By Datuk Ts Dr. Hj Ramli Amir, former President of the Chartered Institute of Logistics and Transport (CILT) Malaysia and Vice-President of CILT International for Southeast Asia
KOTA KINABALU: The management of oil and gas resources in Malaysia’s Borneo states reveals two distinctly different strategies. While Sabah and Sarawak share aspirations for greater control over their hydrocarbon wealth, their chosen pathways are shaped by unique capabilities, historical context, and negotiating positions.
Sabah’s Partnership-Centric Approach
Sabah has adopted a collaborative model with Petronas, prioritizing strategic alliances over direct confrontation or unilateral action.
This approach is best exemplified by SMJ Energy Corporation’s commercial arrangements with the national oil company.
The Commercial Collaboration Agreement (CCA) Framework
On December 7, 2021, Sabah formalized a Commercial Collaboration Agreement (CCA) with Petronas, establishing a “greater say, greater participation, greater revenue share” policy while expressly recognizing existing federal legislation.
Rather than seeking total operational control, Sabah’s strategy enables SMJ Energy to secure significant equity stakes in existing, producing assets without assuming the risks associated with high-cost, uncertain exploration.
To date, SMJ Energy’s portfolio includes:
50% equity in the Samarang Production Sharing Contract
25% stake in Petronas Chemicals Fertiliser Sabah (SAMUR)
10% equity in PETRONAS LNG9
25% participation in the announced PFLNG 3 facility
Risk-Averse Investment and Revenue Strategy
Sabah intentionally focuses on proven, cash-generating assets and leaves exploration and high-risk ventures largely to Petronas.
SMJ Energy executives emphasize their intent is not to become a “mini-Petronas Carigali,” but rather to leverage Petronas’ expertise while building up a broadly diversified portfolio. By 2024, SMJ Energy reported a RM259 million profit after tax, with cumulative oil sales revenue exceeding RM1.9 billion by mid-2025, though specific dividend figures cited in previous reports could not be independently verified.
Local Content Development
Working closely with Petronas, Sabah established a Local Content Council in May 2024. This collaboration has increased opportunities for local participation, with the number of active Sabahan oil and gas companies rising from 79 in 2021 to over 113 (with some sources noting as high as 151 by 2024). The Council stipulates a 30% minimum of oil and gas service contracts be awarded to qualified Sabahan companies.
Sarawak’s Autonomy-Driven Strategy
In contrast, Sarawak has pursued an assertive model emphasizing autonomy, seeking direct operational control of its petroleum sector through Petroleum Sarawak Berhad (Petros).
Gas Aggregator Role and Direct Control
Sarawak’s quest for sovereignty over its gas resources culminated with the appointment of Petros as the sole state gas aggregator.
This designation, recognized at the federal level by March 1, 2025 (with operational implementation beginning as early as February 2024 in some reports), marks a decisive shift from the former Petronas monopoly on Sarawak’s gas distribution. Under this regime, all gas produced is mandated to be sold first to Petros, rather than Petronas, signifying a fundamental change in resource control.
Sarawak has also launched its own bid rounds for carbon capture, utilization and storage (CCUS) sites, as well as onshore oil and gas exploration.
Technical Capabilities and Expertise
Sarawak’s more independent path is made possible by its significant technical and financial resources:
It holds over 60% of Malaysia’s gas reserves (Sabah, by comparison, holds around 12%)
Hosts world-class LNG processing facilities at Bintulu
Possesses mature oil and gas service industries and experienced workforce
In March 2023, Petros received Malaysia’s first carbon capture license, positioning itself as a key player in decarbonization efforts
Ambitions for a Sovereign Wealth Fund
The state government, under Premier Abang Johari Tun Openg, has articulated ambitions to evolve Petros into a sovereign wealth fund, modelled on Singapore’s Temasek.
While plans are still being developed, the intent is to use hydrocarbon revenues to finance broad diversification of Sarawak’s economic base.
Comparative Analysis: Partnership vs. Autonomy
Financial Strength and Capabilities
The contrast between the two states is rooted in both technical and financial strength. Sarawak reported consolidated revenue account reserves of RM18.3 billion as of early 2024, compared to Sabah’s RM6 billion. This financial footing allows Sarawak to pursue higher-risk, higher-reward policies. Years of hosting Malaysia’s LNG industry have given Sarawak a deep technical bench, supporting more ambitious independent operations. By contrast, Sabah focuses on nurturing capabilities through Petronas partnerships and cautious investment in established assets.
Risk Management Approaches
Sabah’s risk-averse strategy prioritizes stable and predictable cash flow, trading away some long-term growth potential for reduced uncertainty and upskilling via collaboration. Sarawak’s high-autonomy model carries more technical and market risk — from carbon capture projects to new onshore exploration — but with the potential for greater upside and more direct control.
Federal Relations and Political Considerations
Sabah’s collaborative strategy helps maintain constructive relations with the federal government by working within established legal boundaries. The CCA explicitly acknowledges federal oil and gas laws while improving state participation. Sarawak’s assertive autonomy movement, meanwhile, has at times tested relations with Kuala Lumpur, particularly over aggregator rights and continental shelf claims. However, it has succeeded in formally securing major gains, including aggregator status and increased resource revenues.
Strategic Outcomes and Implications
Both strategies have yielded financial success. Sabah’s state revenues reached over RM7 billion in 2023, with reserves at RM6 billion. Sarawak’s revenue and reserves outpace Sabah’s, surpassing RM18.3 billion.
Long-Term Sustainability
Sabah’s pragmatic partnership approach provides a template for sustainable collaboration with minimal political friction but may, in the medium term, limit the state’s ability to capture the full value of its resources. However, it positions Sabah to accrue experience and capacity while sharing risk with national partners.
Sarawak’s autonomy-driven strategy holds out the possibility of higher returns and greater control, supported by a strong technical and fiscal base. The long-term success of this path will hinge on Sarawak’s proficiency in managing complex oil and gas operations and its ability to navigate changing federal dynamics and market conditions.
Conclusion: Context-Appropriate Strategies
Sabah and Sarawak have adopted management strategies that fit their respective strengths and constraints. Sabah’s partnership-centric policy reflects an acknowledgment of current limitations and lays groundwork for incremental capability building. Sarawak leverages its greater financial and technical resources to pursue a bold, autonomy-focused vision.
The effectiveness of each strategy will depend on successful execution and adaptability to evolving circumstances. Sabah’s model offers stability and risk mitigation, while Sarawak’s offers greater upside — and risk — through direct control. Collectively, these experiences provide instructive lessons for resource-rich regions within federal systems striving for optimal management of their natural resource endowments.
