Oil and gas analyst Jamil Ghani hailed the decision as “legally sound”, adding that it could mark a turning point in resolving long-standing tensions between federal and state authorities over gas supply in Sarawak.

“While the wider constitutional question of state versus federal competence has not been finally settled, the message here is clear.

“Companies cannot use the uncertainty as grounds to delay their obligations to Petronas under existing federal contracts,” he told FMT.

The dispute began when Shell MDS received RM80 million invoices from both Petronas and Sarawak’s state-owned Petros — prompting it to file an interpleader summons to resolve the competing claims.

Pending disposal of the case, Shell MDS secured an interlocutory injunction from the High Court, allowing it to withhold payments and barring Petronas from accessing a bank guarantee — while still requiring the national oil company to supply gas.

As a result, Petronas has to date been unable to claim more than RM500 million in payments.

On Monday, a three-judge panel unanimously overturned that order.

The court found that Petronas had upheld its end of the bargain by continuing to supply Shell throughout the dispute, and said it would be unjust to force ongoing deliveries without compensation.

It ordered Shell to make all outstanding payments to Petronas by Oct 6, and awarded the national oil company legal costs of RM50,000 from Shell MDS and RM30,000 from Petros.

“The outcome benefits the rule of law and helps promote commercial predictability. But it will fuel further debate in Sarawak, where it may be read as state authority being curtailed,” Jamil added.

“It also highlights the need for clearer regulatory alignment — whether through legislative amendment or federal–state circulars. This is so that future contracts avoid double-exposure and political disputes.”

Ongoing legal conflict

The court’s decision also reflects a broader policy environment that continues to affirm Petronas’s institutional mandate to ensure the continuity of national energy supply.

Advocates have, in recent months, stressed the need for legal certainty and operational stability in the gas sector — priorities echoed in the court’s judgment, which has underscored the importance of uninterrupted supply and equitable compensation.

With negotiations over Petros’s aggregator role ongoing, the court’s decision was grounded on Petronas retaining operational control.

It also noted that deliveries by Petronas to Shell MDS were never disrupted.

In contrast, Petros admitted in court that it did not have the infrastructure to supply Shell independently, despite Sarawak’s insistence of sole aggregatorship.

An analyst close to the matter told FMT on condition of anonymity that Petronas’s upstream partners, including Shell’s own upstream arm, have never complained about any failure by Petronas to deliver in good faith.

“It is therefore only fair that Shell’s downstream operator, Shell MDS, should also meet their (payment) obligations in a timely manner,” the analyst said.

“The prolonged delay in payments has had implications for Petronas’s cash flow, which in turn affects Malaysia as a whole.

“In essence, the country has been carrying Shell for too long. The court’s decision makes clear that these arrears must be settled, and it is appropriate that interest be applied on the overdue sum.”

Experts clarified, however, that the judgment did not explicitly resolve the underlying legal conflict — namely, whether federal or state law governs gas rights.

“The appeal is only on the injunction,” said Hafiz Hassan, law lecturer at Universiti Utara Malaysia, adding that the matter was dealt with from a procedural rather than constitutional standpoint.

The court has also ordered that the summons be disposed of speedily — to determine which party, Petronas or Petros, is legally entitled to receive payment from Shell.

This, the court said, was intended to accelerate a resolution of the dispute between Petronas and Petros over legal conflicts arising from the Petroleum Development Act 1974 and Sarawak’s state legislation.

Observers, however, suggest that the ruling has deeper implications.

“This judgment is not just a financial win for Petronas, but also a reaffirmation of the legal and institutional framework that underpins Malaysia’s energy security and fiscal stability,” said one analyst speaking anonymously.

Former law minister Zaid Ibrahim meanwhile suggested that only a court ruling can resolve the dispute with finality.

“The notion that there are competing claims to gas in Sarawak should not have been entertained in the first place,” he said.

“Politicians should be careful not to muddy the waters.”