Sarawak’s claim on oil resources could change sector’s dynamics

It would assume full regulatory authority over the O&G sector in the state by July this year


The Sarawak government’s announcement that it is taking full regulatory control over its oil and gas (O&G) resources could change the dynamics of the sector which has been for more than four decades regulated under one law.

The Petroleum Development Act 1974 (PDA) gave the exclusive rights of exploring, exploiting, winning and obtaining petroleum, whether onshore or offshore in Malaysia, to state-owned oil company Petroliam Nasional Bhd (Petronas).

Resource-rich Sarawak announced it would assume full regulatory authority over the O&G industry upstream and downstream activities in the state by July this year.

The announcement was made by Sarawak Chief Minister Datuk Patinggi Abang Johari Tun Openg when he launched Petroleum Sarawak Bhd (Petros) in Kuching on Tuesday.

Abang Johari was reported as saying that anyone and companies involved in the O&G industry in the state must have the necessary licences, permits, leases and approvals required either under the state’s Oil Mining Ordinance, or the Gas Distribution Ordinance.

“In other words, they are required to regularise their operations and activities to comply with all state laws, including those relating to the use and occupation of land,” Abang Johari was reported as saying by Bernama.

Sarawak’s legal claim to its O&G resources had challenged the PDA’s provision which empowers licensing for O&G exploration in the hands of Petronas.

“This will change the dynamics of the energy industry in the country. It is highly likely that the PDA will need to be reviewed and amended for this to be properly realised,” Galen Centre for Health and Social Policy CEO Azrul Mohd Khalib told The Malaysian Reserve (TMR).

Sarawak has been demanding the return of control over the state’s mining rights as provided in the Malaysia Agreement 1963, a clause provided as the condition to join Malaysia 55 years ago.

It was reported that Petronas had 60 O&G producing fields in Sarawak, producing an average of 850,000 barrels of oil equivalent per day.

Data from the Energy Commission showed that Sarawak had 28.7% of known national oil reserves and represented 29.4% of national production, as at end-2015. The state also accounted for 52.7% of Malaysia’s known gas reserves.

Petronas has previously re-iterated that the single regulatory model under the PDA has helped develop the country’s oil resources to its present level. It also boosted foreigners’ confidence in exploration investment in the O&G sector in the country.

Sarawak plans to enforce the ruling by July this year, subsequently forcing Petronas and other O&G operators to apply for a prospecting licence from the state.

Analysts are also concerned over the possible spillover from Sarawak’s action to reclaim its mining rights.

An analyst who spoke to TMR said the development in Sarawak has raised new questions on the status of the resource once it has been extracted.

“The problem is we do not know who owns the oil once it has been mined. The state can have the rights to extract the oil, but who are they going to sell it to? Right now, everything goes to Petronas,” the analyst said.

Another expert said Saawak’s action may encourage other states to make similar claims.

“If you set the precedent, other states can also do it,” the source said.