This article speaks to the situation in Nigeria not
about other OPEC nations.
This article comes in the form of an interview with
a friend of mine that is a Joint Venture Operator. Those are the companies that
load vessels, this one specifically at the Bonny Terminal.
First a little preliminary information:
The Organization of the Petroleum Exporting
Countries (OPEC) is an intergovernmental organization of twelve oil-producing
countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya,
Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
According to its statutes, one of the principal goals is the determination of
the best means for safeguarding the organization’s interests, individually and
collectively. It also pursues ways and means of ensuring the stabilization of
prices in international oil markets with a view to eliminating harmful and
unnecessary fluctuations; giving due regard at all times to the interests of
the producing nations and to the necessity of securing a steady income to the
producing countries; an efficient and regular supply of petroleum to consuming
nations, and a fair return on their capital to those investing in the petroleum
industry.
OPEC transactions are transactions by the Nigerian
government on behalf of the 65 appointed/approved companies by the Federal
Government of Nigeria.
The approval is from the NNPC Abuja and signed by the Minister of
Petroleum.
Off-OPEC is transacted at the Bonny Terminal on behalf of the government
and is legal in Nigeria. Doing so breaks OPEC rules, hence we have Off-OPEC
police that monitors/sanction countries that do Off-OPEC sales. As Off-OPEC
prices are governed by supply and demand they are seen to be increasing the
volume of oil available worldwide thereby dropping the price fixed by OPEC.
Every country in OPEC does Off-OPEC sales, but they all do it
underground through various companies (Fiduciary companies) which cannot be
traced to the government, hence in Nigeria it is done at Bonny terminal NOT in
the NNPC towers in Abuja.
JS: Who decides
whether a transaction is going to be OPEC or off-OPEC?
JVO; Government, as all oil belongs to government.
JS; when that
decision is made then the product is made available either through the Bulk
Equity Account or to an allotment holder?
JVO; Every allocation or allotment outside of the 65 companies I mentioned above are Off-OPEC! Either Bulk Equity or Allotment to holder, they are all Off-OPEC.
JS; Just a little
clarification here, Allotment holders receive an allotment, which is a fixed
amount of oil they can sell on a quarterly basis. They receive an authority to
sell (ATS) letter that defines how much oil they have to sell. When they sell
that allotment they may not be able to extend the allotment to handle
additional sales they have made to refineries that they have a relationship
with. Their authority ends there.
NNPC approved
Fiduciaries are always selling out of the Bulk Equity Account and even though
they also can get an ATS it is somewhat expandable. This is because Fiduciaries
are actually given authority to negotiate on behalf of the NNPC. If you have a
qualified buyer you might as well sell him oil. I know this is the case because
we are presently negotiating with an Allotment holder to buy oil through one of
our Fiduciaries. Their allotment ran out and now they have to buy from someone
that has the authority to sell but whose allotment will not run out – so to
speak.
JS; Do NNPC Approved
Fiduciaries (NAF) always have joint allocations that they can all sell or do
they occasionally get an allocation that is solely for that NAF to sell?
JVO; NAF don’t always have joint allocations but depending on situations they can have it as the one you have seen, it depends on the transaction at hand.
JS; Is the Bulk
Equity Account always there to be tapped by NAFs with a phone call and a
banking instrument?
JVO; NAF don’t actually have limit on what they can sell, they can sell as much as the demand from buyers once there is a banking instrument.
JS; what is the
distinction between a NNPC Approved Fiduciary and an allotment holder?
JVO; the difference is just in name, as they are all Off-OPEC!
JS; Can an Allocation
Holder sell out of the Bulk Equity Account or do they need to go through a NNPC
Approved Fiduciary?
JVO; they are all Off-OPEC and can sell anything.
As a clarification,
the allotment holder that we are dealing with is a brokerage house so they are
actually a buyer that is reselling to the Refinery. My guess is that they used
their allotment to establish a relationship and then the refinery had a greater
demand so they have to dip into the Bulk Equity Account as a buyer in order to
meet the refinery’s increased demand.
Once they get all the documentation they have requested this will likely be an easy sale. It is nice working with pros that know how to get the job done.
This is the true reflection on Nigeria's Off-OPEC deals in Crude Oil sales. It detailed the exact business schematics discovered in off-opec deals and gives explicit insights to the tools in Off-OPEC transactions.
ReplyDelete