By Michael Eboh with Agency Report

The Nigerian National Petroleum Corporation, NNPC, has signed an interim crude oil swap contract with four companies that is expected to last from October to December 2015.

According to reports obtained from Reuters, two of the agreements are with NNPC Joint-Venture companies — one with Swiss trader Vitol called Calson and the other with commodities trader, Trafigura called Napoil.

The other two are with non-incorporated Joint Ventures between oil major BP and Nigermed Limited and NNPC’s trading arm Duke Oil Company with Sahara Group.

The contracts, according to industry sources and a source inside the NNPC, were entered into to replace those cancelled last month.

The sources said the cancelled deals will run through September before being replaced by the interim offshore processing agreements (OPAs) between NNPC subsidiary, the Products and Pipelines Marketing Company (PPMC) and four joint venture companies, which would run until fresh contracts take over in 2016.

Calson is new to this scheme while BP and Nigermed previously held an OPA for one year in 2010. Trafigura, on the other hand, had a direct contract between 2010 and 2014 while Duke and Sahara have been involved up until now.

The report stated that the NNPC set up the first swaps in 2010 when it could no longer pay cash for gasoline imports. Facing cash flow problems and refineries that were barely running, NNPC decided to use half of the oil destined for its refining system for the swaps scheme.

The contracts came in two forms: an OPA, whereby a trader takes Nigerian crude to a foreign refinery and returns with the resulting products, and a direct crude-for-product swap.

The NNPC had a few days ago, cancelled the Offshore Processing Agreements, OPA, entered into in January, 2015 with three companies —Duke Oil Company Incorporated, Aiteo Energy Resources Limited and Sahara Energy Resources (Nigeria) Limited.

Thereafter, it appointed one of its subsidiaries to continue with the activity until a new contract is signed.

The NNPC had further stated that after due appraisal of performance trajectory, it had invited Oando, BP/Nigermed, Total Trading, Calson, MRS and two companies involved in the cancelled contract — Sahara Energy and Duke Oil — to bid for the new Offshore Processing Agreement, while adding that it had engaged Aiteo, Sahara Energy and Duke Oil to exit the current OPA.

It later extended an invitation to Forte Oil and Mobil, among others to join in the competitive bidding for the proposed Offshore Processing Agreements, OPA.

The NNPC had also stated that only 16 firms would be engaged to serve as off-takers‎ for the 2015/2016 crude oil term contract‎ from the current 43.

According to the NNPC, the decision to prune the number of off-takers was borne out of the need to instill transparency and probity in the award of the annual Crude Oil Term Contract.

‎The NNPC further stated that it was part of measures to optimize the marketing of Nigeria’s crude oil and secure new market potentials.

An off-take agreement is a contract between a producer of a resource and a buyer of a resource to purchase/sell portions of the producer’s future production.

An offtake agreement is normally negotiated prior to the construction of a facility in order to secure a market for the future output of the facility.