The Arabian Peninsula's first oil well was drilled in Bahrain in 1932, and production began in 1934. From the 1930s to the mid-1970s, oil development was a monopoly of the Bahrain Petroleum Co. (BAPCO), which in 1936 came under the ownership of Caltex, a corporation registered in Canada and jointly owned by Texaco and Standard Oil of California. In 1975, the Bahrain government acquired a 60% holding in BAPCO, and it later formed the Bahrain National Oil Co. (BANOCO) to take over full ownership. In 1980, BANOCO announced its acquisition of a 60% interest in Bahrain's main refinery, which had been wholly owned by Caltex.
Total daily crude petroleum production, after reaching a peak in 1970, has declined gradually. In 2001, total crude oil production was 35,000 barrels per day. Proven oil reserves in Bahrain were estimated at 125 million barrels in 2002. From 1972 until 1996, Bahrain shared revenues from the Abu Safa oil field, which lies halfway within Saudi Arabian territorial waters, with Saudi Arabia. In 1996, the Saudi government ceded the remainder of its share of the field to Bahrain, increasing the government's revenue by about $200 million.
Bahrain gained the right to offer concessions in offshore oil fields in the Gulf of Bahrain after a territorial dispute with Qatar was settled by the International Court of Justice in March 2001 and Bahrain won control of the Hawar Islands. In November 2001 drilling rights were awarded to Petronas and Chevron Texaco, and oil exploration began in late 2002. As of early 2003 a $900 million modernization was planned for Bahrain's only refinery, Sitra, which had a capacity of 248,900 barrels per day. Plans to build a second refinery, approved in 1999, had been delayed due to financing problems.
Bahrain's natural gas resources were estimated at 90 billion cu m (3.2 trillion cu ft) in late 2002. Production of gas was 8.5 billion cu m (300 billion cu ft) in 2000, most of which was associated with drilling in the Awali oil field.
The Directorate of Electricity operates plants at Manama, Sitra, and Rifaa. In 2000, net electricity generation was 5.9 billion kWh, of which 100% came from fossil fuels. In the same year, consumption of electricity totaled 5.4 billion kWh. Total installed capacity at the beginning of 2001 was 1.1 million kW. Power is principally derived from a municipal power station at Jufair, from the Sitra power and water station, from two gas turbines at Al-Muharraq, and from the power station at East Rifaa, which was completed in 1985 and is the largest and most modern. BANOCO produces its own electricity from a 60 MW plant. Phase One of the Hidd power project, completed in 1999, created an additional 280 MW of gas-fired generating capacity. Completion of Phase Two, which would add another 630 MW, was slated for 2004.