A5.2 Malaysian PSC

Oil and gas production activities in Malaysia are currently governed by the terms of Production Sharing Contracts (PSC). In 1997, Petronas introduced a new PSC based on the "revenue over cost" concept (the "R/C" PSC) to encourage additional investment in Malaysia's upstream sector.

The key components of Malaysian PSC for oil and natural gas developments include Royalty, Cost Recovery, Profit Sharing and Income Tax.

Royalty

Royalty is set at a maximum of 10% of gross revenue and is payable in kind.

Supplementary payment

The supplementary payment is a cash payment to Petronas. It is payable in any month when the price of crude oil or natural gas exceeds a real base price of US$25/bbl or US$1.8/MMBtu and the Contractors' R/C exceeds one. Under these situations, the Contractors must pay to Petronas 70% of their Profit Oil or Profit Gas. The real base price increases at 4% per year from the effective date of the contract.

Cost recovery

Costs are recovered quarterly from a percentage of gross production. Since the introduction of the 1997 model contract, the cost recovery ceiling has been in the range of 30% to 70% depending on the profitability of the contract area as measured by the ratio of the contractor's revenue to the contractor's costs (the R/C ratio).

The Contractors' R/C ratio is defined as follows:

Revenue(R) = Contractors' Cumulative Value of Cost Gas and Profit Gas less a Supplementary Payment

Cost(C) = Contractors' Cumulative Petroleum Costs less Non Recoverable Expenditure & Disputed Costs.

Excess Cost Recovery is considered to be Profit Gas and is shared between the state and the Contractor on a sliding scale.

Profit Sharing

Profit remaining after Royalty and Cost Recovery is then shared between Petronas and the Contractor on a sliding scale based on the Contractor's R/C ratio and the cumulative production level of the contract area or the Threshold Volume (THV). For gas field, the THV is 0.75 Tcf or accumulative production per discovery whichever is smaller. Table 40 below summarises the Cost Recovery Ceiling and the Profit Shares.

Table 40 – Cost Recovery Ceiling and Profit Sharing in Malaysia PSC

Contractor's R/C ratio Cost Recovery Ceiling Contractor's share of Excess Cost Recovery Contractor's share of Profit Gas
Below THV Above THV Below THV Above THV
0.0 to 1.0 70% - - 80% 40%
1.0 to 1.4 60% 80% 40% 70% 30%
1.4 to 2.0 50% 70% 40% 60% 30%
2.0 to 2.5 30% 60% 40% 50% 30%
2.5 to 3.0 30% 50% 40% 40% 30%
> 3.0 30% 40% 20% 30% 10%

Income Tax

Income Tax is levied at 38% on the Contractors' share of cost and Profit Gas.