The Genesis of Shell – Part 2 of 2

Three weeks later, as the Murex cruised down the Malacca Strait toward Singapore, its crew might have seen a flare on the Sumatran coast. Twelve years earlier, a Dutch tobacco farmer wandering around the area looking for suitable farmland stumbled across oil seeps. Aeilko Jans Zijlker had nothing but determination. It took him four years to secure a concession from the Sultan of Langkat and another year to raise sufficient money to drill a primitive well, which produced crude oil in commercial quantities. Five years later, the field at Pangkalan Brandan was turning a nice profit, so in September 1889, he boarded a steamer for Amsterdam with a view to securing funding for expansion.

Just as a sea voyage had transformed Robert Nobel’s fortunes seventeen years earlier, so too did Zijlker’s. A fellow passenger, Dr Norbertus van den Berg, was homeward bound to take up the post of governor of the Netherlands Bank. By the time they reached Amsterdam, van den Berg was a believer. Not only did he help Zijlker assemble a prospectus, he also secured King William III’s royal warrant and accepted the role of chairman of the board. So, when the “Royal Dutch Petroleum Company” was launched on the Amsterdam Stock Exchange in June 1890, it was oversubscribed fourfold. Zijlker’s return voyage was not so fortunate – he died in Singapore. His replacement, Jean Baptiste August Kessler, did not arrive in Pangkalan Brandan for another year. By then, two years after Zijlker’s departure, the site was a shambles.

Annual rainfall in Pangkalan Brandan is over 2 metres, and there is no such thing as a dry season. A railway built to transport crude oil from the well site to a new refinery was sinking in mud. Kessler was not an engineer but knew the solution was a pipeline. As a retired pipeline engineer and having spent some time in that area, I can only imagine how difficult it must have been stringing ten kilometres of threaded-joint pipe, piece by piece, through that jungle. But a gang of Dutchmen, Americans and Chinese coolies, who could barely understand each other, did it, and in February 1892 the refinery was commissioned. The kerosene fraction was 35%. It would be another two years before Karl Benz started mass producing cars with internal combustion engines, so the rest, including the gasoline, was waste. It was dumped in an adjacent disused quarry and flared. This was the flare those onboard the Murex might have seen as it sailed past six months later.

Meanwhile in Singapore, Samuel’s agents, Syme & Co, had established a 35,000- barrel capacity tank farm on Pulau Bukom, a 360-acre island 11 kilometres south-west of Boat Quay. The plan had been so thorough that Samuel had even sent a cargo of tinplate to the Far East, so small factories at each of his destinations could commence the fabrication of kerosene cans. These were painted in the red we associate with Shell to this day. Having discharged half its cargo at Pulau Bukom on 16 September 1892, the Murex continued on to Bangkok. The assault on Standard Oil’s monopoly in Asia had begun. Within 18 months Samuel & Co had launched ten more ships, all named after seashells, Conch, Clam, Elax, Bullmouth, Cowrie, etc. Their grip on the trade was such that ten years later, of all the oil to pass though the Suez, 90 per cent belonged to Samuel and his Tanker Syndicate.

Royal Dutch did not launch as robustly as the Tanker Syndicate but was given a leg up when the Dutch Colonial Government excluded foreign competition from its ports in the East Indies. By 1895 transportation costs had prevailed. Batumi to Singapore via Suez, 6,500 miles. Philadelphia to Singapore via the Cape, 12,600 miles. Shell’s red cans and Royal Dutch’s yellow cans replaced Standard’s blue cans in the Orient. Standard even feared Russian kerosene might compete in America, so reduced local prices in a pre-emptive move. A worldwide crude oil market had been established.

By 1897, Kessler was producing over 1,000 barrels of kerosene a day, and Royal Dutch was paying a 50% dividend and trading at nine times the issue price. Rockefeller was not happy, and takeover attempts were made, but patriotic fervour and the share price kept the predator at bay. However, near death was just around the corner. The Pangkalan Brandan wells began producing water. Although Kessler didn’t know it at the time, it was the beginning of the end of the reservoir. It was a phenomenon the Americans had come to understand well, and as the rumours spread the shares were dumped. To prevent a takeover, Royal Dutch issued special preference shares. But there was no point saving an oil company without oil.

A frantic drilling programme close to the existing wells at Pangkalan Brandan produced nothing. The rationale for this effort was convention. Hitherto, oil had been discovered in the vicinity of oil seeps; however, an emerging theory suggested crude oil was the product of the organic decay that remained trapped in domes formed at the high points of folded rock layers deformed by movement of the Earth’s crust. Geologists referred to these folds as anticlines. The “anticline” theory was first suggested in 1855 by an English geologist working in Burma. More recently, geologists, Dr C Porro, an Italian, and Dr C Schmidt, a Swiss, had been successful in applying this theory mapping crude oil prospects in Alsace and Romania. In a last throw of the dice, Kessler employed them to produce a geological map of North Sumatra and to identify likely drilling prospects.

Despite the best efforts of tigers, mosquitos and rain – as much as 4.5 metres a year in parts – their first report appeared in April 1889. It was a masterpiece and for years provided a basis for scientific exploration. It confirmed the reservoir at Pangkalan Brandan was in an anticline, but it had been depleted, and 100 dry wells drilled in the vicinity had made that abundantly clear. Drs Porro and Schmidt had mapped another promising structure and identified a drilling target at Peureulak, 100 kilometres to the north. It took eight months of patient diplomacy with the feisty Achinese. However, two weeks after securing a concession, the drilling crew was struggling to control a gusher. Two months later, barges were ferrying 4,000 barrels of crude a day to the refinery at Pangkalan Brandan. Crude oil exploration had become a science and Royal Dutch was back in business. Kessler had saved the company, but the effort killed him. He died in December 1900, just days short of his 47^th birthday, but not before recommending his 34-year-old marketing manager, Henri Deterding, be appointed in his place.