As the fund has completed due diligence, the transaction needs only stakeholder approval, with completion expected in 2023
BY KATHARINE CHILD
SA’s only onshore gas production right holder, Renergen, is now producing 1,000GJ liquid natural gas (LNG) daily. That is expected to more than double by the first quarter of next year, it said in a voluntary update on Friday.
Renergen produces LNG in Virginia, Free State. The field is said to have one of the world’s highest helium concentrations.
The Central Energy Fund (CEF), responsible for securing SA energy security, aims to pay R1bn for a 10% stake in Renergen’s subsidiary Tetra4, which wholly owns the Virginia Gas Project.
As the company’s market cap is R3.6bn, Business Day asked Renergen CEO Stefano Marani why the CEF would be paying much more for a 10% stake in Tetra4 than for 10% of the listed firm, about R360m at the current share price.
Marani said this is because Renergen is a holding company, which like most such firms on the JSE trades at “a well-known discount of at least 30%”. The CEF is buying into the gas-producing asset, he said.
“This transaction is at the asset level and is therefore closer to the fair value.”
After the CEF had spent several months reviewing the company’s data and financial models, an “agreement was reached on participation at the asset level”.
The company said on Friday that with the CEF having completed due diligence, the deal needs only stakeholder approval. Completion is expected in 2023.
With natural gas production on track, the helium module is the next part of the plant to be fully commissioned, with testing of the critical components in the helium liquefier, it said.
As no mechanical faults have been identified so far, the team is looking forward to “completing the tests and commencing helium production in due course”.
With repeated delays hitting Phase 1, due partly to Covid-19 and affecting equipment imports, the start of commercial operations has been pushed back repeatedly.
In July 2020 Renergen said in a stock exchange news service announcement that “by 2021, the company will complete its Phase 1 expansion plans … and will be producing LNG and helium”.
Asked about the helium production being a year late, he said “there are no issues to be concerned about”.
With LNG production stable, it has completed tests on the helium modules.
“We have turned our attention to the nitrogen module, which produces liquid nitrogen to help separate the helium from the gas, and will begin testing the microturbines to ensure no failures before turning the combined system on to produce liquid helium.”
Marani said all expected Phase 1 helium has been pre-sold to customers.
The group is drilling two additional wells to access gas. It said surveys were completed last month, and they suggest there may be more gas-bearing structures than expected.