Fri, August 21 2026, 2:01 AM GMT-4
Road to First Oil – Every Man, Woman and Child Must Become Oil Minded – Part 195
Part I of II
President Irfaan Ali brought Guyanese some genuinely good oil news this week. He announced that Guyana’s entitlement from production in the Stabroek Block has risen from the historical 12.5% to approximately 39.8%. Even if oil prices had remained unchanged, Guyana would now be receiving more than three times its earlier share. And because of the war on Iran, oil has risen more than 50% from its end-2025 price. That is great news and since I believe strongly in the old advice not to look a gift horse in the mouth, I welcome it.
This two-part column examines first what the increase means and how Guyana’s benefit compares with that of the oil companies. Part II will consider how durable this favourable position is, given today’s high oil price, prospective exploration expenditure and the unchanged terms of the 2016 Petroleum Agreement.
Let us be clear. The movement from 12.5% to nearly 40% is not the result of renegotiation. It follows from the Agreement’s cost-recovery mechanism. In the early years, up to 75% of petroleum could be allocated to recovering exploration and development costs. The remaining profit oil was divided equally, leaving Guyana with 12.5% of gross production. The logic is simple. As accumulated costs are recovered, cost oil falls, profit oil rises and Guyana’s share increases.
But first, this column notes an ambiguity over whether the 39.8% includes Guyana’s 2% royalty. The President’s own comparison points strongly to the royalty being additional. He compared today’s 39.8% with the original 12.5%, which was Guyana’s share of profit oil, not its total take including royalty. The natural reading is therefore profit oil against profit oil: 12.5% then and 39.8% now.
At an illustrative US$90 per barrel, 39.8% gives Guyana US$35.82 of profit oil. The 2% royalty adds US$1.80, producing US$37.62 per barrel, or 41.8% of gross value. If instead the 39.8% includes royalty, Guyana’s profit oil would be US$34.02, which with the US$1.80 royalty gives US$35.82. Either way, the improvement is substantial.
But nearly equal profit-oil shares do not mean equal economic benefits. The 2016 Agreement contains two major tax concessions to the contractors: the Government pays their corporation tax and provides the corresponding tax certificates, while distributions and remittances of profits are exempt from withholding tax.
The companies’ tax benefits
For illustration, I treat profit oil as taxable profit, apply corporation tax at 25%, and assume after-tax profit would otherwise attract 20% withholding tax, with no other adjustments. For every US$100 of profit oil, the corporation-tax benefit is therefore US$25. The remaining US$75 would attract US$15 withholding tax. On these assumptions, every US$100 of profit oil carries US$40 of tax benefits.
On what I consider the more likely interpretation; Guyana receives US$37.62 in profit oil and royalty. The companies receive US$35.82 of profit oil, plus an assumed US$8.96 corporation-tax benefit and US$5.37 withholding-tax benefit – a total economic benefit of US$50.15 per barrel. That is US$12.53, or approximately one-third, more than Guyana.
If the 39.8% includes royalty, Guyana receives US$35.82, while the companies receive US$34.02 of profit oil plus US$8.51 and US$5.10 in assumed tax benefits, giving them US$47.63. Again, their economic benefit is approximately one-third greater.
These figures are illustrative, not calculations of the companies’ actual tax returns or tax certificates. Taxable income can be affected by deductions and other adjustments. The purpose is to expose the structure of the bargain: equal profit oil does not mean equal economic benefit. Guyana receives a 2% royalty on top of its profit oil; the companies receive substantial tax benefits on top of theirs.
Cautionary tale
None of this diminishes the announcement. Moving from 12.5% to nearly 40% profit oil is excellent news. At present production and prices, the additional revenue is enormous. The cost-recovery mechanism that once restricted Guyana’s profit-oil share to 12.5% is now working strongly in our favour because enormous, accumulated costs have been recovered.
But today’s position reflects unusually favourable circumstances. Much of the earlier investment has been recovered, production is at record levels and oil is around US$90. Yet not a word of the 2016 Petroleum Agreement has changed. The 2% royalty remains; the tax concessions remain; the withholding-tax exemption remains; and the cost-recovery and stabilisation provisions remain. The economics have changed. The contract has not.
Nor are today’s economics guaranteed to continue. Oil was around US$61 at the end of 2025 and has risen sharply with the US/Israeli war on Iran. Prices can fall again. ExxonMobil and its partners also retain substantial exploration ambitions, and renewed exploration and development could generate another major cycle of recoverable expenditure, increasing cost oil and reducing Guyana’s profit-oil percentage.
Those issues belong in Part II. We should welcome the movement from 12.5% to nearly 40% for what it is: very good news for Guyana. But the next question is more difficult: how long can these favourable conditions last, and does receiving much more under the 2016 Agreement make the Agreement itself any less inequitable?
To be continued