ENERGY TO THE WORLD: TO ENERGY ENERGY TO THE WORLD: THE STORY OF SAUDI ARAMCO OF SAUDI THE STORY THE STORY OF SAUDI ARAMCO VOLUME 2 VOLUME 2 VOLUME www.saudiaramco.com J ENERGY TO THE WORLD : VOLUME ONE TITLE K VOLUME TWO Energy to the World The Story of Saudi Aramco II ENERGY TO THE WORLD : VOLUME ONE VOLUME TWO Energy to the World The Story of Saudi Aramco Supertankers load crude oil at Ras Tanura Sea Island Terminal in 2003. Contents Copyright First Edition Volume One Volume Two © 2011 by Aramco Services Company Printed in 2011 Preface xi Illustration: Saudi Arabia viii ISBN All rights reserved. No part of this book Illustration: Saudi Arabia xiv 1 National Resources 1 978-1-882771-23-0 may be reproduced, stored in a retrieval system or transmitted in any form or 1 Prospects 1 2 Boom Time 27 Library of Congress by any means, electronic, mechanical, 2 Negotiations 33 3 Transformation 67 Control Number photocopying, recording or otherwise, 200922694 without the written permission of 3 Reading the Rocks 59 4 Rising to the Challenge 99 Aramco Services Company, except by 4 The War Years 93 5 Achieving the Vision 131 Written by a reviewer, who may quote a brief Scott McMurray passage for review. 5 Expansion 123 Appendix 168 6 Growing Pains 153 A. Upstream 170 Produced by The History Factory 7 Balancing Act 189 B. Downstream 184 Chantilly, Virginia, USA List of Abbreviations 215 C. Operations Data 194 Project Coordinators Notes on Sources 216 Company Leadership 204 Theodore J. Brockish, Kyle L. Pakka and Mohammad S. Abu Al-Makarem, Image Credits 220 Acknowledgments 206 Saudi Aramco with special thanks to Index 223 List of Abbreviations 209 Muhammad A. Tahlawi Notes on Sources 210 Published by Bibliography 214 Aramco Services Company Houston, Texas, USA Image Credits 216 www.aramcoservices.com Index 219 Designed by Pivot Design, Inc. www.pivotdesign.com Printed by Altraiki Printing Company Dammam, Saudi Arabia viii ILLUSTRATION: SAUDI ARABIA ILLUSTRATION: SAUDI ARABIA ix C A S P I A N S E A Saudi Arabia A E S N A E N A R R E T I IRAQ D E M Turaif Badanah JORDAN Sakaka al-Jawf Dawmat al-Jandal in t Rafha a B l- a i GREAT NAFUD d KUWAIT Tabuk a A W Hafar al-Batin L al-Khafji Qaisumah - Tayma H Safaniya Duba A Hayil A L Nariya S al- Ula - Jubail ‘ A D Ras Tanura A al-Wajh Qatif R i al-Ru Buraydah A Dammam A AL-HIJAZ d m al-Zilfi al-Khobar B a a Unayzah H Dhahran I A W h ‘ Abqaiq N N al- Uqayr G Khaybar ‘ U Hofuf L F G A U L F NAJDad-Dir iyah O Madinah ‘ Riyadh Salwah F ad-Dawadimi O Yanbu‘ AL-HAJAR M al-Kharj Haradh A N Wa di al- UNITED ARAB Sahba SAUDI ARABIA EMIRATES Rabigh Thuwal Layla Jiddah Makkah Tayif I L R as-Sulayyil A E al-Bahah di a H D a l-Da r - K Bishah W wasi L S ‘ ASIR A E B‘ A R U Tathlith OMAN R Abha Khamis Mushayt A F U H Najran ash-Sharawrah D Jazan T U YEMEN A M A A E R S H D N A I A H B A R A SCALE IN KILOMETERS 0 200 Z ENERGY TO THE WORLD : VOLUME TWO NATIONAL RESOURCES 1 CHAPTER ONE National Resources An exploration camp in the Rub‘ al-Khali, 1966. 2 ENERGY TO THE WORLD : VOLUME TWO NATIONAL RESOURCES 3 The 1960s marked a period of accelerated change and development for both Saudi Arabia and Aramco. In step with other oil-pro- ducing countries, Saudi Arabia was becoming more assertive in terms of its desire to derive as much wealth as possible from its under- ground resources. The pace of spending on modernization and development projects in Saudi Arabia quickened as the reform-minded Crown Prince Faysal succeeded his brother King Sa‘ud in 1964. The era marked a significant change in the leadership of Aramco as well, as Thomas C. Barger became chief executive officer of Aramco in 1961. Barger, named president in 1959, had in many ways been training for the role of CEO for 20 years. He joined the oil company in 1937 as a geologist and moved to Government Affairs in 1941. He brought to the CEO post wide-ranging interests and a genuine concern for the welfare of Saudi employees and the country in general. His interests, including improving medical facilities and the employee Home Ownership Program and aiding local businesses, often went beyond his immediate portfolio of responsibilities. As a contemporary of his recalled, “He was always identified with the future. He was always the planner, the idea man … always planning new areas of endeavor.” While driving change at Aramco, Barger never lost sight of the core principles that he felt A helicopter approaches the Aramco defined the organization. A list of 12 “Planning Guides” he distributed in 1960 underscored his Mobile Drilling Platform 2 (AMDP-2) in 1967. The use of AMDPs eliminated ability to remain focused on the essential reasons for the company’s existence. The goals topping the need to construct a fixed drilling that list were “to preserve the Concession and optimize the returns to the Shareholders over platform for every new offshore well. the term of the Concession; to maximize Saudi participation in the economic support of the enterprise; [and] to ameliorate the impact of the enterprise on Saudi society.” (See “Barger’s Vision,” p. 6.) Barger reportedly told a friend shortly after being named president, “The day a man becomes president of a company is the last day he knows what’s going on in that company.” Barger countered this isolation—perhaps an inevitability arising from what a colleague called the “process of management”—by grooming up-and-coming leaders such as Frank Jungers and 4 ENERGY TO THE WORLD : VOLUME TWO NATIONAL RESOURCES 5 Crown Prince Faysal meets with Not all oil companies were happy to see BP cut its posted price. The Middle East was still in Aramco’s Ras Tanura employees in March 1963. In the same month, the throes of Nasser-era Arab nationalism with its anti-Western, anti–oil company biases. Many he concluded negotiations with executives worried as 1960 wore on that further price cuts would only fuel widespread resentment Aramco to increase government royalties from Tapline and reduce in the Arab world and might even jeopardize existing business relationships for Aramco in Saudi the size of the concession area, Arabia and IPC in Iraq. Even some at Jersey, considered among the most chauvinistic of U.S. oil both part of his broader plans to companies, expressed concern that further price cuts should not be made without close consultation stabilize the domestic economy and increase the pace of modernization. with the producing countries’ governments. Oil in the Arab States One of the most widely read and influential books among the oil producing countries’ decision makers in the late 1950s and early 1960s was Oil in the Arab States, by Iraqi scholar Muhammad Jawad Al-‘Abbusi, an economist who studied at the Sorbonne in Paris and taught at the College of Arts in Baghdad. Published in Cairo in 1956, the book was translated into English in 1958. Oil in the Arab States detailed the economics of the oil industry, and Aramco disputed some of its conclusions in a commentary sent to company executives. However, the underlying theme—a driving force behind the creation of OPEC—argued that oil was of overriding national importance, not just economic importance, to the producing states in the Middle East: In fact, the oil industry in all its stages, from exploration to marketing, gives rise to R. W. “Brock” Powers. He remained committed to ensuring the ability of Aramco’s leadership important economic and political problems bearing closely on the national interest. For An Aramco delegation departs Dhahran en route to the sixth Arab to stay abreast of the challenges thrown at them by a changing industry, an anxious and ambitious this reason the profit and cost factor is often only of secondary importance. Another Petroleum Congress in March 1967. host country and a volatile world. This commitment was sorely tested by the events of the 1960s. principle takes precedence and exercises almost absolute control over the industry; it is The Arab Petroleum Congress, OPEC’s predecessor, was formed “guaranteeing the regular and continuous supply of oil for the state under easy terms.” in April 1959 with members rep- ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES By 1960, the world was once again awash This is the view taken by consumer countries. Producer states, on the other hand, hold to resenting Venezuela, Iran, Saudi in oil. The unexpected surge in postwar demand had been more than offset by rapidly increasing Arabia, the United Arab Republic the principle that “all natural underground resources of the state are the property of the (the short-lived union of Egypt worldwide production. Further, more players were joining the game. As of the mid-1950s, the state.” An important conclusion may be drawn from this, namely: “That the development and Syria), Kuwait and Iraq. Soviet Union, desperately in need of foreign exchange with which to fund its postwar rebuilding of oil resources is more a matter of national than of purely economic importance.” and industrialization programs, began exporting oil in increasing quantities, often significantly below posted prices in the Middle East. In the late 1950s, oil companies held constant the posted price—the basis for their profit split with the countries—even as the market price was declining.