New Aramco IPO prospectus touts strengths amid investor questions

Saudi Aramco on Saturday published the prospectus for its plans to float a small slice of the world's largest oil-producing company on the kingdom's domestic exchange.

Why it matters: This brings Aramco closer to the long-planned, long-delayed public debut, which could be the largest IPO ever. Crown Prince Mohammed bin Salman envisions raising tens of billions of dollars to fund Saudi's economic diversification efforts.

What's next: The prospectus will begin a bidding period for investors on Nov. 17, and announcement of the final price is scheduled for Dec. 5.

• Trading is expected to begin in mid-December, per The New York Times.
• Individual investors will be allocated up to 0.5% of the shares, the prospectus states.

What we don’t know: The 658-page document does not say what the offer price will be, how much of the company will be floated or list an estimated valuation.

• Bin Salman previously hoped for a valuation of $2 trillion, but bank and analyst estimates have been lower, often substantially so.
• Kingdom officials have planned to list as much as 5% of the company in a two-tiered process, with the IPO on the domestic exchange first, followed by a listing on a larger, as-yet-unnamed international venue. However, the status of the second step is unclear.

The big picture: The mammoth oil producer reported $111 billion in net income last year and holds massive reserves. It provides roughly 10% of the world's crude oil supply.

• There are, nonetheless, questions about its appeal to investors. The company faces security risks laid bare in aerial attacks it suffered in September.
• In addition, the company is controlled by the Saudi government, which will remain its dominant shareholder.
• Weeks ago, Aramco pledged a $75 billion dividend from 2020 through 2024, and, in a move aimed at reassuring potential investors, said outside shareholders are "intended" to be prioritized if they fall below that amount.

The intrigue: The prospectus touts a suite of "competitive strengths," such as "Unrivalled scale of crude oil and condensate production and conventional proved reserves" and low per-barrel production costs.

Overall, Aramco sees Saudi crude, condensate and natural gas liquid supplies growing through at least 2050.

• It also says growth for oil demand in Asia and other developing nations is expected to offset the effects of alternative energy and new technology like electric vehicles.
• The prospectus cites a forecast by IHS Markit, the industry consultant on the document, that global demand is slated to grow through roughly 2035 before leveling off, and "an expected increase in market share from lowest cost producers, including the Kingdom."
• It says that in a scenario where a more rapid transition away from fossil fuels causes demand to peak in the late 2020s, the kingdom's output would still rise through mid-century.

But, but, but: A section of risk disclosures acknowledges: "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."

• It also notes the company may be affected by "Political and social instability and unrest," armed conflict and terrorism.

Go deeper:

• Saudi Aramco's Record Initial Public Offering Starts November 17 (Bloomberg)
• How climate change concerns could affect Saudi Aramco's IPO

Editor's note: This piece has been updated to clarify that the prospectus' projection about global oil demand was citing a forecast by IHS Markit.