Sourcing Nigeria's High Quality Crude Oil
We believe that it is possible to do crude oil business and not fail most of the time – not even part of the time. I think that is somewhat a rare belief.
It’s only a dream to believe you can just wake up and and successfully close a crude oil deal. It just doesn’t happen, except when you are dealing with the right group of influences. The Nigerian crude oil is a unique product that most countries yearn to buy.
Our mandate as a company is to be successful and stay true to our clients by providing a clear pathway for genuine crude oil sellers and buyer to transact business smoothly and do away with the suspicions of fraud and mistrust.
When you think about it, to have success in the oil business everybody involved have to agree with everything and then everybody have to do what they agreed to do, regardless of their capabilities and belief. And then introduce the idea that your minimum buyer requires 61 days instrument duration entry and you have an idea of the difficulty in placing 366 days instrument.
Take the business that we are in, What the seller wants is to get paid and what the buyer wants is to get the cargo delivered. So, what if we just say, the seller delivers and the buyer pays, simple. Now, how can we get such a straight-forward transaction possible? If everybody had 100% trust, we could just go ahead and do it that way. But there are other people involved that say no. Which could be the Banks that resellers with no money go to for funds and placement of Bank Instruments on their behalf? So how do we tackle Bank issues along with their own terms with resellers or even end user?
This is where we as a facilitation company step-in to smoothen things.
The Crude oil Buying Process
(A) The Buyer finds a representative to be their Broker/Facilitator/Mandate. One that understands the circle slopes in Nigeria crude oil trading, with experience and connections. Make him your eyes for verifications of the seller, confirmation of seller’s authority To Sell / Proof Of product in the right office.
(B) If you cannot find such a representative, consultant, facilitator or mandate, then use us, IKSectors, as an intermediary between you buyer and the seller to oversee things for a successful transaction.
(C) Demand for seller verbiage, and go for a meeting with your Bank or financial institutes that are to issue instrument to the seller on your behalf. Educate them to understand that, True Nigeria Fiduciary Sellers of off-OPEC allocations does not use the Swift system to communicate information about ATS/POP, bank To bank.
(D) Make your bank or funding Institute to understand the process for verification of the product (POP) which is confirmation at Crude Oil and Marketing Department, Off-OPEC Division Data Base, NNPC/JVC Bonny Ocean terminal. Not in NNPC Abuja office or London. After successful agreement with your Bank, then
(1) Buyer writes Letter of Intent (LOI) to indicate interest in product purchase.
(2) The seller proves they have the authority to sell (ATS) with a Partial Proof Of Product to the buyer who now forwards it to their Bank.
(3) Then buyer proves they have Proof Of Fund (POF = MT700, MT760, MT799) by instructing their Bank to place Payment Guarantee (Instrument) in favor of the seller in accordance with the seller’s Bank Verbiage, which shows the buyer's ability to pay for the cargo upon arrival to their Port Of Destination.
(4) The Seller And the Buyer sign Sales And Purchase Agreement (SPA).
(5) Then the seller prepares cargo for boarding of buyer's inspection team, the product surveyor and supercargo personnel at an agreed place. The buyer tests (Q&Q) the product, and when satisfied pays (MT103) for the cargo, pays the involved intermediaries and takes over the cargo.
The above is a generallized form of the most used buying procedures for Nigerian Crude Oil transactions. Of course, a few differences can apply to specific seller or supplier.
It sounds kind of easy, but it is a professional and sure means of getting crude oil deal closed.
A lot of resellers have been chasing one loaded cargo or another without success. The question is, was that Cargo loaded for you?
Loaded cargoes are possibly available but that only happens if a intending buyer fails to complete the transaction as agreed with seller
due to some funding or logistics issues.
Loaded Cargo Destinations
No seller intentionally loads a 2million barrels vessel without being sure of the buyer and sail to overseas to look for who will buy. There are unimaginable risks involved.
After successfull confirmation of cargo and product, the agreed form of delivery comes into effect. There are different forms of delivery which takes effect according to the agreed procedure.
TANKER TO TANKER (TTT)
This happens when a buyer brings their own vessel to meet up with the seller's vessel at a suitable agreed point.
TANKER TAKE OVER (TTO)
The buyer agrees to take-over the seller's vessel after he(the buyer) confirms and pays for the cargo in full along with other paymets for intermediaries if any.
COST INSURANCE AND FREIGHT (CIF)
This involves the use of full insurance. The seller agrees to deliver the product to the final destination of the buyer after the buyer has made enough cargo and logistics commitment to cover the delivery expenses along with full insurance for the entire vessel and its contents.
Getting a successful deal
As intermediaries, we must face reality and STOP chasing shadows which we at IKSectors call “SHADOW CARGOS”. We have the means to make sure there is nothing that can go wrong. We are well connected to genuine sellers. Also, because we have had the success we can simplify further. Some of this comes from huge experience, and this is why it is important to have a really good connection and knowledge of the business you do.
We have convinced the NNPC/JCV partner at the Bonny Terminal that we could go ahead with just a payment guarantee which is bank instrument and then deliver and then the buyer would pay. Not every seller can do this. Why? Because their contacts and connections are not strong and good enough to facilitate good positive result. We are always ontop of things and can make things happen as far as Nigerian Crude Oil Trading is concerned.
But hear me say this now, despite our contacts, experience and top connections, This process would NOT work for very long if the mandates or agents keep on introducing fake and incompetent buyers that could not pay.
In the process of our due diligence with our sellers, we have found out that a particular seller could deliver and had done so 12 times, but without having a single buyer pay. Obviously, they were doing something very wrong costing them millions of dollars.
Now when buyers come in the door they want to take the easy path to have success, without minding how favourable it will go with the other party (the seller). However, there are still holdouts from those that do not trust and put up barriers that make it hard for a seller. A typical barrier is a demand for an upfront performance bond, even with DLC/BCL which is not the active instrument. It is like saying to a seller, “We do not trust you to deliver.” And then the buyer’s bank has to make it hard on the seller. And the harder it becomes, the harder it will ever remain for such a buyer to close a deal.
And if the seller procedure is complicated, then the more something may go wrong somewhere in the deal. By doing so, you really do not want your banks to help you close a deal. It is completely possible to walk a real seller and a real buyer into a procedure that will NEVER close. And it is also possible to close the deal with straight forward procedures with the clear understanding of such procedures. But when you keep on creating barriers in form of purchase security which is out of the sales and purchase terms, then you can never know that it will not close until it is too late. So if you can keep it simple the lack of knowledge and experience by anybody involved has a much harder time to get in the way.
We respect the human factor in oil transactions, but same time we do not expect the contract to somehow close the deal itself. Both parties involved in Crude Oil transactions (reseller/intermediary/Agents and end-buyer) “MUST” put in their efforts to push past the problems by keeping the focus on the end result while dealing with the challenges with a “POSITIVE MINDSET”.
One of the ways we challenge the statuesque is by discovering where the impediments to a transaction are and then change the situation to provide an elegant and simple solution to the problem. We really try hard to give advice that will benefit people in crude oil trading business.