OIL TRADING IN MALAYSIA

by

Danial Mah Abdullah

CEO, Labuan IBFC Inc.

2

Price Movement

Source: Macrotrends.net.

USD49.10/barrel

WTI crude oil as of July 28, 2016

3

Production vs Demand

Global crude production still outpaced demand by

nearly 700,000 bbls per day, which implies a

global inventory build of about 63 million bbls.

Source: EIA

4

Global Trade Continues

Source: BP Statistical Review of World Energy 2016

In Summary

Demand Oil Storage

+ spike in demand for storage financing

Oil prices for delivery in the

future are trading at a premium to those in the spot

market

Production

6

APAC the Next Global Storage Hub

The global oil storage is poised to expand at a 4.73% CAGR by volume from 2016 to 2024, with a rise from 1,337mn

cubic meters in 2014 to a possible total of 2,027 mn cubic meters by 2024.

Asia Pacific will then be #1 global storage centre.

Source: Transparency Market Research Analysis, July 2016; OPEC Oil Market Report , March 2016

30

40

50

60

70

80

90

100

110

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

USD 1,000 lots

Futures (WTI) - trade volume

DOE Cushing Oklahoma Crude Oil Total Stocks Data

Crude oil prices, WTI (RHS)

7

In Uncertain Times, It Pays to Have Space …

Source: Bloomberg, ICE, Macrotrends.net

“Storage is king. Good tanking at the right

location could make money.

Jean Francois Lambert, Global Head of Commodity Finance at HSBC Holdings Ltd. in London.

Increasing Storage in Johor (South Malaysia)

▪ Storage capacity has been developed and continues to be developed in Malaysia.

▪ Facility would complement Singapore, which currently is the only major independent terminal and storage facility in South East Asia

▪ Potential for an oil trading business, future development of downstream industry including refinery and oil based petrochemical complex, and LNG re gas terminal

Opportunity

Singapore

Malaysia

Pengerang (5) Singapore

Independent Storage Capacity 10 Million m3

Limited land for new major storage investments

Tanjung Bin (3)

Tanjung Langsat (2)

(Million m3 capacity planned to 2020)

South Johor can add 10 Million m3 if all the potential projects comes online

Growing: Refining, Storage, and Transit Terminals

9

Malaysia's existing and planned refineries :

Refinery Operator Capacity (bbl/d)

Existing LNG terminals

Melaka 1 (PSR-1) Petronas 95,000

Melaka 2 (PSR-2) JV between Petronas and ConocoPhillips 125,000

Port Dickson Shell 145,000

Port Dickson San Miguel/Petron 85,000

Kertih Petronas 121,000

Kemaman Kemaman Bitumen Company 20,000

Planned projects

Johor (RAPID project)* Petronas 300,000

*The RAPID project is part of Johor’s Pengerang Integrated Petroleum Complex

Source: EIA, MPRC

Trading through GIFT

The GIFT programme is established to encourage global petroleum trading companies to use Malaysia as a platform to enter the Asia Pacific region market.

• The GIFT Programme is managed and supervised by the Labuan Financial Services Authority (Labuan FSA), the regulatory authority for Labuan IBFC

• A company that participates in the GIFT programme are licensed as a Labuan International Commodity Trading Company (LITC)

• LITCs can trade in petroleum, petroleum-related products, and selected commodities, including minerals and carbon credits and operate from anywhere in Malaysia

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Purpose

To attract international commodities traders to use

Malaysia as an operational and trading base

Global commodity producers & traders

base their regional operations in Malaysia and service

clients internationally

Growth of LITCs in Labuan IBFC

5 9

23

39 43

0

5

10

15

20

25

30

35

40

45

50

2011 2012 2013 2014 2015

79.1% originated from SEA region.

69.6% Year-on-Year Growth

Source: Statistics from Labuan FSA’s Annual Report 2015 12

Petroleum & petroleum related products including LNG Base minerals product Coal Agricultural products Chemicals Others

13

65% 7%

7%

14%

7%

2014

Diversity in Sectors

83%

11% 6%

2013

• Petroleum and petroleum-related products including LNG remain the focus of

commodities traded

• Diversification of trading activities observed - expansion other commodities

60%

4% 3%

16%

14% 3%

2015

14

Qualifying Criteria

Min annual turnover of USD 100 million

Min annual business spending to Malaysian residents of

MYR3 million

Min 3 professionals traders with minimum salary of

RM15,000/month each and being resident of Malaysia

as described under Income Tax Act 1967

1

…AND 5-year

grace period from

the date of licence

for compliance Qualifying products:

• Petroleum & Petroleum-related (including LNG)

• Base mineral (including coal)

• Chemicals

• Refined raw materials

• Agricultural products

2

3

4

15

EXEMPTION EXEMPTION EXEMPTION

3%

CORPORATE

TAX RATE • On dividends received by or from the LITC

• On royalties received from LITC

• On interest received by residents or non-

residents from LITC

OPERATE

ANYWHERE

IN MALAYSIA

On director fees paid to non-

Malaysian directors

On all instruments for Labuan business activities,

merger, acquisition of Labuan companies and

transfer of shares

On gross employment income for non-

Malaysian professionals

Key Incentives

• Can be made directly by applicant / Labuan trust company / other service provider to Labuan FSA

• Client charter and processing fees – 21 working days, RM1,000

Licensing Application

• Appoint a Labuan trust company for the incorporation of LITC

• Share capital must be in any currency, other than Ringgit (RM)

• Incorporation fee for Labuan companies with paid-up capital:

i. Less than RM50,000 USD300 (RM1,000)

ii. RM50,000 but less than RM1 million USD600 (RM2,000)

iii. Exceed RM1 million USD1,500 (RM5,000)

Incorporation of LITC

LITC – Licensing 101

16

LITC - Requirements

• Maintain sufficient capital/working funds • Maintenance of a registered office in Labuan • Indicate clearly it is a LITC licensed under Labuan Financial Services

and Securities Act 2010 in its relevant documents including signage • Ensure the business is conducted with proper corporate governance

and risk management framework • Comply with all the relevant laws/requirements in Labuan IBFC or

jurisdictions that the LITC operate in

Operational Requirements

Annual Submission

• Completed Annual Update Submission Form • Audited financial statements

Annual Fee

• License fee RM40,000 or USD13,000 • Company

i. Labuan company RM2,600 or USD800 ii. Foreign Labuan company RM5,300 or USD1,500

Application Process

Trade

Incorporation of LITC via a Labuan Trust Company

Obtain Approval from Labuan FSA

Application for Approval to Labuan FSA

May appoint a Labuan Trust Company as Adviser

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Malaysia’s Cost Efficiency

Marina Bay Financial Centre

USD10 psf

Accountant 5 years exp

USD64k

GTP 5-10%

KL USD3 psf

Accountant 6 years exp

USD30k

GIFT 3%

CBD USD25 psf

Accountant 5 years exp

USD70k

Corporate Tax 10-22%

CBD USD4 psf monthly

Accountant 5-9 years exp

USD 236k

Corporate Tax 0%

SINGAPORE MALAYSIA KOREA DUBAI

The cost of doing business in Malaysia is comparatively lower compared to other major trading hubs.

CBD USD9 psf monthly

Accountant 5-7 years exp

USD130k

Corporate Tax 8%-22%

GENEVA

Comparison of Schemes: GIFT vs GTP

GIFT (established 2011)

GTP* (established 2001)

Tax Rate 3% 5% 10% 10%

Period Not Limited 5 years

renewable 5 years

renewable 3 years

non-renewable

Annual Turnover USD100m USD1.5b USD150m USD50m

Annual Business Spend RM3m SGD50m SGD4m SGD1.5m

Hiring of Professional Traders

3 18 4 2

20

GIFT Companies

25 Years and Growing

• Reputation and Track Record

• Connecting Asia’s Economies

22

THANK YOU

Disclaimer

This presentation should not be regarded as offering a complete explanation of the matters referred to and is subject to changes in law. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Labuan IBFC cannot accept any responsibility for loss occasional to any person acting or refraining from action as a result of any material in this presentation. The republication, reproduction or commercial use of any part of this presentation in any manner whatsoever, including electronically, without the prior written permission from Labuan IBFC Inc. is strictly prohibited.

LABUAN IBFC INC SDN BHD IS THE OFFICIAL AGENCY ESTABLISHED BY GOVERNMENT OF MALAYSIA TO POSITION LABUAN IBFC AS THE PREFERRED INTERNATIONAL BUSINESS AND FINANCIAL CENTRE IN ASIA PACIFIC