Upon the discovery of oil, for the first time in the Gulf, in Bahrain, exploration interest surged in Saudi Arabia and this momentum led to the signing of the Concession Agreement with Socal on May 29, 1933. This heralded the beginning of a remarkable epoch of oil in the kingdom
The story of oil in Saudi Arabia commenced nearly a decade prior to the actual exploration and involved complex historical and commercial developments stemming from efforts of various Western powers to develop Middle Eastern sources of oil.
In 1922, the Eastern and General Syndicate (EGS), a London-based finance group that dealt in oil concessions, sent one of its promoters, a New Zealander named Major Frank Holmes, to Bahrain ostensibly to help develop the kingdom’s water supply, but in fact to look for oil concessions.
In the same year (1922), he travelled to the mainland to discuss the possibility of an oil concession with Saudi King Abdulaziz Al Saud. With the King’s permission, he carried out a survey over four weeks in the desert and returned to Hofuf with earth samples which he claimed bore traces of oil.
At the Uqair conference held later in the year to negotiate with King Abdulaziz, then the Emir of the Najd, over the boundaries between his territories and Kuwait and Iraq, Holmes approached the King with a view to finalising a concession document but the British High Commissioner, Sir Percy Cox, tried to persuade the King not to sign.
However, King Abdulaziz considered this an unacceptable interference by the British. For the King, his state was sovereign and in April 1923, he granted a concession to EGS in Al-Hasa and the Kingdom's share of the Neutral Zone.
But when a subsequent survey was unfavourable, and a financially challenged Eastern and General Syndicate failed to find a bidder, the concession for Al-Hasa – a concession that included many of the oil fields later found and developed by the Arabian American Oil Company (Aramco) – was allowed to lapse. Holmes, nevertheless, still entertained hopes of finding oil in Bahrain and concentrated his efforts there.
The focus of the early history of oil in the Gulf now turns to Bahrain, writes Paul Lunde in an article published in the May/June 1984 edition of Saudi Aramco World.
Major Holmes, with concessions in Kuwait and Bahrain, now had to interest someone in exploring those concessions. He approached a number of oil companies, but failed to interest any of them in drilling in Bahrain –until he got in touch with Eastern Gulf Oil – which bought Holmes' Bahrain concession for $50,000, then discovered, because of its association with the Iraq Petroleum Company (IPC), that it was barred by the famous "Red-Line Agreement" from developing oil in Bahrain, the article says.
Meanwhile, Maurice Lombard and William Berg, Standard Oil Company of California (Socal) directors, decided to check out the findings of geologist Ralph Rhoades, who had surveyed Bahrain for Eastern Gulf in 1927. First, though, Socal had to register a Canadian company as a subsidiary, to comply with a British law forbidding non-British registered companies to operate in the area. Thus was the Bahrain Petroleum Company (Bapco) formed, and on August 1, 1930, the Bahrain concession was formally assigned to Bapco – whose chief local representative was none other than Major Frank Holmes, now known in the Gulf as Abu Al-Naft (Father of Oil).
Detailing the events, Paul Lunde writes: Another important character in the search for Arabian oil now took the stage. This was Harry St. John Philby, who had lived in Jeddah since 1925 and was the leading European authority on the country. A close friend of King Abdulaziz, his Finance Minister Abdullah Sulaiman and Fuad Hamza, the Deputy Foreign Minister, Philby introduced the King to the American philanthropist Charles R Crane.
Since Jeddah at the time had no piped water supply, Crane offered to lend an engineer who worked for him named Karl Twitchell, who was at that moment in Yemen. Twitchell arrived in Jeddah in April and busily set about studying the city's water supply. He also travelled widely in the Hijaz looking for water – and any mineral deposits that might be commercially exploitable.
Towards the end of May 1931, the month the United States recognised "The Kingdom of the Hijaz and its Dependencies," – which included the Najd and Al-Hasa – Twitchell reported to King Abdulaziz on his search for water in the Hijaz; it was a discouraging report, but he was asked to continue his work – this time in Al-Hasa.
Twitchell left Jeddah for Al-Hasa on December 13, 1931 – shortly after the first oil well had been spudded in Bahrain. On January 12, 1932, he met King Abdulaziz in Hofuf and made a preliminary report. The King asked Twitchell to arrange for "oil geologists and oil-well drillers," but Twitchell recommended that nothing be done until the results of Jabal Dukhan 1 on Bahrain came in, because, he said the same geological formations obtained in Bahrain and eastern Arabia. Although not strictly true, this did convince the King of the wisdom of a wait-and-see policy, writes Lunde.
On May 31, 1932, four months after Twitchell's conversation with King Abdulaziz, Bapco struck oil in commercial quantities at Jabal Dukhan 1 at a depth of about 2,000 feet (610 m). But even before this momentous discovery, Socal executive Francis B Loomis had got in touch with Philby in London and discussed the possibility of an oil concession in the Kingdom. Twitchell also met Maurice L Lombardi of Socal, who authorised Twitchell to represent Socal, along with Lloyd Hamilton as lawyer and negotiator.
Twitchell and Hamilton arrived in Jeddah as scheduled on February 15, 1933 and had talks with Abdullah Sulaiman, and some initial terms had been debated. The government thought the amount offered by the Americans too little, and the patient minister of finance continued to hold out for more. There were other companies interested too in entering a concession deal with the Saudis.
On April 21, Hamilton made a formal offer to the Saudi government: an initial payment of £35,000 in gold, £5,000 rental for the second year of the concession, a second loan of £20,000 at the end of 18 months, and a rental of £5,000 for the concession area beginning in the third year, plus a £50,000 loan in gold upon discovery of oil in commercial quantities and a further loan of £50,000 a year later. He also agreed, on behalf of Socal, to commence operations in September, 1933 – the beginning of the cool season – and undertook to begin drilling as soon as a suitable structure was found, and to continue doing so until oil in commercial quantities was struck, says the article.
The finishing touches were made to the draft agreement and on May 8 it was forwarded to the King. It was read out to him, and at the end he said, turning to Abdullah Sulaiman, "Put your trust in God, and sign."
The Concession Agreement was signed in Jeddah by Lloyd Hamilton and Abdullah Sulaiman on May 29, 1933. On July 7, 1933, Royal Decree number 1135, "granting a concession for the exploitation of petroleum" was signed and published in the Official Gazette of July 14.
To circumvent the embargo on gold, Hamilton also arranged for 35,000 gold sovereigns to be shipped to Jeddah from London. They arrived in Jeddah towards the end of August, 1933, and were counted in the Nederlands Bank by Twitchell and Abdullah Sulaiman.
When Twitchell died at the age of 82, he was eulogised in an official Saudi publication as the man "who first lifted the lid on Saudi Arabia's treasure box of natural riches" – but the process of rapid growth and modernisation that he helped set in motion is probably his most enduring memorial, says the article.
Photo: The Saudi Finance Minister Abdullah Sulaiman and Lloyd N Hamilton, lawyer and negotiator for Socal sign the concession agreement on May 29, 1933 at Khuzam Palace in Jeddah. Photo courtesy: Aramco