Shell squeezed in Brunei-Malaysia offshore oil dispute
Shell squeezed in Brunei-Malaysia offshore oil dispute
Dow Jones, Singapore
Royal Dutch Shell Deepwater Borneo is expected to follow Total S.A.S's footsteps in shelving oil and gas exploration plans offshore Brunei, at least for the time being, due to sovereignty wrangles between Malaysia and Brunei, sources close to Shell said.
The disputed deep offshore site is part of an exploration area both countries are trying to develop. But while Shell and other oil majors have, or are planning to shelve exploration in the Brunei-claimed areas, Malaysia is pushing ahead in the areas its claims to own.
Total froze all offshore work recently at Brunei's "Block J" - one of four disputed exploration blocks - after a Malaysian patrol boat chased away one of the French company's vessels.
French sources say that Total believes the area is "extremely promising", although the company hadn't had time to confirm the scale of reserves in the sector.
Block J overlaps Block L, exploration rights to which the Malaysian government has awarded to Murphy Oil and Petronas Carigali. Petronas Carigali is the exploration arm of Malaysian state-owned Petronas.
The two sites are located next to the oil-rich Kikeh Block, which is already operated by Murphy Oil and Petronas Carigali and which is estimated to have recoverable reserves of 400 to 700 million bbl of crude.
The Malaysia-Brunei dispute is likely to affect other oil and gas exploration projects in the area.
The Brunei government is expected soon to rubber-stamp explorations rights it has agreed to with a Shell Deepwater-led consortium in "Block K", in what it claims to be its Exclusive Economic Zone.
This zone stretches 200 nautical miles out from Brunei's shore in a northwesterly direction.
The consortium is made up of Shell, with 50 percent, Conoco (COP) and Mitsubishi, each with 25 percent.
"Shell Deepwater will not begin work in Block K until there is clarity in this territorial issue," a source close to the company said.
Also, sources said that Royal Dutch/Shell Group, which has various subsidiaries in Brunei and Malaysia, is unlikely to start operations in the disputed area because it may not want to antagonize both the Malaysian and Brunei governments.
"Shell may not want to rock the boat. If Shell Deepwater begins operation in the disputed area, it might endanger the relationship between Shell Malaysia and the Malaysian government," another industry source said.
Shell Malaysia is the main exploration and production player in Sabah and Sarawak, operating in both continental shelf and deepwater concessions.
Shell Brunei, which is operating four concessions - three in production phases and one in exploration - in Brunei's offshore shallow waters, will not be involved in the controversial deepwater project, a source said.
Block K overlaps with Block M, which the Malaysian government has also awarded to Murphy Oil and Petronas Carigali.
"More than half of the two Malaysian blocks overlap the blocks awarded by Brunei government," an industry source in Brunei said. "The four blocks with different names are essentially the same two blocks."
Murphy Oil has completed spud drilling in Block L, the source said. Murphy Oil officials in Kuala Lumpur declined to comment on its Malaysian operations.
The US oil and gas exploration company and Petronas Carigali have yet to begin offshore exploration work in Block M.
"We're doing research and studies now for Block M, and the plan is go ahead with the offshore work once the ground work is done," a Petronas Carigali official said.
Both Brunei and Malaysian governments are keen to avoid a lengthy tussle and possible international arbitration, sources said.
"It is in everyone's best interest to cut a deal on this issue as soon as possible," a second source said.
If the issue goes to the International Court for arbitration it could take between 10 to 20 years to resolve.
Disputes over sovereignty claims in the region are common, especially in potential exploration and production areas.
In December, Malaysia won an International Court of Arbitration ruling over Indonesia on the ownership of Sipidan and Ligitan islands off Sabah, on the other side of Borneo island from the area it disputes with Brunei.
Malaysia and Singapore are also currently in legal wrangles over the sovereignty of the tiny Pedra Blanca island, northeast of Singapore.