This article first appeared in The Edge Malaysia Weekly on July 13, 2026 - July 19, 2026
THE feud between national oil company Petroliam Nasional Bhd (PETRONAS) and Petroleum Sarawak Bhd (Petros) over control of the state’s oil and gas (O&G) resources is likely to be resolved soon, sources familiar with the matter tell The Edge.
One source says, “It is imminent.” His conviction stems from Sarawak premier Tan Sri Abang Johari Tun Openg’s visit to Kuala Lumpur last week for a high-level discussion on the dispute.
“Very good progress was made. It should be resolved very soon.”
Another source from the O&G sector says he has also heard that the years-long stalemate is coming to a close following talks in Bintulu last month.
“The PM (Prime Minister Datuk Seri Anwar Ibrahim) and Abang Jo (Abang Johari) were discussing this (the feud) during the handover ceremony — for the change in status of Bintulu Port from a federal port to a state port in June — and the two leaders made a firm decision to end the dispute. Since then, talks have been taking place, and from what we hear, it’s bearing fruit. It is going to be sorted out. As I understand, the negotiations will be concluded very soon,” he says.
Both PETRONAS and Petros did not respond to questions from The Edge on the matter.
Details of the settlement or agreement are not known. It is also likely that with this settlement, the ongoing disputes in court may be amicably solved as well.
The feud between Sarawak and PETRONAS is largely hinged on oil royalties of 5% paid by PETRONAS to the state. Sarawak deems this to be low and has indicated its preference for a 20% quantum.
In 2014, Abang Johari’s predecessor, the late Tan Sri Adenan Satem, led the Sarawak legislative assembly to unanimously pass a motion asking for a 20% oil royalty, up from 5% then. Ironically, the 20% oil royalty was originally mooted by the opposition Pakatan Harapan (PH) coalition then, which is now the government. The 20% oil royalty was in PH’s 2018 election manifesto.
PETRONAS, meanwhile, suggested that the 5% royalty given to the oil producing states was risk-free, as the states were not involved in the development and operations to secure the hydrocarbon assets. PETRONAS said its average profit margin from local operations was 3.7%.
Sarawak-related agencies argued that the 3.7% margin applied to its deep-sea operations, and pointed out that the majority of PETRONAS’ operations were in shallower waters.
Petros, which is wholly owned by the state, was set up in July 2017 with a paid-up capital of RM20 million. According to the financial report filed with the Companies Commission of Malaysia, Petros was given the mandate for the “exploitation of oil and gas, covering upstream, mid-stream and downstream” segments.
Sarawak holds about 60% of the country’s gas reserves and accounts for 90% of its liquefied natural gas exports.
The feud escalated when Petros was appointed by the state government as the sole gas aggregator in Sarawak in February 2024, an attempt to crimp PETRONAS’ powers. This led to the dispute on the terms of the Malaysia Agreement 1963 and the Petroleum Development Act 1974 (PDA 1974). The latter is the main legislation governing the Malaysian O&G industry, and vests the entire ownership, and the exclusive rights, powers, liberties and privileges of exploring and exploiting petroleum resources, whether onshore or offshore Malaysia, with PETRONAS.
Sarawak questions the legitimacy of the PDA 1974, as it was passed under the shroud of the 1969 Emergency Ordinance, which was repealed in 2011. The Distribution of Gas Ordinance 2016, meanwhile, gives Petros the rights to distribute gas under a framework called the Sarawak gas sales agreement. It came into effect on July 1, 2018, thus challenging the PDA 1974.
Other legislation, such as Sarawak’s Oil Mining Ordinance of 1958, have also been brought up to strengthen Petros’ case.
There have been a number of attempts to pacify both parties. On Aug 25, 2025, the High Court of Sarawak in Kuching agreed to adjourn a hearing to Sept 30, 2025, to enable Petros and PETRONAS to settle their disputes.
While a number of deadlines have been imposed by the highest levels of the federal and state administrations, the feud has not been resolved.
In May last year, a joint declaration on the issues between PETRONAS and Petros were signed by the federal and Sarawak governments, but the details and new structure of the development of Sarawak’s O&G sector were not disclosed.
In 2020, Sarawak took PETRONAS to court to recover RM1.3 billion in outstanding state sales tax and other penalties. The Kuching High Court ruled that both Sabah and Sarawak had rights under the Federal Constitution to impose sales tax on petroleum products. PETRONAS appealed against the decision but the two parties opted against legal recourse and dropped their respective lawsuits.
Interestingly, PETRONAS and its subsidiaries settled the payment of arrears in the sales tax for 2019, amounting to RM2.96 billion, in September 2020.
As the dispute stretched on, industry players say PETRONAS was holding back on its capital expenditure in Sarawak, leading to a number of O&G companies suffering from a dearth of jobs.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's App Store and Android's Google Play.