No prompt impact on O&G following Sarawak’s OMO

The Sarawak state govt will exercise its powers under the state laws in relation to O&G activities

By MARK RAO / Pic By TMR File

IT IS business as usual for the time being for Sarawak’s oil and gas (O&G) industry as the state government is giving stakeholders until the end of 2019 to comply with new regulations.

The Oil Mining Ordinance 1958 (OMO) came into effect on July 1, and effectively vests regulatory authority in the Sarawak state itself as opposed to the country’s national energy company Petroliam Nasional Bhd (Petronas).

Under the Act, Petronas, along with other industry players, will have to procure the necessary licences and leases from Sarawak’s state-owned Petroleum Sarawak Bhd for all O&G activities, covering both the onshore and offshore industries.

This replaces the previous commission-based structure under the Petroleum Development Act 1974 (PDA) where Petronas would pay Sarawak a 5% commission of the value of petroleum extracted from the state.

According to a statement by the Office of the Chief Minister of Sarawak, the Sarawak state government will exercise its powers under the state laws in relation to O&G activities, which came into effect on July 1.

“Regulations made under the ordinance on licencing have been approved by the state government, and the process of implementing it will commence immediately,” it said on Sunday.

It said industry players are permitted to conduct their operations as usual until the end of 2019, as long as they take the necessary steps to ensure compliance with state laws.

“The relevant state authorities will also begin the process of ensuring compliance with these laws, including gathering the necessary information from all industry players, as well as a more detailed and comprehensive engagement with them.”

A source within the O&G service and equipment industry said there is no change for stakeholders and it is business as usual for the moment.

“We are commercial entities and always had to apply for the relevant licences and permits to carry out O&G activities in Sarawak.

“At present, Petronas is the contractor for the industry and we get our licences from them,” the source told The Malaysian Reserve under the condition of anonymity.

Listed O&G players with exposure to Sarawak’s O&G industry include Sapura Energy Bhd, Perdana Petroleum Bhd, MISC Bhd, Bumi Armada Bhd and Barakah Offshore Petroleum Bhd, virtually all of which noted declines in share prices yesterday Sapura Energy closed two sen lower at 62 sen and Perdana Petroleum Bhd fell one sen to 18.5 sen, while offshore players MISC and Bumi Armada were lower at RM5.85 (down seven sen) and 71 sen (down one sen) respectively. Barakah Offshore was flat at 13 sen.

Despite the OMO, as well as other relevant ordinances coming into effect in Sarawak this week, the PDA remains a valid and applicable law in the country, creating a situation where there are two separate yet contradictory laws.

Petronas took to the federal court to seek a declaration that the PDA is the rule of the land, but its leave of application to try the case at Malaysia’s highest court was dismissed on June 22 this year.

Chief Judge of the High Court of Malaysia Tan Sri Ahmad Maarop ruled that the declaratory sought by Petronas is not within the exclusive jurisdiction of the Federal Court, but that of the High Court.

In a statement released on the day of the ruling, Petronas said the Federal Court decision does not in any way determine or endorse the merits of Sarawak’s legal position to regulate upstream petroleum activity under the OMO.

“The Federal Court also noted the concession by the government of Sarawak that the PDA was validly enacted.

“This reinforces Petronas’ view that only the Parliament can legislate on matters relating to upstream petroleum industry, including regulatory powers throughout Malaysia, both onshore and offshore, by virtue of the PDA,” the statement from Petronas read.

The national O&G company added that the court ruling does not impair its ability to pursue legal actions, namely clarification of its rights and position under the PDA.

Petronas’ last legal avenue to contest Sarawak’s move to assume regulatory control over its O&G resources is likely the High Court of Sarawak.

The company invested RM140 billion to develop Sarawak’s O&G sector to date and has 60 producing fields with a combined production rate of 850,000 barrels a day.

Petronas maintains it has exclusive ownership of the petroleum resources in Malaysia and is the sole regulator of the upstream sector in the country, a Bernama report yesterday noted.

It made the statement in response to the statement issued by the Sarawak Chief Minister’s Office on July 1, 2018.

Petronas said it would closely monitor the situation, including seeking views and guidance from the government, which is the sole shareholder of the company, in carrying out their duties.