Malaysia & Brunei in Maritime Dispute

TotalFinaElf has halted exploration operations offshore the island of Borneo because of a territorial dispute between Malaysia and Brunei over potentially huge oil reserves. Industry sources said the dispute has escalated and a Malaysian patrol boat recently chased an exploration vessel away from the area, offshore exploration Block J. The Government of Brunei signed a production sharing contract with TotalFinaElf, BHP Billiton and Amerada Hess for Block J which is within the Exclusive Economic Zone claimed by Brunei. The EEZ stretches 200 nautical miles out from Brunei's shore, in a northwesterly direction.

The Malaysian and Brunei governments have opted to keep quiet about the territorial dispute because negotiations between them on the sovereignty issue are ongoing. 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.

On the Malaysian front, oil exploration work in the overlapping Block L in the area is still going ahead. Petronas Carigali has started drilling and carrying out seismic studies in Block L, and in the disputed area. The whole area is considered promising, in terms of proven or expected reserves. Lying adjacent to Block L lies is another site, Block K, which is operated by Murphy Oil and Carigali, which has estimated recoverable reserves of 400 to 700 million bbl of crude. In January, the Malaysian government signed a production sharing contract with Murphy Oil and Petronas Caligari for the exploration of that block, with Murphy Oil holding a 60% stake.

The ongoing dispute between Malaysia and Brunei is expected to be a long drawn out affair, with no quick solution in the horizon, industry sources said. Due to the complicated nature of the situation a resolution will not be quick. Although no official meetings have been set up to settle this matter, the governments of both countries will have the opportunity to discuss the dispute during the upcoming Asia Oil and Gas conference in Kuala Lumpur in June 15-17 as well as at a meeting of Asean energy ministers in Langkawi, Malaysia, in the first week of July. The dispute may have to be sorted out in an international court if both governments fail to come to an agreement.