Renergen’s R655 million transaction to acquire 90% of the Virginia Gas Project (VGP), which is closely linked to CEO Stefano Marani, has come under fire on social media.
Much of the social media debate surrounded comments from Cilandia Capital’s activist investment manager, Albie Cilliers.
Cilliers said Molopo Energy sold 100% of the VGP to Windfall Energy for R5 million. He then sold 90% to Renergen for R655 million.
Windfall Energy was initially listed in 2011 as Windfall 66 Properties, which then became Windfall Energy and was voluntarily deregistered in 2017.
Marani is the director and owner of Windfall Energy, which Cilliers said raised questions on how he turned “R5 million into R728 million virtually overnight”.
To understand the transaction, one has to take a step back to understand the relationship between Renergen, Marani, and the Virginia Gas Project.
Renergen is a renewable energy company producing natural gas and helium gas. It was listed on the JSE in 2015.
Renergen’s primary asset is its Virginia Gas Project in the Free State. The assets of the VGP plant previously belonged to Molopo Energy, an Australian-based energy company.
The gas project ran into significant problems in 2013 under Molopo when natural gas prices fell, and the company’s board was dissolved.
At the time, the Virginia Gas Project only had one geological report with limited data. The report said it only had 17 BCF (billion cubic feet) of Methane reserves.
This was not adequate for commercial purposes at the prevailing price for gas, which made the project unviable.
Windfall Energy purchased the VGP for one US dollar ($1) and assumed a R50 million loan. This loan would be repaid from distributable profits generated from the VGP over ten years.
However, since Renergen’s listing in 2015, it has not generated any distributable profits. This means no loan payments have been made.
Marani told Daily Investor that following the transaction, new geological exploration was done. It revealed that the VGP had 80 BCF of methane reserves – much higher than the initial 17 BCF estimate.
He explained that with the updated reserves data, the net present value of the VGP was between R4 billion and R10 billion.
Marani introduced the Virginia Gas Project to the Renergen board and recused himself from further negotiations due to his ownership of the project.
The Renergen board decided to pay roughly 25% of the net present value to acquire the VGP. It resulted in the R655 million transaction to acquire 90% of the VGP.