Indonesia has long been known as an oil-rich country. Yet few people know that one of the world's oil giants also has a history that began in what is now Indonesia.
The story began in Pangkalan Brandan, Langkat, North Sumatra. In 1885, drillers struck oil at a depth of 121 meters through a well that later became known as Telaga Tunggal 1.
The discovery paved the way for the founding of Royal Dutch, a company that would eventually merge with Shell and grow into one of the world's largest oil companies.
The Well That Gave Rise to Royal Dutch
Aeilko Jans Zijlker, a Dutch plantation administrator in Langkat, first became interested in oil after seeing local residents use bamboo dipped in oily pools as torches. He later sent crude oil samples for testing and found signs of oil around the Lepan River.
On August 8, 1883, Zijlker received approval from the Sultan of Langkat to exploit oil in the area. Drilling began, but the work was far from easy. Workers often left the site, floods disrupted operations, and in 1888 a drill pipe exploded and caused a fire.
When Telaga Tunggal 1 finally struck oil in 1885, it initially produced around 180 barrels a day. The success led to the establishment of Royal Dutch, a Dutch company founded in 1890 to manage the oil concession in Langkat.
A refinery on the banks of the Babalan River began operating in 1892. Production then rose sharply, although it declined toward the end of the 1890s after seawater entered the oil-bearing layer.
A New Oil Well in Balikpapan
Several years later, the oil story continued much farther east. In Balikpapan, East Kalimantan, a London merchant named Marcus Samuel, who had expanded his family's business into the oil trade, saw an opportunity in Asia.
Samuel financed Jacobus Hubertus Menten, a Dutch mining engineer who was exploring for oil in Kalimantan. In 1896, the two established the Nederlandsche-Indische Industrie en Handel Maatschappij, or NIIHM, and began drilling in Balikpapan the following year.
On April 15, 1898, drillers struck oil at the Mathilda Well at a depth of around 180 meters. A refinery was later built and began operating in late 1899.
Balikpapan changed rapidly. The fishing village grew into an oil center, while Samuel developed a business different from Royal Dutch. He built an oil trading and transport company known as Shell Transport and Trading Company.
Royal Dutch had oil production and access to oil fields. Shell, meanwhile, built its strength through trade and shipping, moving oil to markets around the world.
Why Did Royal Dutch and Shell Merge?
At the beginning of the 20th century, Royal Dutch and Shell were still separate companies. But competition in the oil market was intensifying. Standard Oil, the American oil company that dominated the international market at the time, was selling cheap oil across Asia.
Royal Dutch and Shell began working together to strengthen their position. In 1903, the two companies and a branch of the Paris-based Rothschild family formed Asiatic Petroleum Company to handle their oil marketing.
Four years later, the partnership became a merger. In 1907, Royal Dutch and Shell Transport combined their interests to form Royal Dutch/Shell Group, with Royal Dutch holding 60 percent and Shell Transport 40 percent.
The new group divided its operations among several companies. Bataafsche Petroleum Maatschappij (BPM) handled production, Asiatic Petroleum managed marketing, and Anglo-Saxon Petroleum handled transportation.
Oil from Pangkalan Brandan and Balikpapan was now part of the same corporate network. Two oil fields that had developed separately had become connected to a growing global oil business.
The End of Shell's Oil Operations in Indonesia
The company's presence in Indonesia continued long after independence. Even after the Netherlands recognized Indonesian sovereignty in 1949, Shell still controlled oil facilities in Balikpapan.
That changed on June 22, 1965, when Shell's assets in Balikpapan were transferred to PN Permina, the state oil company that would later become part of Pertamina.
More than 80 years earlier, the story had begun with oil struck at Pangkalan Brandan. What emerged from that discovery was not just a local oil industry, but one of the early links between Indonesia's oil fields and a global company that would become one of the world's largest.
