[UPDATED] Sabah seals fresh O&G agreement with Petronas, Hajiji hails ‘new era’

KOTA KINABALU – Following protracted negotiations, the Sabah government has entered into a historic new agreement with national oil and gas company Petronas to further enhance cooperation between the two parties on activities harnessing fossil fuel in the state.

The Commercial Collaboration Agreement was signed here today after negotiations finally concluded following three-way discussions between the state government, Petronas, and Putrajaya recently.

The agreement specifically allows Sabah to increase its revenue from oil and gas via greater participation in the industry and its value chain.

It also ushers in a new state-owned company to represent the state in its oil and gas exploration and other related activities. 

“The agreement is the most important document after June 16, 1976, when the oil (royalty) cash payment was agreed upon and signed between Sabah and Petronas.

“The signing of this agreement marks a new era in Sabah’s oil and gas industry,” said Sabah Chief Minister Datuk Seri Hajiji Noor.

He said this when acting as as a witness to the signing of the agreement by Sabah secretary Datuk Seri Safar Untong and Petronas Group CEO and president Datuk Tengku Muhammad Taufik at Menara Kinabalu here today.

Also present was Sabah Local Government and Housing Minister Datuk Seri Masidi Manjun. 

The detailed terms of the agreement will likely be revealed during the ongoing state assembly this week.

“Sabah, through its nominated state-owned entity, will have the opportunity to increase its participation in the upstream petroleum arrangements including in partnership (with) Petronas Carigali, the wholly owned subsidiary of Petronas, as well as in the mainstream and downstream oil and gas businesses within the state,” said a statement issued jointly by the Sabah government and Petronas.

Hajiji announced that the state’s new dedicated company, SMJ Petroleum Sdn Bhd, established as a result of the agreement, will enter oil and gas activities around Sabah while coordinating with existing state-linked firms to ensure the terms and conditions of the agreement are implemented.

He also said that a joint committee has been formed by the Special Council on Malaysia Agreement 1963 to discuss Sabah’s involvement in the industry.

The committee comprises Masidi, Mohamed Firouz Asnan from Petronas and former Sabah Shell Malaysia chairman Datuk Seri Lim Haw Kuang.

Talks began on October 8 and the agreement was finalised on December 1 after a series of meetings over two months.

Economic spillover assured, says PM

Meanwhile, Prime Minister Datuk Seri Ismail Sabri Yaakob said the signing of the “landmark” agreement will see a joint effort in the development of the oil and gas industry in Sabah. 

“The strategic cooperation will provide a holistic economic spillover for Sabah. 

“The signing of the Commercial Collaboration Agreement will allow Sabah to take up a bigger role in expanding the oil and gas industry via its cooperation with Petronas,” he said in a statement. 

Ismail Sabri said the cooperation will further expand opportunities for local businesses to venture into oil and gas services.

“At the same time, Petronas will continue with its role as the national oil company which has absolute control on the supervision of the development of the oil and gas industry, in line with the country’s laws. 

“The success of this agreement symbolises the federal government’s commitment to work together with the Sabah government to ensure inclusive and beneficial development in a fair and equal manner,” he said.

Hajiji also said that several committees have been formed to take part in the Annual Strategic Dialogue under the commercial agreement. 

These are the joint coordination committee and its sub-committees on various matters – upstream, domestic gas supply, equity investments in liquified natural gas and downstream businesses, the oil and gas services and equipment industry, human capital development, and other state matters. 

He said members of these committees comprise state and Petronas officials.  

“With these committees, Sabah will be able to ensure its participation and large control of the oil and gas industry via development plans, and participation in oil and gas activities, including the Sabah Gas Masterplan, LNG projects and product-sharing contracts,” he said

Hajiji added that he and Petronas chairman Tan Sri Mohd Bakke Salleh will co-chair the main Annual Strategic Dialogue committee.

Echoing Sarawak-Petronas agreement a year ago

Interestingly, exactly a year ago on December 7, 2020, southern neighbour Sarawak had also concluded a commercial settlement with Petronas after resolving their case over sales tax on petroleum products, as well as on oil and gas matters. 

This agreement, executed that day and witnessed by both the prime minister and the Sarawak chief minister, provides Sarawak a greater share of revenues from oil and gas found and produced in the state. 

It also provides for a more active involvement by the state in the oil and gas industry through the management of onshore oil and gas resources by state firm Petroleum Sarawak Bhd and its investment in upstream ventures in offshore areas.

It facilitates a consultative framework whereby both parties can jointly discuss and deliberate on matters of importance to the industry, including those related to the state. – The Vibes, December 7, 2021