Aramco employees are seen at the Natural Gas Liquids (NGL) plant in Saudi Aramco's Shaybah oil field, Saudi Arabia.
Ahmed Jadallah | Reuters
As Saudi Aramco prepares for its long-awaited public offering this year, the world's largest oil company has detailed the large number of risks its business faces in its prospectus released this weekend.
Owned and run by the Kingdom of Saudi Arabia, the oil giant's IPO is expected to be the largest in history. But while Aramco is reportedly the most profitable company in the world, its oil and gas networks are exposed to a number of risks.
"The following risks, identified as significant, do not necessarily constitute all risks that affect the company or are associated with an investment in the shares," Aramco said in the "Risk Factors" section of the prospectus.
Aramco faces a few obvious risks ̵[ads1]1; for example, supply, demand and price of crude oil or how much oil the Saudi government decides to produce, as the country is a member of the OPEC (Organization of the Petroleum Exporting Countries) oil cartel.
Saudi oil production was also recently hit by drone strikes, forcing Riyadh to cut production by 50%. It took weeks for the Saudi government to restore capacity.
Aramco sees many other risks as well, ranging from climate change to the company's dependence on demand from Asia. Here are some of these risks.
Impact of climate change on the oil market
"The effect of climate change on the demand and price of hydrocarbons … Concerns and impacts on climate change can reduce global demand for hydrocarbons and hydrocarbon-based products and may cause the company to incur costs or invest additional capital … Climate change concerns are manifested in public opinion, government policies, laws and regulations, international agreements and treaties and other measures can reduce global demand for hydrocarbons and drive a shift to lower carbon intensity, fossil fuels such as gas or alternative energy sources .. Existing and future concerns and impacts on climate change, including physical impacts on infrastructure, and related laws, regulations, treaties, protocols, policies and other actions may shift demand. "
"Furthermore, the majority of the company's assets are located in the kingdom and d is dependent on a pipeline system and a heavy country terminal facility for transporting crude oil and products through the kingdom. The company also relies on critical assets to process its crude oil, such as the Abqaiq plant, which is the company's largest oil processing plant and treated about 50% of its crude oil production for the year ended December 31, 2018G. The east-west pipeline, the Shaybah NGL plant, the Abqaiq plant and the Khurais processing plant have recently been attacked. "
The increase in electric vehicles and the sharing of rides
" International supply and demand for crude oil and the selling price of crude oil are influenced by many factors beyond the control of the company, including … electrification of transportation, technological development in cost or endurance of fuel vehicles for electric vehicles and changes in transport mode preferences, including trip sharing "
Significant demand from Asia
" Risk related to economic and political developments in Asia … in 2016G, 2017G and 2018G bought customers in Asia, including the company's associated refineries in Asia, 69%, 71% and 71% of the company's crude exports and 49%, 50% and 51% of the company's total crude production respectively. "
The Difficulty in Estimating Saudi Arabia and Reserves
" Estimates of proven hydrocarbon reserves depend on significant interpretations, assumptions and assessments. Any significant discrepancy or change in existing financial and operating conditions may affect the estimated amount and value of the Company's proven reserves. "
Operational risks, such as fires or explosions
" The Company is subject to operating risk that is common in the oil and gas industry, including: oil or gas emissions, pipeline leaks and fractures, leaks in storage tanks and explosions, fires, blowouts and craters in the surface; power shortages or faults; mechanical or equipment failure; transportation interruptions and accidents; tropical monsoons, storms, floods and other natural disasters; and chemical spills, emissions or releases of toxic or dangerous substances or gases. "
Regulatory and Legal Control of Aramco Partners
" Risk of Sanctions and Bribes and Bribery of Corruption … Violations of current sanctions and trade restrictions, as well as anti-bribery and corruption laws, may adversely affect the Company. .. The company is currently conducting investment and joint venture opportunities in oil and gas and LNG projects located in Russia and with Russian counterparties. . There can be no guarantee that the Company's corporate governance and compliance policies (including with regard to sanctions and trade restrictions, bribes and anti-corruption) will protect it against the misconduct of employees or business partners. "
Plastics & Environmental Impact
" Chemical and Plastic Regulations Risks … Increased concerns about the safe use of chemicals and plastics and their strong environmental impact have resulted in more restrictive regulations and may lead to for new regulations. "
Limited Aramco Experience in Leading a Public Company
" The company's management team has limited experience in leading a public company, interacting with investors and complying with the increasingly complex laws, regulations and other obligations of public companies. . "
Saudi Arabia's Economic Dependence on Oil
" The Kingdom's public finances are strongly linked to the hydrocarbon industry.
The hydrocarbon industry is the single largest contributor to the kingdom's economy. The oil sector accounted for 44.0% and 43.0% of the Kingdom's real GDP, respectively, in the years ended 31 December 2016G and 2017G (the last years information is available). "