Opinion | What to Know Before Buying Shares in Saudi Arabia’s Oil Company (Published 2019) (2024)

Saudi Arabia’s Capital Market Authority on Sunday announced that the kingdom had approved plans for turning Saudi Aramco, its hugely profitable national oil company, into a publicly traded corporation. An initial public offering of 1 percent to 3 percent of Aramco’s shares is expected in December, but may come later.

Prince Mohammed bin Salman touted a valuation of $2 trillion three and a half years ago, but it seems that the underwriters are looking for a valuation between $1.3 trillion and $1.7 trillion. If it is a $1.7 trillion valuation and the Saudis list 2 percent of the shares — the most common assumption — they will make about $30 billion. A 3 percent listing of shares at that valuation could garner the kingdom $51 billion.

On its own, Aramco is an impressive business and an enticing investment opportunity. It makes more profit than any other company; it made $111 billion in profit in 2018, while Apple with $59.5 billion was second. Aramco pumps more oil at lower costs than any competitor. For 30 years, the company has been on an upward trajectory, diversifying its business and developing deep ties in South and Southeast Asia, the United States and Europe.

At the same time, Aramco preserves the health of Saudi Arabia’s aging oil fields and regularly introduces new technologies to reduce the environmental impact of carbon-based fuels. If profit and loss were all that investors considered, Aramco stock would be a sure bet.

But King Salman of Saudi Arabia is the last remaining globally significant, absolute monarch, and much of his power comes from ownership and control of Aramco.

The Aramco stock offering will be listed only in Saudi Arabia, and global investors will have no practical rights as shareholders. In the United States, a board of directors has a fiduciary duty to the company, not to a king or his government. Shareholders in the United States can and do sue to protect their rights.