Petrofac teeters as TenneT cancels multibillion contract

Petrofac is facing the gravest crisis in its two decade history after TenneT, the Dutch electricity grid operator, cancelled a €13 billion offshore wind contract. The termination of this major agreement has derailed the oil and energy services group’s advanced restructuring plan and left the company fighting for survival.

The TenneT deal, awarded jointly to Petrofac and Hitachi in 2023, was announced as the largest in Petrofac’s history. It covered the construction of offshore platforms and onshore converter stations for six wind farms. The contract offered a much-needed lifeline for Petrofac, which has battled mounting debts, historic fraud investigations and the impact of global oil price shocks in recent years.

Petrofac’s leadership stated they believe the termination is without basis, expressing disappointment as the business had been working with its consortium partner and TenneT to address concerns. Despite these efforts, TenneT cited Petrofac’s inability to meet its obligations, triggering the right to a partial termination of the contract specific to Petrofac’s responsibilities.

The company employs approximately 8,000 people worldwide, including 2,000 in the UK. Having previously been valued at £6 billion at the peak of its success in the FTSE 100 in 2012, Petrofac’s market value had plunged to near £20 million by May. Its shares remain suspended after the company failed to publish accounts while pursuing restructuring.

Efforts to rescue the group through a debt-for-equity swap appeared close to realisation before the TenneT blow. This plan, while likely to wipe out shareholders, might have salvaged the business. With this option now off the table, Petrofac is maintaining intense dialogue with its main creditors and stakeholders as it urgently explores alternative solutions to prevent collapse.

A string of difficulties has beset the firm, from oil market volatility and pandemic-related project delays to criminal investigations resulting in over $100 million in penalties. The termination of its largest-ever contract may prove a turning point, as Petrofac’s future now hinges on negotiations with creditors and the potential identification of a viable path forward.