Fact Sheet: Prospectus review highlights risks to Saudi Aramco operations

UNITED STATES (OBSERVATORY NEWS) — Saudi oil giant Saudi Aramco has unveiled its initial public offering (IPO), outlining major core risks that could adversely affect the company’s activities or financial position.

Aramco, the world’s largest oil producer, pumps 10 percent of global supply and is also the world’s most profitable. The decline in oil prices caused the company’s first-half net profit to fall 12 percent to $ 46.9 billion, but the figure remains much higher than Apple, the world’s most profitable listed company, which made $ 31.5 billion.

Processes

Operations may be affected by global oil prices, oil supply and demand, economic and geopolitical developments that may affect world trade as well as the impact of climate change on oil and gas demand and prices.

The Saudi government sets the Kingdom’s oil production ceiling. State finances are closely linked to the oil and gas industry.

Aramco’s operations may be influenced by decisions regarding production levels made by the Kingdom as a member of the Organization of Petroleum Exporting Countries (OPEC), or by decisions of other producing countries.

The Saudi government may commission Aramco to undertake projects or assist in initiatives outside its core business.

Aramco’s financial position could be adversely affected if the kingdom drops its peg to the US dollar.

Insurance

Aramco’s insurance does not cover all risks and may not protect it against obligations arising from potential events such as major oil spills, environmental disasters, terrorist attacks or acts of war.

Litigation

Aramco has already faced major lawsuits, including allegations of violations of antitrust laws partly linked to the kingdom’s membership in OPEC. Monopoly claims linked to OPEC membership were dropped thanks to the protection of US law on sovereign business, but there is no guarantee that the company will succeed in defending those defenses in the future.

Terrorism and Conflict

Political and social instability and actual and potential unrest and armed conflict in the Middle East, North Africa and other regions may affect Aramco’s operations and financial position. Terrorism and armed conflict may have a fundamental and adverse impact on the market price of their shares.

Reserves

Estimates of proven oil and gas reserves are based on a wide range of interpretations, assumptions and assumptions. Any shift in economic or operational conditions may affect estimates of the quantity and value of a proven reserve.

Aramco has commissioned independent oil consultants Degolyer & McNaughton to independently estimate its reserves until December 31, 2018.

The consultants’ estimates of reserves at 209.1 billion barrels of oil equivalent in the reservoirs assessed varied within one percent of the company’s internal estimates of the same reservoir and concession periods.

There is no independent third party certification regarding the Kingdom’s proven oil equivalent reserves.

Subtraction

The IPO is expected to be the largest on the local bourse, with its platform updated to accommodate exceptionally large volumes. However, changes to trading mechanisms and procedures have not been tested and there are no guarantees that they will facilitate listing properly.

Unqualified foreign subscribers will not retain legal ownership of the offering shares, and will not be able to vote for shares in which they enjoy economic benefits.

All stock purchases and sales on the local stock exchange will be denominated in local currency. There is no guarantee that foreign investors will be able to raise the riyal with the sums necessary to buy the volume of shares they wish to buy or exchange.

The Saudi government will retain a controlling stake after the IPO and will be able to exercise control over matters requiring shareholder approval. They shall have the right of veto with respect to any shareholder action or approval requiring a majority vote.

Aramco can change its dividend policy without prior notice to minority shareholders.

Aramco said it plans to announce a normal cash dividend of at least $ 75 billion in 2020 as well as possible private dividends.

In addition, if necessary, the government will waive its right to receive cash dividends over the next five years from 2020 to enable the company to first disburse the minimum quarterly amount due to other shareholders.

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