Question:

A medium-sized Oil and Gas company is faced with a serious financial
problem. The problem of how to finance the purchase of new equipment
and
machinery for the company is seriously considered. An argument is made
for
the necessity of new equipment at this time, and a proposal made for
Training cutbacks in order to finance these new purchases.

As one of the Directors of the company, what suggestions will you give
as remedy to the situation on ground? Note that in the Oil and Gas
Industry, training is very important for efficient and continuous
productivity. New technology and the procurement of new equipment
however,
are also important as it helps maintain the competitive edge in the
market
and also ensure maximum growth and improvement of the company. What
proposal with regards to allocation of Funds would you suggest? Use
hypothetical values where necessary.
Note: not more than 250 words.

*Please anyone that has got the time shld giv me a constructive answer to the question therein. Preferably soonest.

Let me start by telling you that training of man power is the hub for the growth and succession strategies of a company, so that even if you decide to cut training and purchase the equipments you will find out that the equipments will be redundant without competent human capacity to utilise it. therefore, the issue of cuting down training to enable the company procure equipments should not be considered. there is meant to be a proper mix of the two.

coming to the core of your question, i will suggest that your company should try the option of a finance lease for the equipments. Finance lease is an arrangment whereby the purchase of an equipment is procured by a lease arrangement finaced by a financial institution. I will illustrate to you how it works.
Assuming the equipment in question is a crane, and mr A is a financial institution, while mr B is the company that requires the equipment but due to mr B's cashflow it can not afford the cash for an outright purchase of the crane. Mr B will now enter into an arrangement with mrA for mr, A to purchase the crane and then lease it out to mr B. mr B will be paying an agreed rent to mr.A . the deal will be structured in such a manner that the ultimate aim of the lease is for mr B to become the owner of the crane after the payment of agreed amount to mr A by way of rent.

Under this structure Mr, A could take delivery of the crane directly from the seller or mrA may instruct the seller to deliver the crane to MrB.

sorry my time has run out, i will discuss other options under this arrangment next time. But i assure you that your company could procure the equipment and work affectively without down sizing training. Enjoy yourself.

I totally agree with Onyema 1 in her illustration. A balanced mix of human capital training as well as the requisite equipments would ensure greater turnover in productivity for the company. There are quite a number of companys in lagos who specialise in leasing out equipments to oil and gas even some financial institutions structure the lease in such a way that it becomes bearable/workable for the company in need to actually get leased equipments

Kudos to you Onyema 1

You guys are blessed in Jesus name. Pls i need more responses!

lloyds,

I think another option is the possibility of your company opening up for more investors to come in and buy your shares. By this you would raise some capital which you would plug back into the business.

I do think what you need do is total overhauling of the entire business. Also try and do a proper auditing of ur cashflow and expenditure. Something tells me ur problem isn't just about no money: its more about how you spend the little you have got. Sometimes, leasing equipments as describe by the first respondent becomes very effective only if your problem is traceable to pure lack of cash. What of management of scarce resources? Look inwards first before leasing, renting or subcribing for shares. Do a proper auditing and lets know your discovery. CHEERS.

You guys r just too cool.
More opinions?

the best approach to your solution is to lease as my fellow lander said but ur company should do a cut down,depending on how resourceful a worker is and any company wants is name to be protected in the frontiers of the oil and gas and to meet up with the demand,a company lacks the capacity within so getting capable hands outside the company could be neccessary as to bring in new ideas and innovation.besides the company could not grow.it all also good to check the budgets and finances of this the firm through a good auditing firm,to ascertatin the lapses and corret it as well

You guys are geniuses.
Nice ideas, i must say.

Thanks, great guys.
Onyema 1, i would implore you to please complete your write up (suggestion) before 2morw if u can, pls.

Yes as i was saying, the deal could be structured in various forms. i will illustrate these forms.

1.

Yes as i was saying, the deal could be structured in various forms.  i will illustrate these forms.

1.Triangular relashionship:  Under this structure, the supplier of the equipment sales to the lessor and the lessor in turn leases the equipment to the lessee.there is no contractual relationship between the supplier and the lessee (except by collateral contract)  this has some adverse consequences to the lessor, of which the details  may not be fully discussed here.

2.In another instance the lessee may purchase the equipment as agent of the lessor, and then take the equipment on lease.  Under this arrangement, the lessee negotiates for the price of the equipment, advises the lessor (the financial institution), who will then provide the funding. Here the lessee is acting as a disclosed agent for the lessor. In some cases the financial institution may not want its identity to be disclosed to the supplier, and hence authorizes the lessee to buy the equipment in its own name as an undisclosed agent ,and the lessor undisclosed principal.  this arrangement again has some risks for the lessor.

3. The lessee may have an option of sourcing fund from else where may be by a short term loan to purchase the equipment.  then enter into an agreement with the lessor or financial institution where by the lessee will sell the equipment to the financial institution and then lease the equipment back from the financial institution.  the advantage of this structure is that the lessee gets the equipment at a cheaper price and can make capital gains from the resale of the equipment. This is known as purchase, sale and lease back.

There are so many ways in which this finance lease could be structured.

It should be noted that in finance lease, there is no distinct interest or finance charge, the return on capital to the financier is subsumed within the rental payments. None the less these are calculated by reference to the financier's desired internal rate of return, and though this may not be furnished to the lessee he will usually be quoted in terms of so so amount per per mille of capital cost.

In all of the above there are various advantages and disadvantages including the tax implication and balance sheet issues to the lessor and the lessee.  However, ultimately, upon good structuring, the lessee company benefits form the arrangement,thereby solving its cashflow problem.  Just that you may need the services of a competent transaction solicitor to properly advise, guide and structure the agreements. we could discuss this further if you are keen to venture into it.  I wish your company the best in its businesses.

Onyema, for givin me this much of your time, the LORD will reward u abundantly.
U r blessed.

Thank you Lloyds, you and all nairalanders are blessed too.

hi onyema quite some answer to loyds question. could u pls help with mine? i just got a job  abt 2 weeks ago with a new expatrite construction company  for  oil and gas as an account officer.  my boss is very particular about the nigerian tax system cos they have to sail infrom adroad and also hire and lease locally for most of the goods and services (Construction equipments)  needed for their project. he is on my neck on tax matters  such as VAT, Surcharges, import duties,  and what have u. my  job is really at stake cos i'm on probation. i'll be looking 4wd to ur reply as soon as possible. tanx a bunch

Dear Tonwe,

Greeting.

Well your question is quite tasking and technical. However, i will give you some tips if i have further information from you.

In the first place, is your employer a company duly registered in Nigeria under the Companies and Allied Matters Act 1990? This is because under section 54 of the Act it is illegal for a foreign not registered in Nigeria to carry on business in Nigeria. If your answer to above question is yes, then the company will be exposed to the following Nigerian taxes i) Value Added Tax 5%- for the supply of goods and services,ii)Company income tax @30%- for the annual profit of the company after all deductibles, PAYEwhich graduates to an upper limit of 25% for the staff, and then withholding staff @ 10%-deductible @ source for its payments. the operation of these taxes is a full lecture, which requires at leaset 2 months intensive training.

If your company is not registered in Nigeria, but however have some sort of business transactions in Nigeria determination of its tax liability in Nigeria would depend on whether it has a fixed base in Nigeria, or whether it has a dependent or independent agent in Nigeria, or whether it is engaged in a turn key contract.

If your company is not registered in Nigeria, you should know if it is in a country that has double taxation treaty with Nigeria. this is because the tax burden would be lower if its country has a DTT with Nigeria.

Ultimately, what determines your company's exposure to tax, greatly depends on the structure of the contracts and transactions it engages in. There are lots and lots of ways we structure agreements and contracts for companies to achieve tax efficiency for them without violating the relevant tax laws. This is by employing the tax planning mechanism contained in the law itself. Tonwe am sorry that you are not a lawyer, but all your company is to engage a good tax lawyer to advice and structure your transactions. I must tell you very few lawyers in Nigeria has this skill.

I will be able to give you more tips if i get to know exactly the status of your company even though time is my greatest problem. I pray that you will pass your probation in the company. Have a great day.

How far llord have you summited your suggestions? through which email address did you send your suggestion, is through admin@careers-lng.com or careers@texas-energy.com? pls which did you send thru?

ILLORDS,
DID YOUR OWN GO THROUGH AND WHICH EMAIL ADDRESS DID YOU SEND YOUR SUGGETIONS THROUGH MY DEAR? PLS KEEP ME POSTED IMMEDIATELY YOU ARE ONLINE BECAUSE I JUST GOT A MAIL FROM THEM YESTERDAY BUT I HAVE FINISH PUTTING MY OPTIONS IN ORDER,I SENT THROUGH CAREERS@TX-ENERGY.COM,THE ONE THEY SENT THEIR RECENT MAIL THROUGH BUT IT`S NOT GOING AND I TRIEND THROUGH THE ONE WE APPLIED THROUGH AND IT WENT THROUGH,(I.E. admin@careers-lng.com) AND IT WENT THROUGH.PLS LET ME KNOW HOW YOU DID IT DEAR.

Mygodoh, pls send it to texas-energy@careers-lng.com.

Regards.

llords,
Thanks so much, i pray we both make it and meet there llords, it will be a nice one man.Anyway, i will connect my prayer with yours so that they shortlist us for the next level which i believe is the final level.Wishing you what i wish myself llords.Yeah! what is your background? incase anything comes up here in Port Harcourt, mine is Petroleum Engineering and i also have some professional certificates in Health Safety and Environment(HSE) LIKE,RIG SAFETY,GENERAL HSE & ADVANCE HSE.My email address is goddfinishwork@yahoo.co.uk.Thanks and remain blessed llords.