Archive

No. 3, 2008

Igor Akramovsky

LONDON ECHO OF MAIKOP OIL BOOM


The oil rush in the first decade of the 20th century proved to be a major event in the history of the Kuban oil industry

In the first half of 1910, about 40 joint stock companies were set up in Great Britain to operate Maikop oil fields in the southern Kuban province of the Russian empire. The process was started after an oil field operated by the partnership Baku-Black Sea Oil Industry yielded first oil in August 1909, prompting a major Maikop oil boom.

A low-profile Kuban sensation

At the start of the 20th century the Maikop district was a part of the Kuban region, a vast southern area of the Russian Empire. The territory is rightly believed to be the cradle of the Russian oil industry. In February 1866, the first oil was produced in Russia in the valley of the Kudako River at the oil field owned by Guards Colonel Ardalion Novosiltsev. However, it was known long before the start of commercial production that Kuban, in particular, the Maikop district, had oil reserves. Natural crude oil outflows were observed since olden times in the vicinity of the villages of Shirvanskaya, Khadyzhinskaya and Neftyanaya. According to a version suggested by etymologists, the name of the Maikop district originated from the Turkic words "mai" (oil) and "kopa" (a bog, a little lake running wild).

A Cossack village with a symbolic name, Neftyanaya ("Oil village") was founded in the Maikop district in 1862. The Cossacks who settled there extracted oil from shallow wells and frequently used it as axle grease but no large-scale geological prospecting for oil was conducted. Only few enthusiastic fortune seekers launched surveys.

One of the few who believed in the bright future of Maikop oil was State Counselor Mikhail Selitrennikov. "God buried big fortune here," he used to say. He spent seventeen years searching for Maikop's oil and almost entirely used up his capital. In 1905, the entrepreneur died. Before his death, he bequeathed his business to his son, engineer Vladimir Selitrennikov who managed to strike oil three years later. In 1908, well No. 2 of Selitrennikov & Co. yielded a small oil flow and soon after that crude continued to flow out of the well for some time. In the same year, chemical technology magister Konstantin Kharichkov studied a sample of this oil at the laboratory of the Grozny refinery. On the request of managers of the British-Russian Oil Company, a similar research was conducted by British chemists in London. The results of this research exceeded all expectations. The yield of light distillates was not lower than the yields of the best Grozny crude blends. As for kerosene, its quality almost matched Baku standards.

In November 1908, the newspaper Kuban Area Gazette wrote the following about the discovery: "Oil prospecting in the Maikop district has yielded the most favorable results." The completed preliminary exploration allows to estimate oil reserves as 50 million tons per hectare.

Oil rush begins

Also in 1908, the Mining Department took a decision at a session in St. Petersburg to start exploratory drilling at the expense of the state treasury in previously unprospected areas. The Geological Committee and the Mining Department paid particular attention to the Maikop district. The Mining Department requested the allocation of 100,000 rubles for these purposes.

In the spring of 1909, an expedition dispatched by the Geological Committee started its work in the Maikop district. The expedition was headed by a prominent geologist, professor Karl Bogdanovich (1864-1947). Mining engineer Ivan Gubkin (1871-1939) who later became a prominent Russian scientist in the oil industry was also included in the expedition.

By that time, interest in the Maikop oil had increased considerably, and other entrepreneurs started drilling in the vicinity of the oil field of Vladimir Selitrennikov. In particular, just 100 meters away from the border of Selitrennikov's site, the Baku-Black Sea Partnership started to drill an oil well manually. It was believed that this work was only intended for oil prospecting. However, suddenly a flow of clean light oil sprung up from a depth of 74 meters and rose to a height of over 65 meters on August 30, 1909. Specialists of the Baku-Black Sea Partnership were clearly unprepared for such developments. Neither reliable crude reservoirs nor oil tanks had been made available for oil storage. Almost the entire amount of crude oil flowing out of the well was lost. During the first week, around 33,000 tons flew out of the well, with only a tiny amount saved. Sandy soil allowed crude to infiltrate and flow into a small basin for oil storage. Crude oil streams flooded the environs. Oil spilled into the Pshekha River and eventually into the Belaya and Kuban Rivers, causing an environmental disaster.

Large oil streams from the well of the Baku-Black Sea Partnership caused a great deal of anxiety among Russian and foreign entrepreneurs.

By the end of 1909, entrepreneurs had filed around 1,000 applications for a total area of 35,000 "desyatins" (an obsolete Russian unit of measurement, roughly equaling 10,900 square meters). According to Kuban Region mining engineer Yevgeny Yushkin, some applicants in the Maikop district "virtually did nothing" at that time, only digging pits to further seal their rights to their sites. Some persons looking for easy gains were waiting for an opportune time to resell their plots as their price skyrocketed after an oil blowout in 1909. Normally, an original application cost 200-400 rubles but was resold at an average price 12,000-30,000 rubles, even though no work had been carried out at the site. Virtually the entire population of Maikop, which included merchants, industrialists, civil servants and craftsmen, was involved in speculative deals.

Serious entrepreneurs started their operations at the oil fields in the Maikop district only in the second half of 1910.

Since September 1910, when the area was announced an oil-bearing province, oil fields began to be sold at auctions in accordance with law. The "application rush" started to abate and speculative anxiety in the Kuban province declined.

Oil boom on the banks of the river Thames

Soon the name of the small Kuban town of Maikop acquired a magic meaning for foreigners. At some moment, as the Anglo-Russian Gazette wrote, companies for oil production in Maikop were registered in London almost every day. In 1910, as many as 20 companies with an aggregate capital of 54,580 rubles were registered in Great Britain for crude production in Maikop. The stocks of most of these companies were quoted on the London Stock Exchange. In the same year, the stocks of 13 Maikop-based Russian oil companies were listed on the LSE. In the next two years, another 14 companies were established. The largest of them were the Society of Maikop Oil Fields with a charter capital of 600,000 pounds sterling, the London and Maikop Oil Corporation (600,000 pounds sterling), the Maikop Pipeline and Transport Society (510,000 pounds sterling), the Maikop-Apsheron Society (450,000 pounds sterling), the Society of Maikop Oil Industrialists (425,000 pounds sterling), and the Mutual Society for Oil Transportation (416,250 pounds sterling).

Overall, more than 40 joint stock companies were registered in Great Britain for the production of Maikop oil. The aggregate capital of all British companies that started their operations in Russia in 1910-1914 amounted to 209.3 million rubles, of which 110 million rubles were channeled into the production of Kuban oil, including 90 million rubles for the development of oil fields and the creation of oil transport infrastructure in the Maikop district.

The friendly attitude of the regional Cossack administration and the Russian business community also contributed a great deal to the success of oil industrialists in Kuban. The newspaper Kuban Area Gazette started to publish a permanent column "Oil Business in Kuban." Beginning with 1910, the newspaper started to publish a special periodical A Diary of the Kuban Oil Industry as a supplement.

In June 1910, when reports appeared that the central government was intending to limit the operation of foreign companies in Kuban, the local authorities strongly opposed the move. The protest was jointly voiced by the Yekaterinodar Exchange Committee, the Maikop Town Duma, the Temryuk Town Council, the administration of the Cossack troops' chieftain and the St. Petersburg Council of the Congresses of Exchange Trade and Agriculture Representatives. As a result, the Russian government was forced to give up its initial plans. In October 1911, the 1st Congress of Kuban Entrepreneurs was held to discuss the oil business. The congress was attended by representatives of major British companies. The congress's decisions led to mutually advantageous cooperation of Russian and British oil industrialists.

Mining engineer Ivan Gubkin made a considerable scientific contribution to the development of the Maikop oil district. His strenuous efforts helped identify specific features of oil stratification in the district, using the Neftyansko-Shirvanskoye oil field as an example. By drawing up a map of promising and empty oil wells, he offered an original scheme completely different from the theoretical assumptions of his predecessors. The Maikop oil pool turned out to coincide with the streamway of a dried-up ancient river filled with sand deposits. For this reason, some oil wells were productive while others that were drilled in the vicinity but off the streamway turned out to be "dry."

Based on the assumption made by geologist Ivan Gubkin, an oil well was drilled at the oil field of the Anglo-Maikop Corporation near the village of Apsheronskaya in 1911. The oil well yielded a new strong oil gusher in January 1911, silencing the skeptics. A fountain of light crude rising to a height of 20 meters from a depth of 160 meters had initial daily yields of 4 tons.

By late 1911, there were 211 oil wells in the Maikop district, including 51 exploratory wells. A total of 25,476 meters were drilled during the year.

British entrepreneurs greatly contributed to developing the oil transport infrastructure. In 1911-1912, British companies commissioned the Shirvanskaya-Yekaterinodar and the Shirvanskaya-Tuapse oil pipelines. The 8-inch Shirvanskaya-Yekaterinodar pipeline, about 111 kilometers long, was considered to be the main transportation route and belonged to the Maikop Oil Pipeline and Transport Company. The Shirvanskaya-Tuapse pipeline, about 103.5 kilometers long, was the property of the Maikop Mutual Society for Oil Transportation. Eventually, both companies merged into a single company. In 1914, they obtained the right to build another oil pipeline in the area of the village of Krymskaya, along with an oil reservoir and an oil pumping facility. In this way the entire transportation of the Maikop oil was concentrated in the Maikop Oil Pipeline and Transport Company that was part of the Anglo-Maikop Corporation.

Maikop boom comes to an end

During four years, from 1908 to 1912, oil production in Kuban increased almost 100 times: from 1,600 to 152,200 tons. However, in 1913 a sharp drop in output was observed as oil production halved to 78,000 tons. To a certain extent, this was explained by the fact that already in 1912 most firms, which were unprepared to prospect oil in difficult mining and geological conditions, virtually stopped building new oil wells.

Also, oil companies established in Great Britain were almost immediately involved in the process of concentration and monopolization. The Anglo-Maikop Corporation that integrated about 15 Maikop companies was established already in 1911. At the time World War I broke out, the Anglo-Maikop Corporation had a capital of 10 million rubles and accounted for about 94% of total oil production in Kuban.

With the start of World War I, oil production decline continued as output decreased to 73,600 tons. However, in 1915, the Maikop district gave entrepreneurs yet another hope as a powerful oil flow boosted crude output to 138,400 tons. During that period, the merger of British companies operating in the region led to the establishment of the Maikop Union, the Society of Black Sea United Oil Fields and also the joint Russian-British Maikop Oil Industry and Trade Society.

However, a tough blockade imposed by Germany and Turkey on the Black Sea straits in 1916 halted the transportation of oil and petroleum products to world markets, and oil production in the region plummeted to 25,000 tons. The tragic events that took place in Russia during the civil war, after the February 1917 bourgeois revolution and the October 1917 Bolshevik coup in Petrograd completely paralyzed the operation of Kuban oil fields.

The Maikop oil boom witnessed in Russia a century ago became a bright page in the history of the core sector of the Russian industry and the example of productive use of foreign capital to promote international cooperation.




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Oil of Russia, No. 3, 2008
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