OPINION: The coronavirus pandemic and resulting commodity price crash has not done the global upstream industry any favours, but Malaysia’s regulatory uncertainty is adding another layer of doubt for potential investors.
Malaysia’s upstream sector, widely regarded as having one of the most stable regulatory frameworks in Southeast Asia, earlier this month was rocked with the premature departure of national oil company Petronas’ chief executive Wan Zulkiflee Wan Ariffin.
Wan Zul, as he is affectionately known, resigned after reportedly disagreeing with Prime Minister Muhyiddin Yassin over Petronas paying the state of Sarawak more than $500 million in historic petroleum sales taxes following a protracted legal battle.
Malaysia’s recently installed government is apparently more open than previous administrations to sharing the nation’s oil and gas wealth with producing states such as Sarawak, Sabah and Terengganu.
This apparent willingness has led to observer speculation that the government might be looking to overhaul the decades-old Petroleum Development Act whereby Petronas acts both as industry regulator and sole custodian of Malaysia’s oil and gas resources.
Resolving the sales tax and longstanding royalties issues between the government and hydrocarbon-producing states could help restore investor confidence.
Sarawak, which has fought for greater control over its hydrocarbon resources, is home to several unexploited large gas fields that could provide much-needed feedstock for the Petronas LNG Complex at Bintulu.
The government has often relied on the national oil company to bail it out in times of austerity, not least by the payment of special dividends.
However, Petronas is now faced with lower profits due to the commodity price slump and could struggle to pay the regular 24 billion ringgit ($5.61 billion) dividend promised for this year, let alone any more.
Increasing uncertainty in Malaysia’s oil and gas sector runs the risk of dampening investor sentiment at a time when upstream dollars are very much needed.
(This is an Upstream opinion article.)