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The Wall Street Journal: Asia Oil-Rights Pact Nears

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Malaysia, Brunei
Work Toward a Deal
That May Yield Cache
By YEE KAI PIN
August 16, 2007

SINGAPORE — Malaysia and Brunei are inching toward a maritime boundary agreement for an area west of Borneo island, a development that could potentially unlock Southeast Asia’s largest oil and natural-gas finds in just over a decade.

After three years of high-level talks, both sides may be close to a deal that, given the size of reserves in nearby oil fields, could also renew exploration interest in what has been written off as a mature region for liquids production.

“Both sides had put forward new proposals, and agreed on the need to resolve the matter urgently. They instructed their negotiating teams to work out the details,” according to a joint statement carried Tuesday by Bernama, Malaysia’s official news agency.

This followed bilateral talks in Bandar Seri Begawan between Malaysian Prime Minister Abdullah Ahmad Badawi and Bruneian monarch Sultan Hassanal Bolkiah.

The two countries, which have close political ties, have taken their time in determining who has sovereignty in the area, despite a pickup in offshore upstream activities such as seismic surveys and the drilling of exploration wells.

Brunei in February 2002 awarded exploration rights in the area, only for Malaysia to sign off nearly identical acreages under its own licensing round in January 2003.

Malaysia’s state-owned Petroliam Nasional Berhad, or Petronas, gave Blocks L and M to U.S. company Murphy Oil Corp.

The first block had earlier been awarded by Brunei as Block J to a consortium headed by French oil company Total SA, while a group led by Royal Dutch Shell PLC had secured the second as Block K.

Petronas’s move followed a major discovery by Murphy Oil in Malaysian waters adjacent to the disputed blocks in November 2002.

Murphy’s Kikeh field — scheduled to start pumping from its 440 million barrels of reserves next month — was the region’s most significant oil discovery since Petronas and Exxon Mobil Corp. added platforms to pump more oil from the Tapis field in the 1990s.

The ambiguity over the disputed waters resulted in a skirmish in March 2003, when a Malaysian navy patrol vessel chased a Total survey team out of the disputed area — ending exploration activities at both blocks.

Since then, the companies involved have withheld public comment on the issue, saying negotiations were being held at the government level.

Petronas and Shell declined to comment on the reported breakthrough in talks this week, while officials from Murphy Oil and Total didn’t respond to questions.

With oil at more than $70 a barrel, Malaysia and Brunei have each been pushing hard to replace their reserves.

Last month, Total started drilling a new offshore oil well known as MLJ2-06 that Brunei’s Energy Minister Pehin Yahya touted as one of the most technically challenging wells ever drilled in Southeast Asia.

Brunei and Malaysia are increasingly willing to pour money and expertise into the area because they have had only limited success finding oil, even as output from their mainstay fields declines, analysts say.

Brunei is heavily reliant on oil- and gas-export revenue, which accounts for more than 75% of its budget. Based on current output rates, the sultanate’s proven oil reserves of about 1.1 billion barrels will run dry in less than 14 years.

Malaysia is also staring at a possible 16-year end point, despite its 4.2 billion-barrel reserves, although its gas potential is growing.

Petronas expects the country to become a net oil importer within three years.

Any decision by Malaysia and Brunei to redraw their maritime boundaries will set a precedent in Southeast Asia, which has typically resolved such disputes through joint exploration.

Malaysia, after much political wrangling, struck two deals with Vietnam in the 1990s for a Gulf of Thailand zone known as the Commercial Agreement Area. Further south of the gas-rich Gulf, Malaysia also counts the Joint Development Area with Thailand among its successful agreements.

Still, oil discoveries can easily raise political temperatures in the region. Just last week, Cambodia said it recently transferred a brigade of army soldiers to the navy to help guard newly discovered oil fields. Offshore oil has become a buzzword for the impoverished nation after U.S. oil major Chevron Corp. hit paydirt in the southwestern seabed in 2005.

Vietnam has also had its share of saber rattling, when it fired warning shots at Philippine air force planes circling the Spratly islands in 2002. The rocky archipelago in the South China Sea has no known hydrocarbon reserves, yet no fewer than six nations have staked claims.

Write to Yee Kai Pin at kai-pin.yee@dowjones.com

 

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