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Saudi Aramco Offers Some Details on Coming Stock Offering

Saudi Aramco, the world’s largest oil company, took another step on its lengthy path to a stock market listing on Saturday, saying that it would announce a final price for its shares on Dec. 5, with trading expected to start in mid-December.

The company’s 658-page prospectus was released a week after Aramco formally announced plans to sell shares on the local Saudi stock exchange known as the Tadawul.

The initial public offering by Aramco, probably the most world’s most profitable company, may wind up being the largest ever, exceeding the nearly $22 billion raised by Alibaba, the Chinese e-commerce giant, in 2014. But it still may fall short of the expectations raised by Crown Prince Mohammed bin Salman when he first announced his plans for the offering more than three years ago.

The document did not specify the total percentage of the company it would sell. While it said up to 0.5 percent of the company’s shares would be set aside for individual investors, the percentage for institutional investors, which might include oil companies from China and other countries, will be determined by whether the prince and his advisers can strike deals with them.

The prince initially said the company would be valued at around $2 trillion. Some analysts are now skeptical of that valuation. Bernstein, a Wall Street research firm, on Monday pegged the company’s value at $1.2 trillion to $1.5 trillion. The prince had also said the stock would trade on a prestigious international exchange like New York or London, but such a listing has been postponed, with some analysts questioning whether it will ever occur.

There are also deeper concerns about the extent to which the interests of new investors in the company will be protected. With only a small percentage of the company’s shares likely to be publicly traded, the Saudi government will remain by far the largest shareholder and, analysts say, can largely do as it wishes with an organization that generates much of the government’s revenue.

Geoffrey Heal, a professor of energy economics at Columbia Business School, said that potential investors had to weigh the trade-offs between Aramco’s enormous, low-cost oil resources and questions about how the company might be managed in the future.

“There is a lot of oil there, and it is high quality oil, ” he said, “but everything else is pretty negative about this.”

Mr. Heal said that Aramco faced many risks, including the geopolitical dangers in the Middle East, demonstrated by the aerial attacks in September on two major Aramco production facilities, and the potential for declining demand for oil because of concerns about climate change.

Indeed, the prospectus acknowledges that “terrorism and armed conflict may materially and adversely affect” Aramco and its share price in the future.

The prospectus details a series of recent attacks, including the ones in September, and concludes that others could have a serious impact on the company’s “business, financial position and results of operations” as well as discourage investors from buying the shares.

The company also acknowledged that growth in demand for oil has been slower than global economic growth in recent years because of factors like gains in fuel efficiency and the emergence of alternative energy sources like wind and solar and electric vehicles.

Growth in demand for oil is likely to level off by 2035, according to the document, but it adds that the market share of low-cost producers like Saudi Arabia is likely to increase. The kingdom, the document forecasts, will probably be able to produce increasing amounts of oil until 2050.

For investors, Mr. Heal said, the most immediate threat could be rising oil supplies. A surge in oil supplies from the United States as well as other producers like Brazil, Canada, Norway and Guyana may drive prices down. In that case, the company might struggle to earn sufficient profits to pay the substantial dividends of $75 billion a year that it has promised investors.

“Profits could be lower than we think,” Mr. Heal said.

Aramco said in the prospectus that the company “is committed to delivering sustainable and growing dividends to its shareholders” through ups and downs in oil prices. The company even says the government is prepared to forgo a portion of its dividends so that nongovernment shareholders receive payouts based on the $75 billion total.

Still, Aramco has felt the effects of lower oil prices this year. Already, earnings for the first nine months of 2019 are running 18 percent lower than in the same period a year ago. Lower output and the disruption caused by September’s attacks also probably played a role.

Stuart Joyner, an analyst at Redburn, a market research firm, said that in some respects Aramco is not being managed like BP or Royal Dutch Shell, which, he said, produce whatever oil they can to earn as much cash as possible for shareholders.

Instead, in recent years, the Saudi government has been throttling back Aramco’s production as part of a coordinated effort with OPEC and other producers, including Russia, to prop up prices.

But now that there will be outside investors, “that does create a conflict of interest and an uncertainty in governance at the heart of this company,” Mr. Joyner said.

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