Do you want to start a private mini crude oil refinery? If YES, here is a complete guide to starting a private mini crude oil refinery business with NO money and no experience plus a sample private mini crude oil refinery business plan template.
In Nigeria, it is the federal government that runs crude oil refinery, but in recent time, private investors have been issued licenses to come into the industry hence giving room to those who are interested in the oil and gas industry to come in.
Although it might be pretty expensive running a standard crude oil refinery, but if you don’t have all the money, you can still start an oil refinery business by venturing into the mini crude oil refinery business. Starting a mini crude oil business is indeed one of the means of owning a business portfolio in the oil and gas industry.
This is for sure one business that has made a lot of people millionaires or even billionaires. It is true that playing in the oil and gas industry might require loads of funds, but in the long run it sure does pay.
Choosing to start a mini crude oil refinery business also means that you have plans on how you intend to raise the startup capital, get the required license and permits, compete in the market, make your business known to the people, as well as other important factors that must not be overlooked.
Before launching this type of business, it will pay you carry out your market research, economic and cost analysis and of course feasibility studies.
If you get things right before launching your mini crude oil refinery business, it will not take you long before you break even and start smiling to the bank. So, if you have made up your mind to start your own mini crude oil refinery business, all you need do is to read this article and you will be well equipped.
You can start your mini crude oil refinery business from a small town in Nigeria and if you are consistent and creative, it won’t be too long before your brand becomes a nationally recognized brand and your product sold all across Nigeria.
Steps to Starting a Private Mini Crude Oil Refinery
1. Understand the Industry
There are countries where private firms and individuals are issued licenses to operate their own legal private refineries. So, if you live in any country where it is legal to own a private refinery, then you should consider opening your own private crude oil refinery.
It is a capital intensive business but at the same time it is highly lucrative. Once you are able to secure your license to lift crude oil, then you will be on your way to making mega bucks. As a matter of fact, this type of business is reserved for big time investors because of the money and politics involved securing a license to run a private mini crude oil refinery.
In Nigeria, for a very long time, the nation has been dependent on importation of refined petroleum products due to the fact the four crude oil refineries in Nigeria cannot meet the local demand for the product which currently stands at an estimated sixty million {60,000,000} liters of refined petroleum products (PMS, DPK and AGO) per day. This is the main reason why mini crude oil refineries come in handy.
What is a Modular Refinery or Mini Crude Refinery?
A mini crude oil refinery is a modular refinery that has the capacity of processing from 2,000 Barrels Per Day (BPD) of any stream of Light or Heavy Crude Oil within API Gravity of 29°- 42.8°, into Naphtha, Diesel, Kerosene and Fuel Oil.
A modular refinery is a refinery made up of smaller and mobile parts (skid-mounted) that are more easily fabricated and can be more quickly transported to site. They come in different sizes with varying capacities normally lower capacity than conventional refineries with more elaborate and complicated set up.
Specialists in the oil and gas industry believe that the economics of a topping unit mini refinery are not comparable to full conversion complex refinery.
Liquid fossil fuel process plant management has been the bane of Nigeria for the past two decades as our four refineries were run down. With the confusions and effusions over petroleum products availability in Nigeria, all sorts of heuristics of problem solving have been proffered; some on subsidy, others on refineries.
The oil and gas industry that mini crude oil refinery business is a part of will continue to blossom because people will always go to petrol stations to fuel their vehicles, purchase kerosene and cooking gas et al and all these are products from mini crude oil refineries and standard refineries.
Despite the fact that this line of business seems under-saturated, securing a license and operating freely in Nigeria seems to be somewhat challenging. Some of the factors that encourage entrepreneurs to start their own mini crude oil refinery business could be that the business is a thriving and profitable business despite the fact that it is capital intensive.
Although the oil and gas industry can be said to be a competitive industry all over the world, but it does not in any way stop entrepreneurs who are financially capable to still make headway in the industry. It is indeed a profitable industry especially when the business is well located and you have all the necessary license and permits.
2. Conduct Market Research and Feasibility Studies
- Demographics and Psychographics
The people who need the products offered by a mini crude oil refinery cuts across all genders, people and businesses with different financial means, hence the demographic composition of a mini crude oil refinery business is all encompassing.
The truth is that when it comes to retailing refined crude oil products such as gasoline, diesel, cooking gas, kerosene and the likes, there is indeed a wide range of available customers. So, you may also want to target gas stations and petrol stations where your mini crude oil refinery will be located.
3. Decide Which Niche to Concentrate On
It is important to state that there is no known niche area when it comes to the mini crude oil refinery business. Every player in this line of business are usually involved in refining crude oil with the aim of getting gasoline, diesel, cooking gas, kerosene and the likes.
The Level of Competition in the Industry
The competitions that exist in the oil and gas industry cum mini – crude oil refinery line of business is not subjected to the location that you choose to open your mini – crude oil refinery business because it is a global business and Nigeria seems to freely import refined petroleum products. So, it will be right to say the competition in the mini – crude oil refinery line of business is tough.
The truth is that no matter the level of competition in an industry, if you brand and promote your products or business properly, you will always make headway in the industry. Just ensure you dispense quality products and your customer service is top notch.
But over and above, there are several unlicensed and licensed mini – crude oil refineries scattered all around the Niger-Delta regions in Nigeria. So, if you choose to start your own mini crude oil refinery business in Nigeria, you will definitely meet stiffer competitions.
4. Know Your Major Competitors in the Industry
It is the practice that in every industry, there are always brands that perform better or are better regarded by customers and general public than others.
Some of these brands are those that have been in the industry for a long time, while others are best known for how they conduct their businesses and the results they have achieved over the years. These are some of the leading mini – crude oil refineries in Nigeria;
- Epic Refinery and Petrochemical Industries Limited
- Global Gas and Refining Limited
- Oilshores Limited
- Kaduna Petroleum Refining Company Kprc
- Neo Nigeria Limited
- Duncan Investments Limited
- Poi Investment Company Limited
- Amexum Nigeria Limited
- Jarkson De Sagsam L T D
- Deeds Refinery Limited
Economic Analysis
If you want to effectively start a business and gain profits, then you need to ensure that you get your economic analysis right and try as much as possible to adopt best practices in the industry you choose to build a business in. The mini crude oil refinery business is not a Green business as you will come across several mini crude oil refineries around oil producing communities in the Niger – Delta region when you visit the creek.
So, if you are mapping out your economic analysis, you should carry out thorough market survey and costing of the required amount needed for leasing/renting a landed property close to oil rigs with government approval and the amount needed to build a modular refinery, purchase crude oil supplies and also the running cost of the business.
It is important to note that in Nigeria, it may be difficult to get accurate data that will help you with your economic and cost analysis hence you will have to improvise. The truth is that if you get your economic and cost analysis right before launching the business, you may not have to stay the long before you break even and start smiling to the bank.
Over and above, it will pay you to engage the services of economists and business strategists to help you come up with a good economic and cost analysis that will help you make an informed decision.
5. Decide Whether to Buy a Franchise or Start from Scratch
There is no strict rule when it comes to choosing how you intend starting a business. Basically, you should be guided by your overall business vision and mission statement. If you are looking towards starting a mini crude oil Refinery Company in Nigeria, you would have to start from the very scratch because there is no franchise of a mini crude oil Refinery Company to buy.
6. Know the Possible Threats and Challenges You Will Face
If you decide to start your own mini crude oil refinery business today, one of the major challenges you are likely going to face is the presence of government owned refineries, and well – established mini refineries within the location where you have your refinery. The only way to avoid this challenge is to create your own market.
Another challenge that you are likely going to face is economic downturn; if the economy is in bad shape, businesses such as mini refineries and the likes usually struggle to maintain their old customers or even welcome new customers.
Also, there is the challenge of unfavorable international oil prices and government policies; and also the challenge of security, militancy/insurgency. There is nothing you can do as regards these threats and challenges other than to stay positive that things will work well for you.
7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)
When considering starting a mini crude oil refinery business, the legal entity you choose will go a long way to determine how big the business can grow; some mini crude oil refinery businesses design their business for neighborhood market, some for city wide market, while others for national and international market.
If your intention is to grow the business and sell your refined crude oil products all across Nigeria, then choosing sole proprietorship may not be the best option for you. The public liability company or even general partnership will cut it for you.
Setting up an LTD protects you from personal liability. If anything goes wrong in the business, it is only the money that you invested into the company that will be at risk. It is not so for sole proprietorships and general partnerships. Public Limited liability companies are simpler and more flexible to operate and you don’t need a board of directors, shareholders meetings and other managerial formalities.
These are some of the factors you should consider before choosing a legal entity for your mini crude oil refinery business; limitation of personal liability, ease of transferability, admission of new owners, investors’ expectation and of course taxes.
If you take your time to critically study the various legal entities to use for your mini crude oil refinery business with the ability to sell your refined crude oil products all across Nigeria, you will agree that the PLLC is the most suitable.
8. Choose a Catchy Business Name
When it comes to choosing a name for your business, you should be imaginative because whatever name you choose for your business will go a long way to create a awareness of what the business represents. If you are considering starting your own mini crude oil refinery business, here are some catchy names you can choose from;
- Niger – Delta United® Mini – Crude Oil Refinery, Ltd
- Jack Horsefall Oil and Gas Company, LLC
- Harry Marshal Oil and Gas Company, Ltd
- C – Connect® Mini – Crude Oil Refinery, LLC
- Rivers Brothers® Refinery, Ltd
- Peter Wike and Sons®, Plc.
- Sunny Star® Oil and Gas Company, Inc.
- Periwinkles® Mini – Crude Oil Refinery, LLC
- Hampshire® Oil and Gas Co, Inc.
- Winners® Oil and Gas Co, LLC
9. Discuss with an Agent to Know the Best Insurance Policies for You
In the united states and in most countries of the world, you can’t operate a business without having some of the basic insurance policy covers that are required by the industry you want to operate from. So, it is important to create a budget for insurance and perhaps consult an insurance broker to guide you in choosing the best and most appropriate insurance policies for your mini crude oil refinery business.
Here are some of the basic insurance covers that you should consider purchasing if you want to start your own mini crude oil refinery business in the United States of America;
- General insurance
- Health insurance
- Liability insurance
- Fire Insurance
- Risk Insurance
- Workers Compensation
- Overhead expense disability insurance
- Business owner’s policy group insurance
- Payment protection insurance
10. Protect your Intellectual Property With Trademark, Copyrights, Patents
If you are considering starting your own mini crude oil refinery business, usually you may not have any need to file for intellectual property protection/trademark.
This is so because the nature of the business makes it possible for you to successfully run it without having any cause to challenge anybody in court for illegally making use of your company’s intellectual properties. But if you just want to protect your company’s logo and other documents or software that are unique to you or even jingles and media production concepts, then you can go ahead to file for intellectual property protection.
If you want to register your trademark, you are expected to begin the process by filing an application with the Nigerian copyrights commission.
11. Get the Necessary Professional Certification
Irrespective of the results you produce as it relates to effectively refining crude oil, professional certification is one of the main reasons why some mini crude oil refinery companies stand out. If you want to make an impact in the oil and gas industry, you should work towards acquiring all the needed certifications in your area of specialization.
You are strongly encouraged to pursue professional certifications; it will go a long way to show your commitment towards the business. Certification validates your competency and shows that you are highly skilled, committed to your career and up-to-date in this competitive market.
These are some of the certifications you can work towards achieving if you want to run your own mini – crude oil refinery business;
- UST Training and Certification / Class A/B and C Operator Certification
- HSE Certifications
- API WorkSafe Certification
Please note that all mini – crude oil refineries in Nigeria are mandated to obtain the appropriate certification, license and permits before they can legally operate in Nigeria and of course in most countries of the world.
12. Get the Necessary Legal Documents You Need to Operate
Establishing a crude oil refinery in Nigeria requires approval from the Department of Petroleum Resources (DPR), the petroleum regulatory organization in Nigeria. Below are the approval processes you are expected to follow if you are looking towards obtaining the required license to legally run a mini – crude oil refinery;
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Licensing Procedure
Applications for approval to establish a refinery or any other hydrocarbon processing plant shall be made in the manner described in section 1.3 below and in the form schedule in Appendix 1.
1.3 Approval process for the design, construction, commissioning and operation of a process plant
The approval process is designed to ensure that applicant for approval and permit establish a Petroleum Refinery (or a process plant), understands the industry, the technical and economic implications of the project, the sociological and environmental impact of the plant, and maintenance provisions required to protect the health of the operating staff and safety of plant.
It is designed to prevent avoidable waste of resources by ensuring at each stage that the applicant understands the statutory requirements of each phase of the project.
Consequently, the approval shall be given in three sequential stages: License to Establish (LTE), Approval to Construct (ATC) and License to Operate (LTO) respectively.
Note that requirement in sections “2.1.1 item IV, 3.4 item 2(iV), 6.3, Appendix I post-script item (iii)” regarding payment of “refund-able commitment deposit of $1 million per 10,000 BPSD capacity” of this guideline are no longer applicable effective 2009.
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Section II
2.1 License to Establish
This approval stage is to confirm general feasibility of the proposed project, market plan, product specifications, site selection, proposed crude oil (or feed-stock) supply plan and product evacuation plan, preliminary safety and environmental impact statement, and organizational plans.
The following submissions shall be made to the Department of Petroleum Resources to facilitate the corresponding milestone approvals as itemized in sections 2.1.1 to 2.1.4:
2.1.1. Application and Statutory Payments for all licenses and approvals
- i) Submission of application for licenses to establish a private refinery as stipulated in Appendix l
- ii) Payment of statutory application fee of fifty thousand US dollars only (US $50,000) for LTE,
Plant Relocations and ATC Revalidation or one hundred thousand dollars only (US $100,000) for license to operate (LTO) in bank draft in favor of Federal Government of Nigeria ‘DPR Fees Accounts’ and
iii) Payment of N500, 000 Service charges in bank draft in favor of the ‘Department of Petroleum Resources’
iv) Payment of refundable deposit of One million dollars only (US $1,000,000) for every 10,000 bpsd refinery capacity for LTE, Plant Relocations and ATC Revalidation.
Refund is subject to adherence to agreed project execution schedule within the first eighteen months and achievement of 70% front end engineering design (FEED) before expiration of the license otherwise the sum deposited is forfeited to the Federal Government.
Of course, you would also need Certificate of Incorporation, and Tax Payer’s ID/Tax Identification Number (TIN).
13. Raise the Needed Startup Capital
Starting a mini crude oil refinery business is capital intensive even if you choose to start on a small scale. Securing a standard and well – positioned land facility within the creeks of Niger – Delta, building a modular refinery and getting crude oil supplies are part of what will consume a large chunk of your startup capital.
But if you choose to start the business on a large scale, you would need to go source for fund to finance the business because it is expensive to start a standard mini crude oil refinery business with more than a handful of employees and supplying refined crude oil all across Nigeria.
When it comes to financing a business, one of the first things you should consider is to write a good business plan. If you have a good and workable business plan document in place, you may not have to labor yourself before convincing your bank, investors and your friends to invest in your business.
Here are some of the options you can explore when sourcing for startup capital for your mini crude oil refinery business;
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell of shares to interested investors
- Applying for loan from your bank/banks
- Source for soft loans from your family members and your friends
14. Choose a Suitable Location for your Business
Mini crude oil refineries are ideally suited for remote locations around the creeks where crude oil is drilled. Mini refineries viability depends on sites close to petroleum feed-stock to reduce logistics and distribution costs.
Before choosing a location for your mini crude oil refinery business, ensure that you first conduct thorough feasibility studies and market survey. The possibility of you coming across similar businesses that just closed shop in the location you want to open yours can’t be ruled out.
This is why it is very important to gather as much facts and figures before choosing a location to set up your own mini refinery. These are some of the key factors that you should consider before choosing a location for your mini crude oil refinery;
- The demography of the location
- The demand for the refined crude oil products in the location
- The number of crude oil wells in the location
- The purchasing power of the residents of the location
- Accessibility of the location
- The number of mini crude oil refineries that you intend offering in the location
- The local laws and regulations in the community/state
- Traffic, parking and security
15. Hire Employees for your Technical and Manpower Needs
On the average, the equipment needed to run this type of business is a modular refinery, and a modular refinery is a refinery that is made up of smaller mobile parts and all these can be gotten as fairly used.
As regards leasing or outright purchase of a land facility, the choice is dependent on your financial standing, but the truth is that to be on the safe side, it is advisable to start off with a short term rent/lease while test running the business in the location.
If things work out as planned, then you go on a long – term lease or outright purchase of the property but if not, then move on and source for other ideal location/facility for such business.
When it comes to hiring employees for a standard mini crude oil refinery business that also offer other complimentary services, you should make plans to hire a competent Chief Executive Officer (you can occupy this role), Manager, Accountants, Human Resource and Admin Manager, Refinery Experts and Engineers, Operators, Tanker Drivers and Security Guard.
On the average, you will need a minimum of 10 to 15 key staff members to run a small scale but standard mini crude oil refinery business.
The Service Delivery Process of the Business
Once a modular crude oil refinery is installed; the whole process of refining crude oil from start to the end is automated.
The crude oil is processed and refined into more useful products such as petroleum naphtha, gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas et al. Once the products are ready, they are stored in a tank farm and then loaded in a tanker meant for distribution.
16. Write a Marketing Plan Packed with ideas & Strategies
Running a business requires that you should be proactive when it comes to marketing your goods or services. People and organizations will purchase petrol, gas, diesel and kerosene et al from you if they know that they are going to get value for their money.
As a matter of fact, your marketing strategy will center on quality and pricing, and above all excellent customer service. The truth is that if you are able to put the above stated in place, you won’t struggle to retain your old customers and at the same time win over new customers.
Businesses these days are aware of the power of the internet which is why they will do all they can to maximize the internet to market their services or products. In other words, a larger percentage of your marketing effort will be directed to internet users.
These are some of the marketing ideas and strategies that you can adopt for your products;
- Introduce your mini – crude oil refinery by sending introductory letters alongside your brochure to petrol stations, kerosene and gas retailers within and outside the location where your mini – crude oil refinery will be located
- Directly market your products
- Join local mini – crude oil refinery owners association for industry trends and tips
- Provide discount days for your customers
- Advertise our business in community based newspapers, local TV and radio stations
- List your business on yellow pages ads (local directories)
- Encourage the use of Word of mouth marketing (referrals)
17. Work Out a Reasonable Pricing for your Services & Products
When it comes to the mini – crude oil refinery business, it will be right to say that the business cum prices is highly regulated. There is always a benchmark that is set by the Federal government when it comes to the pump price of products such as petrol, diesel and kerosene et al. So, there is little you can do to sell your products far below the industry’s average.
But all you need to do is to ensure that your merchandise manager gets supply of crude oil directly from crude oil drillers and also ensure that you own your own petroleum tankers. With that, you can be able to get pricing for your products right.
Another key factor that will help you sell your products at the right price is to ensure that you cut operational cost to the barest minimum, and channel your efforts towards marketing and promoting your brand name. Aside from the fact that this strategy will help you save cost, it will also help you get the right pricing for your products.
You can also try as much as possible to work with independent contractors and marketers; it will help you save cost for paying sales and marketing executives.
18. Develop Iron-clad Competitive Strategies to Help You Win
The availability of quality gasoline, diesel and kerosene et al, your business process and of course your pricing model are part of what you need to stay competitive in the industry.
Another possible competitive strategy for winning your competitors in this particular industry is to build a robust clientele base. Over and above, ensure that your organization is well positioned, key members of your team are highly qualified and your products can favorably compete with the some of the best in the industry.
19. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
If you are in business and you are not deliberate about boosting you brand awareness and communicating your corporate identity, then you should be ready to take on whatever the society portrays your business to be. One of the secrets of larger corporations is that they are willing to spend fortunes year in and year out to boost their brand awareness and to continue to communicate their corporate identity the way they want people to see them.
If your intention of starting a mini refinery business is to grow the business beyond the city where you are going to be operating from to become a national and international brand by supplying refined crude oil products all across Nigeria, then you must be ready to spend money on promotion and advertisement of your brand.
No matter the industry you belong to, the truth is that the market is dynamic and it requires consistent brand awareness and boosting cum promotion to continue to appeal to your target market. Here are the platforms you can leverage on to boost your brand awareness and create a corporate identity for your mini crude oil refinery business;
- Place adverts on both print and electronic media platforms
- Sponsor relevant community based events/programs
- Leverage on the internet and social media platforms like Instagram, Facebook, Twitter, YouTube, Google + et al to promote your products and services
- Install your billboards in strategic locations all around your city or state
- Distribute your fliers and handbills in target areas
- List your mini – crude oil refinery in local directories/yellow pages
- Advertise your mini – crude oil refinery in your official website and employ strategies that will help you pull traffic to the site
- Position your Flexi banners in strategic positions in the location where your mini crude oil refinery is located
- Ensure that all your staff members wear your branded shirts and all your vehicles and trucks/tankers are well branded with your company logo et al.