890g.6363 T 84/271

The Associate General Counsel of the Standard Oil Company of New Jersey ( Guy Wellman ) to the Secretary of State

Re: Iraq Petroleum Company, Ltd.
(Formerly, Turkish Petroleum Company, Ltd.)

Sir: Since our last communication or conference on behalf of the American Group with the Department on this matter there has been practically no progress made toward an agreed basis of participation by the American Group until within the last few days. The difficulty heretofore has been to arrive at any agreement with Mr. C. S. Gulbenkian83 under which his shares could be acquired and [Page 817] the so-called working agreement put into effect. In this connection, the American Group, despairing of reaching any agreement with Mr. Gulbenkian, reluctantly offered to the Royal Dutch, Anglo-Persian and French Groups to take up its participation in the Iraq Petroleum Company on a basis of 23¾% (one-quarter of 95%, leaving Mr. Gulbenkian his 5% participation) without the immediate and effective adoption of the working agreement, insofar as its provisions might conflict with Mr. Gulbenkian’s interest as a beneficial shareholder, but with the collateral agreement that so soon as the working agreement could be put into effect through purchase of Mr. Gulbenkian’s shares, or with his consent, the other groups should agree that this should be done. This attitude of the American Group was communicated, through its London Solicitor, Mr. Montagu Piesse, to the other three groups on February 22nd last.

The American Group was advised by Colonel Mercier, of the French Group, on the 25th of that month that the French Group could obtain immediately Mr. Gulbenkian’s acceptance of the working agreement on the following terms:

  • First: Mr. Gulbenkian, like the French Group, wants the other Iraq Petroleum Company shareholders to respect the informal agreements made between the Turkish Petroleum Company and the Deutsche Bank on October 19, 1912; between that company and the National Bank of Turkey on October 22, 1912;84 and between that company and the Anglo-Saxon Petroleum Company, Limited, on October 23, 1912,84 (copies of which are enclosed); and also the so-called Foreign Office Agreement of March 19, 1914, (of which a copy is also enclosed). The portion [of] these agreements in question is the self-denying ordinance embraced in the letters and in Article 10 of the last-named agreement.
  • Second: Mr. Gulbenkian wants a director in the Iraq Petroleum Company and its associated companies.
  • Third: He is willing to sign the working agreement with an arrangement for purchase of his share of the crude oil to be received under the working agreement on his 5% beneficial interest.
  • Fourth: He is to carry his financial interest and share in any financial benefits the same as the other shareholders.

One of the shareholding groups in the Iraq Petroleum Company had previously taken the position that this self-denying covenant was no longer effective. Accordingly, the corporation of the French Group, the Compagnie Frangaise des Petroles, brought two proceedings in the British Courts against the other shareholders of the Iraq Petroleum Company to have these agreements of 1912 and 1914 above referred to, so far as they relate to the production and manufacture of crude oil through the Turkish Petroleum Company only, declared effective and binding.

[Page 818]

With this situation confronting it, the American Group, at a meeting held on March 9th, authorized Mr. Piesse to discuss the following basis for its participation:

  • First: Leave status of the self-denying covenants to judicial determination or agreed settlement of the controversy on condition that all groups and Mr. Gulbenkian or none are bound, and that the self-denying covenant does not apply to outside areas under Article 6 of the Iraq Convention.
  • Second: All the groups and Mr. Gulbenkian are to sign the working agreement.
  • Third: Mr. Gulbenkian is to retain and finance his 5% beneficial share interest and receive 5% of the divisible crude oil and financial benefits on the same terms pro-rata as the groups.
  • Fourth: The groups will arrange to purchase Mr. Gulbenkian’s oil on some adequate price basis, or at his option he may dispose of it otherwise during each term of 10 years that he so elects.
  • Fifth: All voting rights to be held by the four groups.

This proposal was discussed informally by Mr. Piesse with representatives of the Anglo-Persian and Royal Dutch-Shell Groups, and the terms were acceptable to them. Thereupon, Sir John Cadman, Chairman of the Board of the Anglo-Persian Oil Company, Ltd., and Mr. Piesse went to Paris a few days ago and discussed with the French Group and Mr. Gulbenkian the whole subject of the American Group’s participation in the light of the existing circumstances. Out of that conference there comes an offer, in principle, for a 23¾% share participation in the Iraq Petroleum Company by the American Group, in which the Royal Dutch, Anglo-Persian and French Groups concur, on condition that the self-denying covenant of the 1912 and 1914 agreements shall be recognized by all shareholders of the Iraq Petroleum Company, and that in effect it covers not only the former Ottoman Empire, but also the areas which may be leased to such shareholders by the Iraq Government under Article 6 of the convention between the Turkish Petroleum Company, Limited, and the Government of Iraq, of March 14, 1925.85 Thus any areas which any of the shareholders of the Iraq Petroleum Company may obtain under the operation of the so-called open door plan as embodied in this Article 6, would be operated for joint interest of all its shareholders who desire to take up their interest through either the Iraq Petroleum Company or a subsidiary formed for the purpose. The other details of this proposal to the American Group are generally within the terms of the one which it submitted on March 9th, above outlined, or are of a purely business character with which the Department need not be burdened.

[Page 819]

The immediate purpose, therefore, in writing the Department at this time and at this length, is to post it generally as to the existing situation, and particularly to point out that it is apparently possible for the American Group now to take up its participation in the Iraq Petroleum Company, with effective, present, adoption of the working agreement, provided the Department has no objection to this lately-developed feature, regarding the self-denying ordinance. On this point it is the writer’s thought that, if the American Group should take up its share participation under the condition of acceptance by it of the self-denying ordinance, there would not result any modification of the so-called open door plan adopted by the Iraq Petroleum Company under Article 6 of the Iraq Convention, because the plan would still be operative so far as all nationals, including American nationals, are concerned in respect to their right to submit bids for tracts or areas offered for sublease under that Article. The only effect of the acceptance of this condition by the American Group would be that its bids for outside areas, and the development and operation of any such that may be secured on its bids, would be for the account of any shareholders of the Iraq Petroleum Company, including Mr. Gulbenkian, who might desire to participate financially in such areas.

We desire to call the attention of the Department to the fact that in the previous consideration with the Department of the possible participation of the American Group as a shareholder in the Iraq Petroleum Company under the so-called open door plan, it has been understood that the American Group will be jointly associated with the other three groups with respect to the operation of the twenty-four areas to be selected by the Iraq Petroleum Company under Article 5 of the Iraq Convention, and also of any other areas that might fall to the Iraq Petroleum Company under the terms of the convention through failure of bidders for areas offered for sale. Thus the constituent members of the American Group might have acquired other areas for individual account and operated them as such. Under the pending proposal, including the self-denying ordinance, the American Group and its constituent members would be associated with the three foreign groups and Mr. Gulbenkian in the joint operation of all areas available for operation by the Iraq Petroleum Company under this convention, and also such other areas under the Iraq Convention which the American Group and its constituent members, and [the] other groups [of the Iraq Petroleum Company] as well, might acquire through public offering. This joint operation would relate also to the “production and manufacture” of crude oil in the former Ottoman Empire, as prescribed by the self-denying ordinance in the agreements of 1912 and 1914.

[Page 820]

This will confirm the telephone explanation to Mr. Wadsworth this morning of this situation, and our desire to receive, if possible, from the Department for use at a meeting of the American Group now called for next Tuesday afternoon, an expression as to whether or not the Department has any objection to a share participation by the American Group in the Iraq Petroleum Company which would involve, so far as the open door plan under Article 6 of the Iraq Convention is concerned, an acceptance by the American Group on its sole behalf of the self-denying ordinance of the agreements of 1912 and 1914 above referred to, along with all the other shareholders of the Iraq Petroleum Company.86

Respectfully yours,

Guy Wellman
[Enclosure 1]

The Deutsche Bank to the Turkish Petroleum Company, Ltd., London 87

Dear Sirs: We hereby undertake that we will not directly or indirectly be interested in the production or manufacture of crude oil in the Turkish Empire in Europe and Asia apart from our interest in the Turkish Petroleum Company Ltd. It will however be understood that this obligation will in no case interfere with our ordinary banking transactions.

Furthermore it will be understood that all parties participating in the Company mentioned will be at liberty to import crude oil into Turkey and refine it there so long as the said Company has not found oil in Turkey in workable quantities, but that, if the Company begins working oil, it will then have the option of buying any refineries established there by any of the parties at cost price less amortisation.

Yours faithfully,

Deutsche Bank
[Page 821]
[Enclosure 2]

Foreign Office Agreement, 1914

Arrangements for Fusion of Interests in Turkish Petroleum Concessions of the d’Arcy Group and of the Turkish Petroleum Company

It is agreed that the interests shall be divided as follows:

  • Fifty per cent to the d’Arcy group,
  • Twenty-five per cent to the Deutsche Bank,
  • Twenty-five per cent to the Anglo-Saxon Petroleum Company,

and that, in order to carry out this division,

1.
The shares in the Turkish Petroleum Company now held by The National Bank of Turkey shall be transferred in equal moieties to the Deutsche Bank and the Anglo-Saxon Petroleum Company.
2.
The capital of the Turkish Petroleum Company shall be increased to £160,000 by the creation of 80,000 new shares of £1 each of the same class as those now existing.
3.
These 80,000 new shares shall be allotted to the d’Arcy group on terms to be agreed upon between the parties.
4.
The Board of the Company shall consist of eight members, of whom four will be nominated by the d’Arcy group, two by the Deutsche Bank, and two by the Anglo-Saxon Company.
5.
The capital of the Turkish Petroleum Company shall be employed only in exploring, testing, and proving oil fields, a separate public company or companies being formed to work any field or fields the examination of which has proved satisfactory.
6.
Such working company or companies shall issue to the Turkish Petroleum Company fully paid ordinary shares as consideration for the properties to be acquired; such ordinary shares shall carry full control of the working company or companies, which control shall in no circumstances be parted with by the Turkish Petroleum Company.
7.
The working capital required by such working company or companies shall be raised by means of preference shares and (or) debentures which shall be offered to the public to such extent as the members of the Turkish Petroleum Company or any one of them shall elect not to subscribe for themselves.
8.
The alterations in the memorandum and (or) articles of association of the Turkish Petroleum Company necessary to carry out the above conditions shall be made forthwith.
9.
Mr. C. S. Gulbenkian shall be entitled to a beneficiary five per cent interest without voting rights in the Turkish Petroleum Company, this five per cent being contributed equally by the d’Arcy group and the Anglo-Saxon Company out of their respective holdings. The shares representing Mr. Gulbenkian’s interest shall be registered [Page 822] in the names of nominees of the d’Arcy group and of the Anglo-Saxon Company, and shall be held by them, but undertakings shall be exchanged between these parties whereby
(1)
Mr. Gulbenkian undertakes to pay the calls on the shares, and
(2)
The d’Arcy group and the Anglo-Saxon Company under-take that Mr. Gulbenkian shall be entitled to all financial benefits of the shares.
(3)
If Mr. Gulbenkian shall desire to dispose of this interest, and also in the event of his death, the d’Arcy group and the Anglo-Saxon Company shall have the option of purchasing the interests standing in their names as defined in Article 36 (b) of the articles of association of the Turkish Petroleum Company.
10.
The three groups participating in the Turkish Petroleum Company shall give undertakings on their own behalf and on behalf of the companies associated with them not to be interested directly or indirectly in the production or manufacture of crude oil in the Ottoman Empire in Europe and Asia, except in that part which is under the administration of the Egyptian Government or of the Sheikh of Koweit, or in the “transferred territories” on the Turco-Persian frontier, otherwise than through the Turkish Petroleum Company.

For the Imperial German Government
R. von Kühlmann

For His Britannic Majesty’s Government
Eyre A. Crowe

For the National Bank of Turkey
H. Babington Smith

For the Anglo-Saxon Petroleum Company, Ltd.
H. Deterding

Walter H. Samuel

For the Deutsche Bank
C. Bergmann

For the d’Arcy Group
C. Greenway

H. S. Barnes

  1. Naturalized British subject, a minority stockholder in the Turkish Petroleum Company, Ltd.
  2. See footnote 87, p. 820.
  3. See footnote 87, p. 820.
  4. Turkish Petroleum Company, Ltd., Convention With the Government of Iraq, Made the 14th Day of March, 1925 ([London,] Blundell, Taylor & Co. [1925]).
  5. A notation in ink at the close of this letter reads:

    “Note: (1) At Mr. Harrison’s suggestion, 4/6/27, I telephoned Mr. Wellman and asked if the addition of the above made pen inserts, ‘and’ [‘the’] and ‘of the Iraq Petroleum Company’, did not more accurately render the meaning of the phrase in question. He replied in the affirmative and agreed to the change in text.

    (2) In the telephone conversation referred to in the last paragraph of the above letter, I asked Mr. Wellman whether he was certain that the name of the Turkish Petroleum Co., Ltd., had actually been changed to ‘Iraq Petroleum Co., Ltd.’ He replied that such was the information he had received from Mr. Piesse, the American Group’s London solicitor. Today he stated that he had not been able definitely to verify his former statement and he asked that the Dept’s reply take note of this fact.

    George Wadsworth

    NE—4/6/27.”

  6. Similar letters, dated, respectively, Oct. 22 and Oct. 23, 1912 (neither printed), were sent to the Turkish Petroleum Company, Ltd., by the National Bank of Turkey and the Anglo-Saxon Petroleum Company, Ltd.