In addition to refineries, the Shirvanskaya-Yekaterinodar oil pipeline (69 miles) and the Khadyzhenskaya–Tuapse oil pipeline (79 miles) were built in the Kuban Region in 1911.
The year 1912 was a time of maximum production in the Kuban: 74,417 feet of hole were drilled and 1.1 million barrels of oil were produced. In January 1913, the Second Congress of Kuban Oil Industrialists convened in Yekaterinodar to discuss the prior year’s results and announce its optimistic forecasts for the future.
As for the Russian oil industry as a whole, 70.7 million barrels (10.16 million tons) of crude oil were produced in 1912. However, Russia continued to lag very far behind the US in this indicator.
Table 6. Russian and US Oil Production, 1906–1912 (in millions of tons)
Source: Dyakonova, I. A. Oil and Coal in the Power Industry of Tsarist Russia in International Comparisons [Neft i ugol v energetike tsarskoy Rossii v mezhdunarodnykh sopostavleniyakh]. Moscow, 1999, p. 166.
A major turning point for the Russian oil industry was the unexpected departure of the Paris banking house of the Rothschild family from the Russian market in 1912. Looking at the performance of the Rothschild oil companies during the first decade of the new century, no one would have predicted that they would lose their hard-won market share to anyone. The fixed assets of the Caspian and Black Sea Oil Industrial and Trading Company at the time totaled 10 million rubles, and it held oil fields on the Absheron Peninsula at Balakhany, Sabunchu, Ramana and Bibiheybet, and also in Grozny and on Cheleken Island. Its well count reached 285, and it operated 45 steam engines and 19 electric motors. The company produced more than 3.9 million barrels of crude per year, and employed 1,269 workers. Meanwhile, the Mazut Company’s fixed assets were 6 million rubles. It comprised numerous wholesale offices throughout the country, its own tanker and tug fleet, a huge number of railroad tank cars, a repair yard at Dyadkovo, Yaroslavl Province, and other service enterprises. The company’s net profit in 1903 was 531,300 rubles, and it paid a dividend of 6% per share.
To a certain extent, the Rothschilds’ decision to leave Russia was influenced by the bloody events of August 1905 on the Absheron Peninsula, and also by the passing of one of the company’s key figures, Alphonse Rothschild. Thus, the Paris banking house of the Rothschild family entered into complex years-long negotiations with Royal Dutch Shell, culminating in February 1912 with the signing of an agreement in which the Paris banking house of the Rothschild family ceded all of its Russian enterprises to the English-Dutch concern headed by the noted entrepreneur Henri Deterding (1866–1939).
In 1912, recognizing the power of this transnational corporation, the Russian government supported the formation of a new corporation of Russian industrialists in order to hold down prices on crude oil and petroleum products. This organization was a mighty holding company whose portfolio included large blocks of stock in merged Russian enterprises. Its partners included major joint-stock companies—A. I. Mantashev & Co. Oil Industrial and Trading Company, the G. M. Lianozov Sons Oil Industrial Company, the Caspian Partnership, the Neft Petroleum Products Production, Transportation, Storage and Trading Partnership, and the Moscow-Caucasus Oil Industrial and Trading Company—but the vast majority of participants were medium-sized and even small businesses. The new oil conglomerate, formed under the aegis of Russian banks, was registered in London as a British company, the Russian General Oil Corporation. The company’s board included a member of the parliament of the United Kingdom and a British representative of the London division of the Russian-Asian Bank. The Russian entrepreneurs needed this “English shell” to simplify the attraction of new capital to Russia, but multiple attempts to place the corporation’s stock on leading European exchanges were not successful.
The Years of the “Great Battle of Nations”
In June 1912, the State Duma finally approved the long-awaited “Law on Leasing of Treasury Lands.” The first auctions under the new law were scheduled for mid-1913. In practical terms, the Law proved extremely unsuccessfuclass="underline" the auctions were supposed to determine who would agree to supply the treasury a mandatory minimum of crude oil at the lowest price. The auction results were unexpected: a price of “minus 47 kopecks per pood [36 pounds]” was offered—that is, the oil industrialist was prepared to pay the treasury 47 kopecks for delivery of each 36 pounds of crude oil. The Russian papers wrote: “So here’s what these syndicate owners are doing: not only will they not take a thing from the treasury for oil delivered, but what’s more, they will pay for it.... They must be hiding something here.” Naturally, what was being hidden was the simple business calculation of covering all costs of sales on the free market of the oil that would be produced over and above the mandatory minimum. However, the Senate rejected the auction results, repeating the paradoxical situation of seven years earlier.
So it is not surprising that, in part due to the unhelpful position of Russian legislatures, the domestic oil industry continued to lag behind the US in the world market competition. Whereas Russian companies produced 67.6 million barrels (10.17 million tons) of crude in 1913, their American counterparts produced 3.7 times as much—37.96 million tons.
The steady decline in Russian oil production that began in 1909 owing to the depletion of Absheron Peninsula old fields was partially compensated by the placement of new Grozny fields into industrial production. Grozny’s share of the crude, which had been 4.4% in 1902, rose to 13.5% by 1913.
In 1913, the Russian industry leader, the Nobel Brothers Petroleum Production Partnership, produced 7.9 million barrels of crude, and refined 6.9 million barrels at its refineries to make 2.4 million barrels of kerosene alone. Oil production was carried on at 479 wells, and 177 steam engines and 131 electric motors operated in the oil fields. The total number of employees was 2,541. To transport the crude oil and petroleum products, the company had at its disposal 43 inland ships, 14 schooners, 209 barges, and 1,400 railroad tank cars.
Unfortunately, the year 1913 brought a major disappointment to the Kuban oil industry. Despite 79,765 feet of hole having been drilled in the Maykop District, only 576,782 barrels of crude were produced. This 47.5% drop in oil production was a very unpleasant surprise for the Board of the Union of Kuban Oil Industrialists, the entrepreneurs in the region, as well as the British stockholders of the numerous Maykop oil companies. In the following year, 1914, the Maykop fields produced only 475,169 barrels of crude from 242 wells.
In his 1915 article, “Status of the Maykop Oil Industry and Outlook for the Future,” mining engineer Yevgeny Yushkin thoroughly analyzed the state of affairs in the Kuban. Despite the pessimistic assessments that prevailed among entrepreneurs, the author concluded that they should “not sit idly,” but continue “research in further directions from known to unknown” and fully “use the experience of prior years.” Symbolically, as if in confirmation of these words, a powerful oil gusher some 98 feet high was struck on March 10, 1915 at the village of Absheron. The gusher produced about 360,265 barrels of crude in 50 days, and total production for the year was 886,489 barrels.
Meanwhile, Royal Dutch Shell was especially active in Russia, striving to expand its participation in the development of the Grozny, Maykop, and Emba fields and attract additional investment in these regions. During its first two years, it ran its Russian branch entirely from London, but beginning in 1914, most of the functions of regional management were gradually shifted to one of the concern’s major enterprises, the Mazut Company. It was this company, at the direction of top management at Royal Dutch Shell, that carried out the essential reorganization of the English-Dutch giant’s entire group of Russian enterprises during the next several years.