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Exciting year for oil & gas industry
Published on: Monday, January 05, 2015

KOTA KINABALU: The year that ended was an exciting one for the oil and gas (O&G) industry in Sabah as the sector has been progressively growing and moving towards the right direction of becoming a developed and high-income State.

In fact, the State Government under the leadership of Chief Minister Datuk Seri Musa Aman has recognised the huge potential of the industry that would accelerate the State's social and economic development.

It has also committed to participate directly in the O&G industry to ensure the sector reap benefits for the State and boosting its economy.

The most significant and landmark decision as a result of closer ties between the State and Federal Government, was when Petronas has officially agreed to give the State Government a 10 per cent stake in the Liquefied Natural Gas Sdn Bhd 9 (LNG 9) in Bintulu, Sarawak.

In a State Legislative Assembly sitting in July, Musa said Petronas had then in principle agreed to give Sabah a five percent stake in the LNG 9 operation, however, he pledged to push for a 10 per cent stake.

On August 20, he honoured his pledge when announcing that the national Oil Company has agreed to give Sabah a greater participation by increasing the initial stake of five per cent to 10 per cent.

Musa said the offer was the result of several negotiations between the State Government and Petronas which succeeded in getting Petronas to agree for Sabah to own a 10 per cent equity in the LNG 9 in Bintulu, Sarawak.

He said it is also due to his confidence in the Prime Minister Datuk Seri Mohd Najib Tun Razak who has always been willing to listen and gave the matter due consideration on matters of interests that concerned both Sabah and Sarawak including on the oil royalty issue.

He said that it was not necessary to table a motion in the State Assembly as the State Government had its own ways of doing things in getting more from the oil and gas sector from Petronas.

Such announcement appeared to quell calls from various quarters for a review of the oil royalty paid to the State.

Musa had given his assurance that the State Government would continue pursuing the issue and that Special Tasks Minister Datuk Teo Chee Kang had been assigned to it.

He said giving such stake in Petronas is among the avenues that will allow Sabah to have greater participation in the oil and gas industry.

Providing Sabah a bigger stake in the O&G industry was among the formula that Petronas had agreed to work on instead of increasing the annual cash payment or royalty from five per cent to 20 per cent.

Petronas had explained earlier that it would not able to increase the five percent cash payment because it might render the country's oil and gas not viable and attractive to investors when the deepwater exploration works already very costly involving billions of Ringgit.

Petronas Senior Vice President (Upstream Malaysia) Datuk Mohd Anuar Taib said O&G industry has become more costlier as the cost of exploration alone starts at RM4 billion.

"If the cash payment was increased from five per cent to 20 per cent like what Sarawak is asking (approved the motion in its State Legislative assembly), it means that Petronas and its Profit Sharing Contract (PSC) only share 10 per cent of the profit after deduction of income tax.

"This is surely not attractive to investors and they may just shy away from Malaysia," he said.

Malaysia Petroleum Management Vice-President Adif Zulkifli told media in a special briefing that Sabah was actually producing about 180,000 barrels or oil equivalent per day (boe/d) which is only 10 per cent of the total national oil production.

However, Adif said Sabah's production is expected to grow to 16 per cent over the next few years as currently, Sabah has 14 oil fields and three gas fields in production while 41 oil and 47 gas fields had been discovered.

He said Petronas has 27 active PSCs in Sabah involving 12 companies or players. Complementing this, the upstream and downstream projects of the industry including its massive deepwater exploration potential have shown positive and encouraging progress in Sabah.

Under upstream projects, Petronas and Shell together with several reputable international oil exploration companies have invested in joint ventures of deepwater exploration offshore and on shore Sabah that pushed the sector forward.

Musa said the state's massive deep water potential was uncovered when Sabah was the first state to commission the first and second deep water fields, Kikeh and Gumusut-Kakap.

As a matter of fact, Gumusut-Kakap project is a joint venture that is operated by Shell (33pc) partnering with Conoco Phillips Sabah (33pc), Petronas Carigali (20pc), and Murphy Sabah Oil Co. (14pc), that is built on a floating production facility located approximately 120 kilometres off the coast of Sabah.

It is also sited in waters up to 1,200 metres deep that is the Malaysia's third deepwater field brought onstream after Kikeh and Siakap-North Petai fields.

On Oct 8, 2014, Shell and Petronas have jointly announced that the Gumusut-Kakap floating production facility has started its oil production.

Shell Malaysia Chairman Iain Lo said Gumust-Kakap, which is its latest of more than 20 major deepwater projects that Shell has delivered around the globe, is expected to reach an annual peak oil production of around 135,000 barrels a day.

Thus, he said, the field is expected to contribute up to 25 per cent of the country's oil production.

Meanwhile, Petronas President and Group CEO Tan Sri Shamsul Azhar Abbas said such project further strengthens Petronas' rationale for developing expertise in deepwater due to the readily available opportunities in Malaysia, which contributes positively to the national Oil Company and the nation.

He said the crude oil will be transported to its mega project, the Sabah Oil and Gas Terminal (SOGT) onshore at Kimanis, Papar via a 200km-long pipeline.

According to Shell's Malaysia Sabah General Manager Siti Sulaiman said that Gumusut-Kakap field that is capable of producing up to 135,000 barrels per day is equivalent to 20 – 25 per cent of Malaysia's oil production.

She said Kikeh, also off Sabah and operated by Murphy Oil since 2008, is Malaysia's first deepwater well, and another deepwater field, Malikai located 120km North West of Kota Kinabalu that was being fabricated will add to the Malaysia's output of another 60,000 barrels per day. Hence, she described that Sabah is 'firmly at the heart' of deepwater petroleum exploration, which is heralding a new era in the country's O&G industry.

Another upcoming contribution to the industry was when a consortium comprising Petroliam Nasional Bhd (Petronas), Shell Malaysia and a Royal Dutch Shell, Conoco Phillips have discovered oil offshore Sabah.

The discovery was made during an appraisal of the Limbayong gas field by Shell Malaysia and the appraisal well was found 136-metres of oil-bearing sands, and there are plans to conduct more appraisal work to determine its recoverable volume.

Iain Lo who is also Sabah Shell Petroleum Co.Ltd managing director said the discovery was a positive development for exploration activities in Sabah and Sarawak and clearly indicated significant potential of the area.

The drilling of the Limbayong-2 appraisal well was carried out by Shell Malaysia (35pc Conoco Phillips (35pcand Petronas (30pc).


There was also another discovery of gas from Kebabangan oil field, located 92 kilometres North West of Kota Kinabalu, in November, 2014.

Kebabangan Petroleum Operating Company (Sdn Bhd (KPOC) announced that it has successfully started gas production from the Kebabangan platform which also marked the commencement of production phase at the Kebabangan gas field.

KPOC is a joint operating company comprising Petronas Carigali Sdn Bhd (40pc), Conoco Phillips Sabah Gas Ltd (30pc) and Shell Energy Asia Limited (30pc).

KPOC's Chief Executive Officer Kannan Annamalai said the discovery is an achievement and yet another testimony to the great collaboration, dedication and commitment by all parties involved in the project.

He said the platform is an integrated production facility designed and built as a hub with gas, condensate and crude oil processing facilities to cater for production from the Kebabangan Cluster fields and future tie-ins from other nearby fields.

"The gas production from the field is expected to ramp to 500 million standard cubic feet of natural gas per day by April 2015.

"Nonetheless, its platform is designed with a capacity to process up to 825 million standard cubic feet of gas, 80,000 barrels of crude oil and 22,000 barrels of condensate daily," he said.

Petronas Carigali Sdn Bhd President Datuk Mohd Anuar Taib said the gas from the field, a stranded gas field discovered in 1994, is finally able to be commercially developed through the Petronas LNG Complex in Bintulu, and providing benefits for all – PSC contractors, Petronas, partners and customers, Sabah and Sarawak.

In the O&G and energy sector, Musa said Petronas continues to be a major driver and leading investors whereby the discovery and commissioning of their deepwater fields has resulted in investments of Sabah Development Corridor (SDC) projects like in SOGT in Kimanis, Papar, a gas-fired power plant like Kimanis Power Plant and SPR Power Plant, the Sabah Ammonia and Urea Project (Samur) in Sipitang, and the Kimanis-Bintulu Sabah-Sarawak Gas Pipeline (SSGP) project.

The SOGT is already in full-fledged operation since April, 2014, and its commissioning process was done where oil and gas was being piped to the SOGT on a trial basis.

During the process, gas inside the plant will be released through burning and people could see bright flame in the sky and it produces loud noise which are normal.

Monthly report of the test is also submitted to the Department of Environment for monitoring purposes.

Petronas has taken the initiative to alleviate the people's fear by conducting briefing sessions for the villagers living near the SOGT.

The SOGT can handle up to 260,000 barrels of oil where it received via subsea pipelines from Gumusut-Kakap and Malikai via Kebabangan fields.

The plant also has the capacity to produce 1,250 million standard cubic feet of natural gas per day whereby all these are supplied from the Kinabalu Non-Associated Gas field southwest of the state via a 120km underwater pipeline and Kebabangan fields.

SOGT has clearly created economic spin-offs to the local communities and nearby districts when it created over 2,000 job opportunities in which over 1,000 jobs were taken up by Sabahans.

In addition, some 1,000 traditional fishermen whose livelihood affected by the development of SOGT have been urged not to do their fishing activities at the waters nearby the operating areas as it has been gazetted as a non-entry zone.

The affected fishermen claimed for appropriate compensation especially Petronas for few years and attended dialogues with relevant authorities like the State Fishery Department.

Papar Fishermen Association was active in pursuing the issue with the State Government and Petronas to claim for their income rights to be compensated and it sought intervention from the Chief Minister, at that time.

Finally they were given RM3,000 each during the Ramadan month and the association was given a grant of RM1 million so that it could carry out socio-economic activities that would benefit their members.

Other incentives including providing education assistance to the children of the fishermen as well as giving few units in several shoplots near SOGT area to the association.

In addition, an explosion on the SSGP in Lawas in June also indicated that gas was being piped from Kimanis to Bintulu. Fortunately, the incident did not affect the supply of gas to Petronas Gas 60 per cent-owned 300 megawatts Kimanis Power Plant (KPP).

KPP, which is managed by Kimanis Power Sdn Bhd, is a joint venture project between Petronas and Yayasan Sabah that has the capacity to produce 300 megawatts and has began supplying power to Sesb grid.

Through the fully operational of KPP, Sabah can expect a more stable and reliable power supply when Petronas has stepped in to help tackling the State's power woes by delivering additional electricity supply that is crucial in propelling Sabah's future growth as a developed state.

Apart from these positive outputs, there was one technical glitch that Petronas has to face with the completion of RM4.9 billion Samur in Sipitang Oil and Gas Industrial Park (SOGIP) has to be delayed for six months and expected to be completed end of February 2016.

Samur is wholly-owned by Petronas Chemicals via Petronas Chemicals Fertiliser Sabah Sdn Bhd that was initially completed by Aug 31, 2015.

Petronas Chemicals Chairman Datuk Wan Zulkiflee Wan Arifin said the six-month delay on Samur, which was 60 per cent complete, was due to a fire on board on one of the vessels carrying critical equipment for the project.

"There are a lot of installation works in progress but unfortunately, one of our contractors' vessel which was coming out from a port in Korea had a fire incident.

"This has affected the delivery of these critical equipment as the equipment either need to be repaired or replaced. This is an alliance contract, so the contractors and the Petronas Chemical will share the risk.

Wan Zulkiflee said the total cost of Samur project may increase from its initial estimation of RM4.9 billion.

Once completed, the plant is projected to produce 2,100 tonnes of fertiliser per day or up to 1.2 million tonnes annually.

Another issue pertaining to Samur, Umno Kudat Divisional Chief Datuk Bolkiah Ismail claimed that most of 32 Bumiputra and local contractors awarded construction works at Samur have incurred huge losses.

He also claimed that Petronas did not properly guide the contractors which made them unable to complete the required works of the project, At the end, he said the works have to be tendered out and mostly taken up by non-bumiputera companies.

Nonetheless, Musa wants Petronas to continue giving priority to local Bumiputera contractors when awarding contracts as the participation of them in the O&G industry is still small.


"I have spoken to Petronas senior officers asking them to award contracts directly to local Bumiputera contractors instead of giving to outsiders.

"When this happen, the outsiders would sub-contract the jobs to the local Bumiputera contractors…which is not right," he said.

Musa also assured that the State Government would continue urging Petronas to give more opportunities to Bumiputera contractors.

At the same time, he reminded the contractors must also be properly equipped with knowledge and expertise to exploit more potential in the O&G industry in Sabah.

Meanwhile, port operations at the SOGIP are set to be enhanced following a Memorandum of Understanding (MoU) signed between Sipitang Oil and Gas Development Corporation (SOGDC) and Sabah Ports Sdn Bhd (SPSB) in June.

Through the MoU, SPSB which currently operates eight ports, will operate and manage port operations at SOGIP located on a 1,645-hectare to become a focal point for new oil and gas investments in Sabah, Brunei and Labuan economic triangle.

Musa who witnessed the signing of the MoU said he is confident that such collaboration will inspire more joint innovative activities among government-linked companies in future to drive the oil and gas sector in Sabah to greater heights.

In fact, he said SOGIP which was approved in early 2011, has already attracted local and foreign oil and gas investors to scout possible on-site investment opportunities.

SPSB Managing Director Datuk Dr, Fowzi Razi said the partnership will enhance the state's economy particularly in the oil and gas industry and assist SOGDC's aim of making SOGIP into an important hub for petrochemical activities in the region.

All these upstream and downstream projects that are currently operating and under construction are all part of Sabah-Sarawak Integrated Oil & Gas Project (SSIOGP) with Petronas continues to be the main driver of the sector, while Shell Malaysia as operator of two deepwater fields that are part of the SSIOGP – Gumusut-Kakap and Malikai.

The RM54 billion project, sanctioned in 2005, which will create a history as being the Petronas' largest integrated development combining both upstream and downstream investments which ingeniously connect the O&G industry in Sabah and Sarawak through the Sabah-Sarawak Gas Pipeline (SSGP).

The components of SSIOGP are the oil fields offshore Sabah – Gumusut-Kakap, Kebabangan, Malikai and Kinabalu NAG, terminal and pipeline – SOGT Kimanis and the SSGP while the plants are Kimanis Power Plant and Samur, and education facility is the KTC in SOGT compound.

Petronas Chairman for Sabah and Labuan Mohamaed Firouz Asnan, who oversees the national oil company's operations in Sabah, said the concept behind SSIOGP was mooted after several major deepwater oil ad gas discoveries were made offshore Sabah like the one in Gumusut-Kakap and Kebabangan fields.

Meanwhile Industrial Development Minister Datuk Raymond Tan said SSIOGP is expected to generate huge spillover benefits for the people of Sabah.

"One of its components, the Sabah Sarawak Gas Pipeline (SSGP) to Bintulu is part of the infrastructure put in place by Petronas when oil and gas lands at the SOGT in Kimanis. In particular, the establishment of SOGIP in Sipitang with its anchor project, the Samur that will be the biggest Urea plant in South East Asia.

"Sabah appreciates the initiative taken by Petronas and this has been seen as a catalyst for the development of oil and gas activities that will bring more spin-offs and more benefits for the people especially the future generation," he said.

Another milestone for Sabah was when it now has a platform to venture into a full-scale oil and gas exploration and production when its wholly-owned company, M3nergy Berhad with the backing of Sabah Development Bank with its chairman cum-State Secretary Tan Sri Sukarti Wakiman, operated a Floating Production Storage and Offloading (FPSO) vessel.

Musa's wife, Datin Seri FaridahTussin named the newly-converted FSPO vessel costing around RM870 million as 'Ratu Nusantara' at Keppel Shipyard in Benoi, Singapore in October.

The transformation of Ratu Nusantara to a FSPO has a processing capacity of 25,000 barrels per day, 77 million standard cubic feet of gas, 20,000 barrels per day of water and a storage capacity of 630,000 barrels of processed oil.

The vessel will head to the Bukut Tua oil and gas field in Indonesia operated by Petronas through a Profit Sharing Contract (PSC) with Indonesia's oil regulator, SKK Migas and PC Ketapang II Ltd at Madura, about 110km North East of Java.

With this latest development, Musa described the accomplishment is a catalyst to further promoting the oil and gas sector in the region, which has been and is a major contributor to the social and economic development of Sabah.

"M3nergy's participation in the development of oil fields in Bukit Tua is a strategy to strengthen our footing in Indonesia," he said.

The Bukit Tua field is operated by PCK21, which is 80 per cent owned by Petronas and 20 per cent by PT Saka Ketapang Perdana.

Due to high prospective of O&G industry in Sabah, the Kota Kinabalu Industrial Park (KKIP) has been eyeing the O&G market by looking into lands in Kimanis and Sipitang which is outside the industrial park land.

KKIP Sdn Bhd Chief Exceutive Officer Datin Dr. Tarsiah TZ Taman said they will start small in the O&G market by acquiring 100 to 200 acres of land in both areas.

With such huge investments in upstream and downstream projects in O&G sector, the State Government still call for more manpower of skilled and experts in the industry.

In light of this, Petronas's Kimanis Training Centre (KTC) that was built within the SOGT's compound offer an all-expense paid specialised training in instrumentation and control mainly for local youths in Sabah.

KTC has a capacity of 62 full time students and can accommodate 100 short course participants whereby two batches have already graduated from the two-year programme and year 2014 has witnessed an inaugural admission of female technicians.

At the same time, Sipitang MP Datuk Sapawai Ahmad has called for a need to set up a higher learning skills training institute here that provides O&G skills courses to ensure sufficient manpower for the industry.

"Sipitang and Kimanis are being groomed to be hubs for the O&G industry in Sabah, and Kimanis with its SOGT has KTC that offers certificate courses in the sector.

"Therefore I feel that it is also timely for Sipitang to have a similar institute but one that offers diploma qualifications and above," he said.

Apart from investing and boosting in the downstream projects, Petronas also pledged to care for the environment in Sabah where it is funding the construction of a study centre to be operated by Yayasan Sabah (YS) in Imbak Canyon in Tongod area.

In July, 2014, Petronas and YS launched the RM77 million development of the Imbak Canyon Studies Centre (ICSC) poised to become central hub for research and studies on environmental biodiversity.

The 27-hectare ICSC project, implemented under the Phase 2 of YS - Petronas Imbak Canyon Conservation Partnership near the Imbak Canyon Conservation Area (ICCA) near Ulu Kinabatangan, is scheduled for completion in 2016.


It will house an office complex, laboratories, research stations, education complex and other related facilities.

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