D'Arcy Concession

The D'Arcy Concession was a petroleum oil concession that was signed in 1901 between William Knox D'Arcy and Shah Mozzafar al-Din of Persia. The oil concession gave D’Arcy the exclusive rights to prospect for oil in Persia (What is now mostly present day Iran).^[1] During this exploration for oil, D’Arcy and his team encountered financial troubles and struggled to find sellable amounts of oil. They were about to give up but eventually struck large commercial quantities of oil in 1908. After these large commercial quantities of oil were found, the Anglo-Persian Oil Company took over the concession in 1909.^[2]

William Knox D’Arcy

Main article: William Knox D'Arcy

William Knox D’Arcy was born in Devon, England in 1849. D’Arcy was always willing to take a chance when it came to business ventures. When he emigrated to Australia, he took a chance by organizing a syndicate to reopen and get an Australian gold mine back into operation.^[3] It turned out that this gold mine still had a lot of gold yet to be found. From this, D’Arcy became a very wealthy man and he returned to England looking for a new investment and to take another chance. This investment and chance would eventually be to prospect for oil in Persia and the venture later became known as the D’Arcy Concession.^[4]

Oil potential in Persia

During the 1890s, research and reports were being published that Persia had great oil potential. Some of D’Arcy’s advisers made D’Arcy aware of these reports and promised him wealth if he invested in this venture. D’Arcy agreed and sent out representatives to Tehran to win a concession that would give him the exclusive rights to prospect for oil in Persia. On April 16, 1901, negotiations commenced between D’Arcy’s representatives and Shah Mozzafar al-Din over the potential oil concession.^[4]

The rivalry of Britain and Russia over influence in Persia

During this time period Great Britain and Russia had a great rivalry over the influence each wanted inside Persia. Both imperial powers believed that Persia and the Middle East were important to their imperial economic and military interests. Russia wanted to expand its influence into Persia and Britain believed that this would be a direct threat towards its precious Indian possessions.^[5] These two countries fought for influence in Persia through numerous concessions and loans throughout the 19th century. Many British government officials believed that this was where the D’Arcy concession could help. A British oil concession would help tip the balance of power in Persia in Britain's favour.^[5] As a result, the British government and its officials in Persia gave full political support to D’Arcy and his potential oil concession. Once the Russians found out about the negotiations between D’Arcy and the Shah, the Russian prime minister tried to block the impending negotiations.^[6] The Russian prime minister was able to slow the pace of the agreement until D’Arcy’s representative in Tehran offered the Shah an extra £5,000 to close the agreement.^[6]

The oil concession

The extra £5,000 worked and influenced the Shah to sign the concession. At Tehran’s Sahebqaraniyyeh Palace on May 28, 1901, Shah Mozzafar al-Din signed the 18 point concession. This 18 point concession would give D’Arcy the exclusive rights to prospect, explore, exploit, transport and sell natural gas, petroleum, asphalt and mineral waxes in Persia.^[7] This concession also granted D’Arcy these rights for a 60 year period and it covered an area of 1,242,000 square kilometers.^[8] This covered three quarters of the country and D’Arcy purposely excluded the five most northerly provinces from the concession because of their proximity to Russia. In return, the Shah received £20,000 cash, another £20,000 worth of shares, and 16 percent of annual net profits, from the operating companies of the concession.^[6]

Early business

Once D’Arcy was granted the oil concession, his first order of business was to assemble a team to carry out the exploration for oil. The assembled team would carry out the daily operations in Persia for D’Arcy, as he would never set foot on Persian soil.^[8] D’Arcy hired Alfred T. Marriot to secure the concession and Dr. M. Y. Young to be the company’s medical officer in Persia.^[6] George Reynolds was hired for the exploration because of his previous drilling experience. The first area chosen to explore for oil was Chiah Surkh, which is located near what is today’s Iran-Iraq border.^[9]

The task for D’Arcy and his team would prove to be very difficult. This first site at Chiah Surkh had hostile terrain, warring tribes that often refused to recognize the Shah’s authority and any concessions he granted, very few roads for transportation, and was nearly three hundred miles away from the Persian Gulf. The local population near the site also had a hostile culture towards Western ideas, technology and presence.^[9] Local religion also played a factor as the dominating Shia sect in this region also resisted political authority and had a hostile attitude towards the outside world, including Christians and Sunni Moslems.^[9] Not only was the region and terrain hostile, but shipping each piece of equipment to the drilling sites was also extremely difficult. The equipment often had to be carried by man and mule through mountainous terrain.^[9]

Drilling for oil

The actual drilling did not begin until the end of 1902. The working conditions were rough, as temperatures reached as high as 120 degrees Fahrenheit, equipment often broke down, there were shortages of food and water, and there was an abundance of insects that often bothered the workers.^[10] In 1903 D’Arcy began to worry as very little oil had been found and he began to run out of money. Expenses continued to mount as he already spent £160,000 and needed at least another £120,000.^[11] It became evident that D’Arcy would either need more funding through loans or he would need to be bought out.

Search for funding

After being advised by Thomas Boverton Redwood, who was very knowledgeable on international oil developments, D’Arcy tried applying for a loan from the British Admiralty. At this time, before oil was considered a critical resource, the loan was ultimately denied. Shortly after D’Arcy’s loan was denied, one of the wells at Chiah Surkh, in early 1904, became a producer.^[12] The output of oil was small, as the well only produced about 200 gallons per day.^[13] With or without this well being turned into a producer, D’Arcy still needed money to continue his venture. D’Arcy became busy looking around for investors and he even began to search in France for foreign investors, without much success. To make matters worse, shortly after they struck oil, the well at Chiah Surkh began to run out and turn into a trickle.^[12]

The Admiralty intervenes

Back in London, the British Admiralty began to reconsider and feared that if they did not intervene, then D’Arcy would sell out his concession to other foreign investors or lose the concession altogether. They feared that the French or the Russians would take over the concession and then have a major influence in Persia.^[14] The British Admiralty decided to intervene and try to play matchmaker and find an investor to help out D’Arcy and keep the concession under British control. They were successful and with the help of Redwood they were able to strike a deal with the firm called Burmah Oil. D’Arcy and Burmah Oil made the deal in London in 1905 that made an agreement establishing the Concession Syndicate.^[15]

New drilling site

With new capital being provided by the agreement with Burmah Oil, the exploration was able to continue. The focus for drilling now shifted towards southwestern Persia. The drilling site was closed at Chiah Surkh and the equipment was shipped to the southwest of Persia. The new drilling site was established at Masjid-i-Suleiman.^[16] Once again Reynolds encountered problems in this region with hostile tribes and the local population. Reynolds often had to pay them a high fee and guarantee them a share of profits in order to protect the concession.^[17] Disease also slowed down production and even Reynolds became very ill from contaminated drinking water.

In 1907, without any major findings of oil, D’Arcy once again became anxious. He decided to sell off the majority of his shares to Burmah Oil for £203,067 cash and £900,000 in shares. This meant Burmah acquired the majority of D’Arcy’s interests in the exploitation company.^[13]

Major discovery

After mounting expenditure, continuous funding from Burmah Oil and very few results, Burmah also began to grow impatient. It was now 1908 and no commercial quantities of oil had been found and it began to seem as if the beginning of the end was near. Burmah Oil sent a letter to Reynolds telling him to slow down production and pack up the equipment because the project was nearly over.^[18] Just as the letter was making its way to Reynolds, at 4:00 am on May 26, 1908, people at the site woke up to shouting, as a fifty foot gusher of petroleum shot up the drilling rig.^[19] At last, commercial quantities of oil had been struck at the Masjid-i-Suleiman site.

Creation of Anglo-Persian

In 1909, shortly after the commercial quantities of oil were found, Burmah Oil thought that a new corporate structure needed to be created in order to work the concession.^[20] This led to the creation of the Anglo-Persian Oil Company (APOC) and Burmah Oil made it a publicly traded company, by selling shares off to the public in 1909. At this time Burmah Oil maintained control and the majority of the ordinary shares. For William Knox D’Arcy, he was compensated for his exploration costs and became a director of the new company, but his role quickly faded out of the concession and he died in 1917.^[20] Regardless, APOC became one of the most powerful oil companies in the world with the largest oil refinery in the world and became an asset to British Imperial interests for the next 50 years.

References

1. ^ Paine, Schoenberger, “Iranian Nationalism and the Great Powers: 1872–1954.” MERIP Reports, 37, (1975), pp.5-6.
2. ^ Beck, “The Anglo-Persian Oil Dispute 1932-33.” Journal of Contemporary History, 9, 4 (1974): p.124.
3. ^ Yergin, The Prize: The Epic Quest for Oil, Money & Power. Free Press, 2008, p.119.
4. ^ ^{a b} Yergin (2008), p.119.
5. ^ ^{a b} Yergin (2008), p.120.
6. ^ ^{a b c d} Yergin (2008), p.121.
7. ^ Bakhtiari, “D’Arcy Concession Centennial and OPEC Today: An Historical Perspective.” The Oil and Gas Journal, 99, 28 (2001), p.22.
8. ^ ^{a b} Bakhtiari (2001), p.22.
9. ^ ^{a b c d} Yergin (2008), p.122.
10. ^ Yergin (2008), pp.122-123.
11. ^ Yergin (2008) pp.123-124.
12. ^ ^{a b} Yergin (2008), p.124.
13. ^ ^{a b} Paine (1975), p.6.
14. ^ Yergin (2008), pp.124-125.
15. ^ Yergin (2008), pp.125-126.
16. ^ Yergin (2008), p.126.
17. ^ Yergin (2008), p.129.
18. ^ Yergin (2008), p.130.
19. ^ Yergin (2008), pp.130-131.
20. ^ ^{a b} Yergin (2008), p.132.