What criteria determine direct petroleum payments to states?

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Direct Petroleum Payments to States Are Determined by Location of Oil Discovery Within Territorial Waters

Direct petroleum revenue payments to states are contingent upon oil being discovered and extracted within the state's territorial waters. Specifically, this refers to the three nautical miles from the low-water line, as defined by the Territorial Sea Act 2012 (Act 750). This legal framework dictates the conditions under which a state is eligible to receive such revenue directly, rather than through discretionary goodwill payments.
Oil Discovery Within Three Nautical Miles

The primary criterion for direct petroleum revenue disbursement to a state is the successful discovery and acquisition of oil within its defined territorial waters. This maritime boundary is precisely delineated as three nautical miles measured from the low-water line, a standard established under the Territorial Sea Act 2012. Without oil being obtained within this specific zone, direct payments are not mandated.
Current Discretionary Payment System

Currently, the distribution of petroleum revenue, often referred to as "wang ehsan" or goodwill payments, to states like Kelantan and Terengganu is at the discretion of the federal government. This system is in place because, to date, no oil has been confirmed as obtained strictly within the territorial limits defined by Act 750 for these particular states. Therefore, the flow of funds has historically been subject to federal government decisions.
Previous "Wang Ehsan" Payouts

In the preceding year, 2022, substantial goodwill payments were made to the two East Coast states. Kelantan received a total of RM344.60 million under this arrangement. Terengganu, on the other hand, was allocated a significantly larger sum of RM1.69 billion in wang ehsan payments during the same period.

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What criteria determine direct petroleum payments to states?

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