Western oil companies in Kazakhstan: 100 years of cooperation

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altCharles van der Leeuw, journalist, writer
This year it is a century ago that the frst oil operators from Western Europe engaged in Kazakhstan. In 1911, the Nobel family of Sweden, which was already active in Azerbaijan across the Caspian, also obtained a 42.5 percent stake in Emba-Kaspiisky. The same year, the Royal Dutch (now Royal Dutch Shell) made a bid for concessions on adjacent areas to the Russian government. Both companies started working on the felds over the winter. But the deals they struck to get there make 2011 the hundred-year anniversary of partnerships with western oil companies for Kazakhstan.

Oil started to play a major role in the development of Kazakhstan, and its northwestern corner in particular, from 1890 on. In that year, a geologist from Hungary by the name of Grumm-Grizhimalo came to Uralsk and continued where more than a century earlier Peter Simon Pallas and his companions had stopped, by completing the geological map of the Karachungul massif between the rivers Emba and Ural and the salt domes under it. His work did not go unnoticed, and in 1892 the Imperial Geological Institute sent a team of engineers led by a scientist called Nikitin to drill a number of wells in Karachungulsk, Dossor and Iskin. The operation was sponsored by the Ryazan-Uralsk Railway Company, which hoped to earn it back in multiple amounts if oil would be found. At the time, the Nobel brothers operating in Baku had a virtual monopoly on transportation, which went by ship to the nearest railway terminal in Tsaritsa (pres-ent-day Volgograd). A direct rail link from new oil felds in the northeastern Caspian province into inner Russia would be highly competitive and thereby highly proftable.
Financial means
The scheme worked: oil was found in all three areas, and in commercially viable quantities in Karachungul. The oil appeared to be lighter in quality then the one produced in the felds around Baku. However, whereas Baku enjoyed plenty of capital from abroad coming in, the railway company lacked the fnancial means to build the necessary facilities to open the Karachungul feld. Upon this, Grumm-Grizhimalo came back into the arena with the help of two business partners from Germany by the names of Lehman and Doppelmayer.
In 1894, they established the Emba-Kas-piisky company, and with equipment purchased in Germany they completed the exploration phase in the area. In 1899, they offered the Russian authorities to buy the oil felds in order to guarantee the necessary funds for their development. The offer was accepted, and the drilling of production wells started. The seventh well, at a depth of 40 metre, produced a gusher which spit 25 tonnes of crude into the air. This was proof that oil on top of the salt dome structures must be around in large quantities. The very next year, production reached around 5,000 tonnes.

Facing bankruptcy
The series of shake-ups on the world oil markets in the early XXth Century, including a price war against Russian oil producers waged by Standard's Rockefeller, the internal strife for control over Baku's foreign-held oil assets between Rothschild, Shell, the Royal Dutch and the Nobel brothers which in the end was to leave only the latter two present, and fnally the uproar caused by the foiled revolution of 1905/'06 did not fail to have its impact on fnancial markets in Russia, and the northern Caspian oil business could not escape the effects of the overall instability.
Leading western partners, whose assets in Baku had suffered to limited extents only, were the only ones who could provide the fnancial means to pick up where ventures like the Emba-Kaspiisky, even though there had been little sociopolitical unrest on the spot as such, were facing bankruptcy. The ones to save the day were the Europeans. By the end of the decade, along with major shares in originally Russian, Armenian, Azeri and Tatar companies in Azerbai-jan, the northern Caucasus, the northeastern Black Sea region and the lower Volga province, the Nobel family had also obtained a 42.5 percent stake in Emba-Kaspiisky.
However, it was not before 1912 that they fnally started working - virtually alongside the Royal Dutch (now Royal Dutch Shell) which had obtained its concessions on adjacent areas years later, and through direct dealings with the Russian government. "Royal Dutch Shell had beaten Nobel to the Urals by a few months but by the late summer of 1912 the Swede Wannebo and the Russian Kusnezov were organising ex-tensive drilling and pipe-laying operations, working the Nobel parcels selected by company geologist Fegraeus," Nobel family biographer Robert Tolf was to relate in his book "The Russian Rockefellers - the saga of the Nobel family and the Russian oil industry" published in 1976.
"In a climate and setting even less hospi-table to exploitation than Baku the pipeline were laid, food and supplies brought in from Astrakhan and transported by camel to Dos-sor,” the book relates. “Huge pits were dug and flled with winter snow to provide water in the summer. Docks were built in Rakusha on the Caspian. As soon as the oil started fowing refneries were added. The fnished product was shipped by barge directly to Astrakhan. Both Nobel and the Royal Dutch
had ambitious plans for future development and in 1916 the Emba felds were already the third most productive in Russia. Baku led with 7.5 million tons; Grozny yielded 1.66 million tons, followed by Emba's two hundred forty-fve thousand."

“An unsolicited opportunity”
Thanks to their control over transportation facilities towards the north, the Nobel brothers did manage to  pick some fruits of their oil feld developments for some time, though never to the extent they had done so in Baku. By assuring themselves of transportation and sales facilities from the very beginning, Nobel remained true to its tradition of securing markets and production simultaneously rather than the notorious policy pursued by the world's leading oil producers up to this day: pump frst, market later. As for the Royal Dutch, ever dependent on outside trade facilities, this was not to be the case. In his voluminous work Geschiedenis der Koninklijke (History of the Royal (Dutch) in six volumes), the Dutch historian C. Ger-retson relates to its venture as follows: "In 1911 an unsolicited opportunity was being offered to obtain the supervision of an exploration operation in one of these areas. Beyond the desolate salt steppes of the Caspian lowland, only roamed by Kyrgyz herdsmen, on the Mugodshar mountain ridge which separates the basins of the Uralsk and Tur-gay depressions, there is the source of a river that fows to the northeastern corner of the
Caspian Sea, the Emba. Here, there existed an exclusive exploration license valid until November 25, 1912, for a site of two million hectares, from which at random zayavkiy, exploration sites of 37.5 dessiatin, could be selected. Oil fnds on such a site granted the right to an otvod, or development license in the order of 10 dessiatin.

British capital
“The license holder (whether the author refers to the Russo-Hungarian tandem that had been working in the area before remains unclear - ChvdL) had had to confne himself to a number of manual drillings, which did show the presence of petroleum without, however, providing results in terms of commercially viable quantities,” Gerret-son writes. “In 1909, the license holder had transferred his rights to a certain 'North Caspian Syndicate', which in the usual way of participation by British capital in Russian mining enterprise had incorporated them in a Russian company, the shares of which were in the possession of the Brit-ish 'Ural Caspian Oil Corporation', estab-lished in London on April 15, 1910 with a capital of 60,000 pounds Sterling, and out of which in their London issue only a small part had been taken by the public. In May 1911, however, the 'Ural Caspian' managed to hit a powerful gusher near the Dossor salt lake, and this success of course triggered a strong increase of the share value of 'Ural Caspian' as well as protest from numerous Baku companies big and small. The board of the British company decided to seize the op-portunity swiftly. The license's expiring date drew near, and so it was a matter of utmost urgency to make sure that the supervision over further exploration was to be put into the hands of a group that had suffcient capital, personnel and equipment at its disposition."

"Mr. Five-Percent"
It was at this stage where a company consisting of quite familiar names from the ranks of the Royal Dutch, popped up. The most respectable one was that of the son of the company's founding father Jan-Baptist August Kessler, while the most notorious one was that of Calouste Gulbenkian's, the Armenian merchant son from Istanbul known as the Royal Dutch moth or "Mr. Five-Percent". Inevitable was the name of Henry Deterd-ing, Kessler Sr.'s successor and known as the Napoleon of the oil business.

"The only ones who could provide this on short notice was 'Exchange Chambers', 24 & 28, St. Mary Axe, where Deterding and his staff, to which now also Kessler's eldest son G.A. Kessler belonged, were at the steering wheel of the affairs of the Koninklijke group," Gerretson relates. "Arm-in-arm with the 'big brokers', one knocked on the door here and also this time not in vain. On June 12 1911, an agreement was inked between 'Ural Caspian' and a syndicate that consisted of Deterding, Gulbenkian, Lane and Von Ofenheim. Within the agreement, the capi-tal of the British company was increased to 1,000,000 pound Sterling.”

On the world's oil map
The Ural Caspian was meant to serve as a counterforce to Nobel's Emba Kaspiisky, and in the records of Royal Dutch and Nobel both claim the honour of having developed the felds of Dossor and Makat, both situated halfway the Emba and Ural rivers. In spite of numerous appraisal drilling operations elsewhere in the area, including the south bank of the Emba, those two felds remained the only productive ones on the eve of the Russian Revolutions.
Both companies' annals are contradictory, since up to this very day both claim to have been the license holder for the Dossor feld. For what it mattered - since the interventions of western oil companies was disrupted by the October Revolution. Attempts to get property rights back failed, but the Royal Dutch through the joint efforts of Deterding, Gulbenkian and Kras-sin managed to compensate for the loss in purchasing contracts at considerable discounts. As for Kazakhstan, the developments of the late XIXth and early XXth Centuries had put the country on the world's oil map once and for all.