Petronas vs Petros: A timeline of the 62-year-long legal battle for oil and gas rights in Sarawak
The legal battle between Petroliam Nasional Berhad (Petronas) and Petroleum Sarawak Berhad (Petros) has been dominating the news in Malaysia recently, with many seeing it as more than just a conflict between two companies, but a “Federal vs State” battle over the rights to control oil and gas resources.
Indeed, the issue of oil and gas rights in Sarawak is not new, but something that has been brewing since Malaysia’s formation in 1963.
To make sense of all the hullabaloo, we’ve prepared a simplified timeline of events leading up to the current impasse between Petronas (and the Federal Government) and Petros (and the Sarawak State Government).
Join us as we explore this 62-year-long legal battle for oil and gas rights in Sarawak below.
Oil and gas rights in Sarawak before the formation of Malaysia
The very first oil well in Sarawak (and Malaysia for that matter) was the “Grand Old Lady” drilled in Miri back in 1910 after the then “White Rajah” of Sarawak, Charles Brooke, signed the first Oil Mining Lease a year prior to the Royal Dutch Shell (now known as Shell plc) for oil exploration in the area.
In 1954, under the North Borneo (Alteration of Boundaries) Order in Council approved by the then British monarch, Queen Elizabeth II, the extent of Sarawak’s territorial waters was established to include the continental shelf, or the underwater land mass which extends out from the continent.
This territorial right was part of the safeguards and caveats provided for in the Malaysian Constitution, the Malaysia Agreement 1963 (MA63), and the Inter-Governmental Reports when Sarawak joined Sabah, Singapore and Malaya to form Malaysia.
When Malaysia was formed in 1963, Shell was the primary oil company in the country.
The Federal Government took control of Sarawak’s oil and gas rights during the State of Emergency in 1969
After the infamous racial riots in Peninsular Malaysia on 13 May 1969, the Federal Government declared a nationwide State of Emergency, which included the suspension of Parliament.
During the ‘Darurat’, the Federal Government unilaterally limited the territorial waters of Sarawak to only 3 nautical miles, with ownership of the rest transferred to the Federal Government. Relevant laws include the Emergency (Essential Powers) Ordinance No.7 1969, the Continental Shelf Act 1966, and the Petroleum Mining Act 1966.
The establishment of Petronas in 1974
In 1974, the Petroleum Development Act was passed in Parliament, and Petronas was incorporated on 17 August 1974. The former allows Petronas to regulate the oil and gas industry in Malaysia, including exploring mineral resources and controlling the oil and gas reserves in Sarawak.
Petronas would then distribute the revenues among oil-producing states (5%), the Federal Government (5%), the producer company (41%) and Petronas (49%).
Shell and Exxon, two of the oil companies operating in Malaysia at that time, initially refused to surrender their concessions to Petronas or negotiate. However, all foreign oil companies finally complied after Petronas served a notice saying that after 1 April 1975, they would be deemed as operating in Malaysia illegally if they did not negotiate with Petronas.
The lifting of the Proclamation of Emergency in 2011 and the introduction of the Territorial Sea Act 2012
In 2011, the Federal Government finally lifted the 1969 Proclamation of Emergency, which nullified the Emergency (Essential Powers) Ordinance No.7 1969, the Continental Shelf Act 1966, and the Petroleum Mining Act 1966.
However, a year later, Parliament passed the Territorial Sea Act 2012 to again limit the territorial waters of Sarawak to 3 nautical miles.
The Sarawak State Assembly rejected the Territorial Sea Act in 2015
In 2014, the Sarawak State Assembly passed a motion asking for oil royalty from the Federal Government to be increased from 5% to 20%.
In May the following year, Petronas agreed to supply cheaper natural gas to the Sarawak-owned electric utility company, Sarawak Energy, for power generation.
Meanwhile, in December 2015, the Sarawak State Assembly passed a motion rejecting the Territorial Sea Act 2012, claiming that it is unconstitutional as it altered the state boundaries without the consent of the State Government, as per Article 2 of the Federal Constitution.
Sarawak established the state-owned Petros in 2017 and created a task force to return its oil and gas rights
Petros was formed on 7 August 2017 as an oil and gas company 100% owned by Sarawak. The same year, the Sarawak Government also sent a legal team to the UK in search of supporting documents regarding the state’s rights under MA63, which included the aforementioned Sarawak (Alteration of Boundaries) Order 1954 by the Queen in Council.
In 2018, Sarawak Chief Minister (now known as Premier) Tan Sri Abang Johari Tun Openg questioned the validity of the Petroleum Development Act 1974 as it was passed when the 1969 Proclamation of Emergency was still ongoing.
He further argued that the Act doesn’t exclude laws such as the Sarawak Oil Mining Ordinance 1958, which prescribed that only Sarawak has the right to issue mining licenses for oil production in the state. Abang Johari added that Petros can exercise its rights on Sarawak territorial waters under Item 2(c) of the State List of the Federal Constitution’s Ninth Schedule.
Petronas filed a legal suit to assert that the Petroleum Development Act 1974 is still valid in 2018
In May 2018, Petronas told the Sarawak State Attorney-General that it disagreed with the requirement to apply for a license from Petros to operate in Sarawak waters. The next month, Petronas filed a suit in the Federal Court to assert that the Petroleum Development Act 1974 is still valid and that Petronas is still the exclusive owner of Malaysian oil resources, including in Sarawak.
However, the Federal Court denied Petronas’ application to start proceedings against Sarawak, as it was not within the court’s jurisdiction to do so.
In July 2018, the Sarawak State Assembly passed the Oil Mining (Amendment) Bill (2018), which regulates oil and gas activities in the state.
Sarawak enforced a 5% sales tax on all petroleum products in 2019
In January 2019, Sarawak began enforcing a 5% sales tax on all petroleum products and gave Petronas a deadline until September that year to pay the tax, which was then extended to October. However, Petronas didn’t comply.
In November 2019, the Sarawak Government sued Petronas for not paying the 5% sales tax.
Petros took over the full natural gas supply, sales and distribution network in Sarawak in February 2020
The next month, the High Court ruled in favour of the State Government in the aforementioned suit against Petronas, establishing that Sarawak has the power to impose the sales tax.
In May 2020, Petronas agreed to pay RM2 billion in petroleum product sales tax to Sarawak, but with the condition that the tax would be lowered on a staggered basis in the future. Both Petronas and the Sarawak Government agreed that the Petroleum Development Act 1974 is valid.
In October 2020, the Sarawak Government issued mining leases in Miri and Marudi to Petros for onshore oil and gas mining.
The same year, Petros began distributing liquefied petroleum gas (LPG) in Miri and Bintulu and launched its own brand of LPG gas cylinder.
Petros sued Petronas over the latter’s demand for an RM7.95 million bank guarantee in 2024
In October 2024, Petros initiated legal action against Petronas over the latter’s demand for an RM7.95 million Maybank bank guarantee, claiming that the Sarawak Gas Sales Agreement (SGSA) with Petronas is illegal.
Petros claimed that Petronas lacked the required license under the Distribution of Gas Ordinance 2016. Specifically, it was reported that the Sarawak Government had sent a letter of demand (LOD) to Petronas Carigali Sdn Bhd (PCSB) for allegedly breaching Section 7(e) of the Gas Distribution Ordinance 2016.
The Sarawak Ministry of Utility and Telecommunication said PCSB’s Miri Crude Oil Terminal was operating without a valid permit for gas pipeline and equipment works. Petronas confirmed that PCSB received the notice from the ministry on 30 April regarding gas processing and distribution.
Petronas has since failed its request to stay the case until a case filed by Shell SDMS Sdn Bhd against Petronas and Petros in the High Court had been settled.
The Shell SDMS’s court case was to determine which company it should pay for the natural gas it received, with Shell SDMS successfully gaining an interim injunction for the payment in January this year.
An amicable solution?
Following the latest legal battle, both Abang Johari and Prime Minister Datuk Seri Anwar Ibrahim held a meeting on 9 May 2025 alongside top leadership from Petros and Petronas to resolve all outstanding issues through negotiations.
An agreement between Petros and Petronas is touted to feature mutual recognition of both Federal and State laws, though nothing has been announced just yet as of the time of writing. Earlier on 6 May, Deputy Prime Minister Datuk Seri Fadillah Yusof said that they are working to resolve matters without amending the Federal Constitution or existing laws.
Accordingly, the Federal Government and the Sarawak State Government inked a joint declaration on 21 May for Petronas and Petros to collaborate with clear parameters. Anwar said that the declaration is mainly about establishing clear boundaries and acknowledging the Petroleum Development Act 1974 and the Distribution of Gas Ordinance 2016.
Moreover, in a separate statement, the Prime Minister’s Office elaborated that the joint declaration outlines several matters, including:
- All Federal and Sarawak State laws related to gas distribution within Sarawak must coexist and be respected by all parties
- Petronas will continue to carry out its functions, activities, responsibilities as per the Petroleum Development Act 1974 and its subsidiary regulations
- The Sarawak State Government’s appointment of Petros as the gas aggregator in the state must be respected by all parties
- Any agreements or arrangements between Petronas and/or its subsidiaries with third parties for (liquefied natural gas or LNG) sales, from upstream activities to LNG export to international buyers won’t be affected
- Other green energy, hydrogen and electricity generation projects that may be implemented by Petronas and Petros must be in line with Sarawak’s aspirations
- All further discussions on cooperation must be subject to commercial and technical viability
- Petronas will collaborate with Petros on future projects in Sarawak involving international partners
- Petronas and Petros shall work to continue detailing the framework of cooperation in a transparent manner and in accordance with commercial principles for the benefit of the nation
However, despite the joint declaration, the two recent court cases are still ongoing. Hence, it remains to be seen whether this 62-year-long legal battle between the Federal Government and the Sarawak State Government will continue or be resolved amicably. For the interest of both parties, we truly hope it would be the latter.
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