ALTERNATIVE THINKING - JSE MAGAZINE

ALTERNATIVE THINKING

Renergen’s pioneering steps into energy investments is about having a ‘portfolio approach’ philosophy, says CEO Stefano Marani

ALTERNATIVE THINKING

It’s a pretty tricky business climate right now, says Stefano Marani, CEO of Renergen – an SA company listed on the AltX as the first alternative and renewable energy firm. It also holds the country’s only onshore petroleum production right. ‘Everything is a challenge, be that the investment, financial or political environment. The only way to get through this is to keep your head down and not deviate from investment path goals.’

This is the reason behind why the relatively new-kid-on-the-block has been so successful at delivering exactly what it promised since listing on the JSE AltX in June 2015. Its first major milestone, the acquisition of a viable asset, was achieved the same year when it bought Tetra4, a helium and natural gas business.

‘We followed through with the construction of the pilot plant and proved the concept last year,’ says Marani. Renergen is now undertaking an environmental assessment and – on approval – construction will commence for a pipeline to reticulate all 13 operating wells to the compressor station, which is expected to deliver increased production next year.

The current closed period prohibits Renergen from commenting on its recent performance. Instead Marani, in providing proof of company worth (bearing in mind that the pilot plant has been in operation for just a number of months) points to the recent Venmyn Deloitte update of the organisation’s reserve statement, and the discounted cash flow evaluation based on the proven reserves underground, which reflects R6.7 billion.

‘Our actual current market cap is just under R1 billion,’ says Marani. ‘This proves just how momentous last year was and further indicates the value of the business. As we continue to deliver milestones – including the smaller ones not mentioned – on time and on budget, we will ultimately be impacting significantly on the businesses of our clients in the areas in which we operate.’

This is despite the infancy of natural gas projects in SA, particularly upstream, which Marani says has generated a fair amount of interest and uptake from the energy sector. However, this isn’t the general experience of the investment community, which is rather guarded. ‘SA investors don’t have as much oil and gas experience as the more established markets, and there isn’t particularly fertile ground for junior mining, so only a handful are prepared to wet their feet,’ he says.

Internationally, the environment is quite different with interest in alternative and renewable energy more piqued. Marani explains that the reason this is different in SA is that while people are drawn to the subsector, they do so on the basis of whether there is some kind of guaranteed off-take.

‘Domestically there is little interest in looking at the sector as an asset class. Rather it is just seen as a potential revenue stream. It’s somewhat apparent that asset managers seem focused on historical numbers rather than a production-driven forecast future.’

The most popular product from an investment perspective is natural gas, largely because it’s a substitute for liquid fuels. ‘It therefore makes a lot of sense economically for our clients and is proven by just how much is being sold daily,’ he says. ‘This is where we are over-subscribed – there are more buyers of gas than we can supply – and why it is critical for us to guarantee the construction of pipelines, allowing us to access multiple wells and bring more gas online.’

This puts Renergen in a fortunate position, especially given the current effects of oil price volatility and demand, and why it is ramping up its business model to account for the backstream uptake.

There is another aspect of ‘backstream’ that must be taken into account in terms of Renergen’s impact on communities. It has a holistic social and labour programme that is regulated under the Petroleum Agency of South Africa. This requires the organisation to reinvest annually in, for instance, improvement of local schools – and it has done so by improving infrastructure, providing classrooms and sports equipment as well as upgrading sports fields. ‘We are now looking to stimulate local economies by improving access to markets,’ he says.

In addition (and by virtue of bringing its product online), local communities’ operational expenses are reduced, and ‘that brings more profit into the area with a knock-on effect in terms of the provision of more jobs’.

This ‘portfolio approach’, a term Marani uses to describe Renergen’s corporate social responsibility programme, is similar to how Renergen operates with regard to yet another future milestone – helium. ‘We are on target to commission our helium plant in 2019 with global leader Linde having secured the local and international offtake,’ he says.

By Kerry Dimmer