Malaysia will offer tax incentives to encourage the exploration of less-profitable fields to boost revenue and extend the life of the country’s petroleum reserves.
The nation wants to attract oil and gas companies including state-owned Petroliam Nasional Bhd., or Petronas, to explore “marginal” fields, Second Finance Minister Ahmad Husni Hanadzlah said in an interview with Bloomberg yesterday. High exploration costs make some areas economically unviable.
“We are highly dependent” on oil revenue, Ahmad Husni said. “With the incentives, we’re confident that not only Petronas, but also the foreign petroleum companies, will continue their exploration.”
Malaysia’s oil and gas production has fallen for two straight years, declining to the equivalent of 1.63 million barrels of oil a day in the year ended March 31 from 1.66 million a day a year earlier, according to Petronas’s 2010 annual report. The country has tapped deepwater fields to increase reserves as energy demand rises.
“A lot of marginal oil fields were abandoned over the past few years, so giving a tax incentive will increase the possibility of more exploration,” said Arhnue Tan, an analyst at ECM Libra Capital Sdn. in Kuala Lumpur. “Oil prices at this level also make it potentially more profitable. The timing is just right.”
Two-Year High
Crude oil futures on the New York Mercantile Exchange have risen 10 percent this year, yesterday touching $88.63 a barrel, the highest level in two years.
Malaysia’s crude oil reserves may last 24 years based on current output levels, the finance ministry said in its 2010/2011 economic report on Oct. 15. The country has sufficient natural gas reserves for 38 years as of Jan. 1.
About 23 percent of Malaysia’s oil reserves are located in deepwater fields and close to 15 percent are in fields with high carbon dioxide content, Petronas said in the annual report.
“The oil reserves are there, but for them to do more exploration, they need the government support” to compensate for the higher drilling costs, said Ahmad Husni. The government has approved the initiative and it will be announced soon, he said, declining to give a specific time. While the tax income may initially fall, the amount of revenue to be generated later is “huge,” he said.
The government’s tax revenue from the petroleum industry will drop 33 percent to 18.3 billion ringgit this year, according to the economic report. Indonesia is the biggest oil and gas producer in Southeast Asia.
