TIDMRSE
RNS Number : 5432R
Riverstone Energy Limited
30 October 2019
Riverstone Energy Limited - Interim Management Statement
London, UK (30 October 2019) - Riverstone Energy Limited ("REL"
or the "Company") is issuing this Interim Management Statement
("IMS") for the period from 1 July 2019 to 30 September 2019 (the
"Period").
Highlights
-- Key Financials (unaudited)
o NAV as at 30 September 2019 $782 million (GBP636 million)(1)
o NAV per share as at 30 September $9.79 / GBP7.97(1)
2019
o Profit/(loss) during Period $(275.8) million
o Basic profit/(loss) per share $(345.21) cents
during Period
o Market capitalisation at 30 September $582 million (GBP474 million)(1)
2019
o Share price at 30 September 2019 $7.29 / GBP5.93(1)
-- Total invested capital during the Period of $23 million in Aleph Midstream S.A.
-- Total realisations during the Period of $23 million from
Canadian Non-Operated Resources LP ($16 million), Carrier Energy
Partners II, LLC ($3 million), ILX Holdings III, LLC ($3 million),
and Ridgebury H3, LLC ($1 million)
-- Total gross committed capital at 30 September 2019 is $1,498 million
-- Total net committed capital at 30 September 2019 is $1,158
million or 97 per cent. of net capital available(2)
-- Total net capital invested at 30 September 2019 is $979
million or 82 per cent. of net capital available(2)
Richard Hayden, Chairman of Riverstone Energy Limited,
commented:
"During the quarter, REL closed the Aleph Midstream transaction
and made its initial investment in the company. We are actively
focussed on further diversifying the portfolio with exposure across
the midstream, services, and power sectors, in light of the
challenging environment for E&P equity investments. Capital
needs for energy companies continue to grow, while financing
sources are limited in the current market. The Company's Management
Engagement Committee continues to hold discussions with the
Investment Manager regarding changes to the terms of the Investment
Management Agreement."
David M. Leuschen and Pierre F. Lapeyre Jr., Co-Founders of
Riverstone, added:
"As we cross the fifth anniversary of the start of the current
commodity price downturn, market conditions for E&P investments
continue to face severe headwinds. We are actively working to
execute both defensive and offensive measures across the portfolio
in order to increase cash flows, maintain ample liquidity and
position for further realisations."
Portfolio Update
Below is a summary of material activity in the portfolio during
the Period.
Aleph Midstream S.A. ("Aleph")
REL, through the Partnership, invested $23 million in Aleph.
Canadian Non-Operated Resources, LP ("CNOR")
REL, through the Partnership, received sale proceeds of $16
million from CNOR.
Carrier Energy Partners II, LLC ("Carrier II")
REL, through the Partnership, received income distributions of
$3 million from Carrier II.
ILX Holdings III, LLC ("ILX III")
REL, through the Partnership, received income distributions of
$3 million from ILX III.
Ridgebury H3, LLC ("Ridgebury")
REL, through the Partnership, received income distributions of
$1 million from Ridgebury.
3Q19 Quarterly Portfolio Valuation
Previously, on 24 October 2019, REL announced its quarterly
portfolio summary as of 30 September 2019, inclusive of updated
quarterly unaudited fair market valuations:
Current Portfolio
Gross
Realised
Capital
Gross Gross Gross & 30 Sep 30 Jun
Investment Committed Invested Realised Unrealised Unrealised 2019 2019
(Initial Investment Capital Capital Capital Value Value Gross Gross
Date) Target Basin ($mm) ($mm) ($mm)(3) ($mm) ($mm) MOIC(4) MOIC(4)
Centennial Permian
(6 Jul 2016) (U.S.) $268 $268 $172 $68 $240 0.9x 1.1x
ILX III (8 Deepwater
Oct 2015) GoM (U.S.) 200 155 5 181 186 1.2x 1.3x
Hammerhead
Resources Deep Basin
(27 Mar 2014) (Canada) 307 295 23 84 107 0.4x 0.8x
RCO(5) (2 North
Feb 2015) America 80 80 79 2 81 1.0x 1.0x
Permian &
Carrier II Eagle Ford
(22 May 2015) (U.S.) 133 110 25 52 77 0.7x 0.8x
Liberty II Bakken, PRB
(30 Jan 2014) (U.S.) 142 142 - 71 71 0.5x 0.9x
Fieldwood GoM Shelf
(17 Mar 2014) (U.S.) 89 88 8 46 54 0.6x 0.7x
CNOR (29 Aug Western
2014) Canada 90 90 16 11 27 0.3x 0.3x
Vaca Muerta
Aleph (9 Jul (Argentina
2019) ) 100 23 - 23 23 1.0x n/a
Ridgebury
(19 Feb 2019) Global 22 18 1 21 22 1.2x 1.1x
Gulf Coast
Castex 2014 Region
(3 Sept 2014) (U.S.) 67 50 - 15 15 0.3x 0.7x
Total Current Portfolio(6) $1,498 $1,319 $328 $575 $903 0.7x 0.9x
-------------------------------------- --------- --------- --------- ---------- ---------- --------- --------
Realisations
Gross
Realised
Capital
Gross Gross Gross & 30 Sep 30 Jun
Investment Committed Invested Realised Unrealised Unrealised 2019 2019
(Initial Investment Capital Capital Capital Value Value Gross Gross
Date) Target Basin ($mm) ($mm) ($mm)(3) ($mm) ($mm) MOIC(4) MOIC(4)
Permian (U.S
Rock Oil(7) .) 114 114 231 6 237 2.1x 2.1x
(12 Mar 2014)
Three Rivers
III (7 Apr Permian
2015) (U.S.) 94 94 203 - 203 2.2x 2.2x
Meritage III(8) Western
(17 Apr 2015) Canada 40 40 83 - 83 2.1x 2.1x
Sierra (24
Sept 2014) Mexico 18 18 39 - 39 2.1x 2.1x
Total Realisations(6) $267 $267 $557 $7 $564 2.1x 2.1x
-------------------------------------------- --------- --------- --------- ---------- ---------- -------- ---------
Withdrawn Commitments
and Impairments(9) 121 121 1 - 1 0.0x 0.0x
-------------------------------------------- --------- --------- --------- ---------- ---------- -------- ---------
Total Investments(6) $1,886 $1,707 $886 $581 $1,467 0.9x 1.0x
-------------------------------------------- --------- --------- --------- ---------- ---------- -------- ---------
Cash and Cash Equivalents $214
-------------------------------------------- --------- --------- --------- ---------- ---------- -------- ---------
Total Investments & Cash
and Cash Equivalents(6) $795
-------------------------------------------- --------- --------- --------- ---------- ---------- -------- ---------
Quarterly Performance Commentary
The environment for energy companies, particularly within the
onshore exploration and production ("E&P") sector, continued to
prove challenging as the front-month WTI oil price and S&P Oil
& Gas Exploration & Production Index fell by 7 per cent.
and 18 per cent. over the quarter, respectively. This has resulted
in a further compression in trading multiples for the E&P
sector, with many companies trading at historically low
valuations.
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 methodologies. The unrealised
valuations of REL's onshore E&P investments have therefore been
impacted by the deterioration in public company valuations, as well
as the lack of M&A and financing activity in the market.
Further detail on REL's five largest investments, which account for
approximately 80 per cent. of the portfolio's gross unrealised
value, is set out below:
ILX III
The Gross MOIC for ILX III was reduced from 1.3x to 1.2x during
the third quarter following recent market activity, which resulted
in applying higher discount rates and lower reserve multiples when
valuing the company. To date, the company has participated in nine
commercial discoveries, of which four are currently producing oil.
The company intends to bring three additional projects online next
year, which would result in total net production of approximately
8.5 mboepd by the end of 2020.
Hammerhead
The Gross MOIC for Hammerhead was reduced from 0.8x to 0.4x as a
result of lower future production estimates and the postponement of
the contemplated financing of Hammerhead's midstream assets.
Specifically, this resulted in a reduction in value for the
production and net asset value components of Hammerhead's
valuation. The change in valuation is reflective of the continued
pullback in capital markets activity and ongoing challenges for
Canadian oil producers, resulting in limited access to liquidity
for Hammerhead to grow production in the current environment. The
Alberta government has extended production curtailment on certain
oil and gas producers through year-end 2020, due to delays in the
development of takeaway infrastructure. While Hammerhead is no
longer impacted by the curtailment regulations given the recent
change to exemption levels, the uncertainty regarding macro
conditions and infrastructure development in Western Canada
continues to weigh on valuations.
The company is focusing its development plan on multi-well pad
activity in the Gold Creek and South Karr areas. In Gold Creek,
Hammerhead successfully brought online a six-well pad materially
below budget this summer, and results have been encouraging to
date. Hammerhead is targeting average net production of
approximately 29,000 boepd in 2019. During the third quarter, the
company signed a farm-out agreement on a portion of its acreage to
accelerate development while not impacting near-term liquidity.
Liberty II
The Gross MOIC for Liberty II was reduced from 0.9x to 0.5x
during the third quarter reflecting the ongoing decline in trading
multiples among its publicly traded peers, as well as challenging
capital markets and a lack of strategic buyer interest. Absent
access to additional liquidity, Liberty will continue to limit its
development activities to remain within cashflow in the near-term.
During 2019, the Company has continued to develop its East Nesson
acreage, having completed a five-well pad during the third quarter
below budgeted cost, with initial well results appearing
positive.
Centennial
The Gross MOIC for Centennial was reduced from 1.1x to 0.9x
during the third quarter reflecting the decline in its share price.
Notwithstanding the performance of its share price, operational
performance continues to be strong with Centennial increasing both
daily oil and equivalent production volumes in the second quarter.
Furthermore, Centennial raised 2019 FY production guidance by 8 per
cent. with no expected increase in capital expenditures. As of its
second quarter results, Centennial had a strong balance sheet with
a net debt to LTM EBITAX ratio of 1.3x, over $800m of liquidity and
no bond maturities until 2026.
Carrier II
The Gross MOIC for Carrier II was reduced from 0.8x to 0.7x
during the third quarter reflecting negative investor sentiment
within the broader market. The company's Eagle Ford asset continues
to perform strongly with 28 wells brought online through August,
and continues to generate free cash flow while realising material
reductions in cost structure created through subsurface
improvements. At 30 September 2019, the company's assets were
producing approximately 6,600 boepd. To-date, Carrier II has made
$25 million in distributions to REL, representing approximately 23
per cent. of REL's cost base.
Other Investments
In other developments during the quarter, REL funded $23 million
of its $100 million commitment to Aleph, which is the first
independent midstream company focused on the Vaca Muerta shale play
in Argentina. The company will take ownership and control over the
midstream operations of Vista Oil & Gas ("Vista") and commence
the buildout of gathering and processing facilities in Vista's
Bajada del Palo Oeste block, subject to certain regulatory
approvals. Productivity from this block has recently been exceeding
expectations, with Vista's first eight shale wells outperforming
estimates and ranking among the top 15 per cent. of wells drilled
in the basin (two of which are within the top three wells in terms
of 90-day cumulative production). In addition, the Board of
Directors of the Overseas Private Investment Corporation ("OPIC")
approved the provision of up to $150 million in financing to Aleph
for up to 10 years and also approved $300 million financing for
Vista. The financing is subject to the completion of definitive
documentation and fulfillment of conditions precedent. Aleph is
currently valued at cost as it begins operations, and continues to
monitor the political environment and economic situation in
Argentina.
In addition, the Gross MOIC for Ridgebury was increased from
1.1x to 1.2x to reflect strengthening in the Handysize tanker
market, which has experienced an approximately 20 per cent.
increase in rates over the last twelve months. During the quarter,
the company distributed approximately $1 million net to REL.
Recent Sale of Shares
The Investment Manager would like to provide additional
clarification regarding the disposal of 55,379 REL shares in August
2019 and 300,000 REL shares in September 2019, in aggregate, by REL
Coinvestment, LP and Riverstone Energy Limited Capital Partners,
LP, both of which are entities which facilitate the investment in
REL shares by Riverstone employees. The entities which disposed of
REL shares are deemed "Persons Closely Associated with each of
David Leuschen, Pierre Lapeyre, Jr. and Kenneth Ryan," who are
directors of REL, for the purposes of applicable share dealing
disclosure requirements of the EU Market Abuse Rules. However, the
relevant shares were sold on behalf of Riverstone employees other
than Mr. Leuschen, Mr. Lapeyre, and Mr. Ryan, each of whose direct
and indirect holdings in REL remain unchanged. The Riverstone
Directors of REL, employees and related parties, collectively,
remain one of the largest shareholders in REL, with ownership
totalling 8.35 per cent. of the shares outstanding as of 30
September 2019.
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 is a member of the FTSE 250 and its
ordinary shares are listed on the London Stock Exchange, trading
under the symbol RSE. REL has 11 active investments spanning oil
and gas, midstream, and energy services in the Continental U.S.,
Western Canada, Gulf of Mexico, Latin America and credit.
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:
Natasha Fowlie
Brian Potskowski
+44 20 3206 6300
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
September 2019 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 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.
(1) GBP:USD FX rate of 1.229 as of 30 September 2019.
(2) Net capital available of $1,194 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.
(3) Gross realised capital is total gross proceeds realised on
invested capital. Of the $886 million of capital realised to date,
$596 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 gross profits (without a
hurdle rate). Since there is no netting of losses against gains,
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) Credit investment.
(6) Amounts may vary due to rounding.
(7) The unrealised value of the Rock Oil investment consists of
rights to mineral acres.
(8) Midstream 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).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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