How To Find Real Crude Oil Sellers And Buyers In Nigeria
This article is a continuation of the first in its series titled: The Ultimate Guide To Starting A Crude Oil Brokerage Business (Crude Oil Selling) In Nigeria And Africa. It sheds light on the processes that go on in the crude oil business in Nigeria for international crude oil buyers looking for genuine crude oil sellers, and shows everything you need to look out for throughout the entire transaction.
Buying crude oil from Nigeria can be relatively straight forward if the crude oil buyer can buy crude oil from a reliable or genuine crude oil seller (mostly a company with an allocation from the NNPC) or a crude oil broker (a company who brokers on behalf of a company with allocation from the NNPC) from the off-OPEC market.
There are procedures and checklists that must be followed to ensure that a genuine transaction takes place. Some of them are:
1). Proof of Product and Proof of Funds:
Before any transaction can occur between a genuine crude oil buyer and a genuine crude oil seller, both parties must show they are reliable from both ends. The crude oil buyer (usually a refinery) must show they have the proof of funds to purchase the volume of crude oil been sourced, and the crude oil seller or crude oil broker must show there’s a proof of product to be supplied to the crude oil buyer.
If the crude oil seller or crude oil broker cannot show any proof of product to the crude oil buyer, the buyer can choose to walk away to another crude oil seller or broker immediately.
2). The Type Of Crude Oil Produced In Nigeria:
Nigeria produces different varieties of crude oil, with the most widely demanded being the Bonny Light Crude Oil (BLCO). This crude oil is the best in the world because it is relatively easy to refine due to its low sulphur content. This is a major reason most crude oil buyers (refineries) around the world are interested in Nigeria’s crude oil.
Forcados is another type of crude oil in Nigeria that is considered a heavier grade. Lighter grade crude oil is preferred due to its easy refining state, making it easy to produce diesel from it and many other petrochemicals.
The different grades of the crude oils in Nigeria generally have slightly different prices.
Four Things To Know About Buying And Selling Crude Oil In Nigeria
1). Availability of Funds:
To buy or sell crude oil from Nigeria, you’d need to have a lot of money, usually multi-millions of dollars. This is the reason several people find it difficult to venture into the crude oil brokerage business.
Usually, when a crude oil buyer indicates interest, they’d have to show the seller that they have proof of funds.
If a transaction is to pull through eventually, the crude oil seller with an allocation would also have to have the cash-value of the crude oil in their bank accounts before the NNPC can ship the crude oil. But since most crude oil sellers don’t have this some crude oil brokers have the ability to raise the money, and so, source the crude oil on behalf of the crude oil seller with an allocation, receive the ICPO in their business name, and leverage the crude oil seller’s allocation from the NNPC to ship the crude oil, while settling the original crude seller with the allocation.
In the event that the crude oil seller can afford to have the money in their bank accounts, the broker can negotiate a cut per barrel sold on every barrel that is successfully sold. It could be 50 cents per barrel, lesser, or a bit more.
2). You’d Need A Crude Oil Seller:
As stated in the previous point, a crude oil buyer will have to find a genuine crude oil seller or crude oil broker in Nigeria to be able to transact reliably. To verify their authenticity, you’d need to ensure the crude oil seller or crude oil broker can provide a proof of product, while you the crude oil buyer will provide a proof of funds.
3). You’d Need A Crude Oil Buyer:
Just as a crude oil buyer needs a crude oil seller, a crude oil seller also needs a crude oil buyer. The good thing is crude oil buyers are constantly looking out for genuine crude oil sellers, and when they do find one, they prefer to have a long-term contract that spans through several years.
You could also source crude oil buyers yourself by reaching out to them through their company contact details.
The Different Ways To Get Crude Oil From Nigeria
1). Directly From The Nigerian National Petroleum Corporation (NNPC):
The Nigerian National Petroleum Corporation (NNPC) is the Nigeria’s oil & gas regulatory body, and is the organization that has the direct right to sell crude oil. The problem with going through the NNPC is they have very strict conditions, and so, most crude oil buyers prefer to go through companies who have been awarded crude oil allocations by the NNPC.
Some of the conditions are:
- A proof of fund spanning through $100,000,000
- Must own a local refinery and international refinery.
- Must have a performance bond of at least $1,000,000
These conditions make refineries take the other route of using private sellers.
2). Private Sellers:
These are large oil and gas companies in Nigeria that have crude oil allocations from the NNPC. They are required to sell off their allocations within a certain period and can be approached by crude oil buyers if they cannot meet the conditions set by the NNPC to buy directly from the corporation.
3). Independent Sellers:
These are individuals or smaller businesses who have connections to the federal government or to companies who have been awarded allocations. They could make their purchase direct from the large oil & gas companies, or they could also vie for an allocation.
While buying from these set of crude oil sellers comes at a risk, finding genuine sellers is a lot easier to deal with than buying from the NNPC.
4). A Loaded Vessel:
A crude oil buyer can buy from a crude oil seller who already has a vessel loaded with crude oil. This usually happens when the crude oil seller’s previous buyer defaults, leaving them with crude oil already paid for. This is perhaps the fastest way to buy crude oil from Nigeria, as you’re only dealing with the direct individual through TTO & TTT.
The Different Ways To Sell Crude Oil From Nigeria
There are four different ways to sell crude oil from Nigeria. They include:
1). Cost Insurance and Freight (CIF):
Here, the crude oil seller will handle everything from loading the vessel and sending the crude oil to wherever the buyer wants it delivered.
2). Freight On Board (FOB):
Here, the seller pays for the transportation of the goods to the port of shipment, plus loading costs. The buyer pays the cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination.
3). Tanker Take Over (TTO):
Here, the crude oil buyer will take over the vessel, offload at their destination, and return it.
Tanker Take Over (TTO) Procedure:
1. The crude oil buyer and seller both sign a sales & purchase contract agreement.
2. The crude oil buyer’s bank will then pre-advice a letter of credit to the crude oil seller’s bank.
3. The crude oil seller’s bank will then post a 2% performance bond upon receiving the buyers preadvised letter of credit.
4. The crude oil buyer’s bank will then place an operative letter of credit for the crude oil seller for the complete cost of the cargo and commission that will go to the agents and facilitators.
5. The crude oil seller confirms the operative letter of credit and then issue an ATB to the crude oil buyer’s independent inspectors within a period of 72 hours.
6. The crude oil buyer’s inspectors will then go onboard the vessel within 72 hours from the confirmation of the crude oil buyer’s letter of credit to conduct a Q & Q.
7. A re-assignment of the cargo is then done in buyer’s name and a CPA then issued, signed by the crude oil buyer and then returned to the crude oil seller within 4 working days of receiving a positive Q & Q report.
8. The crude oil buyer’s cargo will then go onboard within 3 days after the re-assignment and the CPA has been signed.
9. Payment is then made via swift to the accounts in the SPA within 72 hours of the supercargo going on board, and then the Vessel sails off afterward.
4). Tanker To Tanker (TTT):
Here, the crude oil buyer uses their own vessel, then the oil is transshipped when the transaction is fully settled.
How Payment Is Made for Crude Oil Transactions In Nigeria
Payments are made through various means like wire transfers, bank to bank transfer, or any other agreed means of payment.
The Price Of Crude Oil In Nigeria
The price of crude oil in Nigeria per barrel is usually what is listed on the OPEC’s website.
How To Find Genuine Crude Oil Sellers In Nigeria
1). Genuine crude oil sellers in Nigeria are given allocations from the NNPC, which is the body that regulates the Nigerian petroleum industry. The first step to verify the authenticity of a crude oil seller then, is to ask to get their allocation details for verification. A failure to produce this can mean the crude oil seller is a fraud.
2). Be wary of sellers asking for upfront payments. Many of them are fraudulent and will make you lose your money faster than you’d realize.
3). Ensure you speak with the seller over the phone to ask a series of questions. Replying emails is not enough. If possible, it is best for the crude oil buyers to get to eventually meet the seller in person. This is a whole lot safer than just remote conversations.
4). Upon clearing the cargo, the seller should be able to provide a CPA (Charter Party Agreement), ATL (Authority To Load), Q88 vessel details, and also an export schedule, transport & delivery confirmation, port & terminal confirmation of lifting schedule, export declaration of customs, and the seller’s authority to re-sell.
How To Find Crude Oil Sellers Through Intermediary Facilitators Or Brokers In Nigeria
To enable a crude oil transaction to go through easier and safely, a crude oil buyer may need to work with a facilitator. This is an individual that understands how to facilitate a deal and go through the sales process at the NNPC.
Getting genuine crude oil sellers directly can be extremely difficult for a crude oil buyer, but going through a facilitator or broker can help you execute a transaction faster and easier.
Some Terms Used In The Crude Oil Business In Nigeria
1). Proof of Product (POP):
This is a document presented by a seller to show proof that they have the product for sale. It can be sent via email or done physically, and will go a long way in helping a crude oil buyer vet the authenticity of a crude oil seller.
Asides this, you have to ensure the seller has a genuine letter of allocation from the NNPC. A crude oil seller who presents their’s will then enable you to easily verify their authenticity or not from the NNPC’s crude oil marketing department.
2). Proof Of Fund (POF):
This document shows the seller that the crude oil buyer truly has the funds to acquire the crude oil required. This financial document will be issued by the crude oil buyer’s bank to prove the buyer isn’t a time waster or a fraud.
Some POF’s you can obtain that are acceptable are:
- Bank Guarantee (BG)
- Letter of Credit (L/C, or, LOC)
- MT 799
- MT 103
3). Sales And Purchase Agreement (SPA):
This a document that binds the crude oil buyer and crude oil seller to a contract, and stipulates stiff penalties for any party that attempts to back out from the transaction at any later time. Before a SPA is signed, both parties have to carefully come to an agreement, else one could be defrauded by the other even within a legal context of a contract, forcing one party to pay huge sums of money running into hundreds of thousands of dollars without a transaction taking place.
4). Letter Of Intent (LOI):
This a legal document that is issued by the crude oil buyer to show their intent, specification, and conditions to transact a crude oil deal.
5). Facilitator (Crude Oil Broker):
A facilitator is a middle man or broker who goes in search of both genuine crude oil buyers and crude oil sellers. By standing in as a link between two credible sources, the facilitator will ensure every document goes through them to the other party.
If the facilitator or crude oil broker successfully seals the contract and earns around 50 cents per barrel for say 10 million barrels, they could earn up to $5 million Dollars, depending on how many facilitators are in the transaction chain.
A mandate is the representative of both the crude oil seller and the crude oil buyer. They have the authority to act on behalf of the seller or buyer and may earn up to $1 per barrel in the transaction.
Some Problems That Arise In The Crude Oil Business In Nigeria
1). The Integrity Of Crude Oil Buyers And Crude Oil Sellers:
This is the biggest problem because it is always difficult for genuine crude oil sellers to meet genuine crude oil buyers and vice versa. When this is a problem, it is best to go with a genuine facilitator or crude oil broker.
2). Cutting Corners Around Due Process:
Some problems could arise if the crude oil buyer demands to see a Proof of Product, and allocation documents first, but the crude oil seller instead wants the buyer to show the Proof of Funds and to also sign a Sales and Purchase Agreement (SPA) first.
Many scenarios could cause this situation to happen, ultimately, any buyer should take extra caution when a seller insists on signing a SPA first.
3). No Bribery:
There is no need for any form of bribery to occur, as every contract term for every party is always well documented in the contract, and everyone gets paid their legitimate fee after the transaction is completed.
4). Problems With Finding Real Facilitators (Crude Oil Brokers):
Finding crude oil sellers is hard, and so, going with crude oil brokers or facilitators makes the process a whole lot easier. But getting genuine facilitators is a large problem even for most crude oil buyers.
The large pool of fraudulent crude oil facilitators in Nigeria makes many crude oil buyers extremely wary, and so, makes even genuine crude oil brokers look bad or have a heavy suspicion placed on them by most crude oil buyers.
As a genuine crude oil facilitator, you’d have to do a great job of convincing the crude oil buyers you’re for real, and their hard earned money would not go to waste.
5). Several Facilitators In A Transaction:
When there are several crude oil facilitators involved in a transaction, the commission level continues to reduce per facilitator, and information passes through very slowly. Also, when crude oil buyers realize there are too many people in a transaction, they tend to pull away from it, and go in search of another with a more direct link.
Too many people in a transaction makes it difficult to pull through.
But then again, you could choose to stand in as a facilitator for a crude oil seller or a crude oil buyer. If you realize a crude oil buyer has a mandate, you can offer to stand in as a facilitator for them, and still stand in as a facilitator for the crude oil seller, enabling you to maximize your revenues.
6). Poor Knowledge Of The Product:
Most facilitators know nothing about the product they’re trying to sell. They just want a cut and that’s it. As a facilitator, it’s important you completely understand the product, so that when the crude oil buyer puts a call across to you for a conversation, you can accurately sell yourself confidently and convince them you’re genuine and not a fraudster.
To Sum It Up
The crude oil export business is one of the most lucrative aspects of the oil and gas industry in Nigeria. But despite its attractive profit potentials, many individuals find it difficult to successfully execute a transaction, due to the high level of fraud within the industry.
Crude oil buyers, on one hand, take extra care only to end up wasting so much time because they’re looking for genuine crude oil sellers. This challenge leads them to get facilitators or crude oil brokers, but still end up been skeptical, causing them to back out of several potential deals.
What are your thoughts on how to find real crude oil sellers and buyers in Nigeria? Let me know by leaving a comment below.
An Important Point
Crude oil sellers in Nigeria on OPEC and Off-OPEC markets never advertise themselves to the general public, making it difficult for crude oil buyers to identify them. The only crude oil sellers that are made public are those who get lifting contracts from the NNPC, while the rest remain hidden.
This lack of information creates difficulties for a direct crude oil transaction to be executed, causing legitimate and serious crude oil buyers to either stay away from many prospects for as long as possible, or to go in search of reputable crude oil brokers or facilitators in a bid to buy from real crude oil sellers acting on behalf of the NNPC.
If you’re a genuine crude oil buyer with a mandate, and are ready to follow the right, legitimate, and thorough procedures to get a crude oil export transaction done without cutting corners, Startup Tips Daily Media, through our sister company, STDM Business Solutions, is a facilitator that can help you complete your successful crude oil transactions.
If you are one of the crude oil sellers that have an allocation and are looking for a wider way to reach more crude oil buyers, Startup Tips Daily Media can help you broker a crude oil export transaction by sourcing reputable and serious crude oil buyers. We mediate for crude oil sellers with allocations and also for crude oil buyers looking for legitimate crude oil sellers or brokers.
You can reach us through the contact form below: