"With oil production plummeting by nearly 40% since its peak, Brunei faces a critical energy crossroads. Can its first offshore licensing round in over a decade attract investors, or will aging infrastructure and fiscal barriers push them elsewhere? The world is watching as the Sultanate fights to secure its energy future."
By Malai Hassan Othman
BANDAR SERI BEGAWAN, FEBRUARY 2025: Brunei’s offshore energy sector is at a defining crossroads, with crude oil and natural gas accounting for over 60% of government revenue.
The sector has seen a steady decline, with crude oil production dropping from 221,000 barrels per day in 2006 to just 73,000 barrels per day by early 2024, raising urgent concerns about the sustainability of the industry.
The first offshore licensing round in over a decade is a pivotal attempt to reverse this trend and reignite investment in the industry.
With hydrocarbon reserves declining and competition from regional players intensifying, the government hopes this move will inject new capital and technological expertise. But will investors take the bait?
“Brunei has enormous potential, but its fiscal and regulatory framework needs urgent modernization to stay competitive,” said a Wood Mackenzie energy analyst.
"The government must move quickly to adapt, as investors are increasingly drawn to more favorable energy markets in Southeast Asia."
“Neighboring countries like Malaysia and Indonesia have implemented strategic adjustments to attract investment, and Brunei must do the same to remain relevant in the regional energy market.”
While Malaysia and Indonesia have streamlined their fiscal regimes to encourage foreign investment, Brunei’s multi-layered taxation system and complex contract structures remain a significant barrier.
His Majesty Sultan Haji Hassanal Bolkiah has repeatedly emphasised the need for strong leadership, transparency, and modernisation in the oil and gas sector, yet the pace of policy reforms has been slow.
Investors will be closely watching whether the government introduces more attractive incentives, as global exploration companies now have multiple options for investment in the region.
Specific data on the proven reserves within Blocks A and D is not publicly available.
These blocks are strategically located offshore Brunei Darussalam, near existing fields such as Ampa, Fairley, Osprey, Champion, Iron Duke, and Maharajalela Jamalulalam.
The proximity to these established fields suggests potential hydrocarbon presence, but detailed reserve estimates would require exploration and appraisal activities to determine accurately.
Shell’s absence from this licensing round raises critical questions about the commercial viability of Blocks A and D.
TotalEnergies’ recent divestment of its Brunei assets to Malaysia’s Hibiscus Petroleum for $259 million further reflects growing concerns among foreign investors about the sector’s stagnating production levels and limited innovation.
Some industry analysts suggest that these blocks may not align with Shell’s stringent return-on-investment (ROI) criteria, prompting the company to focus on other assets.
"Operators today have options, and they are looking at jurisdictions that balance profitability with regulatory transparency," noted an industry expert.
"Brunei’s existing fiscal structure must be re-evaluated, or it risks missing out on global exploration capital that is flowing into markets with more investor-friendly terms."
Malaysia and Indonesia have revised their profit-sharing models and tax structures, making their markets far more competitive than Brunei’s. If Brunei does not adapt its fiscal policies, it risks losing out to more attractive investment destinations.
Many of Brunei’s offshore facilities were built decades ago, requiring significant maintenance and upgrades.
For potential investors, the question is whether the existing infrastructure is a boon or a burden.
While proximity to operational facilities theoretically lowers costs, the extent of necessary upgrades could make projects costlier than anticipated.
Without addressing these fiscal and operational barriers, Brunei risks failing to attract high-caliber bidders.
The International Energy Agency (IEA) stresses that nations reliant on fossil fuels must transition toward cleaner energy sources to maintain long-term economic stability and meet global climate targets.
Brunei’s hesitancy in adopting advanced technologies and sustainable practices has made the sector less competitive compared to regional counterparts.
This could have long-term repercussions on production sustainability and revenue generation, making it imperative for the government to introduce competitive incentives.
Providing fiscal flexibility, reducing bureaucratic hurdles, and engaging with industry stakeholders to tailor contract terms could significantly enhance Brunei’s appeal.
A successful licensing round could revitalise Brunei’s economy, bringing new employment opportunities and boosting local businesses.
The oil price recovery in 2024, with average prices climbing to $88.89 per barrel, offers a timely opportunity for Brunei to attract investors and reinvest in its energy infrastructure.
However, industry experts emphasise that attracting investors alone is not enough - modernisation, diversification, and sustainable energy investments are crucial for the sector’s long-term survival.
With increased exploration and production, engineers, geologists, and offshore workers stand to benefit from new job openings, while local vendors in equipment supply, logistics, and support services could see significant growth.
Additionally, expanded training programs for young professionals could strengthen the local talent pool, ensuring Brunei remains competitive in the energy sector.
This licensing round represents a pivotal moment for Brunei’s energy future.
While it offers opportunities for economic expansion and energy security, the challenges of fiscal competitiveness and infrastructure readiness cannot be ignored.
The government’s ability to adapt and align policies with global industry trends will ultimately determine whether Brunei strengthens its regional presence or struggles to secure the necessary investments. (MHO/02/2025)
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