Who Owns Malaysia's Oil: Petronas, the Petroleum Development Act and the Federal Budget

At a glance

Item	Figure	Period	Source
PETRONAS total contributions to government	RM67.6 billion	2025	PETRONAS IR2025
— of which dividend to Government	RM32.0 billion	2025	PETRONAS IR2025
— of which petroleum cash payments	RM10.8 billion	2025	PETRONAS IR2025
Dividend budgeted for 2026	RM20 billion	2026	MOF
Petroleum-related revenue, share of federal revenue	~17% → 12.5%	2025 → 2026	MOF
Petroleum income tax (PITA)	RM16.9bn → RM15.7bn	2025 → 2026	MOF
Crude oil and condensate production	183.6 million barrels (+1.1%)	2025	DOSM
Natural gas production	2,943.8 billion cu ft (broadly flat vs 2,948.8 in 2024)	2025	DOSM

The short answer

Malaysians do not own Malaysia’s oil in the way most people assume. Neither, strictly, do the states in whose waters it sits.

Since 1 October 1974, when the Petroleum Development Act 1974 came into force, the entire ownership of petroleum in Malaysia has belonged to one company. Section 2(1) is unambiguous: the entire ownership in, and the exclusive rights, powers, liberties and privileges of exploring, exploiting, winning and obtaining petroleum — onshore or offshore — is vested in a corporation incorporated under company law. Section 3(1) then provides that the Corporation shall be styled PETRONAS.

That company pays its dividend to the federal government — MOF books it as government investment income — and section 3(2) makes it subject to the control and direction of the Prime Minister. Section 3(3) adds that such directions bind the company notwithstanding the Companies Act or any other written law. So the chain runs: resource → company → Prime Minister.

What the Act actually says

The whole statute runs to ten numbered sections — plus later insertions such as 3A and 7A to 7C — and a Schedule. Most public argument about Malaysian oil turns on four of them.

Section	Heading	What it does
2	Ownership	Vests entire ownership and exclusive rights in the Corporation; the vesting is irrevocable and enures for the Corporation and its successor
3	The Corporation	Names it PETRONAS; places it under the control and direction of the Prime Minister
4	Cash payment by the Corporation	In return for what it received, PETRONAS shall make to the Federation and any relevant State “such cash payment as may be agreed between the parties concerned”
6	Downstream permission	No one but PETRONAS may refine, process or manufacture petrochemicals without the Prime Minister’s permission — penalty up to RM1 million or five years’ imprisonment, or both

Two things in that table deserve emphasis because they are routinely misreported.

First, the Act contains no percentage. There is no “5%” anywhere in Act 144. Section 4 leaves the amount entirely to agreement between the parties. The 5% figure that dominates public debate comes from the separate agreements signed with each producing state, not from Parliament.

Second, the Act did not simply seize the resource. Section 2(2) says the vesting takes effect only on execution of an instrument in the form set out in the Schedule — and that form is a grant made by the signing government to PETRONAS, in practice each producing state. Its operative words are that the signatory, on behalf of the Government named in the instrument, grants in perpetuity and conveys to and vests in PETRONAS the ownership and exclusive rights over petroleum, and that the grant is irrevocable.

That is the constitutional hinge of the entire debate. Each state executed a vesting instrument. Section 2(3) then made the result permanent.

What petroleum actually earns the federal government

Petroleum reaches the federal budget through four distinct channels, and conflating them is the most common analytical error.

Channel	Nature	2026 estimate
PETRONAS dividend	Non-tax revenue (investment income)	RM20.0 billion
Petroleum income tax (PITA)	Direct tax under the Petroleum (Income Tax) Act	RM15.7 billion
Petroleum royalty	Non-tax revenue (licences and permits)	RM5.1 billion
Export duty on crude	Indirect tax	included in export duty

Ministry of Finance figures show the dependence shrinking fast. Petroleum-related revenue was around 17% of total federal revenue in 2025, equivalent to 2.8% of GDP. For 2026 it is budgeted at RM43 billion, or 12.5% of a total revenue estimate of RM343.1 billion — with MOF explicitly describing this as a commitment to reduce reliance on commodity-based revenue because of its price volatility.

PITA alone illustrates the slide: 6.3% of federal revenue in 2024, 5.1% in 2025, 4.6% budgeted for 2026.

The dividend is the swing factor. PETRONAS paid RM32 billion for 2025; the figure budgeted for 2026 is RM20 billion — a cut of RM12 billion in a single year, which MOF attributes to lower dividend payments from the company. That single line item is close to 6% of all federal revenue, which is why one company’s dividend decision is treated as a national fiscal event.

The RM67.6 billion that leaves PETRONAS

PETRONAS’s own reporting gives the cleanest breakdown available — and it separates the federal, state and trust-fund streams that budget documents blur together.

Payment	2025 (RM billion)	Goes to
Dividend to Government	32.0	Federal
Taxes	19.6	Federal
Petroleum cash payments	10.8	Federal and producing states (section 4)
State sales tax	4.2	Sarawak
Export duty	0.5	Federal
National Trust Fund	0.5	KWAN
Total	67.6

Cumulatively, PETRONAS puts its contributions at approximately RM1.6 trillion as of 2025.

For scale, the company earned revenue of RM266.1 billion in FY2025 and profit after tax of RM45.4 billion, both down sharply year on year, while spending RM41.6 billion in capital expenditure. Group upstream production — Malaysian and international assets together — averaged 2,423 thousand barrels of oil equivalent per day, edging down from 2,451 in 2024, which PETRONAS attributes mainly to lower crude oil output from its international operations.

The Sabah and Sarawak question, stated neutrally

This is the part most coverage either avoids or takes a side on. The factual position, without characterisation:

The federal position rests on the text. Section 2 vests ownership in PETRONAS; each state executed the Schedule instrument granting rights in perpetuity; section 2(3) makes it irrevocable. On this reading, what a state receives is the section 4 cash payment — an amount fixed by agreement, not by entitlement.

The state positions rest on what preceded and surrounds the Act — the Malaysia Agreement 1963, pre-existing state oil mining ordinances, and continental-shelf boundaries — and on the argument that the 1974 arrangement should be renegotiated or supplemented rather than treated as settled.

What has actually changed since 2020 is commercial rather than statutory. The Act has not been amended. Instead:

• December 2020 — Sarawak and PETRONAS announced a commercial settlement agreement, executed on 7 December 2020, giving Sarawak a greater share of revenues from oil and gas produced in the State, more active state involvement through Petros in onshore management and offshore upstream investment, and a consultative framework between the parties.
• From 1 January 2019 — Sarawak has levied its own 5% state sales tax on petroleum products sold or delivered outside the State, under the State Sales Tax Ordinance 1998. The gazette order lists crude petroleum oils, LNG, condensates, urea, kerosene, gas oil, lubricating oils, naphthalene, paraffin wax and lubricating greases, each at 5%. This is a state tax, legally distinct from the section 4 cash payment — the RM4.2 billion line in the table above.
• May 2025 — Putrajaya and Sarawak signed a Joint Declaration under which PETRONAS continues its functions, responsibilities and obligations as mandated under the PDA 1974, while federal and Sarawak laws on gas distribution in the State are to co-exist and be respected by all parties, and Petros acts as gas aggregator in Sarawak.
• Sabah has pursued a parallel commercial route, negotiating with PETRONAS through its own state energy vehicle rather than seeking statutory change.

The pattern is consistent: the vesting in section 2 has been left intact, and the bargaining has moved to equity stakes, aggregator roles, state taxes and negotiated payments.

Common mistakes

• “The royalty is 5% under the Act.” It is not in the Act at all. Section 4 says only that the cash payment shall be as agreed between the parties.
• “Petroleum is 20% of Malaysia’s GDP.” That conflates revenue with output. Petroleum-related revenue is a share of the federal budget (about 17% in 2025). In national accounts terms, mining and quarrying grew just 0.6% in 2025 while services and manufacturing together contributed 82.5% of GDP — see Malaysia’s GDP and electronics and semiconductors.
• “Sarawak’s state sales tax is its oil royalty.” They are separate instruments with separate legal bases — one a state tax ordinance, the other a section 4 agreement.
• “PETRONAS is a government department.” It is a company incorporated under company law, with its own board and audited accounts — but one whose sole shareholder’s representative may direct it under section 3(2).
• “Oil is Malaysia’s biggest export.” It is not. Electrical and electronics products dominate; see external trade and the palm oil sector for the other commodity comparison.

What’s next

The direction of travel is set by two independent trends that happen to point the same way.

Fiscally, MOF has budgeted petroleum-related revenue down to 12.5% of federal revenue for 2026 and is replacing it with a broader tax base — SST expansion, e-invoicing and higher direct tax collection. If crude prices stay soft, the 2027 dividend becomes the number to watch.

Operationally, output is easing rather than growing — group production slipped in 2025 — while PETRONAS describes its Malaysian investment as aimed at sustaining and growing production. That combination implies heavy capital spending simply to hold the line.

The unresolved item is the federal-state settlement. Every step since 2020 has been commercial — settlement agreements, equity participation, aggregator appointments, a joint declaration — while section 2 of Act 144 remains exactly as Parliament enacted it in 1974. Whether that holds, and on what commercial terms, is the question worth tracking.