Sarawak to set up own oil company amid ongoing talks with Petronas

The Sarawak state government is going ahead with plans to set up its own oil exploration company called Petroleum Sarawak (Petros), which will be wholly owned by the state, despite the low oil price environment.

However, it is unclear how this will impact the activities of national oil company, Petroliam Nasional Bhd (Petronas), which has long operated in Sarawak, where it garners the bulk of its Malaysian revenue from gas fields there.

Petronas president and group chief executive officer Datuk Wan Zulkiflee Wan Ariffin had said recently that he welcomes any involvement by state government entities in the oil and gas (O&G) business, but it has to be within the Petroleum Development Act (PDA).

“We have a strong relationship with the Sarawak government, as such, we welcome its participation in the O&G industry.

“But we also have regulations in place, of which under the PDA, Petronas is the custodian and manager of the O&G resources in Malaysia,” he told reporters at a briefing on Petronas’ mid-year results recently.

Wan Zulkiflee added that the partnership with Petros could be similar to other Petronas partnerships, either as service providers or as a partner under the production sharing contract (PSC).

“Discussions are ongoing with the Sarawak state government,” he said when asked about the potential partnership between Petronas and Petros.

Chief Minister Datuk Amar Abang Johari Tun Openg officially announced last month the formation of Petros, with a target for the company to be operational in the first quarter of next year.

“The formation of Petros is an unprecedented step taken by the state government to enable Sarawak to actively participate in the extraction of oil and gas in Sarawak while still pursuing its request for a 20% royalty from Petronas,” he said.

However, there has been no clear indication on whether Petros is going to be a partnering with Petronas or carry its own oil extraction activities.

Petros is currently head-hunting a chief executive officer and other key management positions to start operation by the first quarter next year, according to a Bernama report.

There has been growing dissatisfaction in the Sabah and Sarawak governments over the years on oil royalties, despite the fact that the bulk of Petronas’ hydrocarbons are derived from the two states.

Sabah and Sarawak currently receive royalties of some 5% from Petronas for O&G revenues.

Sabah and Sarawak have also been looking to have a bigger say in the decisions made by Petronas when it comes to its activities in those states.

This has led to appointments of two board members in Petronas last year, namely Sarawak state secretary Tan Sri Amar Mohamad Morshidi Abdul Ghani and Datuk Hassanel Mohd Tahir (permanent secretary in the Sabah government’s finance ministry) to represent Sarawak and Sabah.

Sarawak, which has been especially vocal on the issue of higher oil royalty, had also issued a moratorium on all new applications for work permits of Petronas personnel from outside Sarawak last year.

It was reported that the state government’s decision was prompted by complaints from Sarawakian Petronas officers whose services were terminated or who were retrenched.

Petronas is currently developing the Sabah-Sarawak Integrated O&G project to harness the O&G resources in the offshore areas of Sabah and Sarawak.

Besides the development of the new oil and gas fields off the coast of Sabah, namely, Gumusut and Kakap, Kinabalu Deep and East, Kebabangan and Malikai, the project consists of two onshore developments - the Sabah O&G Terminal (SOGT) and the Sabah-Sarawak Gas Pipeline (SSGP).

The 500-km SSGP will transport gas from the SOGT in Kimanis to Bintulu for processing into liquefied natural gas (LNG) at the Petronas LNG Complex for export.

The pipeline system also has provisions for future domestic consumption in Sabah and Sarawak.
The SOGT will receive, store and export crude oil as well as receive, process, compress and transport the gas produced from the fields offshore Sabah.

Covering an area of about 250 acres, the SOGT will have capacity to handle up to 300,000 barrels of crude oil per day and one billion std cu ft of gas per day.

The new terminal will complement the operations of the existing Sabah Gas Terminal, the Labuan Crude Oil Terminal and the Labuan Gas Terminal, which will continue to handle the oil and gas produced from other fields off the shores of Sabah.