HindustanTimes.com

Saturday, August 23, 2003

Brunei, Malaysia to try to end offshore oil row

Reuters
Kuala Lumpur, August 21

International oil companies will be watching closely as Malaysia and Brunei
meet on Friday to try to settle rival claims of oil-rich waters off Borneo
island's northwest coast.

Both sides are at pains to hide any ill-feeling, and ordered a halt to
exploration after the Malaysian navy this year chased off a drilling team
belonging to a consortium led by TotalFinaElf.

Malaysia, according to a source in Brunei with knowledge of the sultanate's
policy-making, has proposed a production sharing agreement.

But, Britain-based advisers of Brunei have warned such an agreement could
mean conceding Malaysia has territorial rights, the source said.

However, Brunei, a tiny nation of 330,000 people surrounded by Malaysia,
lacks the muscle to back up its claim and may lose more by digging in
against its larger neighbour.

Brunei's Sultan Hassanal Bolkiah has a good relationship with Malaysia's
Prime Minister Mahathir Mohamad, who steps down in October after 22 years in
power, but with so much money at stake the goodwill could be strained and
tough negotiations are expected in Kuala Lumpur.

"Brunei is in a very tight spot over what to do," the source in Brunei said
on Thursday. The talks are billed as a regular annual session between the
neighbours.

Brunei has declared an exclusive economic zone (EEZ) off its shores of 200
km (124 miles) and has awarded exploration blocks.

Malaysia bases its claim on possession of some tiny islands and reefs in the
South China Sea and says Brunei only has jurisdiction over its continental
shelf, in water up to 200 metres deep. About three-quarters of the EEZ is in
deeper water.

The stakes were raised last year when Murphy Oil Corp made a discovery in a
Malaysian block adjoining the disputed area, and put preliminary estimates
of recoverable reserves at 400 million to 700 million barrels.

The neighbours have a long-standing onshore dispute over a wedge of
Malaysian territory that virtually splits Brunei in two.

Both sides are keen to replenish dwindling oil reserves and neither will
want lengthy international arbitration.

Oil companies with interests in the outcome have been asked to refrain from
comment.

"Cards are being kept very close to Malaysian chests," said one Western
diplomat. "Like all things Malaysian, it will be sorted out discretely with
a compromise."

Malaysia's crude and condensate production is expected to reach close to
690,000 barrels per day this year. Brunei's is 200,000 bpd.

© Hindustan Times Ltd. 2003.
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