ON paper, there is little that can be wrong with a strategy that opens up the exploitation of marginal oil fields those that have already been worked on by others under production sharing contracts (PSCs) to local companies in joint venture with foreign partners.
But in practice this is a dangerous precedent which could open up a Pandora's box of problems and ultimately lead to the erosion of the national oil corporation Petronas' role as the sole custodian of the country's oil and gas wealth.
This is a role that Petronas has played admirably well since 1974, contributing perhaps over half a trillion ringgit in various forms to the Government's coffers and enabling expenditures which would not otherwise have been possible.
Successive Governments have therefore sought to maintain Petronas' integrity and independence so that the nation can continue to benefit collectively from its oil wealth by Petronas providing a steady revenue stream instead of this being allocated to individuals through concession agreements.
Strictly speaking, there is one sole concessionaire to the country's oil and gas wealth Petronas. Everybody else works for Petronas to extract the oil. A proportion goes to the exploration company as cost oil and the rest is divided under a contract agreement, details of which are not divulged publicly.
In the market, Petronas is known to drive a hard bargain. Over the years, it has developed its own exploration capabilities and now produces oil in many locations around the world. All these are to Petronas' credit.
But it should be careful with the latest move to award billions of ringgit in contracts for marginal fields to local companies in partnership with foreign companies.
Oil services companies such as Sapura Crest or Kencana Petroleum, although they are linked to powerful people, do not have the capability or capacity to undertake oil exploration, even if these are marginal fields.
Their only hope is if they go into joint venture with foreign companies which have the capability of extracting oil profitably from marginal fields. That's a specialised area of operation and profit margins are lower than for ordinary producing fields.
These companies push a hard bargain with Petronas to ensure their margins and they are not likely to part with their hard-earned money with local partners that are effectively sleeping partners and want to learn the ropes from them.
This is a zero sum game if somebody else gains, someone else has to lose. Unless the foreign partners had pretty fat margins to start with, they are not about to have their margins sliced any thinner for any third party that brings no value to the table but threatens to dice off a significant chunk of profits.
It is one thing requiring foreign companies to use local contractors for oil field services. They can recover this through the so-called cost oil deducted for exploration and other costs. It is quite another to force them to take a local partner to siphon part of their profits too.
It is pretty obvious what these foreign partners would do extract concessions (pardon the pun) from Petronas in return for taking local partners. Petronas might as well directly give money to these local companies instead!
The only way to do this is to let anyone compete openly for marginal fields, with some slight, clearly prescribed preferences for local companies or those with JVs with local companies. And then give the contract to the best bidder.
We must realise that large rewards come with large risks and competition breeds competence. Otherwise, Petronas' latest bid to award multi-billlion-ringgit marginal oil fields to local companies will become just another means of dispensing patronage.
Worse, this opens up avenues for Petronas to be pillaged and plundered, eventually seriously undermining its role of raising valuable revenue for the Government.
