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 energy trade.

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.

Sector organization

Recent updates

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.

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