1936-1946 – Origins and early years

One company had the oil, the other had the markets. Merging their assets in the area east of Suez would benefit both. And so Kenneth Kingsbury, president of Standard Oil Co. of California (Socal, later Chevron), and Torkild Rieber, chairman of the board of The Texas Co. (later Texaco), began negotiations that led to the creation of the California Texas Oil Co., Ltd. (Caltex) on June 30, 1936.

The two men could hardly have been less alike. Kingsbury was a Princeton graduate who had done advanced study in mining engineering. He looked the part of a corporate executive. Rieber, a native Norwegian, was a former seaman with a bluff manner. His nickname ‘Cap’ reflected his personal style and the sailor’s cap he wore everywhere. What the two men shared were their persuasiveness and their international experience as former heads of their companies’ export departments.

Stories abound about their pursuit of the Caltex merger. Perhaps all are true – or partly true. According to one version, the two men met in the bar of New York’s Ritz Hotel. Another story puts their meeting at San Francisco’s Pacific Union Club. Some say the elements of the deal were scratched out on the back of an envelope during a breakfast meeting. Legend also has it that Rieber’s opening words were, ‘Ken, I only make one kind of deal – 50-50.’

Whatever the details were, the deal decidedly was 50-50. As equal partners in the new joint venture, The Texas Co. provided its marketing outlets in Africa, Asia, and Australasia; and Socal provided its Middle East oil. The two companies were well suited as partners, based on their assets and business principles. Moreover, each company brought its experience and understanding of global markets to the new enterprise.

The Texas Co. had a long history of international experience, particularly in the Eastern Hemisphere. In 1908, just six years after the company’s founding, one of the first shipments of Texaco oil docked at Table Bay, South Africa. Three years later, The Texas Co. formed a subsidiary based in Cape Town. Accordingly, Caltex’s roots in the area east of Suez were in South Africa. The Texas Co. (South Africa) Ltd. quickly became a leader in the South African market, effectively advertising its products, building a strong marketing and distribution network, and establishing one of the nation’s first filling stations in 1922.

Socal’s involvement in the Eastern Hemisphere dated back to the 1890s, when it made its first shipments to China. By the 1920s, it was looking to find oil beyond U.S. shores. In 1928, the company was successful in gaining exploration rights to a large area on the Arabian gulf island of Bahrain. With these rights, Socal became the first U.S.-owned company to explore independently for oil in the Middle East. The company created a subsidiary, Bahrain Petroleum Co. (Bapco), to operate its exploration, producing and refining activities. The discovery of Bapco #1 on June 1, 1932 provided Socal with its first significant international producing field. It also drew worldwide attention to the Middle East as a potential source of major oil deposits.

But Socal faced a challenge: How and to whom could it sell its riches? Meanwhile, The Texas Co. was facing a challenge of its own: How could it make affordable the time and cost of supplying its Eastern Hemisphere markets with oil from its fields and refineries in Port Arthur, Texas, and the U.S. West Coast?

Socal’s discovery in the oil-fertile Middle East sparked the two companies’ interest in a partnership and led to the talks between Kingsbury and Rieber. Caltex, the company that grew out of these talks, was established as a subsidiary of Bapco. Caltex immediately gained ownership of The Texas Co.’s marketing subsidiaries in Australia, South Africa, the Philippines, India and China. Through these subsidiaries, Caltex also operated in New Zealand and 10 additional African countries. By 1938, it added subsidiaries in Ceylon and Egypt. Initially, it supplied these markets with an average of 22,500 barrels a day of products from the Bahrain Refinery, derived from the crude oil produced by Bapco #1. By 1938, the refinery also processed crude oil from Saudi Arabia’s Dammam Field, which had been discovered that year by the California Arabia Standard Oil Co. Ltd. (Casoc, later Aramco), jointly owned by Socal and The Texas Co.

Caltex’s multinational workforce faced a major challenge in providing the oil and other products to its far-flung markets. Many of the countries in which it operated were in early stages of industrial development; in some, roads were unpaved and impassable for long periods of the year. In India, for example, Caltex had to rely on automotive tank trucks, 250-gallon bullock carts, 250-gallon camel carts, and small hand carts to supply products to dispersed and sometimes virtually inaccessible markets. Distribution was also a challenge in the ten African countries served by Caltex (South Africa) or through suppliers reporting to the company’s Kenyan affiliate. Much of Caltex’s early business consisted of what was called ‘case and can.’ These were five-gallon containers sold in wooden cases and shipped in freighters for sale to individual customers and at package stores and other facilities (though some of the product was shipped in 55-gallon drums). The main market was for petrol in small quantities and for lubricating oils and kerosene, sold in small amounts to individual consumers.

As Caltex developed its markets, by 1937 it achieved gasoline shares of at least 16 per cent in Australia, New Zealand, the Philippines and China. Gross revenues for the company’s first year reached $4.8 million.

To move crude oil and products around the world, Caltex chartered Balboa Transport Co. in Panama to operate its first vessel, the M/V ‘China’ in 1937. By the beginning of World War II, the company added several more to its fleet. Growing production from its Bahrain Refinery made Caltex’s maritime operations more essential. By 1939, the refinery was upgraded to 31,500 barrels a day; six years later, under consignment to the Allied Forces, the refinery’s capacity increased to 115,000 barrels a day.

In 1937, the company added fuel oil and diesel fuel bulk terminals in Singapore, Colombo, Shanghai, Suez, Hong Kong and Durban, and opened or renovated hundreds of service stations in Caltex operating areas. Within the next few years, the company had also added storage facilities in Mozambique and Angola; three manufacturing plants for kerosene cans at Bombay, Calcutta and Karachi; 100,000 barrels of fuel storage capacity at Manila; a bulk storage plant in Rhodesia, and a grease manufacturing plant in Australia.

Not surprisingly, Caltex’s activities were profoundly affected by the war’s onset. Nonetheless, in its first few years of peaceful operations, Caltex emerged as one of the world’s truly global companies. The company demonstrated a particular knack for partnership, cooperation, customer focus, local decision-making, and the ability to transcend political, geographic and cultural differences. This brief first chapter bore out the vision of Kenneth Kingsbury and ‘Cap’ Rieber that led to Caltex’s birth. Consistent with their vision, it was possible to say that ‘The sun never sets on Caltex.’