Nigeria’s Crude: NNPC Issues Guidelines For Sale, Purchase

In its renewed bid to ensure transparency in all commercial activities relating to petroleum operations in Nigeria, the Nigerian National Petroleum Corporation (NNPC) has released the guidelines for the participation of local and foreign companies in the sale and purchase of the various grades of Nigerian crude oil.

The release of the guidelines is coming a few weeks after the corporation initiated measures to make the yearly Offshore Processing Agreements (OPAs) between it and oil traders more transparent.

But while the latest guidelines are in relation to the sale and purchase of Nigeria’s crude oil, OPAs and oil swap agreements are only in respect of the 445,000 barrels of crude oil per day allocated to the NNPC for the country’s refineries.

Details of the guidelines for the sale of the country’s crude, which were published monday, requires companies that wish to participate to show evidence of yearly turnover of $750 million; a minimum net worth of $300 million; ability to establish an irrevocable Letter of Credit for the payment of any allocated crude oil, subject to the terms of the contract; and ability to pay an initial deposit of $2.5 million, representing three lifting deposits upon signing of the contract agreement.

Each participating company is also required to show “evidence of compliance with the Industrial Training Fund (ITF) Amendment Act of 2011 by inclusion of a copy of compliance certificate from ITF, where applicable”.

Each applicant should also provide details of facilities, markets and the volume of crude oil/products traded or processed over the last three years, and audited accounts for 2012, 2013 and 2014.

To ensure that each participant has a track record of performance, the companies must also show evidence of similar services carried out within the last five years.

The NNPC also made compliance with the Nigerian Oil and Gas Industry Content (NOGIC) Act of 2010 a major consideration in the selection of participants, as evidence of Nigerian equity in any applicant gives it a competitive advantage, according to the guidelines.

Also to ensure that the guidelines comply with the Act, interested applicants are now required to submit “a detailed Nigerian Content execution strategy to the satisfaction of the Nigerian Content Development and Monitoring Board (NCDMB), clearly setting out Nigerian content commitments for subcontracting in the areas of insurance and legal services, banking and financial services, and training and capacity building”.

Other requirements include: evidence of commitment to the development of the Nigerian economy by investing in any number of investment opportunities that abound either in the oil industry or other sectors, or as an alternative, in the short run, meaningful and sizeable investment in community development projects as may be acceptable.

According to the guidelines, the investment areas include: upstream investments – to increase the country’s hydrocarbon reserves and production capacity; downstream projects in refining, distribution and storage of petroleum products; gas utilisation projects; Independent Power Projects (IPPs); agriculture; railway construction; solid minerals development; healthcare sector development and real estate development; and any other areas of the economy acceptable to the seller.
On the 445,000 barrels allocated daily to the refineries, NNPC has in recent weeks initiated measures to enthrone transparency and competitiveness in the allocation of the crude to oil traders.
It also recently cancelled the contract for marine delivery of crude oil to refineries by Ocean Marine Transport (OMT).

As a stopgap measure, NNPC engaged its subsidiary – NIDAS Marine Limited – to provide crude delivery service to its refineries on a negotiated industry standard rate, pending the establishment of a substantive contract.

The corporation had also terminated the OPAs entered into in January 2015 with three companies, namely, Duke Oil Company Inc., Aiteo Energy Resources Limited and Sahara Energy Resources (Nig.) Limited.

Under the agreement, NNPC allocated a total of 210,000 barrels of crude oil per day for refining at offshore locations in exchange for petroleum products at pre-agreed yield patterns.
NNPC said it was convinced that the OPAs were skewed in favour of the companies such that the value of products delivered was significantly lower than the equivalent crude oil allocated for the programme.

To address these lapses, the corporation has since commenced the process of establishing alternative OPAs based on optimum yield patterns with tender processing fees and has invited Messrs Oando, Sahara Energy, Calson, MRS, Forte Oil, Mobil Oil, Duke Oil, BP/Nigermed and Total Trading, among others, to bid for the new OPAs.