Riverstone Energy (RSE ) made headlines this week when it announced a tender offer for up to 30.4% of its issued share capital.

The fund is almost 10 years old, having launched in October 2013. The initial issue was a phenomenal success, raising over £760m from investors at £10 per share. Its focus was oil and gas exploration, production and ‘midstream’ transportation and storage.

The fund manager Riverstone had $26bn under management when RSE launched and a great track record. The shale boom in North America was underway, helped by a buoyant oil price that was around $100 a barrel.

However, at the end of 2014, the oil price fell sharply and hit a sub-$30 low in February 2016. That didn’t seem to have much of an impact on RSE’s net asset value (NAV) but it did hit the shares which fell a discount to NAV. In October 2018, the company held a tender offer to buy back £55m worth of shares at a price between £12 and £13.75 – shareholders had to bid the level that they were prepared to sell at and the tender cleared at the lowest price that absorbed the available cash, which turned out to be £12.

At the end of 2018, as the rally in oil price from its 2016 low fizzled out, RSE made its first significant NAV write-down. The company also began to indicate that it might deviate from its previous investment strategy. In 2019, it began to invest in renewable, decarbonisation and infrastructure investments using cash generated from the oil and gas portfolio.

It refined that decision in 2021 with new investments focused on grid flexibility and resilience; electrification of transport; agriculture; next generation liquid fuels such as hydrogen; and ‘next horizon’ resource use, for instance in smart building and the digitisation of global supply chains.

In 2020, seven years after launch, RSE was obliged, by promises that it had made in its prospectus, to hold a discontinuation vote. That needed a 75% majority to pass but was blocked by 89% of votes cast, including the largest shareholder AKRC Investments, which at the time owned 31% of the company. At the same time, the two manager sponsored directors on RSE’s board stood down, which was a welcome move.

The support RSE received was remarkable given the dramatic fall in NAV it had suffered. When the end-March 2020 valuation was announced during the initial Covid panic, the NAV stood at less than a third of its 2018 level. The discount remained stubbornly wide too, despite an increasingly aggressive share buyback programme.

As the global economy emerged from the pandemic, the oil price began to recover, for a while surpassing its 2013/2014 level, and with it the values of RSE’s legacy portfolio. This also supported realisations, freeing up cash.

Which brings us to 30 June 2023 and the NAV is £10.23 per share – marginally ahead of the 2013 issue price. There is $133m of cash, $320m of legacy investments and $152m of decarbonisation investments in the portfolio. Share buybacks are ongoing – at the end of July there were around 46m shares in issue, almost 40% down from the peak.

However, the share price is just 577p, giving it a market value of about £262m. That is only just more than the sum of RSE’s cash and unrestricted listed investments (£245m), which is ridiculous.

At first glance, the tender offer looks welcome, therefore. However, the tender price has been set at 578p, a 43.5% discount to asset value. If taken up in full there would be a huge transfer of value from exiting shareholders to ongoing shareholders. To give you an idea of how much I reckon the NAV would rise from £10.23 to £12.17 per share. Tough, you might think – but the board has a fiduciary duty to all shareholders not just the ones that want to remain invested in the company.

If I was a shareholder in RSE, I would vote against this tender offer and demand one on more reasonable terms.

James Carthew is head of research at QuotedData.

Any opinions expressed by Citywire, its staff or columnists do not constitute a personal recommendation to you to buy, sell, underwrite or subscribe for any particular investment and should not be relied upon when making (or refraining from making) any investment decisions. In particular, the information and opinions provided by Citywire do not take into account people’s personal circumstances.