Petrofac problems could impact Middle East projects
4 July 2025
Analysis
Wil Crisp
Oil & gas reporter
Disgruntled creditors are causing major problems for UK-based Petrofac, delaying progress on the company’s planned restructuring and increasing uncertainty over its operations, including projects in the Middle East region.
An appeals court in the UK has upheld an appeal against Petrofac’s restructuring plans, despite them being approved by the High Court of England and Wales less than two months ago.
Ahead of the appeal hearing, industry sources told MEED that making rapid progress on the company’s restructuring would be dependent on the appeals process being decided in Petrofac’s favour.
The ruling against Petrofac is a major stumbling block for the restructuring plans, and may have significant consequences for its ability to execute work across the Middle East and North Africa (Mena) region, where it is working on projects worth billions of dollars. Petrofac previously said that its restructuring plan would unlock $355m in new funding for its operations.
Petrofac is actively working on projects in the UAE and Algeria. Projects in the UAE include an engineering, procurement and construction management services (EPCM) contract awarded by Adnoc Gas last month.
The contract is worth $1.2bn and is focused on developing a gas liquefaction facility on Das Island.
It also has a $615m contract from Adnoc Gas to develop a carbon capture, utilisation and storage (CCUS) facility in the Habshan area. This contract was awarded in October 2023.
Petrofac’s projects in the UAE also include a $700m Adnoc Gas contract for a project to develop a new compressor plant at the Habshan gas processing complex.
This contract was awarded to Petrofac in June 2023.
Petrofac was awarded another contract by Adnoc Gas in January of this year worth $335m.
This project is focused on upgrading the sales gas pipeline network at the Habshan gas processing complex.
In Algeria, Petrofac is working on a $1.5bn contract that was awarded by the national oil and gas company Sonatrach in partnership with France’s TotalEnergies.
The contract was awarded in May 2023 to Petrofac in consortium with China Huanqiu Contracting & Engineering Corporation (HQCEC).
It is focused on developing a propane dehydrogenation polypropylene (PDH) plant in the Industrial Zone of Arzew.
Petrofac is also working on a project worth $300m in Algeria in partnership with Genie Civil et Batiment (GCB), an Algeria-based subsidiary of Sonatrach.
This contract was awarded by Sonatrach in August 2022 and is focused on developing the Tinrhert Gas Field.
Ongoing problems
The appeal against Petrofac’s planned restructuring was brought by Italy’s Saipem and South Korea’s Samsung E&A in connection with Petrofac’s participation in the $4bn Thai Oil clean fuels project.
Petrofac was awarded the engineering, procurement, construction and commissioning (EPCC) contract for Bangkok-based Thai Oil’s project in 2018, in consortium with Italy’s Saipem and South Korea’s Samsung Engineering.
Under the terms of the contract, the existing oil refinery in Thailand’s Sriracha region was due to be significantly upgraded.
The facility upgrade scope included improving the environmental performance and the quality of the transportation fuels produced and boosting the refinery’s production capability by 45% to 400,000 barrels a day (b/d).
In documents released by Petrofac in December last year, it said that the project experienced “significant cost overruns”, which drove losses at the company’s engineering and construction (E&C) division as well as at a group level over several years.
In December, Petrofac said that the impact of the Covid-19 pandemic, “together with the scale and unique complexity of the project and its location”, meant that significant additional work and costs were necessary to recover lost time and complete the project.
It also said that it had been in “protracted discussions since 2022 to recover costs incurred”.
In December, Petrofac stated its intention to seek agreed terms to continue its participation in the project “on a defined and limited basis”.
It said that without an agreement on terms the company would exit the Thai Oil Clean Fuels contract “with associated potential claims and contingent liabilities expected to be compromised as part of the Restructuring Plans”.
Petrofac said that it saw the restructuring as a way to “protect the Group from future exposure on the Thai Oil Clean Fuels contract”, but now that the appeal against the restructuring has been upheld, it seems like the group remains exposed.
Still winning
While the financial problems and losses have continued to plague Petrofac, the company has continued to win contracts in the Mena region, showing that its partners remain confident that the issues will not impact its performance.
Aside from the $1.2bn contract that Adnoc Gas awarded the company last month, in May Petrofac submitted the lowest bid for the Kuwaiti oil project focused on the installation of a separation gathering centre (SGC) known as SGC-2.
It submitted a price of KD422.45m ($1.37bn).
Additionally, in November, Petrofac announced winning a contract from Bapco Upstream to provide services to increase the productivity of the Bahrain Field.
The duration of the contract is two years and the scope of work on the contract covers the delivery of well hook-ups, associated pipelines and tie-ins for several new wells at the Bahrain Field, also known as the Awali field.
Ongoing uncertainty
If Petrofac had successfully negotiated the Court of Appeal and drawn a line under the problematic Thai Oil project, this would have removed a lot of uncertainty about the company’s future.
The appellants’ success means that Petrofac’s restructuring will be a much more drawn-out process, something that is likely to concern both shareholders as well as stakeholders in Petrofac projects across the Mena region.
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Of the 749 projects currently planned or under way across the Maghreb region, 322 are in Morocco, according to data from MEED Projects
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Weak economic conditions in Europe, the region’s most important trading partner, pose a particular threat. Key markets, such as France, Germany and Italy, are experiencing anaemic growth rates, which could lead to softer demand for the Maghreb region’s exports, as well as weaker tourism and investment flows across the Mediterranean.
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The region’s direct trade with the US is relatively limited, but if higher tariffs dent global demand, that could have a larger impact on more export-oriented economies such as Morocco and Tunisia.
Oil market trends are likely to add to the pressure on Algeria and Libya this year, as producers continue to ramp up output. On 5 July, the eight Opec+ countries – which include Algeria, Saudi Arabia and the UAE – agreed to produce an additional 548,000 b/d from August. That will put further downward pressure on oil prices.
“A sharp drop in activity in emerging markets will be a negative for global oil demand for the rest of 2025 and into 2026,” said Edward Bell, chief economist of the Dubai-based bank Emirates NBD on 7 July. “Just the fear of policy uncertainty will be enough to limit investment.”
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Among other challenges, most governments are running budget deficits and are struggling to create enough jobs for their growing populations. Unemployment in Morocco remains at around 13%, according to the IMF. It is in double figures in neighbouring countries too, according to the International Labour Organisation; Libya’s unemployment rate is probably nearer 20%.
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More recently, albeit on a far smaller scale, the Saudi Fund for Development signed a $38m loan agreement on 27 June this year to set up the Oasis Hub Project in southern Tunisia, which includes rural housing, infrastructure and agriculture schemes.
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There was disappointment in Morocco at the turn of events. In the short term, however, economic growth this year is expected to be a healthy 3.9% in Morocco and 3.5% in Algeria – equal to or better than last year, according to IMF data. Mauritania is expected to grow by 4.4%, which is less than in recent years, but still ahead of its neighbours.
Tunisia is expected to lag behind, at just 1.4%, as the country’s authoritarian leadership struggles to come up with a viable economic model. A draft of the 2026-30 development plan has been promised before the end of the year by the Ministry of Economy and Planning secretary-general, Faouzi Ghrab. Libya’s outlook depends on domestic political factors that look as far from resolution as ever.
Morocco, meanwhile, is intent on solidifying its position as a regional industrial and financial hub, with its thriving stock market serving as an important lever. It is still ranked as a frontier market by index company MSCI, but is hoping for promotion to emerging market status.
The launch of derivatives trading in May is part of efforts to attract more liquidity and secure that higher ranking. Some simpler reforms might also be useful – MSCI pointed out in a June report that stock market information was not always readily available in English, which hindered its accessibility.
Yet, if the market continues to grow as rapidly as it has recently, investors are likely to find a way to address such shortcomings.
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Slow year for Maghreb power and water awards
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The Maghreb region has experienced a slow 2025 in terms of power and water project contract awards. Hopes for the year now rely on a strong second half if the sector is to match the performance of previous years.
As of early July, the total value of power project contract awards had reached $663m, according to regional projects tracker MEED Projects. This means that by the end of the year, the market is expected to fall significantly short of the peaks of $3.8bn in 2023 and $4.5bn in 2024.
Libya’s recovery was a major driver in 2023, accounting for $2.9bn of the total for that year, while Algeria contributed $430m and Morocco $210m. There are no recorded power contract awards for Algeria or Libya in 2025. Morocco and Tunisia contributed $353m and $310m, respectively.
The total value of contract awards for water projects has also declined significantly. For the first six months of 2025, the total reached $189m, which is tracking behind the $815m of water project contract awards recorded in 2024.
Both 2025 and 2024 are far behind the peak of $3.6bn registered in 2022, when Algeria alone accounted for $1.8bn of contract awards, followed closely by Morocco with $1.6bn.
For upcoming power and water contract awards, there are over $6bn of contracts in the bid or prequalification stage that are expected to be awarded within the next year.
In the water sector, Libya leads with $210m of soon-to-be-awarded contracts, followed closely by Tunisia at $260m. In the power sector, Morocco stands out with an impressive projected contract value of $5.3bn, while in Tunisia, there are $300m of upcoming power contract awards.
Xlinks disappointment
There have been some notable project developments in the power and water sectors across the Maghreb region over the past year. Most recently, at the end of June, the UK government withdrew its support for the Xlinks Morocco-UK power project.
The UK Department for Energy Security and Net Zero decided not to consider a contract for difference for this large-scale renewable energy initiative, which aimed to deliver 3,600MW of renewable energy from Morocco to the UK via a 4,000-kilometre high-voltage direct current cable system.
Sir Dave Lewis, chair of Xlinks, expressed disappointment, emphasising the project’s potential to significantly lower wholesale electricity prices in the UK.
Power progress
Other projects in Morocco are proceeding. The Ministry of Energy Transition & Sustainable Development has issued an invitation for expressions of interest for a major liquefied natural gas (LNG) infrastructure project at Nador West Med Port. This project includes an LNG import terminal, pipelines and a gas power station with a capacity of approximately 1,200MW. The project aims to enhance Morocco’s energy security and diversify its energy sources.
Additionally, Morocco’s National Office for Electricity and Drinking Water has invited firms to submit expressions of interest for contracts to build three gas-fired power stations with a total capacity of between 300MW and 450MW. These plants are expected to be commissioned by the summer of 2026, further contributing to the country’s energy infrastructure.
Water advancements
In the water sector, Algeria has inaugurated the El-Tarf desalination plant, which has a production capacity of 300,000 cubic metres a day. This facility is part of Algeria’s broader desalination programme, which aims to address water scarcity issues exacerbated by climate change. The Algerian government has allocated $3bn for the second phase of its desalination capacity expansion, with plans to build six new plants by 2030.
Morocco is also advancing its water infrastructure, with Veolia undertaking the detailed design for a new seawater reverse osmosis plant near Rabat. This facility is expected to treat up to 822,000 cubic metres of seawater daily and will cater to regions particularly affected by drought.
Policy focus
For policy, governments have been manoeuvring as they respond to the global challenge of climate change.
Morocco is progressing with its green hydrogen initiatives, which are closely linked to its water projects. The country has set ambitious targets to produce 52% of its energy from clean sources by 2030, with plans to develop large-scale green hydrogen projects. These projects will require significant water resources for electrolysis, further intertwining the power and water sectors.
Morocco also aims to increase its renewable capacity to 10,000MW by 2030, with a focus on solar, wind and hydroelectric power. Despite the recent Xlinks setback, the country is also exploring opportunities for exporting electricity to Europe, which could significantly enhance its energy market.
Algeria is pursuing other avenues in its quest to diversify its energy sources. In April, Algerian Minister of Energy, Mines and Renewable Energies, Mohamed Arkab, met with Wang Yongge, president of the China National Nuclear Corporation (CNNC), in Algiers. The two reviewed the ongoing cooperation between Algeria’s Commissariat for Atomic Energy (Comena) and CNNC, focusing on the peaceful use of nuclear energy, its medical applications and prospects for future development.
The Algerian government also plans to invest heavily in desalination projects to ensure a sustainable water supply, with desalinated water expected to account for 60% of drinking water by 2030.
Main image: Noor electric power station close to Ouarzazate, Morocco
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