News skit on the blocks

With all due respect, I have to disagree with Datuk Rocky.

In his posting entitled Royal Commission to investigate missing Block L and Block M,  he stated that “the Foreign Ministry has admitted, more or less, that the two blocks had been ‘handed over’ to Brunei but only because Brunei has sovereign rights over those oil-rich areas”.

I think it is not true that Brunei, all this while, have the sovereign rights over those oil-rich areas.

To me, I find that the two blocks were indeed handed over to Brunei but only AFTER the Letter of Exchange signed in March 2009 had deemed Brunei as having sovereignty rights over those two blocks.

It still remain to be seen whether Brunei did have those rights before 2009. Or did Malaysia own those two blocks before the Letter of Exchange was signed. Nobody seemed to be asking this.

After reading the press statement from the Foreign Ministry, I find it odd for the Ministry to take pains in telling us Malaysians that the deal secured by the then prime minister, Tun Abdullah Ahmad Badawi (“Pak Lah”) would be a win-win situation for both countries.

But in actual truth, Malaysia lost her two territories that have enormous mineral resources which will reap astronomical monetary benefit for the nation.

How is that so?

Through the Ministry’s press statement’s itself.

It is clear from the get go that Brunei never have the total ownership of the two blocks. The Ministry’s feeble attempt to cover the blunder of the previous cabinet was:

With regard to the maritime areas, the Exchange of Letters established the final delimitation of territorial sea, continental shelf and exclusive economic zone of both States.

Malaysia’s oil concession Blocks L and M which coincided with Brunei Darussalam’s Blocks J and K are recognised under the Exchange of Letters as being situated within Brunei Darussalam’s maritime areas, over which Brunei Darussalam is entitled to exercise sovereign rights under the relevant provisions of the United Nations Convention on the Law of the Sea 1982 (UNCLOS 1982).

The establishment of the CAA incorporating these Blocks provides for a sharing of revenues from the exploitation of oil and gas in the CAA between the two States.

The only mention about Brunei’s rights was the statement regarding UNCLOS 1982.

What is UNCLOS 1982? It is merely a convention that defines the rights and responsibilities of nations in their use of the world’s oceans, establishing guidelines for businesses, the environment, and the management of marine natural resources.

It provides a particular country to have a claim on its surrounding waters the rights over its natural resources. In this case, Brunei claims that anything under 200 nautical miles from its coastal lines belong to them. This area is called the Exclusive Economic Zone.

Malaysia too claim this sovereignty rights because those two blocks are situated within 200 nautical miles from its coastline (of Sabah).

Hence, Brunei is only entitled to exercise their sovereign rights. In reality, they do not have the sovereign rights yet.

Therefore, we have a dispute.

Reuters reported in June 2003

KUALA LUMPUR, June 13 (Reuters) – Malaysia and Brunei are in talks to settle a row over the ownership of oil-rich waters that both covet in the South China Sea.

“There is still a question we are sorting out on the offshore dispute,” Malaysian Foreign Minister Syed Hamid Albar told Reuters. “We’re working on it.”

Malaysia’s overlapping claim on Brunei’s exclusive economic zone (EEZ), which stretches 200 km (124 miles) offshore, has sent shudders through the tiny sultanate’s hierarchy.

It was depending on the untapped deep water oil fields to guarantee the next generation’s prosperity, after the Asian financial crisis and bad investments depleted national coffers.

Brunei now produces about 200,000 barrels per day (bpd) of crude and 1.1 billion cubic feet a day of gas — most of it from onshore.

Late in 2000, Brunei said it would offer exploration blocks after declaring an EEZ, giving it rights to fishing grounds and mineral extraction from the sea bed.

But last month, Malaysia forcefully reminded Brunei, wedged between Malaysian territory on Borneo island, of its claim by sending its navy to chase off a drilling team from TotalFinaElf .

The incident, according to sources in Brunei, precipitated an urgent meeting between Sultan Hassanal Bolkiah and Malaysian Prime Minister Mahathir Mohamad last month.

Both governments are keen to keep the dispute under wraps, and Brunei, with 330,000 people and no army, can ill afford to antagonise its neighbour.

There have been suggestions they could come to a sharing agreement, but Syed Hamid was poker-faced.

“We are looking at various mechanisms,” he said, when asked late on Thursday.

Malaysia, which has had territorial disputes with all its neighbours, argues Brunei only has jurisdiction over its continental shelf, in water up to 200 metres deep. About three quarters of the EEZ is in deeper water.

Total, which heads a consortium that won exploration rights from Brunei Petroleum, has been left kicking its heels and the French company has cancelled supply vessel contracts, industry sources said.

But Murphy Oil , which won exploration rights from Malaysia’s state-oil company Petroliam Nasional Bhd (Petronas), carried on drilling.

On Monday, Murphy said it had finished in deepwater Block L, and a rig was being moved to an adjoining block in the Kikeh field, where it announced a substantial find late last year.

Royal Dutch/Shell has been negotiating a production sharing agreement with Brunei Petroleum for a block adjoining Total’s, which closely corresponds to that of another block awarded to Murphy by Malaysia, and will be watching developments carefully.

Another report emerges a month later when the issue finally made some headway:

Straits Times, 3 July 2003

KL plan to end oilfield row with Brunei

The proposal calls for a joint-exploration arrangement for the disputed area about 150km off the coast of Sabah. Malaysia is confident of resolving its territorial dispute with Brunei over the ownership of oil-rich waters in the South China Sea. The regional news magazine, Far Eastern Economic Review, reported in its latest issue that Malaysian officials have proposed a joint-exploration arrangement to Brunei

The arrangement is similar to the one Malaysia already has with Thailand. ‘We have suggested a joint-development-area type solution,’ Foreign Minister Syed Hamid Albar told the magazine. ‘We have even suggested that after a certain time passes, we will give up more. What we are looking for is a win-win situation,’ he added.

The dispute over the oilfield arose after the discovery of oil in the sea some 150km off the coast of Sabah by Malaysia’s state-owned oil company, Petronas, in July last year. The field – dubbed Kikeh – has an estimated recoverable reserve of up to 700 million barrels, or 21 per cent of Malaysia’s current oil reserves. At current production levels, Malaysia is expected to run out of oil in 15 years’ time.

The Kikeh discovery is large enough to arrest the decline in the country’s oil reserves and provide a helpful cushion for the country’s economy, according to the Review. Soon after, Malaysia and Brunei hired prospectors to explore two nearby blocks. Brunei awarded one block to a consortium led by French company Total this year, and is negotiating with a consortium led by Royal Dutch/Shell for the rights to prospect the second.

Meanwhile, Malaysia’s Petronas has awarded both blocks to a subsidiary and to Murphy Oil. So what are the reasons for the dispute?

In 2000, Brunei claimed sovereignty over the blocks as part of an ‘exclusive economic zone’, or EEZ, which stretches 370km from its coastline. But Malaysia has also long claimed the same area as part of its own EEZ. Analysts say the Kikeh oilfield could extend into the concession that Brunei has awarded to Total.

In March, Brunei sent a gunboat to drive away a Murphy Oil drilling ship from the area. The next month, the Malaysian navy sent several gunboats into the disputed area to block the arrival of a Total ship. After a tense stand-off involving a single Brunei patrol craft, Total backed off. Both sides have since stopped all work in the disputed areas.

Finally, on May 24, Malaysian Prime Minister Mahathir Mohamad met Brunei’s Sultan Hassanal Bolkiah on Malaysia’s Penang island to resolve the issue. Malaysia’s proposal of joint exploration is similar to the one it has with Thailand in exploring oil in the Gulf of Thailand under a 50-50 profit-sharing arrangement. According to the Review, Malaysia may use the dispute as leverage to settle other outstanding issues, such as Malaysia’s land border with Brunei near the Limbang River, an issue that has persisted for decades. Dr Mahathir has promised to resolve the matter before he retires in October. Meanwhile, energy officials in Kuala Lumpur say the dispute ‘should be cleared up in two months’.

The above reports are a couple of news that made headlines in 2003.

One thing for sure, the blocks WERE NOT THE UNDISPUTED TERRITORIES of Brunei before the Letter of Exchange was signed by Pak Lah.

An obvious reason to believe this came also from the press statement by the Ministry:

The termination of the Production Sharing Contracts covering Blocks L and M which were awarded by Petronas to Petronas Carigali Sdn Bhd and Murphy Oil in 2003 is in accordance with the establishment of the CAA as provided for in the Exchange of Letters.

If Malaysia did not have the claim over the sovereign rights at all, then how could Petronas have awarded the Production Sharing Contracts to its subsidiary and Murphy Oil in the first place?

To me, this matter must be investigated thoroughly.

If Malaysia and Brunei had claimed both blocks as their own, then the matter must be settled through the ICJ (like how we had won Sipadan Island, but lost Pulau Batu Putih).

And to show us he was not sleeping on the job, Pak Lah (two weeks before his forced retirement), triumphantly claimed that Brunei will drop their claim over Limbang. A claim which Brunei dismissed a couple of days after that.

What a farce.

Pak Lah gave away our two oil rich territories too easily, without a fight, and for free.

Pak Lah, his advisers and the cabinet of 2009 must answer for this travesty.

Anyway, territorial disputes is nothing new. Below is the Reuters report from 2004:

SINGAPORE, Dec 8 – High oil prices and dwindling production may help spur Asian governments to resolve decades-old sea border disputes, unlocking billions of barrels of hydrocarbon wealth, analysts and company officials said on Wednesday.

The high-profile East Timor-Australia row over a section of the Timor Sea containing the $5 billion Greater Sunrise gas project is only the most recent among half a dozen maritime boundary wrangles in some of Asia’s most prospective waters.

Tapping into those disputed areas could help slow the import-dependent region’s production decline and the potential departure of oil majors in search of bigger finds.

“These represent latent upstream growth opportunities,” William Lafferrandre, ConocoPhillips’ Business Development Manager for the region, told a conference.

“But as private companies, we can only do so much (to help resolve the disputes).”

An area claimed by both Thailand and Cambodia, for example, may hold an estimated 2-3 billion barrels of oil equivalent, he said.

Asia Pacific claims less than 5 percent of the world’s oil reserves but consumes nearly 30 percent of its production, importing two-thirds of its needs.

With oil prices soaring over $50 this year and nations facing mounting import bills, the impetus is growing to tap domestic waters by solving territorial spats, some of which have been dragging on since the 1970s, the heyday of Asian exploration.

“There’s never been a better time to resolve your boundary disputes than now,” said Noel Tomnay, principal consultant for WoodMackenzie in Asia Pacific.

OPPORTUNITIES

Getting governments to agree on splitting up hydrocarbon revenues in disputed zones could also spur renewed investment in Southeast Asia, where exploration has been in decline for five years due to a dearth of opportunities.

“The acreage they can’t get their hands on is quite prospective,” Tomnay said.

One particularly enticing area lies in the South China Sea between Asia’s second-biggest producer Malaysia and the oil-rich Sultanate of Brunei, near Murphy Oil’s deepwater Kikeh discovery with an estimated 400-700 million barrels of reserves.

The two governments have been in talks since last year, when the Malaysian navy chased off an exploration team led by Total .

The Spratly Islands in the South China Sea is another hotly contested area between China, Vietnam and Taiwan, but also including Malaysia, Brunei and the Philippines.

Last month Vietnam called on China to halt drilling plans in the area, which is highly rated by the industry despite very little seismic study.

“This may be the most difficult to resolve, but it would no doubt lead to new growth opportunities,” Lafferrandre said.

China’s surging oil demand growth, a major factor behind this year’s price rally, has sharpened the issue for the world’s second-biggest energy user.

There have been some success stories in the region, notably newly independent East Timor and Australia’s profit-sharing plan that allowed ConocoPhillips’ Bayu-Undan gas and condensate project in the Timor Sea to start production this summer.

But the two countries are deadlocked over the Greater Sunrise gas development, adjacent to the Joint Petroleum Development Area.

Operator Woodside Petroleum has threatened to pull out its staff from the project if a resolution is not reached by the year-end, which now appears unlikely.

By the way, the title of my article maybe a bit misleading as there is nothing funny about it.