Aramco Born of Foresight, Deal
Seemed like a lot to pay – at the time
On May 29, 1933, a subdued meeting took place at Kazam Palace in Jiddah, Saudi Arabia.
The country’s finance minister, Abd Allah al-Sulayman, read a proposed business agreement out loud.
King Abdul Aziz Al Saud nodded his approval, papers were signed and fountain pens were handed out to officials involved in the negotiations.
Saudi Aramco was born.
And so remarkable that was, because the fist of a global economic depression squeezed against all ventures.
Less than three months earlier every bank in the United States had been shut down, closed for a full week, for fear of a panic that threatened financial doom.
No worse time for a foreign investment in a remote corner of the Middle East.
This year, Saudi Aramco observes its 75th anniversary as the world’s single most important company in crude oil production.
In 1933, no one knew if Saudi Arabia would ever produce a drop of oil.
Birth of a Nation
The story of Saudi Aramco begins in many places – in the desert and on the coasts of the Arabian Peninsula, in the government offices of Westminster, in the headquarters of Standard Oil Co. of California.
And, in the abundant marine life and sediments of the Paleozoic seas, certainly.
It starts before Saudi Arabia even existed, in the remarkable exploits and conquests of the country’s future king, known to the world as Ibn Saud.
Before his 30th birthday, Ibn Saud invaded and wrested control of Riyadh from a rival family. Within two years, he had built a force that defeated his nearby enemies and their Ottoman supporters.
After World War I, Ibn Saud took control of Al-Hasa and the Hejaz region of the western Arabian Peninsula, then expanded his control to dominate most of the Najd plateau.
In the Treaty of Jeddah, signed in 1927, Great Britain recognized the Kingdom of Najd and Hejaz as a fully independent and sovereign state under the rule of Ibn Saud.
Success had come as much from his political and diplomatic skill as military strategy. The king played off British interests against Ottoman force, rewarded supporters and, when necessary, compromised grudgingly.
His most conservative and religiously devout followers distrusted the king’s familiarity with Western powers and Christianity, a recurrent theme for the country.
In March 1932, Ibn Saud consolidated and unified Al-Hasa, Qatif, Najd and Hejaz into the Kingdom of Saudi Arabia.
He ruled an awkwardly poor estate. Much of the country’s income came from pilgrims on their way to Mecca, but hard economic years slashed that revenue by as much as 80 percent.
And so it was that Karl Twitchell came to Jiddah.
Land of Wealth?
Years later, rumor and speculation – and envy – would say that Twitchell acted as an agent of American oil. But in truth, he didn’t begin with an eye for petroleum.
A Vermont-born mining engineer and geologist, Twitchell spent years conducting surveys in the Middle East. He traveled to Saudi Arabia in 1931 at the invitation of Ibn Saud, with the backing of Chicago philanthropist and Arabia-supporter Charles Richard Crane.
His first interest was water. The young country – nestled between the Red Sea and the Persian Gulf – needed water for agriculture, for mining, for any kind of development.
Twitchell eventually recounted those efforts in his book Saudi Arabia, published in 1947. He listed the water resources of the various regions of the kingdom and provided supporting details, including the depth that drinking water had to be raised from wells.
Next, he examined the wealth and potential of the country’s agriculture and livestock.
“Besides the forest products of charcoal in northern Hejaz, and the poles and timber of Najd in the Buraida district ... there are in Saudi Arabia a number of important agricultural crops, including dates, sorghums, wheat and rice,” Twitchell noted.
Finally, he turned to the most promising of the kingdom’s mineral resources: Gold.
About 5,000 years earlier, primitive mining work had begun to exploit gold deposits near the Arabian coast of the Red Sea. Twitchell thought it might be the area of King Solomon’s mines.
“I was asked if I could suggest any other practical sources of income, it being understood that my reports did not encourage anticipation of any large agricultural increase in the Hejaz,” Twitchell recalled.
“I had prepared for such a question ... I had seen the ancient workings, mine ruins and tailings at Umm Garayat – near Wejh – so I replied that there might be minerals of commercial value in this country,” he wrote.
Despite the discovery of placer gold nuggets, attempts at mining gold would prove little more than marginally economic, and no great aid to the Saudi treasury.
Arabian culture dictated that the king personally assist his people and bestow financial gifts when appropriate. Ibn Saud also had to pay for a government. Lacking a reliable revenue source, he borrowed from merchants and traders.
At one point, al-Sulayman was forced to announce a moratorium on debt payments and to commandeer local supplies.
Put bluntly, Ibn Saud needed money, badly.
And so the interest of the oil industry was welcome, indeed.
Standard Oil Co. of California already had created the Bahrain Petroleum Company, known as Bapco. It began exploratory drilling in that island kingdom and British protectorate in October 1931.
Ibn Saud smelled cash. He knew American oil companies would pay bonus money for a drilling concession in Saudi Arabia, even before a discovery in Bahrain.
Twitchell advised patience.
He met with the king in January 1932, and “Ibn Saud asked me to arrange for oil geologists and oil-drillers. I recommended strongly that the results of the Number 1 Well at Bahrain be awaited before doing anything regarding oil,” he recalled.
“Since no evidence of faulting or difference geologically between Bahrain and the mainland of Hasa could be seen, and in view of the fact that oil well exploration and drilling is extremely expensive, and that if the Bahrain well did not strike commercial oil it would be unlikely that it would be found in Hasa, a definite wait-and-see policy was advocated,” Twitchell wrote.
But if Bapco found oil in Bahrain, Saudi Arabia would be in a much more favorable position to negotiate, he reasoned.
After some thought, Ibn Saud agreed.
Standard of California geologist Fred Davies, an AAPG member since 1920, went to Bahrain to help direct drilling at Jebel Dukhan. The word “jebel” means mountain or hill, a high place.
He later noticed its similarity with Jebel Dhahran, just across the Gulf’s waters. The company used geologic reports from Davies and Twitchell when evaluating plans for an exploration concession in Saudi Arabia.
That possibility became more urgent after Bapco found oil in commercial quantity at Jebel Dukhan in June 1932.
Let’s Talk Money
Twitchell returned to the United States to gauge interest in a Saudi minerals or oil concession offering. He found less enthusiasm than he’d hoped.
Not only was the world floundering in economic depression, it was swimming in oil. Foreign discoveries and new production from Texas and Oklahoma had flooded the market, sending crude prices below 25 cents a barrel.
Meetings with the Texas Company (Texaco) the Near East Development Co. (a consortium that included Shell, Mobil, Standard of New Jersey, Atlantic Richfield and others) and Gulf Oil Co. brought no offers, but Twitchell found a more supportive audience in Standard of California executives.
After only four business conferences to discuss the matter, a Standard board member in New York told Twitchell the company would be willing to negotiate a concession agreement.
The Iraq Petroleum Co. (IPC), at that time the world’s leading oil consortium, also joined in the negotiations.
Hoping for the best, al-Sulayman asked for the equivalent of 100,000 British pounds in gold. Standard of California responded by offering 20,000 in gold. IPC agreed to much less, the equivalent of 10,000 British pounds in rupees.
In the next round of talks, al-Sulayman reduced the Saudi’s position to 50,000 worth of gold plus an annual rent of 5,000.
IPC dropped out of the bidding. The potential for Saudi oil production, especially in the country’s Eastern Province, seemed unlikely to justify an investment amounting to US $250,000.
Standard of California offered an immediate 30,000 pounds in gold, a loan of another 20,000 pounds in gold 18 months later, and agreed to the 5,000 pound yearly rent payment.
So it was that the company and Saudi Arabia reached their agreement.
Exploration would be carried out by the California Arabian Standard Oil Co., known as Casco, as soon as possible.
Twitchell received a generous payment for serving as a consultant to Standard of California, and a bonus when negotiations were successfully completed.
Casco turned into the Arabian American Oil Co., and then Aramco, and today Saudi Aramco.
Davies, a native of Aberdeen – South Dakota – became the president of Casco, then of Aramco, and finally chairman of the board.
King Abdul Aziz bin Abdul Rahman Al Saud lived out his life as a major figure in the Arab world, to his death in 1953.
Casco drilled at Dhahran for four years without success.
In the fifth year, in March 1938, a drill bit encountered the vast oil reservoirs of Saudi Arabia for the first time.