Saudi Aramco Outlines Risks And Strengths Ahead Of IPO
Energy giant Saudi Aramco, the world's largest company, has lifted the lid on its secretive operations in a prospectus ahead of a highly anticipated listing on the Riyadh stock exchange.
As a legal requirement for its initial public offering, expected to be the world's biggest, Aramco has published major risks and strengths that could impact the company's operations.
Here are the factors that the energy Goliath said investors must take into account:
What's missing?
Most notable is what was not said in the prospectus.
It did not disclose the size of the share sale or the pricing range, nor did it mention the company's valuation and how much Aramco expects to raise from the IPO.
The risks
CLIMATE CHANGE -- Aramco conceded that during a time of transition to renewable energy sources, concerns over global warming could reduce demand for hydrocarbons and potentially affect its bottom line.
"Climate change concerns... may reduce global demand for oil and propel a shift to lower carbon intensity fossil fuels such as gas or alternative energy sources," it said.
GEOPOLITICAL RISK -- With Saudi Arabia facing off with regional rival Iran, and leading a military coalition bogged down in a disastrous war in neighbouring Yemen, Aramco noted that political and social unrest in the region may affect its operations.
In September, attacks on its Abqaiq processing plant and Khurais oilfield temporarily halved the kingdom's crude output and caused turmoil on global energy markets.
GOVERNMENT CONTROL -- The prospectus said Saudis Arabia's government determines the kingdom's maximum level of crude oil production and that public finances are highly connected to the hydrocarbon industry.
This means Aramco does not have a final say on its level of crude production -- a dynamic that analysts say could create tensions between the interests of the company and of the authorities.
RESULTS AND CASHFLOW -- The company noted that its results and cashflow are significantly impacted by international crude oil supply and demand.
Aramco's income also depends on the price of oil which has fluctuated sharply since mid-2014 from a monthly average of $112 a barrel in June 2014 to a monthly average of $31.9 a barrel in January 2016.
In recent months, prices have hovered around the $60 a barrel mark.
The strengths
PRODUCTION -- In 2018, Aramco produced 13.6 million barrels per day of oil equivalent including 10.3 million bpd of crude.
Its total liquids production of 11.6 million bpd was over 20 percent higher than the combined output of the five major international oil companies, among them BP and Shell.
RESERVES -- Aramco reserves stood at 256.9 billion barrels of oil equivalent at the end of last year -- sufficient for 52 years, much longer than the five major international oil companies who claim between nine and 17 years.
SPARE CAPACITY -- Saudi Arabia says it has a spare capacity of up to 12 million bpd, about two million bpd above daily production.
LOW PRODUCTION COST --Aramco production costs are among the lowest in the world due to the unique nature of the kingdom's geological formations. Production costs in 2018 were $2.80 a barrel.
COMPANY FINANCES -- The company is the world's most profitable, posting $111.1 billion in net profits last year and $68.2 billion in the first nine months of 2019.
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