Sabah East Coast oil and gas opportunity
- SOGCE ADMIN
- Jul 24
- 3 min read
Published on: Wednesday, July 16, 2025
By: David Thien
Kota Kinabalu: Petroleum exploration on Sabah’s East Coast is gaining momentum as Petronas seeks bids from potential Production Sharing Contractors to share the opportunity and the risks.
According to Petronas at the recent Sabah Oil, Gas & Energy Conference & Exhibition 2025, there is another Sabah East Coast prime oil and gas exploration block – named SB505 which is open for bidding under its Malaysia Bid Round (MBR) 2025, as part of its Sabah opportunities.
This SB505 block of 2,750sq km is near to the Mutiara Cluster which was awarded to the Dialog Group Berhad. The water depth of this block varies from 5 metres to 200 metres. The fiscal term is Shallow Water EPT.
The EPT will replace the 1997 Standard Revenue Over Cost (R/C) PSC Terms for future shallow water exploration contracts.
Through this major shift, Petronas aspires to create new positive “experiences” among investors in creating opportunities to maximise value from their investments and dealing with Petronas as a customer focused host authority.
The objective is to provide investors with flexible, competitive and progressive terms.
In designing the EPT, Petronas took into consideration the industry challenges and investors’ feedbacks gathered from various bid round platforms, negotiations and engagements.
Given the changing business landscape in this new decade and the current low oil price scenario, the enhancement is timely to facilitate investors in securing investment funds that meet their overall corporate strategic plans and hurdle rates.
The EPT comprises a single cost bank for oil and gas, a fixed cost recovery ceiling and a more responsive self-adjusted profit-sharing mechanism.
It removes the Supplementary Payment (SP) and Threshold Volume (THV) provisions to provide a more equitable sharing of upside rewards.
With these improvements, EPT offers a more attractive returns to the PSC contractors that commensurate with the level of risk exposure.
Under the EPT, cost recovery and profit sharing are based on a single oil and gas pool instead of separate accounts of oil and gas to simplify production sharing contract (PSC) management.
Cash payment to the Federal and State Governments is 10 per cent of the gross production.
The cost recovery ceiling is fixed at 70 per cent of the gross production to accelerate cost recovery and provide a more stable recovery pool throughout the life of the PSC.
The remaining production after cash payment and cost recovery is treated as profit that is shared between Petronas and the contractor based on the self-adjusted profit-sharing mechanism.
Contractor’s profit share is tied to the profitability index (PI) with a maximum share of 90 per cent for PI up to 1.50 and a minimum share of 30 per cent for PI equal to or more than 2.50.
The interpolated contractor share between PI of 1.50 and PI of 2.50 shall be determined based on the following formula: Contractor Profit Share = 1.8 – 0.6 x PI.
The PI is represented by the cumulative contractor’s entitlement comprising the cost recovery and profit share divided by the cumulative recoverable cost from the inception.
The front loading of cash flow represented by the 70 per cent maximum cost recovery and the 90 per cent contractor profit share for profitability index up to 1.50 would accelerate the after-tax discounted payback period.
In addition, the progressive adjustment provides a better buffer for the contractor to manage risk under unfavourable scenarios such as lower actual price and volume downsides.
The concept behind the EPT is to have the PI as a single value balancing mechanism for determining the profit sharing between Petronas and contractor that allows a more equitable sharing of upside rewards, drives reinvestments within assets and promotes multiple field developments throughout the life of the PSC.
Meanwhile, the bidding for the Permata Cluster, under its Malaysia Bid Round (MBR) 2025, off the West Coast of Sabah has closed.
This cluster comprises oil and gas fields named Axinit, Lokan, Manikam, Realgar and South East Collins, nearby to existing oil and gas fields of Erb West, Kebabangan, Malikai and to the Sipitang Oil & Gas Terminal (SOGT). Fiscal term: Small Field Asset PSC Terms.
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