In the spring of 1876, the noted Russian scientist Professor Konon Lisenko, of the Mining Institute, visited the Baku Oil Company’s fields and refinery and soon became a scientific and technical consultant to the BOC.
After touring the Baku Oil Company’s facilities, Professor Lisenko noted that the Baku Oil Company’s Surakhany refinery had 25 stills holding 2,017 to 2,148 gallons each and five stills holding 677 gallons each; the former were designed for processing lighting gas, and the latter were for lubricants. Combustible material in the form of gas was collected in 44 iron cisterns and fed from there into pipes marked with a dotted red line that were routed through the refinery’s various buildings. The refinery had a large cooper’s shop, metal shop, and blacksmith’s shop. In addition, the Baku Oil Company had a cooper’s plant near Baku itself.
An important phase in the company’s development took place at this very same refinery, with the organization of lubricant production. This development was primarily due to the work of mining engineer Aleksey Doroshenko, the manager of the Surakhany Refinery. The refinery installed a process line for making lubricants from residual oil, which had previously been regarded as waste and was usually simply burned. The production process for making lubricants at Surakhany Refinery consisted of the following: residual oil was heated to 572°F, after which superheated steam was passed through it, entraining the oil fractions in flow through a metal pipe into a condenser, where they separated from the water. Later, mining engineer Semën Kvitka remarked: “Generally speaking, while the oil industry is forever indebted to R. I. Ragozin for organizing the production of lubricants, Aleksey Semënovich Doroshenko earned his share of respect and gratitude from Baku residents for organizing the business in Baku.”36
The expansion of oil production and increases in petroleum product refining volumes required BOC management to continually take steps to further improve production, develop infrastructure, and introduce modern equipment and new process solutions.
On February 17, 1879, the BOC placed in service a kerosene pipeline from Surakhany Refinery to Zykh dock. The company then built the tanker Surakhany in Sweden at Crichton Yard (Abo), designed to carry 5,500 tons of kerosene worth $75,000 (approximately 94,000 silver rubles). All this had a substantial effect on improving the efficiency of the company’s transportation sector and its successful sale of petroleum products, both in Russia and abroad.
The company’s investments in infrastructure and equipment paid off and by 1888 the BOC was producing more than 1.3 million barrels of crude oil. A year later, it produced 1.7 million barrels. However, starting in 1890, the BOC slipped to second place in Russia in terms of oil production volume, behind the Nobel Brothers Petroleum Production Partnership.
On the whole, however, the BOC’s successful operation as the first vertically integrated company became a convincing example for many Russian oil industrialists. Moreover, it was this initial phase of joint-stock creation in the oil industry (1874–1879) that laid the groundwork for the future development of the industry, including the monopolies that emerged during the late 19th century.
The Nobel Brothers’ Big Risk
As mentioned above, the Russian oil industry underwent a changing of the guard by 1890, with the BOC passing on its title of the number-one oil producer in Russia. Part of this was due to circumstances within the Baku Oil Company, including the death of Vasily Kokorev in 1889. But equally important was the initiative and actions of the ambitious Nobel Brothers Petroleum Production Partnership.
The initial phase of the company’s formation was described in the Nobel Brothers Petroleum Production Partnership brochure, published in June 1882 in St. Petersburg: “The eldest brother, Robert E. Nobel, went to the Caucasus to fulfill a special assignment from his second brother [Ludvig], the St. Petersburg mechanical factory owner. In 1874 he began prospecting for oil, both on the Absheron Peninsula and on Cheleken Island. Upon discovering abundant sources in both places, he immediately began building a refinery, which he placed in service in 1875.”
The “special assignment” Ludvig entrusted to his brother Robert in March 1873 was to purchase massive quantities of walnut wood for the manufacture of gun stocks at the Izhevsk Works. Robert was ultimately unable to make this purchase but, by a twist of fate, he instead found himself on the Absheron Peninsula, where his gaze fell upon the various petroleum and photogen (kerosene) enterprises. He already had some experience trading kerosene in Finland, and decided to take a risk. He spent all 25,000 rubles of his “walnut” money to purchase a small parcel of oil-bearing land and a photogen refinery with eight “Tatar” vertical stills, each having a capacity of 9.6–10.2 barrels, from the Dutch De Boor brothers. The new business, Robert thought, had decent prospects, since the Russian market was still largely dominated by foreign-made petroleum products. American kerosene imported to Russia in 1872 alone totaled 215,318 barrels, while Russian kerosene production was at the unacceptably low level of some 48,000 barrels per year.
In her monograph, The Nobel Corporation in Russia [Nobelevskaya korporatsiya v Rossii] (Moscow, 1970), the noted Russian historian and Doctor of History Irina Dyakonova notes that the abolition of the tax-farming system in Absheron Peninsula oil fields on January 1, 1873 established a favorable environment for the development of an oil business, and the Nobel Brothers took full advantage of it.
Mining Institute Professor Konon Lisenko, who visited the Absheron Peninsula in the spring of 1876, also reflected on this in his “Review of the Current State of Oil Production and the Use of Oil as a Fuel,” writing: “The method of drilling wildcat wells used by Mr. Robert Nobel with great success deserves special attention... its advantage lies in the speed of work and the ability to drill a small-diameter hole to a comparatively greater depth.... Baku has several factory owners who want to develop oil processing on a rational basis. Among these I would include Robert Nobel, who hopes to introduce full processing of oil at a refinery that was under construction, but commissioned after my visit, with the inclusion of paraffin production from materials containing it in sufficient quantity.” Further evidence of Robert Nobel’s innovative activities include the Department of Trade and Manufactures of the Russian Ministry of Finance’s decision in 1875 to grant him proprietary rights to the original design of a free-falling drilling tool with extensible cutters and a method of removing cuttings using water injected under pressure into the hole.
In December 1875, in a letter to his younger brother Alfred, Ludvig wrote: “Robert has returned to Baku from the east coast of the Caspian Sea. He found marvelous oil on Cheleken, lying at a depth of 10 sazhens [70 feet]. Now he has the crude material he needs.... His future successes depend on it. For my part, I did what I could in the sense of financial aid and technical support.... The main thing now is to conduct the business sensibly, on a large scale.”
The first step in expanding operations at the Nobel Brothers’ refinery was to install two additional distilling vats and introduce kerosene purification technology. In another letter to Alfred, Ludvig wrote: “The refinery is finally complete and has begun operating. Its production is significant, comprising 0.5 million poods [60,044 barrels] a year in its current form. If we double the amount of equipment (the equipment is inexpensive), then we will be able to double or even quadruple that figure once production lines are completed. Almost any way things turn out, we will be able to produce 2 million poods [240,175 barrels] of kerosene per year—everything relies on transportation and warehouses. But this is where the big problem lies. As for quality, we have achieved marvelous results: while only 30% of heavy and low-grade kerosene can usually be made from Baku crude, we can make 40% light kerosene from the same crude, on a par with the best American samples. We will be able to enter the market with a product that will give our company a shining reputation.”