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Need-2-know Tips About Crude Oil Transactions - Business - Nairaland

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Need-2-know Tips About Crude Oil Transactions by easternunion: 7:17pm On Sep 18, 2013
When proper protocols are put in place and followed rigidly then issues such as trust are no longer needed. Every step of a transaction, from initial introduction to continued delivery is informed by a protocol that protects every party in the transaction.

These are the basics that Eastern Union Energy Services practices.

When there is an introduction there is data collected which is verified.

When the is an intention made there is a soft probe to ensure capacity to perform.

When there is a contract written there are bonds and banking instruments that guarantee performance.

When there are banking instruments initiated the language in them calls for legal protocol and performance.

When there is product offered there is verification that it exists and that the title is in the right hands.

When there is availability of product there are quality and quantity (Q & Q) verifications.

When there is proof of product there is a performance bond warranting delivery.

When there is delivery there is further verification of quality and quantity.

When the delivery is made it triggers documents that are presented to the banks.

When the documents are presented the title to the property changes hands as the money is transferred.

When the money is transferred it triggers further conditional contractual payments to all parties involved.

When parties present invoices that triggers automatic payments to be drafted against the monies in the accounts informed by banking instruments in advance.

Everything is procedurally precise, strictly adhering to international banking and transference laws, no short cuts.

The Result – Everybody is happy because everybody has been protected.

Uche Nwosu
Director, Projects and Operations
08030654233

Re: Need-2-know Tips About Crude Oil Transactions by easternunion: 8:57pm On Sep 18, 2013
Proof of Funds Importance

Parties in the deal.

* Seller = NNPC
* Consignee = NNPC approved reseller
* Buyer = the entity signing the purchase agreement
* End Buyer = Refinery

Now, when we get approval for the price and procedure we want to try and get the buyer pre-qualified prior to signing a letter of intent to purchase.

At that point we send out the verbiage for the MT799 (it contains blocked funds verbiage). This is important at this stage for two reasons; one, we want a signed contract to be able to close and two, we want the buyers to keep their integrity. We have learned that some buyers will sign a contract and either not read the language in the addendum or not check with their bank for approval or sign the contract knowing full well that they can not block funds (because they do not have enough funds to do so). Most buyers are intermediary buyer/sellers, which means they are buying to resell to a refinery. When a buyer like that is looking at 3-4% profit, they can not rent an SBLC for 5%. Then the buyer and his bank has to go back and forth with the banking verbiage to get it approved with their bank and the seller’s bank. We are fortunate to have a NNPC Approved Fiduciary (Consignee) that has some flexibility. How can the buyer hold up his head when he has signed a contract and does not have the money to purchase? We want everybody to feel good about the deal.

You might say,

It is just a POF, whats the big deal?

If the NNPC is going to allow its vessel and cargo to go half way around the world with just a notice that the buyer has the money, they want to make sure the money is still there when the vessel arrives. So the NNPC requires the Consignee to guarantee payment by putting up their own SBLC or BG.

That means the Consignee’s bank has to get involved in providing a corporate instrument to the NNPC based on the strength of the buyers POF. Since the Consignee’s bank can not lien or draw on a POF they want the language to be pretty strong and they want the buyer’s bank to be responsible to hold funds and be willing to pay once the cargo arrives. Without the Consignee’s bank approving the verbiage and issuing an instrument with the NNPC the vessel can not get loaded.

Most buyers in the market today are actually not end buyers, they are intermediaries. That means most buyers do not have money. If they had done their job correctly they would have done a contract with the end buyer but most do not tie up that end FIRST and therefore can not show the end buyers banking strength in their account and then may have a problem providing blocked funds. That is when they start to hedge and say instead they will provide a DLC. But a DLC is not any better because it is just like a POF but weaker because it requires the buyers approval in order to be drawn on. Then they start to squirm and raise the trust issue. They conveniently forget they signed a contract stating that they had the funds.

Things get ugly.

We don’t want that, so we get the buyer to pass the MT799 verbiage through their bank so they can enter a contract with their head held high.

Uche Nwosu
For: Eastern Union

Re: Need-2-know Tips About Crude Oil Transactions by durtman: 4:48am On Sep 19, 2013
Whats ur email.
Re: Need-2-know Tips About Crude Oil Transactions by easternunion: 11:17am On Feb 19, 2015
Crude Buyers ask, "we want to see your ATS, Allocation Documents, etc, from NNPC". 

Why are these documents not presented for 'legal' off-OPEC deals?

This is the angle that requires thorough explanation as to the legality of crude oil documents from NNPC.

Crude oil documents mostly requested from off-OPEC sellers by crude oil buyers are documents for OPEC deals, like ATS, Allocation Documents, Cargo Documents, etc. In all earnest, so called sellers who parade these documents seem to do so to curry the favor of Buyers who do not know the trend here, to buy from them.

Off-OPEC platforms are “legal black markets”, hence the business here is, "Buyer places Payment Guarantee and Seller loads the agreed cargo quantity in Buyer’s name as the consignee. After proper Quantity & Quality inspection, Buyer pays in full for the cargo and vessel sails off to Buyer’s port of discharge." Any deviation from this is tantamount to fraud.

If any Buyer insists on documents like ATS, Bulk Allocation Documents, etc, such Buyer should approach the NNPC for OPEC deals. Note: OPEC deals do not give discounts to Buyer's. OPEC deals do not favour individual companies or groups who demand huge discounts of $4 and so on, so they resort to Off-OPEC platforms.

Please be wary of any so called Seller who presents documents like the ones listed above in an OFF-OPEC terrain. Bottom line, they're cloned documents.

Off-OPEC deals simply obey this simple business language and rule...

“show me your payment guarantee as a Buyer and I will load vessel with crude oil in your name as the consignee and you pay me when you are satisfied with the cargo”.

Under off-OPEC, no Buyer is allowed to make upfront payment before he receives his cargo. The exceptions to this is if there are standing business relationships and trust between Buyer and Seller and if Buyer wants cargo lifted and sailed to a safe water for quality and quantity inspection. Such monies are for logistics to sail vessel to these safe waters (Nigeria waters, Ghana waters, Togo waters, and Cotonou waters). Such monies, however, are also guaranteed by the Seller to be used for what it was paid for.

Any Seller with experience who has sold crude oil under off-OPEC platform in the past can show proof of this by showing you vessel details of such transactions (that is, if need be), but no Seller will reveal the names of his Clients, that becomes breach of confidentiality under the contract agreement. No Buyer wishes to reveal his identity beyond what should be revealed.

Evidence abound that most Sellers in the country have not sold crude oil, and this is not due to lack of experience, but because Facilitators and foreign Buyer firms do not understand the “legal black market” (off-OPEC) for the country’s crude oil. They confuse OPEC deals to off OPEC operations.

Be informed...in business, knowledge is power, in oil and gas business, knowledge is survival!!!

Eastern Union Energy Services LTD
08030654233
Easternu9ion@gmail.com
52D825A5

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