Challengging Oil Operations

Yes, here  I  am back in front of my computer, writing in by Blog AGUNGSS Business Lawyer Note. After having experienced Independent as an Independent  Business Lawyer for more than 12  11/2 Years since June 1998, I am now busy with Oil works and also Coal Mining Works.

The Oil Company which I am being assigned through Secondment by Saco Law  through its Holding Company,  is in the face of Commercial Production. It is really exiting since we are all busy in preparing the arrangements as to how to implement to  get the oil Production from below the Ground around 500 meters  to carry  and moved it  to the Terminal Port for lifting to the Tanker of the Buyers. Well, it is really interesting since, cash and funds are needed to transport and move such Crude Oil from the Oil  Field to the Terminal Port.   

Moving such oil can be done through pipeline facilities, however, funds are need to built such pipeline facilities. If we are intending to use existing pipeline of other Oil Companies in the Working area, in reality it  is not that easy since quality of the Oil which we are intending to flow through  such pipeline must meet the quality oil of the existing producing Oil Companies who are already using such pipeline facilities. 

The temperature of the oil has to be high with a certain degree of level so that the oil could still  move and being transported through such pipeline facilities. Bankers who are financing oil Companies needs to see the real oil products being actually sold to the Buyers.   

Bankers will only disburse a certain amount of funds needed by the Oil Company for the working capital and will only further disburse  if the Oil Companies can show the Oil Products really being sold to the Buyer at the Terminal Port of Point of Sales. 

Accordingly, there have to be business strategy by the Oil Company, as to how to show  the Bankers of the realization of such Sales of Oil. 

If the process of using the Pipeline facilities still needs a long time for realization, the alternative way out has to be made,  which among others are  by using Trucks to carry such Crude oil from the Oil Field to such Terminal Port.  There must also be Storage tankers needed  to store such Crude Oil before lifting  to the Tankers. 

This may initially be more costly compared to using the pipeline facilities. But since, we are competing with time to show the Bankers on the Sales of the Oil to the Buyers, we may than choose  using Trucks as the first priority action to be taken by Oil Companies who are in the early stage of growth. in building their Financial Strength.  

This is really challenging for us including fo the Oil Business Commercial Lawyer to prepare the required  contracts to stipulate the terms and conditions for implementing this business strategy.    

Good and Well Team work are needed to make these  challenges  become real and executable. We have to be professional  and  focused on the Goals and Priorities. These are really challenging operations experienced  by us involved  in the Oil Business Operations in Indonesia.

Cheers

Agung S.Suleiman

Jakarta 3rd  February 2011                 

Coal Trading Business

During this recent weeks, I have been really busy  involved in a team work  with our group members  relating to a certain Coal Trade  Project. It is really exiting, interesting and frustrating  because there seems to be difference of manners and attitude in approaching the price settlement  of Coal that had been loaded on the Vessel,  for approximately 15,000,000 MT of Coal. 

The issue was that the Coal Quality spec was not reaching the spec but was not rejected by the Purchaser, and requested to be loaded to the Vessel, with  conditions  proposed by the Purchaser that if the Coal is below  5500 Kcal/GAR, the price will be renegotiated. 

However, when we as  Seller had followed the instruction to load the Coal to the Vessel for shipment, the Purchaser seems not having room for negotiation, and had keep on insisting  to decide unilaterally, for which purpose we as the Seller who had followed the instructions of the Purchaser to load the Coal,  feels of not being treated fairly, which also resulted several of the stockholders, suffers delay in payment for their rendered services.

The Purchaser had requested that the pricing of the Coal must apply CV prorated basis plus discount of 20%, which resulted the figure far below the market price of the Coal. We as the Seller had moved our position from just applying prorated basis with discount to applying the market price. 

Well, in doing Coal Trading Business, we have to be professional and also have to honor the commitment that we had made. In practice even though the Sale and Coal Purchase Agreement  had been signed, if one of the Party   particularly the Purchaser had waived their rights to reject the Coal Commodity which had reached the rejection point, and requested to load the Coal immediately to the Vessel,  subsequently, such instructions has to be treated as a legal contractual binding commitments, for which  we have to honor our wordings made through such email,  which suggested for negotiation on the pricing of the Coal,  which in average had shown a certain Gross Caloric Value that had  been be determined by the Independent Consultant mutually agreed by the parties. 

There appears to be Coal Pricing Index,  where there are several Coal Kg Calorie  Value Indexes, where according to the Indonesian Mining Association News, Indonesia, one of the major Coal Exporter  through  PT. Coalindo Energi (PT CE), will soon launch the Indonesian Coal Mining Index ("ICI")  for example ICI 1 to 3 ranging from ICI 1 GROSS caloric Value GAR 6500 Kg Calorie, ICI 2 - 5500 Kg Calorie  and ICI  3 - 5000 Kg Calorie, where there is a range of pricing deduction, if it falls between these range index. From our brain storming discussions, it indicates that we may  have several alternatives /options to either apply (i) the prorate basis to get the pricing of the Coal or (ii) deducting a certain percentage, or (iii) we just  seek the market price of such average Coal Kg calorie on As Received Basis (ARB). 

As a Business Lawyer who is a member of  the Professional Coal Trading Team,  we really have to anticipate how if in the real practice there occurs, condition where the Quality of the Coal did not meet the required spec quality and rather had reached the rejection point but from the commercial basis,  the Purchaser had requested to waive its right to reject the Coal and insist on loading the Coal to the Vessel, but do not want to open its room for negotiation on the Price of the Coal that had been actually loaded to the Vessel ( FOB) and delivered to the Purchaser and had reached the End-user  .

The Rainy weather, must also be taken into consideration, since the Naught of the Vessel had to be closed to avoid flood of water causing The Total Moisture (TM) contents in the Coal Increase dramatically. 

One of the issues that also  have to be taken into consideration is relating to Demmurrage and Dead Freight issue, particularly if the Inventory of the Coal in the Stock Pile,  either within the Mining Location or in the Stock Pile in the Port is not sufficient in quantity, to fulfill the agreed amount  of Coal Bulk to be supplied,   which could cause Demmurrage and Dead Freight Exposures.     

Well, those are some of the issues that has to be anticipated in the real world of trading Coal for shipment.