Discovery well Dammam No. 7 (1938), Saudi Arabia. Source: Saudi Aramco Mr. Abdullah Sulaiyman, Saudi Finance Minister, and Mr. Llyod N. Hamilton, lawyer and negotiator for Socal, signing the historic oil concession agreement on May 29, 1933 in Khuzam Palace, Jeddha. Photo by Karl S. Twitchell. Source: Saudi Aramco In 1932, having conquered, unified and named the country of Saudi Arabia, Ibn Saud enthroned as the King with Riyadh as his capital. But his state faced huge financial problems. The Western world was in the Great Economic Depression, and Arabia's traditional revenue from pilgrims to Mecca was dwindling. Ibn Saud had a British friend, Harry St. John Bridger "Jack" Philby (1885-1960), who, in 1925, had given up his career at the Indian Civil Service to pursue business and geographic exploration in Arabia. He detested British colonialism in the Middle East, and out of his fondness for Arab culture, Philby had even become a Muslim - given the name of Abdullah by the Saudi king himself.



In his posthumous book The Arabian Oil Ventures (1964), Philby recalls that in the autumn of 1930 during a car drive in the desert, he persuaded Ibn Saud to utilize his country's hidden oil resources. The following year, Philby introduced an American millionaire and philanthropist, Charles R. Crane, to the King in the town of Jeddah where Philby had an automobile trading company. Crane, an expert in irrigation, had made a successful business of planting Egyptian dates in California. Ibn Saud was interested in finding artesian water in his country. Out of his gratitude to the King's hospitality, Crane commissioned his engineer in Yemen, Karl Twitchell, to investigate water prospects in Saudi Arabia. Twitchell's 1932 report had no good news for water prospects, but it pointed out the importance of oil seeps in the Al-Hasa region. Indeed, Twitchell returned to the U.S. with Ibn Saud's blessing to invite American oil companies to invest in Arabian oil exploration.



After the 1932 Bahrain discovery, Socal was sending messages to Holmes in Bahrain to set up meetings with the Saudi King for an oil concession. But knowing that he was a (un)wanted man in Saudi Arabia because of his failed 1923 concession Holmes was reluctant to get involved in Saudi Arabia once again.



Meanwhile, Francis Loomis, a former United State Department's diplomat and Socal's advisor on foreign relations, had sent a letter to Philby in 1932 to seek his help to obtain an oil concession in Saudi Arabia. During a luncheon party in Washington D.C. in late 1932, Loomis happened to meet Twitchell. Shortly later, Socal's manager M.E. Lombardi hired Twitchell as an advisor and dispatched him along with their lawyer Lloyd Hamilton to the Saudi kingdom. The two men and their wives arrived in Jeddah on a ship on February 20, 1933. They contacted Philby and secretly put him on Socal's payroll as an advisor. Philby, nonetheless, wanted to obtain a better bargain for his friend the King, and therefore, urged the Anglo-Persian and the Iraqi Petroleum (which were both under British influence) to send a negotiator for an oil bid. The British sent Stephen Hemsley Longrigg (later author of Oil in the Middle East). Longrigg, as Philby soon found out, was authorized to pay no more than £6,000 for the concession. The American team was willing to pay more. After long negotiations, it was agreed that Socal would pay £35,000 in gold upfront (including the first year's rent of £5,000), a second loan of £20,000 after eighteen months, rental fee of £5,000 a year, and a royalty of 4 shillings per ton of oil produced. The concession, valid for 60 years, was signed on May 29, 1933 by L.N. Hamilton and Saudi finance minister Abdullah al-Sulaiman al-Hamdan who had been advised by King Ibn Saud: "Put your trust in god and sign." On August 25, 1933 Karl Twitchell and Abdullah Sulaiman counted, one by one, 35,000 gold sovereigns Socal officials had purchased from London's black market and had shipped to Jeddah. (In 1951, Twitchell published his informative book on Saudi Arabia.)



Dammam No. 7

Max Steineke, an American petroleum geologist who led the discovery of the Dammam oil field in Saudi Arabia in 1938. Socal’s Chief Geologist in Saudi Arabia from 1934-1946, he was awarded the prestigious Sidney Powers Memorial Medal by the American Association of Petroleum Geologists in 1951, only a year before his death. Steineke was not only an excellent geologist but also a friendly and popular person with Arabs. Illustration: Setsuko Yoshida In the autumn of 1933, Socal founded the California Arabian Standard Oil Company as its subsidiary to operate in Saudi Arabia, and sent its geologists, R.P. "Bert" Miller, S.B. "Krug" Henry, J.W. "Soak" Hoover, Thomas Koch, Art Brown, and Hugh Burchfield to the country. Escorted by Saudi soldiers and guides, these geologists began reconnaissance mapping of the eastern Arabia. They identified the Dammam Dome, about 8 kilometers from the port village of Dammam. This anticline structure was locally called Jabal ("Hill") Dhahran. In the spring of 1934, the company sent a Fairchild 71 airplane for aerial mapping, and its pilot, Dick Kerr, was a geologist himself. In the fall of 1934, a very able field geologist Max Steineke joined the geologists' team in Saudi Arabia, becoming the chief geologist two years later (he held this position until 1946).



After months of mapping "jabals" (rocky hillocks) in the concession area, the geologists decided to drill their first well, Dammam No. 1, on the western slope of Jabal Dhaharan. The operation was led by Guy S. Williams (driller) and Floyd W. Ohliger (petroleum engineer). The well was spudded in on April 30, 1935; by December it had penetrated the Eocene "Bahrain zone" with only minor shows of gas and oil; the drilling thus stopped at a depth of 976 m.



Dammam No. 2 was drilled in February 1936 but struck salty water only. Number 3 vomited highly viscous sulfur-rich oil (good enough for covering the desert roads the men were building). Number 4 (707 m deep) and No. 5 (630 m deep) were both dry. Number 6 was never drilled because Max Steineke had found a better site, Dammam No. 7, for drilling. Number 7 was spudded in on December 7, 1936, and Steineke was optimistic and confident about this well.



In the spring of 1937, while the drilling was going on, the first American wives and children came to Dhahran and air-conditioned cottages were setup for the American families. On December 31, 1937 Dammam No. 7 blew out, and a jet of gas sent the rig high in the air. This was a bad news on a New Year's Day for the company officials back home, but Steineke pressed on: "Dig a bit deeper." On March 4, 1938 (nearly three years after Dammam No. 1), 1,585 barrels of oil - the black gold that Socal and the Saudis were waiting for so long - began to flow out of the well. The oil flow increased to 3,690 barrels three days later, and the well was completed at 1441 m deep at the Upper Jurassic Arab zone. This 130-m thick carbonate reservoir (with a porosity of 20-25%) yielded good quality oil - having 34-35 degrees API gravity and 1.5% sulfur content.



In 1939, a 63- km pipeline was laid from the Dammam field to the port of Ras Tanura. (A year later, a small 3000-barrel refinery was also built at Ras Tanura). On May 1, 1939 King Abdul Aziz Ibn Saud made a grand visit to the Socal tankerD.G. Scofield at Ras Tanura that was to carry the first oil cargo from Ras Tanura. By the end of 1939, Saudi's oil export amounted to 521,000 tons (3.9 million barrels; i.e. 10,700bopd).



On May 31, 1939 Socal's representative William J. Lenahan succeeded in signing a supplement agreement with the King, extending the concession from 830 thousand square km. to 1.14 million square km; in return, £140,000 (in gold) was paid to the Saudi government, the rental fee increased to £25,000 a year, £100,000 was promised if new oil field discovery were made, and per ton royalty remained the same as before. (These terms underwent further changes in later decades.)



In 1936, the Texaco Company (Texaco) bought 50% interest in the California Arabian Standard Oil Company. In 1944, the company's name changed to Aramco (Arabian American Oil Company). In 1948, Standard Oil of New Jersey and Socony-Vacuuum (both now ExxonMobil) bought interests in Aramco. In 1980, the Saudi government completed the phased purchase of Aramco's assets (25% in 1973 and 60% in 1974), and thus began a new life for "Saudi Aramco" (Saudi Arabian Oil Company).



In 1982 (after 45 years), Dammam No. 7 was shut in, having produced 32 million barrels of oil (averaging about 2000 bopd).



Meanwhile in Kuwait ...

Wellhead of discovery well Burgan No. 1 (1938), Kuwait. Source: Kuwait Oil Company In 1921, Sheikh Ahmad al-Jaber al-Sabah (1885-1950) became the Amir of Kuwait (an Arabic word meaning "fortress close to water"). Pearl export traditionally supplied Kuwait's major revenue, but by 1930 a Japanese businessman, Kokichi Mikimoto, had established a successful trade of artificially-cultured cheap pearl. Kuwait was thus in dire need of money, and oil, especially after the Bahrain discovery, offered a lucrative opportunity.



Kuwait lay outside the Red Line Agreement; therefore, the Gulf Oil was free to operate in that country. Moreover, the Gulf Oil was supported by a powerful American diplomat and oilman - the 77-year-old Andrew Mellon who was then the U.S. ambassador in London and viewed himself as the godfather of the Gulf Oil (for one thing, Gulf's chairman William Mellon was his nephew). Nevertheless, the British still had a considerable influence over Kuwait and did not wish to loose Kuwait's oil even though there was less demand for oil during the Great Depression of the 1930s. From 1930-32, the Gulf Oil and the Anglo-Persian approached the Amir of Kuwait independently for an oil concession, and the Sheikh was more than glad to play one side off against another in order to secure a better bargain. But once Cadman realized that the Amir was more inclined to make a deal with the Gulf Oil's representative Major Frank Holmes, he was convinced that both companies should unite as one buyer and offer one deal.



In 1933, Holmes and the Anglo-Persian representative Archibald Chisholm agreed to establish a 50-50 joint venture in London called the Kuwait Oil Company. On December 23, 1934 Sheikh Ahmad signed an oil concession (covering the entire 15,800 square km of Kuwait for 75 years) to this new company and appointed Major Holmes as his representative in London. The Sheikh received in Indian rupees an equivalent of £35,700 upfront (Rs. 47,000), an annual rental fee of £7,150 (Rs. 95,000), and the royalty of three rupees per ton of oil produced with an annual minimum of Rs. 250,000. This was, of course, far less than what the Sheikh had hoped for. (In 1950, Kuwait entered into a 50-50 profit sharing agreement, and in the 1970s, the Kuwait Oil Company was nationalized)



In 1935, geologic exploration started in Kuwait, and on May 31, 1936, the first well was spudded in at Bahrah, but even at depth of 2,442 m the well proved to be dry. The company then decided to conduct a seismic survey of Kuwait. A second location for drilling was selected near a famous bitumen seep in the Burgan area, about 42 kilometers south of Kuwait City. Drilling began on October 16, 1937, and sediments below 1000 m had oil shows. On February 23, 1938, at a depth of 1120 m, the drill hit a high-pressure sand zone (Middle Cretaceous Burgan Formation) from which oil and gas erupted to the surface (oil flow rose to 4,343 barrels a day and had 32.5 degrees of API gravity). The well was controlled with great difficulty and completed on May 14th. Subsequent drills proved the Burgan anticline structure to be one of the largest oil fields in the Middle East.



A New Era

Although oil exploration and production in Arabian lands were halted during World War II to avoid German occupation of the oil fields, the industry grew rapidly after World War II. The 1938 oil discoveries in Saudi Arabia and Kuwait (now 70 years ago) with the involvement of American oil companies opened a new era in the economic and geopolitical history of the Middle East; these stories also illustrate a dramatic chapter in the history of petroleum industry.