Sector Summary

Oil & Gas

Historical overview

Malaysia is a key oil and gas hub, having developed its market significantly since Royal Dutch Shell (Shell) discovered and drilled the country’s first oil well on Canada Hill in Miri, Sarawak in 1910.

Following Malaysian independence from the UK in 1957, the oil and gas industry became subject to the Petroleum Mining Act 1966 (Act 95). This legislation established a concession system for the sector’s upstream activities, in which multinational corporations (MNCs) such as Shell and Exxon were given exclusive rights to explore and produce resources. In return, these companies were obliged to pay royalties and taxes to the government.

As Malaysia experienced economic growth following the New Economic Policy introduced in 1971, the government recognised the advantageous nature of securing State control over oil and gas development. As a result, the Petroleum Development Act 1974 was enacted and Malaysia’s national oil company, Petroliam Nasional Berhad (PETRONAS) was born. The Petroleum Development Act grants PETRONAS exclusive ownership rights to all oil and gas resources in Malaysia and establishes the entity as the main regulatory body for all upstream activities in the sector.

The Malaysian oil and gas industry and PETRONAS itself have since undergone significant expansion, with both having matured into a major global players. As a consequence, the Malaysian government identified oil and gas as a key sector for economic development under the Economic Transformation Programme (ETP) launched in 2010.

Despite the challenging low oil-price environment at present, and among other related industry targets, the ETP aims to encourage annual growth for the sector at a rate of five per cent to 2020.



1910 First oil well in Miri, Sarawak in 1910

1914 First oil refinery

1963 Discovery of Sarawak’s first offshore field, Baram

1966 Petroleum Mining Act 1966

1968 First offshore oil field in Malaysia is brought on-stream

1974 Incorporation of PETRONAS under the Petroleum Development Act

2010 Creation of the Economic Transformation Programme


State of the market

Malaysia is home to approximately 400 oil and gas fields and is the second largest oil producer in Southeast Asia. The country also holds the fourth largest oil reserves in Asia and as recently as 2014 was the world’s second-largest exporter of liquefied natural gas (LNG). This well-established ecosystem represents one of the driving forces behind the development of the Malaysian economy, with oil and gas accounting for approximately 20 per cent of the country’s gross domestic product (GDP).

Although the oil and gas industry has had to contend with a challenging global climate in recent years as a result 2014 downturn in oil prices, the country’s gas production has risen steadily over the last decade. This has been largely driven by a number of prolific discoveries and major projects that began in 2013 and which are helping to ensure that gas production remains on an upward trajectory.

Despite its extensive proven oil and gas reserves, the declining discovery of oil in mature fields, following almost three decades of production, has propelled the industry towards new methods of exploration and production. This decline, in addition to oil consumption catching up with production, has led to the diversification of exploration efforts in an attempt to preserve lucrative export volumes.


How the market operates

Malaysia has three key authorities responsible for the regulation of upstream, midstream and downstream activities in the oil and gas sector, as follows:


In accordance with the Petroleum Development Act 1974, which created PETRONAS, the State entity has sole ownership and exclusive rights, powers, liberties and privileges to explore, exploit, win and obtain petroleum anywhere in Malaysia, whether onshore or offshore. Companies wishing to enter this market segment are required to sign either a Production Sharing Contract (PSC) or Risk Sharing Contract (RSC) with PETRONAS. Multinational corporations that were concessionaires under the regulatory system in force prior to the Petroleum Development Act 1974 automatically became PETRONAS contractors after the enactment of the legislation.

Ministry of International Trade and Industry (MITI) and Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC)

Whereas PETRONAS is responsible for regulating all upstream activities in the oil and gas sector, MITI and the MDTCC are jointly tasked with regulating all midstream and downstream activities. On one hand, MITI oversees the issuance of licences for petroleum refining, the processing of natural gas and the manufacturing of petroleum and petrochemical products. On the other hand, MDTCC grants licences for the marketing and distribution of petroleum- and petrochemical-derived products.

Malaysia Petroleum Resources Corporation (MPRC)

The MPRC was established in 2011 and operates under direct mandate from the Prime Minister’s Department. Its role is to promote, catalyse and transform the oil and gas services sector, in order to bring about the conditions for Malaysia to become the number one oil and gas hub in the Asia-Pacific region. It works to that effect by recommending policies related to the oil and gas services sector and reviewing existing business regulations and tax incentives. Emphasis is placed on consultation with industry stakeholders in order to devise the most suitable policy recommendations.


Investment climate

The growth of the Malaysian oil and gas industry over recent decades has generated a number of investment opportunities in the country. In response, the Malaysian government has been actively taking steps to attract increasing numbers of investors to the sector.

In 2010, it implemented several tax and investment incentives aimed at promoting exploration and development in the country’s deepwater and marginal fields. As a consequence, a number of upstream and downstream oil and natural gas projects have been unveiled and opportunities continue to arise.

A broad range of regulations and incentives, from full and partial tax exemptions, to tax allowances and reduced tax rates have been provided to eligible companies opting to invest in the sector via a number of distinct schemes. These include the granting of a tax-free Pioneer Status, an Investment Tax Allowance (ITA), and a Global Incentives For Trading (GIFT) programme, among others.


Main players and market share

There are over 3,500 oil and gas companies in Malaysia, including national and international oil entities, independents and firms specialising in services and manufacturing. This has created an extensive network of participants in both the services and manufacturing segments to support the needs of the oil and gas value chain, both domestically and regionally.

PETRONAS holds stakes in the majority of oil and gas blocks in Malaysia and is the single largest contributor to Malaysian government revenue by means of taxes and dividends, accounting for as much as one third. Leading national and international players operating in Malaysia include ExxonMobil, Shell, Petrofac, Hess, UMW Oil and Gas, DIALOG and Sapura Energy (formerly SapuraKencana Petroleum).