Pakatan Rakyat / Socio-economy / Umno & Barisan Nasional

Sabah only produces 10% of Malaysian oil production

This piece of news caught our eye today:

Kota Kinabalu: Increasing cash payments – often called oil royalty – for Sabah will have an adverse effect on the national oil and gas industry and possibly render it no longer viable.

Petronas Senior Vice President (Upstream Malaysia) Datuk Mohd Anuar Taib said investors might think twice to come to Malaysia and invest in the oil and gas sector, which is already becoming a highly competitive industry among the oil producing countries.

In a special briefing for the Sabah media, Mohd Anuar together with Vice President of Malaysia Petroleum Management, Adif Zulkifli, said many of the major oil companies from US were also returning to their country.

They said that if the cash payments of five per cent to the Sabah State Government were to be increased it would result in Petronas and its Production Sharing Contractors (PSC) being left with a smaller portion to be divided between them.

The breakdown of the revenue from oil fields is 10 per cent (five per cent each for the State and Federal governments), 70 per cent for cost recovery and only 20 per cent profit.

Out of the 20 per cent, Petronas has to pay 38 per cent to the Federal Government in oil income tax.

“Therefore, Petronas and its PSC would only divide the remaining 52 per cent out of the 20 per cent, normally 50:50,” they said.

Therefore, if the cash payment is increased to 20 per cent like what Sarawak is asking, it means Petronas and its PSC only share 10 per cent of the profit after deduction of income tax.

“This is surely not attractive to investors and they may just shy away from Malaysia,” they said.

Adif said Sabah was actually producing about 180,000 barrels or oil equivalent per day (boe/d) which is only 10 per cent of the total national oil production.

Most of the oil produced was in the peninsula side, he said, adding Sarawak mostly produces gas.

However, Sabah’s production is expected to grow to 16 per cent over the next few years.

According to Adif, out of the 333 oil platforms in Malaysia, 53 were in Sabah.

Sabah currently has 14 oil fields and three gas fields in production while 41 oil and 47 gas fields had been discovered.

Petronas has 27 active PSCs in Sabah involving 12 companies or players. Petronas’ cumulative upstream investments up to 2013 plus commitments amounted to approximately RM179 billion while for downstream the figure was RM6 billion.

Adif said Petronas was not paying oil royalty to Sabah but as stated in the Petroleum Development Agreement, it was paying cash payment.

“This is our top priority and according to the agreement, Petronas must pay the five per cent whenever there is production regardless if there is a profit or not,” he said.

Oil and gas industry have become more costlier, he said, adding that Petronas had to attain expertise from other companies and this was done through the PSC.

The cost of exploration alone starts at RM4 billion, he said.

Nonetheless, he said compared with other oil producing countries, Petronas’ cash payments of five per cent to Sabah were relatively higher.

Source – Daily Express

The opposition in Malaysia have been feeding lies to the people of Sabah and generally to the people of Malaysia regarding the oil royalty. It is now made known that Sabah only produces 10% of the total national oil production.

Therefore, what is the justification of Sabah and Sarawak in saying that people in West Malaysia are living on their oil wealth?

First and foremost, we are fed up with politicians who uses Petronas and petroleum industry as a chess piece in their political agenda. Using oil royalties to entice the people to break the strong harmony that we have as Malaysians.

The opposition had done a massive damage on to the psyche of East Malaysians just because they want to create hatred for the central government and steal more votes for them in the process. Although the Federal government had done so much for East Malaysians, it seems the opposition is teaching the people not to be grateful about the developments and progress achieved.

But the Federal government would still help them..

KOTA KINABALU: A formula is being worked out to address the call to increase oil royalties for Sabah, Prime Minister Datuk Seri Najib Tun Razak said.

The Government, he said, together with Petronas, would decide on various methods to improve Sabah’s economy.

“We have been concerned about the issue of oil royalties in Sabah and as an immediate solution, Petronas will increase its corporate social responsibility (CSR) programmes in Sabah,” he said.

“We will be announcing several other approaches which can help Sabahans in the oil royalties issue,” he added.

Najib explained that there were many approaches which could be applied to it, but not necessarily increasing the percentage of oil royalties as mooted by the Opposition.

He said Petronas would help more rural students, provide more scholarships and increase its funding in its CSR programmes here, among others.

“This is not about getting contracts. It’s about giving and creating value,” he said at the breaking of fast with Sabah Barisan Nasional members at a hotel here yesterday.

In the first place, does Dato Sri Najib Tun Razak know that Sabah is not entitled to receive 20% oil royalty based on the state oil production? Can someone please let him know, before he wrongly reapportioned our country’s precious funds to people who wrongly thought they deserve more than their fair share of contribution?

Thank you.

34 thoughts on “Sabah only produces 10% of Malaysian oil production

  1. Is there no end to Najib trying to please everybody? Chinese schools, scholarships to members of the richest community in the country who have systems of helping the unfortunate among them, Threw away ISA, Emergency Ordinance and the Restricted Residence Act, now wanting to discard the Sedition Act.

    UMNO should really be discarding Najib.

    20% oil royalty? Gawd. Kamon Najib, do some Maths, will ya?

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    • Najib has been pleasing even the Opposition. It’s the Opposition who opposed the ISA, EO, the RRA and the Sedition Act.

      I think many voters supported the Opposition because Najib was seen as weak, entertained what the Opposition wanted. The tsunami Chinese followed the DAP who made hell of a noise against those laws because they were badly affected, like Lim Kit Siang was ISA-ed for a few years.

      The Opposition also championed the Sabah oil royalty issue. Now if Najib wants to talk about the 20%, sure the Opposition will be claiming they succeeded in making Najib bow down to them. And the Petronas man himself has explained the implications.

      How for Najib to score points like that?

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    • Petronas staff are some of the most highly paid in malaysia. Their drilling manager gets USD30k/ month.but local ones are paid less. Their staff gets 7 months bonus. Plus free medical and perks. Now compare that to to what ever the average sabahans are earning. A pathetic RM400 for menial labour job despite minimum income being introduced.
      Malaysia produces about 700k bbls per day in oil. Brunei produces much less. Only 200k bbls per day. And brunei citizens pay no icome tax, very little road tax (B$120 for s- class per year), subsidised fuel, cheaper than malaysia, no car import tax and duties etc. Now sarawak and sabah can do the same if we eliminate petronas and the federal gomen from their mineral wealth.why should subs( sabahans) and wackies( sarawakian) pay hefty car import taxes when their roads are in a pathetic state and national car programmes does not benefit them one bit.it only benefit the peninsular mats who are bent on religious suppression and violating the civil rights of bumiputra from east malaysia.
      The normal reason we hear when sarawak/ sabah state request for highway is that there is not enough traffic. Now which idiot would want to waste their time and energy driving on sarawak road when it is such a bad condition. It takes 10 hours to drive from brunei bsb to kk. 7 hours from miri to manumbok before you can board a ferry to labuan.under normal circumstances,that trip should only be 4 hours and 2.5 hours respectively if a bridge had been built across brunei bay. Instead, our gomen waste money on another penang bridge.the most the gomen can provide is sufficient air services between the three economic power houses i.e.miri, labuan and kk. You cannot get seats for many days sometimes.
      We must not deny the fact that two other british colonies in south east asia are doing much better than us. One is governed by chinese and another by malay. Therefore if we eliminate the similarities, the only thing dragging us down is umno and their disastrous economic policy. The downhill in fact started with the introduction of nep and elimination of english medium schools both of which are maintained by the other two former colonies.

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      • How stupid can you be comparing the salaries of an expatriate drilling manager and local ones – the locals have the same knowledge, experience and expertise as the expatriate?

        And comparing the generally better paid oil workers who, even as “rough necks” or general labourers, get more than plantation or other labourers. In the world over, not just Malaysia.

        You have any idea what you are talking about, Mister?

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      • To use your own words, Now which idiot except you would want to say Sarawak road is in “such a bad condition”, without giving details, without stating which one, where, what Km to what Km stretch or stretches, and what is it that is “bad”?

        Glib, eh, you? Just say what you like and get whacked left and right?

        Many more of what you said up there are like that. But I’ll leave them to others to whack you also.

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      • tempawan,

        You are back here inviting readers to wallop you as usual, eh? In a way, it’s good you do that because you give opportunities for us to explain things (which you never do – only wildly accuse) while hitting you on the head.

        Obviously you are a DAP Chinese, criticizing the NEP etc. You don’t like Article 153 of the Constitution on the Special Position of the Malays and the Bumiputeras of Sabah and Sarawak. Jealous, ha? But you got citizenship right that your forefathers never got for 150 years as pendatang to this country. Never thought of that ah? Or you are simply the usual ungrateful ingrate pendatang not respecting and not abiding by the Constitution and often told to migrate from this country.

        And who said it was “downhill”? Only you and the likes of you. The vast majority says the NEP brought an “uphill” image on the social and political conditions in the country. Re-balancing the huge disparities between the 23% Chinese who had become the richest community, the most educated having the highest number of professionals etc in the country, compared to the nearly 70% Malays and Bumiputeras who in 1970 had just 2% of the wealth of the country and 5% of the total number of doctors, engineers, lawyers, etc.

        Now they have over 20%. Less grudging, less envy and jealousy from the 70% of the population against the 23% of you people. Better chances of harmony, long-term peace and prosperity. Sure “uphill” image, innit? You blokes having got citizenship right, being richest community, etc, apa lagi lu mau? Ultra kiasu, semua lu mau, ha? Mana boleh. Migrate lah, to any country where you can get all you want.

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      • Aiseh, tempawan, Chinese schools not closed also you want to complain about English schools that you said are “closed” ha? Never say thank you also for Chinese schools being maintained? The usual ungrateful ingrate pendatang who deserve to be told to migrate elsewhere issit?

        And you have lousy English when so many other Malaysians have good English under the same situation of no English schools in the country. Saying English schools “closed” when the fact was that Bahasa Malaysia became the medium of instruction in all national schools or Sekolah Kebangsaan, you a product of Chinese schools arr?. Again, you are not respecting another Article of the Constitution – Article 152 – which states that the language of this country is Malay, as it has been since ancient times, later called Bahasa Malaysia. You really deserve to be shooed out of this country.

        Pack your bags and vamoose, man. We want only those who respect and abide by the Constitution of the country. Good that the former Deputy Minister of Higher Education announced a movement to educate the public about the Constitution of the country. In fact, everybody who claims to be Malaysians should not wait for that movement, just take it upon themselves to educate themselves about the Constitution, the highest set of laws from which other laws emanate.

        Avoid being a nuisance and an irritation to good and harmonious relations among citizens by flouting norms, rules, regulations and laws that are drawn up from the Constitution of the country. The best way of avoiding that is to abscond and live elsewhere.

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  2. Agree that DS Najib should not be entertaining everybody’s demands, even the Opposition’s. You simply cannot please everybody all the time. Not even some of the time. Instead, you might get everybody dislike you come election time. The Chinese tsunami is a case in point.

    So, instead of entertaining the 20% oil royalty issue for reasons already explained in the blog post, Najib should just keep on explaining the reasons that he should stick to the existing arrangement. Those who still make undue noises after persistent and endless explanations, slap them with the Sedition Act.

    If not, you are going to get much worse results and consequences. As has been repeatedly pointed out, and by no less than Tun Dr Mahathir, the implications of repealing the Sedition Act includes the endangering of Constitutional provisions on the Ketuanan Melayu, the Special Position of the Malays and the Bumiputeras of Sabah, etc, and that may lead to large scale protests and demonstrations by the Malays and the Bumiputeras endlessly, leading to chaos and disorder in the country.

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    • Govt to study Cuepac’s suggestion not to repeal Sedition Act

      Sin Chew Jit Poh – ‎18 hours ago‎

      KUALA LUMPUR, Aug 7 (Bernama) — The government will study the Congress of Unions of Employees in the Public and Civil Services (Cuepacs)’s suggestion that the existing Sedition Act is maintained for the sake of peace in the country.

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      • Where is the fun if we are not allowed to humiliate and insult one another.as long as those who promote and unleash violence are pounced upon by the police, trading insults should be tolerated. In UK, they made fun of priests and the queen with no effect to their society.

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        • Why don’t you live in UK and such places where they can “trade insults” and make fun of their “priests and queen”? Go migrate there, will you?

          Malaysia has a Constitution that has allowed the ungrateful ingrate pendatangs to become citizens and many are not respecting and abiding by that Constitution. Those who don’t are being shooed out of the country. Even well known personalities have said words to that effect.

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        • Yes, the words “ungrateful ingrate pendatangs” have become standard phraseology to describe loose catapults (not loose guns, far less loose canons) like this tempawan bloke. And shooing those not respecting and living by the Constitution out of the country has become the standard response. I’m happy about those

          Just see his warped mind, demented thinking, anarchistic character and anti-national behaviour saying it’s fun to “humiliate and insult one another.as long as those who promote and unleash violence are pounced upon by the police ..”

          This bastard must be the DAP kind that caused the race riots of 1969. He appears not to mind at all about those who “promote and unleash violence”, simply expecting the Police to pounce on them. He never thinks of the possible consequences such violence might spread and reach to unmanageable proportions before the Police arrive to control them.

          This tempawan would be the kind who’d break curfews imposed to control race riots, like on 13 May 1969, and would be shot dead by the Army who uses strict, no-nonsense SOP during such a situation. Frankly, I don’t mind it if he gets shot dead. Though I would have lost one target in here.

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  3. Are these why DS Najib insisted Omar Ong be hammered into the Petronas Board of Directors at the expense of tested and reliable TS Hassan Merican as CEO who refused to allow it at first? So that Omar can sound out what Najib wants done in Petronas?

    But now there seems to be some “mengeloh” among Petronas senior staff. Does he care, I wonder.

    Tun Dr Mahathir would rather get Petronas make as much profits as possible, put it into the Treasury, then he spends it per the annual Budget, Petronas contributing a huge sum as revenue. Najib appears to want Petronas spend on projects for the people according to his wishes, never mind the bottom line Petronas has at the end of every financial year.

    Wonder why. More chances for funds going into the pockets of the desired individuals or groups in the process? .

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  4. Umno has always been unfair to Sabahans. 20% barely adequate to all the sufferings for the past 50 years of unfair treatment towards us.

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    • Pls, Jon, you are making a very general and unsubstantiated statement. That in itself is unfair.

      If you provide the details and state your reasons for saying those, I might understand and even agree to some of your points.

      Do say what are the “sufferings” and why “unfair”.

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    • Maybe, it’s fairer to live under the Philippines government? You’re insulting the intelligence of the older generations when they decided to stay with Malaysia. Can you please state what are the sufferings that Sabahan has experience for the past 50 years.

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      • Since you asked, and i take it you have never been to sabah before, there is mass unemployment in sabah. Things are expensive. Why are imported cars taxed same rate as peninsular? Sabah does not benefit one cent from national car projects but must suffer heavy import tax burden. All cars are imported into sabah including proton. Its like sabahan must subsidise peninsular mats benefit.
        When pairin was CM and PBS ruled, petronas purposely delay or deferred oil and gas drillings as state was under opposition. That is why oil and gas production is limited. Madhatter prefer sabahans starve rather than allow state gomen to benefit from minerals, like what is happening in kelantan.
        Umno interest is not bumiputra interest. Those fat cats wearing italian shoes, wear hand made swiss precision watches are out of touch with what the peoples wants.overthrow this tyranny and free yourselves from hypocrisy. To die fighting for liberty is better than under slavery.
        Reason why MAS bailout is because the elites in peninsular wants a direct flight to london,their unofficial capital for their annual vacation and to see their favourite footbll team with their children.these elites probably have homes in london.That RM6 billion could have been spent building highways and power station in sabah. All the MAS bailout money eventually go to peoples in klang valley like a massive black hole of calcutta.

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  5. All I know and have read so far is that the oil revenue profit sharing (?) with the states that produce oil, both in the Peninsular and in Sabah and Sarawak, is 5%. Never have I seen any one with authority and quoting the relevant document or agreement saying that it should be more than that.

    That I remember, Tengku Razaleigh was the one who first sounded the idea of entertaining a request for higher share or was it a request for Kelantan be given their share – is oil or gas produced off Kelantan, btw? But he didn’t state any agreement or document, yet he was the first boss of Petronas, appointed by Tun A Razak, and he should know. Since he didn’t say it, it appears that there is nothing to show that the payment should be more than 5%. And I’m willing to accept it if anyone produces the agreement here and provide a reliable link for me to verify it.

    I think Tengku Razaleigh said it just to get in the news, the poor old man has been sidelined a lot, still an UMNO man but spoke a bit off sometimes, until PAS was reported to have told their Pakatan partners before PRU13 that they prefer to have Tengku Razaleigh as their PM nominee, not Anwarul Al Juburi.

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    • @ anon
      Oil and gas is produced in kelantan. But they are denied their fair share. The oil is extracted and shared in disouted waters off kelantan and shared with thailand and vietnam. Buddhist and communist are getting teir share under petronas, but kelantan muslims are denied theirs. It goes directly to petronas headquarters and later,that money is spent on entertainment in night spots in KL. So taoist and athiest gets kelantan oil money but not PAS gomen.the gas produced is piped to muslim bashers in songkhla so indirectly, kelanatan gas are used to persecute, subjugate and oppress muslims. The irony of todays complex deals.
      Due to above evnts, tengku razaleigh has run out of gas to even protest. He should know since he inked the PDA. Or maybe the 5% goes to his pocket as UMNO warlord in the state as wang ehsan.

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  6. It’s serious when a Petronas Senior Vice President says increasing cash payments or oil royalty for Sabah will have an adverse effect on the national oil and gas industry and possibly render it no longer viable. But has no one briefed Najib about these before he opened his mouth? Monthly briefing sessions, perhaps?

    The CEO doesn’t do it? Yet the CEO is Najib’s pick, wasn’t it? Omar Ong, the BOD member, doesn’t do it? Yet Najib was the one who repeatedly pushed him into the BOD. What’s Omar been doing?

    Good of him to explain the profit sharing formula – repeated here for readers (including me) to fully digest them:

    The breakdown of the revenue from oil fields is 10 per cent (five per cent each for the State and Federal governments), 70 per cent for cost recovery and only 20 per cent profit.

    Out of the 20 per cent, Petronas has to pay 38 per cent to the Federal Government in oil income tax.

    “Therefore, Petronas and its PSC would only divide the remaining 52 per cent out of the 20 per cent, normally 50:50,” they said.

    Therefore, if the cash payment is increased to 20 per cent like what Sarawak is asking, it means Petronas and its PSC only share 10 per cent of the profit after deduction of income tax.

    “This is surely not attractive to investors and they may just shy away from Malaysia,” they said.

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    • But after about 50 years of Petronas existence, still needing many foreign investors to prospect and drill the oil and gas out? Yet one reads about Petronas going to Kazakhstan and such to explore and drill. Can anybody provide the rationale for that, please.

      How heavy the investment, how varied the skills and expertise, how wide-ranging the equipment and hardware, why Malaysia cannot purchase those and why cannot afford to do it mostly alone.

      Yeah, yeah, oil is a very risky business but give us some idea of the dry versus the wet holes dug so far. There were the viable Conoco fields off Pahang discovered decades ago and plugged for later exploitation – have they been developed for oil extraction yet?

      It’d be nice to know if Petronas can take the risks just by themselves alone as the profits, even at only 20%, are huge. What more if there is no profit sharing, whatever the term means.

      And what is “70% for cost recovery” anyway? Who takes that, any profit from that recovery job, does Petronas gets any? If not, why not, and can Petronas does the “recovery” job themselves?

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    • There is plenty of oil in sabah. But its in the deepwater. 10000 ft deep. Maybe more. As deep as mh370 probably lies in the indian ocean.. To extract it is expensive, unlike in sarawak and terengganu where the extraction is in shallow waters. But its reserves are much much more. In fact there are plenty of oil in peninsular too.pahangand i was told, straits of malacca.
      You will need a drill ship or semi submersible to get the oil out and these cost USD500k/ day for drill ships.?semi subs maybe USD150k less depending on specs. That is why greedy petronas don’t want to share the wealth with poor sabahin case after spending all the prospecting money, no oil is found.
      Also the reason why american oil comapnies are packing their bags and returning home. Shake oil and gas are cheaper to extract and profits are guaranteed as american laws applied,unlike some third world degenerates.

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      • Can you pls tell us the logic in your statements in the 2nd paragraph that the drill ships etc are expensive and “That is why greedy petronas don’t want to share the wealth with poor sabahin case after spending all the prospecting money, no oil is found.”

        Can you also explain to us what “Shake oil and gas” are.

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        • Its suppose to be “shale” and not shake oil and gas using fracking and its comparitively cheap to extract especially when there are extensive reserves in the US plains. That is why US oil companies are leaving/ selling third world despot oil field and heading back home. Even petronas has decided to participate buying progress gas in canada for RM15 bil or something like that. This still exclude building the infrastructure to export the gas to asia.
          Before you evenextract the oil, you will need to charter a survey ship at about usd500k/ day, study the geological graphs it obtained, hire a drillship at USD500k / day because its deepwater and do exploration drilling at the spot you expect to find a oil or gas resevoir. Just these costs alone will deter many investors. Then is there is sufficient reserves,need to spend a few hundred million on oil extraction eqipment and send it into the deepwater,hire a fso to store it at tens of thousand a day…….. So if oil hits USd70-80 / bbls, you will lose money doing deepwater. THAT also means those sapura kencana and bumi armada contract with loss making petrobrasil maybe jeopardised.

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  7. Some of my friends in the industry told me the 70% provision for cost recovery is to pay for the actual cost of drilling exploration wells, building platforms and cost of production. While PETRONAS and production sharing contractors consider this as cost, this is the revenue stream for the oil and gas service contractors. This is a significant sum (70%); I guess this is why PETRONAS insist that contract awards are to be done through competitive tendering. Imagine if they do their contracts through direct-nego with well connected people only……habis lah.

    I also wonder why do they still need foreign investors? They told me it is for risk sharing and technology. Apparently, to find oil and gas is not that easy. Usually, they need to drill 5 exploration wells before they can find one profitable well. Each well can cost RM 50 million. Sometimes, they drill 5 wells found nothing. They only got paid if there is production.

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  8. Would appreciate if you’d tell us if the 70% “cost recovery is to pay for the actual cost of drilling exploration wells, building platforms and cost of production” includes an element of profit to those who do the “drilling exploration wells, building platforms”. If so, are those that the foreign investors “invest in”?

    If they get profit from the 70%, is that not enough and why should they not be attracted if anything is taken away from the 30%?

    I appreciate the high risks but still don’t understand the “profit sharing” formula. Does it mean if dry wells, they get only the “70% cost recovery” and nothing from the 30%? If that is the case. and if the “70% cost recovery” includes an element of profit, they don’t lose, do they?

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    • The 70% cost recovery provision is for investors like Murphy, Shell, Exxon, Talisman to pay for actual costs incurred to drill exploration wells, build platforms etc. Investors and Petronas do not make profit out of the cost. These costs, however, would be revenue for service companies that provide goods and services to investors. Service companies such as Halliburton, Asian Supply Base, Petrosab, SapuraKenchana, Schlumberger, Petra, Technip, Brooke Dockyard, and many others would make profit/loss through revenue derived from their goods and services.

      Investors do carry significant risks. They will do exploration, usually together with Petronas Carigali. If they don’t find oil and gas that can be developed and produced, their cost cannot be recovered. Cost can only be recovered from production from that specific contract area. Exploration work take 3 to 5 years. If investors and Carigali could not find good field, money sunk cannot be recovered. With industry average of one success for every five wells, this is quite risky.

      After they found a good field, they will need to continue to invest to develop the field. Development takes another 3-5 years. Deepwater even longer – Gumusut offshore Sabah was found in 2003; start producing this year (after spending billions). On average, investors will have to wait 5 to 8 years before they can start recovering their costs. Petronas invest their portion through their anak syarikat Petronas Carigali. Profits made by Petronas is to fund their anak syarikat to joint invest with foreign investors. Apparently, if the field turn out to be smaller that what they thought and cannot make profit – that’s cost is sunk too. They cannot recover cost of sunk cost from one field with production from other areas.

      After the field have been producing for many years, the contract will expire. The foreign investors will handover the field back to Petronas. If there is enough oil, production will continue. If no more oil, Petronas will have to pay for decommissioning and removal of platforms. This will cost RM 50 – 200 million per platform, with no production to offset. I think Petronas is careful enough to keep some of their profits to cater for the time that they have to do platform and pipeline removal. Adif said above that there are 500+ platforms in Malaysia. I do hope they do keep enough money to remove those after no production. I don’t want to have rotting platforms in our sea.

      In essence, for each field,
      – investors and Petronas take risk in finding oil, invest hundreds of millions (if not billions) and wait 5 to 8 years before seeing their first RM1. Must pay their service contractors on time, royalties upon production and 38% tax if they make profit. If they don’t find oil, cost is sunk and need to be written off.
      – service contractors invest in equipment and people and get paid 2 to 3 months after goods and services delivered and make profit/loss from contracts with investors and Petronas Carigali. Whether the field is a success or not, they will get paid.
      – federal and state, do not need to invest but will collect royalties once production starts. They will continue to receive royalties even if the production is not profitable. Royalties only stop once production stops.
      – federal collect 38% tax as long as the field make profit.
      – investors would hand back field to Petronas after field no longer make profit or production sharing contract expire
      – in the end, after the field stopped production, Petronas have to remove all non-producing platforms at Petronas cost.

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    • In addition to my note earlier, reading PETRONAS’ statement above it looks like, for every barrel:
      – 10% to pay cash payment to Federal and State, irrespective of profitability, paid as first priority. Leaving 90% of the barrel for cost recovery and profit.
      – of the 90%, 70% is used to recover cost incurred from the exploration to production period; leaving 20% of the barrel for gross profit.
      – of the 20% profit, investors and Petronas have to pay 38% of Petroleum Income Tax (in contrast to Corporate Tax of 24%). This amount to 8% of the available 20% leaving 12% of the barrel as net profit.
      – usually, the investors and Petronas split the net profit on 50/50 basis.
      – Petronas get 6% net profit for dividend, further investment, and funding of platforms removal in the future.
      – for the foreign investors, their 6% will be used to repatriate dividend to their headquarters, and further invest in other projects in Malaysia.

      I used to wonder why we don’t have more Malaysian E&P companies and that most Malaysian companies prefer to be service contractors than E&P companies. What these guys shared is quite an eye opener.
      – for E&P companies, they have to take risks on finding oil, invest significant amount and have to wait for 5 to 8 years before seeing revenue. Their tax rate is also very high – 38%.
      – for service companies, they take tendering risk but if they win, see revenue few months after delivery of service and pay only 24% tax on profit. Even better for agents and ship brokers – they don’t need to invest but able to secure their portion of fees upon winning tenders and paid.

      If I were them, it would be better to be service companies. Less investment, faster payment cycle.

      In essence, without the opportunity to make 6% net profit at the back of significant investment!, investors will not proceed with the project. In this scenario, State cannot collect royalties, Federal cannot collect royalties and petroleum income tax, service companies don’t have businesses, thus depriving people from being employed and government collecting corporate income taxes from these service industry.

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      • Yahooo, AnakMiri. Thanks a heap, my friend, you have explained it in so much detail that it helps a great deal in understanding the issues pertaining to requests for “more royalties” or more expenditures on the states concerned by Petronas.

        Looks like people should not be talking about higher “royalties” in order not to dampen the mood of the foreign investors as said by the Petronas Senior Vice President. But if people talk about allowing bigger expenditures by Petronas on the states asking for higher benefits from oil, what about other states that also have oil offshore or in shore?

        Perhaps extra expenditures may be based on bpd produced by wells in or off their states. But then what would be left to Petronas? They are expected to show good bottom line every year as well.

        Looks like the best is the same as before. Leave the royalties and profit-sharing percentages almost as they are, Petronas continues to pay the Federal Government 38% tax and anything else that has been in practice. Then the Federal Government increases the annual budget for expenditure in the states based on the bpd production concerned – more projects, highways and whatever infrastructure that will help them develop faster.

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        • Thanks. Actually, I should thank my friends working in the industry both for Petronas and foreign investors. This issue have elements of politics and business. Of course, I started with the politics side – why can’t we take more from those Orang Melaya and Orang Putih?

          Few weekends with friends (some are which are Orang Malaya and Orang Putih) over roti nan, mee kolok and coffee allow me to understand more the business side.

          I am planning to spend some time to understand the politics of this later. I have a view but I like to understand more first. There are issues within the state, between state and federal and between Malaysia and China, Phillipines and Indonesia on overlapping claims. I was told we have a large area in Sabah that we cannot explore because Indonesia naval presence and China keep sending their navy to kacau our oil and gas work offshore Sarawak. I was told China claim their territory until 12 nautical miles offshore Sarawak – that cover everything that investors and Petronas are producing in Sarawak.

          I will come back and share more one of these days.

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          • Not all oil and gas are expensive to extract. Deep sea will costs about 70- 80 USD/ bbls before yoy nake any money on average. So when oil prices spiked to USD150/ bbls in 2008,everybody rushed into deep sea exploration. But places like Saudi, it only costs USD7/ bbls to extract the oil as its rilled on land and not offshore. It used to be even cheaper but when oil prices spiked, contractors started to over charge. Petronas do not need Malaysia anymore. Its time the states get their rights to these minerals. The state do not have to share with petronas blood suckers.

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  9. Najib has alyways been a Populist Politikus without an ounce of capability.
    Now by pure chance he is UMNO Leader.
    A politikus like Najib does not desrve his current position. Rosmah is a living nightmare making thing worst.

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    • You wants kampung mats like muhyiddin or zahid, the intolerant twit who persecutes shiites and wants minorities to succumb to his level of mentality? Never! We shall never surrender.
      A populist is anwar. Najib wants to give some freedom back to the citizens. That should be the responsibility of every leader. To grant freedom and liberty. Not conformity and threats of prosecution for every differing opinion using special privilege or official religion as an excuse.

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