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Petronas set to help Sarawak grow O&G supply chain

Petronas set to help Sarawak grow O&G supply chain

14 Dec 2020

Nasional Bhd (Petronas) is set to expand its vendor relationship with local companies in Sarawak that would lead to greater transactions following the recent commercial settlement agreement with the Sarawak state government relating to oil and gas (O&G).

The national oil company said it will continue to contribute in enhancing the capabilities of local companies in Malaysia’s O&G industry.

“Our ongoing initiatives include the Vendor Development Programme (VDP), VDPx and local enhancement programme to the global market. These are designed to strengthen the industry’s ecosystem through sustainable vendor development,” Petronas told The Malaysian Reserve in an email.

The company, however, stayed tight-lipped on the equity sharing with Sarawak state-owned company, Petroleum Sarawak Bhd (Petros), in developing Sarawak O&G under the agreement for offshore exploration and production (E&P) and production petroleum arrangement.

Regardless, at the vendor level, the commercial agreement between the state government and Petronas is expected to bring Sarawak companies to the forefront, from upstream to downstream activities.

O&G vendors range from testing to system and equipment suppliers.

Economists and industry experts viewed the agreement would be a game-changer in Sarawak O&G activities, and all eyes are on the state government and Petronas to see how the newly sealed agreement would translate into greater O&G investments in the state.

“To have a successful agreement, part of it needs to ensure the right incentives are in place for investments in the state. Such an agreement may lead to higher investment costs, particularly in a low oil price environment, and cause lower investment and production in the coming years,” an industry expert, who asked for anonymity, previously told TMR.

The agreement also sparked new interests for other states to follow suit, particularly for Sabah, which neighbours Sarawak.

At present, Sarawak contributes about 60% of liquefied natural gas (LNG) and 25% of oil production to the national economy, industry data showed.

Miri and Bintulu are two major hubs for Sarawak oil and LNG activities.

With the regulatory control on the O&G development, Petros is front and centre for E&P activities in the eastern state of Malaysia.

Under the commercial agreement, Petros will be able to manage, control and undertake all petroleum operations relating to exploration, exploitation, winning and obtaining of petroleum onshore of Sarawak (on land).

Petros also would have equity participation in Petronas’ offshore upstream E&P.

The document also provides additional equity investments in Malaysia LNG Sdn Bhd and Malaysia LNG Dua Sdn Bhd on a commercially acceptable, arm’s length basis, and the terms and conditions are to be mutually agreed by both parties.

Petros would also be able to formulate and implement its own gas masterplan following the agreement, while still benefitting from Petronas’ VDPs which would stimulate Sarawak’s petroleum industry.

The federal government sees the agreement as a step forward. Prime Minister Tan Sri Muhyiddin

Yassin said the settlement will be a new start to invigorate the O&G industry in Sarawak and create new business opportunities.

In September, Petronas paid RM2.95 billion in sales tax on petroleum products to Sarawak owed from 2019.

The sales tax payment by Petronas and its subsidiaries was the result of a settlement reached between Petronas, the federal government and the state government.

Earlier, both parties had reached an agreement to drop their legal suits over the sales tax dispute.

Source: The Malaysian Reserve