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Miri – from where it all began

Friday May 20, 2005

Miri – from where it all began

MIRI, declared as Malaysia’s newest city today, occupies a very special place in the history of Malaysia’s oil industry – it was here that oil was first struck in 1910.  

Possibly the earliest record of the existence of oil seepages in Sarawak’s Baram-Miri District was mentioned in the diary of the Baram district officer in 1882 when he wrote of what he called “the celebrated earth oil”. 

Another diary entry in 1884 suggested that “the oil district near the mouth of the Miri River should be thoroughly searched and reported on”.  

In 1888, Dr Charles Hose, who became Baram district officer, took his predecessor’s suggestion to heart and began to explore these seepages himself, giving small rewards to locals who kept him closely informed of further discoveries. He soon compiled a map of the area showing no less than 28 oil seepages. 

In 1907, retired but still convinced of the feasibility of commercial oil production in Miri, Dr Hose wrote to the then Rajah of Sarawak, Sir Charles Brooke, for permission to show his map and oil samples to the Shell company in London. Permission was granted and Shell was convinced enough to draw up concession negotiations with Brooke.  

THE FIRST: Drilling Well No1 now affectionately called the Grand Old Lady.
On terms “which were fair and satisfactory to both parties”, the areas in question were leased for 75 years from 1909 to Shell, then known as the Anglo-Saxon Petroleum Company Limited. 

Shell’s chief geologist Dr Josef Theodore Erb visited Miri and carried out a geological survey of greater North Sarawak, which marked Shell’s earliest exploration for oil in Malaysia. 

At this time, a number of Shell-owned and affiliated companies were also operating in British North Borneo, now Sabah. But Shell’s initial efforts met with little or no success. Shell then diverted its attention to Sarawak where Dr Erb was making considerable headway in pursuing Dr Hose’s conviction. 

Reporting back to London, Dr Erb confirmed the existence of “numerous oil shows”. And in February 1910, after much investigation, the fixed the exploration site on the tip of Miri’s Canada Hill.  

His selection of Canada Hill to drill instead of the swamps where the seepages were obviously occurring caused quite a stir among local Miri residents. But it was nevertheless to be indeed an event of profound significance when Malaysia’s first ever oil well was drilled and oil eventually struck on Dec 22,1910. 

Called Miri Well No. 1, and now affectionately known as the Grand Old Lady, the wooden derrick erected at 79m above sea level began to produce an initial 83 barrels per day under the laborious cable tool method – a system used by the Chinese as early as 221AD to trap underground salt. 

Between 1910 and 1957, 46 more onshore exploration wells were drilled in the Balingian and Baram Delta areas. By the time the last well was drilled in 1972, a total of 624 land wells had been drilled in the Miri field since the 1910 discoveries. 

Malaysia’s first oil well is today a state monument and one of Miri’s tourist attractions. 

After the discovery of oil in Miri, Shell built Malaysia’s first oil refinery there in 1914. The refinery was relocated to Lutong on the outskirts of Miri in 1916.  

The year 1914 was also the year that Shell laid a submarine pipeline in Miri, a breakthrough in the technology of transporting crude to tankers out at sea. 

Encouraged by the discovery of the Miri land field, there was no looking back for Shell as it stepped up its exploration activities and covered the entire Sarawak land mass. 

The activity was extended to neighbouring Brunei, and – while the results in the rest of Sarawak proved disappointing – major discoveries were made in Seria, Brunei, in 1923. 

By the late 1950s, Shell began to take the search for oil off Sarawak and Sabah. In 1960, the first mobile drilling rig ever used in Malaysia, Orient Explorer, arrived in Sarawak waters and began to explore off Baram Point. 

Advances in exploration and production technology were used to meet the special challenges of ocean environments. These efforts were rewarded by the discovery of Sarawak’s first offshore field, Baram, in 1963, which coincided with the year the state became part of Malaysia.  

Others followed suit – West Lutong, Tukau, Baronia, Betty, Bakau, Bokor, to name a few. The first offshore oil production began from West Lutong in 1968. 

Putting its expertise to good use, Sarawak Shell pioneered the single buoy mooring system in 1960. The system, which dispenses with the need for deep-water harbour facilities, was later adapted and used throughout the world. 

In 1965, Miri and its people became the first in Malaysia to enjoy all the convenience of piped gas, when Shell started a gas distribution system via the Miri Public Works Department and later through Sarawak Gas Distribution Sdn Bhd.  

The Arrival & installation of the first SBM at Lutong.
Petronas took over the operation of the distribution system from Shell in 1988, following which the old pipeline system was replaced and the new pipe length extended from 12km to 40km. Now, there are about 13,500 households and more than 700 commercial and industrial customers. 

Meanwhile, off Sabah, oil was found at Erb West in 1971 and at Samarang in 1973. Production started in Samarang in 1975 and Sabah became Malaysia’s second oil-producing state. 

More discoveries off the shores of Sabah and Sarawak followed, and the dramatic spectacle of massive oil platforms being towed out to sea became an almost common sight. 

Indeed, Miri which sat on oil, grew with it or as a result of it. Oil and later the discoveries of gas fields propelled and fueled the socio-economic development of Miri and its people. 

 

Enter Petronas – Seeing the Larger Picture 

 

If there was a year that had to go down as a landmark in Malaysia’s oil industry, it had to be 1974. 

After much anxiety – and sense of reservation – among the oil companies operating in the country and excitement within the Malaysian Government, the Petroleum Development Act was passed by Parliament.  

This led to the setting up of Petroliam Nasional Berhad (Petronas), which was incorporated as a business entity on Aug 17, 1974. As the national petroleum company of Malaysia, Petronas owns and adds value to the petroleum resources in the country. 

But it is perhaps pertinent here to look back at the original objectives as set out by the founding fathers of the incorporation of Petronas almost 31 years ago: 

·To safeguard the sovereign rights of Malaysia and the legitimate rights and interests of Malaysians in the ownership and development of petroleum resources; 

·To undertake proper planning for the orderly exploitation and utilisation of Malaysia’s petroleum resources so as to satisfy both present and future needs of the country; 

·To participate actively in the exploration of petroleum and in the marketing and distribution of petroleum and petroleum products; 

·To ensure that the local market is supplied with petroleum and petrochemical products at reasonable prices; 

·To encourage local participation in the manufacturing, assembling and fabricating of plant and equipment used in the oil industry and in the provision of ancillary and supporting services; 

·To contribute to the development of the agro-based sector of Malaysia’s economy by making available nitrogenous fertilisers; and 

·To ensure that the people of Malaysia as a whole enjoy the fullest benefits from the development of the country’s petroleum industry. 

In the 1970s, when the emergence of Petronas was looming on the horizon, there was understandably a sense of uncertainty among the oil companies that had been operating in Malaysia without having to be subjected to rules any entity like Petronas was bound to set. 

Such anxiety also permeated within the Shell circles in Miri and the headquarters of Shell companies in Malaysia in Kuala Lumpur as both the newly-formed national oil company and companies like Shell were heavily engaged in negotiations over a new system for future oil deals in the country. 

First PSC signing between Petronas and Shell
Following the incorporation of Petronas, one of the first major steps taken towards realising its objectives was to change the concession system governing the oil exploration and exploitation to the more equitable production sharing contract (PSC) system. 

Negotiations to come up with and to agree on the terms as well as the changeover to the new system took two years to complete, reflecting that it was no plain sailing given the huge stakes involved. 

The first two PSCs were signed between Petronas and Shell on Nov 30, 1976. Shell welcomed the PSCs as both “fair and equitable”, though some company officials then were also reported to have said that they were among the toughest in the business. 

Official statements by oil companies following the signing of the PSCs pronounced the new PSC system as the “framework for investment, with terms that justify sustaining our present high level of operation and are sufficient for further exploration and production development”. 

Petronas saw the acceptance of the terms of the PSC by the oil companies as its most important contribution then to the Malaysian petroleum industry, heralding the start of the more rapid development of the nation’s petroleum resources as well as the beginning of new partnerships with oil companies. 

Another major investor in the country, Esso, signed the PSC on Dec 8, 1976. 

Over the years, Petronas has more than achieved the rather modest goals of its formation.  

Its presence in Miri as the birthplace and the learning bed of the complex oil industry has contributed immensely to Petronas being what it is today. It has grown to become a fully integrated petroleum corporation, involved in a wide spectrum of petroleum activities in Malaysia and overseas. 

Today, this Fortune 500 corporation has over 70 subsidiaries and associated companies in its stable with business interests spanning over 35 countries. Four of these subsidiaries are listed on Bursa Malaysia. 

Through its exploration and production arm, Petronas Carigali Sdn Bhd, Petronas is directly involved in the exploration, development and production of oil and gas in the country, alongside the multinational production-sharing contractors.  

Overseas, Petronas has established its presence in the upstream sector in 25 countries, which to date has yielded accumulated oil and gas reserves of about 6.29 billion barrels of oil equivalent, about one-third of Malaysia’s own reserves. 

In the downstream sector, Petronas owns and operates two refineries in Malacca and Kertih, and another in Durban, South Africa. It has also ventured into retailing activities overseas. 

It is perhaps in the domestic retailing sector that Petronas’ presence is being felt without fail. From its early days of operating the ugly-looking skid tanks to retail its petroleum products, the national oil corporation is now a force to be reckoned with and runs some of the most sophisticated petrol kiosks in the business. 

This truly global Malaysian company has within just three decades turned into a world-class oil giant in its own right. 

 

Petronas and Shell – A Smart Partnership That Benefits Malaysians 

 

Although Shell is a contractor to Petronas under the PSC, the two companies have formed smart partnerships in many ventures, in Miri and elsewhere in Malaysia that could only result in more benefits for Malaysians. 

Worthy of mention is the Petronas-initiated Baram Delta Gas Gathering (Bardegg) Project, Malaysia’s biggest gas conservation scheme, aimed at minimising the endless and wasteful flaring of gas and safeguarding the environment. 

E11 Gas field
The project involves the collection and compression of associated gas from five fields – Betty, Bokor, Baram, Baronia and West Lutong, located about 10km to 45km off Miri in water depths ranging from 21m to 76m.  

The objectives of the Bardegg project were to minimise the venting of associated gas, to utilise the gas for gas re-usage in offshore petroleum operations in the Baram Delta, for gas re-injection in the Baronia field for reservoir pressure maintenance and for gas sales to customers in Miri and Lutong as well as to the liquefied natural gas plants in Bintulu. 

The first export of gas under this US$$600 million (RM2.28bil) project, which Petronas Carigali Sdn Bhd and Shell each has a 50% stake in, was carried out in 1993. 

Another joint venture is Carigali-Shell Mutiara Petroleum (CS Mutiara), launched on June 21, 2002, marking a significant milestone in the long and rewarding business relationship between the two parties. CS Mutiara operates Blocks PM301 and PM302 off Peninsular Malaysia independently, on behalf of Shell and Carigali. 

A challenge before CS Mutiara in this venture is to perform better than Shell and Carigali in benefiting from the synergy of the partners. 

In this partnership, CS Mutiara draws on the strength of Shell’s worldwide experiences and state-of-the-art technologies, and Carigali’s in-depth knowledge of the Malay Basin in its operations – a powerful synergy that should enable it to be nimble, dynamic and able to change with the business. 

Elsewhere, the spirit of partnership also prevails when the two parties signed a new PSC with Petronas for the Baram Delta in September 2003.  

For this PSC, Shell deploys its cutting edge technologies, worldwide experience and best practices to increase oil field recovery factors as well as extend the life of the oil and gas facilities in the Baram Delta.  

This assists Petronas Carigali, as operator, to enhance its capability and capacity, particularly in the vital area of increasing oil recovery efficiency of mature oil fields. Any improvement in the recovery efficiency of the current oil fields will positively impact Malaysia’s oil reserves and benefit Malaysia as a whole. 

 

The Development of Home Grown Industry Experts 

 

Arguably, among the biggest contributions the petroleum industry has made to Miri, Sarawak and Malaysia in general is the development of home-grown industry experts and know-how among the local population. 

When Miri was in its early stages of development, people from all over Sarawak moved to this growing town to find their fortune in the nascent oil industry. Some would find employment in the nearby Lutong refinery, while some others found jobs in other sectors of the industry.  

Perhaps the turning point for the acceleration of the development of local capability came after 1976, after Petronas introduced the new PSC system, with a structure and terms also designed to effect the transfer of knowledge and technology to locals. 

At the same time, the oil and gas activities in Miri – and later on in other parts of Sarawak, particularly Bintulu – boosted local procurement of goods and components, opening up vast opportunities for local enterprises to participate in the supporting industries.  

The direct participation of Malaysians in the industry as well as in the supporting services resulted in a significant transfer of technology and acquisition of management skills, which in turn created a pool of competent local industry expertise. 

Carigali headquarters in Miri
It is a well-known fact that progressive companies like those in the oil and gas industry not only recruit the most promising candidates to join their firms; they also produce some of the best professionals there are in the world. 

Shell and Petronas are no exception. Both companies, and to a certain extent their other counterparts in Malaysia, have groomed and nurtured many local talents that have contributed immensely to the growth of the industry as well as to the overall development of the industry. 

Hundreds of these home-grown experts have been and are deployed to operations of the two companies, whether locally or abroad, offering their know-how not only for the advancement of these operations but also to the companies’ joint-venture partners. 

There are many wonderful “feel good” stories of a Miri or Sarawak boy or girl making it good in the very “up-town league” of the world’s super oil majors. Although they may sound like one of those “defying all odds” type stories, their rise as Malaysians in an overwhelmingly Western-dominated industry, while exemplary, is not atypical.  

There are, for example, more than 200 Shell Malaysians abroad holding diverse positions and responsibilities, including those as chairmen, managing directors and senior managers, operating in the company’s global and integrated energy business. 

And Petronas takes pride equally in the many local home-grown talents that have helped the emerging MNC make a name for itself in the more than 30 countries it is now operating in. 

For Shell, a key driver of the “Malaysian talent export” strategy is the belief that the quality of its people can be nurtured and built via a holistic and structured approach to people development, based on fostering professionalism, recognition and personal growth – an approach that combines exposure and experience with needs-based training and mentoring, performance-based remuneration as well as regional and international assignments, and even continuing education.  

It seems that diversity is a key driver in these companies’ commitment to people development. They both subscribe to policies that see great potential for growth by unleashing the creativity that comes from drawing on different ideas and backgrounds.  

This stems from a very practical realisation that being able to understand and respond to the needs and value systems of their diverse stakeholders is essential to their competitiveness and capacity to grow in new ways.  

This in turn has paved the path for many Malaysians to acquire exposure in new environments and bring enhanced expertise home as well as opened doors for other Malaysians to share their strengths and experience in substantive positions of responsibility in foreign markets.  

Taking up Issue with Social Responsibility 

What have also been outstanding about Shell and Petronas are the relationships that they have built and cultivated with the community wherever they operate. As responsible corporate citizens, the two organisations have always made the welfare of the community and improvement in its quality of life part of their core values. 

At the heart of this philosophy is the belief that corporations should be responsible to the society and therefore be actively involved in improving the social environment around them. 

A major contribution by both Petronas and Shell is in the field of education, where thousands of deserving students in Sarawak have benefited from their sponsorship programmes as well as various other educational outreach initiatives.  

Shell, for example, is synonymous with its Education Excellence Awards, while Petronas has been very generous with its Minor and Major Scholarship Awards. These programmes have seen many outstanding successes among students in the state. 

Among the educational outreach initiatives are the annual Shell Traffic Educational Games, the Petronas StreetSmart Programme, Shell’s Project LINK and Petronas’ Adopt-a-School Programme or the Program Bakti Pendidikan Petronas. 

There are also various on-going and special community development activities undertaken by both companies, either on their own or in the spirit of partnership that has defined their relationship over the decades. 

There have been too many to mention in full but these include the Miri Petroleum Museum, the Miri Dialysis Centre and contributions to various health and relief programmes as well as environment preservation efforts. 

The most recent of Petronas and Shell’s environment preservation initiatives is Malaysia’s first rig-to-reef project, where a disused offshore platform was transferred to serve as part of the Siwa reef, boosting bio-marine life in that area.  

 

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