Open top menu
Friday, July 23, 2010
no image

The Oil and Gas business is no doubt one of the biggest money generating business in the whole world. I am sure you are aware of the fact that daily consumption of fuel products is increasing and days go by and as such there is a huge demand of oil products all over the world. The Oil and Gas sector presents an avenue for both investors and marketers to  make huge sums of money on a daily or monthly basis. There are certain terms associated with this business; it is imperative at this point that you have an understanding of these Oil and gas terms.


1. SPA- Sales and Purchase Agreement

The SPA serves as a legal document which is presented by the seller of a supposed crude oil commodity through the seller’s agent to the buyer or his or her agent or mandate for the buyer to sign, seal and return back to the seller. It is a legal document binding on both parties once signed and incurs a penalty if one party defaults in fulfilling his side of the purchase contract. Most likely it has the terms agreed by both seller and buyer present in it. A copy of this document is given to the banks of both parties as the deal proceeds while copies are also kept for security reasons. Since the SPA is a legal document, care should be taken before it is signed since many people defraud others with it. It is often times presented in soft copy and is printed out and filled by the other party.

Scams Associated with SPA

It is a well known fact that people tend to perpetuate fraud through legitimate means of making money; especially when it is internet related and hence reducing trust and making it difficult to seal a deal in this industry. Buyers must be very careful with the issue of signing of an SPA. Once an agreement is reached by some parties and the SPA has been duly signed, some fraudsters fault the agreement deliberately and demand a penalty fee of $100,000 or more from the buyer thus forcing the buyer to pay for a deal that never occurred; this is usual with many desperate facilitators and agents so be careful when you enter any deal because there are so many scammers on the prowl.


2. POP- Proof of Product

This document serves as a clear indication that the owner of the oil commodity has a true possession of the product. This document must also indicate that the seller has the commodity for sale as at the time of transaction. This document can be issued in hard copy but it is mostly delivered through electronic means (email). The buyer should make it a point of duty to carry out his due diligence by confirming the product before proceeding on any transaction with the seller.

If you are ever going to strike it big in the Nigerian Crude Oil and gas industry, you must focus on getting a genuine deal. The only requirement for a genuine deal is a letter of allocation from NNPC Crude Oil Marketing Department. The seller should be able to provide this to show the buyer he has a product up for sale.
Fraud in the oil and gas business is not only committed by Nigerians, it is committed by people all over the world. Insist on a proof of allocation in the form of a letter of allocation from the relevant government ministry or agency in charge of petroleum in any country. Failure to do this will only waste your time and money and you will be working for international fraudsters unknowingly.

Once you have a genuine copy, it is always easy to confirm but the trick is to make sure the letter is from a genuine agency with the authority to allocate crude oil or its by products. For Nigeria, only one agency has this power and it’s the NNPC crude oil marketing department. This is done in likewise manner in every country of the world to ensure that the process of lifting crude oil globally is never complicated and never inspires or motivates fraud in any way.

3. LOI- Letter of Intent

The LOI is a legal document that is issued by the buyer of an oil commodity. This documents indicates the buyers interest, it also specifies the specification and conditions upon which the buyer would love to transact the business.

Many a time, buyers issue LOI only to find out that the seller or his agent is not genuine or does not have the supposed product at hand. A lot of hungry facilitators do this when they are still struggling to get a supplier. They commit the buyer only to start hustling for a seller. Also note that the L.O.I has an expiry date but it can be re-issued.
4. Proof of Fund

a. Letter of Credit

b. MT 799

c. Bank Guarantee

d. MT 103

Proof of fund is a financial instrument that indicates to the seller that the buyer of the crude commodity is capable of buying the product. It shows that the buyer is financially capable to handle transactions of such huge magnitude. It is usually issued by the buyer’s bank, if the buyer is credible enough, his Bank should not be hesitant to issue this to the seller.


5. Facilitator

A facilitator in the oil and gas field is more or less like a middleman in the world of commerce. A facilitator is someone who searches for both buyers and sellers of an oil commodity; he in many cases look for agents to companies or individuals who need a particular oil product available for sale. A facilitator spends both time and money trying to get both genuine and serious buyers and sellers. A facilitator serves as a link between the buyer and the seller, every document for initiating a deal goes through him and he forwards to appropriate party involved. The work of a facilitator is very stressful and sometimes discouraging when he comes in contact with unserious persons, sometimes the chain of facilitators and agents to a deal make everything tiring. The success key for a facilitator is patience and persistence. The fee of a facilitator is much lower than that of an agent but it is something compared to the effort. A facilitator could earn up to 50 cents per barrel depending on the chain of people involved. So his pay is dependent on the number of barrels the buyer is willing to buy. If the buyer wants 2 million barrels of crude, multiply 50 cents by 2 million, you can do the mathematics and get the figure. In a case whereby a facilitator is dealing with another facilitator, they come to an agreement on how to share the 50 cent. What stops most facilitators from brokering a deal is greed. Everybody wants to make it big at the first strike, they forget that they would have more deals to broker. Most times a deal never pulls through because of this, but if they have understanding, things would just flow well.

6. Mandate

A mandate could be likened to the spokesman of the seller in most cases. The seller gives him authority to act on his behalf. He gets more commission than the facilitator; say $1 in most cases.


These are some of the few terms you should know in the Oil and Gas industry. More of these terms would be posted later.


7. TTO (Tanker Take Over):  In oil and gas business there are various processes for procurement of commodity. TTO is one of those processes; as the name implies the buyer in this case would take over the vessel which contains the product; after his supercargo and inspectors come onboard, confirm product and do the Q & Q. This vessel would have to be chartered from vessel handlers; sometimes the seller pays for the vessel and after the buyer has confirmed product, he pays for total cost of product including charter fee. Most TTO deals do not take time to seal if the right things are in place.

8. TTT (Tanker to Tanker Transshipment): Unlike TTO, TTT requires that the buyer has his own vessel which would be utilized in loading the products which have already been loaded on a vessel. The buyer sends the Q88, ATL (Authority to Load) and CPA to the seller and the seller sends a NOR (Notification of Readiness) to the buyer vessel.  TTT deals also do not take time to seal.

9. CIF (Cost Insured Freight): This process is usually backed up by an insurance cover. The seller bears the whole cost of loading the vessel and moving the products down to the port of discharge of the buyer; the buyer then conducts  Q & Q and then pays for the product upon successful report. The seller in this case needs to be sure that the buyer can perform by requesting for a proof of funds.

10. FOB (Freight on Board): This is similar to the CIF but different in the sense that there is no insurance cover attached to it.

The above listed are some of the terms that are utilized in transacting crude oil business, you should learn to familiarize yourself with these oil and gas terms. 

Read more
Factors That Hinder Prosperity in Crude Oil Business

  • 12:04 PM
  • 1

Statistics shows that over one million people world wide are trying to facilitate Crude Oil deals World Wide and only 1% success rate has been recorded; the reason for the very low success rate is not far fetched. So many factors hinder the successful completion of facilitating Crude Oil deals and these factors are not far fetched. Greed, insincerity, long chains of people, lack of information is factors that can hinder the success rate of facilitating a Crude Oil deal.

Bonny Light Crude Oil is the most desired of all specs of Crude Oil because of its low sulphur content which emits low carbon after refining; all most all Refineries and crude oil buyers cannot but help to purchase this commodity. The problem militating against sealing a deal is that most people involved in this business are being motivated by greed to make millions of money at a stretch; people no longer bother about the long term Business relationship that would be initiated after the first successful transaction. They become very myopic because of the huge amount of money that is involved and they are overwhelmed at the mention of this sum. I would give you a typical scenario.

Jack 35 has been into the Oil and Gas Industry for over 5 years; meaning he started his dealings in this sector 5 years ago. He has been near completion of deals but at the tail end, things fall apart. Jack never had a direct relationship with a seller or mandate. He knew a group of people who claim to know some other group of people who know a facilitator to the seller. Obviously, the strings linking to the seller or mandate is a very long one and as such it became very difficult for him to seal a deal even though he knew a couple of people who are facilitators to the buyer. Now the problem always arises before the Sales and Purchase Agreement is being signed; there is always a whole lot of argument as to who takes what amount and why he should take such an amount. They keep arguing about money sharing because there are series of people involved. This take a lot of time and nobody likes to waste his time; the interested buyer representative looses interest because nothing is forth coming and he moves on.

This keeps happening over and over again making it frustrating for him. If only he and the groups involved come to an understanding that after the first deal they would keep having more deals and more money; they don’t think that way, they just want to get a Lion share from the first deal like there is no other deal coming their way. They fail to understand the simple fact that if you are lucky enough to get a contract for 12 months with possible rolls of extension, it is almost a life long thing.

I read of the story of a young man who saw an AD in a newspaper, the AD requested for suppliers of crude oil, he quickly used his initiative and started looking for a supplier. He was lucky to have come in contact with a direct supplier, they came to an understanding and after many deliberations, they concluded that he would be making $75,000 for a period of 5 years. Whao! Isn’t that a lot of money? If he were the greedy type, probably he might have wanted a lump sum at a go and he wouldn’t have had the opportunity to earn money for a period of time. Maybe if he had the lump sum, he might have squandered the whole lot by now.

“The love of money is the root of all evil”, I am sure you are familiar with that quote. That deduction is very correct in all ramification; most people paint pictures of the kind of life they would live when they get such huge sums of money, even when the money is not readily at their disposal. This single thought leads to lies and deception in the Oil and Gas Business facilitation; because of the love of money, they become liars, they try to cheat, they become insincere with even themselves. This serves as a deterrent to successfully facilitate a deal; nobody wants to deal with a dishonest person, at the slight perception of your being deceptive, nobody wants to transact business with you anymore. You have to be very careful and sincere in transactions of such magnitude else you loose out forever. Image is very important in this business, if you can represent yourself sincerely and honestly, be sure to have a long lasting deal.





Read more
Subscribe to: Posts (Atom)