26 September 1985
The UK Ministry of Defence (MoD) document "SALE OF AIRCRAFT TO SAUDI ARABIA includes written confirmation from Minister of Defence Michael Heseltine to "His Royal Highness Prince Sultan Bin Abdul Aziz" of terms for the BAe military planes-for-oil deal:
EXTRACT
"Following acceptance by the British Government of payment by means of an oil trading scheme, preliminary discussions have been held with the British Oil Companies, BP and Shell. These two companies are prepared in principle to handle the oil trading scheme subject to the agreement of satisfactory terms and conditions. They will form a Consortium, to be led by BP. "
http://www.shellnews.net/rayfoxwebsite/MOD%20docs26sept1985.pdf
2 October 1985
UK Department of Trade & Industry Minute headed BRITISH AEROSPACE: SAUDI ARABIAN DEAL
EXTRACT
"All that had so far been agreed was that the aircraft ordered by Saudi Arabia might be paid for entirely in oil, up to an amount of $4 billion. The details now had to be worked out. Mr Knapp's simplistic view was that if the oil price went down, the Saudi Arabians would have to pump up more to pay for the aircraft. British Aerospace would have to play a role with BP as an agent having an interest in the deal. BAe had already been involved by the Ministry of Defence in the discussions on the oil deal."
http://www.shellnews.net/rayfoxwebsite/al-yamamahDTIminute2Oct1985.pdf
MoD Letter 21 October 1985
Letter to UK HM Treasury headed "SALE OF TORNADO, HAWK AND PC-9 TO SAUDI ARABIA".
EXTRACT
"Nor have the Saudis told us yet exactly how the deal is to be financed; the only word on that so far is that the Saudi authorities have told us that it will be paid for entirely in oil. We hope in concert with BP, Shell, BAe and the Department of Energy to thrash this out with the Saudi Petroleum Ministry, Petromin, very shortly. We await a summons to Riyadh."
http://www.shellnews.net/rayfoxwebsite/al-yamamah-modletteroct1985.pdf
22 November 1985
From 10 Downing Street (From Charles Powell on behalf of Prime Minister Margaret Thatcher) to MoD plus MoD Response.
EXTRACT FROM MoD RESPONSE 4 DECEMBER 1985
"Our oil negotiators (from Shell and BP) are ready to resume discussions with the Saudi Ministry of Petroleum as soon as the Saudi Government (which effectively means the King and Prince Sultan) have decided on the way ahead. Prince Sultan told Mr Chandler that he hoped to be able to make an initial cash payment in addition to arrangements for a long-term oil lifting arrangement in our favour."27 January 1986
http://www.shellnews.net/rayfoxwebsite/downingstreetletter22nov1985.pdf
MoD letter to Export Credits Guarantee Department (ECGD) headed "SAUDI ARABIA - MILITARY AIRCRAFT FOR OIL"
CONTENT OF LETTER FROM C H HENN, UK MoD Assistant Under Secretary of State Defence Export Services Administration.
"On returning from Saudi Arabia this morning I have seen a copy of your letter of 24 January to Adams.
I ought to put it on record that an agreement was signed yesterday in Riyadh by Yamani and by Shell and BP representatives providing for the lifting of 300,000 barrels//day for an initial period of 3 years. It will then continue year by year unless either party terminates. The 300,000 includes lifting East of Suez. The funds generated will be dedicated to the military aircraft project and Shell/BP stated their intention to carry on lifting so long as the aircraft project requires. There are of necessity review and escape clauses but all concerned are well aware of the need for stable funding and Shell/BP would in practice only terminate in extremis.
I should stress that the existence as well as the terms of this agreement is a matter of some political as well as commercial sensitivity.
I should be glad to expand on the above."
http://www.shellnews.net/rayfoxwebsite/al-yamamahMOD-27jan86.pdf
11 February 1986
Department of Trade & Industry Minute
EXTRACTS
"The essence of the agreement is that Shell/BP will lift 300,000 bpd (+ or -10%) over three years, recoverable if payment for Tornado not by then completed (calculations were made on a price of $20pb which seems optimistic)."
"The Saudis have emphasised that they wish these arrangement to remain confidential; in particular there should be no mention of barter. Neither HMG nor BAe would take title to the oil."
http://www.shellnews.net/rayfoxwebsite/al-yamamah-dti-minute-11feb1986.pdf
ECGD 10 March 1986
Export Credits Guarantee Department letter from P Henley to R E Adams at HM Treasury
EXTRACTS
"Subsequently Shell and BP entered into 3 year contracts to lift 300,000 barrels per day on a net-back pricing basis and there are provisions for extending the period as necessary."
"However, towards the end, the Saudis made it clear that they expected all payments to be made from oil lift arrangements and for this purpose Shell and BP entered into contracts with the Saudis to lift 300,000 barrels per day on a net-back pricing basis."
http://www.shellnews.net/rayfoxwebsite/Al-Yamamah-ECGDMarch1986.pdf
18 March 1986
Export Credits Guarantee Department Minute by P Henley headed "£5BN DEFENCE DEAL WITH SAUDI ARABIA"
EXTRACT
"Subsequently Shell and BP entered into 3 year contracts to lift 300,000 barrels per day on a net-back pricing basis and there are provisions for extending the period as necessary."
http://www.shellnews.net/rayfoxwebsite/Al-Yamamah-ECGD18March1986.pdf
25 March 1986
Department of Trade and Industry letter from Minister Paul Channon to Rt Hon Nigel Lawson MP, Chancellor of the Exchequer (copied to the Prime Minister)
EXTRACT
"However, towards the end, the Saudis made it clear that they expected all payments to be made from oil lift arrangements and for this purpose Shell and BP entered into contracts with the Saudis to lift 300,000 barrels per day on a net-back pricing basis."
http://www.shellnews.net/rayfoxwebsite/al-yamamah-dti-lawson-25march1986.pdf
2 May 1986
Letter from Peter Walker MP, Secretary of State for Energy, to Rt Hon George Younger MP, Secretary of State, Ministry of Defence
EXTRACT
You will remember that, at the time the MOU was signed last September, I expressed great concern about the impact of the deal on the oil market.
I am still concerned to avoid adding to disruption and instability in the oil market. Given the importance that Saudi production levels have assumed, I have doubts about the wisdom of agreeing to any increase in liftings under the oil side of the aircraft deal. Nor would I want pressure to be put on Shell and BP to accept such an increase against their better judgement.
http://www.shellnews.net/rayfoxwebsite/DoE-letter-to-Mod2May1986pdf.pdf
30 July 1986
Letter from MoD Head of Defence Export Services, Colin M Chandler, to HRH Prince Sultan bin Adul Aziz Al Saud, under the heading "PROJECT Al YAMAMAH"
EXTRACTS
"Currently we have approached the British oil companies who have indicated their agreement to increase liftings, subject to terms from 300,000 to approximately barrels a day until the end of March 1987, and as we have agreed today, it is our mutual aim to maintain this level throughout the life of the project. They have also indicated that they will endeavour, given market conditions prevailing, to take larger quantities."
"(b) Implementation of Increased Oil Liftings
As we agreed today it is necessary for Your Royal Highness to notify the Ministry of Petroleum so that the necessary negotiations can be commenced with the British oil companies Shell and BP as soon as possible."
http://www.shellnews.net/rayfoxwebsite/MoDLetertoSaudi30July1986.pdf
29 August 1986
Letter from P Henley of ECGD to HM Treasury under the heading "SAUDI ARABIA: DEFENCE DEAL (Tornados) (now called the YAMAMAH PROJECT)
EXTRACT
"ECGD will also have no liability for any default by Shell/BP under the oil net-back arrangements or for the collapse of such arrangements."
http://www.shellnews.net/rayfoxwebsite/ecgd-letter-29aug1986.pdf
11 September 1986
Department of Trade and Industry letter from Minister Paul Channon to Rt Hon Nigel Lawson MP, Chancellor of the Exchequer (copied to the Prime Minister)
EXTRACT
"In the event of a collapse of the oil arrangements between Shell/BP and Aramco ECGD would only assume liability if within a reasonable period thereafter (say 3 months) the Saudi have failed to institute another method of payment."
http://www.shellnews.net/rayfoxwebsite/dti-11Sept1986.pdf
23 October 1986
Letter from P Henley of ECGD to HM Treasury under the heading "SAUDI ARABIA - YAMAMAH PROJECT")
EXTRACT
4. We have already told BIS that we are not prepared to entertain cover against any autonomous default by Shell/BP (or by any subsequent oil-lifters) in honouring the oil-lift agreements or in remitting the proceeds as instructed by the Saudis. In so far as Shell/BP entered into the Oil Agreement at the request of MODUK and BAe, Shell/BP can be said to be acting for the benefit of the latter and, in our view, any cover requirement by BIS in this particular respect should be addressed to them.
http://www.shellnews.net/rayfoxwebsite/ECGD%20letter%20to%20HM%20Treasury%2023%20Oct%201986.pdf
25 November 1986
Letter from Department of Energy Permanent Under-Secretary of State, Peter Gregson, to Sir Clive Whitmore, MoD.
EXTRACT
3. It is of course not at all clear how the Saudi intend to achieve a price of $18 pb without cutting production. But if they are to make any progress towards a fixed price, they will have to dismantle all their current netback contracts, including those with Shell and BP. The current oil agreement gives Shell and BP some protection against this because it entitles them to a netback deal so long as any other company has one.
http://www.shellnews.net/rayfoxwebsite/DoE%20Letter%20to%20MoD%2025%20Nov%201986.pdf
9 December 1986
Letter from G T W Jones of HM Treasury to Peter Henley of ECGD under the heading "SAUDI ARABIA: YAMAMAH PROJECT"
EXTRACT
"4. You attached to your letter a copy of a Department of Energy letter of 25 November, which we had not previously seen. The Department of Energy is concerned that the Saudis might seek to renegotiate the netback contracts with Shell and BP in the context of the Yamamah project. As you know, the Saudis are reported to be in support of reducing output in order to increase the price of oil. This issue is included on the agenda for this week's OPEC conference."
http://www.shellnews.net/rayfoxwebsite/HM%20Treasury%20Lretter%20to%20ECGD%209%20Dec%201986.pdf
18 December 1986
Letter from Peter Henley ECGD to T J D Downing at Bank of England under the heading "SAUDI ARABIA; YAMAMAH PROJECT"
EXTRACT
"First concerning delivery of oil. The Oil Agreement provides for oil to be delivered to Shell/BP fob at an Arabian Gulf VLCC port or fob YANBU, making use of the oil pipe-line, or by means of a Saudi vessel to a Shell/BP facility outside Saudi Arabia."
"If Shell/BP cannot send its ships into the Gulf because of war or a blockade and if oil cannot be delivered at any other port because of pipeline capacity constraints and if KSA were not able to ship the oil to a Shell/BP facility and then failed to pay by other means, ECGD would be liable.
You also raised the question of the difference in meaning between "delivery" and "offer for delivery". Whilst it is our intention to cover failure by the Saudis to offer oil for delivery and not failure by Shell/BP to take delivery (other than by reason of the force majeure events described above), we have a practical and legal problem in defining "offer for delivery". We are overcoming this difficulty by talking only about "delivery" (as defined above) but specifically excluding events that we are not prepared to cover (eg default by Shell/BP)."
http://www.shellnews.net/rayfoxwebsite/ECGD%20Letter%20to%20BoE%2018%20Dec%201986.pdf
6 January 1986
EXTRACT
"E. SULTAN ACCEPTED THE NEED FOR A LETTER LINKING THE OIL DEAL TO THE AIRCRAFT PROJECT. WE WILL TABLE A DRAFT ON 6 JANUARY SUBSTANTIALLY IN THE FORM AGREED WITH SHELL AND BP AND WHICH HAS BEEN SEEN BY THE SAUDI MINISTRY OF PETROLEUM.'
http://www.shellnews.net/rayfoxwebsite/al-yamamah-telegram6jan86.pdf