National energy firm working on an arrangement with Petros that is mutually acceptable to both

By MARK RAO / Pic By TMR

Petroliam Nasional Bhd (Petronas) has given its commitment to provide the necessary input to all oil and gas (O&G) stakeholders, particularly on the expected higher oil royalty arrangement, to ensure that Malaysia remains an attractive destination for O&G investments.

Its president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin (picture) said while Petronas is not privy to the discussions taking place between the federal and state governments on related issues, it will continue to provide its views on all possible scenarios.

“What’s important is to remember that we need to keep the O&G industry in Malaysia resilient and Malaysia as an attractive investment destination for foreign O&G companies,” Wan Zulkiflee told members of the press at Petronas’ Kuala Lumpur headquarters last Thursday. “We do not want the production sharing contractors (PSCs) to be impacted because we want Malaysia to still be an attractive investment destination.”

Petronas, as the national energy company, is responsible for the exploration, extraction, refining and marketing of Malaysia’s petroleum resources, which it undertakes via production sharing schemes. This involves the participation of other oil firms in the country’s O&G space, such as Royal Dutch Shell plc, Exxon Mobil Corp and Murphy Oil Corp.

Under the current arrangement, a 10% royalty of gross profit is divided equally between the federal and state governments from a respective O&G development project. Sabah and Sarawak are entitled to these cash payments, while Kelantan and Terengganu are granted compassionate funds.

The current Pakatan Harapan administration announced that it will grant all oil-producing states a 20% royalty as part of its campaign pledge.

Wan Zulkiflee said Petronas is not in discussions with other oil-producing states, apart from Sarawak’s state-owned O&G vehicle, Petroleum Sarawak Bhd (Petros).

“We are in active discussions with Petros on how the working arrangement can be sorted out that will be mutually acceptable for all parties.”

He added that the understanding between Petronas and Petros is to ensure Malaysia remains an attractive O&G destination and both are working towards this end.

The engagement with Petros is also in view of Sarawak assuming regulatory control over its O&G assets via the Oil Mining Ordinance 1958 (OMO), which the state implemented on July 1 this year.

Under the OMO, companies will have to procure the necessary licences and leases from Petros for all O&G development works. However, the Petroleum Development Act 1974 (PDA) confers regulatory authority and ownership over Malaysia’s petroleum resources to Petronas. This extends to Sarawak as well.

Petronas sought a federal declaration to uphold the PDA as the applicable law in the country earlier this year. The Federal Court dismissed the firm’s application for leave on June 22, citing that the declaratory sought is within the jurisdiction of the High Court.

Wan Zulkiflee said the relevant PSCs report to Petronas as the contracts are entered into with the company, but noted that licensing and other provisions under the OMO are being discussed with Petros at the moment. He said the company is working out an arrangement with Petros that is mutually acceptable to both parties.

Wan Zulkiflee also confirmed Petronas was informed its current advisor Tun Abdullah Ahmad Badawi will cease his duties effective end of August this year.

The former prime minister was appointed to the role in April 2016 and will be relieved from his position as part of Petronas’ upcoming restructuring exercise.