Talking Dollars & Making Sense: Guyana’s Oil Legacy

By

Rennie Parris, MBA

Welcome back to Talking Dollars & Making Sense. After taking a much-needed break to rebalance and recenter, I’m thrilled to reconnect with you as we explore a pivotal chapter in Guyana’s economic history – its remarkable transformation from an oil exploration hopeful to a major player in global energy markets.

Guyana’s oil potential remained more of a dream than a reality for decades. From the 1950s through the 1990s, international oil companies conducted countless seismic studies and drilled exploratory wells onshore and offshore, yet commercial success proved stubbornly elusive. The challenging offshore environment and lack of proven reserves made Guyana a high-risk venture, forcing the country to offer generous terms to attract meaningful investment.

This context shaped the 1999 Petroleum Agreement with ExxonMobil’s subsidiary, Esso Exploration. The terms reflected Guyana’s unproven status: no royalties, a 75% cost recovery limit, and a 50/50 profit oil-sharing arrangement after cost recovery. Given the circumstances of the time – no proven reserves and a desperate need for foreign investment – these terms made perfect sense.

Then came the moment that changed everything. In May 2015, ExxonMobil announced a massive oil discovery at the Liza-1 well in the Stabroek Block. With an estimated 700 million barrels of oil equivalent, Guyana’s risk profile transformed overnight. The market’s response tells the story: when Exxon’s consortium discovered the first oil, the company’s stock traded at US$57.25. Today, it stands at US$106.93—an 88% increase that speaks volumes about the value of Guyana’s resources.

Yet despite this game-changing discovery, the 2016 Petroleum Agreement largely maintained the generous terms of its predecessor. While it introduced a modest 2% royalty and a US$18 million signing bonus, the core terms remained surprisingly unchanged: cost recovery was still capped at 75%, there were no ring-fencing provisions, and the government even agreed to pay income taxes for Exxon and its partners, Hess and CNOOC.

This agreement’s shortcomings become stark compared to other emerging oil producers. East Timor commands royalties ranging from 5% to 10% and maintains substantial government control over its resources. Malaysia requires 10% royalties and caps cost recovery at 50%. Both nations enforce ring-fencing to ensure project-specific accountability. Against this backdrop, Guyana’s 2% royalty and 75% cost recovery cap stand out as remarkably generous to oil companies.

Conservative estimates suggest that better terms in the 2016 agreement – including a reduced cost recovery cap of 60%, an US$800 million signing bonus, ring-fencing provisions, a 5% royalty, and requiring Exxon’s consortium to pay its own taxes – could have generated at least an additional US$6.5 billion in oil revenues between 2020 and 2024. As Guyana’s production grows from today’s 660,000 barrels per day toward an expected 900,000 barrels per day by mid-2025, the impact of these terms becomes even more significant.

While former Minister Raphael Trotman, as the signatory of the 2016 agreement, bears significant responsibility for failing to hire international experts or leverage the Liza discovery, the blame extends beyond any individual. The cabinet, senior technical officers, and advisory team must share responsibility for this shortsighted decision. Their collective failure to secure better terms represents a systematic breakdown in governance and oversight. While Exxon and its partners were pursuing their mandate of maximizing shareholder value, Guyana’s entire leadership structure failed to protect the nation’s interests at the negotiating table adequately.

Between 2020 and 2024, Guyana earned around US$6.5 billion from oil production. Under better terms, this figure could have doubled to US$13 billion. As production continues to ramp up, this lost revenue represents not just a short-term setback but potentially tens of billions in long-term losses for the Guyanese people.

The decisions made today will echo through generations. Until political leaders acknowledge this mistake, apologize to the Guyanese people, and make amends for this colossal error in judgment, they should not be trusted with public support. If they continue to defend the 2016 agreement, it signals prioritizing other interests over the nation’s welfare.

In our next column, we’ll examine how oil proceeds are managed in the Natural Resource Fund and whether the government is investing and spending them wisely. For now, remember that Guyana’s future depends on learning from these past mistakes and ensuring that our natural resources truly benefit our people.

Rennie Parris (CFA) is a Wharton MBA graduate and former investment strategist at APG Asset Management and JP Morgan. He writes monthly on Guyana’s economic transformation for the Guyana Business Journal.

Please share your thoughts and questions as we explore how to maximize our nation’s wealth. Until next time, please keep thinking critically about Guyana’s economic future. This column is part of our ongoing coverage of Guyana’s oil sector development. Please support the Guyana Business Journal and Magazine.