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KOTA KINABALU: Sabah’s ambition to be an oil and gas powerhouse has taken a hit with Shell’s decision to pull out of the state in a big way.
Withdrawal, while unlikely to disrupt operations, is visually and financially crippling.
Currently, the multinational’s upstream and downstream operations are located in the 14-story Shell Plaza, a landmark building owned by developer Hap Seng Group and located in the heart of the city’s central business district here, with some 200 Shell employees occupying four floors.
It was a proud moment for the company when it officially opened the office in November 2015, and top management said it represented the company’s long presence, partnership and progress in the state.
But sources said staff were informed at an internal meeting last week that the company had decided to cut back its operations in the state capital and send Miri to Sarawak, the company’s traditional upstream headquarters.
Sources also claimed that staff from the previous office in Kuala Lumpur would be transferred to Miri.
Shell Malaysia confirmed in a short email response to FMT inquiries that such an exercise would take place, although it did not specify the number of employees involved, the destination location or the main reason for the move.
“We will reduce the footprint of our office in Kota Kinabalu, however, Sabah remains an important state for Shell,” the company said.
“We remain committed to our upstream and downstream operations as we contribute to the development of communities in Sabah.”
Sarawak’s Deputy Minister of Tourism, Arts and Culture, Sebastian Ting, was quoted in a Borneo Post report last week as saying he was in favor of Shell’s plan to establish a new office in Miri.
He told the local newspaper that, according to a source, Shell was considering establishing a new office there that could accommodate at least 1,000 employees, some of whom would be from other regional offices.
He welcomed the move and said it would bring unexpected financial benefits to Miri.
Oil and gas analyst Renato Lima de Oliveira said the move was likely due to a combination of factors, but mainly due to low oil prices this year, which had not recovered, and the acceleration of the energy transition.
“Because of this, cost reduction has been rampant. All major companies are reducing capital expenditures and administrative costs. Therefore, it is not surprising to hear of staff consolidation in one area.
“I think the question is why one state over the other and how much can the company save with this exercise. There may be strategic, operational and accounting reasons for that, ”said de Oliveira, who is an assistant professor at the Asian Business School.
From a business owner’s perspective, Sabah Employers Association president Yap Cheen Boon said, the move may not have much of an impact on employment.
However, he wondered if it would affect the image of the state and the confidence of investors to see that a major player in the industry had chosen to make that business decision.
“Let’s look at the numbers first: 22.5% of Sabah’s GDP (gross domestic product) is contributed by the oil and gas industry and only 81,000 people are employed in the sector, despite its importance.
“They are among the highest paid employees in Sabah, denoting the high-tech adoption that is common in the industry.
“So seeing Shell move its upstream operations out of Sabah will not have a major impact in terms of employment, but it will certainly have an impact on (among others) business sentiment,” he told FMT.
Yap said sending a big player from Shell Plaza would cause unrest, as the Sabah government had been actively playing “the oil and gas game.”
“Additionally, there will be fewer opportunities for locals to train and employ in the upstream oil and gas business,” he said, adding that this would also inadvertently affect Sabah’s GDP through taxes and duties payable to the state.
“So, economically speaking, any company that moves is not always good, when investments and business expenses are supposed to come in.”
Yap said there would be economic consequences in the state capital. “Imagine what 1,000 highly paid people contribute to the Kota Kinabalu industry each day. And now imagine taking 100 to 200 out of Sabah, we immediately have less consumption and less spending in KK. “
Meanwhile, De Oliveira said the forecast for future production growth was unfortunately not optimistic for Sabah.
“Currently, about 20% of the country’s oil and gas production comes from the state, with 317,000 barrels of oil equivalent (BOE) per day.
“By 2030, the number will increase slightly, to 378,000 BOE, reaching 24% of the country’s production. Sarawak, on the other hand, is slated to grow from 802,000 BOE to 973,000 BOE, with a 63% share of the country’s total oil and gas production.
“Clearly, volumes are moving more and more to eastern Malaysia, but even more to Sarawak. So that concentration of production is likely to drive more resources, including human capital, to the state, if everything remains constant, ”he said.
However, he noted that the forecast for future production growth was based on existing fields and those that have yet to be commissioned, adding that this could change with more exploration activities and new finds at Sabah.
In addition to its downstream business, Shell operates Sabah’s offshore deepwater oil fields, namely Gumusut-Kakap and Malikai, both with a combined production of 220,000 barrels per day (BPD).
The company’s offshore operations began in 1958, when Shell drilled the first offshore well in the Sabah basin.
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