Riverstone investors are being offered a 31pc premium to buy their shares. Here’s what to do

This energy fund is rapidly recovering, so the dilemma you face with this buyback deal suggests it might be wiser to hedge your bets

If shareholders have learnt anything about Riverstone Energy, a fund investing on both sides of the energy transition during a volatile 10 years, it is to take profits when you can.

But what do you do when the investment company offers to buy back your shares for 31pc more than they were trading at, but for 16pc less than their actual value?

That’s the dilemma urgently facing investors in this Questor recommendation that floated at £10 a share in 2013 and peaked at £13.51 four years later before crashing to 160p in the 2020 pandemic.

The shares have recovered impressively since then, prompting readers to ask for our view on the £158m ($200m) tender offer the dollar-based, North America-focused fund launched last month.

Riverstone is proposing to buy back 35.7pc of its shares at £10.50, which is 31pc more than the 800p share price on Feb 7 before it said it would return to shareholders the profit made on the $1.8bn sale of Canadian shale oil group Hammerhead last November. Riverstone shares jumped 14pc to 914p on the day of the announcement and have risen since to 953p.

That represents a 51.8pc gain since Questor last tipped the shares at 628p in November 2022 and a doubling, or 103.7pc gain, for those who followed our previous advice in January of that year to buy at 468p. Even better, they have more than trebled since our earlier update at 314.5p in May 2020 when the shares rebounded from the Covid shock and, under pressure from shareholders, the company adopted a more investor-friendly approach having lost two thirds of its value in the previous seven years.

Sadly, Questor is still 24pc down on its original tip in October 2017 at £12.50 but is hopeful the company can recover this loss as it continues to return excess capital to shareholders.

So what do investors do now given they only have until 6pm next Monday to decide whether to sell in the tender?

On the face of it the £10.50 offer is good at a 10pc premium over the current price. However, it is 16pc less than Riverstone’s net asset value (NAV) per share of £12.53 at Dec 31.

This means investors who sell are giving up a huge potential gain if the shares ever close their 31pc gap to NAV. It also means a “material” transfer of value from exiting investors to those who remain, according to James Carthew, head of research at Quoteddata, an investment companies specialist.

Carthew said if the tender offer is taken up in full, Riverstone’s NAV will rise by 113p to £13.66 a share because of the boost from buying its shares cheaply. “Shareholders need to weigh up their need for liquidity against this

‘Shareholders need to weigh up their need for liquidity against this loss of potential long-term value’

loss of potential long-term value – and this is very much an individual decision,” he said. An argument for selling is that Riverstone’s managers are moving the £529m ($674m) fund towards renewable energy where they have a less successful record than in conventional oil and gas companies.

The 2023 annual results showed £182m invested in 11 decarbonisation companies were worth half that amount. Investors’ decision is complicated by the likelihood that, having had a strong run, the shares will fall back after the tender. The company has more cash to resume buybacks, but Mr Carthew said there was no guarantee it would stop the wide discount worsening, noting the last time the company purchased shares in October, they traded 50pc below asset value.

This is Riverstone’s second tender offer since August when it bought 7pc of its shares at 578p on a 43pc discount that Mr Carthew reckoned was poor value. While the latest tender is an improvement, it marks another contraction of Riverstone that raises the possibility of a bid for the company.

“It is interesting that the announcement sets out the rules around the Takeover Code in some detail – the share register is quite concentrated,” said Mr Carthew.

Riverstone has noted that Moore Capital Management, a US fund manager, owns a 20pc stake and could be required to bid if its position rose to more than 30pc if it did not tender any shares. While investors can apply to sell all their shares, Questor thinks investors should keep things simple and sell 35pc in line with the offer.

That way, they pocket some immediate gain and are around if more comes gushing up the pipe. Investors should sell a third of their holding into the tender offer.