Page 375 - Arabia the Gulf and the West

372 Arabia, the Gulf and the West

Payment for the initial government shareholding was to be spread over three
years: it would be made in crude oil and based upon the ‘updated book value’ of
the companies’ assets in the countries concerned, that is to say, upon the

historical value of their investments in current monetary terms. A formula was
also worked out for the disposal of the participation crude, the proportion of it
that the companies would be entitled to buy back and the prices they would pay
for it. All in all, the effect of the agreement was to deprive the companies of
roughly half the profits they might have expected to earn on the host
governments’ 25 per cent share of oil production.
It was left to the individual Gulf states to work out in direct negotiation with
the companies operating in their territories detailed terms for the implementa­
tion of the proposals embodied in the general agreement. The critical discus­

sions, obviously, would be those between Saudi Arabia and ARAMCO. Saudi
Arabia had the largest reserves of oil of any country, and the parent companies
of ARAMCO were four of the legendary Seven Sisters. Whatever agreement
they reached on the implementation of participation, and the price at which the
companies would buy back participation crude, would set the pace for the
other Middle-Eastern members of OPEC. ARAMCO had plans to increase
productive capacity to 13.4 million b/d by 1976, and 20 million b/d by 1983,

the year in which the Saudi government was due to acquire a majority share­
holding in the company. Although ARAMCO’s 49 per cent share in produc­
tion after that date would bring it - provided, of course, that the production
target had been reached - roughly as much oil as it was receiving in 1972, the
amount would still not be sufficient to enable its three principal parent com­
panies, Esso, SOCAL and Texaco, to dominate the international petroleum
market in the way that they had. For this they needed continued exclusive

access to the Saudi government’s share in oil production. It became
ARAMCO’s prime concern in the participation negotiations, therefore, to
secure such a preferential right to government crude.
Price scales for ‘buy back’ crude had been drawn up when the general
agreement on participation was concluded in October 1972; but by the time
negotiations between ARAMCO and the Saudi government resumed in
December the Saudis had changed their minds. As George Piercy of Esso, the

chief negotiator for the Persian Gulf majors, reported:

Yamani has made the decision to break the agreement made in New York on prices-
Individual country negotiations, firming markets, various attacks on him have
contributed. But perhaps it is all part of a plan. He has decided to grab for big PnC
increases.

Piercy recommended that the companies make a firm and final offer on
which would allow for substantial but not excessive increases for tu
oarticipation crude. His position was supported by Gult uu, »
had no interests in Saudi Arabia but which held a half-share (BP ha