THE PROCESS OF BUYING NNPC OFF-OPEC NIGERIAN CRUDE OIL

The acquisition of an allotment to sell Nigerian Oil is issued by the NNPC directors, usually upon request of a high ranking politician. These allotments are only given to those that have proven their capacity to perform in the oil industry.

This is highly secretive process because the allocations are issued at the top level of the government usually as a way for someone connected to receive profits in the oil business. The potential allot tee is then given the nod of approval which is passed directly to the board of the NNPC. So the NNPC staff does not know who the allotment holders are. The staffs have relatives in the broker business and so when you go in to verify an ATS or POP the staff then knows who the allotment holder is and quickly farms out the information to their relatives in the broker business. For this reason it is very hard to get a verification of an ATS (Authority to Sell Letter) or POP (Proof of Product letter).

There is only one reason for a seller (allotment holder) to be associated directly with a company wishing to sell their oil, and that is that the agency is connected to a buyer that may be able to perform. To stay connected requires a level of performance commensurate with the highly sought after position. The value of your service as an Allot tee Mandate must be worth the time of the allotment holder to keep you around.

BLCO or NLCO is the most expensive oil next to Brent because of its low sulfur content (which means it is less corrosive). It is also light oil. The combination of these two features makes Bonny light the least expensive oil to refine. Therefore its value is high compared to other crude oils available elsewhere. Product Specs are provided in the contract.

Normally all NNPC sales are executed on CIF basis and every cargo has a payment guarantee (with blocked funds), associated with it before it gets loaded at the Bonny Terminal.

CIF is a shipping term which means that the seller is delivering the oil to your port. Therefore the seller has to charter a vessel and cover insurance to safely deliver the cargo.

This is an expense usually covered by the Allot tee’s Financier. Contracts always require blocked funds and are advised by a top 25/50 Prime Banks before the vessel is even loaded.

However, NNPC has privileged allocations’ program, which allows certain key individual allocation holders receive the BLCO at a special discounted price. The benefits of such discounts are normally shared with certain buyers who qualify for such special deals by our allocation holders.

The allocation holder always has the last say at what price (discount) he is willing to sell at. A typical discount might look like this:

Gross $7 per barrel below Brent, $4 net to the Buyer. On a 7/4 deal $3 will be distributed to the Seller’s and Buyer’s sides usually equally for commissions to the agencies involved in putting the buyer and seller together and assisting in negotiating the deal.

Due to the large magnitude of the cash flow involved with aforementioned allocations, such transactions are usually undertaken by the allocation holders via their financing arm who are pre-approved by NNPC. Each allocation holder has its own financing arrangements.

The money is paid to the financier who then pays the NNPC for the oil. It may cost several million dollars to finance a shipment so the financier always receives a ROI for a transaction which is worked out in advance between the financier and the Allotment holder.

There may be different discounts depending on where the shipment is going and who is selling to buyer. This is to compensate the seller for the greater risk involved in long treks. CIF ASWP (Any Safe World Port) will carry.