Malaysian upstream oil and gas

Here’s why investors are again eyeing the Malaysian upstream oil and gas sector

  • The Malaysian upstream oil and gas sector has been boosted by the release of offshore blocks for exploration
  • The country has stated oil and gas production targets of two million barrels of oil equivalent per day starting next year
  • Petronas, the country’s upstream oil and gas industry regulator as well as an operator, must approve investment from international entities

These are exciting times for the Malaysian upstream oil and gas sector. Last year, exploration discoveries and exploration-appraisal efforts were made, and these located a potential one billion barrels of oil. This was vital for a country seeking to boost production. Meanwhile, overseas investors are now eyeing opportunities currently available. Asian Insiders Malaysia Partner Germain Thomas takes a closer look at the situation.

Any notion that the Malaysian upstream oil and gas sector was on the decline has been dismissed by recent revelations over the past three years. A flurry of activity and new findings has placed the country back on the radar of overseas investors who had previously looked elsewhere.

The shift began in 2021 when six of the 13 exploration blocks were awarded during the annual Malaysia Bidding Round (MBM). Further growth occurred during the following year’s MBM when nine out of 14 blocks, along with a trio of Discovered Resource Opportunities (DRO), were awarded. This was the highest amount since 2009.

While these numbers retreated in 2023 and will remain below 2022 levels with this year’s MBM round, there is optimism surrounding the Malaysian upstream oil and gas sector as a whole. The primary reason for the upbeat outlook is because of what has recently been located. Petronas revealed that discoveries could contribute more than one billion barrels of oil equivalent.

Tapping into this will be crucial if Malaysia is to meet its production targets. The country has stated it wants to pump out two million barrels of oil equivalent per day starting in 2025, and the new discoveries and increasing activity should help make that possible.

Additionally, Malaysian Prime Minister Datuk Seri Anwar Ibrahim is actively trying to secure more foreign investment in the sector. Notable movement on that front happened earlier this year when France’s TotalEnergies purchased the final 50 percent stake in SapuraOMV Upstream Sdn for USD 530 million giving it full control of the outfit. It acquired the first 50 percent at the start of 2024.

According to BIM, PTTEP from Thailand and Japan’s Inpex Corporation are among the newest overseas investors to have entered Malaysia during this recent industry uptick. They joined other notable names, including Skye UMDP Exploration, Topaz Number One, and Longboat Energy.

Sarawak revives the Malaysian upstream oil and gas sector

Estimates from the Malaysia Energy Commission found that Sarawak is home to more than 60 percent of Malaysia’s total natural gas reserves and 40 percent of the country’s total crude oil reserves. However, the state had previously been at loggerheads with Petronas over the split of revenue for oil and gas produced locally.

When the state government in Sarawak and Petronas came to terms on a settlement that saw the former receive a larger share of oil and gas revenues in 2020, it was seen as a turning point in fortunes for the Malaysian upstream oil and gas sector.

It took little time for the impact of this to be felt. Sarawak immediately became more involved in oil and gas activities and the lion’s share of production sharing contracts since 2021 were handed out for exploration blocks in the state.

Other activities are taking shape here as well. The Sarawak Integrated Sour Gas Evacuation System (SISGES) project kicked off in 2023 with this aiming to monetise sour gas resources found in the offshore areas of Sarawak. The multiple-phase project could begin commercial operations as soon as 2027.

Sabah remains a strategic destination

Shortly after Sarawak was granted greater control of its oil and gas reserves, a similar situation played out in Sabah. While totals here are less, Sabah contains around 12 percent of the country’s gas reserves and 25 percent of its oil reserves; the state will also be a strategic location for the Malaysian upstream oil and gas sector.

That was seen in this year’s MBM, which includes exploration blocks in the Semporna and Sandakan Basins off Sabah’s eastern coast as well as two Discovered Resource Opportunities in the state’s deepwater areas. Winners are expected to be announced early in 2025.

Old rig opportunities

For smaller, tier-two operators looking to enter the Malaysian market, an interesting opportunity has emerged. The rejuvenation of older rigs allows these operators to take over less efficient and profitable facilities from larger players.

These agreements take one of two forms. The first is operating it on behalf of a big oil producer who must follow strict procedures when running these rigs which significantly cuts into their profits. The second option is to purchase the rig outright and make it profitable again.    

A few firms, such as Perenco and Vermilion, are already having success with this method. However, more opportunities will arise as Malaysia has an increasing number of older rigs run by organisations that are open to offers.

Basics of investing

Foreign companies considering investment in the Malaysian upstream oil and gas sector should know a few things before moving forward. For starters, Petronas, the national energy company, serves as the country’s upstream oil and gas regulator. They are the ones who approve investment from international entities. It should be mentioned they are also the country’s largest oil and gas company with far-reaching operations.

To that end, any firm wishing to participate in exploration, development, production of resources, or other upstream sector activities must have a license from Petronas. Foreign organisations have one of three options to obtain permission:

  1. Incorporate a local business entity
  2. Form a joint venture with a local partner where the JV entity meets all L/R requirements
  3. Appoint a local company as the local representative for the foreign company.

Regardless of what option a company pursues, the body applying must meet all general license and registration requirements to be approved. As far as which method is best, that decision comes down to the goals of the business and the path it feels most comfortable.

For those unfamiliar with the process of doing business in Malaysia, a locally-based marketing entry services provider, such as Asian Insiders, can provide critical information to assist in decision making and even help locate a potential JV partner or local representative company.

Final thoughts

Investors are re-engaging the Malaysian upstream oil and gas sector for several reasons. Developments in Sarawak have allowed the country to tap into a potential-laden region and stimulate the sector as a whole.

The recent MBMs, along with other activities, opened new opportunities for foreign investors to consider. Looking toward the long term, there continues to be positive sentiment surrounding oil and gas reserves in Malaysia even as exploration shifts toward deeper offshore areas. Those in LNG and carbon storage will also want to explore what’s available in the country.

Elsewhere in Asia, some of Malaysia’s ASEAN neighbours are attracting interest from overseas firms. Total investments in Indonesia’s upstream oil and gas sector rose ten percent between 2022 and 2023 with further growth expected. Vietnam is also looking to make a splash in the upstream industry and has started offering investment incentives.

For further details on opportunities currently available in the Malaysian upstream oil and gas sector, please get in touch with Germain Thomas, Malaysia Partner: germain.thomas(at)asianinsiders.com or Jari Hietala, Managing Partner: jari.hietala(at)asianinsiders.com.

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