The clear organization of the production and sales cycle at the Caspian and Black Sea Oil Industrial and Trading Company allowed its foreign exports of kerosene in 1888 to reach 1,921,408 barrels, accounting for 58.6% of all Russian exports. The retooling of the company’s refining enterprise with modern equipment likewise led to an increase in its output. In 1888, its refinery produced 300,220 barrels of kerosene, while in 1890, 564,413 barrels of kerosene were being produced there, amounting to 10.8% of the total volume of production on the Absheron Peninsula.
At the end of the 19th century, the company’s fixed assets included 99 drilled wells, 130 steam engines, 78 boilers, 84 steam pumps, 28 iron tanks having a total volume of 19.7 million cubic feet, and a six-inch oil pipeline 5.3 miles long, through which more than 3,362,463 barrels of oil was pumped every year. Its fleet of railroad tank cars numbered 100 units. In 1899, the company’s fields produced 3,905,982 barrels of oil. Its refinery in Keshle (near Baku) refined 950,256 barrels of kerosene and 2,053,504 barrels of residual oil. In addition to the Absheron Peninsula, the company began to operate on oil-bearing lands in Terek Province and the Kuban.
During this period, the post of chairman of the Board of Directors of KChNTO was held by Maurice Ephrussi. The company’s directors included: mining engineer Konstantin Skalkovsky (1891–1896), former director of the Mining Department, Prince Georgy Gruzinsky, and financier Arnold Feigl. For a long time, the company’s technical director in Baku was production engineer David Landau, father of the 1962 Nobel Physics Laureate Lev Landau (1908–1968), and a member of the USSR Academy of Sciences.
The turn of the century was also marked by all-Russian and international recognition of the Caspian and Black Sea Oil Industrial and Trading Company. It received a gold medal at the 1889 Exposition Universelle de Paris. In 1896, at the All-Russian Industrial and Art Fair in Nizhny Novgorod, the company was awarded a gold medal for “production of petroleum products of very good quality on an extensive scale, and for organizing trade in them on Russian markets.” Finally, the company’s exhibit at the 1900 Exposition Universelle de Paris received the highest award: the Grand Prix.
The company also took steps to increase the efficiency and influence of its business in the Russian domestic market. To this end, the Rothschild family’s Paris banking house joined with the St. Petersburg International Bank to create a new Russian subsidiary—the Mazut Company.
In a letter of June 26, 1897 to the Department of Trade and Manufacturing of the Russian Ministry of Finance, the St. Petersburg International Bank identified the following goals for the new company: “The Mazut Company proposes continuing the work of the Polyak and Sons house involving the transportation, storage, and sale of acquired oil and petroleum products. Moreover, this company plans to expand this line of work, both by enhancing its means of transportation and by setting up its own refineries for refining oil. In the future, the founders also foresee that developing the work of the companies might, depending on the state of the oil market, necessitate expanding the area of operations, without, however, going outside the borders of the Russian Empire.”
On March 3, 1898, the charter of the Mazut Petroleum Industry and Trading Company received imperial approval, and the company soon became one of the key players transporting and selling crude oil and petroleum products on the Russian domestic market. In the Caspian Sea alone, it was operating 13 of its own high-speed tankers, and a large fleet of steam tugboats and oil tank barges delivered kerosene and residual oil along the Volga. In short order, Mazut opened offices along the Volga in Nizhny Novgorod, Samara, Tsaritsyn (Volgograd), and Astrakhan, and also in the Baltic States, Belarus, and Poland. In 1903, just five years after it was formed, the Mazut Company concluded an agreement with the Nobel Brothers Petroleum Production Partnership, the leader of the Russian oil industry, and did so on an equal footing. This agreement, which was given the name “Nobmazut” (and, incidentally, bore clear-cut traits of a cartel), was intended to carry out a coordinated trade policy on the country’s domestic markets. This soon resulted in a sharp increase in the cartel’s share of sales of petroleum products in Russian regions.
The First Grozny Oil Gusher
In addition to developing oil production on the Absheron Peninsula, the Russian government also undertook a series of measures to organize oil prospecting in other regions of the country. Systematic geologic study of the Grozny region in the North Caucasus was begun in the spring of 1890 by mining engineer Afanasy Konshin, who pointed out in his report: “In the Grozny petroleum area it is already now possible to mark several dozen points to start drilling where reliable oil strata should be encountered at a moderate depth.” Deposits that he pointed out as promising for industrial development included Grozny, Mamakayev, Benoyev, Dylymov, Chanty-Argun, Isti-Suy, Voznesensk, Bragun, and others.
Geologist Konshin’s encouraging forecasts did not escape the attention of several entrepreneurs. In 1892, a drilling crew hired by retired Lieutenant Colonel Aleksandr Rusanovsky began hand drilling an initial well with a diameter of 9 inches, and went down to a depth of 209 feet. However, the drill site had been poorly chosen, without consulting specialists, and the well turned out to be a dry hole. A second well, with a diameter of 2.5 inches and a depth of 342 feet, produced the same disappointing results.
Despite these inauspicious beginnings, the Grozny region did prove to be a boon for the Russian oil industry. The accelerated development of the oil business in Grozny was associated in large part with the activities of Ivan Akhverdov (1850–1902), an entrepreneur from Vladikavkaz who had purchased the right to run oil-bearing lands on a tax-farming basis at the beginning of 1893. From the very first days at his Alkhan-Yurtovsky (Yermolovsky) site, he strove to make maximum use of the lessons learned from developing oil fields on the Absheron Peninsula.
Having visited this field, production engineer Konstantin Tumsky noted in his book The Grozny Oil Business [Groznenskoye neftyanoe delo] that: “In July 1893, we had an opportunity to familiarize ourselves with the situation of the Grozny oil business, thanks to the kindness of the owner of the fields, Mr. Akhverdov, the director Mr. Gankin, and the engineer [Lev] Baskakov. Travel from the Grozny station of the Petrovskaya branch of the Vladikavkaz Railroad to the oil fields (lying at 43°22’ north latitude and 63°10’ east longitude) is easy and takes only one hour. Drilling was subcontracted to Mr. Muravyëv, a drilling master from Baku. For drilling a 35-sazhen [245-foot] well at the site using his own pipes, tools, machines, and workers, it was agreed that he would receive 11,000 rubles. Further deepening requires new efforts. Percussion-rod drilling is used, as is usual in Baku. The company I. A. Akhverdov & Co. started the first drilled well No. 1 at an unnumbered site at the Alkhan-Yurtovsky (Yermolovsky) village, and steam-powered drilling was begun on June 28, 1893. The well was begun with 14-inch pipes. Below 47 sazhens [329 feet], water and petroleum gases began to appear, and from a depth of 61.5 sazhens [430.5 feet] signs of petroleum appeared from Karagan sandstone.”
Finally, on October 6, 1893, the long-awaited event occurred: from a depth of 430 feet, the well produced the first gusher in the Grozny fields. According to eyewitness accounts: “Once the fountain had quieted down, it gushed 10 sazhens [70 feet] above the top of the pipes, with some interruptions.” Mining engineer Lev Baskakov immediately sent a telegram to Ivan Akhverdov in Vladikavkaz with only one word: “GUSHER.” The first flowing well in Grozny was exploited for almost two decades, until 1902, and it produced a total of around 89,000 tons of oil.