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Aramco's slide show overview shows risk to investors



DUBAI – Aramco revealed a sharp drop in profits related to attacks on its September plants that cut in half the Saudi company's oil production, highlighting the risk to investors ahead of what may be the world's largest initial public offering.

Saudi-Arabian Oil Co., as Aramco is officially known, delayed the much-awaited public offer last month until it had announced its revenue, hoping to demonstrate the resilience of its operations. At the launch of the IPO last weekend, Chairman Yasir al-Rumayyan said the September 14 attacks had no significant impact on the company's finances.

In a 600-page prospectus for stock sales released on Saturday, Aramco revealed quarterly revenue fell in line with oil prices while net profits fell at a faster rate of higher costs associated with the attacks.

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Saudi Arabia's ability to protect its valued assets and withstand future abuses will be an important factor for potential investors who calculate Aramco's value in its planned IPO. In the prospectus, Aramco highlighted the risk of investing in the company, including a warning that "terrorism and armed conflict can significantly and adversely affect operations."

De facto Crown Prince

Mohammed bin Salman

has pushed for listing as a way to increase disposable waste to fund planned investments in other industries. The effort is part of a broader plan to make Saudi Arabia's economy less dependent on the volatility of global oil demand. The attacks risked derailing this target and demonstrated the vulnerability of the kingdom's oilfield to sabotage.

Saudi Arabia accused Iran of the assaults, an accusation Tehran denied.

Although Aramco returned to full oil production within weeks of the attacks on its Abqaiq and Khurais oil plants, it was forced to import oil to feed its domestic refineries and ensure that it exported its own products to maintain demand. from the customers. Purchases and other expenses increased in the third quarter, resulting in net income falling to $ 21

.2 billion from $ 30.3 billion in the same period last year, according to the prospectus.

Average oil prices were about $ 62 during the July to September quarter, compared to $ 75 a year earlier, according to a Wall Street Journal analysis of FactSet data.

The Saudi government has taken steps to better secure its oil fields. Since September, the US military has deployed an additional 2,000 troops, two squadrons of jet fighters, three new anti-missile systems and other equipment to Saudi Arabia in an effort to better prepare the kingdom to counter Iran.

Aramco now wants to demonstrate its resilience, said Uday Patnaik, an emerging market investor with UK-based asset manager LGIM. After the attack, the company says, "Look, the security measures are up," Patnaik said.

The company published the prospectus in the next step against what may be the world's largest stock exchange listing. Investors had hoped to learn how much Aramco intends to list. But the energy giant did not disclose the size of the listing, noting that it would make a decision in early December.

Over the next few weeks, Aramco and its advisers will use a marketing period to determine the offer price and issue size based on demand, ahead of a scheduled listing on the local Tadawul exchange. A book-building process will run from November 17 to December 4, where institutional investors are expected to submit orders. Individual investors have until November 28 to submit a request for shares, according to the prospectus.

Investors have said that they expect the oil giant to list at least 2% of the share capital. Prince Mohammed has put the company's value at $ 2 trillion, which will raise about $ 40 billion.

But many international investors see this valuation as ambitious. Bankers working on the deal have said the company is worth between $ 1.3 trillion and $ 1.7 trillion.

A value of $ 1.5 trillion makes sense when comparing dividend yield, an important investor measure. Aramco has said it will pay out $ 75 billion in dividends next year, and at that valuation, the company will offer a 5% dividend – typical of global oil giants.

Royal Dutch Shell

PLC has a yield of just over 6% and

Chevron Corp.

just under 4%.

After comparing Aramco with its peers, most investors are also expected to use a discount on Aramco's valuation for some of the risks unique to the company, such as the potential for multiple attacks on facilities.

To tempt investors to look beyond the risk, bankers say Aramco's dividend is likely to increase by 10% a year, and minority shareholders are guaranteed to receive a payment before the Saudi government.

Write to Rory Jones at rory.jones@wsj.com

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