KUALA LUMPUR (June 7): Hibiscus Petroleum Bhd said its subsidiary REPSOL Oil & Gas M Ltd (RML) has discontinued the payment of state sales tax (SST) imposed by Sabah, after its appeal against the tax enforcement was met with silence from the Sabah finance minister.

RML, which has a production sharing contract (PSC) in the Kinabalu Oil Field, had been making SST payment since 2020 "under protest", said Hibiscus.

Another subsidiary, SEA Hibiscus Sdn Bhd, which is the holder and operator of the 2011 North Sabah Enhanced Oil Recovery PSC, has not been paying SST to the state at all, the group added in a bourse filing.

Hibiscus said RML argued in September 2020 that it sold its crude oil entitlement from the Kinabalu Oil Field at the Labuan Crude Oil Terminal (LCOT) facility "outside the sovereignty and jurisdiction of the state of Sabah" and thus should not be paying the SST.

As RML did not receive any reply to its appeal for 20 months since then, Hibiscus said its board has resolved to discontinue the payment of SST, commencing from the lifting of crude oil undertaken on May 24.

This refers to 350,236 barrels of oil produced by RML in the Kinabalu Oil Field — the first RML cargo sold from LCOT since Hibiscus' completion of the acquisition of RML's parent Fortuna International Petroleum Corp in January 2022.

"Crude oil that is produced from the Kinabalu Oil Field is collected offshore and transported via subsea pipelines to the Samarang Platform, and then to the LCOT, which is located in the federal territory of Labuan.

"No processing of RML's crude oil [into other products] takes place at either the Samarang Platform or LCOT," Hibiscus said.

It added that RML's crude oil is offloaded and sold via crude oil tankers through lifting operations at the LCOT Single Buoy Mooring (SBM), located 5km offshore from the LCOT facility.

"It is important to note that under the terms of the Kinabalu production sharing contract, title to RML's crude oil entitlement only passes to RML upon delivery at the point of export (i.e. the SBM)," it added.

Hibiscus said its discontinuance of the payment of SST under protest (in the case of RML) and non-payment of SST (in the case of SEA Hibiscus) may lead to the state authorities taking action.

"It is possible that such action may cause disruption to the group's operations. However, after due and careful consideration of the position on a good faith basis, the board believes that its decision is reasonable, proper and in the best interest of the company," it added.

In the first quarter of 2022, Hibiscus experienced a 45% quarter-on-quarter decline in volume sold from RML, as well as a decline in average uptime in North Sabah to 65%, from 75% in the immediate preceding quarter.

Shares of Hibiscus settled down one sen or 0.77% to RM1.29, giving the group a market capitalisation of RM2.6 billion.