Ring-fencing cut Guyana’s 2025 oil by US$4.9b

Dear Editor,

As of 2026, there are now 4 deepwater oil operations in production, altogether sometimes pumping 930,000 barrels of oil equivalent (boe) a day, or US$2.4 billion in oil revenue per month, at today’s oil prices. There have been repeated calls for these projects to be ring-fenced. To quote Christopher Ram’s definition of Ring-Fencing, “…it simply means that the revenue from one field, or such revenue earned under one production licence, cannot be used to finance exploration in other fields, even under the same agreement.” Mr. Ram has been adamant that renegotiation of the Stabroek Block contract is not needed for ring-fencing to be applied.

We show in the calculations below that if ring-fencing were in place for the first 4 projects that were in production in 2025, then the government would have had enough from 2025 oil profits to give about US$6,000 to each of the 800,000 Guyanese in Guyana.

As of 2025 – the year for which we have the latest financials of the oil consortium – there were 4 Floating Production, Storage, and Offloading (FPSO) vessels in production. The first 3 FPSOs were Liza 1, Liza 2 and Payara, with capital cost totaling US$18.5 billion and all four totaled US$28.5 billion as shown in Table 1 below. The first three FPSOs were pumping upwards of 650,000 boe a day before the 4th FPSO was onboarded. Yellowtail, the 4th FPSO began production in August 2025, raising installed production capacity above 900,000 barrels per day. Guyana exported just over 260 million barrels during 2025.

Table 1: Capital Cost per Oil Project

Now, if we had ring-fenced the first 3 projects, the Oil Consortium would need to recoup US$18.5 billion in capital cost before the production expenses dropped below 75% of revenue. For simplicity, we will define expenses as capital cost + operational cost. We estimate that operational cost is around US$10 a barrel, based on HESS saying that the cash unit cost in 2027 would be US$10/barrel (see 2Q2023 HESS earnings call transcript). Also, in a 2020 report, Global Witness pegged operating cost at around US$11/barrel (during the withdrawal of its report, Global Witness said it stood by its fiscal modelling). For comparison, the 2017 IMF report estimated the operating cost at US$10.50/barrel.

From Table 2 below, we can see that in 2025, the average revenue per barrel was US$68.38. Now, if the capital costs of all 3 projects were not paid off, then Guyana’s profit share per barrel would have been US$68.38(1-0.75)0.5= US$8.55/barrel. But if the capital cost for the 3 projects had been paid off, then Guyana’s profit share was (US$68.38 – US$10)*0.5= US$29.19/barrel.

Table 2

We can observe in Table 2 that by the end of 2024, under the simplified model, approximately US$27.3 billion of cumulative cost-oil capacity through 2024 would have been available for capital-cost recovery after deducting an assumed operating cost of US$10 per barrel. That is more than enough to cover the US$18.5 billion for the first 3 projects. But if we added in the 4th project, Yellowtail, then the total to be paid off would be US$18.5 billion plus US$10 billion, which is US$28.5 billion. That left in 2025, about US$28.5B – US$27.3B = US$1.2 billion in capital costs to be paid off.

What we next need to determine is how many barrels would it take to pay off the remaining US$1.2 billion. We can figure this out by dividing the US$1.2 billion capital cost by how much capital cost was paid off per barrel in 2025 or (US$68.380.75)-US$10 = US$41.29/barrel. That works out to be 30 million barrels or about 12% of the 260 million barrels produced in 2025. Using the derived pro-rating we arrive at Guyana’s share of 2025 oil profits – before the capital cost was paid off – of US$258 million, and after the capital cost was paid off of US$6.7 billion [(US$68.38-US$10) 0.5*(260m-30m)] for a total of US$7 billion.

However, because of a lack of ring-fencing, Guyana’s 2025 profit share reported by the Bank of Guyana was only US$2.1 billion, or a forfeiture of US$4.9 billion.

The Liza 1 and Liza 2 projects were approved in the 2016 PSA by the APNU+AFC government without ring-fencing. The current PPP/C government promised to renegotiate the contract if it got into power, see https://www.oggn.org/2024/07/14/jagdeo-before-2020-we-are-going-to-renegotiate-those-contracts/^[1]. The PPP/C also knew about ring-fencing which requires no renegotiation. Hence, Guyanese have to be bewildered as to why the current government – with 5 chances to put ring-fencing in place: with Payara, Yellowtail, Uaru, Whiptail, Hammerhead – looked the other way. Guyana’s forgoing of US$4.9 billion in 2025 will increase significantly because in 2026 oil prices have been far above the US$68.38 average in 2025 and Guyana will be producing at more than 900,000 barrels for a full year.

References

1. https://www.oggn.org/2024/07/14/jagdeo-before-2020-we-are-going-to-renegotiate-those-contracts/ ↩