What risks does Saudi Aramco face in preparing for an IPO?

UNITED STATES (OBSERVATORY NEWS) — Saudi Arabian State Oil Company Saudi Arabian Oil Co. (Saudi Aramco), preparing for the IPO, indicated a number of risks that it faces, CNBC reports.

“The following risks, which are identified as significant, do not necessarily include all risks that affect the company or are related to equity investments,” says the prospectus published by Aramco.

The following are some of these risks.

The impact of climate change on the oil market

“The challenges and consequences of climate change can reduce global demand for hydrocarbons and hydrocarbon-based products and can lead to the company incurring costs or investing additional capital …”

Terrorism and attacks on oil facilities

“In addition, most of the company’s assets are located in the kingdom, and it relies heavily on the cross-border pipeline system and terminal facilities for transporting oil and oil products …”

On September 14, drones attacked two important oil facilities in Saudi Arabia, including the world’s largest refinery. These facilities account for about half of Saudi capacities – 5.7 million barrels per day.

The United States accused Iran of attacking Saudi oil facilities, but Tehran has denied any involvement in the attacks. Hussite rebels in Yemen claimed responsibility for the attacks.

Electric vehicle distribution

“… electrification of vehicles, technological changes in the cost or durability of fuel cells for electric vehicles and changes in transportation mode preferences, including vehicle sharing.”

Risks related to economic and political events in Asia

“In 2016, 2017 and 2018, customers in Asia, including subsidiaries of oil refineries located in Asia, respectively acquired 69%, 71% and 71% of the company’s total oil exports and 49%, 50% and 51% of the total oil production company.”

This makes Aramco dependent on demand from Asian customers.

The difficulty of estimating oil reserves in Saudi Arabia

“Estimates of proved hydrocarbon reserves are subject to significant interpretations, assumptions and judgments. Any material deviation or change in existing economic and operating conditions may affect the estimated amount and value of proved reserves of the company.”

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