Petronas: Malaysia's National Oil Company

The Petroleum Development Act 1974 vested the rights over all petroleum onshore and offshore in Malaysia in a new company — and more than 50 years later, the relationship between the Federal Government and several states over the control and revenue of petroleum remains an unresolved issue. That company is Petroliam Nasional Berhad, or Petronas.

Petronas is one of Malaysia’s most powerful institutions, yet many are confused about what its status really is: is it a government department, a public company, or something else? This guide explains its legal basis, how it is structured, how large its fiscal role is, and why its exclusive rights are the source of an ongoing dispute between Putrajaya and Sarawak, Kelantan and Terengganu.

What is the legal basis of Petronas?

Petronas is not just an ordinary company that succeeded — it was born of an Act of Parliament. The Petroleum Development Act 1974 (Act 144) is the document that gives Petronas its powers.

Section 2 of the Act vests “the entire ownership in, and the exclusive rights, powers, liberties and privileges of exploring, exploiting, winning and obtaining petroleum whether onshore or offshore of Malaysia” in a Corporation. This ownership is stated to be irrevocable and to continue in perpetuity for the benefit of the Corporation and its successors.

Section 3 names the Corporation — in the text of the Act it is referred to as “Petroleum Nasional Berhad or in short PETRONAS” (its official registered name is Petroliam Nasional Berhad) — and places it “subject to the control and direction of the Prime Minister”, who may from time to time issue such directions as he thinks fit.

This means Petronas reports not to a ministry, but directly to the Prime Minister himself.

Two other provisions are important for understanding the revenue debate:

• Section 4 provides that in return for the ownership and rights granted, the Corporation shall make to the Federal Government and the Government of any relevant State “such cash payment as may be agreed between the parties concerned”. Note: the Act does not set a fixed figure — the well-known 5% royalty rate comes from supplementary agreements signed around 1975-76, not from the Act itself.
• Section 6 prohibits anyone other than Petronas from carrying on the business of processing, refining or manufacturing petrochemical products from petroleum, except with the permission of the Prime Minister. This is the basis of Petronas’s control over downstream activities.

Who owns and controls Petronas?

Petronas is owned wholly by the Federal Government of Malaysia. It is a limited company (registration number 20076-K) but is not a listed company — you cannot buy Petronas shares on Bursa Malaysia.

This distinction often confuses the public. What is listed on the exchange are some of Petronas’s subsidiaries, not the parent company itself.

Feature	Petronas (parent)	Listed subsidiaries
Ownership	100% Federal Government	Petronas is controlling shareholder, remainder public
Listed on Bursa?	No	Yes (e.g. PETRONAS Chemicals, PETRONAS Gas, PETRONAS Dagangan, MISC)
Reports to	Prime Minister (Section 3, Act 144)	Board of directors + Bursa/SC
Source of power	Petroleum Development Act 1974	Companies Act + capital market regulations

As one of Asia’s largest companies, Petronas is consistently listed in the Fortune Global 500, and is often the only Malaysian company on that prestigious list.

How is Petronas’s corporate structure organised?

Petronas is an integrated group spanning the entire oil and gas value chain — from the well to the petrol station. It is usually understood in several key segments.

Upstream and regulatory functions. This part explores for and produces oil and gas. Uniquely, Petronas is not just a player — it is also a regulator. Through Malaysia Petroleum Management (MPM), Petronas manages the country’s petroleum resources across the lifecycle of upstream projects and issues petroleum sharing contracts that set out the rights and responsibilities of contractors. This dual role of “player as well as referee” is among the sources of tension with the states.

Gas and New Energy. Petronas produces, liquefies and exports liquefied natural gas (LNG), including the LNG complex in Bintulu, Sarawak. Sarawak’s position as Petronas’s main LNG production and export hub makes the state an important part of the group’s gas business — part of the reason why the dispute with the state is so high-stakes.

Downstream, petrochemicals and shipping. This segment refines, markets and transports products. This is where several of Petronas’s listed subsidiaries sit.

Subsidiary	Core field
PETRONAS Chemicals Group (PCG)	Integrated chemicals producer — olefins, polymers, fertilisers, methanol, specialty chemicals
PETRONAS Gas Berhad (PGB)	Owns and operates gas processing, transmission and regasification networks
PETRONAS Dagangan Berhad (PDB)	Retail and marketing of downstream petroleum products (petrol stations, products)
MISC Berhad	Logistics and maritime — LNG transport, tankers, technical services

Each is separately listed on Bursa Malaysia with Petronas remaining the controlling shareholder. The Petronas Twin Towers in Kuala Lumpur — the group’s headquarters — remain among the country’s most iconic landmarks.

How large is Petronas’s fiscal role?

Petronas is not just a company — it is the nation’s financial mainstay. For many years, dividends and taxes from Petronas have contributed a large part of the Federal Government’s revenue.

The financial figures for financial year 2024 give a picture of its scale (please verify the exact figures against the PETRONAS Group Financial Results FY2024 announced on 5 February 2025):

• Revenue: around RM320 billion (down about 7% from RM343.6 billion in 2023)
• Net profit: around RM55.1 billion (down from RM80.7 billion in 2023, following lower average selling prices)
• Dividend to government: a commitment of RM32 billion for 2025 (statement by the Minister of Finance, February 2025); the amount for subsequent years was stated to depend on Petronas’s financial performance and oil market conditions

Dividends and taxes from Petronas consistently contribute a large part of the Federal Government’s revenue — a fact that explains why any threat to this revenue stream raises concern at cabinet level.

But this dependence cuts both ways. When oil prices fall, government revenue is also affected; and when the states demand a larger share, it directly reduces the amount that reaches the federal treasury. It is this tension that brings us to the disputes.

Why do federal-state petroleum revenue disputes arise?

The root of every dispute is one fundamental conflict: the Petroleum Development Act 1974 gives Petronas (and through it, the Federal Government) exclusive rights over all petroleum — but several states hold that the resources in their territory should bring them more control and revenue.

For Sarawak and Sabah, the argument rests on the Malaysia Agreement 1963 (MA63) and state ordinances that existed before the formation of Malaysia. For Peninsular states such as Kelantan and Terengganu, the claims revolve around the 1975 royalty agreements and the question of whether the wells in question lie within state waters.

This issue is constitutionally sensitive because it touches on the balance of power between the federation and the states — the core of Malaysia’s federal arrangement. This guide presents each party’s position without taking sides.

What are Sarawak’s claims and the PETROS issue?

The hottest dispute now involves Sarawak. The state established its own oil and gas company, Petroleum Sarawak Berhad (PETROS), in 2017, and has since sought to reclaim control over its petroleum sector.

Sarawak’s position. Sarawak argues that its jurisdiction over oil and gas is rooted in laws that existed before Malaysia — particularly the Oil Mining Ordinance 1958 — and is protected by MA63. Based on the Gas Distribution Ordinance 2016 (DGO), Sarawak wants PETROS to be the sole gas aggregator in the state, that is, the only entity that buys and distributes gas within Sarawak.

Petronas’s position. Petronas relies on its national exclusive rights under the 1974 Act and warns that it cannot unilaterally alter long-term LNG export contracts with overseas buyers without breaching those agreements. Petronas also defends its role as the country’s sole upstream regulator.

Developments. The Sarawak state government appointed PETROS as the state’s gas aggregator. As of May 2025, Petronas and PETROS were still in direct negotiations with no definitive deadline, with the federal government and Sarawak reportedly ready to intervene should the talks stall. In a statement in February 2025, the Prime Minister said PETROS would be guaranteed a natural gas supply of up to 1.2 billion cubic feet per day for the state’s domestic needs, up from 450 million cubic feet per day. Among the unresolved issues are the fate of Petronas’s long-term LNG export contracts and the governance of the gas value chain.

What is at big stake: analysts estimate Sarawak could obtain up to RM20 billion a year if its claims are fully met — largely at the expense of Petronas’s revenue and federal dividends. This figure is an analyst estimate and should be verified.

How do the Kelantan and Terengganu cases differ?

The Peninsular states face a different legal question from Sarawak. Here the issue is not MA63, but geography and royalties.

In 1975, Petronas signed agreements with all the states promising an annual royalty of 5% on petroleum found and sold. The question: does a particular well lie within “state waters”?

Terengganu. Terengganu received royalty payments for many years. However, around the year 2000, the federal government directed Petronas to stop direct payments and replace them with federally managed “goodwill money” (wang ehsan) — a move that occurred while the state was governed by the opposition. Royalty payments were later restored around 2009. According to a Free Malaysia Today report, Terengganu received RM22.4 billion from royalty payments between 2008 and August 2020.

Kelantan. Kelantan also claimed the 5% royalty based on the same 1975 agreement, but was refused on the grounds that the relevant wells lie far offshore — beyond the three-nautical-mile limit which, under federal policy, places those waters under federal control. Kelantan sued Petronas in 2010; the case was withdrawn in 2019 after nearly nine years. In place of royalties, Kelantan receives much smaller goodwill payments.

It is this comparison between Terengganu and Kelantan that critics often raise as a “double standard” — although the federal government argues that the geographical positions of the wells and the terms of each state’s agreement differ.

State	Basis of claim	Key instrument	Brief status
Sarawak	Pre-Malaysia state jurisdiction; gas aggregator	MA63, Oil Mining Ordinance 1958, DGO 2016	Ongoing negotiations (May 2025); PETROS appointed state gas aggregator
Terengganu	5% royalty of 1975 agreement	1975 revenue-sharing agreement	Receives royalty; once converted to “goodwill money” (~2000), restored (~2009)
Kelantan	5% royalty of 1975 agreement	1975 agreement; 3-nautical-mile limit issue	2010 suit withdrawn 2019; receives goodwill money

How to assess petroleum revenue claims fairly?

To understand any Petronas-state dispute without getting caught up in political rhetoric, ask the following questions in order:

1. What legal instrument does each party hold? The federation almost always relies on the 1974 Act (Section 2). States may rely on MA63, pre-Malaysia ordinances, or the 1975 royalty agreements. Identify the document first.
2. Where is the petroleum physically? Waters within the state’s three-nautical-mile limit are treated differently from deep offshore. Geography often determines the legal outcome.
3. Is the claim about ownership, operational control, or revenue? These three are distinct. Sarawak claims operational control (gas aggregator); Kelantan claims revenue (royalties). Do not conflate them.
4. What are the downstream effects on existing contracts? Long-term LNG export contracts and federal dividends cannot be changed in an instant; any settlement must take these commitments into account.
5. Is the resolution through political negotiation or a court decision? Most cases end in political compromise (like the ongoing Petronas-PETROS negotiations) rather than a final judgment.

What are common misconceptions about Petronas?

• “Petronas is a government department.” Wrong. It is a government-owned limited company, reporting to the Prime Minister, not a ministry or public department.
• “You can buy Petronas shares.” No. The parent company is not listed; only subsidiaries such as PETRONAS Chemicals, PETRONAS Gas, PETRONAS Dagangan and MISC are listed.
• “The 1974 Act sets a 5% royalty for the states.” Not accurate. Section 4 only refers to “agreed cash payments”; the 5% rate comes from separate supplementary agreements in 1975-76.
• “Sarawak claims to fully own its oil.” Too simplistic. The current core claim is to be the gas aggregator and to obtain downstream regulatory control through the DGO 2016 — not the outright repeal of the 1974 Act.
• “Kelantan is paid nothing at all.” Wrong. Kelantan receives goodwill payments, only much smaller and not the full 5% royalty as claimed.

What next

If you want to go deeper into this topic, start by reading the text of the Petroleum Development Act 1974 directly — particularly Sections 2, 3, 4 and 6 — because almost every debate revolves around its exact wording. Follow up with the Malaysia Agreement 1963 to understand the basis of Sarawak and Sabah’s claims.

To follow developments in the Petronas-PETROS dispute, keep track of Petronas’s annual financial reports and official statements from the Sarawak state government, as well as relevant court filings. To understand Petronas’s fiscal role, the company’s annual Integrated Report and the Federal Budget documents are the key sources.

Related articles planned for NegaraKu.md: a full explainer of the Petroleum Development Act 1974, the Malaysia Agreement 1963 (MA63), and a profile of PETROS — to complete the constitutional and commercial picture behind Malaysia’s oil and gas.

Note: This is an AI-assisted draft that has not undergone expert human review. Every important figure is referenced to the official sources listed; items in verificationNeeded still require human verification. Please verify the latest legal and financial details with the original sources before relying on them for decisions.