Caution: Men Working. Repairs are underway at the Khurais oil field in Saudi Arabia.

Saudi Aramco may be the worlds most profitable company, with more than $200 billion of pretax income over the past year. But even if the Kingdom manages to launch its IPO of the company, prudent investors should stay away, at any price. Heres 10 reasons not to invest:

Geopolitical risk. A September 14 cruise missile strike disabled two of oil giant Saudi Aramcos crown jewels, the Abqaiq oil stabilization plant and the Khurais oilfield. It used to be that the threat of disruption to oil flows from Saudi Arabia would be good for at least a few dollars pop in the price of oil. Not anymore. After jumping 20% when trading commenced following the Abqaiq attack, crude has since slumped to $60, lower even than before the attacks. Amid heightened tensions, President Trump appears tired of holding Uncle Sams umbrella of protection over the Kingdom, and the slog in Yemen should give no comfort that the Saudis could defend itself and its oilfields in a war against Iran. The possibility of future attacks now hangs over the market, says Amrita Sen of consultancy Energy Aspects.

No growth. In a commodity business you need scale in order to compete. But once youve achieved that scale, growth is anchored by the law of large numbers. A small company can rapidly double in size and value. Aramco sure cant. Its output has been flat, around 10 million barrels per day since 2014. And even prior to the attack on Abqaiq the company was being forced to run at less than 90% of capacity in order to satisfy OPEC volume reductions.In the first half of 2019 Aramcos net income and capital investment both fell 12% to $47 billion and $14.5 billion. According to analysis by Bernstein Research, Aramco will not have enough funds this year to pay its dividends out of free cash flow and so will have to borrow to make its payouts.

No autonomy. The companywhether active in OPEC or notacts as the primary lever of Saudi oil policy, with the king, not the board, calling the shots, says Bill Farren-Price, a director at RS Energy Group.In preparation for the IPO, King Salman in 2017 lowered Aramcos tax rate from 80% to about 50%, such that in 2018 the company had to hand over only $100 billion in taxes to the kingdom. Aramco says that upon going public it will promise dividends of at least $75 billion a year to shareholders, but with the kingdom running a budget deficit, if money gets tight that dividend could be cut by royal decree.

About that valuation. Prince MbS regularly touted $2 trillion as his valuation expectation for Aramco. This has always been too high. The worlds biggest and best-managed oil companies currently trade at a dividend yield of around 5% (Exxon 5%, Chevron 4%, Shell 6.5%, Total 5.6%, Sinopec 8%). To generate a 5% yield from $75 billion in dividends implies a market cap valuation on the order of $1.5 trillion. On a price/earnings basis, applying the average megacap P/E of 15 to Aramcos ~$100 billion of net income gets the same $1.5 trillion valuation.

Too many alternatives. Even $1.5 trillion is likely too high, considering that the world really doesnt need any more bloated, state-controlled, publicly traded oil giants. For instance, Gazprom, PetroChina and Petrobras, have each suffered corruption scandals and are down at least 40% in the past decade. Equinor, the Norwegian oil giant formerly known as Statoil, is considered the best-run of the state-owned giants; it has lost just 20% in the past decade and has made great strides in reducing the carbon intensity of its operationsa clear competitive advantage.

Capital is mistreated. In late 2017 Prince MbS arrested dozens of Saudi billionaires and tycoons and installed them in fancy prison at the Ritz-Carlton Riyadh. The captives included famous capitalists like Prince Alwaleed bin Talal, long praised as the Arab worlds Warren Buffett for decades of shrewd investments. MbS shook down his guests for $100 billion in assets with no legal due process whatsoever. You will no longer find any Saudis on Forbes list of Global Billionaires. Prince Alwaleed reportedly said the price of his freedom was $6 billion. Once a fixture on CNBC, he has hardly been seen since.If this is the treatment that successful Saudi entrepreneurs (legit or not) receive in the kingdom, why bother? Capital only flows to places where it is treated well and protected by the rule of law. In 2016 Saudi Arabia attracted $7.4 billion in Foreign Direct Investment. In 2017 FDI plunged to $1.4 billion, recovering somewhat last year to $3.2 billion.The World Bank ranks Saudi Arabia 92 out of 190 countries on ease of doing business. Theres too many better places to set up shop.

Behold the power of Americas frackers. If you absolutely must own oil and gas assets, wouldnt you rather they be in politically stable places like Texas or New Mexico, where property rights are sacrosanct, contracts upheld by the rule of law and the likelihood of Iranian missile strikes vanishingly low? Americas frackers have unlocked enormous onshore reserves over the past decade, and theyre now on sale, with many names down 50% or more in the past year. Apache Corp. is down 50%, Occidental Petroleum down 44% and EOG Resources off 17%, from year-ago levels. All have far more room to grow than Aramco and are not burdened with the pressure of being a royal piggybank.

The traditional niqab and black abayas are common, even in more liberal Jeddah, as seen in this 2018 ... [+] photo.

What human rights? The murder of Washington Post columnist Jamal Khashoggi last year still gets headlines, but you cant believe for a second he was the first dissident killed and dismembered by a team of Saudi hitmen. Though Prince MbS may think he can placate calls for liberalization by granting women permission to drive, he has imprisoned driving activist Loujain al-Hathloul for more than a year. Women remain second-class citizens and must cover their heads in public. There is no religious pluralism, no freedom of assembly or expression. Alcohol is prohibited. But hey, now you can get a tourist visa to come see for yourself how this absolute monarchy keeps its 30 million subjects in line.

Absolute power corrupts absolutely. In a country that outlaws all political opposition, when change finally does come to the kingdom it will not be orderly. In a conversation in late 2017, Khashoggi told me he wasnt a revolutionary. Im not against the system. Without the monarchy the whole country would collapse, he said. What he wanted most for Saudi Arabia were the freedoms we take for granted in the United States. I would wish for freedom of expression.If only that werent such a high bar.

The oil age is ending. The world has never used more oilabout 101 million barrels every day. And theres plenty more where that came from, thanks to advances in directional drilling and hydraulic fracturing. The world is glutted with oil right now even after the near total collapse of Venezuela (which has even more of the stuff than Saudi Arabia) and the blockade on Iranian crude. When Peak Oil comes sometime in the next 25 years, it will be a function not of inadequate supply, but lackluster demand, driven by electric vehicle adoption. That will gut the price of oil and, with it, the value of Aramcos reserves. Considering that Aramco currently pumps about 4 billion barrels per year, Saudi claims of 260 to 300 billion barrels of proven oil reserves should be met with eye rolls. There is zero present value to a barrel of oil in the ground that no one will get around to drilling for 50 years.

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10 Reasons Not To Invest In The Saudi Aramco IPO - Forbes