Writer: Aditya Gupta
Editor: Philip Wegerhoff
A historic oil boom has catapulted Guyana into a political storm about a one-sided contract and an economic crisis caused by a large influx of new oil wealth.
At the start of 2015, Guyana was one of the poorest countries in South America. Today, it is the world’s fastest-growing economy. The dramatic turnaround in fortune for Guyana is the result of the Stabroek Block, a 6.6 million-acre area of ocean bottom located off the coast of Guyana that holds approximately 11 billion barrels of high-quality crude oil. However, this once-in-a-generation opportunity for Guyana is currently being controlled by a 2016 Production Sharing Agreement (PSA) with terms so beneficial to foreign oil companies as to create two different worlds: a goldmine for investors and a possible gilded cage for the nation.
Confirmation of Value
Chevron’s purchase of Hess Corporation for $53 Billion in July 2025 confirmed the corporate value of the 2016 PSA. As well as acquiring Hess’s 30% interest in the Stabroek project, the purchase also reaffirmed the two major problems facing Guyana: the level of public discontent regarding the terms of the previous agreement, and the rapid and substantial amount of money that would soon flood the economy of Guyana.
For the next few years, the Guyanese government will have to balance public discontent with respect to the previous contract with the economic shock wave that is coming.
The Corporate Windfall
The terms of the 2016 PSA created such a unique investment opportunity that it altered market behavior. Hess, the junior partner, became the primary vehicle for “the Guyana Premium.” Hess’s stock (HES) far surpassed both the S&P 500 and ExxonMobil (XOM), Hess’s senior partner, whose large global portfolio diluted the effect of the project.
This was not a bubble. It was driven by the very strong financial returns from the Stabroek Block’s low production costs of $25-$35 per barrel. In 2024, Hess’s net income rose nearly 100 percent to $2.77 billion, compared to $1.38 billion in 2023. Its return on capital employed (ROCE) from its Guyana operations was almost 69%. The Guyana premium was generated solely by the favorable terms of the contract and the expansion of the asset itself, and not by changes in oil prices alone: even when Brent crude prices were low, HES stock increased in value.
Anatomy of a One-Sided Deal
Both the corporate windfall and Guyana’s political problems are directly traceable to the 2016 PSA. This contract, entered into by a caretaker government prior to the full extent of the discovery being realized, deviates considerably from international norms through the inclusion of several problematic terms: a meager 2% royalty rate; a cost recovery cap of 75%; and a tax provision that forces the Guyanese government to pay the income taxes of the oil consortium from its own share of the profits.
Perhaps most importantly, the PSA does not include a “ring fencing” provision, which allows the consortium to use profits from the highest producing fields to cover exploration and development costs throughout the entire basin. Therefore, the “cost bank” that must be repaid by the Guyanese government before it can earn a meaningful profit share is constantly expanding.
The waterfall chart below illustrates the revenue produced from each barrel of oil sold at $82. While the final “profit” bars appear to represent a fair 50/50 split, they do not. The consortium takes the greatest share, $60.30, for cost recovery. In addition to the cost recovery, the consortium takes its profit share, for a total of $70.31. The remaining amount available to the Government of Guyana, a 2% royalty and profit share, totals only $11.69.
The Political Consequences of Inequitable Contract Terms
The unfair terms of the 2016 PSA have caused a serious political problem. The fact that the public knows about the PSA is largely due to criticism by chartered accountants such as Christopher Ram, who have made the fiscal terms of the agreement major news items. The local press and opposition parties have labeled the 2016 PSA as a “Heist of Guyana.” As a result, the Guyanese government finds itself in a difficult situation. The government is constrained by a very strong, binding stability clause in the PSA and therefore cannot easily renegotiate the terms of the agreement without facing serious potential penalties under international law. At the same time, the government cannot simply ignore the national outcry of the public.
In order to address this challenge, the government has employed a two-pronged strategy: first, to continue to uphold the legally binding terms of the 2016 PSA, and second, to begin working towards securing more equitable terms of the agreement for Guyana’s future. The government has accomplished this through legal reform, including passing the 2021 Local Content Act that requires all contractors to hire an increasing percentage of Guyanese workers, and by creating a new model PSA that provides higher royalties and taxes to the Guyanese government. The government’s ability to address this issue pragmatically was further evidenced by their re-election in 2025 with a significant margin, indicating that voters were supportive of focusing on new opportunities instead of continuing to debate past decisions.
The Risk of a Resource Curse
However, the challenge remains enormous. Stabroek’s large size ensures that, regardless of whether or not the terms of the PSA are weak, a large amount of money will be transferred to Guyana as a result of oil production, and this could lead to the resource curse, i.e., the phenomenon where a rapid increase in natural resources can ultimately harm a nation’s long-term prosperity.
The biggest threat to Guyana is the massive influx of foreign exchange that will occur as a result of oil sales. If left unchecked, this influx of foreign exchange could cause “Dutch Disease,” the strengthening of the local currency, which makes Guyana’s traditional agricultural products less competitive, and could potentially cause runaway inflation. The government’s best defense against this threat is the Natural Resource Fund (NRF), a sovereign wealth fund, which was designed to hold the excess foreign currency earned from oil sales outside of Guyana’s economy so that it does not contribute to Dutch Disease and lead to other negative impacts on the local economy.
Graphic By: Noam Tal
Using data from Hess’ investor filings and price forecasts from the United States Energy Information Administration (U.S.E.I.A.), a forward-looking financial model of Guyana’s Natural Resource Fund (NRF) indicates that the fund’s balance will exceed $50 billion within ten years. To put this into context, Guyana’s entire Gross Domestic Product (GDP) in 2019 was approximately $5 billion. A windfall of this magnitude would present a substantial challenge to any developing nation. Although the government has specifically created the NRF to mitigate the negative impacts of such a large inflow of foreign exchange, the speed of the windfall still creates the classic problem of how to absorb large amounts of wealth in a short period of time without succumbing to the negative impacts associated with that wealth.
Unlocking the Gilded Cage
Guyana stands at a crossroads. For the oil companies involved in the Stabroek development, the Stabroek bet has clearly been a financially rewarding gamble. However, for the people of Guyana, the real work of creating a prosperous future for themselves and their children is just beginning. The oil companies have acquired their golden ticket; now Guyana must discover the key to unlocking its own gilded cage.
Featured Image by Zbynek Burival on Unsplash
