The Gulf Oil Corporation had an option to explore for oil in Bahrain, an option it had acquired from the ubiquitous Major Frank Holmes. But the Gulf Oil Corporation was a participant in the Iraq Petroleum Company. Under the terms governing its participation, it, in common with its fellow members, was debarred from acting independently in a large area of the Middle East which included all of Ibn Saud's Kingdom and Bahrain. Since it was unable to interest the Iraq Petroleum Company as a whole in exploiting its option, it was obliged to dispose of it. Standard Oil of California (Socal) was delighted to acquire the option.

The British Government was less pleased. They had extended British protection to the Sheikh of Bahrain and, in return for guaranteeing his independence, they had stipulated that he should not assign oil concessions without British approval. The British Government therefore determined to spoil the deal and advised the Sheikh not to renew the oil concession.

In the end, a compromise was reached. Socal formed a Canadian company, calling it the Bahrain Petroleum Company (BAPCO), and assigned the rights it had acquired from the Gulf Oil Corporation to BAPCO. In this way, Socal, operating as BAPCO, was able to begin exploration of Bahrain.

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