In 1922, Ibn Saud met a New Zealand mining engineer named Major Frank Holmes.
During World War I, Holmes had been to Gallipoli and then Ethiopia, where he first heard rumours of the oil seeps of the Persian Gulf region. He was convinced that much oil would be found throughout the region. After the war, Holmes helped to set up Eastern and General Syndicate Ltd in order to seek oil concessions in the region.
In 1923, the king signed a concession with Holmes allowing him to search for oil in eastern Saudi Arabia. Eastern and General Syndicate brought in a Swiss geologist to evaluate the land. This discouraged the major banks and oil companies from investing in Arabian oil ventures.
In 1925, Holmes signed a concession with the sheikh of Bahrain, allowing him to search for oil there. He then proceeded to the United States to find an oil company that might be interested in taking on the concession. He found help from Gulf Oil.
In 1927, Gulf Oil took control of the concessions that Holmes made years ago. But Gulf Oil was a partner in the Iraq Petroleum Company, which was jointly owned by Royal Dutch/Shell, Anglo-Persian, the Compagnie Française des Pétroles, and “the Near East Development Company, representing the interests of the American companies.
The partners had signed up to the “Red Line Agreement”, which meant that Gulf Oil was precluded from taking up the Bahrain concession without the consent of the other partners; and they declined. Despite a promising survey in Bahrain, Gulf Oil was forced to transfer its interest to another company, Standard Oil of California (SOCAL), which was not a bound by the Red Line Agreement.
Meanwhile Ibn Saud had dispatched American mining engineer Karl Twitchell to examine eastern Arabia. Twitchell found encouraging signs of oil, asphalt seeps in the vicinity of Qatif, but advised the king to await the outcome of the Bahrain No.1 well before inviting bids for a concession for Al-Ahsa.
To the American engineers working in Bahrain, standing on the Jebel Dukhan and gazing across a 32 km stretch of the Persian Gulf at the Arabian Peninsula in the clear light of early morning, the outline of the low Dhahran hills in the distance were an obvious oil prospect.
On 31 May 1932, the SOCAL subsidiary, the Bahrain Petroleum Company (BAPCO) struck oil in Bahrain. The discovery brought fresh impetus to the search for oil on the Arabian peninsula.
Negotiations for an oil concession for al-Hasa province opened at Jeddah in March, 1933. Twitchell attended with lawyer Lloyd Hamilton on behalf of SOCAL. The Iraq Petroleum Company represented by Stephen Longrigg competed in the bidding, but SOCAL was granted the concession on 23 May 1933. Under the agreement, SOCAL was given “exploration rights to some 930,000 square km of land for 60 years”. Soon after the agreement, geologists arrived in al-Hasa and the search for oil was underway.
SOCAL set up a subsidiary company, the California Arabian Standard Oil Company (CASOC) to develop the oil concession. SOCAL also joined forces with the Texas Oil Company when together they formed CALTEX in 1936 to take advantage of the latter’s formidable marketing network in Africa and Asia.
When CASOC geologists surveyed the concession area, they identified a promising site and named it Dammam No. 7, after a nearby village. Over the next three years, the drillers were unsuccessful in making a commercial strike, but chief geologist Max Steineke persevered. He urged the team to drill deeper, even when Dammam No. 7 was plagued by cave-ins, stuck drill bits and other problems, before the drillers finally struck oil on 3 March 1938.