les Banques
St Peter Port
Guernsey advocates to the Company
Audit Committee Guernsey
Carey Olsen
Patrick Firth (Chairman) GY1 4LY
Carey House
Peter Barker Channel Islands
PO Box 98
Richard Hayden
Les Banques
Jeremy Thompson Registered office
St Peter Port
Claire Whittet PO Box 286
Guernsey
Floor 2
GY1 4BZ
Management Engagement Committee Trafalgar Court
Channel Islands
Claire Whittet (Chair) Les Banques
Peter Barker St Peter Port
U.S. legal advisors to the Company
Patrick Firth Guernsey
Vinson & Elkins LLP
Richard Hayden GY1 4LY
1001 Fannin Street
Jeremy Thompson Channel Islands
Suite 2500
Houston, Texas
Nomination Committee Registrar
TX 77002
Richard Hayden (Chairman) Link Asset Services
United States of America
Peter Barker 65 Gresham Street
Patrick Firth London
Independent auditor
Jeremy Thompson EC2V 7NQ
Ernst & Young LLP
Claire Whittet United Kingdom
PO Box 9, Royal Chambers
St Julian's Avenue
Investment Manager Principal banker and custodian
St Peter Port
RIGL Holdings, LP Barclays Bank PLC
Guernsey
190 Elgin Avenue PO Box 41
Le Marchant House GY1 4AF
George Town
Le Truchot Channel Islands
Grand Cayman
St Peter Port
Guernsey
KY1-9005
GY1 3BE
Corporate Brokers
Cayman Islands Channel Islands
JP Morgan Cazenove
25 Bank Street
Investment Manager's Performance Review Team
Canary Wharf
Bartow Jones
London
Pierre Lapeyre
E15 5JP
David Leuschen
United Kingdom
Baran Tekkora
Numis Securities Limited
Website: www.RiverstoneREL.com
The London Stock Exchange Building
ISIN: GG00BBHXCL35
10 Paternoster Square
Ticker: RSE
London
EC4M 7LT
United Kingdom
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 2021 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 Chairman's Statement, the Investment Manager's Report and the Report of
the Directors have been prepared solely to provide additional information for
Shareholders to assess the Company's strategies and the potential for those
strategies to succeed. These should not be relied on by any other party or for
any other purpose.
The Chairman's Statement, the Investment Manager's Report and the Report of
the Directors may include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "anticipates", "expects", "intends", "may", "will" or
"should" or, in each case, their negative or other variations or comparable
terminology.
These forward-looking statements include all matters that are not historical
facts. They appear in a number of places throughout this document and include
statements regarding the intentions, beliefs or current expectations of the
Directors and the Investment Adviser, concerning, amongst other things, the
investment objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity, prospects,
and distribution policy of the Company and the markets in which it invests.
By their nature, forward-looking statements involve risks and uncertainties
because they relate to events and depend on circumstances that may or may not
occur in the future. Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of operations, financial
condition, liquidity, distribution policy and the development of its financing
strategies may differ materially from the impression created by the
forward-looking statements contained in this document.
Subject to their legal and regulatory obligations, the Directors and the
Investment Manager expressly disclaim any obligations to update or revise any
forward-looking statement contained herein to reflect any change in
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.
Riverstone Energy Limited
PO Box 286, Floor 2,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY, Channel
Islands.
T 44 (0) 1481 742742
F 44 (0) 1481 742698
Further information available online:
www.RiverstoneREL.com (http://www.RiverstoneREL.com)
1 Source: World Bank
2 Source: Bloomberg
3 Source: Bloomberg New Energy Finance
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