Strategic Framework for Managing Contractor Withdrawal and Asset Preservation in the Oil and Gas Sector: A Guide for the Ministry of Oil and Minerals

I. Executive Summary

Managing contractor withdrawal from oil and gas fields is a complex and multifaceted process, involving significant legal, technical, financial, environmental, and social challenges. If not effectively managed, these withdrawals can lead to severe risks such as orphaned wells, environmental pollution, and unexpected financial burdens on the government. However, proactive and well-planned management offers strategic opportunities to preserve asset value, ensure environmental safety, and enhance national capacity in the energy sector.

This report provides the Ministry of Oil and Minerals with a comprehensive framework to address these challenges. Key recommendations include strengthening national legal and regulatory frameworks to ensure clarity of contractual obligations, implementing robust financial assurance mechanisms to cover decommissioning and abandonment costs, adopting best technical and operational practices for asset integrity and site remediation, and building integrated negotiation and governance capabilities across government agencies. A proactive and collaborative approach is crucial to protect national interests and ensure sustainable development in the oil and gas sector.

II. Introduction

The global oil and gas sector faces continuous transformations, influenced by market fluctuations, energy transition pressures, and geopolitical factors. In this context, managing contractor withdrawal from oil and gas fields has become an issue of increasing strategic importance for governments, especially in oil-producing nations like Yemen, where geopolitical challenges can exacerbate the complexities associated with contractor withdrawal.1 Ineffectively managed withdrawals can threaten national energy security, create significant environmental and financial burdens, and negatively impact economic and social stability.

This report aims to provide the Ministry of Oil and Minerals with a comprehensive and specialized guide for effectively managing contractor withdrawal. The report covers legal, technical, financial, and strategic dimensions, offering actionable recommendations designed to mitigate the negative impacts of contractor withdrawal, protect field assets and properties, and ensure operational continuity or safe and responsible decommissioning. This multidisciplinary approach draws on international best practices and lessons learned from past experiences to provide practical guidance for decision-makers.

III. Understanding Contractor Withdrawal and Its Implications

Various types of petroleum agreements govern the relationship between governments and contractors, and their termination and withdrawal clauses differ significantly, impacting the withdrawal management process.

Types of Petroleum Agreements and Contract Termination Clauses

Production Sharing Agreements (PSAs) are a common model, where the government typically retains ownership of natural resources, while the contractor is entrusted with exploration and production responsibilities. The contractor recovers its costs from production and then shares the remaining production with the government.6 Upon termination of these agreements, the host state usually retains ultimate ownership of all petroleum produced and all assets used in the project, with exceptions for temporarily imported or leased items.7 These agreements include specific clauses outlining termination procedures, such as failure to achieve a commercial discovery or a material failure by the contractor to perform its responsibilities.7 In Yemen's case, PSAs are the primary means of granting oil rights, negotiated by the Ministry of Oil and Minerals, and require a presidential decree to become effective.8

Concession agreements, on the other hand, represent a more traditional model where the government grants a license to a company to develop resources in a specified area, and resource rights are legally owned by the commercial operator.9 At the end of the concession period, assets revert to the granting authority, including those purchased by the concessionaire.10 Concession agreements typically include provisions for asset handover, quality standards, and potential compensation upon handover.11

Common Triggers for Contractor Withdrawal

The reasons driving contractors to withdraw from petroleum projects are diverse:

• Economic Viability: A primary driver for withdrawal is when a field becomes economically unviable, meaning production costs exceed anticipated revenues.15 This situation can lead to "shutting in" or "abandoning" wells.16 In some cases, "mothballing" may be employed, which is the deactivation and preservation of equipment or a production facility for future use or sale, especially when market conditions are unpredictable or production capacity fluctuates.17 Mothballing requires careful planning, physical repairs, securing, ventilation, and continuous maintenance and monitoring.18 Proper mothballing can significantly reduce reactivation costs compared to inadequately preserved assets.17 Key elements include protecting equipment from corrosion, mold, and moisture.19

• Force Majeure: Unforeseen events such as war, unrest, or government directives can trigger force majeure clauses in contracts, allowing contractors to terminate their obligations. The Yemeni arbitration case involving Gujarat State Petroleum Corporation Ltd. affirmed the contractor's right to terminate a PSA due to a continuous force majeure event lasting over six months, despite the Ministry's argument that Yemeni law requires proof of unforeseeability and impossibility.22

• Strategic Shifts: Companies, particularly "supermajors," may withdraw from non-core assets to focus on key fields or reallocate capital towards renewable investments, regardless of oil prices.23 This reflects a broader industry trend.24

Potential Impacts of Withdrawal on the Government

Contractor withdrawal has multiple impacts on the government, requiring careful management:

• Financial Impacts: The government can incur significant decommissioning and abandonment costs if contractors default or financial assurances are insufficient.15 This is particularly true for "orphaned wells" where operators go bankrupt.30

• Environmental Impacts: Unplugged orphaned wells pose methane emission risks and other environmental hazards.30 Delayed decommissioning increases infrastructure vulnerability to damage, potentially causing oil spills and habitat destruction.25

• Operational Impacts: Withdrawal can lead to a loss of technical capacity and know-how 36 and disrupt oil and gas production.5

• Social Impacts: Withdrawal may leave workers unpaid, as seen in Yemen when Total and G4S left, raising questions about employee transfer and legal obligations.2

Overview of Typical Contractual Termination and Withdrawal Triggers

Trigger Event	Contract Type (Example)	Typical Clause Reference (Example)	Impact on Parties (Contractor, Government)	Example (if any)
Economic Limit of Field	Production Sharing Agreement (PSA) / Concession	Economic Viability Clause, Abandonment Clause	Contractor: Ceases operations to minimize losses. Government: Loses revenue, bears decommissioning costs.	Unprofitable oil and gas fields 15
Force Majeure	Production Sharing Agreement (PSA) / Concession	Article 22 (PSA)	Contractor: Excused from obligations except funding expenses and issuing notices, or permitted to terminate in the first exploration phase and its extensions only after 90 days of notifying the Ministry of its desire to withdraw. Government: Loses control over operations, may incur costs.	Arbitration case in Yemen due to war or unrest 22
Material Breach of Contract	Production Sharing Agreement (PSA) / Concession	Termination for Breach Clause	Contractor: May face termination by government, legal liabilities. Government: May terminate contract, seek damages, assume asset responsibility.	Contractor's failure to meet minimum work obligations 7
Strategic Shift/Divestment	Production Sharing Agreement (PSA) / Concession	Withdrawal Clauses, Assignment Clauses	Contractor: Exits non-core assets. Government: May face loss of expertise, challenges in finding a replacement.	Supermajors withdrawing to focus on renewable energy 23
Contract Expiry	Production Sharing Agreement (PSA) / Concession	Contract Duration Clause, Handover Clause	Contractor: Completes contractual obligations. Government: Regains control of assets, assumes decommissioning responsibilities.	End of specified concession period 10

Understanding the underlying reasons for contractor withdrawal is crucial for the Ministry of Oil and Minerals to develop effective strategies. An analysis of these triggers reveals a clear causal relationship: when contractors face unfavorable economic conditions or unforeseen events such as political instability 2, the inherent tension over risk and reward allocation, often present in petroleum agreements 37, is exacerbated. If original agreements are not carefully drafted to anticipate and adequately plan for these scenarios through robust decommissioning clauses and financial assurances, contractor withdrawal directly leads to significant financial and environmental liabilities for the government.15 This situation exemplifies the "resource curse," where poor policy choices and corruption can worsen cycles of poverty and conflict.38 The government bearing these liabilities not only drains public funds but also negatively impacts its reputation, potentially deterring future foreign investment.40 Consequently, the initial benefits of resource development can dissipate if the end-of-life phase of a project is not proactively managed.15 This underscores the need for a comprehensive, full-lifecycle approach to managing petroleum projects, rather than focusing solely on the production phase.

Furthermore, traditional force majeure and stabilization clauses, often seen as protections for contractors, are increasingly being tested and interpreted in light of complex geopolitical and economic realities, as evidenced by the arbitration case in Yemen.22 This, in addition to stabilization clauses 42, can significantly limit the government's flexibility in adapting its petroleum sector to new realities or imposing new regulations. While these clauses offer investor protection, they create a contradiction with the government's sovereign right to regulate and adapt to changing circumstances (e.g., environmental concerns, energy transition, or even internal conflict). The Yemen arbitration case 22 demonstrates that even if Yemeni law requires unforeseeability for force majeure, clear contractual wording can override general legal principles. This means that precise drafting of PSAs can "tie the hands" of the government 42, limiting its policy flexibility for decades. Therefore, the Ministry of Oil and Minerals, when negotiating or reviewing contracts, must pay close attention to the precise wording of force majeure and stabilization clauses. It should aim to include clauses that allow for necessary policy adjustments without triggering massive compensation claims, perhaps by incorporating "climate alignment" or "energy transition" considerations into new agreements. The long-term nature of these contracts 43 means that clauses drafted today will impact future generations, necessitating foresight in negotiations.44

IV. Legal and Regulatory Framework for Withdrawal Management

Managing contractor withdrawal requires a deep understanding of national and international legal and regulatory frameworks, as well as specific contractual provisions.

Review of National Petroleum Laws and Regulations

Yemen's petroleum sector does not have a unique sectoral law; instead, rights are granted through Production Sharing Agreements (PSAs) negotiated by the Ministry of Oil and Minerals.8 Law No. 25 of 1976, which was in force in southern Yemen, is no longer applied.8 The Ministry of Oil and Minerals is responsible for developing and drafting strategies, policies, and general plans for managing, improving, and enhancing the oil, gas, and mineral wealth sectors, including organizing and coordinating implementation control processes, negotiating agreements, and issuing licenses.45 The Ministry also conducts technical, financial, and legal monitoring and control of operating companies' work.45

Yemen's Investment Law stipulates that private property will not be nationalized or seized, and funds will not be blocked, confiscated, frozen, withheld, or sequestered except by a court order and with fair compensation based on current market value.46 Investments in the oil, gas, and mineral sector are subject to special agreements under the authority of the Ministry of Oil and Minerals and do not fall under the General Investment Authority's authority.47

Environmental legislation, such as Law No. 26 of 1995, covers environmental protection, including air, water, and land pollution, and specifies penalties for violations.48 Law No. 11 of 1993 specifically addresses the protection of the marine environment from pollution by oil and ships.48

Key Contractual Provisions

Contractual provisions are the backbone of withdrawal management, defining the rights and obligations of each party:

• Asset Ownership and Transfer upon Termination/Expiry: PSAs typically stipulate the host state's ultimate ownership of all assets used in the project, with exceptions for temporarily imported or leased materials.7 Concession agreements also implicitly include a clause for assets to revert to the granting authority upon expiry.10 Asset Purchase Agreements (APAs) and Purchase and Sale Agreements (PSAs) are common for asset transfers in the oil and gas industry, allowing buyers to select specific assets and assume defined liabilities, while sellers may retain some obligations.49 Novation agreements are used when government contracts are transferred to a third party, especially for asset sales or corporate mergers, to recognize the legal successor.53

• Decommissioning and Abandonment Obligations and Responsibilities: Contracts often include detailed clauses obligating contractors to carry out decommissioning operations upon cessation of production, in accordance with approved plans and industry best practices.28 This obligation typically applies to all primary assets and associated infrastructure.57 Termination of a contract does not absolve the contractor of obligations that arose before termination, including cleanup activities.57

• Assignment and Transfer Agreements for Successor Entities: When a contractor assigns its interest, the assignee typically undertakes to assume all obligations under the contract.57 However, specific contractual provisions do not bind regulatory bodies like the Bureau of Safety and Environmental Enforcement (BSEE) or the Bureau of Ocean Energy Management (BOEM); thus, a seller's release from liability depends on the assignee's financial strength.59 All assignors in the Outer Continental Shelf (OCS) retain decommissioning liability for obligations accrued during their ownership.59

• Dispute Resolution Mechanisms (e.g., Arbitration Clauses): Petroleum agreements typically include dispute resolution provisions, often specifying arbitration (e.g., ICC rules in Paris) as the preferred method, with the agreement generally subject to national laws unless inconsistent with the contract.62 The arbitration case between Yemen and Nexen 63 is an example of this type of commercial arbitration in the energy sector.

Government's Legal Authority and Responsibilities in Overseeing Withdrawal

The Ministry of Oil and Minerals has the legal authority to prevent any operations that might lead to loss or damage 62 and to monitor the work of operating companies.45 Regulatory bodies are responsible for reviewing and approving abandonment plans, conducting inspections, enforcing regulations, and providing guidance.65

While national laws provide a general framework, the specific terms and conditions within petroleum agreements (PSAs, concessions) often take precedence in dispute resolution, especially in arbitration. This means the government's ability to enforce its interests during contractor withdrawal heavily depends on the foresight and precision of the original contract drafting. This indicates that any ambiguity, omission, or weak drafting in the initial contract directly leads to a disadvantageous position for the government during disputes, as arbitral bodies will strictly interpret the agreed-upon terms. This creates a subtle pattern where governments might assume general national laws provide sufficient protection, but specific, often complex, contractual clauses (such as stabilization or force majeure clauses) can effectively limit that protection. The arbitration case between Yemen and Nexen 63 further illustrates the complexities of "handover obligations" and "wells claims" litigated under specific articles of the PSA. Therefore, the legal and negotiation teams within the Ministry of Oil and Minerals must possess exceptional expertise in drafting and scrutinizing petroleum agreements, anticipating future scenarios (e.g., economic downturns, political instability, environmental regulations), and ensuring that contract terms are robust, comprehensive, and explicitly protect national interests beyond general legal principles. Relying on "model contracts" 43 can expedite negotiations but also carries the risk of adopting "off-the-shelf" clauses that may not align with specific national contexts or long-term strategic objectives, requiring careful redrafting.

V. Technical and Operational Procedures for Asset Preservation and Decommissioning

Effective technical and operational management of assets is vital to ensure the environmental and economic integrity of the area after contractor withdrawal.

A. Asset Integrity Management (AIM) for Idle and Decommissioned Assets

Asset Integrity Management (AIM) is a systematic approach to ensuring assets operate safely and reliably throughout their entire lifecycle, from design to decommissioning.66 For idle or temporarily abandoned wells and facilities, "mothballing" involves deactivating and preserving them for possible future use or sale.17 This requires careful planning, physical repairs, securing, ventilation, and continuous maintenance and monitoring.18 Proper mothballing can significantly reduce reactivation costs compared to inadequately preserved assets.17 Key elements include protection from corrosion, mold, and moisture.19

Regular monitoring and condition-based inspection are crucial for early detection of degradation, corrosion, or defects.66

Risk-Based Inspection (RBI) prioritizes efforts based on the probability and consequences of failure.66 For temporarily abandoned or shut-in wells, mechanical integrity must be verified every three years.70

B. Best Practices for Decommissioning and Abandonment

Best practices in asset decommissioning and abandonment are based on international standards and guidelines:

• International Standards and Guidelines:

• United Nations Convention on the Law of the Sea (UNCLOS): Article 60(3) mandates the removal of abandoned or disused installations to ensure navigation safety, with due regard for fishing and the marine environment.72 Partial removal requires appropriate publicity for remaining parts.72

• International Maritime Organization (IMO): Its 1989 guidelines generally require removal, with case-by-case exceptions based on navigation, other sea uses, or the environment. Specific standards exist for installations of certain weights and depths.72

• OSPAR Convention (Northeast Atlantic): Decision 98/3 generally prohibits dumping or leaving disused offshore installations wholly or partly in place, but allows exceptions for large steel or concrete installations after assessment.72

• Abidjan Convention (West Africa): The 2019 Malabo Protocol requires decommissioning in accordance with international standards, considering fishing, navigation safety, and the marine environment.72

• American Petroleum Institute (API): API RP 65-3 provides guidance for designing, placing, and verifying cement plugs in temporarily or permanently abandoned wells, and for addressing annular barriers to protect groundwater and retain emissions.75 API RP 65-2 focuses on isolating potential flow zones to maintain well integrity during construction.80

• International Association of Oil & Gas Producers (IOGP): Publishes guidelines for facility decommissioning (IOGP 584) and well decommissioning (IOGP 585), emphasizing clear, stable, and predictable policies, efficient decision-making, and flexibility in adopting appropriate approaches.82 It also focuses on well integrity throughout the lifecycle.86

• Detailed Well Plugging and Abandonment (P&A) Procedures: This process involves sealing wells with cement plugs to prevent fluid migration and ensure well integrity.65 It includes site preparation, equipment removal, placing cement plugs across various zones (oil/gas, freshwater/saltwater interface, casing shoes/collars), and filling the well with drilling fluid.91 The goal is permanent isolation of penetrated formations and prevention of fluid migration.94

• Facility and Pipeline Removal, Disposal, and Site Restoration: Decommissioning involves the safe shutdown and removal of facilities, including equipment and infrastructure.65 Topsides are often recycled or reused onshore, while substructures are removed and scrapped or refurbished.60 Pipelines can sometimes be abandoned in place if they do not interfere with navigation or pose environmental hazards, but they must be flushed and sealed.60 Site clearance and debris removal are required after removal.60

C. Environmental Impact Assessment and Mitigation

• Requirements for Environmental Impact Assessment (EIA) Prior to Decommissioning: EIAs are typically required before commencing petroleum operations 62 and specifically for decommissioning programs.96 These assessments identify potential impacts on the marine environment, biota, and other environmental components.96

• Environmental Risk Mitigation Strategies:

• Well Plugging: Proper well plugging and abandonment is crucial to reduce methane emissions and prevent fluid migration.30

• Reuse/Rigs-to-Reefs: Converting retired platforms into artificial reefs can minimize impacts on existing fish and reef communities, offering an alternative to full removal.29 This requires adherence to national artificial reef plan requirements and international standards.72 However, studies suggest limited long-term ecological benefits if left in place without proper management.34

• Waste Management: Safe and effective assessment and management of waste products, including Naturally Occurring Radioactive Materials (NORM) and trace metals, are essential.82

Key Stages and Technical Requirements for Decommissioning

Stage	Key Activities	Applicable Standards/Guidelines (Example)	Key Considerations (Environmental Impact, Safety, Cost)
Planning and Design	Environmental Impact Assessment (EIA), cost estimation, decommissioning plan development, permit acquisition	UNCLOS Art. 60, IMO Guidelines, OSPAR Decision 98/3, IOGP 584 & 585	Ensuring regulatory compliance, assessing environmental risks, accurately estimating costs, defining decommissioning options 55
Well Plugging and Abandonment (P&A)	Site preparation, equipment removal, cement plug placement, well filling with drilling fluid, mechanical integrity testing	API RP 65-3, IOGP 585, OSHA standards	Preventing fluid migration, reducing methane emissions, protecting groundwater, worker safety 65
Facility and Pipeline Removal	System isolation, topside dismantling, substructure severance, pipeline removal, onshore material transfer	IOGP 584, IMO Guidelines, UNCLOS Art. 60	Minimizing environmental disturbance, recycling and reuse, offshore operational safety, waste management 60
Site Restoration and Remediation	Debris survey, residual removal, soil treatment, habitat restoration, post-decommissioning monitoring	National environmental laws, industry best practices (e.g., IOGP)	Ensuring safe and environmentally acceptable condition, ecosystem restoration, mitigating long-term risks 35
Asset Integrity Management (AIM) for Idle Assets	Continuous monitoring, preventive maintenance, mothballing, Risk-Based Inspection (RBI)	IOGP guidelines, API standards	Preserving asset value, reducing reactivation costs, preventing deterioration, ensuring readiness for reuse 17

While international agreements and some national regulations (such as OSPAR Decision 98/3) have historically favored complete removal of offshore infrastructure ("clean seabed"), there is growing recognition of the environmental benefits of leaving some structures in place (e.g., rigs-to-reefs) and the immense practical and environmental challenges of full removal. This indicates a need for flexible, risk-based regulatory approaches. Research shows that "current scientific evidence demonstrates that existing O&G platform substructures act as multipurpose artificial reefs upon which rich ecosystems have developed" and that OSPAR Decision 98/3 "does not reflect current scientific knowledge."73 This highlights a discrepancy between some existing rigid regulations and emerging scientific understanding. The nascent trend is towards a more holistic, environmentally informed, and risk-based approach to decommissioning, rather than a blanket "clean seabed" mandate. The enormous engineering challenge and prohibitive cost of full removal 98 also drive the search for alternatives. The Ministry of Oil and Minerals should actively engage with international bodies and industry forums 82 to understand these evolving practices and consider developing national regulations that allow for flexible decommissioning options 99 where equivalent or better environmental outcomes can be demonstrated compared to full removal, while ensuring safety and navigation. This requires robust Environmental Impact Assessments (EIAs) that consider the full impact of removal versus leaving in place.35

VI. Financial Management and Assurance Mechanisms

Sound financial management and adequate assurance mechanisms are cornerstones in mitigating risks associated with contractor withdrawal.

A. Decommissioning and Abandonment Cost Estimation

Decommissioning is a "long, costly and complex" process, with costs potentially reaching billions of dollars and subject to significant uncertainties.15 The median cost to plug and reclaim a well is approximately $76,000, but this varies widely based on location, age, and depth.30 Deeper, older, and natural gas wells are generally more expensive to plug.30 Offshore decommissioning, especially in deep water, is significantly more expensive than shallow water or onshore operations.25

Accurate cost estimation is crucial to ensure sufficient financial provision.15 Decommissioning planning, engineering, and project management can begin three years before final well abandonment, and the permitting process can also take years.60

B. Financial Assurance Requirements

Various types of financial assurance mechanisms exist to guarantee coverage of future obligations:

• Types of Financial Assurance Mechanisms: Common forms of financial assurance include surety bonds, decommissioning accounts, cash deposits, letters of credit, and parent company guarantees.41 Trust funds are also used to ensure sufficient funds are available for decommissioning, especially for long-term assets like nuclear power plants, and can be mandatory under regulations.15

• Ensuring Sufficient Financial Provision for Future Obligations: It is essential to have adequate funds available when decommissioning is required, as assets do not generate revenue at that stage.15 Regulations typically require sufficient assurance to cover estimated costs.41 The amount of assurance required can depend on credit ratings and proved reserves.103

C. Mitigating Government Financial Exposure

• Addressing "Decommissioner of Last Resort" Scenarios: Governments often become the "decommissioner of last resort" when companies default on their obligations, particularly due to bankruptcy.25 This can leave taxpayers bearing the cleanup costs.15

• Strategies for Managing Liabilities in Contractor Bankruptcy or Default: Strengthening financial assurance requirements, such as demanding higher levels of supplemental bonds, is crucial.25 For example, the Bureau of Ocean Energy Management (BOEM) updated regulations to protect taxpayers from decommissioning costs.102 Regular reporting on decommissioning enforcement and liabilities can also improve oversight.25

Comparison of Financial Assurance Mechanisms for Decommissioning

Mechanism Type	Description	Advantages	Disadvantages	Application (Example)	Key Considerations for Ministry of Oil and Minerals
Surety Bond	A third-party guarantee (insurance company) ensuring the contractor fulfills its obligations.	Easy to administer, provides liquidity for the contractor initially.	May be insufficient, relies on guarantor's strength, may not cover all risks.	General contract guarantees, specific lease bonds 60	Assess guarantor's strength, set sufficient amounts, link to performance criteria 30
Cash Deposits	Cash held in a separate account to cover costs.	Highly secure, easy to administer.	Opportunity cost (funds not invested), liquidity risk for contractor.	Guarantees for specific projects or short-term obligations 41	Balance security with opportunity cost, define withdrawal and release mechanisms
Trust Funds	A financial fund established over the project's life, managed by a third party.	Provides dedicated funding, protects funds from contractor bankruptcy, independent from contractor.	Administrative costs, may be insufficient if underfunded, challenges in long-term cost prediction.	Long-term projects (e.g., nuclear power plants, large oil fields) 15	Define fund structure, funding mechanisms, investment management, transparency 105
Parent Company Guarantees	The contractor's parent company commits to covering decommissioning obligations.	Simple to implement, no immediate liquidity required from contractor.	Depends on parent company's financial strength, may be difficult to enforce in complex bankruptcies.	Subsidiaries of large corporate groups 41	Assess parent company's creditworthiness, clarity of guarantee terms, enforcement mechanisms
Decommissioning Accounts	Dedicated accounts for accumulating funds for decommissioning costs.	Provides clear provisions, easy to monitor.	May be insufficient if initial estimates are low or not updated.	Specific projects or long-term contracts 102	Periodically review estimates, link funding to project progress, update mechanisms

Despite the significant and known costs of decommissioning, financial assurance mechanisms are often insufficient, especially for aging infrastructure or in cases of contractor bankruptcy. This creates a growing backlog of "idle iron" 95 and "orphaned wells" 29, effectively shifting the financial burden to the government. This indicates that current financial assurance systems are often inadequate to cover actual costs, particularly as infrastructure ages and operators face financial distress. This directly leads to the "decommissioner of last resort" scenario for governments.

The causal relationship is clear: insufficient financial provisioning upfront, coupled with a lack of proactive enforcement of decommissioning deadlines 25, directly causes the accumulation of "idle iron" and "orphaned wells."29 This creates a subtle pattern where the long-term nature of deferred decommissioning costs, combined with the cyclical financial health of the industry, allows liabilities to accumulate unchecked until they become a public burden. The problem is exacerbated by a historical lack of stringent requirements and oversight.25 Therefore, the Ministry of Oil and Minerals must not only strengthen financial assurance rules 102 but also implement robust enforcement mechanisms and dynamic reassessment of liabilities and corresponding financial assurances. This includes proactively monitoring the financial health of operators and ensuring that asset transfers 49 do not shift liabilities to less financially capable entities.110 The experiences of North Sea countries 98 and the U.S. Gulf of Mexico 29 provide valuable lessons on the scale of this challenge and the need for early and comprehensive planning.

Estimated Costs and Liabilities for Withdrawal and Decommissioning Phases

The following table provides general estimates of costs and liabilities associated with oil and gas sector withdrawal and decommissioning phases. It should be noted that these costs can vary significantly based on factors such as location (onshore/offshore, shallow/deep water), asset age, size, geological conditions, and local regulations. Specific data for Yemen is scarce, so most estimates are based on experiences from other countries.

Phase/Activity	Description	Estimated Cost/Liability	Notes/Context
Well Plugging and Abandonment (P&A)	Plugging wells and surface reclamation	$76,000 (median)	Estimates for orphaned wells in the United States 30
	Plugging wells only (without surface reclamation)	$20,000 (median)	Estimates for orphaned wells in the United States 32
	Cost to plug a well (average)	$93,427	Per well in California, USA 114
	Cost to plug a shallow water well	$660,000	In U.S. federal waters 27
	Cost to plug a deepwater well	$24 million	In U.S. federal waters 27
	Cost increase by depth	20% per additional 1,000 feet	General estimate 32
	Natural gas well cost	9% higher than oil wells	General estimate 32
	Cost savings for bulk contracting	3% per additional well in contract	General estimate 32
Facility Decommissioning and Removal	Total decommissioning costs (estimates)	Billions of USD	Long, costly, and complex process globally 15
	Cost to decommission production facilities	$26,994 (median)	Per well in California, USA 114
	North Sea decommissioning costs	£24 billion (2023-2032 estimate)	Increased by £3 billion due to inflation and higher rig rates 115
	Southeast Asia decommissioning costs	$30 billion - $100 billion (by 2030)	For over 200 offshore fields 82
	Australia decommissioning costs	Over $40.5 billion	Over half required within 10 years 82
	Global decommissioning costs	$103 billion (2025-2034)	82
Site Restoration	Surface reclamation of well site	$76,000 (median)	Includes plugging and reclamation in the United States 32
	Well site remediation	$29,506 (median)	Per well in California, USA 114
	Production facility site remediation	$15,684 (median)	Per well in California, USA 114
Mothballing	Setup cost	Less than 0.5% of replacement value	General estimate 31
	Reactivation cost (well-preserved unit)	5% or less of replacement value	General estimate 31
	Reactivation cost (unpreserved unit)	20%+ of replacement value	General estimate 31
Other Liabilities and Expenses	Decommissioning costs not covered by assurances	Billions of USD	Government bears costs in case of contractor bankruptcy (U.S. estimates) 22
	FSO Safer oil transfer costs	$144 million (total)	Includes new vessel ($55 million) and salvage costs in Yemen 118
	VLCC Yemen operating costs	$450,000 per month	In Yemen 118
	Cost increase after bond contract termination	30-50% increase over original bid + delay damages	General estimate 118
	Unpaid worker wages	Undetermined	In Yemen after Total and G4S withdrawal 2

VII. Strategic Negotiation and Government Oversight

Successful management of contractor withdrawal requires a strategic approach to negotiation and robust, coordinated government oversight.

A. Principles of Effective Negotiation with Withdrawing Contractors

Effective negotiation with withdrawing contractors demands careful planning and a strategic approach:

• Define Clear Objectives and Terms of Reference: Before entering negotiations, the government must define realistic and achievable objectives based on cost-benefit analysis, with clear terms of reference for the negotiation team.119

• Ensure Transparency and Accountability: Transparency is essential for building public trust, deterring corruption, and ensuring fair returns. Public communication about the process and its scope is key to managing expectations and maintaining a stable investment climate.119

• Leverage Government Bargaining Power: The government possesses significant bargaining power, especially within a "win-win" negotiation framework that seeks fairness for both parties.123 This involves thorough preparation, understanding the contractor's position, identifying assumptions, and clarifying cost-related matters.121 The government can also explore contract reinstatement or renegotiation to salvage beneficial projects.125

B. Inter-Agency and Ministerial Coordination

Managing contractor withdrawal is inherently a multidisciplinary process, requiring effective coordination among various government entities:

• Importance of a Unified Government Approach: Effective management of contractor withdrawal requires cooperation at presidential, ministerial, and agency levels.126 The Ministry of Oil and Minerals' duties include developing strategies, negotiating agreements, and monitoring operations.45 Other ministries, such as the Ministry of Finance, are involved in petroleum revenues.127

• Define Clear Roles and Responsibilities for Oversight and Enforcement: A clear framework for inter-departmental coordination is needed, including establishing incident coordination committees.128 Roles and responsibilities for asset management and compliance assurance must be clearly defined across different government bodies.130 Agencies like the Bureau of Safety and Environmental Enforcement (BSEE) in the U.S. work closely with the Bureau of Ocean Energy Management (BOEM) for regulatory oversight and enforcement.129

C. Lessons Learned from International Experiences

International experiences offer valuable lessons that can be adapted to the national context:

• Case Studies of Contractor Withdrawals and Decommissioning Projects:

• North Sea (UK and Norway): This region provides extensive decommissioning experience.98 Key lessons include the need for effective and balanced solutions, consistent with international obligations, and with proper regard for safety, the environment, other legitimate uses of the sea, economic, and social considerations.98 Transparency, robust monitoring, and open dialogue are vital.98

• U.S. Gulf of Mexico: Faces significant challenges with delayed decommissioning and insufficient financial assurances.25 Lessons include the need for stronger enforcement, adequate funding for decommissioning efforts, and improved record-keeping.29 The "Rigs-to-Reefs" program is a notable alternative.29

• Yemen Arbitration Cases: The arbitration case between Yemen and Nexen 63 highlights disputes over handover obligations and wells claims. The Gujarat State Petroleum case 22 illustrates the impact of force majeure clauses. These cases underscore the importance of clear contractual language and effective dispute resolution.

• Adapting International Best Practices to the National Context: Governments must learn from global experiences in managing the complex social and economic aspects of decommissioning.15 This includes considering a "circular economy" approach for reuse and recycling 65 and ensuring stakeholder engagement.15

Key Government Agencies and Their Roles in Managing Contractor Withdrawal

Agency/Ministry	Primary Role in Withdrawal	Specific Responsibilities (Example)
Ministry of Oil and Minerals	Overall oversight, contractual negotiation, technical and legal monitoring.	Developing strategies, negotiating PSAs, issuing licenses, monitoring company performance 8
Ministry of Environment (or Environmental Protection Authority)	Environmental oversight, EIA, ensuring environmental compliance.	Developing environmental regulations, reviewing EIAs, enforcing environmental decommissioning standards, pollution monitoring 48
Ministry of Finance	Revenue management, financial assurance determination, financial burden assessment.	Collecting petroleum revenues, setting financial assurance requirements, assessing government financial exposure 37
Legal Affairs/Ministry of Justice	Contract drafting, dispute resolution, legal representation.	Reviewing and drafting contracts, providing legal advice, representing the government in arbitration and litigation 22
National Oil Company (if applicable)	Asset management, operational capacity, continuity planning.	Taking over operations after withdrawal, managing remaining assets, planning for reuse or decommissioning 39
Regulatory Bodies (e.g., Safety Authorities)	Ensuring operational safety, enforcing technical standards.	Reviewing decommissioning plans, conducting inspections, enforcing safety standards, verifying well integrity 65

Effective management of contractor withdrawal is not merely a reactive process to address a departing entity; it requires a proactive, integrated governance framework that spans the entire project lifecycle and involves strong inter-agency coordination. References emphasize the need for "systematic administration of all contractual relationships" 118 and a "lifecycle approach" from project design to post-decommissioning risk management.15 Inter-agency coordination is repeatedly highlighted as crucial for efficiency, consistency, and information exchange.45

This means that merely having regulations or contractual clauses is insufficient; there must be a cohesive and collaborative government mechanism to implement and enforce them. The recurring pattern is that weaknesses in regulatory and liability frameworks 15 and weak enforcement 25 lead to significant risks for the public and taxpayers. The challenge is not just about individual contracts but the overall "legal architecture" 9 and "governance system."130 The "all-hazards" crisis management approach 128 and the need for "strategic leadership" 128 point to a higher-level organizational challenge. The subtle pattern is that many problems arising from contractor withdrawal are symptoms of a lack of integrated, forward-looking governance throughout the project's life.

Therefore, the Ministry of Oil and Minerals, as the lead government entity, must spearhead the development of a national strategy 44 that fosters inter-ministerial cooperation, clearly defines lines of authority, and builds internal capacities.15 Lessons from countries like the UK and Norway 98 confirm that effective decommissioning solutions require a balanced approach considering safety, environment, and economic and social aspects, all supported by a robust regulatory system that maintains stakeholder trust.

VIII. Recommendations for the Ministry of Oil and Minerals

Based on the comprehensive analysis of challenges and opportunities associated with managing contractor withdrawal and asset preservation in the oil and gas sector, the following recommendations are provided to the Ministry of Oil and Minerals to enhance its capacity to handle these processes effectively:

• Strengthen the National Legal and Regulatory Framework:

• Develop a Unified and Comprehensive Petroleum Law: A comprehensive and unified national petroleum law should be developed, addressing all stages of the oil and gas lifecycle, including explicit provisions for contractor withdrawal, asset transfer, and decommissioning responsibilities, building upon existing laws.8

• Ensure Contractual Consistency and Clarity: Consistency and clarity between national laws and specific contractual provisions must be ensured to prevent ambiguity in dispute resolution.9

• Update Environmental Protection Laws: Environmental protection laws should be reviewed and updated to specifically cover the impacts of oil and gas decommissioning, aligning with international best practices.48

• Improve Contractual Provisions for Withdrawal and Decommissioning:

• Mandate Detailed Decommissioning Plans: Contractors should be mandated to submit detailed decommissioning plans as an integral part of all new petroleum agreements, with regular updates and government approval.55

• Strengthen Asset Ownership Transfer Clauses: Clauses related to asset ownership transfer should be strengthened to ensure clear reversion of ownership of all project assets to the state upon termination or expiry.7

• Include Robust Assignment and Transfer Clauses: Strong assignment and transfer clauses should be included to ensure successor entities assume full responsibilities and demonstrate financial and technical capability, without absolving previous operators of their obligations.53

• Re-evaluate Stabilization and Force Majeure Clauses: Stabilization and force majeure clauses in existing contracts should be re-evaluated and potentially renegotiated to provide the necessary flexibility for the government to adapt to changing economic and environmental realities.42

• Develop Robust Technical Guidelines and Operational Procedures:

• Adopt Best Practices for Well Plugging: International best practices for well plugging and abandonment (P&A) (e.g., API RP 65-3, IOGP 585) should be adopted to ensure long-term well integrity and prevent environmental leakage.75

• Establish Clear Guidelines for Facility and Pipeline Decommissioning: Clear guidelines for facility and pipeline decommissioning should be established, including options for removal, recycling, and reuse (e.g., rigs-to-reefs), based on comprehensive environmental impact assessments.35

• Implement a Comprehensive Asset Integrity Management (AIM) Program: A comprehensive AIM program should be implemented for all petroleum assets, especially for idle or temporarily suspended fields, to ensure their long-term preservation and integrity.66 This includes regular monitoring, maintenance, and mothballing procedures.17

• Implement Effective Financial Assurance Mechanisms:

• Mandate Adequate Financial Assurance Mechanisms: Contractors should be mandated to provide adequate and regularly reviewed financial assurance mechanisms (e.g., bonds, trust funds, parent company guarantees) to cover the full estimated costs of decommissioning, accounting for uncertainties and inflation.15

• Establish a Dedicated Decommissioning Fund or Trust: A dedicated decommissioning fund or trust, managed transparently, should be established to accumulate funds over the project's life.15

• Develop Policies for Managing Liabilities in Bankruptcy: Clear policies should be developed for managing liabilities in cases of contractor bankruptcy or default, with the possibility of requiring higher supplemental bonds or robust fitness-to-operate standards.25

• Enhance Inter-Agency Collaboration and Capacity Building:

• Establish a Standing Ministerial Committee: A standing ministerial committee (including representatives from the Ministries of Oil and Minerals, Environment, Finance, and Legal Affairs) should be established to coordinate policies and procedures related to contractor withdrawal and decommissioning.61

• Invest in Capacity Building and Training: Investment in capacity building and training for government personnel is crucial in areas such as contract negotiation, technical oversight, financial analysis, and environmental management specific to decommissioning.15

• Promote Transparency and Public Engagement: Transparency and public engagement in decommissioning planning and decision-making should be fostered to build trust and manage expectations.98

IX. Conclusion

Managing contractor withdrawal from oil and gas fields is not merely a post-event cleanup operation; it is a critical strategic imperative for the Ministry of Oil and Minerals. It represents an opportunity to safeguard national assets, ensure responsible environmental stewardship, and preserve the country's long-term economic interests. Effectively addressing these challenges requires proactive planning, robust legal frameworks, sound financial mechanisms, and efficient collaboration among government agencies.

Failure to proactively manage these processes can lead to significant financial and environmental burdens on the state, undermining any benefits derived from resource development. By adopting the recommendations outlined in this report, the Ministry of Oil and Minerals can position itself to mitigate risks, attract responsible investments, and ensure that future generations benefit from the country's natural wealth, even as the global energy landscape evolves.

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