Abu Dhabi National Oil Company (Adnoc) has terminated engineering, procurement and construction (EPC) contracts it had awarded for its $1.65bn Dalma sour gas field development project.

The Dalma project consists of two main EPC packages, with the offshore and onshore scope of work packaged separately.

In February, Adnoc awarded a consortium of UK-headquartered Petrofac and Malaysian contractor Sapura a $591m contract for package A of the Dalma project, which relates to the offshore work.

Package B, relating to the project’s onshore aspect, was awarded solely to Petrofac at $1.065bn.

In a statement posted on its website on 16 April, Petrofac announced it has received a ‘notice of termination from Adnoc’ regarding the Dalma contracts.

Petrofac CEO Ayman Asfari has also notified the company’s staff about the development in an internal email sent on 16 April.

Petrofac’s total revenue share from the two contracts is $1.5bn.

According to a market source, Adnoc is understood to have urged Petrofac for a 30% discount on its contract value, which the UK firm ‘was not in a position to oblige’.

“The failure to comply with the request has led the client to pull back the contracts,” the source said.

“Margins were anyway pretty squeezed for Petrofac on those Dalma bids, so providing a further discount would have been impractical for the contractor,” the source added

Intense competition

The race to win the Dalma EPC packages has been hard-fought among key EPC contractors operating in the UAE.

Weeks after submission of bids in July, Abu Dhabi government-owned National Petroleum Construction Company (NPCC) emerged as the initial frontrunner for package A.

NPCC had reportedly begun mobilisation works on the offshore package.

State-owned China Petroleum Engineering & Construction Corporation (CPECC) initially pulled ahead in the race for package B.

However, Petrofac remained in the hunt for both packages, and is understood to have maintained negotiations with Adnoc.

When Adnoc, which was initially expected to award the Dalma project in November last year, approached contractors for revised bids, Petrofac submitted the most competitive price for both packages, also taking on board Sapura for the offshore package.

Road ahead for Petrofac

In his email to staff, CEO Asfari says: “Nonetheless, we are committed to working with Adnoc over the coming weeks to explore alternative options to deliver this project in a way that supports their strategic objectives within the current challenging environment.

“I would like to reassure you that we are still progressing with tendering for other major contracts in Abu Dhabi, though we anticipate that this development may have an impact on the timing of their awards,” Asfari further says in the email.

At present, Petrofac continues execution works on $7bn-worth of backlog orders, the CEO says, adding: “Our tendering activities elsewhere continue unaffected.”

Earlier in April, MEED reported that Petrofac was implementing a decision to reduce its workforce in the UAE by 20%.

In a notice sent to UAE employees via email on 2 April, Petrofac has outlined its redundancy programme and offered staff the option to choose voluntary redundancy or be prepared for the company to implement a compulsory redundancy programme.

The announcement pertaining to reduction of the UAE headcount followed the Petrofac CEO’s statement on 2 April to the wider group and investors worldwide regarding “the unprecedented challenges we currently face”.

This article is published by MEED, the world’s leading source of business intelligence about the Middle East. MEED provides exclusive news, data and analysis on the Middle East every day. For access to MEED’s Middle East business intelligence, subscribe here.