The crude oil trade business is one of the most rewarding and highly risky ventures around the world. Its trade is carried out everywhere around the globe with a few countries selling and many other countries buying.
Out of all the oil producing nations in the world, Nigeria has one of the most demanded crude oil variants because of its very low sulfur content levels which bring down refining costs and increases the margins made by the refineries. As a result, a lot of crude oil buyers worldwide flock to Nigeria in a bid to buy from crude oil sellers on a long-term basis to either use in their refineries or to resell to refineries.
But great demand and lucrative returns bring a lot of vices along the way, and as a result, many crude oil buyers lose millions of dollars directly and indirectly in a bid to buy crude oil from Nigeria.
The key problem now is crude oil buyers understand that many countries all over the world sell crude oil on official (OPEC) and unofficial (OFF-OPEC) basis. And since the latter comes with better discounts, they hustle for it and make careless mistakes that go on to cost them a lot of money in a bid to make higher profits.
To help crude oil buyers seeking to purchase crude oil on OFF-OPEC basis from crude oil sellers in Nigeria get better clarity, I’ve decided to answer about 81+ of the most frequently asked OFF-OPEC questions and answers by crude oil buyers in Nigeria.
1). Is There Anything Like OFF-OPEC Allocations?
First, the term OFF-OPEC is surreal. It is simply discounted crude. The reason people call it OFF-OPEC is because the sales are made by people who do not have OPEC allocations with the NNPC.
Now, the NNPC does not give out OFF-OPEC allocations, but financially capable and well-connected companies have the ability to purchase oil from the NNPC without having an OPEC allocation.
For instance, the companies who bidded for the 2018/2019 OPEC allocations are yet to be awarded as at August 2018. Does it mean Nigeria is not selling a drop of crude oil? No. It simply means that crude oil is been lifted by crude oil sellers some other way to be sold to crude oil buyers. That is where OFF-OPEC comes in.
2). Does The NNPC Have Crude Oil Marketers Or Crude Oil Resellers?
The NNPC only has crude oil buyers who go on to resell to their clients. They buy on FOB basis and can only get great deals since they’re locals.
As for the talk of crude oil marketers, this comes up with terminal transactions which have zero to no credibility and are extremely questionable.
3). Is It True That Off-OPEC Sellers Are Registered?
As earlier said, no OFF-OPEC crude oil seller is registered because OFF-OPEC allocations do not exist. The crude oil sellers simply have a good relationship with the NNPC and are financially capable to lift crude oil for export.
As at August 2018, there’s no company in Nigeria operating with an OPEC allocation because companies who bidded for the 2018/2019 term contracts have not yet been awarded. So this simply means that crude oil sellers are shipping crude to crude oil buyers based on their relationships with the NNPC and their financial capability.
4). How Do You Verify An OFF OPEC seller?
You simply cannot verify an OFF-OPEC seller because not a single one is registered.
5). Is The ATS On Allocation Given To OFF-OPEC Sellers Real?
Since no OFF-OPEC seller is registered, every Authority To Sell document you get from an OFF-OPEC crude oil seller claiming to have been given an allocation is simply fake. Most of them print it because crude oil buyers won’t act unless they see it. But all of the ATSs showing they have allocation for OFF-OPEC is 100% fake!
The easiest way to know if something is legitimate is to verify, and since verification is impossible, that rings negative signals. However, this doesn’t mean some crude oil sellers can’t get crude oil to supply. It just simply means that crude oil buyers looking to purchase crude oil on OFF-OPEC terms should know there’s no such thing as an allocation for an OFF-OPEC crude oil seller.
6). Is OFF-OPEC Bulk Allocation Real?
Now, since crude oil sellers can ship crude oil without having an OPEC allocation but by having the financial capacity and the right relationships with the NNPC, the shipment is gotten from what is commonly known as excess crude.
Now “excess crude” can mean several things. Some of them are:
- All OFF-OPEC sales are termed as excess crude
- If the international price of crude oil exceeds the price the yearly budget is set at, the increase is termed excess crude
- All crude oil production levels that are more than the quota permitted by OPEC to Nigeria is called excess crude
- When there is a production increase in an OML’s (Oil Mining License) operation, it is called excess crude.
All excess crude sales are paid into the “excess crude account” of the Nigerian federal government.
7). What Are The Minimum Requirements To Qualify As An NNPC Verified Crude Oil Seller?
To qualify as an OFF-OPEC seller, you simply need to have connections with the NNPC and the financial capacity to buy crude oil on FOB terms from the NNPC.
If you instead want to be an OPEC seller, there are some criteria you must meet.
First, the people who can bid are:
- A bona fide end user who owns a refinery and/or retail outlets. Possession of refinery that can process Nigerian crude oil grades will be an added advantage;
- Government to Government arrangement (Bilateral relationships) with high energy consuming countries;
- An established and globally recognized large volume Crude Oil Trader;
- An Indigenous Nigerian company engaged in Nigerian Oil and Gas downstream business activities
The prequalification requirements as at 2017 are:
- Certificate of Registration/Incorporation and/or similar evidence of company registration issued by Corporate Affairs Commission (CAC) for Nigerian companies or issued by Home Country’s Government Agency for foreign companies.
- Certified true copies of memorandum and Article of Association of the company (Statement of share capital and return of allotment) and CO7 (particulars of Directors) and /or similar statutory documents indicating ownership structure of company, name(s) of Directors, major shareholders and percentage shareholding.
- Detailed Company Profile with full details of company’s resume demonstrating company’s capabilities.
- Submit a tender application letter (on bidder’s letter headed paper) including name of authorised contact person (s), company full address, Email address and Telephone number
- Company Tax Clearance Certificate for the last three (3) years (2014, 2015 & 2016) for Nigerian companies and similar tax certification documents for foreign companies.
- Evidence of compliance with the provisions of Industrial Training Fund (ITF) Amendment Act 2011 by inclusion of copy of Compliance Certificate from the Industrial Training Fund (for Nigerian companies) or similar documents for foreign companies.
- Evidence of compliance with the Nigerian Social Insurance Trust Fund (NSITF) Act by inclusion of copy of Compliance Certificate (for Nigerian companies).
- Evidence of compliance with PENCOM Reform Act 2004 by inclusion of valid Pension Clearance Certificate (for Nigerian companies) or similar documents for foreign companies.
- Evidence of registration on the Bureau of Public Procurement (BPP’s) National Data Base of Federal Contractors, Consultants and Services Providers (NDCCSPs) by inclusion of Interim Registration Report (IRR) (for Nigerian companies).
- Evidence of relevant certification with Department of Petroleum Resources (where applicable).
- Audited Accounts for the past three (3) years (2014, 2015 & 2016) which must bear the stamp of Audit Firm.
- Demonstration of minimum annual turnover of US$ 500 million (or the Naira equivalent) and net worth of not less than US$ 250 million (or the Naira equivalent) for the Financial Year Ending of 2016.
- Ability to establish an irrevocable Letter of Credit for the payment of any allocated Crude Oil subject to the contract terms.
- Details of the applicant’s facilities, markets and volume of crude oil (listed in barrels) and products traded (listed in metre tonnes) and/or processed over the last three (3) years (2014, 2015 & 2016) in a tabular form
- Evidence of verifiable similar services carried out within the last five years.
- Company’s CASHES plans and QA/QC policy and detail of safety records for accidents, incidents, injuries and damages for the past three (3) years (2014, 2015 & 2016).
- A prospective bidder shall make provision of sworn affidavit to support action as follows: a) To allow NNPC verify all claims made in your submission b) To allow NNPC verify that your organisation is not in receivership, nor the subject of any form of insolvency of bankruptcy proceedings or the subject of any form of wrong up petition or proceedings. c) To confirm that the company is not a replacement for a hitherto tax defaulting company d) To confirm whether or not any of the members of relevant companies of NNPC or Bureau of Public Procurement (BPP) is former or present Director, Shareholder, or has any pecuniary interest in your company. e) A written statement confirming that your company does not have any Director who has been convicted in any country for a criminal offence relating to fraud or any financial impropriety or criminal misrepresentation of falsification of facts relating to any matter. f) A written statement providing full names, contact addresses of current directors and beneficial owners to including their email address, and telephone number.
- Certainty of business integrity and pre-signed undertaking to strictly comply with Nigerian Ant-Corruption laws in processing the bid and executing the contract if successful.
With an OPEC allocation which is extremely difficult to secure, you’d be lifting crude oil at the full price + a premium since it is Nigerian Light Crude Oil and allocated for you. But by purchasing based on the Provisional Lifting Right, you’d be able to get NLCO at a discount but only from available excess crude oil.
8). Is It Only The Bonny Terminal That Crude Oil Is Supplied From In Nigeria? Is It The Individual Terminals? The NNPC Headquarters? Or What Exactly?
As of 2018, there are about 27 loading terminals in Nigeria, out of which 25 terminals are for crude oil and 2 are for gas. Bonny terminal, being the most popular, is not the largest. Many other terminals like Bonny Terminal produce very low sulfur crude oil and are in high demand worldwide.
While most buyers think OFF-OPEC crude is sold from only the Bonny Terminal, it is not. And most exports are not from Bonny Terminal. This is why the crude from Nigeria is better called Nigerian Light Crude Oil (NLCO) than Bonny Light Crude Oil (BLCO).
Now, there are four ways to get crude oil from Nigeria:
1). The first popular way is from companies who have OPEC allocations. As at August 2018, no company in Nigeria that bidded for an OPEC allocation has been allocated. So the crude oil sold from Nigeria is definitely leaving in some way.
2). The second way is terminal transactions, like in the example of what many crude oil sellers want to offer. The problem with terminal transactions are nothing at all is verifiable. They’re also unofficial transactions and could get a crude oil buyer and broker into trouble if not well managed. Here, the Laycan is not verifiable. Also, the ATS confirming bulk allocation given is completely fake.
3). The third way is based on the Provisional Lifting Right (PLR) from the NNPC. Here, the NNPC gives permission and issues Laycan to a crude oil seller to load a vessel. This Laycan is transmitted via pin, stem, and keyboard numbers as an official directive to the loading terminals and is verifiable at the NNPC towers and the PPMC (Pipelines and Products Marketing Company)—a subsidiary of the NNPC. The only ATS given here is the ATS to verify cargo onboard the finally loaded vessel, and this is only given to a seller that has paid 100% for the cargo to the NNPC on FOB basis. But the Laycan is the first point of verification that proves it’s a 100% legal transaction. Once the Laycan is issued by the NNPC to the crude oil seller in this case, the crude oil buyer can have anyone go to verify the Laycan anywhere to confirm there’s really a lifting schedule in place. Since there’s no documentation to give for verification except the Laycan, most sellers selling on PLR basis can give an upfront performance bond since they’re actually financially capable, provided the crude oil buyer can pre-advice first requesting an upfront performance bond. Some crude oil sellers selling on PLR basis can equally pre-advice upfront if the buyer show proof of funds from his bank. But all these are done when an SBLC is in place and not a DLC.
Now, the interesting thing is the same amount of discount that is offered in terminal transactions can be given in PLR-based transactions to get discounted crude from Nigeria, except that one is indirectly processed as an official transaction and the other is not. The seller who sells based on the Provisional Lifting Right (PLR) can further go on to have the transaction recorded on the NNPC London shell screen as a full OPEC transaction. Since the NNPC approves the PLR, this is possible, only that the discount will fall further.
Another thing to note is that these sellers are not brokers for the NNPC. Those who sell directly from the terminal could claim anything since nothing from them is verifiable. But those who sell based on the PLR issued to them pay 100% to the NNPC on FOB terms before they can ship and resell.
Sellers who sell based on the PLR, have the bill of lading address them as the consignee and NNPC as the consignor since they are buying from the NNPC on FOB. They pay a $2.5m deposit fee and a $1m cargo indemnity before Laycan is issued, after which they go on to raise a Bank Guarantee before they can load. Once crude oil is loaded and cargo documents are issued, they make 100% payment for the cargo before they go on to ship to their crude oil buyer, who pays on a CIF basis. Once they supply to the crude oil buyer, they reassign the cargo documents to reflect them as the consignor and the crude oil buyer as the consignee. But if a crude oil buyer is buying on FOB basis, the consignor would be NNPC and the consignee would be the crude oil buyer.
Another thing is payment for cargo bought on CIF is going to the crude oil seller or any account they choose because they’ve already paid 100% to the NNPC for the cargo. Since a Laycan was issued, it can be verified to know that a lifting schedule was set and that the cargo was loaded and paid for, since it won’t sail unless the crude oil seller has paid for the cargo on FOB basis. Also, all payments to the NNPC for PLR are made to the NNPC’s “Excess Crude Account” (You can google what Excess Crude Account is). The excess crude account receives excess crude payments of different forms as mentioned earlier. Also, the NNPC’s excess crude account always carries the NNPC or PPMC name. The NNPC has these accounts in many top banks locally and internationally. They all carry the NNPC or PPMC name as the account holder.
It’s even more interesting to know that crude oil sellers who get PLR from the NNPC are extremely flexible with their procedure.
4). The fourth way is to purchase directly from the OML (Oil Mining Licence)/PSC (production sharing contract) holders. These are the companies that co-control the production rights together with the NNPC. In Nigeria, it is always shared such that NNPC could keep 45% and the company keeps 55% of the crude produced depending on what the agreement is. Now, the PSC holders have the right to sell their own production share to anyone at any price. But it would be registered through the NNPC and Laycan would be issued to the crude oil buyer buying from them. These are always verifiable transactions. But in all cases, the only crude oil buyers allowed are Nigerian companies who go on to resell to foreign buyers at discounted prices.
If the crude oil is being bought from the OML/PSC holder, the account name is the OML/PSC holder’s account name.
9). Do international Oil Companies Like Shell, Total, Exxon And More Have Rights To Sell/Export Crude Oil From Nigeria?
As earlier said, most IOCs in Nigeria are Joint Venture partners (OML/PSC Holders) with the NNPC, and as such, are entitled to a certain quantity of crude oil they produce. Meaning they can go on to sell their quota to anyone they want to, but mostly don’t since they use them in their own foreign owned refineries.
10). Is Getting Provisional Lifting Right The Same As Getting Laycan?
A crude oil seller does not have a provisional lifting right until the Laycan is issued. This goes on to mean they’re literally the same.
11). How Long Will It Take The Crude Oil Seller To Secure Laycan From The Time The Financial Instrument Has Been Placed?
Before the crude oil seller can secure Laycan, he or she must have gotten their financier to move the funds required to purchase the crude oil, secured a charter party agreement along with other vessel documentation with a vessel operator which would be submitted to the NNPC alongside the cargo deposit of $2.5 million dollars and vessel indemnity bank draft of $1 million dollars.
In all, these could take anywhere from 15 to 21 days before Laycan is issued and loading will commence.
12). Are There Documents That Prove A Crude Oil Seller Has Provisional Lifting Rights?
There are no pre-documents that show a crude oil seller has provisional lifting rights. Once verifiable Laycan has been issued, only then can the crude oil seller have a provisional lifting right. The Laycan can be verified at the NNPC towers and at the PPMC. This goes on to mean that once a crude oil buyer confirms that the issued Laycan is genuine, he or she knows they’re not getting stolen goods and that the element of risk is highly depleted.
The only thing here is the crude oil seller will not spend millions of dollars to secure Laycan for any shipment when the crude oil buyer has not placed a bank guarantee (SBLC) to pay upon delivery.
13). Since A Real OFF-OPEC Crude Oil Seller Cannot Be Verified Before Laycan, How Can The Crude Oil Buyer Play Safe?
The best way a crude oil buyer can stay safe in a crude oil transaction is to ensure the trade process is very secure. Now, every crude oil seller is offering to give a 2% performance bond after getting the financial instrument from the crude oil buyer on the full cargo value which they will forfeit if they fail to deliver. The problem with this, however, is placing a financial instrument can cost the crude oil buyer up to or more than $150,000 by his or her bank, and if they place an SBLC and the crude oil seller does not post a performance bond afterwards, then the crude oil buyer would be unable to get back the money they paid their bank.
Now, the most realistic scenario that could work for a crude oil buyer to stay safe is if the crude oil seller can either pre-advice first or post an upfront performance bond. But too many crude oil sellers refuse to do this.
If a crude oil buyer wants to have the best of both world’s, there are a few crude oil sellers who would be willing to compromise on certain terms. Some of the terms are:
- If the crude oil seller will post an upfront performance bond, then the crude oil buyer should first preadvice bank to bank via SWIFT MT799 requesting the upfront performance bond.
- If the crude oil buyer wants the crude oil seller to preadvice first, then the crude oil buyer would have to send a letter from their bank proving that they have the full funds for the transaction and will place an SBLC after getting the crude oil seller’s preadvice stating irrevocable willingness to post a performance bond upon receiving a financial instrument from the crude oil buyer.
A few crude oil sellers would agree to this, but this is about the safest way for crude oil buyers to go about it, so that both parties know they’re financially protected before the transaction even starts.
But essentially, this way will largely only work with an SBLC, because a DLC carries immense risk to the crude oil seller. The risk a DLC poses is explained later in this article.
14). What Is A Bank To Bank Pre-Advice?
A bank to bank SWIFT pre-advice confirms the availability of funds on both the crude oil buyer and crude oil seller’s bank accounts for the said crude oil transaction, and unless stated otherwise, it irrevocably commits the issuing banks to issue or amend the letter of credit according to the said pre-advice sent between both banks.
15). What Security Does A Performance Bond Really Provide For A Crude Oil Buyer?
A performance bond is simply a cash-backed indemnity given by the crude oil seller’s bank to the crude oil buyer’s bank as a backup in fulfilment of the contract. If the crude oil seller does not fulfil the obligations of the contract, his or her bank will irrevocably pay the crude oil buyer’s bank the value of the performance bond the crude oil seller and crude oil buyer had previously agreed to.
In most cases, the performance bond issued is usually calculated at 2% of the entire cargo value.
When a performance bond is given upfront before the SBLC is in place especially, the crude oil seller would take the transaction with a lot of seriousness because they stand to lose the value of the bond to the crude oil buyer in the event of a failed transaction. And if the value of the transaction is $100 million US dollars, the crude oil seller stands to irrevocably lose $2 million dollars.
16). Why Is The Performance Bond Sometimes Posted From A Different Account Than The One Receiving The Financial Instrument?
This all depends on the financial structure the crude oil seller is working with. Some financiers would be willing to fund the transaction upon receiving the SBLC but refuse to post a performance bond. While others would be willing to post a performance bond if they can confirm if you have the right connections to the NNPC, experience in the trade, and financiers willing to fund the entire transaction upon getting the SBLC.
In situations like this, the SBLC would be posted to a different account, while the performance bond will be sent from a different account.
Another thing to note is that a pre-advice procedure is difficult in this scenario because the bank posting the performance bond will not pre-advice the account sending the SBLC until they’re sure the SBLC is in place at the receiving bank. In that case, they wouldn’t need to preadvice again but would simply post the performance bond.
17). Can A Crude Oil Buyer Get The Crude Oil Seller To Post The Performance Bond To A Different Account Other Than The Account Posting The SBLC Or IDLC?
Just as a crude oil seller can post a performance bond from a different account, a crude oil seller can equally post the performance bond to a different account other than the one the crude oil buyer is using to post the SBLC.
The most important thing here is an understanding of the two party’s financial structure to enable each other to move forward.
18). Before The NNPC Issues Laycan To The Crude Oil Seller, What Does The Seller Have To Do?
Before the crude oil seller can get a Laycan from the NNPC, they need to pay a non-refundable $2.5 million dollars deposit and raise a $1 million dollars vessel indemnity bank draft before Laycan can be issued. No crude oil seller will do this if the crude oil buyer has not placed a financial instrument.
19). Is The $1 million Vessel Indemnity Given To The Vessel Master Or To The NNPC?
The $1 million dollars vessel indemnity is for the NNPC, not the vessel owners. Irrespective, the crude oil seller would have already deposited up to $300,000 with the vessel owners to enable them to secure the vessel for the transaction.
20). How Can A Crude Oil Buyer verify The Laycan And Cargo Documents For A Crude Oil Shipment?
While you can do this at specific departments at the NNPC and PPMC, the fastest way to confirm is from the vessel home office listed on the Charter Party Agreement.
The vessel operators will not sail to the loading point without verifying the Laycan, so as not they get themselves into trouble, and so, are the easiest point of verification. Also, the vessel operators can quickly and easily verify if the cargo documents are real not.
21). Is It True That There Are Vessels Laden With Crude Oil On Nigerian Waters?
Vessels are only laden with crude oil whenever there’s a shortage in crude oil export sales, as could be seen in the period of May/June of 2018. When this happens, the excess production is offloaded on Floating Production Storage and Offloading (FPSOs) vessels as temporary storage, especially since the production line cannot be shut down.
It’s also key to know that the joint venture operators may either be chattering the vessels or using their own vessels. This means the NNPC does not own the vessel. So to say NNPC has loaded vessels on Nigerian waters is wrong.
Another scenario to review is the fact that in 2015, the NNPC banned about 113 Very Large Crude Carriers (VLCC) from operating on Nigerian waters. If the VLCCs were owned by the NNPC, there would never be a need to have banned NNPC owned vessels.
So technically, the NNPC does not have any loaded vessels with crude oil on Nigeria waters. Rather, the joint venture operators could be storing crude oil on FPSOs whenever there’s a low demand for Nigerian Light Crude Oil (NLCO) or Bonny Light Crude Oil (BLCO) as many people know it as instead.
22). Can A Crude Oil Seller Have A Real Loaded Vessel Offer?
First, it is extremely unlikely that the loaded vessel offer is real. The reason is no crude oil seller in Nigeria would simply spend almost $100 million dollars to buy, and load a vessel, only to then go in search of a crude oil buyer.
If a loaded vessel offer is presented, find out which company is selling. If it is genuine, it is very likely that it is a foreign company that bought the cargo from a crude oil seller to resell outside Nigeria. In this case, the discount would be very low.
But on a general note, 99.5% of loaded cargo offers of crude oil are simply fake!
23). How Do You Verify A Real Loaded Vessel Offer?
If you’re paramount on trying to secure a loaded vessel offer presented to you, ask that the captain of the vessel should send an email to you and your banker from the email address listed on the Q88, as the vessel captain wouldn’t do that if there was no cargo onboard. You should also be registered on q88.com to be able to confirm the email is coming from the email address truly registered to that Q88. If they refuse to send an email from the email address registered on the Q88, then you know you’re dealing with a prospective scam.
If you eventually get the email, the next step is to have them issue you a Marine Authority To Board (MATB), so you can board your supercargo to confirm that crude oil is truly onboard the vessel.
Once you confirm this, you could then place a financial instrument to secure the cargo and have them ship it to your destination.
But the crude oil buyer would first need to show financial capability in the form of a Bank Comfort Letter or the likes before the email would be sent in the first place.
24). What is A Q88?
First, Q88 stands for “Questionnaire 88”.
The q88 is an official document/questionnaire that is completed by vessel owners and includes all details related to their vessels including when it was built, the capacity of the storage tanks, the insurance info, the nationality of the crew, the date of the last inspection survey, the vessel satcon number, the vessel captain’s email address, and much more.
The Q88 information of a vessel can be verified on q88.com, and it has over 75% of the world-wide tanker industry onboard. The platform enables everyone registered to have access to the latest updated tanker data.
25). Why Won’t Crude Oil Sellers In Nigeria Take A DLC Or Any Other Financial Instrument Instead Of An SBLC?
Most crude oil sellers in Nigeria prefer to only take an SBLC instead of a DLC from crude oil buyers because DLC poses a higher risk to them. When a DLC is used, some crude oil buyers could purposely cause delays, schemes, and gimmicks at the port of discharge. But when an SBLC is used, it is simply a collateral in the event that the crude oil buyer does not pay, thereby prompting crude oil buyers to always want to make payment once cargo has been delivered and the terms have been met, so that there’d be no reason for the crude oil seller to monetize the financial instrument. Besides, the crude oil seller would be unable to cash an SBLC from the bank if they have not delivered the cargo, successfully passed the QnQ inspection, and transhipped into the crude oil buyer’s tanks.
Some key issues to note about a DLC are that:
1). First, when a DLC is placed by a crude oil buyer’s bank, the buyer’s bank usually requires that the buyer places a 5% to 20% value of the cargo in the buyer’s bank account. Meaning that when cargo is delivered and the terms of the shipment are met, there’s a very high probability that the crude oil buyer may not have the full money to pay. Now, since the bank posted the DLC, they’re liable to pay. The only problem now is the bank would have to do a complete review and more because the buyer never put the final sum in the account, and for reasons best known to the banks, the payment could come in after a month, and demurrage would have piled up on the vessel, costing the crude oil supplier a lost of money in losses.
2). Inspection companies can manipulate the test results at the destination port for the crude oil buyer to enable the buyer to argue that the test results didn’t meet what was agreed on the contract and then force the crude oil seller to drop the price of the commodity at a loss to the seller.
So with some crude oil sellers, their conditions for dealing with a DLC would be the following below:
- It must be a Confirmed Irrevocable DLC. And that the confirming bank must also be a top 50 global prime bank different from the top 50 global prime issuing bank.
- The DLC will only be issued for the first shipment. After the shipment is completed, there will be an entirely different contract drawn up for SBLC valid for one year.
- With the issues a DLC poses, the consignee will only be the crude oil seller’s name. So that if any crude oil buyer schemes to cause a problem for the seller at the destination port, they can easily resell the cargo to someone else.
- After the vessel has sailed, the crude oil seller will send confirmable non-negotiable electronic copies of the cargo documents to the crude oil buyer to verify that the cargo was loaded by the NNPC and is en route. After which when the cargo reaches the destination, the buyer will only sight the physical original documents having already verified the electronic copy with the NNPC, then place an MT103 before they get the physical cargo documents. And that the terms of the MT103 will be that the cargo will be transhipped into the buyer’s tanks 24 hours before the MT103 crystallises into cash in the seller’s bank account.
- The inspection company that will test the crude oil will be agreed between both parties. So that two independent reputable world-class companies will test to ensure they get the same results and not that the crude oil buyer’s inspection company will manipulate results for the buyer.
- If one week after QnQ, the MT103 has not been placed and confirmed by the crude oil seller, the seller will have the right to sail off with their cargo to sell to anyone else.
- An in-depth due diligence on the buyer must be done to ensure they will not default on payment after delivery.
- A condition that will be tied to the performance bond is that if the vessel arrives at the port of discharge and the QnQ test has been done but the results have not been released within 5 banking days, the crude oil seller’s performance bond will not be cashable if there are any issues.
- The performance bond is not liable to any issues at the port of discharge caused by the buyer.
- And little to no sellers would be willing to give an upfront performance bond for a DLC. The performance bond will only come after the DLC is in place.
On the other hand, many crude oil sellers credit line does not enable them to work with a DLC.
To make placing an SBLC easier for buyers, most genuine crude oil sellers will be willing to post an upfront performance bond before the crude oil buyer places a financial instrument.
26). Why Do Crude Oil Sellers Always Request An Irrevocable And Transferable Letter Of Credit?
First, not all Letters of Credits are irrevocable and transferable. It is all negotiated based on the trade agreement between the crude oil buyer and the crude oil seller.
In any reputable international trade transaction, the Letter of Credit must be irrevocable so that the crude oil buyer wouldn’t just go on to change their minds when the crude oil seller has already loaded and shipped the cargo, thereby causing the crude oil seller unimaginable losses.
Also, the letter of credit is mostly required to be transferable depending on the financing structure the crude oil seller is working with.
For instance, if the crude oil seller’s bank is financing the transaction only based on 50% of the value of the L/C issued and the crude oil seller is lifting from a Production Sharing Contract (PSC) holder to pay 50% before shipping and 50% after delivery, the PSC holder would require that the Letter of Credit the crude oil seller is getting from the crude oil buyer be transferable, so that they can claim the money in the event that the crude oil seller doesn’t pay.
Another scenario for why the Letter of Credit must be transferable is in the event that the crude oil seller experiences some temporary difficulties in lifting crude oil after the L/C has been issued. In this scenario, the crude oil seller would look to transfer it to any other seller who can lift at that time, to be able to still supply the product to the crude oil buyer on time.
In the end, the transferable L/C is literally put in place to mitigate supply risks for the PSC holder and the crude oil seller.
Asides this, the Letter of Credit would be unencumbered, meaning that upon expiration of the L/C, there will be no draw-down, deduction and that it would be returned as it was sent.
27). Are There Any Upfront Payments Required To Be Paid By The Crude Oil Buyer To The Crude Oil Seller?
There is absolutely no upfront expense that must be paid to the crude oil seller by the crude oil buyer. The scenarios where the crude oil buyer incurs expenses are:
- The bank charges they pay their bank to post the financial instrument.
- Travel expenses in the event that they want to either meet the crude oil seller in the seller’s country or have the crude oil seller meet them in their country. In this scenario, no cash is still paid to the crude oil seller. The travel expenses are simply covered and paid for by the crude oil buyer without transferring a penny to the crude oil seller.
Asides these, there’re no expenses the crude oil buyer will incur.
28). At What Point Is 100% Payment For The Crude Oil Requested By The Crude Oil Buyer Paid To The Crude Oil Seller?
The 100% final payment is only made after the terms of the contract have been fulfilled. If it’s a CIF transaction, for instance, payment isn’t made until after a successful QnQ. And in this scenario, the MT103 is placed after QnQ and materialises into cash 24 hours after transhipment of the cargo has been made into the buyer’s tanks. Essentially, the buyer has the product in his or her tanks before the payment gets into the crude oil seller’s bank account.
For FOB, payment could be made to the crude oil seller after a successful QnQ and cargo documents have been handed over to the crude oil buyer. But the MT103 must have been in place and confirmed before the cargo documents are handed over to the crude oil buyer.
In some scenarios, the FOB payment term could be structured to imply the MT103 materialises to cash a few hours after the vessel loaded with cargo has sailed out of Nigerian waters.
But essentially, payment is only made according to the terms of the contract agreed to by the crude oil buyer and the crude oil seller.
29). Why Won’t Most Crude Oil Sellers Allow The Final Payment For The Crude Oil Bought Go To The Account Receiving The SBLC And Posting The Performance Bond?
First, almost all crude oil sellers work with a financier to fund their transactions. And to do this, the financier usually requests that the financial instrument is posted to their bank accounts since they wouldn’t also just be posting the performance bond from the same account, but would need the financial instrument in their control to be willing to fund the crude oil seller’s shipments.
The only way a crude oil seller would be able to receive a financial instrument to their bank account is only if they have a credit line with their bank. But since banks only give high-volume credit lines to companies who have consistently carried out transactions worth billions of dollars yearly for a certain number of years, most crude oil sellers would only have to keep working with a financier and would be unable to receive the financial instrument.
Now, most crude oil sellers have an understanding with their financiers that the money paid for the crude oil shipped must be repatriated back to the country in their company’s name before it is paid back. Also, some crude oil sellers don’t bother to repatriate but rather have the money paid to a different place.
But since the crude oil sellers have already paid 100% for the cargo to the NNPC before it was shipped from Nigeria, the bank account the payment is going to should generally be of less concern to the crude oil buyer since the crude oil seller has the right to take payment to any bank account of their choice.
30). Is It True That A Fiduciary Account Holder Is Really Registered With The NNPC By The Crude Oil Seller?
The issue of registered fiduciary accounts always comes up with terminal transactions.
First, NNPC only receives payment to its accounts in local or foreign banks. And these bank accounts always carry the NNPC or PPMC account name.
Essentially, the so-called fiduciary is simply the crude oil seller’s financier. To say they’re registered is a far cry because they can neither be authenticated at the NNPC towers nor at the loading terminals. The only relationship they may have with the NNPC is the fact that payment for crude oil bought from the NNPC on FOB terms comes from their bank account. Asides that, there’s no such thing as a registered fiduciary, especially since crude oil sellers could change fiduciaries for a transaction.
31). What Information Should Both The Crude Oil Buyer And Crude Oil Seller Share With Each Other Before They Start A Crude Oil Transaction?
Before any crude oil transaction is executed between a crude oil buyer and a crude oil seller, the two parties should both do a due diligence / Know Your Customer (KYC) check on each other to include but is not limited to the following:
- Corporate Profile showing company history, size, office address/location, number of employees, a list of directors, and much more.
- Client Information Sheet showing the full personal details of the signatories on the contract.
- International passport copy of the signatories on the contract.
- Verifiable trade history showing at least one sale made by the crude oil seller and one purchase made by the crude oil buyer.
- And any verifiable documents that were given by the NNPC to the crude oil seller if it is an OPEC seller.
32). Does NNPC Do CIF, TTO, & FOB?
The NNPC only sells crude oil on FOB terms! All crude oil sellers in Nigeria buys from the NNPC on FOB and sell to crude oil buyers on CIF or TTO.
Now, TTO is really just a modified version of FOB from crude oil sellers to crude oil buyers because after they purchase the cargo, they simply move it out of Nigerian waters so that the crude oil buyer can test with SGS. Asides that, the only two real trade processes are FOB and CIF, and NNPC only sells on FOB terms!
33). What’s The Maximum CIF & FOB Discount For Crude Oil Buyers From Any Part Of Europe, Asia, And America?
Depending on the crude oil seller and the distance the vessel would travel, the CIF & FOB discount could vary. But essentially, they’re all still negotiable.
34). How Long Does It Take The Loaded Vessel To Sail To Europe, Asia, and America?
This time it takes a vessel laden with crude oil to sail from Nigeria to its destination port depends on the route, distance, and type of vessel used. But essentially, the delivery timeline for a vessel to sail to parts of Europe could be 10 to 15 days, parts of America could be 19 to 27 days, and the far east, Japan, & China could be 38 to 45 days.
Essentially, you can calculate the distances from the various ports to their destination on these two websites:
35). Why Doesn’t SGS Carry Out Inspection Of Crude Oil In Nigeria?
SGS could provide information to OPEC on Nigeria’s crude oil activity if forced. This is the reason only Intertek and Cotecna can carry out crude oil inspections in Nigeria.
36). Is There A Minimum And Maximum Number Of Barrels Of Crude Oil That Can Be Bought By Any Crude Oil Buyer From Nigeria Monthly?
The volumes that can be supplied monthly is only dependent on what’s available for purchase at any point in time, based on the production activity by the respective Production Sharing Contract (PSC) holders.
This is why most genuine crude oil sellers prefer to safely say they can supply 1 to 2 million barrels of crude oil to a crude oil buyer at the first instance, before scaling up the quantity they’re willing to supply.
37). If Crude Oil Buyers Refuse To Send A Financial Instrument To A Fiduciary Bank, Can They Still Buy Crude Oil From Nigeria?
If a crude oil buyer can find a crude oil seller that will receive the financial instrument to a bank account with their account name, then they may close a deal. Otherwise, it would be impossible. Almost all OFF-OPEC crude oil sellers use fiduciary accounts owned and managed by their financiers, meaning it is almost impossible to purchase crude oil from an OFF-OPEC crude oil seller if you don’t work with their fiduciary.
38). Is It True That A Letter Can Be Sent From The NNPC Showing That The Fiduciary Account Is Approved By The NNPC?
There’s no such thing as a registered fiduciary, so any letter you get is bullshit! If it is genuine, then you should easily be able to visit the NNPC and verify it. The NNPC would never send a letter to anyone that it cannot confirm.
39). How Long Does It Take A Crude Oil Seller To Load A Vessel And Sail Out After A Financial Instrument Has Been Placed By The Crude Oil Buyer?
It takes about 15 to 20 banking days to load a vessel and sail out of Nigerian waters because, during this period, the crude oil seller would proceed to secure and nominate a vessel, pay for charter, secure laycan (PLR) & a loading window from the NNPC, clear the vessel with the customs, NIMASA (Nigerian Maritime Administration and Safety Agency), NPA (Nigerian Ports Authority), Navy, and more, move the vessel into the loading terminal, load the vessel, and get full cargo documentation, before eventually sailing out of the loading terminal and on to the crude oil buyer’s port of discharge.
The crude oil seller at this point would also provide the buyer with copies of the Laycan (PLR), CPA, Q88, non-negotiable electronic copies of the full shipping cargo documentation, export permit, and proof of payment on the cargo from the NNPC.
40). After The Crude Oil Cargo Is Loaded Onboard The Vessel, Who Is Listed As The Consignor And Consignee?
Since the crude oil seller is buying the cargo from the NNPC to resell to the crude oil buyer, the consignor on the bill of lading would be the NNPC and the consignee would be the crude oil seller. When the crude oil seller then delivers the cargo to the crude oil buyer’s port of discharge, they reassign the cargo documents to carry the crude oil seller as the consignor and the crude oil buyer as the consignee.
Now, some crude oil buyers instead want their names to be the consignee while the NNPC is the consignor. To do this, the crude oil buyer would need to either be buying on FOB terms from the crude oil seller, or the crude oil buyer may have to be a co-consignee on the cargo. If a crude oil seller refuses to let the crude oil buyer be a co-consignee on the cargo, then the crude oil seller is probably not the end seller, because most end sellers could easily agree if it is an SBLC. For a DLC, the crude oil seller will be the only consignee.
41). If The Crude Oil Seller Is Listed As The Consignee And NNPC As The Consignor, How Then Can The Crude Oil Buyer Clear The Goods Since They’re Not Listed As The Consignor?
Since the crude oil seller is the one leasing the vessel and shipping the cargo, he or she has 100% control of the vessel and cargo on board, and so, will instruct the vessel captain as soon as the vessel has sailed to reassign the bill of lading to the crude oil buyer to enable them to plan the clearance ahead.
Once this is done, the crude oil seller is the consignor and the crude oil buyer, the consignee. But only the bill of lading would be reassigned upfront. All other cargo documents would only be reassigned after the MT103 is in place.
So just like a vessel that carries almost a hundred containers with almost a hundred Bill of Ladings assigned, the vessel captain will assign the B/L twice with the crude oil seller as the consignor and the crude oil buyer as the consignee as soon as the vessel sails.
42). At What Point Will The Crude Oil Buyer Receive The Cargo Documents For The Crude Oil Being Shipped?
The cargo documents would be reissued and given after MT103 is in place and confirmed, but before the MT103 has materialised into cash.
In the case of a DLC, cargo documents are reissued and given after QnQ. Then the documents are submitted to the bank for payment once the terms of the contract have been met.
43). How Does The Reassigning Of Documents At The Crude Oil Buyer’s Port Of Discharge Work?
The vessel handlers are responsible for reassigning the cargo documents to the crude oil buyer upon the request of the crude oil seller since the crude oil seller has complete control over the cargo and the vessel for the period of his or her lease on the vessel.
44). How Do You Verify The Cargo Documents From Your Crude Oil Transaction?
If you’re purchasing OFF-OPEC from a crude oil seller buying based on the provisional lifting right, then the issued Laycan can first be verified 100% from the NNPC and PPMC. This first point of verification will help you know there’s truly a lifting schedule in place for the crude oil seller you’re buying from.
Next, the complete set of cargo documents the crude oil seller gets from the NNPC after paying 100% for the full cargo value can be verified at the NNPC or vessel home office. This means that before the cargo even gets to the crude oil buyer at the port of discharge, the crude oil buyer could verify every single document with the NNPC or vessel home office far ahead of time before the cargo documents are reassigned to them.
45). Can A Crude Oil Buyer Get Proof Of Past Performance Documents From A Crude Oil Seller?
Proof of past performance documents for OPEC transactions are very easy to get. But for OFF-OPEC transactions, they’re not because the transactions are not supposed to exist in the first place.
However, genuine OFF-OPEC sellers would be willing to show crude oil buyers their proof of past performance documents physically at a meeting and would even let them verify from the vessel master, so they can confirm if a transaction of the sort was really carried out through them.
46). How Do You Verify A Proof Of Past Performance For A Crude Oil Transaction?
The fastest proof of past performance you could try to verify is a Bill of Lading. While it is highly unlikely that any crude oil seller would be willing to share that with an unproven crude oil buyer, the bill of lading could be verified from the vessel handlers listed on it.
47). How Do You Know You’re Talking To A Seller And Not A Broker?
The easiest way to know you’re speaking to a crude oil broker and not the direct crude oil seller is when you get the contract from them. While a crude oil broker fronting as a crude oil seller would present a contract with their name on it as the selling company, they would always put their bank details in the contract as a recipient of a $1 to $2 commission on the seller’s side. They would claim the full cargo value payment that is being made to the fiduciary or whatever other account listed on the contract is been made directly to the NNPC, and that their account details are there because they’re selling on behalf of the NNPC.
First, this is all bullshit! If you see this, simply walk away or find the direct seller.
Secondly, before any drop of crude oil will legally leave Nigeria, the crude oil seller would have paid 100% to the NNPC on FOB terms before they go on to ship the oil to the crude oil buyer on CIF basis. Meaning that they are getting 100% payment now from the buyer and that the only three account details that would likely be on the contract are:
- The fiduciary account receiving the financial instrument and posting the performance bond
- The crude oil seller’s company’s account receiving the full payment for the oil sold to the crude oil buyer
- The crude oil buyer’s account details that are posting the financial instrument and receiving the performance bond
Sometimes it could also only just be the fiduciary account details and the crude oil buyer’s account details since the crude oil seller can get their money out of the fiduciary account belonging to their financier.
Another way to know you’re talking to a crude oil broker is if they’re completely rude and arrogant when you try to negotiate their procedure, terms, or even discounts.
Direct crude oil sellers are entrepreneurs looking to grow their businesses one way or the other, as long as it is mutually beneficial to both them and the crude oil buyer. And so, they’re willing to listen to your proposal, and would further go on to either tell you if it is workable or explain why it is not workable while recommending another solution.
Most crude oil brokers, on the other hand, do not want to hear about changes because they fear their crude oil seller would get angry and ignore them, and so, they tell you to either take whatever procedure they’ve presented or that the crude oil buyer should forget about it. They also sound very unprofessional in their dealings and are very much likely to consistently be a turnoff.
48). Do Existing Crude Oil Sellers In Nigeria Have Joint Ventures With Other Crude Oil Traders Or They Prefer To Work Individually?
Some crude oil sellers in Nigeria have joint venture partnerships with other crude oil sellers to sell crude oil through their connections to the NNPC and/or finances. Now, they’re not treated technically as brokers because they do not list commission payments for them on the contracts. These companies literally act as an extension of the JV partner’s company to sell crude in a different name, in the event that a crude oil buyer walks away from the original JV partner for any reason to try another seller.
Since the crude oil sellers’ bank account details are rarely ever the coordinates receiving the SBLC and posting the performance bond, this structure is easy to execute.
49). Just After A Crude Oil Cargo Has Arrived The Port of Discharge, When And How Is Final Payment Made?
Upon arrival at the port of discharge, the crude oil buyer’s team would get a MATB from the crude oil seller’s captain, to enable them to board their supercargo and inspection team. After a successful QnQ inspection report, verification of Cargo documents, and submission of the commercial invoice, the crude oil buyer would then be required to place an MT103 for the full cargo value.
After the MT103 has been placed, the crude oil seller reassigns the cargo documents and title to the crude oil buyer and tranships the cargo into the crude oil buyer’s tanks.
Upon transhipping, the MT103 payment would then be crystalised into cash in the crude oil seller’s bank account.
50). If MT103 Is To Be Placed After QnQ And Before Transhipping The Cargo Into The Buyer’s Tanks, How Can The Crude Oil Buyer Be Sure Of The Quantity Of Crude Oil Available Onboard The Vessel?
Whenever cargo arrives at the port of destination, a QnQ test is conducted. Now, QnQ stands for Quality and Quantity, and the inspection agency that carries it out calibrates the vessel to determine the quantity onboard before the MT103 is now placed by the crude oil buyer on behalf of the crude oil seller.
Essentially, the cargo is still transhipped about 24 hours before the MT103 materialises into cash in the crude oil seller’s bank account.
51). Which Inspection Company Is Allowed To Carry Out Inspection Of The Cargo Onboard The Vessel At The Port Of Discharge?
The inspection of the cargo at the port of discharge must be done by an internationally recognised inspection company with the most common one being SGS. While CIQ is used in China, for instance, an independent inspection from an internationally reputable company is also required to compare results and ensure the QnQ test is accurate.
Essentially, only one or two internationally reputable inspection companies may carry out tests at the port of discharge depending on what is agreed to between the crude oil buyer and the crude oil seller.
52). What Is An MT103?
An MT103 is a standardised SWIFT payment message that is specifically used for international wire transfers. An MT103 stands as a valid proof of payment including all the payment details such as payment date, amount, currency, sender and recipient details.
Every bank or financial institutions that make payments via SWIFT for international wire transfers will use an MT103 for every payment they make.
When an MT103 SWIFT is sent, it will usually take a couple of days for the payment to reflect in the seller’s bank account. But this period is adviced by the bank accordingly.
53). Are There Really Any Tank Farms In China With NNPC Crude Oil In Them?
This is a rumour that has been on since 2015, with no known crude oil buyer successfully purchasing based on this term.
First, if there are cargoes on China waters, then it must be cargo that has already been bought and shipped. And if this is the case, the crude oil seller would have no problem having their vessel captain send an email from the email address listed on the Q88 of the vessel, after which they should be able to enable the crude oil buyer board the vessel to verify availability of product onboard. But the crude oil buyer would first need to show financial capability in the form of a Bank Comfort Letter or the likes before the email would be sent in the first place.
54). Is It Possible That Crude Oil Enroute A Country Is From Nigeria, But Is Showing The Source Port As Angola Or Anywhere Else?
This is impossible. If it left Nigeria, then Nigeria would be the source on global tracking platforms. The only way it can show another country is if it was bought by a crude oil buyer in that country from Nigeria, and after arriving there, went on to charter another vessel, tranship the cargo and then ship to another country.
55). If A Buyer Requests For A Table Top Meeting In Nigeria Or In Another Country, Is It Possible?
A tabletop meeting is never an objection by any legitimate crude oil seller to any serious crude oil buyer. Only a crude oil broker or scam would object to a meeting.
But do note that the best con artists would welcome a meeting in the grandest looking offices. So more attention should always be paid to the financial procedure above all else to ensure you’re not been scammed.
56). Why Do Surprise Visits To Some Crude Oil Sellers In Nigerian Offices Result To Nothing?
Some OFF-OPEC crude oil sellers have a very wide network of crude oil brokers that find them crude oil buyers. Since the only job they ever do is to ensure that cargo is loaded and shipped, many of them have offices but are only present there when there’s a meeting.
So surprise visits may likely lead to surprise absences unless the crude oil seller does other types of businesses that require them to be at the office every day.
Asides this, they’re most likely operating from their home office.
57). Is It Possible For A Crude Oil Buyer To Meet With Both A Crude Oil Seller And His Financier To Discuss The Financial Terms Of A Transaction?
A genuine crude oil seller can arrange such a meeting. In this case, the crude oil seller would set the location of the meeting and if a trip from either the crude oil seller or their financier is required, the crude oil buyer would be required to cover all the travel expenses directly.
58). Is It Possible For Crude Oil Buyers To Visit The Bonny Terminal to determine if A Seller’s Connection To Load Crude Is Real?
There’s no such thing as visiting the Bonny terminal to verify if a crude oil seller is genuine. It’s all bullshit. People tell crude oil buyers to do this because they know it is not possible. Also, the Bonny terminal is not the only terminal in Nigeria loading light low sulfur crude. There are at least 25 other crude oil terminals in the country.
59). Are The Email Addresses Or Phone Numbers On The Various ATSs Crude Oil Buyers Get From Some Crude Oil Sellers Real?
First, any ATS saying a crude oil seller has a bulk allocation to sell crude oil is utter bullshit! And if it is, every other thing on the document is bullshit!!
60). Is It Possible For A Buyer To Board Their Supercargo Onboard The Crude Oil Laden Vessel From Nigerian Waters To Their Port Of Destination Everytime A Vessel Is Loaded And Shipped?
Yes. Genuine crude oil sellers can board a crude oil buyer’s supercargo onboard the vessel from the terminal anytime it is loaded to the port of discharge for every shipment.
If a crude oil seller tells you they won’t do that, then they’re either crude oil brokers or simply a scam.
61). How Can Buyers Purchasing Crude Oil On FOB Basis Ensure That Their Vessel Sails Out Successfully From Nigerian Waters Without The Risk Of The Navy Or Customs Seizing The Vessel And Without The Risk Of Pirates Hijacking The Vessel?
If the vessel and cargo documents are correct and verifiable at all the appropriate quarters, leaving Nigerian waters would be absolutely no problem. Also, the Nigerian Navy itself would provide in-ward and out-ward security until the vessel is out of Nigerian waters.
62). Can A Crude Oil Buyer Physically Supervise The Loading Of Their Cargo Onboard A Vessel?
A crude oil buyer cannot supervise the loading of the vessel. However, the crude oil buyer could be invited to the terminal before loading, and after loading. After loading, they can board the vessel to confirm their cargo and even let their supercargo remain onboard the vessel till it arrives at the port of destination.
If a crude oil seller denies the crude oil buyer the request to be present before or/and after loading, then something is wrong. But the crude oil buyer cannot be allowed to be present during loading.
63). Can The Buyer Confirm What Insurance Company Is Covering The Insurance Of The Cargo On CIF? Can They Get A Copy Of The Confirmable Insurance Policy Details?
If it’s a FOB transaction then it is totally possible since the crude oil buyer covers the transit and insurance costs. But if it is CIF, the insurance is not the crude oil buyer’s concern because the risk of something happening to the cargo is placed on the crude oil seller. But some crude oil sellers may or may not be willing to disclose the insurance policy details or documents.
64). Is The Discount On The Crude Oil From Brent Or WTI?
The discount is from Brent on Platts S&P Global, not Brent ICE nor WTI. For OPEC transactions, the price of the crude oil is sold above the Brent price since it is termed as sweet crude.
65). What Is Platts Pricing?
S&P Global Platts is a platform that provides the current benchmark price of energy and commodities in the physical energy markets.
The Platts pricing can be accessed on the www.platts.com by users registered on the platform.
In summary, Platts pricing is more about what the price of an energy commodity is today, in a local or the international market.
While it used to be known as the McGraw Hill Group Platts, it is now known as S&P Global Platts.
66). What Is ICE Pricing?
ICE, also called Intercontinental Exchange, is a platform that provides the future prices of energy commodities. That is what the price will be at a certain time of delivery at a certain date.
ICE pricing can be accessed on the www.ice.com platform.
For clarity, while Platts is the current price as at today, ICE is the price at a certain point in time in the future.
67). How Much Is A Crude Oil Seller’s Risk & Commitment In A Crude Oil Shipment?
The risk a crude oil seller bears in every transaction is 100% of the entire cargo value. Since they’re buying the cargo from the NNPC before they ship, they’d incur loading and clearance costs worth millions of dollars, before they still go on to incur the 100% full cargo value cost.
Another risk is the crude oil seller could deliver at the port of discharge only to discover the crude oil buyer either cannot pay for the cargo, or that the SBLC is not cashable in the case of a payment default. At this point, it becomes a distressed vessel and the crude oil seller incurs greater cost on demurrage in a bid to quickly find a crude oil buyer at an even lesser discount and loss.
There’s even a higher risk of non-payment with a DLC since the crude oil buyer is only required by his or her bank to deposit 5% to 20% of the full cargo value to enable them SWIFT the DLC across to the crude oil seller’s bank.
So while the crude oil buyer has risks, the crude oil seller bears even greater risks.
68). If A Transaction Is Only Between The Crude Oil Buyer And The Crude Oil Seller Since The Crude Oil Seller Has Already Paid 100% For The Cargo To The NNPC, Why Then Do Some Contracts Come On NNPC Letterheads?
Since the crude oil seller has already bought the crude oil 100% upfront on FOB terms from the NNPC before shipping to the crude oil buyer, the NNPC logo has nothing to do with the contract. This is an OFF-OPEC red flag because the crude oil seller is trying to imply they’re brokering the transaction between the NNPC and the crude oil buyer, and not buying the cargo 100% to resell to the buyer.
A lot of buyers usually request that the contract should be on an NNPC letterhead, without knowing the implications.
69). What Challenge Will A New Crude Oil Buyer Entering Into The Nigerian Crude Oil Market Face?
The biggest challenge new crude oil buyers will face entering the Nigerian market in search of discounted crude oil is to find a crude oil seller who’s willing to compromise to great extents on their procedures and terms since nothing is verifiable until the Laycan (PLR) has been issued by the NNPC.
70). How Can A Crude Oil Buyer Know They Are Not Buying Stolen Or Questionable Cargo?
The easiest way to know if the crude oil is stolen or of questionable origin is if the Laycan issued is not verifiable at the PPMC or NNPC. Another thing to also note is that the vessel handlers wouldn’t even move the vessel to the port of loading if they cannot confirm the Laycan is genuine.
After loading the cargo onboard the vessel, something that could be done to ensure the crude oil buyer is confident he or she is not buying stolen cargo is to mention the following on the Bill of Lading:
- Cargo & Freight Pre-Paid
- Clear and Clean
These means that the crude oil buyer has already paid in full for the cargo and its freight charges and that the cargo is clear and clean of any questionable activity.
71). Can A Crude Oil Supply Contract Be Shipped To Multiple Ports For One Buyer’s Contract?
Yes, the crude oil bought can be shipped to different locations with just one contract. Every location would have to be mentioned in the contract and the crude oil seller would have to determine the right price to give since different locations mean different expenses.
72). What Is The Right Way To Officially Engage The Services Of A Crude Oil Seller
Here are a few steps crude oil buyers can follow:
- The first step is to contact the crude oil seller or crude oil broker via email or telephone to understand how they operate.
- When you have a good understanding of their mode of operation and have agreed to a good extent on how to safely move forward, the next step is to write an official letter of inquiry or intent (LOI). This letter should contain all the terms you’ve agreed to work with and should also mention the mutually acceptable procedure that you’ve agreed to move forward with. It could also include a request for the crude oil seller’s company profile, trade history, licence (if it’s an OPEC transaction), a physical meeting request, and any other request the crude oil buyer may have.
- After sending a Letter of Intent, the crude oil seller would then have a full review, communicate with the crude oil buyer either physically or remotely to clarify any issues, and then send a full corporate offer on either everything they’ve both agreed to or some little adjustments.
- At this point, the crude oil buyer would be required to send a letter of acceptance to the crude oil seller stating that they’ve accepted the full terms of the corporate offer and would like to receive the contract.
- Then the crude oil seller would issue the contract to the crude oil buyer for final negotiations, after which the contract is signed when both parties have settled on all its terms.
Sometimes, some crude oil sellers won’t require an LOI but would send the contract immediately a phone or email inquiry is made. Other times, the crude oil seller would request an LOI but send a contract afterwards. But essentially, when negotiations go through the steps mentioned above, the contract is almost always agreed to with less resistance since everything had been settled already.
73). What Is An LOI (Letter Of Intent)?
A letter of intent (LOI) is simply a letter of inquiry from a buyer to a seller, stating that the buyer is willing to purchase a commodity from a seller at a particular price, procedure, and with the inclusion of some other terms.
Letters of intent are supposed to be non-binding of the buyer to the seller, and as such, the below should be written in every Letter of Intent (LOI):
“We understand that this letter of intent is a starting point for further negotiations and operates as a framework under which the transaction can proceed, but does not represent a final commitment to purchase BLCO until the terms of the final contract have been mutually accepted by both we the buyers and you the seller.”
When this is put in, the seller cannot claim you’ve committed yourself to them.
74). Are Transaction Procedures Unchangeable?
Transaction procedures cannot be unchangeable. It is only so if you’re dealing with a crude oil broker. A crude oil seller is always willing to look at possibilities within what is workable for him or her and will always recommend the best case scenarios that should favour both parties.
Brokers constantly scream things like “this is a seller’s market”, and will not even care to listen to whatever you have to say.
If you’re dealing with a crude oil seller or crude oil broker that’s highly resistant to welcoming mutually beneficial opinions, walk away.
75). Is it Possible For A Crude Oil Seller’s Office To Be At The Bonny Terminal?
This is bullshit. Only Shell Petroleum Development Company (SPDC) and the NNPC control the Bonny terminal. Anyone who says that’s where his or her office is is trying to prevent you from visiting because they know you won’t have access to enter.
76). How Do You Track A Vessel Enroute A Destination?
There are many ways to do this. The easiest and fastest way is to use a website like www.marinetraffic.com. But if you have a subscription, you can also use Lloyd’s database.
77). What Is The Lloyd’s Database?
Lloyd’s is an insurance company but that also insures many vessel tankers for property and indemnity coverage. They have a database/screen that is used to track every vessel tanker around the world in a much more accurate way than a vessel AIS tracking site.
The Lloyd’s database tracks every single vessel in the world including the cargo, quantity, and destination.
78). Does The Same Export Model Works For LNG Exports From Nigeria Also?
The LNG trade works in an entirely different modus operandi because the trades are done officially and bids by companies are done only every 5 years. Since the profit margins are also lower than the crude oil trade, most crude oil sellers stay off the LNG trade to focus more on maximising their returns from crude oil export.
79). How Much In Commission Is A Crude Oil Broker Entitled To?
Depending on how direct a crude oil broker is to the crude oil seller or crude oil buyer they could earn $1, 50 cents, 25 cents, and so on. The further away the crude oil broker is from the crude oil seller, the lesser the commission earned.
On some rare occasions, a crude oil broker could earn as much as $2 barrel as commission on the cargo sold.
80). As A Broker, What Is The Best Way To Secure Your Commission Payments In A Crude Oil Transaction?
The best way is to first have a contract with the crude oil buyer or crude oil seller before you introduce them to each other. The contract should be binding to the laws of the International Chamber of Commerce for quick and easy resolutions and the contract should be lodged in the bank of whichever party you’re representing. If possible, you should also strive to get a mandate letter of representation. This way, you know that you legally represent the party you’re brokering on behalf of.
81). How Can A Broker Safely & Legally Declare Their Commission Payments In A Crude Oil Transaction To The Relevant Financial Regulatory Body?
Once a confirmable Laycan is issued and the crude oil seller gets confirmable cargo documents from the NNPC, the crude oil broker has nothing to worry about because it means the transaction was 100% legal. So the crude oil broker could go on to declare the source of their funds to their bank or any financial crimes commission in their country.
To Sum It Up
Buying discounted crude oil from Nigeria can be hard and frustrating if you don’t know the right things to look for and the wrong things to stay away from. This is why it is key that crude oil buyers only work with highly experienced crude oil facilitators to ensure they close safe and quick transactions.
What are your thoughts on these 81+ frequently asked OFF-OPEC questions and answers by crude oil buyers in Nigeria? Let me know by leaving a comment below.
This article will constantly be updated for better clarity of content and to include more questions and answers from crude oil buyers.
An Important Point
Trying to buy crude oil from Nigeria through genuine sellers can lead to a lot of wasted time and efforts on the part of the crude oil buyers. They spend a lot of time vetting crude oil sellers in Nigeria, doubting their results even if positive, and going back and forth too many times than they can count, only to end up either cancelling their decision to buy or making a purchase after months or years have passed.
Since finding genuine crude oil sellers in Nigeria is a problem, it is always wise for a crude oil buyer to use a Nigerian organisation as its representative, so they can be on the ground and help the crude oil buyer make better calculative decisions.
To make this possible for crude oil buyers, Startup Tips Daily Media, through her sister company, Globexia, can help genuine crude oil buyers facilitate crude oil purchases from Nigeria.
Whatever position that helps crude oil buyers in Nigeria to close genuine crude oil transactions fast, transparently, and easier, we can make the process as stress-free as possible.
If you’re a genuine crude oil buyer, crude oil buyer mandate, crude oil seller, or crude oil seller mandate, you can reach out to us through the contact form below. If you’d like us instead to represent your interests as your crude oil seller mandate or crude oil buyer mandate, we’d be glad to do so.
We also offer a thorough in-depth due diligence service on exporters in Nigeria.
In addition to our crude oil facilitation business in Nigeria, we’re also AGO sellers in Nigeria (diesel suppliers in Lagos), and can supply AGO to tank farms, private or government organizations in Nigeria, or to countries like Cameroon, Ghana, and more, in the West African coast, while remaining willing to also represent your interests as your AGO buyer mandate or AGO seller mandate.
If you’re only a scam, don’t waste your time, as the conversation wouldn’t last too long after a few questions and demands to prove your authenticity have been made from our end.
Professional Due Diligence Checks In Nigeria By Globexia
International buyers are always wary of doing business with Nigerian based businesses because of the high risk of disappointments either in the form of time wasted or money lost, and as such, are highly sensitive of any organisation that presents them a trade offer.
To curb this problem and help international buyers make comfortable and confident trade decisions, Startup Tips Daily, through her sister company, Globexia, has set up an in-depth due diligence check consulting service that will help international buyers get in-depth information on any organisation looking to do business with them. Some of the information the international buyers stand to gain from the in-depth due diligence exercise that will be carried out by Globexia’s team of experienced lawyers in Nigeria are:
- Verification of Company Registration
- Verification of Export Licence
- Verification of Export Activity
- Verification of Past Certificates of Origin
- Verification of Past & Present Bill of Ladings
- Verification of International Passport / Driver’s Licence of The Exporter
- Verification of Bank Verification Number (BVN)
- Verification of Tax Documents
- Verification of Financial Health of The Company
- Verification of Mining Licence
- Physical Verification of Office Address With Pictures & Videos
- Physical Verification of Mining Site With Pictures & Videos
- Full List of Registered Company Directors
And much more based on the client’s requirements.
You can read more about the service here.
If you simply want general commodity trade consulting in Nigeria spanning through Due diligence & proper verifications of both parties, understanding the entire Nigerian commodity trading industry, identifying and completing all due trade registrations, clearing & forwarding of the commodities, market research/feasibility study reports, and much more, Globexia Limited is the right partner to talk to.
We look forward to hearing from you.
This Online Course & Book Will Show You How To Build A Successful Export Business From Scratch!
The export business remains one of the most profitable businesses in the world, including Nigeria, with profit margins going anywhere from 30% to in some cases over 100%. With the growing clamour by the Nigerian government for entrepreneurs should go into the export business, the need to effectively educate people on everything they need to know and to show them how to make their first one million Naira from the export business in Nigeria has become very paramount.
In the light of the lucrative opportunities in the export business in Nigeria, Stan Edom, the founder of StartupTipsDaily Media, and the founder of Globexia Limited, a commodity trading firm with thousands of dollars in export revenue in solid minerals and agricultural products, has taken out time to prepare a robust online export business course with a free eBook on how to create a fortune investing in the export business in Nigeria. This Online course will teach anyone everything they need to know on how to build a successful export business from scratch, present a live case study, and show you how to export lucrative highly-valued commodities profitably from Nigeria. It also has a section that shows the reader how to start out as a broker.
This online course and e-book is perfect for beginners in the export business in Nigeria, as it will take you from a novice to an export professional, and help you either make money by starting your own export business in Nigeria, or by becoming an export consultant or broker.
You can follow the link below to learn more, sign up for the course, and get a free export eBook.
Offer: How To Create A Fortune Investing In The Export Business
Online Course & Book Author: Stan Edom
Course Delivery Format: Online & eBook
How To Sign Up: Click Here