Final Results 30 June 2020 & Share Buyback Update

RNS Number : 5120W

Riverstone Energy Limited

19 August 2020

 

Riverstone Energy Limited

Final results for the half year ended 30 June 2020 & update on share buyback programme

London, UK (19 August 2020) - Riverstone Energy Limited ("REL" or the "Company") announces its Half Year Results for the 6-month period (the "Period") 1 January 2020 to 30 June 2020.

Summary Performance

30 June 2020

NAV	$379 million (£308 million)1
NAV per share	$5.48 / £4.451
Profit/(loss) for Period ended	$(355.18) million
Basic profit/(loss) per share for Period ended	(457.59) cents
Market capitalization	$319 million (£259 million)1
Share price	$4.62 / £3.751

Highlights

§ As of 30 June 2020, REL had a NAV per share of $5.48 (£4.45), representing a decrease in USD and GBP of 43 and 40 per cent., respectively, compared to the 31 December 2019 NAV.

§ Hammerhead, ILX III, and Liberty II were the largest drivers of REL's NAV decline over the Period.

§ During H1 2020, REL, through the Partnership, received $41 million in gross proceeds from the realisation of its investments in Aleph ($23 million) and Castex 2014 ($8 million), as well as distributions from Ridgebury ($9 million) and RCO ($1 million).

§ The Company, through the Partnership, invested a total of $21 million during the Period, bringing net capital invested as of 30 June 2020 to $987 million, or 86 per cent. of net capital available.2

§ REL finished the period with a cash balance of $164 million and remaining potential unfunded commitments of $100 million.

Share Buyback Programme

As previously announced on 1 July 2020, with today's publication of the Company's Interim Report and Unaudited Interim Condensed Financial Statements for the six months ended 30 June 2020, the Board will recommence its £50.0 million open market share buyback programme with Numis Securities Limited and J.P. Morgan Securities plc. Since the Company's announcement on 1 May 2020, 10,811,141 ordinary shares have been bought back at a total cost of approximately 30.5 million.

Portfolio Update

Below is a summary of material activity in the portfolio during the Period. 

Aleph Midstream S.A. ("Aleph")

REL, through the Partnership, received return of capital proceeds of $23 million from the unwinding of the commitment to Aleph.

Onyx Power ("Onyx")

REL, through the Partnership, invested $16 million in Onyx.

Ridgebury H3, LLC ("Ridgebury")

REL, through the Partnership, received proceeds of $8 million from the sale of the Nalini D vessel and income distributions of $1 million.

Castex Energy 2014 ("Castex 2014")

REL, through the Partnership, received proceeds of $8 million from the sale of Castex 2014 to Talos Energy.

ILX Holdings III, LLC ("ILX III")

REL, through the Partnership, invested $5 million in ILX III.

Riverstone Credit Opportunities, L.P. ("RCO")

REL, through the Partnership, received proceeds of $1 million from RCO.

Subsequent Events

§ In July 2020, REL, through the Partnership, funded $18 million of its $25 million commitment to Enviva in conjunction with the closing of the transaction on 22 July 2020. The company is the world's largest producer of sustainable wood pellets, which provide a low-carbon alternative to coal in power generation. REL's investment in Enviva supports its commitment to diversifying its portfolio away from commodity driven companies such as oil and gas operators.

§ At 31 July 2020, REL's uninvested cash balance at the Partnership had decreased to $135.5 million and potential unfunded commitments had increased to $103.3 million. The expected funding of the remaining unfunded commitments are $30 million in H2 2020, $17 million in 2021 and $1 million in 2022. The residual amounts are to be funded in 2023 and later years.

Manager Outlook

§ REL's $138 million cash balance at 31 July 2020 makes the Company well placed to fund the capital needs of the portfolio. The Company has remaining potential unfunded commitments of up to $103 million at 31 July 2020; however, the Board, in consultation with the Investment Manager, does not expect to fully fund all commitments in the normal course of business.

§ The second quarter of 2020 continued to present a challenging market environment for energy companies.  While spot prices recovered modestly, the coronavirus pandemic continued to pressure global demand. 

§ The Investment Manager is currently working hard with the management teams of REL's portfolio companies to plan for continued uncertainty with a high priority on defensive measures to maximise liquidity including reducing spending and capital expenditures.

§ REL continues to focus on creating value for shareholders, including through pivoting away from E&P investments and remaining focused on executing its modified investment strategy.

Richard Hayden, Chairman of Riverstone Energy Limited, commented:

"While commodity prices recovered moderately at the end of Q2 2020, the ongoing spread of coronavirus continues to create significant uncertainty and weigh on the market dynamics for energy.  In addition to portfolio company initiatives, REL has been working to unlock shareholder value through share buybacks, which were executed in May. The Board remains very focussed on working with the Investment Manager to weather through this difficult period and support value creation for shareholders."

  David M. Leuschen and Pierre F. Lapeyre Jr., Co-Founders of Riverstone, added:

"As the coronavirus pandemic continues to persist, we remain focused on actively working with each of our management teams to evaluate every operational and strategic alternative to navigate the current environment. We have prioritised strengthening balance sheets and liquidity, while also reducing capital expenditures and SG&A across the board. In addition, we continue to identify investments that can generate attractive returns with downside protective features. REL's recent investment in Enviva demonstrates this effort and also furthers our commitment to ESG and managing climate change risk."

- Ends -

Riverstone Energy Limited's 2020 Interim Report is available to view at: www.RiverstoneREL.com .

 

2Q20 Quarterly Portfolio Valuation

Previously, on 31 July 2020, REL announced its quarterly portfolio summary as of 30 June 2020, inclusive of updated quarterly unaudited fair market valuations:

Investment  (Initial Investment Date)		Target Basin	Gross Committed Capital  ($mm)	Invested Capital ($mm)	Gross Realised Capital ($mm)3	Gross Unrealised Value ($mm)	Gross Realised Capital & Unrealised Value ($mm)	31 Mar 2020 Gross MOIC4	30 Jun 2020 Gross MOIC4
Centennial  (6 Jul 2016)		Permian (U.S.)	$268	$268	$172	$13	$185	0.7x	0.7x
ILX III   (8 Oct 2015)		Deepwater GoM (U.S.)	200	160	5	107	112	0.7x	0.7x
Onyx  (30 Nov 2019)		Europe	66	47	-	47	47	1.0x	1.0x
Carrier II  (22 May 2015)		Permian & Eagle Ford (U.S.)	133	110	29	15	44	0.4x	0.4x
Hammerhead Resources  (27 Mar 2014)		Deep Basin (Canada)	307	295	23	3	26	0.1x	0.1x
Ridgebury (19 Feb 2019)		Global	22	18	10	13	23	1.2x	1.2x
CNOR   (29 Aug 2014)		Western Canada	90	90	16	4	20	0.2x	0.2x
Liberty II  (30 Jan 2014)		Bakken, PRB (U.S.)	142	142	-	14	14	0.2x	0.1x
Fieldwood  (17 Mar 2014)		GoM Shelf (U.S.)	89	88	8	-	8	0.2x	0.1x
Total Current Portfolio5			$1,317	$1,217	$262	$217	$479	0.4x	0.4x

Current Portfolio

Realisations

Investment  (Initial Investment Date)		Target Basin	Gross Committed Capital  ($mm)	Invested Capital ($mm)	Gross Realised Capital ($mm)3	Gross Unrealised Value ($mm)	Gross Realised Capital & Unrealised Value ($mm)	31 Mar 2020 Gross MOIC4	30 Jun 2020 Gross MOIC4
Rock Oil6  (12 Mar 2014)		Permian (U.S.)	114	114	231	2	233	2.0x	2.0x
Three Rivers III (7 Apr 2015)		Permian (U.S.)	94	94	204	-	204	2.2x	2.2x
Meritage III7     (17 Apr 2015)		Western Canada	40	40	83	-	83	2.1x	2.1x
RCO8  (24 Sept 2014)		North America	80	80	80	-	80	1.0x	1.0x
Sierra  (24 Sept 2014)		Mexico	18	18	39	-	39	2.1x	2.1x
Aleph  (24 Sept 2014)		Vaca Muerta (Argentina)	23	23	23	-	23	1.0x	1.0x
Castex 2014  (24 Sept 2014)		Gulf Coast Region (U.S.)	52	52	8	3	11	0.2x	0.2x
Total Realisations5			$422	$422	$669	$5	$674	1.6x	1.6x
Withdrawn Commitments and Impairments9			121	121	1	-	1	0.0x	0.0x
Total Investments5			$1,860	$1,760	$932	$222	$1,154	0.7x	0.7x
Cash and Cash Equivalents						$164
Total Investments & Cash and Cash Equivalents5						$386

H1 2020 Results

REL will release its Interim Report for the 6 month period from 1 January 2020 to 30 June 2020 on 19 August 2020.  The Interim Report will include the NAV of REL as well as updates on the portfolio.

 

Quarterly Performance Commentary

The macro environment for energy continued to be extremely volatile during the second quarter.  As coronavirus continued to spread rapidly and impact global economic activity, oil prices reached a historic low and traded at negative levels in April as traders began offloading expiring futures contracts as storage became an issue. Towards the end of the quarter, WTI prices modestly recovered to $39 per barrel as at 30 June 2020 as economies began to reopen slowly, though both spot and forward prices remain well below trading levels prior to the pandemic. With continued uncertainty persisting in the broader economy, many energy companies continue to operate at reduced levels of activity in order to minimize spending and focus on liquidity.  Further detail on REL's five largest positions, which account for approximately 90 per cent. of the portfolio's gross unrealised value, is set forth below:

ILX III

The Gross MOIC for ILX III remained flat during the second quarter at 0.7x. In the month of May, all of ILX III's producing discoveries were shut-in due to the depressed commodity price environment. As at 30 June 2020, the company has participated in nine commercial discoveries, of which three are currently producing oil and two remain temporarily shut-in, namely the Steelhead and Durango wells. ILX III remains committed to bringing one additional asset online in 2020, with three others expected to come online in 2021 and 2022. During the period, the company hedged an incremental ~642,000 barrels of oil bringing total hedges to ~1.8 million barrels of oil between July 2020 and May 2021, which represents 52 per cent. of oil production, at a weighted average price of $51 per barrel.

Onyx

The Gross MOIC for Onyx remained flat during the second quarter at 1.0x. During the second quarter, Engie agreed to expand the company's credit envelope to allow the hedging of calendar-year 2021 contracts. Furthermore, Onyx is in discussions with several parties to provide financing, or other related services, for power, coal, and carbon, thus replacing the services currently provided by Engie.

Since January 2020, the Rotterdam plant has been in an unplanned outage after damage to the boiler. The company's outage insurance claim was approved and the business interruption and repair costs will be fully covered, with the plant expecting to return to service in advance of the higher-margin winter period. European power markets are at historic lows due to power demand destruction and a gas glut as a result of the global COVID-19 pandemic. While the company faces these near-term market headwinds, the newly installed management team has been working on several key value creation opportunities related to regulatory developments, potential partnerships, and working capital optimisation.

Carrier II

The Gross MOIC for Carrier II remained flat at 0.4x during the second quarter. During the period, Carrier II began discussions with its lenders regarding the company's borrowing base redetermination. As a result of those discussions, the borrowing base was reduced, at which time the company elected to suspend further dividend payments and will utilize operating cash flow to pay down outstanding indebtedness under the company's reserve-based lending facility. As of 30 June 2020, Carrier II had hedged 88 per cent. of forecasted 2020 oil production at a weighted average price of $60 per barrel. Additionally, the company hedged 36 per cent. of forecasted 2020 gas production.

Liberty II

The Gross MOIC for Liberty II was reduced from 0.2x to 0.1x during the second quarter to reflect the lower commodity price environment and uncertainty around go-forward funding sources as the company has drawn its capital commitment in full. Liberty II is currently producing approximately 4,765 boepd and has curbed near-term development activities given the current commodity environment. The company is currently negotiating the restructuring of its existing RBL facility with the lenders in order to implement a longer-term solution. As of 30 June 2020, Liberty is hedged approximately 95 per cent. of forecasted 2020 and 2021 oil PDP production and 45 per cent. of forecasted 2022 oil PDP production at a weighted average price of approximately $55/bbl.

Centennial

The Gross MOIC for Centennial remained flat at 0.7x during the second quarter and reflects the company's share price as at market close on 30 June 2020. During the first quarter, Centennial's daily equivalent and oil production declined quarter-over-quarter by 10 per cent. and 8 per cent., respectively. As a result of the lower commodity price environment experienced during the quarter, the company elected to temporarily suspend its drilling program with the intention of resuming drilling activity once commodity prices have materially improved. The company's latest 2020 fiscal year guidance estimates oil equivalent production to decline by 17 per cent. in 2020. In an effort to bolster the company's balance sheet strength and liquidity, Centennial completed an 8 per cent. second lien senior secured up-tier exchange, extinguishing $127 million of debt from its capital structure. The company also increased its oil hedges to protect against additional downside risk. To-date, Centennial has hedged approximately 19,404 barrels of oil per day through 2020 at a weighted average price of $26.95 per barrel. 

Other Investments

In other developments during the quarter, to alleviate liquidity concerns in response to the oil price downturn during the period, Fieldwood has reduced headcount, cut expenses, and has shut-in a substantial amount of production. In addition, Fieldwood restructured its hedge book to be fully hedged through the end of June 2020 and has liquidated its remaining hedges for up-front cash proceeds. The company has negotiated extensively with its lenders to provide near-term covenant and interest relief while it seeks a more permanent solution to its capital structure challenges. Matt McCarroll has stepped down to pursue other opportunities and was replaced by an Executive Leadership Team comprised of Michael Dane (Chief Financial Officer), Thomas Lamme (General Counsel), and Gary Mitchell (Senior Vice President of Production). The Executive Leadership Team will oversee day-to-day operations and report to the board.

Furthermore, Hammerhead, in conjunction with a contribution of new equity from Riverstone, completed a restructuring of its reserve-based lending facility and senior unsecured notes to reduce the company's total debt burden and to provide the company with sufficient debt maturity runway and liquidity to resume development in the current commodity price environment. A modest capital program is currently planned for 2021. Hammerhead remains well hedged through the end of 2020 with approximately 90 per cent. of remaining forecasted 2020E oil production hedged at a weighted average price of CAD$78/bbl. REL did not participate in the further equity contribution.

Subsequent Events

In July 2020, REL, through the Partnership, funded $18 million of its $25 million commitment to Enviva in conjunction with the closing of the transaction on 22 July 2020, bringing the Partnership's uninvested funds down to $135.5 million and potential unfunded commitments up to $103.3 million. The company is the world's largest producer of sustainable wood pellets, which provide a low-carbon alternative to coal in power generation. REL's investment in Enviva supports its commitment to diversifying its portfolio away from commodity driven companies such as oil and gas operators.

Investment Manager Update

REL announces that, in compliance with the laws of the Cayman Islands, the Company and its existing investment manager, Riverstone International Limited ("RIL"), a Cayman Islands exempted company, have agreed that RIL will assign its investment advisory rights and obligations under the Company's investment management agreement (the "IMA") with immediate effect to RIL's immediate parent entity, RIGL Holdings, LP, a Cayman Islands exempted limited partnership ("RIGL"). RIGL is registered under the Cayman Islands Securities Investment Business Law which enables it to act as investment manager under the IMA. RIGL will assume all of RIL's existing rights and obligations under the IMA, which will not otherwise change.

Riverstone Investment Group LLC is registered as an investment adviser with the US Securities and Exchange Commission ("SEC") under the US Investment Advisers Act of 1940, as amended (the "Advisers Act"). RIGL is also registered with the SEC as a relying adviser of Riverstone Investment Group LLC. As such, RIGL is subject to Riverstone Investment Group LLC's supervision and control, the advisory activities of RIGL will be subject to the Advisers Act and the rules thereunder, and RIGL will be subject to the examination by the SEC.

About Riverstone Energy Limited:

REL is a closed-ended investment company that invests exclusively in the global energy industry across all sectors. REL aims to capitalise on the opportunities presented by Riverstone's energy investment platform.  REL's ordinary shares are listed on the London Stock Exchange, trading under the symbol RSE.  REL has 10 active investments spanning oil and gas, renewable energy, power and energy services in the Continental U.S., Western Canada, Gulf of Mexico and Europe.

For further details, see www.RiverstoneREL.com

Neither the contents of Riverstone Energy Limited's website nor the contents of any website accessible from hyperlinks on the websites (or any other website) is incorporated into, or forms part of, this announcement.

Media Contacts

For Riverstone Energy Limited:

Jingcai Zhu

Fraser Johnston-Donne

[phone]

Note: 

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 follows IFRS and IPEV Valuation Guidelines. The Investment Manager values each underlying investment in accordance with the Riverstone valuation policy, the IFRS accounting standards and IPEV Valuation Guidelines. The Investment Manager has applied Riverstone's valuation policy consistently quarter to quarter since inception. 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. There were no valuation adjustments recorded by REL as a result of differences in IFRS and U.S. Generally Accepted Accounting Policies for the period ended 30 June 2020 or in any period to date. 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 Board reviews and considers the valuations of the Company's investments held through the Partnership.

 

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1 GBP:USD FX rate of 1.231 as of 30 June 2020

²Net capital available of $1,151 million is based on total capital raised of $1,320 million, capital utilised for Tender Offer of $72 million, realised profits and other income net of fees,expenses and performance allocation. The Board, with consultation by the Investment Manager, does not expect to fully fund all commitments in the normal course of business. 

3Gross realised capital is total gross proceeds realised on invested capital. Of the $932 million of capital realised to date, $641 million is the return of the cost basis, and the remainder is profit.

4 Gross Unrealised Value and Gross MOIC (Gross Multiple of Invested Capital) are before transaction costs, taxes (approximately 21 to 27.5 per cent. of U.S. sourced taxable income) and 20 per cent. carried interest on applicable gross profits in accordance with the revised terms announced on 3 January 2020, but effective 30 June 2019. Since there was no netting of losses against gains before the aforementioned revised terms, the effective carried interest rate on the portfolio as a whole will be greater than 20 per cent. In addition, there is a management fee of 1.5 per cent. of net assets (including cash) per annum and other expenses. Given these costs, fees and expenses are in aggregate expected to be considerable, Total Net Value and Net MOIC will be materially less than Gross Unrealised Value and Gross MOIC.  Local taxes, primarily on U.S. assets, may apply at the jurisdictional level on profits arising in operating entity investments. Further withholding taxes may apply on distributions from such operating entity investments. In the normal course of business, REL may form wholly-owned subsidiaries, to be treated as C Corporations for 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.

5 Amounts may vary due to rounding.

6 The unrealised value of the Rock Oil investment consists of rights to mineral acres.

7 Midstream investment.

8 Credit investment.

9 Withdrawn commitments consist of Origo ($9 million) and CanEra III ($1 million), and impairments consist of Eagle II ($62 million) and Castex 2005 ($48 million).

 

END

 

 

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