Malaysia - Oil&Gas Sector Overview
Malaysia is the second-largest oil and natural gas producer in Southeast
Asia and is the fifth- largest exporter of liquefied natural gas (LNG) in the
world, as of 2019. It is strategically located on important routes for seaborne
Malaysia’s energy industry is an important sector of growth for the
economy. The government has focused on increasing hydrocarbon production
through upstream investment and exploration as a driver of economic growth, but
pursuing this strategy has become increasingly challenging because production
has been declining as a result of maturing fields and a lack of developed new fields.
Mahathir Mohamad resigned as Prime Minister on February 24, 2020, and was
replaced by Muhyiddin Yassin, who is backed by a new coalition party called
Perikatan Nasional. Mahathir Mohamad’s resignation was an unexpected
announcement and led to the collapse of his own coalition party, which was
formed in partnership with his political rival and former deputy prime
minister, Anwar Ibrahim. The recent turn of political events, the increasing
fragmentation of political partiesa, and the sudden slowdown of economic
activity as a result of the outbreak of the novel coronavirus (COVID-19) are
expected to significantly increase the level of uncertainty in the political
landscape and may lead to a more complex business environment for international
companies operating in Malaysia.
Energy policy in Malaysia is set and overseen by the Economic Planning
Unit (EPU) and the Implementation and Coordination Unit (ICU), which both
report directly to the Office of the Prime Minister.
Malaysia’s national oil and natural gas company, Petroliam Nasional
Berhad (Petronas), holds exclusive ownership rights to all oil and natural gas
exploration and production projects in Malaysia, and its Petroleum Management
Unit (PMU) is responsible for managing all upstream licensing procedures. Petronas
holds stakes in most of the oil and natural gas blocks in Malaysia, and
Petronas financial contributions to government revenue in the form of taxes,
dividends, and cash payments comprised about 35% of total government revenue in 2019.
ExxonMobil, Shell, and ConocoPhillips are the major international oil
companies producing the most oil in Malaysia, according to Rystad Energy’s
production estimates. Murphy Oil divested its Malaysian assets
through a share repurchase agreement with Thailand’s PTT Exploration and
Production Public Company Limited (PTTEP) and left the country. New opportunities for investment in Malaysia’s
energy sector have attracted other foreign oil independents and national oil
companies such as Repsol (Spain), Pertamina (Indonesia), PetroVietnam
(Vietnam), and JX Nippon Oil and Gas (Japan).
The state government of Sarawak introduced a new 5% state tax on its
crude oil and natural gas sales and exports beginning in January 2019, which
Petronas challenged in a legal dispute with the state government. After the
Sarawak High Court ruled in favor of the state government, Petronas sought to
appeal the decision, but later it reached an out-of-court settlement with the
state government and formally withdrew from legal proceedings in August 2020.
The state government of Sabah also enacted a similar 5% state tax, in addition
to royalties collected on crude oil and natural gas produced in its
jurisdiction that took effect in April 2020.