Riverstone Energy wants to amend its investment policy to allow it to make an additional investment in Canadian International Oil Corporation (CIOC). At the moment they are limited to a maximum of 25% in any one investment. They want to take the limit up to 35% for this investment. Shareholders get to vote on this proposal on 15 December 2016.
The amendment to the investment policy is being proposed in order to allow them to exercise 69.8 million warrants in CIOC. They can exercise these warrants and purchase common shares in CIOC at a price which is at a discount to the investment manager’s published unaudited valuation (as at 30 September 2016) at any time up until March 2017.
As at the Investment Manager’s latest published unaudited valuation at 30 September 2016, the investment in CIOC represented approximately 27.7 per cent. of the gross assets of the Company, the increase being the result of appreciation in the value of the investment, and therefore not a breach of the policy. They estimate that, were they to exercise all their warrants, the investment in CIOC would represent approximately 31 per cent. of gross assets.
The Board believes that the investment in CIOC is highly attractive, as evidenced by its valuation at 30 September 2016 at 2.0 times their cost base. When they initially invested in CIOC, CIOC was producing 3,000 barrels of oil equivalent per day (“BoE/d”) from 14 wells. Since then, CIOC has been successful in developing its acreage and rapidly growing production, having significantly increased production capacity to 20,000 BoE/d by November 2016. By year-end 2016, CIOC is expected to have drilled fewer than 40 wells from an inventory of over 2,000 net undeveloped well locations. The exercise of all of the outstanding warrants (by Riverstone Energy and all other warrantholders), would raise approximately CAN$ 180 million for CIOC, which would be used to fund drilling for continued development and delineation of its asset base.
They currently own 30 per cent. of the outstanding common shares in CIOC, and 46 per cent. of the outstanding warrants, which equates to a fully diluted equity ownership of 35 per cent. The warrant exercise would require an investment by the company of CAN$ 84 million (they have cash available to fund this). If they were to let the warrants expire unexercised, this would result in a decrease in the value of the investment in CIOC of approximately US$ 100 million. In addition, they do not believe that there is an active secondary market for the warrants.
RSE : Riverstone Energy amending its investment policy