1

Interview with the President of PETRONAS

The Outlook of Energy: A View to 2040

Shell Technology Shaping Developments in Deepwater

America: The World's Largest Oil Producer in a Decade?

KDN NO. PP 5124/06/2012 (029800) / VOL.11 Malaysian International Chamber of Commerce and Industry (16841-V)

the business Q1/2013

ADVOCATE" The Premier Advocate for the Business Community"

OIL AND GAS INDUSTRY

3

it is like to enhance foreign direct

investment.

Our other features explore the liberalisation of the services sector with

particular

In this issue’s cover story we speak with Tan Sri Shamshul Azhar Abbas, President of PETRONAS, to get his take on the government's new direction, the budget, and Malaysia’s competitiveness in the oil and gas sector within the region. To balance our report, our CEO profile with Mr. J Hunter Farris, Chairman of ExxonMobil, also touches on the same and hopefully gives our readers a clearer picture of how key multinational players view this move and if

emphasis on oil and gas consulting and related services; building on this we also review the current, past and possible future contribution of oil and gas to the national GDP and to our overall development as a nation. A special feature further investigates our national competitiveness within the region and presses on the urgency of the need to improve the quality of services in Malaysia.

Culturally, Malaysians have long been attuned to being price- and cost-centric whereas our neighbours to the north and south, Singapore and Thailand, have long since migrated towards a quality-centric service mindset. As we liberalise the services sector, Malaysia’s success hinges on a need to change this mindset if local service providers are to remain relevant and competitive. Similarly SME’s will need to better understand their positioning in an increasingly globalised

marketplace and compete on the basis of quality.

Other possibilities for Malaysia, I believe may come from new businesses in the informational technology sector with the recent arrival of social media in a business platform mode transforming not only how businesses do their marketing but its changing the entire dynamics of our economies. Never before has so much information been accessible to so many people in so many locations. Malaysia’s young population and strong growth will be an attractive proposition for both conventional and non-conventional businesses setting up base in South East Asia. We hope this will translate to more foreign direct investment and jobs for Malaysians.

I would like to conclude by wishing our Chinese members, friends, and associates a very Happy and Prosperous Chinese New Year. Let us hope and pray together for an economically-vibrant 2013.

Peter VogtPresident MICCI

As we begin the year I would like to wish all our readers, members and stakeholders a very Happy New Year. 2013 holds much promise and holds the hopes of many across the world for an end to the European financial crises and revival of the US economy. In Malaysia we’ve been blessed in many ways and in line with the government’s focus on oil and gas in this year’s budget, this issue focuses on Malaysia’s ambition to become a key regional player and a hub for upstream processing and advanced consulting and advisory services.

President's Message

President's Message

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Submission BookAmaya Saujana for the International Property Awards, in association with Bloomberg

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Press Conference UHY’s rebranding launch press conference saw full out attendance by the media who packed the presentation room and later mingled with the directors and management of UHY

Origin SJA is a public relations and design agency based in Kuala Lumpur, with associate offices in the Middle East and India. We help companies to create and activate their brands by enhancing their visual identities and communications.

Annual Reports Mubadala annual report 2010

Corporate Reporting PackThe National Commercial Bank annual report, sustainability and CSR reports, and a company profile

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Chamber ChatterContents

With the results in and weighted, it became apparent that two principal areas

commanded the highest priority

among MICCI Members.

These were MICCI’s lobbying of and

engagement with Federal

and State

Chamber Chatter

Chambers of Commerce are of course NGOs and not-for-profit organisations so that using limited and scarce resources for the best impact is a prime requirement.

Hence, feedback from Chamber Members is a really valuable tool for us in MICCI in trying to put together programmes of services and benefits that add value throughout our diverse membership.

In a recent survey of MICCI Members we presented a wish list of some 15 different services and benefits and asked our membership to identify those that had the greatest value for them and their organisations.

governments in order to resolve business issues and improve the business environment, and the provision of business briefings, seminars and networking opportunities for Members to enhance their knowledge and meet with other colleagues to do more business!

While MICCI already provides these services, the priority given to these areas by our Members means that in 2013 we will be looking at how we can be even more effective in our advocacy with the authorities on behalf of our membership. In addition, more opportunities to meet with each other and hear speakers on hot topics and key issues will be presented. Keep an eye on our regularly issued ‘eDigest’ and ‘eEvents’ summaries

to find out what is up and coming.

And of course our ‘Berita MICCI’

summarises some,

but not all, of the engagements we have with authorities and the key issues MICCI raises on behalf of its Members.

Staying in touch with Members needs is a priority within the Chamber and we always welcome input as to new areas and issues that we can influence and enhance.

2013 looks to be a tough year by all accounts so keeping up to date and taking advantage of all opportunities to improve the business environment will be necessary for companies to maximise their performance. MICCI is your business champion in this regard and will be at your side working to deliver the support you need to ensure a profitable New Year.

DELIVERING THE GOODS One of the challenges faced by MICCI (and other Chambers of Commerce for that matter) is how to maximise the value that we deliver to our Members. Different businesses value different things and different business sectors demand different services and different approaches.

.PUBLISHER Sandeep Juneja Holdings Sdn Bhd, Suite C-07-09, Plaza Mont’ Kiara, No.2 Jln Kiara, Mont’ Kiara, 50480 Kuala Lumpur, Malaysia.T: +603 6201 9766 F: +603 6201 9767

W: www.sandeepjuneja.com .CREATIVE Sandeep Juneja Agency .EDITORIAL stewart j forbes, sandeep juneja, jude liew, rishab kumar .PRINTER Percetakan Skyline Sdn Bhd (135134-v) No 35 & 37 Jalan 12/32B, TSI Business Industrial Park, Batu 6 1/2 Off Jalan Kepong, 51200 Kuala Lumpur. T: +603 6257 4846 / 1217 F: +603 6257 7525 / 1216 W: www.skylineprintpress.com

It aims to promote, protect and advance free enterprise and in particular the interests of the international investment community. Being the oldest private sector business organisation in Malaysia, it maintains a constant evaluation of the business climate and enjoys an excellent dialogue status with the government .DISCLAIMER All opinions and views expressed in this publication do not necessarily reflect the views of MICCI. The publisher shall not be held liable for any error or inaccuracy. No parts of this publication may be reproduced in any form without the publisher’s permission.

.MICCI is an organisation representing the majority of international corporations currently in Malaysia.

.CONTACT Malaysian International Chamber of Commerce and Industry (MICCI),

C-8-8, Block C, Plaza Mon’t Kiara, 2 Jalan Kiara, Mon’t Kiara, 50480 Kuala Lumpur

T: +603 6201 7708 F: +603 6201 7705

PRESIDENT'S MessagePeter Vogt

CHAMBER ChatterStewart J.Forbes

COVER StoryInterview with the President of PETRONAS

MICCI FeaturesThe Outlook for Energy: A View to 2040

Innovative Methodology Identifying Management Actions from Environmental Impact Assessment across Projects and Industries

Shell Technology Shaping Developments in Deepwater

Oil and Gas Fiscal Incentives

Arresting the Decline in Domestic Oil and Gas Production

Liberalising the Malaysian Oil and Gas Industry: The Way Forward

America: The World's Largest Oil Producer in a Decade?

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CEO ProfileInterview with the Chairman of the ExxonMobil Subsidiaries in Malaysia

MICCI News

Members News

Regional FocusVirtual Pipeline System

Development of Sabah Oil and Gas Sector

East Malaysia's Growing Oil and Gas Presence

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Stewart J. ForbesExecutive DirectorMICCI

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Business Advocate

Interview with the President of PETRONAS

Cover Story

1 How has PETRONAS helpedinthe

developmentoftheOil&GasindustryinMalaysia?

The availability of indigenous hydrocarbon resources provided Malaysia with the natural impetus to develop its oil and gas sector. In this accord, PETRONAS was founded and vested with the ownership and responsibility of adding value to the nation’s petroleum resources. Over the years, PETRONAS has successfully developed into a truly global integrated multinational with operations in the entire oil and gas value chain. In the 38 years of PETRONAS’ stewardship, the domestic oil and gas industry has become a mainstay of the country’s economy, contributing approximately 15 – 20% of Malaysia’s GDP.

In regulating and managing the domestic upstream sector, PETRONAS has effectively developed a Product Sharing Contract (PSC) framework which has successfully attracted large amounts

of investment from various international oil companies including ExxonMobil, Royal Dutch Shell, ConocoPhillips and Total S.A.; apart from PETRONAS' exploration and production subsidiary, PETRONAS Carigali Sdn Bhd. PETRONAS has also undertaken efforts such as developing Enhanced Oil Recovery (EOR) projects, developing new play types and Risk Service Contracts for small and marginal fields in delivering long-term sustainability. In the downstream segment, PETRONAS has played a vital role in developing major integrated petrochemical, refinery and LNG complexes. This has not only attracted foreign investments but also transformed the landscape of towns such as Kertih, Gebeng and Bintulu, bolstering economic development and growth.

The growing oil and gas industry has also created opportunities for local companies to build up capacity and capability throughout the value chain, apart from generating employment opportunities. Over time, Malaysia has witnessed

local companies developing into reputable service providers and specialized suppliers. In fact, over a short span of three decades, the number of local suppliers established in the wake of PETRONAS’ growth to date exceeds 2,500 by some estimates.

As one of the key components of Malaysia’s future growth engine, PETRONAS aims to dutifully continue and undertake its mandate in driving the growth of Malaysia’s oil and gas industry.

2 With the recentcallfor an increase of

royaltypaymentstotheStates,howwouldthisaffectPETRONAS?Are there any other majorchallengesthatPETRONASface?

As mentioned, PETRONAS’ mandate was not only to regulate and manage, but also add

value to the nation’s petroleum resources. Since its formation, PETRONAS has directly contributed more than RM650 billion to the nation in the form of dividends, taxes and royalties. Nonetheless, it is not PETRONAS’ mandate to distribute neither wealth nor subsidies. The disbursement and utilisation of PETRONAS’ contributions lies with the Government, including the purview on deciding and paying oil royalties to relevant states.

From a business and commercial point of view, the increasing of state royalties will have far reaching impact on the economic viability of ongoing and future projects. Compared to the days of Easy Oil, there is a need to venture into technically challenging and capital intensive areas

due to depleting and maturing oil and gas fields. This puts further stress on the escalating costs and narrowing margins to PSCs and PETRONAS, resulting in projects becoming economically unviable.

Cancellation of projects will directly impact the vibrancy and attractiveness of Malaysia’s oil and gas industry. This will indefinitely lead to lower production and therefore profits for not only PETRONAS but both State and Federal government due to lower Petroleum income tax, corporate taxes and dividends.

Ultimately, the nation will have to bear the brunt of the hit due to the forgone of economic spin offs such as infrastructure development, large scale employment activities, GNI, FDI and GDP contributions. In the last 5 years alone, PETRONAS has contributed an average of 41% of total revenue collected by the Government.

The notion that increased royalties will lead to getting more than what is currently enjoyed is disingenuous; the reality of is that when projects are not viable, production stops. In other words everyone will be scrambling for a bigger piece of an increasingly shrinking pie. This is both

counter-productive and value destructive.

3 Under the NationalKey Economic

Area(NKEA)strategiesfortheOilandGasindustrywhat is PETRONAS’ roleindrivingthisforward?

PETRONAS played a leading role in not only formulating but more importantly in driving the implementation of NKEA strategies for the Oil and Gas industry. To this end, PETRONAS has embarked on several ambitious projects with a total CAPEX of RM300 billion in the next 5 years. Key projects and

strategies identified in the NKEA include:

• Stemming domestic production decline through aggressive efforts in explorations, marginal fields, new play types and CO2 management as well as EOR. We are beginning to see the results of our efforts as evident by the major Kuang North Gas, Tukau Timur Deep gas discoveries offshore Sarawak as well as the successful gas production from the Berantai field, Malaysia’s first marginal oil field;

• Ensuring energy security of supply for Malaysia through the developments

of Receiving Gas Terminals (RGT), Floating LNG (FLNG) and the addition of Train 9, another liquefaction module at the PETRONAS LNG Complex;

• Value adding to hydrocarbon molecules via downstream integrated projects such as Refinery and Petrochemical Integrated Development (RAPID) and Sabah Ammonia &Urea Project (SAMUR).

These initiatives have been identified as part of the identified Entry Point Projects which contribute in a large part in GNI, FDI and

Tan Sri Dato’ Shamsul Azhar Abbas is the President and Group Chief Executive of PETRONAS since 10 February 2010. Throughout his career with the company beginning 1975, he has held numerous senior management positions across business divisions, including Logistics and Maritime, Exploration and Production, Oil, as well as Petrochemical.

MICCI speaks with Tan Sri Dato' Shamsul Azhar Abbas, President and Group Chief Executive of PETRONAS

8 9

Business Advocate

GDP contributions as well as other economic spin offs such as large scale employment opportunities, infrastructure development and global competitiveness.

4 What is youroutlook fortheOil

&Gasindustrybothupstreamanddownstream in the longterm?

Today’s energy landscape is characterised by volatility, and as such energy security will command at an increasing premium. The conventional methodology is paving way to new play types and unconventional resources. So in the long term, I expect the focus would be on securing and adding value to these new unconventional fuels. Availability of unconventional resources in stable countries such as Australia and Canada, into which PETRONAS have expanded, have allowed us to develop new supply sources with these more secure characteristics.

Another key observation would be the impending arrival of the ‘golden era of gas’. With the significant abundance of shale gas and the like, natural gas will

eventually overtake oil as the dominant fuel of choice. Coupled with the obvious environmental benefits, the structural changes unfolding currently provides for a pivotal opportunity to secure energy in the long term and sustainable growth for the next phase of our industry.

5 Do you thinkthere ispotential

forMalaysiatoplayakeyregionalroleasanOil&Gashub?WhatdoesMalaysianeedtodotomakethishappen?

Malaysia has a bright future in establishing itself as an oil and gas hub within the region. The Asia Pacific oil and gas industry is set to grow further, driven by upbeat South East Asia offshore activities, tight gas developments and abundant demand.

Moreover unlike Europe and America, the oil and gas markets in Asia Pacific are relatively fragmented with no established hub. This presents an opportunity for Malaysia, as its producing fields are relatively more significant and mature than its neighbours, providing opportunities in Oil Field Services, maintenance and servicing of assets and new field development.

To make this happen, significant investments are required so Malaysia needs to have the right mind set and incentives to attract investors. We must demonstrate clear government policies and foster good public-private partnerships. The Government has demonstrated its foresight on this matter as evident by the incentives and initiatives announced by the Government for the oil and gas sector recently.

6 What is PETRONAS doing

topromotesustainability,bothoperationallyandonitssites?

PETRONAS has always strived to be a responsible corporate citizen in all aspects of our operations. In light of this, PETRONAS has established a Corporate Sustainability Council which overseas seven result areas which are shareholder value, natural resource use, climate change, biodiversity, HSE, product stewardship and societal needs.

Among the initiatives undertaken are in the areas of energy efficiency and greenhouse gas emission reductions in refineries and upstream operations.

Our venture into solar renewable energy through the Suria KLCC Solar Project which is anticipated to produce 10% of the Suria mall energy requirements and major community programmes highlights further the holistic manner in which PETRONAS strives to operate.

In line with international best practices, PETRONAS has also been publishing its Sustainability Report since 2007. This report outlines how we have performed in terms of operating in a sustainable manner and also highlights our various sustainability initiatives. Our commitment to operate in a responsible, safe, ethical and sustainable manner has been given due recognition with awards from notable organizations such as Chemical Industries Council of Malaysia (CICM), National Council for Occupational Safety and Health (NCOSH) and the Royal Society for the Prevention of Accidents (RoSPA).

10 11

The Outlook for Energy: A View to 2040

by David Reed, Senior Energy Advisor for Exxon Mobil Corporation Will Southeast Asia’s dynamic economies, symbolised by Kuala Lumpur’s magnificent PETRONAS Towers, be able to meet the twin challenges of economic growth and energy security? ExxonMobil’s just-released global projections in our 2013 Outlook for Energy show that new technologies are unlocking diverse resources, which will help increase energy supplies to Malaysia and other rapidly growing countries. These energy supplies will, in turn, help underpin the region’s rapidly growing economies.

Looking at the global energy landscape as a whole, ExxonMobil projects that even with gains in energy efficiency, demand will grow 35 percent as world population expands from about 7 billion people today to nearly 9 billion by 2040. While ExxonMobil’s Outlook foresees flat energy demand in developed countries, energy demand among developing nations will rise 65 percent by 2040, reflecting growing trade, economic opportunity, and rising standards of living.

Business Advocate

begin to fall as cars, SUVs and small pickup trucks become more fuel efficient.

Overall, The Outlook portrays a world of escalating energy demand in developing economies like Malaysia. Can rising demand be met by increasing energy supplies? The report’s answer is a resounding “yes.”

Southeast Asia’s energy demand will grow even faster, doubling by 2040. Malaysia, Indonesia, and Thailand alone will account for more than half of Southeast Asia’s energy demand.

For the next few decades, electricity generation will be the largest driver of energy demand, representing more than one-half of the increase in global energy demand by 2040. In Southeast Asia, demand for electricity is expected to triple by 2040.

Growth in the transportation sector will be led by expanding commercial activity, including increased road and marine freight, as well as air traffic. Energy consumed by personal vehicles, however, will gradually peak and then

Features

The Outlook points to technological innovations that are enabling the safe development of once hard-to-produce energy resources like unconventional oil and natural gas.

In the decades ahead, oil and natural gas will continue to supply about 60 percent of world energy demand through the year 2040. Oil will remain the world’s top global fuel in 2040 due to its advantages in meeting transportation needs. Sometime around 2025, natural gas will overtake coal for second place. Nuclear power and renewable energy will also grow, while demand for coal will peak and then begin a gradual decline.

In fact, natural gas is the fastest growing major energy source, with demand expected to increase by 65 percent from 2010 to 2040. Nearly half of this growth will be in the Asia-Pacific region.

It is easy to see why this is happening: Natural gas is affordable, reliable, efficient, and supplies are expanding. Global gas resources are widespread and abundant. In fact, the report estimates that at current levels of demand, the world has more than two centuries of gas supplies. New technology is enabling the production of vast quantities of once hard-to-produce natural gas embedded in shale.

Another development of global significance Southeast Asian Energy Demand Global Energy Mix in 2040

Global LNG Demand Global LNG Supply

is the increasing mobility of natural gas. Supplies of liquefied natural gas called LNG, which can be shipped between countries, are expected to triple from 2010 to 2040, meeting 15 percent of the global gas demand.

Markets in the Asia-Pacific region will be the largest consumers of LNG. Much of the LNG required by Asian-Pacific markets will also be produced within the region. Australia, Indonesia, and Malaysia will continue to be major suppliers, with Papua New Guinea becoming a new LNG supplier. But Asian-Pacific markets will need more. North America will also become a major supplier, and is well positioned to meet Asian-Pacific demand.

These energy resources are vital to the region’s future. The recent dynamism of Malaysia and Southeast Asia has largely been the story of growing energy supplies. The expansion of modern energy since 1900 has enabled unprecedented improvements in living standards, including higher income, better education, and improved health.

With the increase in the global natural gas trade, this cleaner-burning energy source will help drive economic growth and development. At the same time, modern renewables will gain prominence in many countries expanding the diversity of the global energy portfolio.

Though these transformations are already underway, we need to be mindful that it takes decades of patient capital investment and sound policy to make meaningful changes to the world’s energy mix. The world’s energy continues to grow cleaner and more diverse. At ExxonMobil, we are optimistic that with sound energy policies and strong international partnerships these trends will continue, driven by investment, cooperation, and human ingenuity.

To read the full version of ExxonMobil’s newly released The Outlook for Energy: A View to 2040, go to: www.exxonmobil.com/energyoutlook

ExxonMobil, the world's largest publicly traded international oil and gas company, provides energy that helps underpin growing economies and improve living standards around the world. In Malaysia, ExxonMobil produces oil and gas and markets chemical products. Its business support centre provides IT support across the globe.

12 13

As part of the Cumulative Environmental Impact Study to assess the NWSV’s impacts on the NWS province, and in the absence of suitable techniques linking management responses to cumulative impacts, a methodology was developed to assess cumulative impact consequences, both on a qualitative and quantitative level, for existing and future activities.

An Impact Consequence Assessment Matrix was developed, derived from the combination of Environmental Effect (qualitatively or quantitatively assessed from ‘Serious’ to ‘Non-Significant’) and Effect Duration (‘Permanent’ to ‘Transient’). In a manner familiar within risk matrices, the combined position within the Matrix defines the Impact Consequence Level.

Using these defined impact consequences, ALARP (‘as low as reasonably possible’) principles are applied to environmental impact assessment in a structured and systematic manner to guide management

responses, in a similar manner to their traditional use within risk assessment.

The ALARP principle recognises that no industrial activity is entirely free from impact. For any situation, there is a level of impact where it can be shown that the cost of additional preventative, protective or mitigation measures is disproportionate to the impact reduction achieved.

The technique was applied to the assessment of cumulative impacts for both oil & gas and non-O&G industry activities affecting the offshore and nearshore marine, atmospheric and

To secure the future of energy, Total has identified the following challenges for its R&D operations: to more effectively develop and process resources, to drive faster growth in alternative energies, to optimize the efficiency of the industrial base, to design innovative products, to address environmental issues and to fast-track the introduction of advanced technologies across the business base. In all, we intend to invest Ð6.1 billion on R&D from now until 2016. Thanks to recent advances in geological concepts and technology, for example, major oil and gas finds are now possible in places that not so very long ago would have been unexpected or inaccessible.

www.total.com

Developing expertiseBy combining R&D and technological boldness

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Our energy is your energy

by Trevor Winton, Group Manager Energy, SKM The North West Shelf Venture (NWSV) is Australia's largest resource development project. It involves the extraction of petroleum at offshore production platforms, onshore processing and export of liquefied natural gas, and production of natural gas for use in Western Australia, where the North West Shelf (NWS) is located.

terrestrial environments on the NWS. Due to the very high levels of environmental assessment and management embedded into the design and operation of existing projects, individual environmental impact consequences were typically quantified at the lower impact levels which are tolerable without further additional management action. Some individual and a number of cumulative effects from multiple projects/activities resulted in higher level impact consequences requiring management response appropriate to the level and certainty of consequence.

This innovative methodology has the ability to identify appropriate environmental management actions, for currently operated projects and potential future projects, based

Features

Sinclair Knight Merz (SKM) is a leading projects firm, with global capability in strategic consulting, engineering and project delivery. It operates across the Asia Pacific, the Americas, Europe, Middle East and Africa, deploying some 7,500 people from more than 40 offices.

Innovative Methodology Identifying Management Actions from Environmental Impact Assessment across Projects and Industries

on quantification and ranking of individual and cumulative environmental impacts across all environmental settings. It is immediately applicable for environmental managers to help better manage the environment for which they are responsible, as well as a tool to assist with environmental planning of future projects.

For more information please contact Trevor Winton at TWinton@globalskm.com

14 15

Shell Technology Shaping Developments in Deepwater

To keep pace, the world will need to invest heavily in all energy sources, from oil and natural gas to renewables and nuclear power.  While new energy sources, like renewables will grow, it will take significant time before they will meet a major portion of global energy demand. New technologies can take 30 years to contribute just 1% of world energy consumption. Thus it remains that fossil fuels will continue to meet the bulk of global demand for decades. Even by 2050 these energy sources are expected to still meet 60% of demand hence the vital importance deepwater projects hold to help meet the world’s rising energy demand.

We live in what is described as an era of volatile transitions; a zone of uncertainty where energy demand surges with rapid growth and development, energy supply struggles to keep pace, and environmental tensions intensify. By 2050, global demand for energy can triple that of its year 2000 levels, with developing nations entering its most energy-intensive phase of economic growth, further industrialising, urbanising, building infrastructure and increasing the use of transportation. Here in Southeast Asia alone, one of the fastest growing regions, the number of vehicles is expected to triple and reach 92 million by 2030.

Deep water global production capacity has tripled as well since 2000 and recent forecasts estimate deep water production capacity to double over the next decade. In 2006, it was estimated that the undiscovered, yet technically recoverable, resource

below the Gulf of Mexico includes about 44-billion barrels of oil and 232-trillion cubic feet of natural gas. With a continued strong presence in both established and emerging deepwater provinces around the world Shell's largest upstream projects are set to add 700,000 barrels of oil equivalent (BOE) per day to the company's production base. It is the only international oil company to operate in deep water on five continents. The success and timing of these developments remains critical for Shell is to meet its promised production level of 3.7 million BOE per day by 2015 and also to meet the world’s continued hunger for energy.

Three words best summarise the challenges associated with deepwater development: scale, complexity and

FeaturesBusiness Advocate

extremity. Challenges revolve around the installation of equipment, of access to the seabed and of bridging the distance between the seabed and the surface. Other current challenges facing development opportunities also include ultra-deep water, remote locations, viscous oil, low energy drive and lift. These issues however promise to continuously drive the dynamics of this exciting sector of the industry. In over 30

years of operating in deep water, Shell has delivered more than 20 ground-breaking energy projects across the world including deepest drilling and production platform; deepest subsea well, deepest spar and deepest subsea pipeline connection. In March 2011, Shell became the first oil and gas company to be awarded a permit to drill a new exploration well in the Gulf of Mexico following the BP Deepwater Horizon oil spill in April 2010.

Backed up by an overall annual research and development spend of more than 1 billion USD, Shell remains one of the industry’s leading investors in the research and development of innovative technologies that will enable, support and sustain deepwater development. Reducing the environmental impact and cost of drilling in deepwater also remains a constant objective. Amongst Shell projects globally include:

• In 2009, Shell began production from the Parque das Conchas development 110 kilometres off the Brazilian coast in approximately 1,800 metres of water. The development was wholly reliant on subsea processing as there is insufficient energy in the reservoirs to lift the heavy oil. Subsea processing arguably represents one of the oil industry’s last major frontiers with huge potential rewards and considerable technical challenges.

• When Shell took on the Perdido acreage in 1996, the industry was developing fields in water depths of about 1,000 metres maximum and the technology was at full stretch. Now, Perdido in the Gulf of Mexico is moored in 2,450 metres of water and is the world’s deepest combined drilling and production platform. What is particularly significant about the Perdido development is that it points the way for the development of smaller oil and gas reserves in ultra-deepwater all around the world – it is a genuine game changer.

Bonga, Floating Production Storage and Off loading vessel. The Bonga field offshore Nigeria 2005. Bonga field lies 120 kilometres off the coast Nigeria. (Source: Photographic Services, Shell International Ltd.) Exploration & Production Perdido deep water project, Gulf of Mexico, USA. (Source: Photographic Services, Shell International Ltd.)

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Business Advocate

Shell led the industry when it committed to develop a Floating Liquefied Natural Gas (FLNG) facility last year. FLNG allows us to access sources of natural gas - the cleanest burning fossil fuel - that used to be too challenging to produce. Shell’s first FLNG facility will be located above the Prelude gas field, more than 200km off the coast of Western Australia. When built, it will be the world’s largest floating offshore facility, and is the first of what we expect to be multiple Shell FLNG projects. Shell’s ability to deliver this type of pioneering project demonstrates our innovative approach to creating a better energy future. Let’s power our future with gas.

LET’S POWER OUR FUTURE WITH ENERGY WE COULDN’T USE BEFORE.

LET’S GO.

Search: Shell Let’s GoTo explore interactive stories on innovation in energy on your iPad, scan the code or search ‘INSIDE ENERGY’ in the App Store.

iPad and App Store are trademarks of Apple Inc., registered in the U.S. and other countries.

R03985-Shell_2012_FLNG_NEW COPY_A4.indd 1 31/10/2012 16:48

AboutShellRoyal Dutch Shell plc is incorporated in England and Wales, has its headquarters in The Hague and is listed on the London, Amsterdam, and New York stock exchanges. Shell companies have operations in more than 90 countries and territories with businesses including oil and gas exploration and production; production and marketing of liquefied natural gas and gas to liquids; manufacturing, marketing and shipping of oil products and chemicals and renewable energy projects. For further information, visit www.shell.com.

• Shell set a world record in 2004 when the company designed, built and installed, for example, the Na Kika platform in more than 2,300 metres (7,600 feet) off the coast of New Orleans, the USA. The platform develops six fields at the same time linked up via underwater pipes to unlock deposits too costly to tap individually.

Shell developed new chemicals based on fish protein that was injected into the underwater pipes to stop oil from congealing and ice-like gas hydrates forming in the extreme cold.

We have reached the stage where water depth, per se, no longer represents quite the technical barrier it once did. However, increased safety and

NA KIKA - SAILAWAY Offshore exploration and production at Ingleside, Texas USA. (Source: Photographic Services, Shell International Ltd.)

environmental challenges have come along with more complex reservoirs and fluid streams, more remote and smaller fields, and constant economic pressure. In combination, this makes life as challenging as ever for deepwater developers. Advances in a wide range of technologies will be necessary in the future to maintain the pace of progress. There never has been a single silver-

bullet solution as far as deepwater development is concerned. For this reason, Shell remains committed to world-class research and development programmes in a variety of key areas.

With HSE standards rank among the most robust in the world Shell maintains a highly developed asset integrity management system covering all aspects of deepwater drilling and production operations. It is this innovative technology; world class project management skills and the stable core of outstanding people that are the platform of success that provides Shell that niche. These advantages certainly remain crucial to unlocking the world’s deepwater resources.

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Oil and Gas Fiscal Incentives

In November 2010, the Government announced the following fiscal incentives to stimulate activities that contribute towards arresting the decline in domestic oil and gas production:

To encourage and support the development of activities related to the refining, storage and trading of petroleum products, it is proposed under Budget 2013 that: • for investment in

activities related to the refining of petroleum products, Investment Tax Allowance of 100% be given on the qualifying capital expenditure incurred within a period of 10 years.

• for Liquefied Natural Gas trading companies, the Global Incentive For Trading (GIFT) programme to be enhanced with a 100% income tax exemption on statutory income for the first 3 years of operations. This is in addition to the current tax incentives under the GIFT programme, which includes a flat corporate income tax rate of 3% of chargeable income.

• The GIFT programme, which was launched in 2011, is currently available to qualifying petroleum and petroleum-related trading companies. It is proposed that commodity trading approved under the GIFT programme be extended to include other commodities such as refined raw materials, base materials and chemicals.

 

Features

• An investment tax allowance of up to 100% of capital expenditure to be deducted against statutory income to encourage the development of capital intensive projects in the areas of Enhanced Oil Recovery, high CO2 gas fields, high pressure high temperature fields, deepwater and infrastructure projects for petroleum operations.

• A reduced tax rate from 38% to 25% for marginal oil field development to improve commerciality of the developments.

• An accelerated Capital Allowance to

The introduction of the incentives will not only see further appetite for investment in highly risky and costly upstream projects, but will also see spin offs in the area of employment creation and also realizing the Government’s Economic Transformation Programme ambition.

It is also encouraging to see proposals under Budget 2013 for the Downstream of the Oil and Gas business.

5 years from 10 years for marginal oil field development where full utilisation of capital cost deducted could improve project viability.

• A qualifying exploration expenditure transfer between non-contiguous petroleum agreement with the same partnership or sole proprietor to enhance contractors' risk taking attitude, which could encourage higher level of exploration activity.

• A waiver of export duty on oil produced and exported from marginal oil field development to improve project commerciality.

The introduction of these incentives are welcomed as it further provides an impetus to investing into Malaysia’s Oil and Gas landscape. The industry now looks forward to formalizing these incentives and applying them into project evaluation and ultimately project sanction. The challenge has been that the detailed implementation guidelines for these incentives are not available at the time of writing this article, resulting in complications to commit to project sanction taking into account the benefit of the incentives. The industry eagerly awaits the long awaited guidelines for implementation. In closing, the incentives to spur further growth and investment in Malaysia’s Oil and Gas landscape are a steer in the right direction. Some further sweeteners to promote further commercial advantage is to consider abolishing export duty imposed on crude oil exported altogether and the relaxation of upstream tax consolidation rules which will further encourage investment into exploration and development activity, for example all Production Sharing Contracts owned by the same entity will be allowed to consolidate a return regardless of the contiguous state of the blocks.

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Arresting the Decline in Domestic Oil and Gas Production

by Faizah Jamaludin, Partner and Head of Oil & Gas Practice Group, SKRINE Malaysia’s oil and gas industry is one of the 12 National Key Economic Areas (NKEAs) under the 10th Malaysia Plan. The industry has become a major contributor to Malaysia’s economy since oil was first commercially produced in Miri, Sarawak in 1910. In 2009, the oil and gas industry contributed RM68.3 billion or 13.1% of the country’s GDP. Its contribution is expected to increase by approximately 20% by 2012 to reach RM81.9 billion, or 11.1% of GDP. Under the Economic Transformation Plan (ETP), the government is targeting a 5% annual growth for the oil, gas and energy sector from 2010 to 2020.

At the helm of the industry is Malaysia’s national oil company, Petroliam Nasional Berhad (PETRONAS). In the early years of exploration and production, oil companies were granted through concession agreements the exclusive right over all crude oil produced in return for payment of rent and royalty. However, after the 1973 global oil crisis, the federal government decided to take over the ownership of Malaysia’s oil and gas resources. It incorporated PETRONAS and enacted the Petroleum Development Act 1974, which vested in PETRONAS the entire ownership in and the exclusive rights to explore and produce oil and gas onshore and offshore Malaysia.

The rights to explore and produce oil and gas in Malaysia evolved from concession agreements to production sharing contracts (PSC) between PETRONAS and the oil companies. In the early years, all the exploration and production activities were in shallow waters. They progressed to deepwater and ultra-deep water in the 1990s and to high pressure high temperature (HPHT) exploration activities in recent years.

Features

Malaysia’s average domestic production of crude oil and condensates has been declining due to maturity of domestic fields and poor reservoir performance. In 2010 production declined to 657,200 barrels of oil equivalent (boe) per day from 678,800 boe per day in 2009. In its 2011 Annual Report, PETRONAS reported that it has developed 3 key strategies to counter the decline in domestic oil production, which include intensifying its

focus on maximising oil and gas recoveries through diligent reservoir management and enhanced oil recoveries (EORs) for mature fields, to monetise marginal fields and stranded gas and to engage in aggressive exploration activities in Malaysia’s mature basins. PETRONAS also announced that it will be spending RM300 billion in the next 5 years on oil and gas capital expenditure, where 60% to 70% of the capital

expenditure will be spent in Malaysia�.

PETRONAS, through the ETP, is also seeking for new tax incentives to be incorporated into the Petroleum Income Tax Act 1967 (PITA) to stimulate domestic exploration, as well as promote the development of technically challenging and new oil and gas resources. The proposed incentives include the reduction of the tax rate from

Business Advocate

38% to 25% for marginal oil field development, waiver of export duty on oil produced and exported from marginal oil field development, the acceleration of capital allowance from 5 years to 10 years for marginal oil field development, and Qualifying Exploration Expenditure (QEE) transfer between non-contiguous petroleum agreement with the same partnership or sole proprietor to enhance contractors’ risk taking attitude, which could encourage higher level of exploration activity².

In 2011, in pursuit of these strategies, PETRONAS entered into 11 PSCs with

oil companies in Malaysia (as compared with 4 in 2010) and introduced for the first time, risk service agreements (RSCs) for the development and production of marginal fields. ExxonMobil in March 2008 signed an agreement with PETRONAS Carigali to implement significant EOR activities and major investments to continue the conventional oil development in Malaysia. ExxonMobil and PETRONAS Carigali then entered into a PSC with PETRONAS committing to spend a minimum of US$2.1 billion for the development of 7 oil fields offshore Malaysia, which includes major EOR

activities. In November 2011, Shell entered into a heads of agreement with PETRONAS for two 30-year PSCs for EOR projects offshore Sabah and Sarawak, where Shell and PETRONAS Carigali will spend US$12 billion to extend the life and increase the recovery factor of the Baram Delta and 4 fields in the North Sabah development area. Hess and PETRONAS signed partnership agreements in June 2012 to develop the North Malay Basin valued at US$5.2 billion to commercialise 1.7 trillion standard cubic feet of gas and in November 2012 Halliburton together

with Dialog of Malaysia entered into an oilfield services contract valued at US$1.2 billion with PETRONAS Carigali to redevelop the Bayan field.

It is hoped that these increased activities and the recent major gas discoveries at the Kuang North and Tukau Timur fields, offshore Sarawak and Tembakau-1 field, offshore Pahang will help to arrest Malaysia’s declining reserves and maintain it as an oil and gas exporting nation for many years to come.

� StarBizWeek, 8 December 2012

² PITA was amended in 2011 to allow for QEE transfer between non-contiguous petroleum agreement with the same partnership or sole proprietor.

Liberalising the Malaysian Oil and Gas Industry: The Way Forward

In the search for answers, 'liberalisation' has been used in both official and public discourse to offer a suggestion as to what path Malaysia will have to take in order to meet this aim, with the language and attitude becoming more dire as the national supply of O&G decreases. As it stands, oil and (especially)

The Malaysian engine, so to speak, has quite literally been fueled by fuel for the past 100 years. The past century has witnessed the oil and gas (O&G) industry become an ever-increasingly critical catalyst for Malaysia's growth and the coming decades will require fundamental shifts in government policy to sustain and build on this growth. To contextualise this, let us bear in mind that "the combined oil, gas and energy sectors represented RM127 billion or 19% of GDP in 2009", according to the Economic Transformation Programme.

into alternative sources of energy generation. To further develop the local O&G industry, the government has identified 12 Entry Point Projects (EPPs) and two business opportunities which together will create RM131.4 billion for the Gross National Income and create an additional 52,300--mostly highly-skilled--jobs. However, some RM113.3 billion will be required over the next eight years for these EPPs to come into fruition. Whilst the

natural gas are the prime sources of our energy production, insofar that the government has made it a point of policy to look

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Business Advocate

EPPs are centered around the growth of the O&G industry, the business opportunities open up pathways for improving the efficiency of processes and realising economic growth through meeting demand increases. In many instances, the viability of this undertaking is directly related to the opening up of the Malaysian O&G industry to foreign input in terms of capital and skills. In some cases that inevitability already presents itself in the here and now. For instance, technology and expertise imports are very much needed to fill in the relevant expertise gaps of the offshore services (OFSE) sector, where Malaysian firms are found lacking in engineering and installation know-how. For example, Sabah, despite its reputation as an oil-rich state, is having problems meeting its demand growth due in part to developmental speed bumps from local engineers in the area of fees, expertise and service. And let us not wait a moment more. There is a real chance at being a regional leader given that most of Malaysia's offshore producing fields are amongst the most mature in the region, which offers it a significant advantage to be a focal point of maintenance, exploration and growth. As it stands, Malaysia holds the position as the world's

third-largest liquified natural gas (LNG) exporter and it is in a prime position to serve the future energy needs of the region especially that of China and India, two of the world's biggest nations. A potential impediment to realising this aim would be pricing. Currently, gas prices are subsidised and these prices distort the market by creating artificial demand which cannot be sustained even into the near future. Time is of the essence as a very important transition is about to occur. The key to the issue at hand is to liberalise the market whilst Malaysia is still a net producer, an advantage that will be lost by 2016 at current

consumption levels--a mere 3 years away. Realising this, the government has moved to reduce subsidies for the energy sector in order to achieve a market-driven price structure by 2015. The forthcoming transition towards this price structure will also be a paradigm shift as domestic consumers will, for the first time in recent memory, pay for O&G derivatives whose prices are subject to the conditions of the market. What are some of these conditions? Currently, the natural gas price-setting mechanism is fragmented, regional, and directly related to the cost of its transportation method, which is most exclusively through

pipelines. But let the buyer beware--the endeavour to standardise prices and to regulate the market has thus been the chief aim of the recently-formed Gas Exporting Countries Forum (GECF), whose diktat will likely have an impact on the domestic O&G and energy industry. Opening up Malaysian O&G firms to joint ventures with foreign companies will not only improve the capabilities, efficiency and output of the domestic O&G market but spur it to also capture a larger portion of the regional and international market share. That is the way forward, plunging into the deep end, where Malaysian O&G firms will be put to the ultimate test: sink or swim.

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The first key to obtaining this future, says Dr. Hayward, is to unlock more federal lands for exploration. Currently, only 8% of federal lands are open—6% onshore and 2% offshore—which is why the projected reserves are so low. Opening up more lands for exploration and coupling it future technology, which will better usage efficiency, can yield up to 580 years of reserves for natural gas and 530 years for

Taken as a whole, America is shaping up to be an energy superpower. "Do you know which country is the world's largest holder of natural gas, oil and coal resources combined?" asks Dr. Steven Hayward, who sits on the Institute for Energy Research (IER) board. "It's not who you might think. The answer is: the United States. But for 25 years, U.S. energy policies have restricted access to these resources. That makes us uncompetitive with the rest of the world, it increases prices for consumers, and it prevents job creation," he says. According to the IER, "the amount of oil that is technically recoverable in the United States is more than 1.4 trillion barrels, with the

largest deposits located offshore, in portions of Alaska, and in shale in the Rocky Mountain West. When combined with resources from Canada and Mexico, total recoverable oil in North America exceeds 1.7 trillion barrels." To put it into context, that amount of oil exceeds all the oil that has ever been used, worldwide, since oil was first drilled over 150 years ago in Titusville, Pennsylvania.

oil. Secondly, America will need to tap into its shale resources, of which it has the world's largest supply. Where shale resources have been developed, such as the Bakken Shale in North Dakota and the Marcellus Shale in Pennsylvania, unemployment has dropped and the state economy is aggressively stimulated. The third point is to stop excessive regulation. According to Dr. Hayward, many energy policies are advanced neither with Congressional approval nor public knowledge, as in the case of the Gulf of Mexico, a region which until recently accounted for 30% of American oil production. After the BP Deepwater Horizon debacle, the US government issued a moratorium on deepwater permits for

6 months and issued 50% fewer permits thereafter. To exacerbate the situation, a permit takes almost four months to process and this hostile environment has bankrupted some firms and strongly persuaded others to leave the area entirely. Combining these three endeavours will create a potent economic environment that will see over one million jobs created in a time when America desperately needs it.

How does this fare for the Organisation of the Petroleum Exporting Countries, the world's foremost oil cartel? It has its finger on the price of oil and therefore plays a critical role in geopolitics and international relations. Will it play a diminished role in American strategy? Well, the means of production in America—fracking and pyrolysis—are expensive techniques and require oil to remain over US$70 a barrel to be a viable option. Furthermore, America will still need to import some oil resources until it reaches a hypothetical scenario of self-sufficiency two decades from now. Therefore, access to external sources of oil on the world market is still required, although diminished.

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America: The World's Largest Oil Producer in a Decade?

Early in 2012, there was a raft of news reports enthusiastically ushering in a bright new era of energy for America. The story is this: new exploration technologies, a shale oil boom and better efficiency in oil usage will propel the United States to top place in oil production by 2020 and may even allow it to be energy self-sufficient and a net exporter of oil by the early 2030s. This will, in turn, possibly remove the United States' energy dependency on the Middle East in its entirety. The vacuum left by the Americans will be filled by the Asian economies who will then find themselves having to worry over the region's safety and security. After all, at least 60% of the additional demand during the early 2030s will come from China, India and the Middle East.

As domestic production edges towards that outcome, firms have even taken to relocating their production facilities stateside. A Bloomberg report from early 2012 tells of how Methanex Corp., the world's biggest methanol producer, has shifted their production facility from Chile to Louisiana. Signals like these are very encouraging to American stakeholders; not only will more jobs be created, energy prices will drop for domestic consumers and—last but not least—America will be able to reforge its strategic relations on its own terms. Furthermore, this has also attracted the interest of foreign firms to the North American region, which has become a seller's market. The increasing attractiveness of the region has given North American authorities the pleasure of being picky, such as when PETRONAS' attempted $6 billion acquisition of Progress Energy, a Canadian company and concession holder, was initially shot down by the Canadian government. PETRONAS did, however, manage to acquire join-venture partnerships with Progress and successfully acquired the company when it retried its bid..

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Business Advocate CEO Profile

1 Canyoubriefly describe the history behind

ExxonMobil’sventureintoMalaysia?

At ExxonMobil, we often say that success in the energy industry requires long-term thinking, since projects and plans are measured in decades, not years. Few relationships in our industry have lasted as long as our involvement here in Malaysia.

ExxonMobil’s heritage companies and subsidiaries first arrived here in 1893 selling kerosene for use in lighting. For all but ten years of our corporation’s history we have had a presence in Malaysia.

Since our establishment here, we have been at the heart of Malaysia’s energy industry and in 2013, we will mark our 120 years in Malaysia, which is a significant milestone.

Historically and today, ExxonMobil is a major oil producer and natural gas

Interview with the Chairman of the ExxonMobil Subsidiaries in Malaysia

supplier in Peninsular Malaysia. We produce about a fifth of the nation’s crude oil and condensate and supply about half of Peninsular Malaysia’s natural gas needs which is mainly used for power generation. This is a huge responsibility which we take seriously and it is what drives our more than 1,800 employees, 95% of whom are Malaysians.

2 Is the recent disposalof yourretail

operationstoPetronduetoanydeclineinconfidenceinMalaysia?WhatareaswillExxonMobilfocusonnow?

Exxon Mobil Corporation, the ultimate parent company of the Malaysian ExxonMobil subsidiaries, continuously evaluates its global portfolio of businesses and from time to time it may

determine that an asset may hold more value for a new owner than for the Corporation. That is the nature of our business, and that was the case with the share sale of our downstream businesses in Malaysia.Notwithstanding the divestment of our downstream businesses, our upstream operations in Malaysia

still remain an important part of our global portfolio. The signing of a new Production Sharing Contract in 2008, between ExxonMobil, PETRONAS and PETRONAS Carigali Sdn Bhd., represents a key landmark in our history. It marks the start of the next 25 year phase of our operations in Malaysia until 2033. This landmark

agreement will see ExxonMobil working with our partners to help ensure the efficient development and sustainable supply of hydrocarbon resources in order to meet the growing energy demands of the nation. Beyond our upstream operations, we also have a Business Support Centre that hosts ExxonMobil’s IT infrastructure and provides IT support across the globe. In 2011, we took another step in promoting Malaysia as a key business support centre by establishing the ExxonMobil Research and Engineering Global Support office in Kuala Lumpur. This group provides technical, engineering and application support for ExxonMobil’s global downstream businesses. Additionally, we have a strong market presence in the chemical industry. We supply a wide range of specialty products such as fluids, plasticisers and specialty chemicals. These are used to manufacture thousands of products that Malaysians use every day such as paint, tires and various types of consumer packaged goods.

3 How do youperceive Malaysia,

both from an investmentpointofviewandspecificallyintheOilandGassector?

We continue to see Malaysia as a great place to do business. The country is pro-business and has a stable economic and political climate, high quality infrastructure, connectivity and talented workforce with proficiency in English.

The government also has a track record of prudent and pragmatic policies aimed at promoting an open, competitive and robust economy and continues to strive to make Malaysia attractive to investors in an ever-changing global environment. The Economic Transformation Programme is an example of the vision of the nation’s leadership to ensure Malaysia’s investment climate remains attractive. Specific to the oil and gas sector, Malaysia’s challenge is how to meet and manage the substantial energy requirements that come with continuing economic growth. The

outlook continues to be promising with new discoveries including in deepwater offshore. There are also a few promising marginal fields for development over the next few years due to the cost efficient incentives provided by PETRONAS for small field development. For us at ExxonMobil, we are entering a stage in which we are trying to get more out of what exists in the maturing producing fields we operate in the South China Sea, off the east coast of Peninsular Malaysia. That is why we are investing in enhanced oil recovery projects in certain mature key fields to maximise recovery and bring new life to these fields.

In addition to that, to meet growing gas demand for Malaysia’s power and industrial needs, we are currently developing the Telok and Damar gas projects that are scheduled for start-up in 1Q2013 and 4Q2013 respectively.

We will be investing in excess of RM10 billion for these projects which were announced by the Prime Minister in 2011 under the Economic Transformation Programme.

4 What needs to change in Malaysiafor

ustoberegionallyandinternationallycompetitive?

A key challenge facing Malaysia is human capital development and competition from growing markets in the region. Given that the baby boomers will be eligible for retirement within the next 5 to 10 years or so, the demand for professionals in science, technology and engineering is rapidly expanding. Yet fewer and fewer students choose these important career tracks. The energy industry’s workforce must be replenished and trained. The government is addressing the issue through various initiatives including providing incentives to encourage students to take up science. We are doing our part by developing all our employees to their full potential, partnering with PETRONAS and industry to build local capabilities and supporting community programmes to promote interests in math and science and English proficiency to help enhance the development and growth of Malaysia’s human capital.

Mr. J Hunter Farris, who hails from Texas, U.S.A., graduated from Texas A&M University with a Bachelor of Science in Mechanical Engineering. He was appointed Chairman of the ExxonMobil Subsidiaries in Malaysia in February 2012. Mr. Farris started his career with ExxonMobil in 1991 as a Facility/Project Engineer with ExxonMobil Production Company in Corpus Christi, Texas.

The advocate speaks with Mr. J. Hunter Farris about ExxonMobil's strategy for Malaysia following the disposal of its retail business to Petron, in an exclusive on ExxonMobil's Malaysian perspective.

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5 What is your outlookfor theoil&gas

industryinthelong-term?

Based on ExxonMobil’s Energy Outlook, we estimate energy demand to be about 30 per cent higher in 2040 versus 2010 as population grows and global GDP doubles. In Malaysia, we project energy demand to be about 50 per cent higher in 2040 compared with 2010 driven by economic growth and propelled by initiatives under the government’s Economic Transformation Programme. However, global energy demand growth will slow down, as economies mature, efficiency gains accelerate and population growth moderates. As we are seeing here in Malaysia, growing electricity demand will remain the biggest single driver of energy needs, with electricity generation accounting for 40 per cent of global energy use by 2040.

Oil will continue to remain the most widely used fuel worldwide, while natural gas will overtake coal for the number two spot. Demand for natural gas will rise by more than 60 per cent through 2040. For both oil and natural gas, an

increasing share of global supply will come from “unconventional” sources such as those produced from shale formation.

6 Doyouthink Malaysiahas thepotential

andcapabilityofbecomingaregionalOilandGashub?

Unquestionably, as it is a natural evolution to the overall development of the oil and gas business here in Malaysia. Given the incentives offered by the government coupled with its strategic location, talent and infrastructure available in the country, we have no doubt that the hub will allow energy companies to extend their reach to the region.

7 What is ExxonMobil doing

locallytopromotesustainability,bothoperationallyandatproductionsites?

A key goal of our corporate citizenship strategy is to address the challenge of sustainability – balancing economic growth, social development and environmental protection, so that future generations are not compromised by

actions taken today. Our goal is to Protect Tomorrow, Today. Our operating policy emphasises individual responsibility; fosters appropriate practices and training and requires our facilities to be designed, operated and managed with the goal of preventing incidents, controlling emissions and wastes to below harmful levels.

For example, our latest generation of minimum-facility production platforms is powered by a combination of solar panels and thermo-electric generators that result in significant energy conservation and reduced emissions. Beyond our facilities, our employees are also taking action by initiating the ExxonMobil Energy/Environment Saving Initiative (EESI). Run by a group of employees, the EESI strives to increase energy and environmental conservation awareness amongst employees, and to make our offices in Menara ExxonMobil more environmentally friendly. We also try to do our bit in the community by supporting programmes that help promote environmental protection, conservation and rehabilitation efforts as well as create better

understanding among the public about the energy industry, especially on energy efficiency and renewable energy.

One of the longest standing programmes is the Nature Education Camp for secondary school children. We have collaborated with the Faculty of Forestry of Universiti Putra Malaysia since 1977 to organise and sponsor this annual programme which allows secondary students to experience, learn and experiment with nature and thereby create a better understanding and appreciation of the environment and the forest. It is gratifying to know that our efforts have been recognised. Over the years, we have won awards such as the Prime Minister’s Hibiscus Award for Exceptional Achievement as well as Notable Achievement and more recently, in October 2012, the PETRONAS Exploration and Production Health, Safety and Environment Award. These awards are indeed a testament to our commitment to maintaining high standards of safety, health and environmental care.

MICCI NEWS

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Breakfast Talk on SME Masterplan & 30% Women Participation on Corporate Board of PLCs by 2016

MICCI JASCO Meets Malacca Police

The Chamber organised the abovementioned breakfast talk on 29 November 2012 at the Bankers Club, KL, which attracted close to 100 participants from various industries.

MICCI JASCO (Joint Action Security Council), led by Mr. Thomas Eapen, was greeted by the Deputy Chief Police Officer of Malacca, Datuk Shah Gzali Khan Shahadad, during a courtesy call to the Malacca

MICCI News

The event was sponsored by Telekom Malaysia and RHB Bank and supported by SME Corporation Malaysia, NAM Institute for the Empowerment of Women Malaysia (NIEW), Federation of Public Listed Companies Bhd (FPLC) and Malaysia SME.

Dato' Hafsah Hashim, CEO of SME Corporation Malaysia

and Datuk (Dr) Rafiah Salim, Director of NIEW, were the invited speakers for the talk.

Small and Medium Enterprises (SMEs), which represent 99.2% of the business community, play a significant role in fostering our nation's growth, employment and income. The SME Masterplan is inclusive, covering all SMEs

across sectors, strategic areas, ethnic groups and geographical locations, namely, East and West Malaysia.

Developing women's talent is equally important in enhancing our talent pool and the challenge for Malaysia

is to develop 1,000 qualified women to be company directors within the next five years. However, encouragement and mindset changed of existing board members and government regulations are vital in seeing this through.

Police Headquarters.

The aim of the visit was to propose the

establishment of a task-force to deal with issues affecting MICCI Members in the State with similar initiatives already established in Penang, Perak, Selangor, Negeri Sembilan and Johor.

Datuk Gzali immediately agreed to the formation of the task-force and further updated the MICCI delegation on the measures taken by the Malacca Police in eradicating crime in the State. He also welcomed any suggestions the Chamber had for future collaboration.

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Business Advocate

industrial security, ports and airports security control and combating lorry hijacks and warehouse break-ins.

The keynote speaker was Tan Sri Dato' Sri Khalid Abu Bakar, Deputy Inspector General of Police while other speakers were from

Business Security Conference

Taskforce to Address Security in Selangor

Crime has financial consequences for businesses and affects the quality of life of both clients and employees, often leading to relocation or businesses closing down. Realising this, the MICCI Joint-ActionSecurity Committee (JASCO) organised a one-day “Business Security Conference” with the theme 'Improving Business Through Crime Reduction'which drew a turnout of more than 100 participants. The two major sponsors for the conference were Tesco Stores (Malaysia) Sdn Bhd and PLUS.

The 2nd meeting between the MICCI Joint-Action Security Committee and the Selangor police for this year took place on 18 Sept 2012. The meeting was hosted by Carlsberg Brewery Malaysia Berhad at their factory in Shah Alam and chaired by SAC Mohd Adnan Bin Abdullah, Officer In-charge of Criminal Investigation.

The conference was aimed at addressing the future of security, covering both high-level and detailed security issues across various public and private sectors. Among the issues highlighted were combating contraband and smuggling, current standards and quality of

Among the concerns highlighted by MICCI Members were the frequent break-ins of cars at their workplace

the Royal Malaysian Custom, Security Services Association Malaysia, Malaysia Airport Berhad, Northport Bhd, Westport Malaysia Sdn Bhd, TAPA-Asia, TASCO, PLUS and Freight Watch International.

"We all have a role to play in this (improving security). I encourage Malaysians – from individuals to communities – to support our efforts and take ownership towards building a safer neighbourhood, community and ultimately, a safer

country", said the Minister of MITI, Y.B. Dato' Sri Mustapa Mohamed in his speech which was read by the Deputy Minister of MITI, Y.B. Dato' Jacob Dungau Sagan.

The main sponsors of the event were Tesco Stores (M) Sdn Bhd and PLUS Malaysia Berhad. Other sponsors included Metrod (Malaysia) Sdn Bhd, Murphy Sarawak Oil Company Ltd, Nestle Malaysia Berhad, Northport (Malaysia) Berhad, Schenker Logistics (Malaysia) Sdn Bhd, Sime Darby Plantation Sdn Bhd and Westports Malaysia Sdn Bhd.

area, the constant hijacks of tobacco vehicles and the public’s perception of the police.

In response to these issues, a mobile police van was stationed at the area of concern within 24 hours while certain measures were advised to be adopted by personnel from the tobacco industry. The Selangor police welcomed MICCI and its members involvement and cooperation towards combating crime in the State.

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Kuala Lumpur

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Annual MICCI-DOE Dialogue

Competition Law Enhancing Judicial Awareness

The annual MICCI-DOE (Department of Environment) dialogue was held in October 2012 at the Palm Garden Hotel, IOI Resort Putrajaya. The event was chaired by Dr KM Loi, Vice Chairman of the Chamber’s Environment and Natural Resources Council while DOE was headed by its Director General, Pn. Halimah Bt Hasan.

Since the Competition Act 2010 came into force, there has been much debate about its effect on businesses. This understanding is crucial as companies face challenging compliance demands. It is also vital that judges, who may be required to handle complaints and appeals under the Act, are also familiar with the concepts and results that arise out of the Competition Act. Judges may be expert legal practitioners but they must combine legal expertise with business comprehension to fully understand the

practical impacts of the legislation.

With this in mind, MICCI organised a training session for some 200 Malaysian judges in October to familiarise them with the practical issues of competition policy. Featured speakers included Prof. Dr. Robert Ian McEwin, former chief economist of the Competition Commission

of Singapore and Mr. Jose Rivas who heads the International European Union and Competition Group of the law firm of Bird & Bird.

Prior to the judges' familiarisation, a half-day seminar was held for MICCI Members to provide them with the latest ideas on competition law application internationally.

The dialogue saw a number of issues raised including the amendments of the Environmental Quality (Clean Air) Regulations 20XX, the Schedule Wastes Regulation, Marine Water Quality and Standard, Environment Impact

Assessment (EIA), role of the Environment Institute of Malaysia EiMAS, personnel training courses, climate change and environmental fund. DOE further addressed certain public concerns particularly on Lynas, the RAPID Project in

Pengerang and the role of DOE in relation to buffer zone requirements.

On the matter of Schedule Waste, DOE has published the ‘Guidelines For The Classification Of Used

Electrical And Electronic Equipment In Malaysia’ to assist in identifying and classifying used electrical and electronic equipments. The guidelines are available at www.doe.gov.my.

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Kuala Lumpur

Procurement IntegrityMICCI conducted a one-day training in Procurement Integrity on 6 November 2012 at its facility. The objective of the programme was to illustrate various means of procurement techniques and tools to help lower operating costs of organisations. There was a good mix of participants from both multinationals and SMEs; among them were Carrier International, Zuellig Pharma, KB Teknik, Sabah Air Aviation, IGC and Ferrucci.

Mark Chay, MICCI's Senior Manager for Business Development, took the first session and gave an overview on leverage of procurement, smart purchasing techniques including reverse auction, potential

breaches of integrity in procurement process and tendering, corporate whistleblower policy and system.

The Chairman of Thumbprints Utd. Sdn Bhd, Mr. Tam Wah

Fiong shared his wealth of experience in dealing with fraud and his company's success in driving down costs by upholding integrity in the procurement process.

Mr. S.K. Ng, the Procurement Manager of Monsanto Malaysia, show cased the Monsanto way of strategic sourcing with illustration on procurement risks and dwelled in-depth on Monsanto's business conduct programme.

The last speaker of the day was Mr. Leonard Yeoh of Tay & Partners. He covered the legal implications and legislative landscape with specific reference to the Whistleblower Protection Act 2012.

There was much class participation and interaction in the course of the day and based on participants' course evaluation, the training achieved 76% in meeting the expectations of participants.

Kuala Lumpur

PMHA 2012/2013 Road Tours

The Prime Minister's Hibiscus Award (PMHA) 2012/2013 road tour briefings were held in Kuala Lumpur, Penang, Perak, Pahang, Johor, Sabah and Sarawak with the aim to create awareness on PMHA, its benefits and how industries can develop sustainability in environment management. A separate briefing was also conducted for the Small Medium Enterprises (SMEs). The overall attendance at the briefings was close to 150 participants.

The speakers for thebriefings comprisedof technical committee members, in particular, Dr KM Loi, Dr Norlinda Mohd Zawawi, Dr Foo Say Moo, Ms Phang Oy Cheng and Mr Chan Tein Kee.

Kuala Lumpur

MICCI News

34 35

Business Advocate

Conference on the Services SectorThe MICCI and CSIM (Coalition of Service Industries Malaysia) recently collaborated with MIDA and MITI in organising the Conference on the Services Sector themed “Integration Towards Global Competitiveness”. The event drew close to 400 participants from various service industries.

The conference aimed to deliberate the dynamics of the services sector, better understand current and new opportunities and the role of the services sector in stimulating integration in a global context. Moreover, it enabled participants to network and explore business opportunities.

In the global economy, Asia is leading the recovery process today, and is expected to remain as the world’s fastest growing region over this decade. The services sector will be the main driver of future growth, projecting the sector’s share in GDP at 63.3% by 2020. However, most developed nations have

an average of 70-80% contribution of service to GDP, hence new sources of growth will have to be found.

The integration of ASEAN as a single market will enhance the region’s growth and dynamism. As one of the most developed economies in the region, Malaysia is well positioned to take advantage of the market opportunities in this enlarged market of about 600 million people.

Private sector needs to be ready in order to take full advantage of the immense opportunities as well as challenges ahead when the ASEAN Economic Community (AEC) comes into force in 2015.

Kuala Lumpur

Workshop on "High Performance through Mind-Set Change"

A one-day Workshop on "High Performance Through Mind-Set Change" was held on 24 July 2012 at the Tropicana Grand Ballroom, Ipoh. A total of 32 participants attended this workshop, which was facilitated by Master Dr William Leon Chua, Principal Consultant of Combative Resources.

The workshop included a variety of interactive activities with the aim of enabling participants to explore ways to

Perak

adopt a paradigm shift at their workplace. Participants had the opportunity to learn the proper behavioural approaches and methods of communicating with their clients or colleagues, time management to increase productivity and how to put forth their opinions and ideas to the management.

MICCI Perak Branch Centennial Celebration

12 October 2012 etched a memorable milestone for MICCI’s Perak Branch as it celebrated with much pomp and nostalgia its 100 years of establishment at the Impiana Hotel, Ipoh. The evening was made all the more memorable with an execellent turnout from its members, guests and the Perak Menteri Besar, Dato' Seri Dr. Zambry Abdul Kadir as the guest of honour.

The event started off witha speech from the MICCIPerak branch chairman,Mr. Leong Hua Kooi, inwhich he welcomed all theguests while also taking the opportunity to highlight a number of matters concerning its Members, such as the minimum wage, retirement age, State Mineral Act, natural gas supply and the State’s investment outlook.

Dato’ Seri Dr Zamrythen addressed theguests on a number oflatest developmentsin the State and theState’s goal in achieving a RM50.88 billion GDP by 2020. He added that with the Lenggong Valley being declared as a “World Heritage Site”’ by UNESCO, the State can expect an increase intourist arrivals.

Throughout the evening, a two-piece band entertained the guests with a number of multi-lingual songs. However, the highlight of the evening was the launch of the branch’s very first coffee table book encapsulating its humble beginnings, notable

progress and growth through the years.

To cap off the centennial celebrations all the past Chairmen together with the Menteri Besar were invited to cut a cake commemorating the Branch’s 100 years of establishment in the State.

Perak

MICCI News

36 37

Business Advocate

Johor Branch Celebrates MICCI’s 175th Anniversary

The MICCI Johor branch celebrated the Chamber’s 175th Anniversary with much flair on 2 November 2012 at Thistle Hotel, Johor Bahru. Close to 500 guests attended the gala dinner that included Appreciation Awards for Long-Standing Johor Members, Excellence and Recognition Awards, a charity auction, lucky draws, a business talk and a youth orchestra performance.

The evening commenced with a pre-dinner cocktail before the Chairman of MICCI Johor, Ms. Nora Lam, gave her welcoming address followed by a speech from the Vice President of MICCI, Mr. Mukhtar Hussain.

A total of 20 companies were presented with a token of appreciation for their long-standing support and membership with the MICCI Johor branch while eight companies were recognised for their respective achievements in receiving specific awards in their industries.

The much-anticipated Permata Seni Orchestra comprising 45 extremely talented children trained by world-renowned musicians then entertained the guests with a captivating and unforgetful performance. A standing ovation and loud cheers filled the air after the 40-minute performance.

The evening continued with a business talk by Professor Nabil El-Hage from Harvard Business School entitled "The Business Ethics--Unplugged". The 20-minute session

proved insightful and appropriate given that the majority of the guests represented the business community in Johor.

The memorable evening came to an end with a number of valuable items such as paintings, jade pieces and a Victorian

Johor Bahru

antique English brass postal scale up for auction in support of two charity organisations.

The celebration was undoubtedly a milestone for the Chamber and its Johor Branch towards its efforts in fostering ties and building business networks in Johor and in the country.

Business Luncheon Dialogue with IESingapore

Luncheon Dialogue with Khazanah Nasional

A delegation from International Enterprise Singapore (IESingapore) hosted a luncheon for the MICCI Penang committee on 25 September 2012 at Eastin Hotel, Penang.

The aim of IESingapore’s visit was to obtain updates

MICCI Penang hosted a luncheon dialogue between its Members and a delegation from Khazanah National Berhad on 25 September 2012.

on the investment climate and economy in Penang, given its role in facilitating outward investments and trade. IE Singapore functions similarly as the

Malaysian Investment Development Authority (MIDA) and has over 30 offices worldwide.

The meeting proved fruitful as both parties managed to exchange valuable information and business contacts. With the Chamber’s Members representing the various socioeconomic sectors of Penang, IESingapore were not spared the bare facts of doing business in the State. They found Penang to be attractive in terms of its living andworking conditions and economic position.

Penang

Penang

The visit by Khazanah’s legal and investment departments’ were part of their intention to understand the issues and situation surrounding

Among the topics discussed were the implementation of a minimum wage, retirement age, standard of the country’s education system, funding of State infrastructure projects, lack of high-

entrepreneurs in Peninsular Malaysia. The Chamber took this opportunity to invite its Members to share their views and concerns.

end R&D personnel or labs in the country and the transportation system.

Though certain grievances were put forth regarding the minimum wage and the retirement age, it was concluded that such a move by the Government was inevitable in its effort towards a high-income economy. On the issue of lack of R&D personnel and labs, it was noted that the Penang Science Council initiated by the Penang State Government with the assistance from the private sector was a step in the right direction.

MICCI News

38 39

Business Advocate

Sabah International Expo 2012

The Sabah International Expo 2012 (SIE2012), Sabah's Premier Trade Fair was held for the 7th time, from 21-24 September 2012 at the Magellan Sutera, Sutera Harbour Resort, Kota Kinablau, Sabah.

Sabah

Themed “Sabah – Hub For The Far East”, SIE2012 aimed to attract commercial and economic interest to come to Sabah.

A one-day international business luncheon talk,

preceded the expo on 20 September 2012 which was officiated by YAB Datuk Seri Panglima Musa Haji Aman, Chief Minister of Sabah. The luncheon talk featured the successful

entrepreneur, Tan Sri Tony Fernandes, Group CEO and Director to AirAsia Berhad, as the sole guest speaker,

whilst YB Datuk Masidi Manjun, Minister of Tourism, Culture and Environment was the moderator.

Close to 30,000 international and local visitors attended the expo that included about 70 international exhibitors from 25 countries as well as 130 other domestic exhibitors.

The expo provided an ideal platform to promote product and services, expand and penetrate new markets, establish business networks and partnerships, gather business updates and promote new innovations.

Members News

20 Years of Glory with Malaysians and International Guests

Transearch Wendy Lau Held a Client Appreciation Night in Conjunction with Their 20th Anniversary

Hotel Istana Kuala Lumpur City Centre celebrated its 20th anniversary on October 24th, penning down a history of excellence in hospitality and upholding of quality service. An amazing rate of RM20.00++ was offered to the first 20 room bookings made through online for a standard Deluxe room with complimentary anniversary cookies. Bookings were for a limited time only and within half and hour all RM20.00 rooms were

2012 marks a major milestone for TRANSEARCH Wendy Lau. The company celebrated its 20th anniversary. To celebrate this auspicious occasion, the company held a client appreciation dinner on

taken. Apart from that, Hotel Istana’s culinary wizards showed off their talents to produce creative series of menus in tribute to Hotel Istana’s memoirs. This were served to patrons

for only RM20.00 ++per person for buffet lunch or dinner at Taman Sari Brasserie, and selected drinks at Sports Bar. This event was also made successful by the hotel’s suppliers who participated as sponsors and they Chempro Technology (M) Sdn Bhd, Asiaeuro Wines & Spirit Sdn Bhd, Lucky Frozen Sdn Bhd,Pro Fresh Sdn Bhd, Ultimate Circle Sdn Bhd and Sensory Basics Sdn Bhd.

5 July 2012. Past and present clients were invited to a dinner at a leading hotel in Kuala Lumpur. TRANSEARCH Wendy Lau used the occasion to thank them for their past support and to continue with future engagement.

In terms of practice areas, the firm has maintained their expertise in Manufacturing, Fast Moving Consumer

Goods, Oil and Gas, Pharmaceutical, Chemicals and Electronics. There is also a noticeable increase in searches for General Managers, Managing Directors and Board Level Directors. The search work undertaken by TRANSEARCH Wendy Lau is further enhanced by the partnership with TRANSEARCH International, a top 10 international network. This allows the firm to service its clients regionally within Asia.

This year, the company won the Global TRANSEARCH award for Team Excellence as the most cohesive office with the best team spirit.

40 41

REGIONAL FOCUS Sabah

Regional Focus

Virtual Pipeline System by Dato' Harun Hj. Ismail, Chief Executive officer of Sabah Energy Corporation (SEC) SEC, whose core function is as an energy utility, is a Sabah GLC that is entrusted by the State Government of Sabah to make available and distribute natural gas to potential users in Sabah and F.T. Labuan. SEC was granted a license by the Energy Commission in 1998 to distribute natural gas in Sabah and F.T. It obtains its supply of natural gas through long-term gas supply agreements with PETRONAS from offshore Sabah oil and gas fields.

SEC has been distributing natural gas through conventional underground pipelines to the small and medium sized industries in Labuan and Sabah since 1986 and 2003 respectively. In Sabah, SEC's underground pipelines are currently only available in the Kota Kinabalu Industrial Park (KKIP). However,

Owing to such limitations, SEC has identified and is now embarking on an alternative and more feasible means of distributing natural gas to consumers who are located within a radius of 70 Km from the Mother Station in KKIP. This alternative method is known as the Virtual Pipeline System (VPS). The VPS is a proven system and is used in several countries worldwide. SEC will be the first in Malaysia to adopt this system to bring natural gas to a wider spectrum of local consumers.

The VPS is based on a mother-daughter station concept developed and owned by GNC Galileo S.A. of Argentina. It is known as “virtual pipeline” because there is no physical pipeline for the continuous flow of the natural gas from the Mother Station of

Dato' Harun Hj. Ismail is the Chief Executive Officer of Sabah Energy Corporation Sdn. Bhd. (SEC), a wholly-owned company of the State Government.

Virtual Pipeline Concept

Mother Station

beyond KKIP, it is uneconomical to distribute natural gas by pipelines due to high capital cost and the relative small demand volume.

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Business Advocate Regional Focus

the supplier to the Daughter Station at the users' premises. Natural gas is compressed at the Mother Station. The compressed natural gas (CNG) is then transported in containers, known as Modulo De Auto Transporte or MATs, by trucks to the Daughter Stations at the users' premises, where the CNG is then decompressed to the working pressure required by the users.

The project is currently being implemented and the supply of CNG will commence to the first customers by the 1st quarter of 2013. The project will bring the benefits of cheaper and cleaner natural gas to a broader spectrum of energy consumers in Sabah and is aimed at assisting

the State Government of Sabah to enhance its economic development. The contributing benefits are:

• An increase in the usage of local natural gas would reduce the usage of alternative fuels which are imported and thus contribute to reducing the nation's import bill;

• Cheaper natural gas will enhance the small

CNG Truck

Daughter Station MATS and Trucks at Mother Station

and medium sized industries' competitiveness in both the domestic and international markets;

• Cheaper energy costs will reduce the production costs of the industries, thereby leading to lower costs of goods and services to the consumers;

• Natural gas which burns cleanly is more environmentally friendly and contributes to a cleaner and healthier environment;

• Availability and accessibility of natural gas in more locations would attract both local and foreign investors;

• Apart from job creation and more business opportunities, it will create a nucleus of technical expertise in the oil and gas industry in the State.

Development of Sabah Oil & Gas Sector

by Datuk Dr. Johan Arriffin, Deputy Director of Yayasan Sabah Group The recent deep water discoveries offshore Sabah has caught the attention of International and Malaysian oil and gas players. With the fast declining forest revenues and land scarcity for oil palm plantations expansion, Sabah will have to depend on oil and gas revenues for its

Datuk Dr. Johan Arriffin bin Datuk Hj. A. Samad, is currently the Deputy Director of Yayasan Sabah Group, a leading government linked organisation in Sabah. His wide experience covers marketing of consumer and industrial goods, construction & project management, downstream oil & gas sales and marketing, and new business start ups.

economic future. Currently, Sabah holds approximately 45% of the nation's crude oil reserves and 14% gas reserves. New discoveries are expected as PETRONAS and other concessionaire’s ramps up its exploration and production programmes to reverse the declining production levels. As oil, gas and energy have been identified as one of the 12 National Key Economic Areas (NKEAs) under the government’s Economic Transformation Program, we expect to see more investments and multipliers effect especially in the downstream sector.

Kimanis IPP will be piped from SOGT. In Lahad Datu on the East Coast of Sabah, PGB's joint-venture with Sabah Energy Corporation will build a regasification plant to supply gas to the Lahad Datu IPP power plant and other industries within the

A 300 megawatt gas fired combined cycle power plant is being constructed next to SOGT in a joint venture between PETRONAS Gas Berhad (PGB) and a business arm of Yayasan Sabah Group, NRG Consortium (Sabah) Sdn Bhd and is expected to be completed in 2013. Gas for the

PETRONAS is developing the RM45 billion Sabah Sarawak Integrated Oil and Gas Project (SSIOGP) to harness the oil and gas resources from offshore Sabah. The Sabah Oil and Gas Terminal (SOGT) is being constructed on a 250 acre site at Kimanis, 45km from the city of Kota Kinabalu and will process crude oil and gas from the offshore fields of Sabah. The Sabah Sarawak Gas Pipeline (SSGP) 520km pipeline will transport the gas from Kimanis to PETRONAS LNG plant in Bintulu, Sarawak. Barring unforeseen delays, both projects are expected to be completed in 2013.

Palm Oil Integrated Complex (POIC).

The government is well aware of the need to bring development to all corners of Sabah and will take advantage of the gas infrastructure built by PETRONAS in Sabah West and East Coast. In the township of Sipitang, south of the Kimanis, the government will build the Sipitang Oil and Gas Industrial Park on 4,000 acres of government land. PETRONAS will supply the gas for the Industrial Park via the SSGP pipeline.

PETRONAS is constructing a world class RM4.5 billion Ammonia and Urea plant in Sipitang Oil & Gas Industrial Park (SOGIP) and the project is expected to be completed in 2015. Depending on the gas availability, more petrochemical companies have indicated their interest to set up petrochemical industries in SOGIP.

In the upstream sector, PETRONAS and Shell have announced that they will spend RM12 billion in the next decade for enhanced oil recovery (EOR).

44 45

Business Advocate Regional Focus

through which additional oil resources can be extracted from an oil well, sometimes up to 75% recovery, thereby extending its production lifespan. It is usually done onshore but the East Malaysian endeavour will take place offshore for the first time, which is what makes it so novel. This undertaking has been lauded as a revitalising boost to the East Malaysian O&G sector as some RM38 billion worth of investments will be poured into this region over the next 30 years. The two 30-

year shared contracts between Petronas and Shell will span nine oil fields in the Baram Delta and a further four fields in the North Sabah development area. It is hoped that the EOR will increase the recovery rate from 36% to about 50% and add an additional production of 90,000 to 100,000 barrels of oil equivalent per day. All in all, more than 750 million barrels of oil reserves have been targeted for extraction on which the East Malaysian O&G industry hopes

to continue tap into well beyond 2040. A key component of this undertaking is the usage of alkaline surfactant polymers in the chemical injection method of the EOR process, another potential world first. Whilst the front-end engineering work for these EOR projects will see the inclusion of foreign players--and hence an importation and sharing of skills and expertise--local firms will be tasked with fabricating and installing the new

offshore structures. The partners involved in this project will also carry out a joint research and development programme into EOR technology under a separate agreement, boosting domestic know-how into recovery methods and giving local firms an edge over regional and international competitors. Moreover, a further development in this area came by way of Malaysia's Dialog Group Bhd when it signed an agreement with Halliburton International Inc. for a contract worth RM3.7 billion to boost recoverable reserves in the Bayan Field over 24 years. To tie it all up, the Sabah-Sarawak Gas Pipeline (SSGP) project is reaching its final phase with 85% already completed. The end is in sight as the project looks to be completed in the first quarter of 2013 and gas is expected to start flowing through the pipes in April. Stretching 512 kilometers across both states, the pipeline is part of the Sabah-Sarawak Integrated Oil and Gas Project which was put forward in order to facilitate the transfer of O&G resources off the shores of East Malaysia and realise the potential of this oil-rich region.

PETRONAS Carigali Sdn Bhd and Shell Malaysia signed an agreement for two 30-year production-sharing contracts this year for enhanced oil recovery projects offshore Sarawak and Sabah. Shell estimates the EOR projects will increase recovery factors to 50% from 36% in the Baram Delta (BDO) and North Sabah fields. It expects to

produce an additional 90,000-100,000 boa/d from the projects and estimates that the projects will extend field life beyond 2040.

The government is aware of the need to develop the human capital to support these projects. PETRONAS will build a training centre in Kimanis and more higher learning institutions

and industrial trading schools in Sabah are offering courses related to the oil and gas industry. Apart from the human capital, the main challenge for Sabah is the development of its infrastructure to support these industries. Roads have to be expanded and new roads built, new water supply and electric transmission lines

East Malaysia's Growing Oil and Gas Presence

Oil and gas (O&G) has been a part of Borneo's history for the past 100 years. This past century of East Malaysian O&G really began in Miri, Sarawak, when Shell discovered oil on Canada Hill in 1910. Miri No. 1 heralded the dawn of O&G in Borneo when is was spudded on 10 August 1910 and began production of 83 barrels per day that December. It has long since retired, having been renamed to the "Grand Old Lady" and was elevated to the status of protected historical site, given its significance.

After the discovery on Canada Hill, Shell embarked on establishing Malaysia's first oil refinery in 1914 and laid a underwater pipeline to serve tankers, which was something of a technological triumph at the time. Fast-forward 50 years and Sarawak's first offshore field, Baram, was built in 1963. The discovery of massive reserves of natural gas off the shores of Sarawak was a watershed moment for Shell in those years, and 1993 bore witness to a world first, Bintulu's commercial middle distillate synthesis plant.

The East Malaysian O&G industry began everything and is set to continute to lead the sector as its potential and presence continues to grow. In 2011,

Petronas made a significant discovery of the coast of Sabah in the Wakid-1 well and initial estimates put the find at around 227 million barrels of oil. Two other wells in Sabah also yielded significant discoveries: the first, Zuhal East-1, is located in the Samarang Asam Paya Block;

whilst the second is the Menggatal-1 well, located in Block SB312. It is no wonder, and almost an act of prescience, no less, that then-Assistant Minister of Resource Development and Information Technology, Donald Mojuntin, said in 2008 that "Sabah has the potential of becoming the biggest oil and gas producer not only in Malaysia, but in the whole of South East Asia" as it has "the potential to produce 1 million barrels of oil a day" based on estimates that Sabah oilfields contained 1.4 billion barrels of oil and 7.7 trillion standard cubit foot of gas.

But the story does not end there for East Malaysia as it is about to embark on another world first: offshore enhanced oil recovery (EOR). EOR is a tertiary phase of oil production

are needed, including new ports and jetties. More government and private sector funding is required for these infrastructure development. The macro economic outlook for Sabah is good and it is expected that these oil and gas activities will trickle down to the local economy and more people will benefit for these huge investments.

46 47

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