It was in 1890, at The Hague, that the Royal Dutch Oil Company[10] was founded, with a capital of 1,300,000 florins. As a result of borings carried out in the Sunda Islands, the Government of the Dutch Indies granted it concessions at Sumatra. After some years, as the sale of crude oil did not give a sufficient return on the capital already sunk, the directors of the young company resolved to erect a refinery on the spot. It was necessary for this purpose to increase the capital to 1,700,000 florins in 1892. A strange fact to relate to-day, this issue was a failure. The capitalists of the day had lost confidence in an undertaking whose net profits for two years had been nil. In spite of these initial difficulties, the board of directors persevered. It even acquired new concessions, whose more profitable exploitation allowed of a first dividend in 1894 of 8 per cent. This distribution restored the confidence of the public, and the Royal Dutch was able to increase its capital without difficulty in 1895 to 2,300,000 florins, with a view to extending its sphere of action. In the same year it was able to distribute a dividend of 44 per cent. Considering the importance of its operations, the company decided in 1897 to increase its capital to 5,000,000 florins, in order to obtain tank steamers to transport its products. The dividends had then risen to 52 per cent., but it could not keep up for long so exceptional a rate. For, from 1898 onward, the Standard, becoming uneasy, tried to obtain control over its rival. To escape from its grip, the Royal Dutch was compelled to issue one and a half million preference shares, which were allotted to friendly groups. A bitter economic struggle followed. The Royal Dutch maintained its independence, but the Standard, to destroy its young rival, did not hesitate to sell in extra-American markets at less than cost, and the steady lowering of the price of oil compelled the Dutch company to reduce its dividend to 6 per cent. It was maintained at this rate the following year, but began to rise again in 1900, and reached 24 per cent. in 1901.
Since then the Royal Dutch has progressively increased its capital to the present fantastic figure, under conditions which were so many windfalls for its shareholders. Its dividends during the great world War rose to the enormous rates of 45, 48 and even 49 per cent. There were some years when it went so far as to distribute to its shareholders dividends in shares of 200 per cent., thus tripling its nominal capital.
The Alliance with the Shell
The early career of the Royal Dutch was as modest as that of the Standard Oil and far more troubled. At its very beginning it found in the East a young British firm, the Shell Transport and Trading Company, which put up a keen competition, the more disastrous because the latter possessed a fleet of tank steamers, while the Royal Dutch as yet had none. The Shell was directed by Sir Marcus Samuel, one of the cleverest business men in London.
Samuel had begun humbly as a trader in sea-shells. His business prospering more and more, he hunted about for some commodity to exchange for the shells which he brought from the East. He decided upon oil, and became himself a producer in Borneo.
In 1897 the Shell was registered in Great Britain, with the view of absorbing the business of Samuel and Company and certain other similar concerns. The new company had a large number of tank steamers and hundreds of depots.
The Royal Dutch had then amalgamated the greater number of the independent producers of the Sunda Islands, but was experiencing some difficulty in getting its oil to Europe, and so decided to negotiate with the Shell.
Hence the agreement of 1902, by which the two companies entrusted the sale of their products to a company which they created specially for the purpose, the Asiatic Petroleum. Its capital was subscribed as follows:—
1/3 by the Royal Dutch,
1/3 by the Shell Transport,
1/3 by the Rothschilds.