Malaysia and Brunei talk over rival oil claims

Malaysia and Brunei talk over rival oil claims

Reuters, Kuala Lumpur

Malaysia and Brunei are in talks to settle a row over the ownership of oil-rich waters that both covet in the South China Sea.

"There is still a question we are sorting out on the offshore dispute," Malaysian Foreign Minister Syed Hamid Albar told Reuters. "We're working on it."

Malaysia's overlapping claim on Brunei's exclusive economic zone (EEZ), which stretches 200 km (124 miles) offshore, has sent shudders through the tiny sultanate's hierarchy.

It was depending on the untapped deep water oil fields to guarantee the next generation's prosperity, after the Asian financial crisis and bad investments depleted national coffers.

Brunei now produces about 200,000 barrels per day (bpd) of crude and 1.1 billion cubic feet a day of gas -- most of it from onshore.

Late in 2000, Brunei said it would offer exploration blocks after declaring an EEZ, giving it rights to fishing grounds and mineral extraction from the sea bed.

But last month, Malaysia forcefully reminded Brunei, wedged between Malaysian territory on Borneo island, of its claim by sending its navy to chase off a drilling team from TotalFinaElf.

The incident, according to sources in Brunei, precipitated an urgent meeting between Sultan Hassanal Bolkiah and Malaysian Prime Minister Mahathir Mohamad last month.

Both governments are keen to keep the dispute under wraps, and Brunei, with 330,000 people and no army, can ill afford to antagonize its neighbor.

There have been suggestions they could come to a sharing agreement, but Syed Hamid was poker-faced.

"We are looking at various mechanisms," he said, when asked late on Thursday.

Malaysia, which has had territorial disputes with all its neighbors, argues Brunei only has jurisdiction over its continental shelf, in water up to 200 meters deep. About three quarters of the EEZ is in deeper water.

Total, which heads a consortium that won exploration rights from Brunei Petroleum, has been left kicking its heels and the French company has canceled supply vessel contracts, industry sources said.

But Murphy Oil, which won exploration rights from Malaysia's state-oil company Petroliam Nasional Bhd (Petronas), carried on drilling.

On Monday, Murphy said it had finished in deepwater Block L, and a rig was being moved to an adjoining block in the Kikeh field, where it announced a substantial find late last year.

Royal Dutch/Shell has been negotiating a production sharing agreement with Brunei Petroleum for a block adjoining Total's, which closely corresponds to that of another block awarded to Murphy by Malaysia, and will be watching developments carefully.