Another major client cuts ties with Petrofac over mounting project delays

Dubai: Orlen Lithuania, the refining and import arm of Poland’s Orlen Group, has terminated a contract worth almost €1 billion with Petrofac after prolonged delays and growing concerns about the UK contractor’s ability to deliver a strategic refinery upgrade in Mažeikiai.

The decision adds to the pressure already facing Petrofac after a series of setbacks across its international portfolio in recent weeks.

In a statement to Gulf News, Orlen Group said the termination followed repeated failures to meet agreed timelines. “Due to increasing delays in the supply of materials and assembly works, and consequently failure to meet contractual deadlines in the implementation of the Bottom of the Barrel investment, Orlen Lietuva has decided to terminate the contracts with Petrofac International,” the company said.

“This action serves to secure the company's interests and was preceded by a detailed analysis of financial and operational risks, which confirmed the impossibility of completing the investment within the planned timeframe,” Orlen added.

Search underway for new main contractor

With nearly 80% of the modernisation programme completed, Orlen Lithuania has already launched a process to appoint a new general contractor to ensure work continues without further disruption.

The Mažeikiai refinery upgrade is one of the most important industrial projects in the country. Lithuanian authorities designated it a strategic investment in March, citing its potential to improve refining efficiency, boost national competitiveness, reduce reliance on fossil fuels and create fresh avenues for investment.

The government has committed €54 million in support, including corporate tax incentives, emissions cost compensation and infrastructure funding. Ministers from four portfolios signed a letter of intent earlier this year underlining the state’s backing.

Subcontractor concerns deepen after payment delays

The termination comes amid ongoing concerns from subcontractors working on the project. Several firms said Petrofac had been increasingly late in settling invoices, with some payments stopping entirely after the UK parent company was placed into administration in late October.

Local media reported that subcontractors were told to halt work at the refinery last Friday, signalling further disruption. The project’s completion timeline had already slipped by a year to autumn 2026.

Executives at the subcontracting firms described working “at a loss” due to delayed payments, forcing staff reductions and minimal activity on site. Many said the financial pressure became unsustainable once administration proceedings in the UK began.

A €970 million project plagued by overruns

Orlen Lithuania signed the original €641 million contract with Petrofac in October 2021 for a new residue hydrocracking unit. By August 2023, project costs had risen by 45% to about €970 million, reflecting delays, supply chain challenges and wider inflationary pressures.

The company said the upgrade would eventually increase crude processing efficiency at the refinery by 15 to 20%, reinforcing its role as the largest oil processing facility in the Baltics.

Petrofac’s global challenges grow

The collapse of the Orlen Lithuania contract adds to a growing list of setbacks for Petrofac, which has been hit by financial strain, delayed restructuring efforts and contract losses across multiple markets.

The company’s holding entity in the UK entered administration in late October following the termination of a major offshore wind contract by Dutch grid operator TenneT. The North Sea project had supported much of Petrofac’s engineering and construction revenue.

With another major client now walking away, the focus will turn to what this means for remaining Petrofac projects worldwide, and how the company plans to stabilise operations amid rising financial pressure.