The vast number of risks the business faces has been detailed by Saudi Aramco, the state owned oil giant of Saudi Arabia that is set to launch its long-awaited initial public offering this year. The details of the risks being faced by the largest oil company of the world were mentioned in its prospectus that was made public during the weekend.
It is expected that the IPO of Aramco, a company that is owned and operated by Saudi Arabia would be the largest ever in the world. However the most recent risk revelations by the company show that a wide variety of risks is faced by oil and gas network of Aramco, which recently became the most profitable company in the world after it released its quarterly numbers last month in preparation of the IPO.
“The following risks, which are identified as material, do not necessarily comprise all the risks affecting the Company or associated with an investment in the Shares,” Aramco said in the “Risk Factors” section of its prospectus.
Some of the risks faced by the company are the more obvious ones that are faced by virtually all oil companies and include risks from the supply, demand and price of crude oil and the decision of Saudi Arabia government to limit its total oil production to maintain the limits set by the international oil cartel OPEC.
Recently, Aramco was forced to cut production by 50% following drone attacks on its oil production facilities. The company took weeks to get back to full production capacity.
However some other risks were also accorded importance by Aramco which range from climate change to the dependence on demand from Asia for the company.
In terms of the challenges faced by the company from climate change issues and its impact on the oil market, Aramco stated: “The impact of climate change on the demand for, and price of, hydrocarbons … 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 … Climate change concerns manifested in public sentiment, government policies, laws and regulations, international agreements and treaties and other actions may reduce global demand for hydrocarbons and propel a shift to lower carbon intensity fossil fuels such as gas or alternative energy sources … Existing and future climate change concerns and impacts, including physical impacts to infrastructure, and related laws, regulations, treaties, protocols, policies and other actions could shift demand.”
Aramco is also weary of challenges posed by terrorism and attacks on oil facilities. It said in the declaration that the company the bulk of the assets of the company is situate din Saudi Arabia and the company is significantly dependent on a cross-country pipeline system and terminal facilities for transporting its oil and other products within the country. “The Company also depends on critical assets to process its crude oil, such as the Abqaiq facility, which is the Company’s largest oil processing facility and processed approximately 50% of the Company’s crude oil production for the year ended 31 December 2018G. The East-West pipeline, the Shaybah NGL facility, the Abqaiq facility and the Khurais processing facility have recently been subject to attacks,” Aramco said in the filing.
The company also listed risks from the increased use of electric vehicles and ride-sharing which are “beyond the Company’s control.” It also said that economic and political developments in Asia should also be considered by investors because a large part of its revenues are generated from exports to its clients in the region.
(Adapted from CNBC.com)