COVERS

* * * * * * Brief History of Oil & Gas In Nigeria Why Oil & Gas? Business Opportunity In Oil & Gas Directories of Marketing Companies How to Start Your Oil & Gas Business Where to Get Finance / Loans

All right reserved, no part of this work may be reproduced in any form or by any means electronically or mechanically, photocopying or any other storage system without prior commission of the copyright owners.

Fatdeo & Associates Ltd.

2

OIL AND GAS

Brief History About The Industry: Crude oil, which account for 40-45 percent of our gross domestic product (GDP) and 80 percent of government total revenue, was discovered in commercial quantities in 1956 at Oloibiri first export took place later. Refineries were on obvious corollary and necessary stop between 1965 and 1989, four refineries were built with a combine productive output of approximately 12 million Liters of PMS (Petrol) 8 million Liters of (Diesel) AGO and 5 million Liters of DPK (kerosene). Today, the daily estimated Daily Consumption of PMS alone is same 32 million Liters, three times the total production of the nations plants. Downstream Petroleum Sector In Perspective: The current state of the downstream sub of the nation oil and gas requires urgent attention. In order to appreciate the enormity of business opportunities, especially as they impact availability and affordability of petroleum product, a brief description of the status of the industry today will suffice. Currently, the demand drive daily average consumption of the three main refinery product stream are as follows: Premium motor spirit (petrol) Automotive Gas oil (diesel) Household kerosene 33,500, 000 Liters 15,000,000 Liters 11, 000,000 Liters

The nations four refineries have a nominal (maximum) or installed capacity to process 445,000 barrel of the daily national consumption requirement The lack of turn around maintenance at the refineries has brought about operational shortcomings. This has resulted in inevitably severe product shortages. Today, more than 90 percent of petroleum product consumed in the domestic market are imported, usually at cost which naturally reflect international crude-oil prices. Petroleum Products: including derivatives as:
3

The term petroleum product cover a broad spectrum

(PMS) (AGO) (DPK) (HHK) (ATK) (HPFO) (LPFO) (LPG) (LNG) (CNG) (NGLS)

Premium Motor Spirit Automobile Gas Oil Dual Purpose Kerosene House Hold Kerosene Aviation Type Kerosene High Pour Fuel Oil Low Pour Fuel Oil Liquefied Petroleum Gas Liquefied Natural Gas Compressed Natural Gas

Petrol Diesel Kerosene Kerosene Kerosene

Black Oil Cooking Gas

Natural Gas Liquids and petrol chemical product from ethanol and

ammonia plants. Downstream Sub-sectors: Refining, Storage, Importation, Distribution, Oil

services Marketing, Facilitating. Why Oil & Gas? Energy petroleum product are demand driven, humans can hardly do without them. E.g. petrol & diesel are used for automobiles and generators while kerosene and gas are used for cooking, generating power e.t.c. black oil is used by construction companies and manufacturing plant. The oil and gas is the only business that you dont need capital to start because it is supported by banks, finance houses. It is also open to both small scale entrepreneurs and Institutional Investors in different capacities. Offices, eateries, banks, hospitals and government parastatals are spending millions and would still spend million on AGO (diesel) consumption as the electricity supply situation is not likely to change significantly before 2012, hence dependence on generators and mini-power plant will surge. Downstream Operators: This is a business of demand and supply of

petroleum products, it involves taking such product from their sources to the end users and making profits cash in the process and sometimes instantly activities in

the sector can be broken down to Refining of Crude oil, Importation of Petroleum products, Storage, distribution oil services marketing, Facilitating. Business Opportunities the downstream: It is trite to repeat the enormity of business opportunities in the downstream of the nations oil and gas industry. And it is open to anyone who wish to be involved, The larger, the more sophisticated and the more knowledgeable you would need to be part of it. Money involved can range from a few thousands of naira to billions of naira. Some times you might not need capital or facilities of your own to be able to make profit. As said earlier, today the industry is supplying less than 60 percent of the daily national consumption demand. These open ample opportunities to entrepreneurs to get good returns on investment. Investment opportunities abound in: Importation: *Importation of petroleum products *Importation of (LPG) Liquefied Petroleum Gas To start importing petroleum product into Nigeria, your first step is to get a permit / license to import petroleum product from the Department of Petroleum Resources (DPR). (You dont need this if you are not bringing it into Nigerian shores). After that is done, you would need to get allocation from refineries abroad most of them are in Russia, U.S, U.K and other European country. Or you can get this petroleum product from a broker i.e. a person who get this allocation from the refinery and in turn sells to you and makes his cut. This brokers can be found in B2B portal online (business to business). Most refineries sell at PLATTS prices, this prices includes the cost insurance freight (CIF) of various petroleum Product to the receiving country. Thus, brokers will add a sum to the platts price e.g. PLATTS price plus $ 10 tones. All importers and dealers monitor this plats prices to take decisions. To get this platts price you have to sign up with them, their website is www.platts.com

Platts has several products and services they offer, you have to be specific in your request. In the case the product you are requesting is platts Oil grams, when you are in the site make sure you click on Oil, they would send a free trial to your email, this service cost as much as $ 250 / month as they would be sending daily prices to your email. All what you would be concerned with is the CLEAN TANKER WIRE FROM (NEW) north, west, east, to (WAF) West African in ($ / MT). These prices can also be gotten free from www.oildealng.com , all you need do is to sign up and it would be sent to your e-mail or phone number daily. Who is Platts? Platts is the Information department of Mcgraw Hill corps on

American firm. They benchmark energy prices all over the world. After Agreement of price, term and conditions with the seller, you would need to write a LOI Letter of Intent and place a Letter of Credit or (BG) Bank Guaranty from your bank (local). This depends on the terms you agree with seller. It will take a maximum of two weeks to get to Nigeria off-shores also known as Outside-barr. You can decide to sell at this point or decide to bring it into the country and pay all the charges and duties involved. Whichever way you wan, you are bound to make profits as long you do your home work. i.e. carrying out a feasibility studies on the product you are importing, this includes demand of the product and the prevailing prices. Importers can make a margin of N 7 to N 12 per liter minimum. If an importer brings in 5,00MT i.e. 5,300,000 litres, multiply that and see how much he makes in a short period of time. Some importers due to logistics, buy from traders who have these petroleum product off-Nigeria that is Outside-barr and bring it into the country to store in storage tanks. You can get these sellers that sell off shore Nigeria on www.oildealng.com, my advice is that to go into this, you need a strong consultant to put you through. Importers must adhere to DPR / NNPC specifications when importing.

Refining Building and operating a private refinery This is for Institutional Investors who has the facilities and capacity to carry out this type of Investment. The (DPR) department of petroleum resources is granting license to establish and operate refineries private refineries. If you can meet up with their requirement. This is a promising Investment to Investors who want to venture into this.

Storage Building and Leasing of petroleum product storage tanks Construction of Jetties.

When petroleum product are imported into the country they are stored in storage tanks at the Jetty, they are transfer from the vessel to storage tanks, this is yet another Investment Opportunity in the downstream entrepreneur / Investors can buy or build storage tank and Jetties in port. This is also for Big Investors who would like to partake in this, as it requires capital running into billions of naira. Charge of storage of petroleum product range from N2 to N 3.00 per litre so if you have a storage facility of 25,000MT you can multiply that and know your profit per lease you are bound to smile to the bank.

Some Oil Companies with storage facilities in Nigeria Oil Companies Storage Capacity (MT). MRS Oil and gas 128,000 (mt) Zenon petroleum and gas 120,000 (mt) Obat petroleum 65,000 (mt) Wabeco 50,000 (mt)
7

Ibeto petrochemical Global fleet Honeywell oil Sea petroleum and Gas Ltd Sigmund oil Eurafic oil Capital oil and Gas Ltd Ibafon oil Ascon oil A Z petroleum Nipco Rahmariyan oil Ltd Integrated oil and Gas Ltd Sahara Energy Distribution:

77,000 (mt) 30,000 (mt) 26,000 (mt) 25,000 (mt)

25,000 (mt)

Nigeria distributes its refined products through a network of

storage depots and finished product pipelines. The inadequacy of the distribution infrastructures is shown by the frequent and often severe shortages in some state of some federation even when products exist in others. Recently, the lack of maintenance and vandalism of the pipelines has compromised the integrity in the pipeline network resulting in dependence on Haulage by road through petroleum tankers. Petroleum haulage is one of the most viable business opportunity in the industry today, because of its mode of operations and its returns on investment. Petroleum tankers are of different size and capacity. A standard tanker has a capacity of 33,000litres and a mini tanker which has a capacity of 11,000ltrs. The cost of building a standard tanker hovers around N5 million to N 6 million and for a mini truck it hovers around N 1.8 million to N3 million. You can also buy a second hand (tokunbo) truck and reconstruct it. It will cost less. After acquiring this tanker, you would lease it to a transport company registered under a petroleum marketing company either a major marketing company e.g. Conoil, Total, Ap or its independent counterpart e.g. capital oil and gas, Zenon. But first this truck must be insured by an insurance company to mitigate the risk in the case of accident and any other mis-hap. Then you can go ahead and negotiate a
8

contract with one of these transport companies for a weekly, monthly, quarterly or annual returns. At least for a standard fuel tanker you could get returns of N 500,000 - N 700,000 monthly, while for a mini truck you could get as much as N 250,000 N 400,000 monthly for the duration you agree on. Returns vary from company to company and the mileage of your truck. Some transport companies West mall transport and Logistics Ltd Aplus approach fleet management Ltd. This business is fully supported by banks because it is a viable and the risk is mitigated by insurance, you can walk into nay bank to ask for loan. This would be made easier if you have at least 20 percent of the equity funds required to purchase the tanker and done your market research on a transport company. Distributions are also done through coastal vessel from Lagos to Port Harcourt or to Warri, from a storage facility to a mid-stream project site. Leasing of this vessel ranges from N 1.50k to N 3.00 per litre. Marketing Operation of petroleum service filling station Operation of LPG filling plant Marketing of Lubricants and other petrochemicals

Marketing of petroleum product is open to anyone want who would like to get involved especially small scale entrepreneurs who would not have the capital to go into big Investment discussed earlier. Petroleum Service Filling Station: Building or leasing a service filling station is another business opportunity in marketing petroleum product, because filling station sells directly to the end users. Although to build a new filling station is very daunting, not just because it is a capital intensive project but also in acquiring the license from DPR. Cost of building s service filling station differs from location to
9

location but the opportunity in this area of marketing is in leasing for small entrepreneurs. Look around you would see a lots of filling stations not functioning because of poor management or most of them has bee dilapidated you can move to revamp that filling station by leasing it. Accepting to pay the owner some sum monthly for using his facilities. But before leasing a filling station you would have to investigate the documents i.e. the License to operate a filling station and the C of O, some filling stations are shut down because they do not meet DPR requirement, while some filling station are not functioning at all others are under utilized. Most filling station deals on PMS (Petrol) only, while they have service pumps for both AGO (diesel) and DPK (Kerosene) entrepreneur can negotiate with the owners, they would be very willing to lease those pumps out, you pay them per litre sold. Most of this filling station dont deal on (DPK) Kerosene you can get this product at a very cheap price that would beat prevalent retail price in you vicinity and retailer would come to buy from you i.e. people who sell in surface tankers, drums and kegs, bottles, to get this prices you would have to sign up to www.oildealng.com. Sometimes these prices would be sent to your phone, all you need do is to do a small feasibility studies to know the margin between the market selling price and the supply price so you can know how viable it is, before also leasing this facility you have to take into consideration the location and the security. Building a Petroleum Service Filling Station * * * * * * * * Fire Service Report Police Report Construction of Four (45, 000 litres) underground tanker Construction of Canopy Installation of at least Six Pumps Hard Core for the Flooring Generator Construction of a Bungalow
10

All this would cost from 18m to 30m. Excluding the cost of the land, and the cost of acquiring a DPR License. LPG Filling Plant: LPG (Liquefied petroleum gas) also known as cooking

gas, LPG filling plant is one of the logistics in the distribution of cooking gas from source to the end users owner of LPG filling plant sell to retailers people that in turn sell in Gas cylinders in gas shop and outlets. This business is very lucrative because they are few LPG filling plants, to go into this you require a DPR license because of its safety. Marketing of Lubricants and Petrochemicals: This is another avenue for small

scale entrepreneur to venture into oil and gas. In marketing of lubricant and petrochemicals e.g. Base oil, Engine oil Brake fluids. There is a lot of profit in this business; this lubricant can be marketed in service filling station. This lubricant can be directly bought from major petroleum marketing companies e.g. Oando, Conoil Entrepreneur with N 3,000 and above can venture into this area of marketing. Retailing: This is an aspect that deals with marketing. These petroleum products to the end users and a very lucrative business for anyone, some aspect are: Sales of HHK in surface tankers Sales of LPG (cooking gas) in cylinders Supply of petroleum product directly to homes & offices

Selling HHK (Kerosene) in surface tankers: Kerosene is sold in surface tankers all over the country because of its domestic use. Small entrepreneurs can be a part of this business. You can sell also in drums; the most important thing is the price difference. If you have a margin of say N4 and you can be able to finish a drum before the end of the day, you would have made a handsome profit but the key in oil business is not in the profit, it is in its demand. Thats why some people dont want to venture into it. They think the profit is too small. How much does recharge
11

card vendors make from the sales of recharge card? To start this business you could get assistance / loan from microfinance banks; I would be lucid on getting finance to start your business later in this write-up. Not minding where you are in Nigeria, you can start this business. All you need to do is a little feasibility study and Market Analysis. You would need to know the prices of kerosene in your locality, and make out ways to beat your competitors through price and market strategy e.g. Sales point must be easy access. For where to get this product at a cheaper price in your locality: Log onto www.oildealng.com or call: 08077918755, 08028634329. Sales of LPG (Cooking gas) in Cylinders: Sales of cooking gas in cylinder is an opportunity a small entrepreneur can venture into. Cooking gas is used in homes, in some manufacturing companies, eateries e.t.c. Gas Cylinders come in different capacity i.e 50kg, 12.5kg One can start this business by marketing directly to homes. Tell them you call fill their gas cylinders for them. Do a sticker or pamphlets and distribute them. When their cylinder is finished, they could give you a call, go to their house with an empty cylinder, drop your empty cylinder and take theirs. Before this, you would have filled a 50kg gas cylinder; this is the biggest gas cylinder. You can use 50kg cylinder to fill about four 12.5kg gas cylinders or go directly to the gas plant around you to fill the empty cylinders and go home with your profit.

12

Supply of Petroleum Product to Homes & Offices: Petroleum product can be marketed directly to homes, offices, industrial plants, construction site e.t.c. and anyone can be part of this opportunity. As discussed earlier most companies, banks, telecoms, governments run 24/7 on A.G.O (diesel) to power their generators. Industrial plant and construction companies make use of LPFO (black oil) for their machines. All you need to do is to reach out to these companies. Look for anyone of these companies around you and: 1. 2. Investigate the prices at which they get this petroleum product Write your Letter of Introduction to them, if they accept it, they would ask you to quote your current price, depending on the company. You can write to banks around you, hospitals, fast-food, eateries e.g. Sweet-Sensation. You can even hit big contracts, like supplying diesel to Telecom Companies mostly in a particular region; Etisalat can decide to give you Lagos, i.e. you are in charge of their most in Lagos. You would have to sign an MOU or SPA with them that depends on the company. Some might give you a LPO. MOU SPA LPO (Memorandum of Understanding) (Supply Purchase Agreement) (Local Purchase Order)

All of these document is to show that you have reached an agreement for you to supply them. The next step is where to get finance, which would be discussed later in this book. As a starter, another way to get customers is to advertise on the media, either electronic media or print media i.e. newspaper and radio and television. Newspapers are the best, you can do this for as cheap as N2, 500 per a classified Ad, first, get a business name E.g. FAO Resources, choose a petroleum product or you can put the major ones, attach your contact phone numbers, you will start receiving calls from prospective clients, but the key problem is the price, you have to get a suitable price,
13

that would favour you, you can go to www.oildealng.com to compare prices from different sources. Some companies does not issue LPO, they would want you to bring the product before they pay i.e. payment on delivery. For these set of buyers, there is a way to come to an agreement with them, since you would not like to haul a product which at the end of the day the buyer or the company would say they are no longer going to buy. There must be some sort of guaranty from the buyer and the best way to do that is to involve a bank. The buyer or company pays the money into a bank account which is freeze. At this point no party can have access to the money for the time duration which the supply is to be made or the time but the party i.e. the buyer and seller. When the supply is made and the product arrive its destination safely, the money is released to the seller. In this case the bank used is the sellers bank or the financiers bank i.e. the person financing the business because the buyer or the company may request for a (performance bond) i.e. if the seller fails to supply or deliver the product between the agreed duration. The seller would pay an agreed fee to the buyer e.g. 1 percent, for damages and the money would be return to the buyer. The buyer would have one percent of his money. Oil Services: This is the aspect of providing essential services to the oil industry. Some essential service includes: 1. 2. 3. 4. 5. Bunkering Operations Consultation Facilitating Fleet Management Financing

Consultation: Offering consultation services is another business opportunity in the oil & gas industry. But this is for individuals who have gathered experience in the
14

industry or acquired in-depth knowledge about the industry and how it operates, proffering solutions and advice to companies or entrepreneurs. Many network individuals want to diversify their investment portfolio to the oil and gas; you can be of assistance to them in giving them right information. Other areas of consultation include market research, feasibility studies, project management, risk assessment & access to finance. Facilitating: This type of business opportunity is one of the oldest forms of trade but it is essential in the oil and gas industry. Both parties need the service for them to be afloat in modern business. Facilitating in the oil business term is simply linking a buyer to a seller or vice-versa for a commission. This act has turned into a full business, and this business does not require a dime to start. Here you can make up to N50million in one business deal. This also depends on the deal; Offshore Deals and Onshore Deals. Off-shore deals: These are deals that involves vessel on coastal waters. Petroleum product are traded on the high sea (Offshore Nigeria) also known as Outside Barr. Some importers of petroleum product dont like bringing it into the country because of logistics and lack of storage facilities & the cost, charge of ports and jetty. So they decide to sell outside the Nigeria Barr. In order not to incur lost and maximize profit because of the cost of demurrage, they would need the help of facilitators to sell their products. These products are stored in a vessel and these vessels are parked outside barr. At this level traders dont sell in litres they sell and buy in (M/T) metric tonnes. This depends on the petroleum product. 1 metric tonne 1, 350 litres The biggest vessel is up to 50, 000 metric tonne, while the smallest is 5, 000 metris tonne. This means the minimum a trader can import is 5, 000 metric tonne. For instance a seller has 5, 000 metric tonne of AGO (diesel) and you were able to bring a buyer that would buy all of the AGO, you would have made a good cash. Normally, the breakage is usually N1 per litre. In this case it would amount to N6
15

million if you are the only facilitator the money is yours. Now you can do your calculations if you facilitate a product of 50, 000metric tonne and let say your share is 20k; in that, do your calculations and get your profit. In a business where your money is not involved; this kind of business goes on daily and you need to visit the port the number of vessels anchors daily. How to get a serious buyer: This is simple, but you have to do some marketing, since anyone who is buying would have to store it. Companies with storage facilities buys or they can lead you to a serious buyer. Since this buyer store the product in their tanks. I have mentioned some earlier How to know a serious buyer: They would be willing to raise an indemnity or ready to give a letter of comfort from their bank, to instill confidence in the seller that he has the money to pay before going to inspect the product or do the (Q & Q) quality and quality of the product in the vessel. Indemnity: The Indemnity must be a Legal documentation from the bank managers of both buyer and the seller, Stating that all things being equal any party that defaults would loose an agreed sum e .g N5 Million this indemnity is to prove that the seller has the product, or else he losses his N5 Million and on the other hand the buyer must be ready to buy if the product is available and in good condition else he losses N5 Million. LETTER OF COMFORT: This is a letter from the bank of the buyer assuring the seller that the buyer has such money to pay. All this is to show commitment that the buyer is willing to buy. How to get seller: To get genuine sellers go to www.oildealng.com and sign. Up, make sure you put your active phone number and email address. This site tracks sellers out side barr. Genuine sellers also advertise their product on this site. Products its reaches most petroleum dealers. As products are posted on this site you receive it directly on your phone or in your email. And on the other hand if you have a genuine seller you can also post it on this web site.
16

How to know a genuine seller: To identify a genuine seller who has a product to sell. He is ready to give an ATB, show a POP (proof of product) ATB (Authority to board): It is either a corporate or marine; this is the document authorizing the buying company inspectors to ascertain the quality and quantity of the product in the vessel. Bill of Laden: A document that contains all the information about the vessel, the product it is caring and its origin. On Share deals: These are deals that involve product in storage tank and Jetties NNPC / PPMC Jetties and depots or private depot. Although the profit margin in facilitating these deals are little. Get prices from companies who have these products in storage, Look for a genuine buyer and add your commission. At this leave traders deals with trucks (Liters) and a full truck is 33,000 Litters. You can add N 1 on the price, multiply with the number of product from both NNPC / PPMC and private depot owners visit: www.oildealng.com and sign up your would get daily prices. Lease Facilitating: This aspect of looking for client for oil Leasing companies. Company who Lease vessel, barges and storage facilities .Most vessel coming into the country cannot enter directly into the Jetty to offload. Product need to be transferred from the matter vessel into a smaller vessel (barge) in other for Jetty to accommodate it.

Vessel are also Leased by companies operating in the upstream. You can get a commission as high as N0.20 / Liter. For instance let say you get a client for a vessel leasing company. For a vessel capacity of 3,000MT, this would give you N 650,000 for just one Erip. And there many of these are company who would be willing to do business with you as long as you can bring them clients to get this companies visit www.oildealng.com Financing: This is financing business deals. If you have the money, you can go into profit sharing ventures, LPO, financing and so on. Some Active Player In Downstream
17

Major Marketers African Petroleum Oando Supply & Trading Ltd. Conoil Plc Mobil Total Nig Plc Texaco Oil Nig. Plc Eterna Oil & Gas Plc Independent Marketers Zenon Petroleum & gas Ltd Mrs. Oil & Gas Ltd Ascon Oil & Gas Ltd Integrated Oil & Gas Ltd Global Fleet (Nig) Ltd Rahmanriyan Oil Capital Oil & Gas Ltd Obat Oil & Gas Ltd Honeywell Oil Ltd Ibefo Petrochemical Sea Petrol & Gas Ltd Sigmund Oil Eurafric Oil Ibafon Oil Beco Petroleum Wabeco Folawiyo Energy Ltd A Z Petroleum Ltd Dozzy Oil & Gas Ltd Imad Oil & Gas Ltd Sahara Energy
18

Acron Petroleum Panafric Oil & Gas Ltd Anthonio Oil Fineshade Energy Ltd Matrix Energy Ltd Phoenix Oil & Gas Ltd Brittania u Nig Ltd Valore Energy Ltd Delmor Petroleum Ltd Lubcon Ltd Petroleum Brokers Ltd Nigerpet Company Ltd PPMC Pipelines and Product Marketing Company (PPMC), the Nigeria National Petroleum Corporation (NNPC) subsidiary in charge of the distribution and marketing of petroleum product. PPMC distributes its finished product through open access pipeline network to it storage depots across the nation. PPMC STORAGE DEPOTS AND JETTIES NNPC/PPMC IN THE: WEST Ejigbo (Lagos) EAST Aba SOUTH Benin (Edo) NORTH Maiduguri, Jos, Minna, Suleja, Sokoto, Kano, Gusau, Yola Warri (Jetty) Enugu Mossimi (Shagamu) Apata (Ibadan) Ilorin (Ilorin)

PPMC market petroleum product to both major marketers and its independent counterpart i.e. to lift any petroleum product from PPMC storage depot you must be
19

registered as an independent marketer with the DPR (Department Of Petroleum Resources). Then you would get a monthly ALLOCATION, a quota of all petroleum products. The advantage of buying directly from PPMC is that they sell at 90% of the prevailing market price, so one can resell and make good profit margin. Although the quota you can make from PPMC will depend on the category of marketer you belong. IPMAN: Independent Petroleum Marketers Association of Nigeria. MOMAN: Major Oil Marketers Association of Nigeria. Advantage of Independent Marketers is that PPMC sell to them at a cheaper rate in comparison with the major marketers. And they are allowed to sell to any independent and major marketers can be up to N250, 000 for a 33, 000 liters tanker. Disadvantage of Independent Marketers is that they get lesser allocation (quota) from PPMC, while the major marketer has loaded ten trucks, the independent marketer is just loading one and can load four times in a month from the PPMC Depot. You can also enter into dealership agreement with a major marketer, especially in the marketing of HHK (House Hold Kerosene) or franchising under them. Deregulation and Subsidy Government spends huge sum subsiding petroleum product, this subsidy regime have been on for the past six years. In 2009 alone, government released N150 billion for the purpose of petroleum subsidy. However, to benefit from this petroleum subsidy you must be registered with (DPR) as an Independent Marketer. Government subsidies petroleum product by paying marketers the difference between landing cost and the pump price of petroleum product. For example, about N103 is spent to import a litre of PMS (Petrol) into the country. If you remove N 65 from it, then you are thinking about N 38 per litre. So marketers bring in products they are supposed to sell at N103; it means that they have incurred all costs; N103 is the price at which I must sell to make my gain; the government

20

now directed that they should sell at the rate of N 65; the subsidy is arising from the government position of N 65. In order words, government is subsidizing N38 per litre of PMS. If you take N 38 as subsidy on one litre and multiply it by a cargo of 30, 000 m/t and you convert it to litre of 1, 341 i.e. (1 ton 1, 341 litre) it means that for every cargo of premium motor spirit that enter into the country, government pays N 1.528bn as subsidy. Petroleum Equalization Funds: PEF runs some scheme known as bridging scheme where invariably marketers of petroleum claim money from them for bridging. The second money that petroleum marketers claim from PEF is the National Transportation Allowance (NTA). I would be lucid on this, because the Kaduna Refining Company is not functioning, the Port Harcourt Refining Company is not working, because the Warri Refining and Petrochemical Company (WRPC) is also not functioning, everything (Petroleum Product) that is consumed in North and a larger part of the Eastern part of the country is from Lagos. Marketers bridge massively from Lagos to the East and North. The North is 100percent bridging while the bridging to East is 55percent to 60 percent. Objetives of Petroluem Equalization Funds (PEF) One of the main objective/reasons for PEF is to ensure availability and distribution of petroleum product around the country at affordable prices and to ensure uniform prices through equalizing the trasnportation differential in oil product. To regulate the supply and distribution of petroleum product To moderate volatility in petroleum product prices while ensuring reasonable returns to operators. What this means is that if you load a product from Lagos and that product is to be taken to Kano; government through PEF pays for the transportation, so you as the marketer still make a good profit margin; this is called (bridging). Subsidy paid would depend on the distance. From Lagos to the North which is 100 percent. Government would pay you 100 percent the prices of that petroleum product, so you
21

have nothing to loose and everything to gain taking petroleum product to any part of the country. For more information on PEF you can contact them: PEF Headquaters 3rd 5th Floor, AP Plaza Wuse II, Abuja Fct. www.pef.gov.ng

ACCESS TO FINANCE
One of the primary goals of stating a business is to make money however, it talks quite some reasonable amount of capital in order to properly launch and sustain a business; oil & gas business is no exception and therefore it is crucial for new business to develop resources and additional means to obtain further capital because without proper financing, an entrepreneur in the oil & gas may find it extremely difficult to compete with an already established business, in other words lack of funding can easily kill viable and sound business ideas. Funds are often the biggest to what could otherwise be a lucrative opportunity. That is the purpose behind this piece. Sources of Capital / Finance 1. 2. 3. 4. 5. Bank Loans Business Partners NGOs (Non-government organization) Government Agencies Grant / Incentives
22

6. 7. 8. 9.

Venture Capitalist Equipment Leasing Business Networking / Brand name sharing Hire Purchase

It is important for an entrepreneur to consider the pros and cons of different financial sources that are available in order to make an effective educative decision to fund a start-up. In the oil & gas business you could start from bottom to the top in little or no time. Bank Loans: In accessing loans from banks one need to have a good business plan. However, this depends on the purpose of loan, and the type of banking institution you are approaching. Types of Banks Commercial Banks Microfinance Banks Government Banks Any of these (3) category of banks can finance a (LPO) Local Purchase Order from a blue chip company hence, as an entrepreneur your major hurdle is sourcing for LPO. This is very simple! By writing a good business proposal to the company, ministry, department or agency you would like to supply petroleum product. Make the business proposal short and go straight to the point. Make sure your contact is on it; so they can contact you to give them your price. If you are successful you will be issued LPO. With this, you can walk into any of these banks for finance as they would be willing & happy to do business with you. Some companies would not give LPO, but would tell you Payment on delivery. In this case you can woo them to pay into freeze account. If they do, you can now use this evidence to seek for finance. When the delivery is made, the bank
23

defreeze account and the money is released to you. You can even use the bank of the buying company; this is proven way to raise capital. Microfinance Banks: This set of banks deals with small scale entrepreneurs and small businesses and groups. Business which operates under N1million to N10, 000 can access loan from this set of banks; businesses like selling liquefied petroleum gas (LPG) in small scale cylinders and sales of (HHK) kerosene in drums and surface tankers. With N20, 000, one can start selling (cooking gas) right from your home. All you need do is to in your vicinity. Harig Oil & Gas Ltd is a company which deals majority on (LPG) and the good thing is that they deliver at your doorstep; their prices are very cheap and you can be their representative / reseller and make good money. They sell their 12.5kg cylinder for just N6, 000 which you can resale at N 7, 500. They can also give credit/loans to buy from them if you join their gas club; these loans are without collateral. To join or register with them visit: www.thegasclub.net or to know more about their product and services visit www.harigtrading.com For entrepreneurs willing to sell (HHK) kerosene in surface tanks, to make access to loan easier, you would have to register with (SUTAKED) Surface Tank and Kerosene Dealers a branch of National Union Of Petroleum And Natural Gas Workers (NUPENG). Some of the microfinance banks we have worked with are Oceanic Microfinance, Firstbank Microfinance bank, Network Microfinance Bank, Integrated Microfinance Bank and many more. But these microfinance are confined to a particular state, but you can talk to the microfinance closest to you as we currently have over 709 branches nationwide. To get list of microfinance bank in Nigeria and their contact addresses go to www.cenbank.org/supervision/inst-mf.asp Some microfinance bank would request you save with them from one to three month before you would be qualified for loan facility. You can get loan of up to100% your savings. Loan repayment period are flexible and can range between 6months to 2years. No collateral is required to obtain loan.
24

Non- Governmental Organization: These are some non-government organization who indulge in financing viable businesses. I would discuss about one of them: Youth Business Initiative Contact Address: 29, Moloney Street Obalende, Lagos. Nigeria. Criterias to obtain loan from them You must be 18-35 years Have a full time education You must be unemployed You must be a citizen of Nigeria Satisfy YBI that you have the skill and technical competence to operate the proposed business Prepare a sound business plan for evaluation At YBI, an entrepreneur is paired with a business development manager, the business manager will maintain a close relationship with the client throughout the finance term and assistance only comes to an end on full repayment on money. Company Registration: If you dont have a registered company YBI will help you register your company; if you have a viable business idea. How long does it take for an application to be approved? Once the business plan is finalized, the beneficiaries are expected to face a loan panel that will give the final approval. The time taken for due diligence depends on the size of complexity of the transaction, but on the average two weeks. Interest Rate: Interest rate is 12% per annum. This loans are for oil & gas entrepreneur who need N1million and below for short-term, long-term purpose. The advantage of this type of loan is that oil & gas business are mostly short term. African General Finance
25

47, Marina Lagos Nigeria. www.agfplc.com info@agfplc.com Offshore Funding US Ex-Im Bank The export import bank of the United States (Ex-Im Bank). Is the official export credit agency of the United States. Ex-Im Bank assists in financing the export of U.S goods and services to international market Ex-Im Bank enables large and small U.S companies to turn export opportunities into real sales that helps to maintain and create U.S jobs and contribute to a stronger national economy. How it works: In a emerging market, if you want to set-up a project, the equipment content of that project would be expected from a chosen supply line in U.S to fund the export to the beneficiary company in Nigeria. This source of finance are for entrepreneurs (oil & gas) who willing to go into big project like: Importation of petroleum products, building of modular oil refineries, gas gathering & processing plants, building of petroleum storage facilities, importation of petroleum haulage tankers and other blue chip investment in the oil & gas. The beneficiary company has a guarantor which is a local bank (is participating bank in Nigeria have already been approved for the project) would provide the guarantee not money. How to be a partaker: These are two ways you can go about it, you either go through the U.S embassy in Nigeria by joining the investment group or through the FINANCIAL BRIDGE. About financial bridge: Financial bridge is an export finance and business credit consulting firm. They work with U.S and International Financial Institution in providing innovative funding to private companies. Including export and import
26

trade finance, project finance. Export working capital loans, equity financing and bridge loans. They co-operate with project implementation and management companies e.g. Fatdeo & Associates Ltd. In ensuring effective utilization of procured funds for successful planning and execution of related projects and trade transactions. Their Consultant in Nigeria: They have an agreement with Energy Industry Development Initiative (EIDI). Their office is at 56, Norman Williams Street, Ikoyi, Lagos. Or call Tom on 0803071085 or Niyi on 08023121459 you can submit your proposal in their office; they will forward it to financial bridge. Requirement: You need to pay 15% of the amount worth of equipment you are requesting for. The money is refundable if your proposal is not approved but before they can receive your proposal they would have made sure it is viable. It is also important to mention that it not only the U.S Ex-Im bank they relate with but other foreign funding agencies. You would have to explain how the money you want is going to be used, as

well as anticipated income figures. With a summary for each year, over at least a three year period. For instance you want to own a haulage truck, and it cost N5million Naira to bring it to Nigeria, you would have to deposit N 750, 000 Lease It to a major petroleum transport company; with this you can get N 500, 000 N 600, 000 monthly i.e. 10% monthly. Interest rate: The rate is 3%. It the reflection of interest rate in U.S to encourage investors. Collateral: Your bank guarantees i.e. enough to provide you with appropriate collateral. Pay back period: The pay back period is between 5 to 7 years. Minimum loan: Your Equipment need should be worth at least N 5million Naira. Quick guide: (a) write a business proposal (b) understand your project (c) review your equipment (d) register your company (e) have a business account with any of these approved banks. To obtain this loan you need to work with a business consultant in the oil & gas sector.
27

Venture Capitalists & Business Networking: The petroleum business can be seen has capital intensive but through business networking & venture capital, this challenge can be surmounted. It would give you a leverage to start and grow your business or a chance to take home a monthly income. You can go into profit sharing venture, one of such venture is the Nova Petroleum Network (NPN) to be a member of this network, you have to open an account with a minimum of N5, 000 no maximum. This venture is in partnership with some microfinance banks. The main reason for this partnership is transparency & accountability. Membership fee is used to open account with any of this MFBS in your name under this venture. As a member, if you dont have access to capital, but have little marketing skill and bring a business for finance e.g. supply of petroleum product to a construction company. Member of the network would finance this business deal and profit would be shared amongst members who partook in this deal. Note: As the facilitator you get 10 percent of the profit for bringing the business. *As a member who partook in that transaction, profit is directly proportional to capital invested in that deal. * Profit / commission would be credited to your account. * Business are supervised and monitored by the MFBS. * Business deal in duration, as a member you would be For more visit www.oildealng.com Remember little drops of water makes an ocean.

28