GUYANA’S production sharing agreement (PSA) for the oil fields of the Stabroek Block has long been a source of debate. With two new finds in the past few months and ExxonMobil CEO Darren Woods visiting this month, it is likely to remain a prominent part of the news. But it is important that any discussion of that contract incorporates accurate information and important context about how Guyana got to where it is today.

Recent calls for the renegotiation of the contract do not always take into account that history, or the risks that a renegotiation could have for future investment dollars and the billions in revenues the country is expected to receive over the next ten years.

Guyana closed 2021 with nearly US$610 million in its Natural Resources Fund from just one year of production. Nearly all of that is already included in the government’s 2022 budget, the first that includes oil revenues and Guyana’s largest ever. And Guyana will only continue to benefit in 2022, with the government expecting more than US$1 billion this year. With oil prices continuing to increase to nearly US$90 per barrel, Guyana’s future is only looking better.

Guyana’s oil contract currently incorporates a structure that balances low risk and high reward. This means that exploration companies, including ExxonMobil, Hess, and others, take on the risk to invest in the exploration and development of oil fields. Guyana does not have to invest a single dollar of taxpayer money to make these finds or produce this oil but still receives 50 perfect of profits and a 2 percent royalty.

To balance this out, once oil is found, the operating companies are able to submit certain costs to be reimbursed, or recovered. It is important to understand that not all costs can be recovered, and that any cost submitted must go through a substantial auditing process before it is approved. This allows companies to recover some of the costs associated with expensive exploration processes.

The benefit of this type of contract is that Guyana takes on no risk if no oil is found, but as its basins have proven lucrative, it still receives a significant part of the revenues. And once the initial investments are paid back, the percentage of revenues that Guyana receives will increase significantly, since the high initial costs of oil exploration will have already been recovered.

A contract of this type is very normal for a frontier region with a history of dry wells and no commercial finds until the Liza-1 discovery, which occurred post-contract. Guyana’s offshore basin, while unknown to be lucrative at the time, also required significant investment due to its deepwater nature. This required production companies to take on heightened risk when many were not in a position to do so to lower international oil prices and poor investment outlooks. In hindsight, it’s easy to say that the government should have known that there would be 10 billion barrels of oil offshore in the Stabroek and Guyana’s other offshore blocks. But as recently as 2014, Shell gave up its stake in the area and wrote off investments as lost, deeming it essentially worthless.

Under the current contract, Guyana has received record levels foreign direct investment, including US$9 billion for the Payara project alone. This has helped boost the economy and ensure that more Guyanese have jobs in more lucrative and stable industries. Furthermore, the increase in investment can support the growth of spinoff sectors in agriculture and chemicals that could further help boost the country’s economy and benefit all Guyanese. With all this in mind, Guyana’s future contracts are likely to look different from the initial contract, with different terms that consider current discovery levels and lower risks.

However, as Guyana continues forward with exploration, development and production it is important to remember that taking steps towards breaking contracts could diminish the country’s reputation as a stable investment destination. This could spook away investors and risk current promises from international companies.

Especially as the Yellowtail project is about to take off and the start of production from a second floating production storage and offloading (FPSO) vessel expected in early 2022, stability will be key to ensuring that investments are followed through on.