Executive Summary

In 1973, forty years after American oil explorers first went ashore on Saudi Arabia's eastern coastline, the Saudi government began an incremental buy-out of the concession-holding Arabian American Oil Company (Aramco). The richest prize in oil industry history, the generator of billions of dollars for the four American oil companies that owned Aramco, was being relinquished -- without rancor or recriminations. In 1933, Saudi Arabia lacked indigenous skilled workers, had few schools and virtually no civil infrastructure. Within the lifetime of the 67-year-old Ali Naimi, who joined Aramco as a boy and is now the Kingdom's oil minister, the world's largest integrated oil company was totally in Saudi hands -- from the rig floor to top management. This is an account of human resource development, an evolving concession agreement, the character of the relationship between the Saudi Arab government and Aramco, and the on-going Saudi-American energy industry

Human Resources

In 1949, when Harry Snyder was hired to head up the training of Saudi Arabs for Aramco, James Terry Duce, a company executive in New York, told him what was expected:

Your task at Aramco is to train Saudis as quickly and as soundly as possible to operate the Saudi oil industry. Inevitably, the Saudi Arab Government will eventually nationalize the industry. When that occurs, we want the young Saudis to have attained the proficiency that will enable them to operate the oil industry efficiently and with goodwill toward Aramco. Thus they will be serving their country's best interests and will be protecting the interests of our parent companies.¹

This vision of the training mission and its ultimate result might have appeared reasonably attainable if recruits were available from local schools, knew a bit of English, and had some exposure to industrial practices. But those conditions did not exist when the concession agreement was signed in 1933, nor in 1949 as the postwar development of Saudi Arabia's petroleum resources gathered momentum. Tom Barger, a geologist who arrived in Arabia in 1937 and rose to board chairman before retiring in 1969, recalled many years later:

[One] aspect that impressed me was the enormous, inordinate poverty of the inhabitants. As I found out later, nearly everybody was hungry most of the time. . . . There's no education, obviously. The few people who could read and write largely had taught themselves. And there were some very learned men, as a matter of fact, among this population, although most of it was illiterate. They had practically no mechanical skills. We had new employees who couldn't get out of a room because they didn't know how to use a doorknob."²

B. C. Nelson, who served Aramco in employee relations for many years, recalled in 1965 what it had been like for Saudis recruited to Aramco in the early years of the enterprise:

Word spread to the desert and townspeople that in exchange for some physical effort the blue-eyed foreigners would give a man a handful of silver! And so they flocked to Aramco's budding oil centers . . . Imagine the effect on a recruit to be plunged into the mechanical age -- none of which fit in with his prior orientation or culture -- with little or nothing in his experience to help him adjust. The most amazing thing about these times in terms of one small facet of an Industrial Relations problem -- absenteeism-was not that, when they were handed their bag of money, they returned to their tribe with their glad tidings, but rather that they ever came back to work. Industrial discipline was practically unknown, so the amazing thing was that there was only a 75 percent turnover in the first few years.³

On-the-job training began on an informal basis in the 1930s and was soon complemented by rudimentary industrial training in classrooms. But without English, Arabic literacy, and basic arithmetic, there was a limit to the progress Saudis could make in job performance and advancement. In 1944, with operations revived after a wartime suspension, the Jabal (meaning "mountain" or "hill") School was opened in Dhahran.

Surely in 1944 no one expected history to remember the humble Jabal School. Yet the little company school endures as a symbol for development -- not for the development of an oil company, but for the development of a generation of very special young men. Many Saudis were introduced to the mystery of letters and numbers at the Jabal School. Among them were future scholars, successful businessmen and powerful executives.⁴

The Jabal School was the beginning of an ever-evolving, structured program of job-related training and general education that replicated under corporate auspices what an American might have experienced in public institutions, with grade school-junior high (company classrooms in-Kingdom), high school (assignments abroad, often Lebanon), and college (primarily in U.S. institutions).

One Jabal School pupil learned to type at 100 wpm and expressed an early aspiration to become Aramco's "first Saudi secretary." A Bedouin boy, he had been attracted to Aramco in the first place because of the opportunity for schooling, joining in 1947 at the age of 12. Not long after he returned from the U.S. in 1963 with two degrees, including a Stanford M.S. in geology, his name appeared in a lengthy Wall Street Journal article about Aramco. At the time only one Saudi had risen as high as department manager. Asked this time about his aspirations, the 30-year-old Ali Naimi replied, tongue-in-cheek, "Becoming the first Saudi president of Aramco." That was to transpire in 1984, and in 1995 he was named Saudi Arabia's Minister of Petroleum and Mineral Resources.

Naimi's Jabal School classmates, and many who followed later on increasingly sophisticated training and education tracks in modern facilities, began filling jobs at all levels of the company, gradually populating all of the supervisory and upper management positions in addition to drilling the wells, loading the ships, and manning the refinery and other plants, as they had been doing for many years. Throughout the process it was a matter of qualifying for positions, often an arduous, step-by-step progression, in a system of meritocracy.

In 1983 alone, a record half billion dollars was budgeted for training. In that year, 85 percent of all Saudi employees attended training classes, and the company was sponsoring 1,300 Saudis for university studies.

An Evolving Concession

Two provisions of the original 1933 concession agreement were never questioned or changed. One required the concessionaire to employ Saudi Arabs exclusively if they were qualified and available. The other said the company was not to interfere with administrative, political and religious affairs within Saudi Arabia.

But the terms of the original concession agreement between the Kingdom and Standard Oil Company of California were modified and amended for other reasons, mostly involving money and concession area, at the initiation of one or the other. The first alteration was a supplementary agreement signed in 1939 -- commercial quantities of oil had been discovered the preceding year -- that agreed to various additional payments to the government and extended the concession area to its maximum historic size, about 673,000 square miles, and lengthened the concession period from 60 to 66 years.

But by far the most important of the changes was the so-called 50-50 agreement, under which the company agreed to pay income taxes (the original agreement exempted the company from all taxes):

By this agreement [signed in 1950] the Saudi government's income from Aramco's operations came to be linked primarily not to the number of barrels produced and sold, as before, but rather to how much profit the company made. After 1950, therefore, the government showed increasing interest in the prices charged for oil, the cost of running the business, and the accounting methods used in determining these things . . . At the same time, as the government was increasingly successful in developing a group of technically trained oil experts in its Ministry of Petroleum, it also became more and more interested and involved with the actual operations of the company-such things as exploration programs [and] drilling practices . . . ⁵

By this time, the California Arabian Standard Oil Company (CASOC), the subsidiary to which the concession was assigned by SOCAL, had brought in three other American majors to what had been renamed in 1944 as the Arabian American Oil Company. The Texas Company (later Texaco) was the first,