After several years of delays and postponement, the prospectus for the world’s most profitable company, Aramco’s Initial Public Offering (IPO) was eventually released this week.
An IPO prospectus is a formal document that is required by and filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering for sale to the public. Companies that wish to offer stock or bonds for sale to the public must file a prospectus as part of the registration process with the SEC.
Aramco is the world’s leading producer of crude oil and condensate. In the first six months of 2019, it produced 13.2 million barrels per day of oil equivalent, including 10.0 million barrels per day of crude oil (including blended condensate)
For the six months ended 30 June 2019, Aramco generated SAR 196.7 billion ($52.5 billion) in net cash provided by operating activities and SAR 142.4 billion ($38.0 billion) of Free Cash Flow.
For the year ended 31 December 2018G, the Company generated SAR 453.7 billion ($121.0 billion) in net cash provided by operating activities and SAR 321.9 billion ($85.8 billion) of Free Cash Flow
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A plethora of financial advisors including Goldman Sachs, JP Morgan, Citigroup, and HSBC worked on the IPO.
The 658-page contains forward-looking statements with respect to the company’s financial position, results of operations and business and business risks which investors must consider before locking into the shares of the company when it becomes public on Saudi Arabia’s Tadawul exchange.
According to Aramco, the first risk is the return on the shareholder’s investment with the oil-giant assuring shareholders that it would give at least $75billion in annual profits from 2020-2024.
“The Board intends to declare dividends quarterly and, based on the annual amount, the ordinary cash dividend per share with respect to each calendar quarter from 2020G to 2024G is expected to be at least $0.09375 (based 200,000,000,000 Shares outstanding),” Aramco said in its Prospectus.
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Located in the Middle East, North African region (MENA) Aramco’s operation is exposed to political and social instability and unrest and actual or potential armed conflicts in the MENA region as some of the company’s facilities are located within the borders of countries that have been affected by the middle-east unrest.
“There is no guarantee that Aramco shares will not be affected by these accidents,” the company said.
Two Aramco facilities were forced to cut production after September 14 drone attacks paralysed the company’s production facility.
The risks from global warming and climate change are increasingly beginning to dictate policy and regulations for oil companies could likely become more stringent and restrictive in the future. This could lead to the devaluation of large oil companies that do not invest heavily in gas and renewable energy.
The rise of new technologies and renewable energy shows that the future of investing in oil is uncertain.
“Climate change concerns and impacts could reduce global demand for hydrocarbons and hydrocarbon-based products and could cause the Company to incur costs or invest additional capital,”
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.
Due to its vast financial resources, Aramco has deep financial pockets and has invested in refinery projects in major energy-consuming countries, such as India and China.
