ConocoPhillips quits major Sarawak project amid state's row with Petronas

Malay Mail

29-04-2025

KUALA LUMPUR, April 29 — US oil firm ConocoPhillips has unexpectedly withdrawn from operating the Salam-Patawali deepwater oil and gas field off Sarawak's coast, adding to the state's rights dispute with Petronas.
The project, discovered jointly with Malaysia's national oil corporation Petronas in 2018, represented a 50-50 joint venture valued at approximately RM13.7 billion (US$3.13 billion).
According to Channel News Asia, industry sources close to ConocoPhillips confirmed the withdrawal, attributing it to a 'country strategy review' without providing further details.
Attempts to reach company executives at their Kuala Lumpur office were unsuccessful. According to multiple industry executives, the decision was partially motivated by regulatory uncertainties stemming from the ongoing dispute between Petronas and the Sarawak state government led by Premier Tun Abang Johari Openg.
The Sarawak government, which owns the oil and gas firm Petroleum Sarawak (Petros), has been asserting greater control over its natural resources.
CNA reported that this stance has created discomfort among foreign companies operating in the region, who view Petronas — typically their joint-venture partner in exploration projects — as being under significant pressure in Sarawak.
ConocoPhillips will reportedly now focus its operations in neighboring Sabah, where it already maintains a presence.
As of April 2024, ConocoPhillips maintained exploration, development, and production activities across approximately 2.7 million net acres in Malaysia, with working interests in six production sharing contracts.
The Salam-Patawali exploration block encompasses 300,000 net acres primarily in the Salam and Benum fields off southern Sarawak, where the company had recently conducted a 3D seismic survey in 2023 with ongoing data processing and evaluation.
He withdrawal comes amid other developments in Sarawak's energy sector. Thailand's PTTEP, which holds a 42.5 per cent share in the Lang Lebah gas project off Sarawak's shore, is reportedly re-engineering the US$6 billion project 'to improve economic viability.'
Sources told CNA that PTTEP has temporarily suspended development activities and postponed final decision-making until next year.
Beyond affecting foreign investment, the Petronas-Sarawak dispute has led to allegations of corporate espionage.
Former Petronas manager Khairul Akmal Jasni recently pleaded not guilty to charges of attempting to leak confidential information about the national oil corporation to Petros. This rare case of alleged corporate spying highlights the increasing stakes in Sarawak's efforts to challenge Petronas's monopoly.
These developments are creating pressure on Prime Minister Datuk Seri Anwar Ibrahim to facilitate a resolution between Sarawak and Petronas, particularly as Malaysia faces economic headwinds from global trade uncertainties.
A senior aide to the PM confirmed that Anwar had been briefed on the dispute but indicated that both parties remain firm in their positions, with a senior Petronas official similarly confirming that negotiations have stalled.
The core of the conflict centers on Sarawak's challenge to Petronas's decades-old monopoly established under the 1974 Petroleum Development Act (PDA), which designates the national corporation as the sole guardian of Malaysia's hydrocarbon reserves.
Sarawak, which accounts for over 60 per cent of Malaysia's petroleum reserves and 90 per cent of its LNG exports, argues that the PDA does not apply to the state and instead advocates for regulation under the colonial-era Oil Mining Ordinance 1958, which would grant the state ownership of resources within 200 nautical miles of its waters.
ConocoPhillips' withdrawal represents a significant economic setback for Sarawak. While the exact investment to date in the Salam-Patawali field remains unclear, industry sources had projected development costs at RM13.7 billion, with production expected to peak in 2028 and operations continuing until 2067.
ConocoPhillips also operates the SK304 block in Sarawak, encompassing 1.1 million net acres, though exploration there remains at the feasibility stage.
The dispute has already spawned legal challenges. Petros filed suit against Petronas in the Kuching High Court in October, contesting a RM7.05 million payment demand related to a 2019 gas sales agreement.
Petros argues the agreement is 'illegal and void' because Petronas failed to obtain necessary licensing under Sarawak's Distribution and Gas Ordinance.
Separately, Shell's Malaysian unit obtained an interim court order in January to maintain gas supplies from the Bintulu facility pending resolution of the Petronas-Petros dispute.
Industry executives note that while existing petroleum projects in Sarawak remain operational, the ongoing conflict could significantly dampen investor confidence in the state's oil and gas sector.
They point out that Petros, formed in 2017, lacks the technological expertise and international experience of Petronas's exploration arm, Carigali.
According to one Malaysian engineering executive with close ties to Petronas, 'Petros and the Sarawak-based E&P companies don't have the capabilities yet and that does not make them attractive partners without Petronas in the mix.'
Sarawak now faces the immediate challenge of finding a replacement contractor for the Salam-Patawali oil field.