Page 60 - The Persian Gulf Historical Summaries (1907-1953) Vol III

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Schedule 2
EXPLANATION OF THE PRESENT AND THE CONTEMPLATED
FUTURE MARKETING OF THE CRUDE OIL PRODUCED
IN KUWAIT
At present and for many years past the capital stock of Kuwait Oil Company,
Limited, which holds the Oil Concession in Kuwait, is and has been owned one-
half by D’Arcy Exploration Company, Limited, a wholly-owned subsidiary of
Anglo-Iranian Oil Company, Limited, and the other one-half by Gulf Exploration
Company, a wholly-owned subsidiary of Gulf Oil Corporation. Since the
beginning of oil production in Kuwait, Kuwait Oil Company, Limited, pursuant
to contracts between the involved companies, has sold all of the oil produced in
Kuwait to D’Arcy Exploration Company, Limited (which in turn sells to Anglo-
Iranian Oil Company, Limited), and to Gulf Exploration Company at a price
per ton which was established year by year at a figure equal to the calculated cost
per ton in that year of producing said oil plus a profit of Is. (one shilling) per ton.
The result has been that Kuwait Oil Company, Limited’s profits have been
restricted to Is. (one shilling) per ton. Anglo-Iranian Oil Company, Limited, and
Gulf Exploration Company have in turn year by year sold independently of each
other, the crude oil so purchased by them, such sales being made under long-term
contracts, short-term contracts, and in spot cargo sales at various prices.
Under the contemplated new arrangement the Kuwait Oil Concession will be
owned one-half by.......................................... Company, Limited, a wholly-owend
subsidiary of Anglo-Iranian Oil Company, Limited, and the other one-half by
Gulf Kuwait Company, a wholly-owned susidiary of Gulf Exploration Company.
Consequently the oil produced in Kuwait will be owned by.................. 1 Company,
Limited and Gulf Kuwait Company and, after the imposition of the 50-50 income
tax in Kuwait, said tax will be applicable to them.
In the future, for as long as the companies can now foresee, it is contemplated
that .......................... Company, Limited will dispose of its share of the crude oil
produced in Kuwait to Anglo-Iranian Oil Company, Limited (possibly through
D’Arcy Exploration Company, Limited) and that Gulf Kuwait Company will sell
its share of the crude oil produced in Kuwait to Gulf Exploration Company.
Said purchasers will in turn, as they have in the past, sell and deliver, independently
of each other, the oil so purchased to other buyers, either under existing long-
and short-term contracts or under long- and short-term contracts to be made in the
future, as well as by spot cargo sales. It seems proper, therefore, that the
companies should make the following explanation of the prices that will be
charged for said oil when it is disposed of by .......................... Company, Limited
to Anglo-Iranian Oil Company, Limited (whether through D’Arcy Exploration
Company, Limited or not) and by Gulf Kuwait Company to Gulf Exploration
Company.
The price per ton which Gulf Exploration Company will pay Gulf Kuwait
Company for the Kuwait crude oil purchased each year will be an amount per ton
which will equal the weighted average price per ton (that is, the average price
giving proper weight to the volume sold at each price) actually payable to Gulf
Exploration Company by all purchasers from it in its sales and deliveries of said
crude oil during that year under long-term contracts, short-term contracts,
and by spot cargo sales. Gulf Kuwait Company will furnish a certificate by a
reputable firm of independent Auditors such as Price Waterhouse and Company)
certifying, on the basis of the accounts and records of Gulf Kuwait Company and
Gulf Exploration Company, the correctness of said weighted average price per
ton; and that said weighted average price per ton is not less than the weighted
average price per ton payable to Gulf Exploration Company in its sales and
deliveries of said Kuwait crude oil during that year to purchasers not affiliated
with Gulf Oil Corporation. In the event that under the terms of any of the
contracts in question, it is impossible at the end of a year to ascertain the exact
price payable under said contracts for the oil delivered that year thereunder, then
the price payable by Gulf Exploration Company to Gulf Kuwait Company and
the certificate of said Auditors shall, to that extent, be based upon the latest
available estimate of said contract prices; and as the said exact prices become
ascertainable in future years the necessary adjustments shall be made with effect
in the year in which said exact prices become ascertainable.
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