Serious accusations against a prominent South African company

Cilandia Capital’s activist investment manager, Albie Cilliers, alleged that gas producer Renergen does not have the gas reserves it claims to have.

Renergen was listed on the JSE in June 2015, promoting itself as a company focusing on alternative energy solutions.

Its main asset is the Virginia Gas Project, which the company said could produce large quantities of liquid natural gas (LNG) and liquid helium (LHe).

Renergen secured gas rights spanning 87,000 hectares for this project in the Free State in 2012.

The company’s website explains that while some producers struggle with concentrations as low as 0.04%, Renergen’s wells boast concentrations exceeding 3%, with some reaching as high as 12%.

For reference, the helium companies in the US, the world’s biggest gas producer, commonly extract the gas from fields with concentrations of 0.3%.

Should Renergen’s claims be accurate, it places South Africa among the top ten biggest gas reserves in the world.

Renergen CEO Stefano Marani previously said the company’s helium concentration was so high that many experts were in disbelief.

“A concentration of just 0.1% helium is considered commercially viable, while 0.3% is considered world-class,” he said.

The helium concentration at the Virigian Gas Project is Renergen’s crown jewel and a large part of why investors poured money into the company.

Therefore, Cilliers’ assertion that these gas reserves are not as high as Renergen claims is a serious allegation.

When asked about Cilliers’ statement, Marani told Daily Investor that the company does not make any “claims” regarding its reserves.

Rather, Renergen publishes reports stating reserves and resources following the SAMOG codes per the JSE’s guidelines, which are available on the company’s website. 

“These reports are prepared by independent US and Canadian-qualified petroleum engineers,” he said.

One of Renergen’s most important resources is a 2021 report released by Sproule, an engineering consultant firm based in Calgary, Canada.

In 2021, Sproule’s report confirmed that the Virginia Gas Field holds significant potential for methane and helium production, with a clear plan for development and strong prospects for long-term profitability.

Cilliers told Daily Investor that Renergen has failed to prove that its reserves live up to the Sprouce report’s findings.

In the gas industry, ‘proven’ reserves are classified as having a 90% or greater likelihood of being present and economically viable for extraction in current conditions. 

According to Cilliers, Renergen has failed in terms of production and economic viability regarding its reserves.

He said that Renergen’s actual production data since the company started producing LNG in October 2022 do not support the assumptions and data used by Sproule in its 2021 report.

Renergen’s claims about its helium production started in May 2016, when the company announced that it had signed a significant deal with Afrox, which would enable it to source and supply LHe locally by 2018/19.

However, this deadline came and went. In August 2019, Renergen made a new promise: It would be producing 350 kg of LHe per day by 2021. Again, this did not happen.

On 5 January 2023, Renergen said it produced its first LHe at the Virginia Gas Project and that all components of Phase 1 were operational.

However, on 26 June 2023, Renergen said a leak was discovered in the liquid helium cold box. It said the OEM would fix the leak off-site.

Renergen added that it expected the helium system to be ready for performance tests by October 2023. On Monday, 6 May 2024, Renergen said it had successfully produced helium at its Virginia Gas Project.

“Since 2 April 2024, the Original Equipment Manufacturer (OEM) has brought the helium cold box to the appropriate temperature to liquify helium in batches from its wells,” it said.

However, as seen in its financial reports, the company has not sold any helium to date, and it is unclear when this may change. In addition, the company has yet to make a profit from its natural gas.

Cilliers said that gas reserves require such gas to be produced profitably to be considered “proven”, and Renergen has not shown any evidence of them being able to make profits since they started to produce LNG.

Renergen’s results for the six months ended 31 August 2024 showed that revenue increased by 8% to R25.61 million.

However, its costs increased by 90%, and its gross profit plummeted, falling from R10.76 million to R882,000.

The company’s operating loss deepened to R65.13 million, while its total loss for the period deepened by 63% to R70.71 million.

Renergen also reported its biggest loss before tax, R85 million, which was over three times greater than its revenue for the period.

“Renergen claims their gas reserves are as stated in the report. The report is an opinion by Sproule, paid for by Renergen, based on data – such as fault and fracture maps and well-test gas flows – and assumptions all supplied by Renergen,” Cilliers said.

“I do not believe the data and assumptions supplied by Renergen to be true or accurate.  I believe it’s far-fetched, and their actual production data so far since the report’s publication has shown Renergen to fall far, far short of the assumptions used by Sproule in their report.”

He explained that the Sproule report reached its conclusion on Renergen’s reserve estimate by assuming a successful well drilled every 300 m along pre-define fault lines, with each such well producing an average of 150 Mscf/day of gas.

In its latest annual report, Renergen states that it has drilled and completed 25 wells from inception to date. It said 15 wells have been fully converted, and feed gas is supplied to the liquefaction plant.

Therefore, Cilliers explained that for the Sproule assumptions to be valid and support the reserve opinion, Renergen should be producing at least 2,250 Mscf/day of gas from its wells.

This equates to 67,500 Mscf of gas from its wells per month. Since 90% of the gas from the wells is methane, Renergen should be producing 60,750 Mscf of methane per month.  

Since 1 ton of LNG equals around 48.69 Mscf of methane gas, Renergen should be producing about 1,248 tons of LNG per month from its wells.

However, Renergen’s highest monthly production since the company started LNG production in October 2022 was 521 tons or around 42% of what it should be producing based on the assumptions used in the Sproule Report.  

“The latest monthly production of Renergen was a mere 30% of the assumptions,” Cilliers said. “And that is just the volumes from their successful producing wells, which fall well short of the assumptions.”  

“They have not disclosed how many unsuccessful wells vs successful wells they have drilled up to now and how that compares to the assumption of a successful well to be drilled every 300m along the pre-determined fault lines in the reserve area.”  

The Sproule report further noted that Renergen claims a success rate of 5 out of every 6 wells drilled.

“They compensate for that by assuming every planned well to be drilled to be successful and then adjust the flow rate of every such well by 20% lower,” Cilliers said. 

“Based on my analysis of Renergen’s patchy and incomplete and vague disclosure of their drilling success so far, I estimate that their success rate of wells drilled and converted into producing wells able to be added into the plant production is not more than 30%.”  

“It might be even lower than that. So, multiply 30% well success by 40% of the assumed flow rate, and you get to a reserve that is around 90% lower in volume than what is assumed in the Sproule report.”

“Now, add the fact that Renergen has not shown that it can profitably produce LNG or Helium, and it stands to reason that Renergen’s actual reserves are zero, according to the definition of reserves.”

Cilliers’ comments above relate largely to Renergen’s natural gas reserves, but he added that there is also a lot of uncertainty surrounding the viability of the company’s helium production.

In its 2021 reserve report, Sprouce assumed the helium to be 3% of the total gas volume stream or gas reserves.

As a percentage of the LNG volume, the helium was therefore assumed to be 9.427/251.38 or 3.75%.

“So if Renergen were to be transparent and disclose how much helium they actually are producing per day, one could have compared it to the reserve assumptions to see if it is reasonable or validated by the actual production numbers,” Cilliers explained.

“However, Renergen uses wording like ‘entrained into the system’, which is not the same as ‘production’.”

Renergen first used the “entrained” wording in its last Quarterly Report, published on 31 December 2024.

“Once achieved, a further cooldown of the container from ambient temperature using liquid helium was also required, specifically noting that the helium used in this process is re-entrained via vapour return line into the helium system,” the company said.

More recently, the company used the wording in a SENS announcement released in January this year, wherein it said, “At present, we entrain approximately 75 kg per day of helium into the system.”

“It is, therefore, reasonable to assume that when Renergen refers to the 75 kg of helium entrained into the system per day, they are, in fact, talking about the amount of Helium recirculated in the system per day, not the actual amount of new helium being produced per day,” Cilliers said.

“If Renergen did actually produce 75kg per day of helium, they would have had months, since July 2024, to produce enough helium to fill an ISO tanker.” An ISO tanker needs around 4,500 kg of helium in liquid form.

Renergen purportedly produced helium for over 150 days until the end of the December Quarterly report. However, Renergen has yet to confirm whether it has sold helium.

“It’s time that Renergen discloses how much helium they are actually producing from their current gas-producing wells for the sake of investor transparency,” Cilliers said.

Renergen’s production timeline

Below is an outline of the claims Renergen has made regarding its production since 2018.

Date	Renergen Statement
February 2018	Renergen stated in its annual report that it expected its helium production to begin in 2020.
February 2020	Renergen indicated that phase 1 would be fully operational by 7 July 2021, delivering a maximum of 350 kg helium per day and 50 tons of LNG per day.
February 2021	Renergen said phase 1 will be fully operational by February 2022 and that phase 2 would be fully commercialise by December 2023.
February 2022	Renergen indicated that phase 1 would produce 350 kg of helium and 50 tons of LNG by March 2022 and that phase 2 would produce its first gas in 2025.
January 2023	Renergen claimed it reached a major milestone and produced its first liquid helium.
March 2023	Renergen releases a guidance note reaffirming that they are continuing helium production.
May 2023	Renergen said helium production is being optimised and integrated, with production slowly being ramped up to its target of 300 kg of helium per day within the 2023 financial year.
June 2023	The helium cold box has been repaired, and the cold box has been delivered back on-site. The cold box is in the process of being re-installed and recommissioned. Renergen is now focused on turning on the helium module and producing liquid helium.
September 2023	The helium cold box has been successfully recommissioned and tested, and helium has been successfully produced. Renergen is confident in the repair and looking forward to commencing commercial helium production.
October 2023	Commissioning of the cold box is on track to produce liquid helium by the end of the 2023 calendar year.
December 2023	Renergen turned its full attention to the helium system and is waiting for the OEM to arrive to finalise the integration of the helium system to the plant and undergo performance tests. They will arrive after the Chinese New Year.
February 2024	OEM arrived in late February, and helium system integration is nearly complete with no major issues picked up, and the final commissioning is progressing well. Helium and nitrogen cold boxes are fully integrated. The OEM and Tetra 4 are conducting the final checks before commercial helium production.
March 2024	OEM arrived late February and helium system integration is nearly complete with no major issues picked up and the final commissioning is progressing well. Helium and nitrogen cold boxes are fully integrated. The OEM and Tetra 4 are conducting the final checks before commercial helium production.
May 2024	Liquid helium production has been resumed as the relevant tests have been conducted. The OEM must now prove that it can run the plant at the desired specifications before it can complete the performance test, which is forecasted to take 7 days. All produced helium will be stored for customer use.
June 2024	Renergen released its quarterly report and reported no helium sales. It said the helium system was in the final stage of integration. The OEM is focusing on system and operational enhancements. Renergen noted that the OEM is refining the helium system in preparation for a performance test to see if the plant can run at the desired requirements.
June 2024	Renergen released its integrated annual report for February 2024 and reported no helium sales.
August 2024	Stefano Marani said in an interview, “We’ve now finally managed to get the helium module on, we’re producing liquid helium, we are putting it in our customer’s tanks.”
September 2024	Renergen released its September quarterly report and stated, “The helium plant is at temperature and operational.” However, the company still did not report any helium sales.
December 2024	Renergen released its December quarterly report and stated that it had stable helium production. It said that a helium iso container was not available in South Africa to be filled and it stored helium in its won tank to fill customer tanks once they arrive to the plant. Renergen did not report any helium sales.