KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) will open marginal oilfields to niche players with strengths in development and production with hopes of recovering an estimated 1.7 billion barrels of oil equivalents over the next two decades, said its CEO Datuk Shamsul Azhar Abbas.

The news came after Prime Minister Datuk Seri Najib Razak unveiled the tax incentives proposed by Petronas, which would potentially lead to additional petroleum-generated revenue of more than RM50 billion over the next 20 years.

Najib said the tax incentives proproposed by Petronas would be incorporated into the Petroleum Income Tax Act (PITA), stressing that five new incentives were proposed to promote the development of new oil resources, facilitate exploitation of harder-to-reach oil fields and stimulate domestic exploration.

Speaking at the national oil company’s results briefing yesterday, Shamsul said that Petronas would encourage both new local and international players to become service contractors to develop these fields.

“It may not necessarily go through the production-sharing route. We are thinking of ways of introducing a new production regime and one of them is to encourage the development of these fields through risk and service contracts,” he said. “It entails an investment of between RM70 billion and RM75 billion.”

When asked about the proposed petroleum tax incentives announced by the Prime Minister yesterday, Shamsul said the perks were to make the fields economical, as most of Malaysia’s oil basins were mature.

According to Petronas’ 2010 annual report, production fell to the equivalent of 1.63 million barrels of oil a day in the financial year ended March 31, from 1.66 million barrels a year earlier.

“We have more than 25 marginal fields. If we don’t provide incentives, they will remain undeveloped. The government has come up with a set of incentives worth about RM8 billion, but over 15 years, they will be able to see a tax revenue of RM58 billion,” he said.

Shamsul said at present, the average recovery factor for Malaysian oilfields is about 26%. Through the incentives which would in turn boost enhanced oil recovery (EOR), Petronas hopes to increase the recovery rate of oil exploration activity to above 30%.

“The onus is now on the Ministry of Finance Inc (MoF) to go through the relevant procedures, and as soon as they confirm this, Petronas is ready to move,” he said, adding that the oil giant was confident of “squeezing” the recovery rate.

“This new incentive will provide a change in terms of the production and tax regime in the country to promote the development of complex and challenging oilfields,” he added.

When announcing the Economic Transformation Programme’s second round of early wins yesterday, Najib said: “There will be a notional trade-off of about RM8 billion in the form of revenue foregone from investment tax allowances, reduced tax and the export duty waivers for marginal fields.”

However, the prime minister pointed out that the benefits far exceeded the trade-off and these measures marked the kind of rational policy changes that would enable the private sector to play a greater role in economic development.

The new incentives include an investment tax allowance of up to 60% to100% of capital expenditure to be deducted against statutory income to encourage the development of capital-intensive projects, reduction of the tax rate to 25% from the current 38% for marginal oilfield developments and an Accelerated Capital Allowance of up to five years from 10 years where the full utilisation of capital costs deducted could improve project viability.

The other incentives are a Qualifying Exploration Expenditure Transfer between non-contiguous petroleum agreements with the same partnership or sole proprietor to enhance contractor’s risk-taking attitude, and the waiver of export duties on oil produced and exported from marginal field developments to improve project viability.

Of the nine new developments and EPPs unveiled yesterday, three are to promote sustained growth in the oil, gas and energy (OGE) industry, two to bolster Malaysia’s electronics and electrical (E&E) services, three focusing on drawing higher value from the tourism sector and one to enhance the country’s education system for young children.

In line with the nation’s efforts to transform Malaysia into a regional oil and gas hub, Najib also announced that Tanjong Agas Supply Base & Marine Services Sdn Bhd would develop the Tanjong Agas Oil & Gas and Logistics Industrial Park as a one-stop centre to serve and support the region’s rapidly growing upstream and downstream activities.

“This includes oil and gas exploration, exploitation and production activities,” he said of the industrial park project situated on 4,260 acres of land in Pekan, Pahang.

This article appeared in The Edge Financial Daily, December 1, 2010.