Saudi Aramco filed its prospectus late Saturday, giving potential shareholders a new look at the company’s performance before its initial public offering.
The state-owned company is set to float the largest IPO in history, and the prospectus details a number of risks the firm anticipates moving forward.
Aramco faces pressure from political unrest in the region, armed conflicts, climate change movements, government ties, and future oil demand.
Even the size of the offering could pose issues for traders, as any IPO of this size is “unprecedented,” Aramco wrote.
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Saudi Aramco published its prospectus late Saturday, detailing several risks the state-owned company anticipates.
The oil conglomerate’s public debut is set to be the largest IPO in history. Though the prospectus didn’t suggest a valuation, Crown Prince Mohammed bin Salman has previously stated Aramco should be valued at $2 trillion.
Bankers have had a harder time estimating the company’s worth, offering valuations ranging from $1.1 trillion to $2.5 trillion. A closer estimate should arrive November 17 when individual investors can begin bidding on shares. The process ends December 4 and will yield a final offer price ahead of a larger public sale.
The prospectus details how the share offerings will take place, and is meant to market the shares to potential investors. Here are six key risk factors highlighted in the document and how they could drag the company’s valuation lower in the future.
Two Aramco facilities were forced to cut production after September 14 drone attacks crippled much of the company’s infrastructure. The strikes reportedly led Aramco to delay its IPO as it looked to give investors more detail around how the attack harmed revenues, and the conglomerate cited additional attacks as a key risk moving forward.
The September attacks prompted a 20% spike in oil’s price per barrel — the most on record — and led Aramco to slash more than half of its daily barrel production. CEO Amin Nasser told CNBC on October 9 that the firm would return to “maximum sustained capacity” by the end of November.
September’s drone strikes weren’t the only time Aramco has been the focus of armed conflict this year. Unmanned aerial vehicles targeted the East-West pipeline in May, and the Shaybah oil field was damaged in August attacks. Additional attacks from terrorists, rebels, or other armed forces “could have a material adverse effect” on Aramco’s revenue stream and the world’s oil supply as a whole, the prospectus said.
Recent global protests against climate change have increased public scrutiny of oil producers, and Aramco’s large footprint in the industry leaves it particularly vulnerable to a mass movement toward sustainable energy. Aramco cited governments’ pressures to reduce greenhouse gas emissions as a critical threat to oil demand, and called the landscape of GHG-emission laws “difficult to predict with certainty.”
The oil conglomerate also noted that the mix of domestic and international climate policies such as the Paris Agreement establish several different paces for the development of green-energy laws. Any significant shift away from hydrocarbon-based fuels could force Aramco “to incur costs or invest additional capital,” according to the prospectus.
The company’s prospectus included an industry assessment from consulting firm IHS Markit, which showed oil demand starting to contract as soon as 2035. Though Aramco didn’t specifically endorse the findings, their inclusion points to a major hurdle down the road.
A second projection — which takes a faster move to renewables into account — suggests peak oil demand will arrive in the late 2020s. Such a deadline would give Aramco less than a decade to diversify its revenue stream and move away from hydrocarbon fuels.
The company’s chief executive previously wrote off renewable energy as a threat to Aramco’s main product, attaching additional significance to the IHS study. He deemed the move to renewables as “not based on logic and facts,” and said their popularity was “formed mostly in response to pressure and hype” during a February 26 speech.
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