890.6363/3–647
Memorandum of Conversation by the Assistant Chief of the Petroleum Division (Eakens)1
| Present: | Colonel Drake, Gulf Oil Corporation |
| Mr. Clayton, U–E | |
| Mr. Rayner, AP | |
| Mr. McGhee, U–E | |
| Mr. Robertson, NEA | |
| Mr. Eakens, PED |
Colonel Drake called to inform the Department of a contract which Gulf has in process of negotiation involving the disposition of Kuwait oil to Shell.
The main features of the proposed contract are: (1) It will run for a period of ten years. (2) it will provide for Gulf supplying Shell from Gulf’s share of Kuwait production 30 per cent of Shell’s requirements in the Eastern Hemisphere, with the following quantities agreed to for the first four years respectively of the contract—15,000, 50,000, 85,000, and 130,000 barrels daily. The minimum quantity after the fourth year, i.e. for the remaining six years of the contract, is to be 150,000 barrels daily, with the upper limits depending upon the operation of the 30 per cent formula. There is also a provision that if Shell can show that Gulf in expanding its markets in the Eastern Hemisphere has taken business away from Shell, the quantities which Shell is obligated to take under the terms of the contract are to be reduced accordingly. (3) Notice of a desire to extend the contract beyond the ten-year period must be given by Shell three years before the expiration date of the contract.
It developed from the discussions that the proposed arrangement is essentially a partnership and profit-sharing agreement, rather than strictly a crude oil sales contract. Under the terms of the agreement, Gulf will deliver crude oil to Shell in Kuwait. Shell will arrange for transportation and refining of the crude oil, and marketing of the [Page 638] products, and the profits realized after deducting all costs of the operation, including Gulf’s crude oil production costs, will be shared equally.
In the discussion Colonel Drake emphasized particularly that the transaction does not involve a sale of any interest in the American ownership of Kuwait oil, but is confined solely to a crude oil supply arrangement, which at the end of the contract leaves intact Gulf’s one-half interest in Kuwait oil. He stated that while Gulf had been approached by American companies interested in purchasing a share of Gulf’s one-half interest in Kuwait, such a sale was not possible that would leave Gulf’s one-half interest wholly American owned. Under the terms of the Gulf-Anglo-Iranian partnership in Kuwait, either partner has the option to purchase any interest the other partner puts up for sale, at the price of the best outside offer, and Anglo-Iranian has indicated that it would exercise this option if Gulf decided to sell any part of its interest. He also emphasized that the contract was being drawn with the anti-trust laws fully in mind so that there could be nothing in the contract objectionable from this standpoint. He said that the agreement does not preclude Gulf from competing with Shell for markets, nor Shell from competing with Gulf in production activities. In a previous meeting he stated that Gulf did not consider there was any reason to consult with the Anti-Trust Division of Justice in regard to the transaction and had not done so.
Colonel Drake gave Mr. Clayton a penciled memorandum indicating the crude oil and marketing position of the seven large British and American companies producing and marketing in the Eastern Hemisphere. The memorandum indicated with respect to each company whether it was long or short on crude oil and markets, and pointed out that the Gulf–Shell arrangement constitutes a logical large scale commercial transaction between Gulf, which is long on crude oil and short on markets, and Shell, which is long on markets and short on crude oil. He emphasized that the deal is particularly attractive to Gulf, because the political situation in the Middle East being what it is, Gulf was not prepared to spend $300 million to $350 million that would be required to build refineries and develop markets for the crude oil involved in this arrangement. He emphasized also that it was essential that Kuwait production be developed in order to keep the Sheikh of Kuwait satisfied with the present concession arrangement, since production in surrounding areas was going forward rapidly.
Colonel Drake was questioned particularly about the operation of the part of the agreement which provides for a reduction in Gulf’s sales to Shell to the extent that it can be demonstrated that Gulf has [Page 639] expanded its marketing position at the expense of Shell. Mr. Clayton observed that this feature might very well operate to reduce Gulf’s incentive to expand its own marketing position, but since there was no agreement or restriction on Gulf’s freedom to increase its markets, this feature of the contract probably could not be considered objectionable. Colonel Drake said that Gulf intended to go forward with the expansion of its markets at the normal rate since they cannot afford at the end of the contract to be in the position of not having an outlet for the oil. Consequently, he emphasized that Gulf did not consider this aspect of the agreement as any deterrent upon their expansion of markets. Besides, he said that Gulf considered the operation of this part of the agreement academic because it was not believed that Shell could ever show that Gulf had directly taken business away from them.
In reply to a question concerning publicity relative to the transaction, Colonel Drake said that Gulf considered it simply a commercial transaction and saw no need for, and had no intention of, giving it any publicity. He said that if it was later considered that an announcement was necessary or desirable, Gulf would not make such an announcement without previously discussing the matter again with the Department.
It is not believed that Colonel Drake’s discussion could accurately be construed as an inquiry of the Department as to whether it had any objection to the proposed contract. The conclusion from the discussion rather would seem to be that Gulf was going to enter into the contract discussed and wanted the Department to be fully informed about it.
- The meeting covered by this memorandum was held in Mr. Clayton’s office on February 3, 1947.↩