Financial Mail - Investors Monthly
Renergen’s rich potential
Gas extraction seems promising, but much capex will be needed, writes Anthony Clark
M recently accompanied alternative Renergen CEO Stefano Marani on a site visit to the company’s gas development operations in Welkom in the Free State.
IM last visited the site in April, during the early engineering, procurement and construction phase. Five months later the site was unrecognisable due to the work that had been done.
Since the start of 2021, the share of the liquid natural gas (LNG) and helium producer has undergone a roller-coaster period. It peaked at more than R30, but much of the exuberance surrounding “go-go” stocks evaporated, and within a few months the share price had halved. It bottomed at R15.70 in mid-August and at the time of writing was at R22.45.
A slew of positive updates have informed investors about the company’s progress.
As Renergen nears production at Virginia Phase 1 (VP1), a significant de-risking of the overall project and of Virginia Phase 2 (VP2) has occurred.
IM believes that when VP1 commences, a material percentage of Renegen’s daily LNG and helium production will be in firm hands, as agreed with various parties — providing further confidence in the prospects of the project and the company.
Pre-sale contracts with global gas giants and multinationals
Isuch as Linde, Messer and Siemens for 65% of the helium to be produced at VP1 will ramp up production to 350kg of helium a day.
The materially larger VP2 project will eventually produce 5t a day after being commissioned in 2024.
A contract to sell a quarter of initial daily production of LNG at VP1 was also signed with domestic glass business Consol. It involves a LNG offtake of 14t a day from a projected initial VP1 daily production of 55t. The Consol deal, IM estimates, is worth R60m year.
A further partnership with oil giant Total gives Renergen access to Total’s N1 distribution chain, allowing access for the LNG produced to key prospective industrial clients.
On a back-of-a-match-box calculation, IM estimates — based on current pricing per gigajoule of LNG and per kilogram of helium — that VP1 will generate revenue of about R320m, dollar dependent, on this first phase of development.
More importantly, VP1 is progressing in accordance with its engineering and commissioning timeline and is mostly on budget, despite the pandemic having caused global supply chain disruptions. Most of the kit used in the extraction, compression and liquification of LNG and helium is engineered in and imported from China.
In terms of project progress, investors can now physically see where much of the planned capital of R1bn on VP1 has been spent. The construction of platforms and stations to handle the gas are far advanced, as are the commissioning of the central processing and compression sites and the cooling towers.
About 18 wells have been drilled at VP1. Further expansion will take this number to 25 to bring phase 1 to full expected production.
The gas-gathering pipeline for the entire project — about 52km — has been laid, and the collection and production pads have been completed. The taps are due to be turned on at VP1 in December this year or January 2022, and revenue should flow thereafter.
The project aims to have daily production at VP1 in a revenue ratio of 75% LNG to 25% helium. On the larger VP2 site, extraction of the more valuable helium gas will be 5t a day, greater than the expected 350kg a day at VP1. At VP2 the production percentages will be closer to 55% LNG and 45% helium.
At VP1 55t of LNG a day is expected to be produced. The expectation is that VP2 will produce 750t-800t of it a day.
With a plethora of positive JSE Sens announcements, the