UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

BLUE DOLPHIN ENERGY COMPANY

BLUE DOLPHIN ENERGY COMPANY(Name of Registrant as specified in its Charter)

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Our Stockholders:

Notice is hereby given that an Annual Meeting of Stockholders (the “Annual Meeting”) of Blue Dolphin Energy Company, a Delaware corporation (referred to herein as “Blue Dolphin,” “we,” “us” and “our”), will be held on Friday, January 27,Tuesday, June 5, 2012 at 10:00 a.m. Central at Blue Dolphin’s principal office located at 801 Travis Street, Suite 2100, Houston, Texas. At the Annual Meeting, stockholders will be asked to consider proposals to:

Additional information regarding the Annual Meeting is set forth in the accompanying proxy statement. Our Board of Directors (the “Board”) has specified the close of business on December 12, 2011April 24, 2012 as the record date (“Record Date”) for the purpose of determining the stockholders who are entitled to receive notice of, and to vote at, the Annual Meeting. Only stockholders of record at the close of business on the Record Date are entitled to notice of and to vote at the Annual Meeting and at any adjournment or postponement thereof.

Regardless of whether you plan to attend the Annual Meeting in person, we request that youvote your shares at your earliest convenience in order to ensure that your shares will be represented at the Annual Meeting.Depending on how you hold your shares, options to cast your ballot include the Internet, telephone or mail. If you have Internet access, we recommend that you record your vote via the Internet.

AVAILABILITY OF PROXY MATERIALS – IMPORTANT NOTICE

Proxy materials are available online (www.shareholdervote.info/).

MEETING DETAILS

Proxy Forms

Registered stockholders may vote in person at the Annual Meeting using either blank proxy forms or their preprinted proxy form. Beneficial stockholders that desire to vote in person at the Annual Meeting must use the preprinted proxy form provided by the brokerage firm, bank, trust or other nominee. The inspector of election at the Annual Meeting has access to the registered stockholder’s list to verify whether a registered stockholder is entitled to vote as of the Record Date. However, the inspector of election does not have access to the control number verification system brokerage firms, banks, trusts and other nominees use to verify whether a beneficial stockholder is entitled to vote at the Annual Meeting.

December 28, 2011April 30, 2012

Houston, Texas

December 28, 2011BLUE DOLPHIN ENERGY COMPANY

April 30, 2012

To Our Shareholders:Stockholders:

In 2009, we began shifting our strategy from acquiring additional, strategic pipeline assets along the Texas and Louisiana Gulf Coast to finding a more favorable business mix in an effort to improve operationaloperating income. This was a daunting exercise against an internal backdrop of declining revenue, depleting cash reserves and mounting stock exchange issues, as well as an external environment of economic recession. Despite these challenges, I’m glad to be able to report that Blue Dolphin Energy Company (“Blue Dolphin”) made significant headway in re-charting its course in 2010 and 2011, and today we are well positioned for growth over the next few years.

Decrease in Net Loss

For the past few years, throughput volumes on our pipelines continued to decline due to depleting reserves and decreased activity in the Gulf of Mexico. The unfortunate April 2010 Deepwater Horizon blow-out and oil spill, as well as the resultant moratorium on new oil and gas drilling, effectively closed the door on drilling activity around our pipelines and our ability to attract new producers. However, in June 2010, we had the good fortune of signing a commitment letter with Blue Sky Langsa, Ltd. to acquire a working interest in a Technical Assistance Contract for the North Sumatra Basin – Langsa Field located offshore in Indonesia. The non-cash transaction closed in July 2010, providing us with a 7% working interest in the field in exchange for 342,857 shares of our common stock. The acquisition of the Langsa Field, at a time when activity in the Gulf of Mexico had come to a stand still, lowered our concentration of risk and contributed to a decrease in our net loss for 2010 compared to 2009.

Improved Financial Strength

Despite increased oil and gas sales revenue from the Langsa Field, we found ourselves in need of working capital as 2010 drew to a close. With limited options, we decided to sell some of our majority-owned assets located at our shore facility in Freeport, Texas, to Sunoco Partners Marketing & Terminals L.P. (“Sunoco”). The sale of these underutilized assets generated a significant amount of cash (net proceeds of approximately $3.7 million) while retaining our revenue producing natural gas operations and preserving our oil marketing capabilities.

Relisting on Nasdaq

In addition to our revenue and cash challenges in 2010, we also faced delisting of our common stock from the Nasdaq Capital Market. On separate occasions we were notified by Nasdaq of minimum bid price and stockholders’ equity deficiencies against their continued listing standards. To meet the minimum bid requirement, we implemented a one-for-seven (1:7) reverse stock split of our common stock in July 2010. Blue Dolphin’s shares began trading on the OTCQB Marketplace in June 2011 following suspension of trading on Nasdaq. However, by August 2011, we resumed trading on the Nasdaq Capital Market after curing our stockholders’ equity deficiency as a result of the gain and boost in cash from the Sunoco transaction.

801 Travis Street, Suite 2100, Houston, Texas 77002

Phone (713) 568-4725 • Fax (713) 227-7626 • www.blue-dolphin.com

Attractive Asset in Growing Marketfuture growth.

In July 2011, we signed a definitive agreement to acquire all of the fulloutstanding membership interest ininterests of Lazarus Energy, LLC (“LE”). from Lazarus Energy Holdings, LLC. LE’s primary asset is the 56-acre Nixon Crude Processing Facilitycrude oil refinery (the “Nixon Refinery” or “Nixon”), which is located on a 56-acre tract of land near the border between Gonzales and Wilson Counties in Nixon, Texas. The Nixon Refinery is also located near Nixon,the center of the most significant new discovery of onshore oil production in recent Texas — the heart ofhistory, an area known as the Eagle Ford Shale.Shale play. The siteNixon Refinery is within close proximity to some of the highest producing wells drilled in the Eagle Ford Shale thus far. The refineryNixon has a processing capacity of approximately 15,000 barrels of oil per day with a storage capacity of approximately 295,000 barrels. As a topping unit, the refineryNixon has a low operating cost and is designed to separate input crude oil and condensate into diesel and jet fuel for sale into nearby markets, as well as naphtha and atmospheric gasoil for sale to other nearby refineries for further processing. Over the past few months we have been devoting substantially all of our efforts to re-commission and bring the refinery to full operational status. The refinery has undergone refurbishmentthe initial phases of re-commissioning activities and was recently restarted. Although currentlyis now operating at minimal levels while logistical operations are fine-tuned, we anticipate initial throughput ata reduced rate of approximately 10,000 barrels of oil per day.day during final testing.

Fueled byThe ongoing development of the Eagle Ford Shale play there has been a resurgence in wholesale product demand and good prices in the area. In addition, crude price differentials between West Texas Intermediate (WTI), which is the benchmark for crude sales in the Nixon area, and Louisiana Light Sweet (LLS) has created an unprecedenteda favorable environment for local refineries to process the cost advantaged crudes. Therefore, the timing of acquiring the Nixon Refinery could not be better.cost-advantaged crudes yielding positive refining margins. We will seek to optimize the refinery’sNixon’s product slate to sell light, high value products to customers in both local and regional markets at competitive prices. We will market the heavier bottom fractions to larger, more complex refineries to be “cracked” into lighter, higher value products.

Final Thoughts

As we look to the next phase in the life of our company,Blue Dolphin, the opportunities for growth are considerable and we will focus on execution. The first step iswas closing the acquisition of LE and the Nixon Refinery. The refineryNixon is key to our ongoing recovery and building a foundation upon which to further scale our business. I’d like to take this opportunity to thank our staff, who have demonstrated considerable resolve during the past 1824 months, as well as our shareholders,stockholders, who have continued to support our business as we repositioned the company for long-term growth. Working together, I am confident that we will make our shared vision a reality.

With regards,

801 Travis Street, Suite 2100, Houston, Texas 77002

Phone (713) 568-4725— Fax (713) 227-7626— www.blue-dolphin-energy.com

PROXY STATEMENT

BLUE DOLPHIN ENERGY COMPANY

TABLE OF CONTENTS

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PROCEDURAL MATTERS

General

This proxy statement and accompanying notice and proxy form are being furnished to the stockholders of Blue Dolphin Energy Company (referred to herein as “Blue Dolphin,” “we,” “us” and “our”) in connection with the solicitation of proxies by Blue Dolphin’s Board of Directors (the “Board”) for use at the Annual Meeting of Stockholders (the “Annual Meeting”) and any adjournment or postponement thereof.

Date, Time and Place

The Annual Meeting will be held on Friday, January 27,Tuesday, June 5, 2012 at 10:00 a.m. Central at Blue Dolphin’s principal office, which is located at 801 Travis Street, Suite 2100, Houston, Texas 77002.

Purpose

At the Annual Meeting, stockholders are being asked to consider and vote upon proposals to:

Record Date; Who Is Entitled to Vote

The Board has fixed the close of business December 12, 2011April 24, 2012 as the record date (the “Record Date”) for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting. A complete list of registered stockholders entitled to vote at the Annual Meeting will be open for examination by any stockholder during normal business hours for a period of ten days prior to the Annual Meeting at our principal office, which is located at 801 Travis Street, Suite 2100, Houston, Texas 77002. On the Record Date, there were 2,098,39010,543,070 shares of Common Stockour common stock, par value $0.01 per share (the “Common Stock”), issued and outstanding. Stockholders are entitled to one vote per share of Common Stock held on the Record Date on each matter presented at the Annual Meeting.

Material Delivery

This proxy statement, along with its accompanying notice, and proxy form are first being mailed to stockholders on or about January 5,May 7, 2012. The following documents, which have been incorporated by reference, are being mailed with this proxy statement: (i) ourOur Annual Report on Form 10-K and Amendment No. 1 on Form 10-K/A for the fiscal year ended December 31, 20102011 (the “Annual Report”), and (ii) our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (the “Quarterly Report”).which has been incorporated herein by reference, is being made available to stockholders online.

Quorum

The holders of a majority of the shares of Common Stock entitled to vote at the Annual Meeting and represented in person or by proxy shall constitute a quorum at the Annual Meeting for the transaction of business.

Abstentions and Broker Non-Votes

Abstentions – If a stockholder abstains from voting on a proposal, the shares are considered present and entitled to vote at the Annual Meeting. Therefore, abstentions will count toward determining whether or not a quorum is present. Under Delaware law, a proxy marked “abstain” is not considered a vote cast. Accordingly, an abstention will have no effect on the proposal regarding the election of directors as the nominees are elected by a plurality of the votes cast. Abstentions on proposals that require the affirmative vote of a majority of the shares entitled to vote and represented at the Annual Meeting, in person or by proxy, will, in effect, be a vote against such matter.

Broker Non-Votes – Broker non-votes occur when brokers, banks or other nominees that hold shares on behalf of beneficial (“street name”) ownersstockholders do not receive voting instructions from the beneficial ownersstockholders prior to the Annual Meeting and do not have discretionary voting authority to vote those shares. Broker non-votes are considered present and entitled to vote at the Annual Meeting. Therefore, broker non-votes will count toward determining whether or not a quorum is present. However, under New York Stock Exchange Rule 452, which has been approved by the Securities and Exchange Commission (the “SEC”), brokers are prohibited from voting shares of Common Stock for which they have not received instructions on non-routine matters.matters, including the election of directors.

Votes Required for Approval

With the exception of the election of directors, our By-Laws, as amended and restated (the “By-Laws”), require an affirmative vote of a majority of the votes cast by the stockholders present and entitled to vote at the Annual Meeting, either in person or by proxy, for the proposal to be approved. The votes required for approval, and the impact of abstentions and broker non-votes for each proposal stockholders are being asked to consider and vote upon are as follows:

Proposal (1) – Election of Directors: You may vote “FOR” any one or all of the nominees, or withhold your vote for any one or more of the nominees. As the nominees are elected by a plurality of the votes cast, withheld votes and abstentions will not affect the outcome of this proposal. Under applicable SEC rules, thisThis proposal is considered a non-routine matter and brokers will not have discretionary authority to vote shares for which they have not received instructions.instructions; and

Proposal (2) – Ratification of Independent Registered Public Accounting Firm: You may vote “FOR” or “AGAINST” or abstain from voting. The affirmative vote of the holders of a majority of the shares of Common Stock entitled to vote and represented at the Annual Meeting, in person or by proxy, is required to approve the ratification of UHY as our independent registered public accountants for the year ending December 31, 2011.2012. Abstentions will have the same effect as a vote “AGAINST” the ratification. Under applicable SEC rules, this proposal is considered a routine matter and brokers will have the discretionary authority to vote shares of Common Stock for which they have not received instructions.

Proposal (3) – Amendment to the Certificate: You may vote “FOR” or “AGAINST” or abstain from voting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock and

is required to approve the proposed Certificate Amendment. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” adoption of the Certificate Amendment. Under applicable SEC rules, this proposal is considered a non-routine matter and brokers will not have discretionary authority to vote shares for which they have not received instructions.

Proposal (4) – Amendments to the Plan: You may vote “FOR” or “AGAINST” or abstain from voting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote and represented at the Annual Meeting is required to approve the proposed Plan Amendments. Abstentions will have the same effect as a vote “AGAINST” adoption of the Plan Amendments. Under applicable SEC rules, this proposal is considered a non-routine matter and brokers will not have discretionary authority to vote shares for which they have not received instructions.

Proposal (5) – Approval of the Issuance of the BDEC Shares: You may vote “FOR” or “AGAINST” or abstain from voting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote and represented at the Annual Meeting is required to approve the issuance of the BDEC Shares. Abstentions will have the same effect as a vote “AGAINST” approval of the issuance of the BDEC Shares. Under applicable SEC rules, this proposal is considered a non-routine matter and brokers will not have discretionary authority to vote shares for which they have not received instructions.

Proposal (6) – Approval of Adjournment or Postponement of the Annual Meeting: You may vote “FOR” or “AGAINST” or abstain from voting. As our By-Laws require the affirmative vote of a majority of the votes cast in order to adjourn or postpone the Annual Meeting to a later time, withheld votes and abstentions will have no effect on this matter. Under applicable SEC rules, this proposal is considered a non-routine matter and brokers will not have discretionary authority to vote shares for which they have not received instructions.

Voting Your Shares

All shares of Common Stock represented at the Annual Meeting by properly executed proxies will be voted in accordance with the instructions indicated on the proxies. If no instructions are indicated with respect to any shares for which properly executed proxies have been received, such proxies will be voted “FOR” Proposal Nos. (1) through (6)and (2).

Revoking Your Proxy

Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked pursuant to the following actions:

A written notice of revocation should be sent to Blue Dolphin Energy Company, Attention: Secretary, 801 Travis Street, Suite 2100, Houston, Texas 77002. Depending on how you hold your shares, you can submit a proxy of a later date via the Internet, by telephone or by mail.

Who Can Answer Your Questions

To assist you with casting your vote, we have attempted to answer key questions you may have as a stockholder related to the proposals you are being asked to consider. Please review the frequently asked questions (FAQs), section, which areis included as part of this proxy statement. If you have any additional questions, please contact Blue Dolphin, Investor Relations at (713)  568-4725.

Reimbursement of Solicitation Expenses

Blue Dolphin will bear all costs of this solicitation. Proxies will be solicited primarily by mail, but may also be solicited in person, by telephone or other electronic means by directors, officers and employees of the CompanyBlue Dolphin in the ordinary course of business for which they will not receive additional compensation. Blue Dolphin has requested that brokers, nominees, fiduciaries and other custodians send proxy materials to the beneficial owners of Common Stock, for which the CompanyBlue Dolphin will reimburse them for their reasonable out-of-pocket expenses.

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FREQUENTLY ASKED QUESTIONS (FAQs)

The FAQs presented in this section are to assist you in understanding the proposals for which you are being asked to vote upon for the Annual Meeting. The items addressed may not answer all questions that may be important to you as a stockholder. For additional information, please refer to the more detailed discussion contained elsewhere in this proxy statement or contact Blue Dolphin, Investor Relations at (713) 568-4725.

Procedural Matters

You are receiving this proxy statement because you hold Blue Dolphin shares as of the Record Date for the Annual Meeting.

If you receive more than one proxy form, it means that you hold shares in more than one account. For example, you may own your shares individually, jointly with your spouse, as trustee of a trust or as custodian for a minor. To ensure that all of your shares are voted, you will need to sign and return each proxy form received because they are held in a different form of ownership.

If you owned shares of Common Stock as of the close of business on April 24, 2012, you are entitled to notice of, and to vote at, the Annual Meeting or any adjournment or postponement of the Annual Meeting. As of the Record Date there were approximately 10,543,070 shares of Common Stock issued and outstanding.

The Annual Meeting will be held on Tuesday, June 5, 2012 at 10:00 a.m. Central at Blue Dolphin’s principal office, which is located at 801 Travis Street, Suite 2100, Houston, Texas 77002.

After carefully reading and considering the information contained in this proxy statement, please vote your shares as described below. You are entitled to one vote for each share of Common Stock you own as of the Record Date.

If your shares are registered directly in your name with our transfer agent, Securities Transfer Corporation, you are considered, with respect to those shares, the stockholder of record or a “registered stockholder.” Registered stockholders may vote by: (i) completing, signing and dating each proxy form received and returning it in the enclosed prepaid envelope, (ii) voting by Internet atwww.shareholdervote.info or (iii) appearing in person at the Annual Meeting. If voting by Internet, your voting instructions must be received by 11:59 p.m. Eastern / 10:59 p.m. Central on the date prior to the date of the Annual Meeting. Voting by mail or the Internet will not prevent you from voting in person at the Annual Meeting. You are encouraged to submit a proxy by mail or via the Internet even if you plan to attend the Annual Meeting in person to ensure that your shares of Common Stock are present in person or represented by proxy at the Annual Meeting.

If your shares are held by a brokerage firm, bank, trust or other nominee, you are considered the “beneficial stockholder” of shares being held in “street name.” These proxy materials are being forwarded to you by your broker, bank or other holder of record who is considered, with respect to those shares, the stockholder of record. As the beneficial stockholder you have the right to direct your broker, bank or other holder of record on how to vote your shares and you are invited to attend the Annual Meeting. Your broker, bank, trustee or nominee is obligated to provide you with a voting instruction form for voting purposes.

As a beneficial stockholder, you cannot vote your shares directly and must instead instruct the brokerage firm, bank, trust or other nominee in how to vote your shares. With the exception of Proposal (2), ratification of UHY as our independent registered public accounting firm for the year ending December 31, 2012, which is a routine matter under applicable SEC rules, your brokerage firm, bank, trust or other nominee will only be permitted to vote shares on your behalf for Proposal (1) at the Annual Meeting if you instruct them in how to vote.Therefore, it is important that you promptly follow the directions provided by your brokerage firm, bank, trust or other nominee regarding how to instruct them to vote your shares.If you wish to vote in person at the Annual Meeting, you must bring the proxy/voting instruction form provided to you by your brokerage firm, bank, trust or other nominee, which authorizes you to vote at the Annual Meeting. If you hold some shares as a registered stockholder and some shares as a beneficial stockholder, the shares cannot be combined for voting purposes because the shares held beneficially list the brokerage firm, bank, trust or other nominee as the stockholder of record.

With the exception of Proposal (2), ratification of UHY as our independent registered public accounting firm for the year ending December 31, 2012, which is a routine matter under applicable SEC rules, your brokerage firm, bank, trust or other nominee will not be able to vote your shares unless you have properly instructed your nominee on how to vote. Because your brokerage firm, bank, trust or other nominee does not have discretionary authority to vote on Proposal (1), failure to provide your broker or other nominee with voting instructions on how to vote your shares will result in a broker non-vote for Proposal (1).

You are being asked to consider and vote upon proposals to: (1) elect five directors, (2) ratify the selection of UHY as our independent registered public accounting firm for the year ending December 31, 2012 and (3) transact any other business that may properly come before the Annual Meeting and any adjournment or postponement thereof.

The Board has determined that each of the proposals presented in the proxy statement are in the best interests of you – our stockholder – and unanimously recommends that you vote “FOR” each proposal presented in the proxy statement.

If a quorum is not met, the Board may submit a proposal to adjourn or postpone the Annual Meeting to a later date or dates until a quorum is met. If a quorum is met but there are insufficient votes to adopt the proposals, our By-Laws require the affirmative vote of a majority of the votes cast in order to adjourn or postpone the Annual Meeting to a later time. Withheld votes, abstentions and broker non-votes will have no effect on this matter.

The inspector of election that is appointed for the Annual Meeting will count the votes. Such person will separately count “FOR,” “WITHHELD,” and “AGAINST” votes, as well as abstentions and broker non-votes.

nominee will not be able to vote your shares unless you have properly instructed your nominee on how to vote. Because your brokerage firm, bank, trust or other nominee does not have discretionary authority to vote on Proposals (1), (3), (4), (5) and (6), failure to provide your broker or other nominee with voting instructions on how to vote your shares will result in a broker non-vote for those proposals.

If you receive more than one proxy, it means that you hold shares that are registered in more than one account. For example, if you own your shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and you will need to sign and return, a

separate proxy form for those shares because they are held in a different form of record ownership. Therefore, to ensure that all of your shares are voted, you will need to properly execute each proxy form you receive.

The record date for stockholders entitled to a vote at the Annual Meeting is earlier than the date ofwill constitute a quorum for the Annual Meeting. If you transfer your sharesShares held by registered stockholders that submit a properly executed proxy form will be counted as part of Common Stock after the record date but beforequorum. Shares held by beneficial stockholder that either provide their brokerage firm, bank, trust or other nominee with voting instructions or obtain a legal proxy form for voting in person at the Annual Meeting you will unless special arrangements are made, retain your right to vote atbe counted as part of the Annual Meeting.quorum.

Under Delaware law, stockholders are not entitled to appraisal rights with respect to any of the proposals presented at the Annual Meeting.

The date of record to determine whether stockholders are entitled to vote at the Annual Meeting is earlier than the date of the Annual Meeting. If you transfer or sell your shares of Common Stock after the Record Date but before the Annual Meeting, you will, unless special arrangements are made, retain your right to vote at the Annual Meeting.

For additional questions, please contact usInvestor Relations at (713) 568-4725. For assistance in submitting proxies or voting shares of Common Stock, registered stockholders of record should contact Securities Transfer Corporation by phone at (469) 633-0101 or throughvisit their website at www.stctransfer.com. If yourBeneficial stockholders should contact their brokerage firm, bank, trust or other nominee holds your shares in “street name,” you should contact them for additional information.

Selection of UHY as Independent Registered Public Accounting Firm

UHY has been engaged as our independent registered public accounting firm since 2002 – nearly ten years.2002. Although ratification of UHY as our independent registered public accounting firm by our stockholders is not required by our By-Laws, the Board believes that submitting this matter to a vote reflects good corporate practice.

In the event of a negative vote on such ratification, the Audit Committee will reconsider its selection. Even if this appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in our best interest and that of our stockholders.

Amendment to the Certificate

Having too many authorized shares of Common Stock may result in us having a higher tax burden. As a result, reducing the number of authorized shares of Common Stock will decrease our potential tax liability.

Based on our current issued and outstanding Common Stock of 2,098,390 and shares of Common Stock issuable upon exercise of outstanding stock options of 30,390, we have a reserve of more than 97 million shares of Common Stock available for issuance. This is significantly more than we would need for future use. The Board believes that reducing the reserve to approximately 9.5 million shares, net of issuance of the BDEC Shares, if approved, would provide a sufficient number of authorized shares of Common Stock to meet our future needs.

Amendments to the Plan

The Plan had a ten (10) year term and expired on April 14, 2010. In order to reinstate a stock option plan for Blue Dolphin, we can either adopt a new stock incentive plan or amend the Plan retroactively to have a twenty (20) year term. This would extend the expiration date of the Plan to April 14, 2020. Management believes amending the expiration date of the Plan is the most efficient way to resolve this matter.

22.	What happens if the expiration date amendment is not approved?

If the amendment is not approved, we will need to present a new stock incentive plan for stockholder approval. Doing so would take a considerable amount of time and effort and, during such time while approval is pending, the Compensation Committee of the Board will not be able to make incentive compensation awards pursuant to a stockholder approved plan.

In July 2010, stockholders approved a 1-for-7 reverse-stock-split of our Common Stock, which reduced the number of shares available for issuance under the Plan from 1,200,000 shares to 171,128 shares. Only 78,992 shares of Common Stock are available for future grants under the Plan. The Compensation Committee of the Board believes that this amount is insufficient to attract, retain and/or recruit key personnel. If approved, the amendment will increase the shares of Common Stock available for future grants under the Plan from 78,992 shares to 907,564 shares.

Acquisition of the Transaction Assets

Although we have historically operated as a pipeline gathering and transportation company (with a small portfolio of offshore leasehold interests), in 2009 we began shifting our focus away from acquiring additional strategic pipeline assets along the Texas and Louisiana Gulf Coast to finding opportunities in the downstream market where we could leverage our existing assets, particularly our onshore facilities in Freeport, Texas. With a more diverse asset suite, we will be better positioned to survive and thrive in today’s fluctuating petroleum and products market.

The refinery, located near Nixon, Texas, sits along the border between Gonzales and Wilson Counties, in the heart of the Eagle Ford Shale. It is in close proximity to some of the highest producing wells drilled so far in the Eagle Ford Shale.

Commonly referred to as a refinery, the asset is actually a crude processing facility that sits on 56 acres. As a “topping unit,” the facility can adjust its yield of various products by modifying its yield slate. The facility has a capacity for processing 15,000 barrels of oil per day and a capacity for storing 295,000 barrels. Although the refinery has been idle for a while, it is currently in the final stage of refurbishment with an anticipated restart in the 4th quarter of 2011. Initial throughput is estimated at approximately 10,000 barrels of oil per day.

The principal effects will be to: (i) significantly increase the Company’s number of shares of Common Stock outstanding, which will proportionately reduce the ownership percentage of existing stockholders, and (ii) constitute a change in control of Blue Dolphin, effectively making the Company a controlled company. A controlled company is one of which more than fifty percent (50%) of the voting power is held by an individual, a group or another company. In this case, upon closing of the transaction, LEH will have more than fifty percent (50%) of the voting power of Blue Dolphin.

If Proposal (4) is approved by our stockholders at the Annual Meeting, we expect to close the transaction shortly thereafter. However, the contemplated transaction is subject to additional closing conditions. While not anticipated, it is possible that the failure to timely meet these additional closing conditions, or other factors outside either party’s control, could delay, hinder or prevent completion of the transaction.

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PROPOSALS

(1) ELECTION OF DIRECTORS

Director Nominees

The Board has affirmatively determined that each of its members, with the exception of Ivar Siem and Herbert N. Whitney, is independent under applicable National Association of Securities Dealers Automated Quotations (“NASDAQ”) and SEC rules related to corporate governance. The independent members of the Board have nominated Mr. Siem, Laurence N. Benz, John N. Goodpasture, Harris A. KaffieHaag Sherman and Erik OstbyeMr. Whitney to serve as directors until the next annual meeting of stockholders. If the transaction described in Proposal (5) is approved before the next annual meeting of stockholders, Messrs. Kaffie and Ostbye have agreed to resign at closing of the transaction and Dr. Benz has agreed to resign upon the Nixon Refinery achieving a production rate of at least 10,000 barrels of oil per day for thirty (30) consecutive days. (For more detailed information related to the contemplated transaction, refer to Proposal (5) and the Transaction Summary of this proxy statement.) Each director that has been nominated (each a “Director Nominee”) shall serve as so indicated,a director until the next annual meeting of stockholders, or in each case until their successors have been duly elected and qualified, or until their earlier resignation or removal.

Each Director Nominee has consented to being nominated and has expressed a willingness to serve if elected. The Board has no reason to believe that any of the Director Nominees will be unable or unwilling to serve if elected. However, should any Director Nominee become unable or unwilling to serve as a director at the time of the Annual Meeting, the person or persons exercising the proxies will vote for the election of a substitute Director Nominee designated by the Board. Each nominee shall serve as a director until the next annual meeting of stockholders, or in each case until their successors have been duly elected and qualified, or until their earlier resignation or removal.

The following sets forth, as of December 12, 2011,the Record Date, each Director Nominee’s name, age, principal occupation and directorships during the past five (5) years, as well as their relevant knowledge and experience that led to their nomination to the Board:

Name, Age Principal Occupation and Directorships During Past 5 Years		Knowledge and Experience
Laurence N. Benz, 4950
PT Development LLC Chief Executive Officer and President (since 2007)   Kentucky Orthopedic Rehabilitation LLC President (1987 to 2007)   Dr. Benz has served on Blue Dolphin’s Board since 2004; he is currently Chairmana member of the Audit Committee. He also sits on the Board of Directors of multiple private companies.		Dr. Benz received a Bachelor of Science in Biology from Bowling Green State University, a Masters in Physical Therapy from Baylor University, a Masters in Business Administration from Ohio State University and a Doctorate in Physical Therapy from MGH Institute of Health Professionals in Boston, Massachusetts. Based on his educational and professional experiences, Dr. Benz possesses particular knowledge and experience in accounting, capital structure, finance and strategic and tactical planning that strengthen the Board’s collective qualifications, skills and experience.

Name, Age Principal Occupation and Directorships During Past 5 Years		Knowledge and Experience
John N. Goodpasture, 6163
Copano Energy, L.L.C. Senior Vice President, Corporate Development (since 2010) (since 2010)   Texas Eastern Products Pipeline Company, L.L.C. (a general partner of TEPPCO Partners, L.P.) Vice President of Corporate Development (2001 (2001 to 2009)   Mr. Goodpasture has served on Blue Dolphin’s Board since 2006; he is currently a member of the Audit and Compensation Committee. He also sits on the Board of Directors of End Hunger Network of Houston.Committees.		Mr. Goodpasture earned a Bachelor of Science in Mechanical Engineering from Texas Tech University. Based on his educational and professional experiences, Mr. Goodpasture possesses particular knowledge and experience in the oil and gas industry in business development, capital structure and mergers and acquisitions that strengthen the Board’s collective qualifications, skills and experience.
Harris A. KaffieHaag Sherman, 6146
Kaffie Brothers Salient Partners, L.P. Co-founder, Partner and Non-Executive Vice Chairman(since 1994) Salient Partners, L.P. and Affiliates Various Executive Positions, including Chief Investment Officer and Chief Executive Officer (2002 to 2011)   Mr. KaffieSherman has served on Blue Dolphin’s Board since 1989;February 2012; he is currently Chairman of the Audit Committee and is a member of the Audit and Compensation Committees. He also serves on the Board of Directors of several privately held companies.		Mr. Kaffie received a Bachelor of Business Administration from Southern Methodist University. Based on his education and professional experiences, Mr. Kaffie possesses particular knowledge and experience in business development, energy, finance, ranching and minerals, strategic planning and venture capital that strengthen the Board’s collective qualifications, skills and experience.
Erik Ostbye, 60
Songa Shipping & Trading Limited President(since 2011) Chianti Asset Management LLC President(since 2007) Sokana Chartering Vice President of Finance (2003 to 2007) Mr. Ostbye has served on Blue Dolphin’s Board since 2006; he is currently a member of the Audit Committee. He also serves on the Board of Directors of several privately held companies.PlainsCapital Corporation (a bank holding company with approximately $5 billion in assets), Salient MLP & Infrastructure Fund (NYSE: SMF), the Salient Absolute Return Fund and The Endowment Fund complex.		Mr. Ostbye holdsSherman graduated cum laude with a Sivilokonom/MBABachelor of Business Administration in Accounting from Baylor University and earned his Juris Doctorate with honors from the NorwegianUniversity of Texas School of Management (BI). Based on his educationLaw. He is an attorney and professional experiences,certified public accountant, in both cases licensed in the State of Texas. Mr. OstbyeSherman possesses particularextensive knowledge and experience in accounting, capital structurefinance, investment management and finance that strengthencorporate law, as well as a keen understanding of the regulatory and corporate governance requirements of publicly traded companies, which strengthens the Board’s collective qualifications, skills and experience.
	Herbert N. Whitney, 71 Wildcat Consulting, LLC Founder and President(since 2006) Mr. Whitney has served on Blue Dolphin’s Board since February 2012. He also serves on the Board of Directors of Blackwater Midstream Corporation, as well as the Advisory Board of Sheetz, Inc. He previously served as Chairman of the Board of Directors of Colonial Pipeline Company and as Chairman of the Executive Committee of the Association of Oil Pipelines.
		Mr. Whitney has more than forty-three (43) years of experience in pipeline operations, crude oil supply, product supply, distribution and trading, as well as marine operations and logistics having served as the President of CITGO Pipeline Company and in various general manager positions at CITGO Petroleum Corporation. He earned his Bachelor of Science in Civil Engineering from Kansas State University. Based on his educational and professional experiences, he possesses extensive knowledge in the supply and distribution of crude oil and petroleum products, which strengthens the Board’s collective qualifications, skills and expertise.

Recommendation

THE BOARD RECOMMENDS A VOTE “FOR”

THE ELECTION OF ALL OF THE DIRECTOR NOMINEES.

(2) RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

For additional information related to this matter, refer to the FAQs provided as part of this proxy statement.

For purposes of determining whether to select UHY as our independent registered public accounting firm to perform the audit of our consolidated financial statements for 2011,2012, the Audit Committee conducted a thorough review of UHY’s performance. The Audit Committee considered:

UHY acts as our principal independent registered public accounting firm. UHY personnel work under direct control of UHY Partners and are leased from wholly owned subsidiaries of UHY Advisors, Inc. in an alternative practice structure.

We are asking our stockholders to ratify the selection of UHY as our independent registered public accounting firm. Although ratification is not required by our By-Laws or otherwise, the Board is submitting the selection of UHY to our stockholders for ratification as a matter of good corporate practice. If the selection is not ratified, the Audit Committee will consider whether it is appropriate to select another independent registered public accounting firm. Even if the selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of Blue Dolphin and our stockholders.

A representative of UHY is expected to be present at the Annual Meeting, with the opportunity to make a statement if he or she decides, and will respond to appropriate questions.

Recommendation

THE BOARD RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM.

(3) AMENDMENT TO THE CERTIFICATE

This discussion is qualified in its entirety by reference to the Certificate amendment, which is attached to this proxy statement as Exhibit A, and is incorporated herein by reference. You should read the entire Certificate amendment carefully as set forth in Exhibit A, which describes fully the contemplated modifications to the Certificate.

The Certificate currently authorizes us to issue a maximum of 100,000,000 shares of Common Stock. Effective July 16, 2010, stockholders approved a 1-for-7 reverse-stock-split of the Common Stock. Although the number of shares of Common Stock outstanding was reduced as a result of the reverse-stock-split, the number of authorized shares was not decreased. The Board has considered this matter and, in light of the potential higher tax burden associated with having such a relatively large number of outstanding shares of Common Stock, adopted a resolution approving a proposal to decrease the number of shares of Common Stock authorized for issuance from 100,000,000 shares to 20,000,000 shares. As of the Record Date there were 2,098,390 shares of

Common Stock outstanding. There are a total of 30,390 shares of Common Stock issuable upon exercise of outstanding stock options. If Proposal (5) is approved, we will issue LEH 8,393,560 shares of Common Stock, which will represent a change in control of Blue Dolphin.

The Board believes the proposed decrease in the number of shares of Common Stock authorized for issuance will continue to provide us with the flexibility necessary to: (i) raise additional capital through one or more public offerings or private placements of shares of Common Stock or options, warrants, convertible debt, convertible preferred stock, or other securities exercisable or convertible into shares of Common Stock; (ii) acquire additional assets or businesses by using shares of Common Stock for a portion or all of the consideration paid to the sellers; (iii) repay indebtedness by issuing shares of Common Stock in lieu of cash; (iv) attract and retain directors, officers and key employees and motivate such persons to exert their best efforts on our behalf by issuing options to acquire shares of Common Stock; or (v) effect stock splits in the form of a stock dividend or otherwise to make stock dividends to existing stockholders. The Board believes that the number of shares of Common Stock currently authorized for issuance is significantly more than would be required to provide a sufficient number of shares for transactions such as those described above. Accordingly, the Board believes that the proposed amendment to the Certificate to decrease the authorized shares of Common Stock is appropriate and in the best interests of Blue Dolphin and its stockholders. Other than the aforementioned PSA, we have no arrangements, agreements, understandings or plans at the present time for issuance or use of the authorized shares of Common Stock.

Upon approval of the proposed amendment to the Certificate and filing of the Amended and Restated Certificate with the Secretary of State of the State of Delaware, the authorized shares of Common Stock will be available for issuance by action of the Board for any reasons described above or for any other corporate purpose. The authorized shares of Common Stock in excess of those issued will be available for issuance at such times and for such corporate purposes as the Board may deem advisable, without further action by stockholders, except as may be required by applicable law, National Association of Securities Dealers Rules or by the rules of any stock exchange or national securities association trading system on which the Common Stock may be listed or traded in the future. Upon issuance, such shares will have the same rights as the outstanding shares of Common Stock and will be subject to the rights and preferences of holders of outstanding shares of any preferred stock that we may issue in the future. Holders of Common Stock have no preemptive rights. The issuance in the future of additional shares of Common Stock may have the effect of diluting the earnings per share and book value per share, as well as the stock ownership and voting rights, of the current holders of Common Stock.

Recommendation

THE BOARD RECOMMENDS A VOTE “FOR” AMENDING THE CERTIFICATE

TO DECREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK

FROM 100,000,000 SHARES TO 20,000,000 SHARES.

(4) AMENDMENTS TO THE PLAN

This discussion is qualified in its entirety by reference to the Plan amendments, which are attached to this proxy statement as Exhibit B, incorporated herein by reference. You should read the entire Plan amendments carefully as stipulated in Exhibit B as the document outlines the contemplated modifications to the Plan.

Reason for the Plan Amendments

The proposed amendments to the Plan are needed because:

Summary of the Plan

The material features of the Plan are summarized below. This summary does not purport to be a complete description of all the provisions of the Plan.

Shares Subject to the Plan – Under the Plan, we may issue incentive awards up to five percent (5%) of the number of shares of Common Stock issued and outstanding on the first day of the then preceding calendar quarter. The number of securities available under the Plan and outstanding incentive awards are subject to adjustments to prevent the dilution of rights of plan participants resulting from stock dividends, stock splits, recapitalization or similar transaction or resulting from a change in applicable laws or other circumstances. Currently there are 171,128 shares of Common Stock available for issuance under the Plan.

Administration – The Board’s Compensation Committee administers The Plan. The Compensation Committee may delegate its duties under the Plan, except for the authority to grant incentive awards or take other action on persons who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or Section 162(m) of the Internal Revenue Code. In the case of an incentive award to an outside director, the Board acts as the Compensation Committee.

Eligibility – Employees, including officers (whether or not they are directors), consultants and non-employee directors are eligible to participate in the Plan.

Types of Incentive Awards – Under the Plan, The Compensation Committee may grant incentive awards, which can be incentive stock options (“ISOs”) as defined in Section 422 of the Internal Revenue Code, non-statutory stock options (“NSOs”), stock appreciation rights (“SARs”), shares of restricted stock, performance units and performance shares and other stock based awards.

Terms of Incentive Awards – Expiration dates for incentive awards granted under the Plan range from six (6) to ten (10) years from the date of grant. Exercise prices are set at fair market value at the time of grant pursuant to Section 422 of the Internal Revenue Code, which states that the exercise price of an ISO may not be lower than 100% of the fair market value of the underlying stock at the time of grant. Vesting periods are typically immediate. The terms of each incentive award is reflected in an incentive agreement between Blue Dolphin and the participant.

Termination of Employment– Except as otherwise provided in the applicable incentive agreement, if a participant’s employment or other service with us (or our subsidiaries) is terminated other than due to death, disability or for cause (each capitalized term being defined in the Plan), the then exercisable incentive awards will remain exercisable until the earlier of: (i) the expiration date of such incentive awards and (ii) ninety (90) days after termination. If termination is due to disability or death, the then exercisable incentive awards will remain exercisable until the earlier of the expiration date of such incentive awards or one (1) year following termination in the event of death or disability. On retirement, the then exercisable incentive awards will remain exercisable for six (6) months (except for ISOs, which will remain exercisable for three (3) months). On a termination for cause, all incentive awards will expire on the termination date.

Change in Control – Unless otherwise provided in the participant’s incentive agreement, upon a change in control, any restrictions on restricted stock and other stock-based awards will be deemed satisfied, all outstanding ISOs, NSOs and SARs may become immediately exercisable and all the performance shares and units and any other stock-based awards may become fully vested and deemed earned in full.

Expiration Date – Subject to the right of the Board to amend or terminate the Plan at any time, the Plan remained in effect until either: (i) all shares of Common Stock subject to the Plan were granted or (ii) the elapse of ten (10) years from the Effective Date. Since not all shares under the Plan were granted, the Plan expired at the end of ten (10) years on the Expiration Date.

Adoption of and Amendments to the Plan

The Plan was initially established by the Board on April 14, 2000 (the “Effective Date”) and approved by stockholders on May 18, 2000. The Plan was amended effective March 19, 2003 and ratified by the stockholders on May 21, 2003 to increase the Common Stock reserved for issuance under the Plan from 500,000 shares to 650,000 shares (Amendment No. 1). The Plan was further amended effective April 5, 2007 and ratified by stockholders on May 30, 2007 to increase the Common Stock reserved for issuance under the Plan from 650,000 shares to 1,200,000 shares (Amendment No. 2). Effective July 16, 2010, stockholders approved a 1-for-7 reverse-stock-split of the Common Stock, which reduced the number of shares of Common Stock available for issuance under the Plan from 1,200,000 shares to 171,128 shares (Amendment No. 3).

Options Outstanding and Exercisable under the Plan

At the Expiration Date, there were a total of 30,390 shares of Common Stock reserved for issuance upon exercise of outstanding options under the Plan. Although the Plan provides for the granting of other incentive awards, only ISOs and NSOs have been issued to date under the Plan. Expiration dates for options granted under the Plan range from six (6) to ten (10) years from the date of grant. Exercise prices for options granted under the Plan are set at fair market value at the time of grant pursuant to Section 422 of the Internal Revenue Code, which states that the exercise price of an ISO may not be lower than 100% of the fair market value of the underlying stock at the time of grant. Vesting periods for ISOs awarded under the Plan are immediate with the exception of 14,285 ISOs granted in 2007, which had a two-year vesting period.

Common Stock Available for Future Grants

In July 2010, stockholders approved a 1-for-7 reverse-stock-split of the Common Stock, which reduced the number of shares of Common Stock available for issuance under the Plan from 1,200,000 shares to 171,128 shares. Only 78,992 shares of Common Stock are available for future grants under the Plan. The Compensation Committee of the Board feels that this amount is insufficient to properly incentivize directors, officers, employees and/or consultants, contribute to Blue Dolphin’s long-term success and create a common understanding of and commitment to the creation of stockholder value.

Effects of Plan Amendments

As there were no grants made under the Plan after the Expiration Date, there will be no accounting effects as a result of stockholders approving the Plan Amendments. If, however, stockholders do not approve the Plan Amendments, Blue Dolphin will need to present a new stock incentive plan for stockholder approval. Until such new stock incentive plan is approved, the Compensation Committee of the Board will not be able to make incentive compensation awards pursuant to a stockholder approved plan.

Recommendation

THE BOARD RECOMMENDS A VOTE “FOR” THE

AMENDMENTS TO THE PLAN.

(5) ISSUANCE OF BDEC SHARES

This discussion is qualified in its entirety by reference to the PSA, which is attached to this proxy statement as Exhibit C, incorporated herein by reference. You should read the entire PSA carefully as it is the document that governs the contemplated transaction.

Reason for the Share Issuance

On July 12, 2011, Blue Dolphin entered into the PSA with the Lazarus entities to acquire one hundred percent (100%) of the issued and outstanding membership interest in LE (the “Transaction Assets”). Blue Dolphin’s consideration for the Transaction Assets is the issuance of 8,393,560 shares of Common Stock to LEH, which will represent eighty percent (80%) of our issued and outstanding Common Stock after closing of the transaction, resulting in a change in control of Blue Dolphin.

Reason for Seeking Stockholder Approval

NASDAQ Marketplace Rule 5635(a) requires stockholder approval prior to the issuance of securities in connection with the acquisition of assets of another company if the securities being issued represent 20% or more of an issuer’s outstanding listed securities or twenty percent (20%) or more of the voting power outstanding before the issuance. Furthermore, NASDAQ Marketplace Rule 5635(b) requires stockholder approval when the issuance or potential issuance of securities will result in a change of control of the company. The Common Stock is listed on the NASDAQ Capital Market, and as a result, we are subject to NASDAQ Marketplace Rules. Stockholder approval of Proposal No. 4, Issuance of BDEC Shares, will also constitute approval of the resulting change in control for purposes of NASDAQ Marketplace Rules 5635(a) and (b) and no additional approval will be solicited.

As of the date of this proxy statement, except as otherwise disclosed herein, we do not have any commitments, which alone or when aggregated with subsequent transactions, represent twenty percent (20%) or more of our outstanding listed securities or twenty percent (20%) or more of the voting power outstanding before the issuance. If any material plans, arrangements or contracts regarding securities issuances subject to this proposal arise after the date of this proxy statement and prior to the actual vote on this proposal, we will notify our stockholders and make revised proxy solicitation materials publicly available in accordance with SEC rules.

Capital Stock

Common Stock – Our Common Stock is quoted on the NASDAQ Capital Market under the ticker symbol “BDCO.” As of the Record Date, we had 291 record holders and 3,216 beneficial holders of our Common Stock.

The following table sets forth, for the periods indicated, the high and low prices for our Common Stock as reported by NASDAQ. NASDAQ quotations reflect inter-dealer prices, without adjustment for retail mark-ups, markdowns or commissions and may not represent actual transactions.

Dividend Rights –Subject to our Amended and Restated Certificate of Incorporation and any rights and restrictions of any other class or series of shares, the Board may, from time to time, declare dividends on the shares issued and authorize payment of a dividend out of our lawfully available funds. The Board may declare that any dividend be paid wholly or partly by the distribution of shares of Common Stock and/or specific assets. Historically, we have not paid a dividend. Any future declaration and payment of dividends following the completion of the transaction will depend on our results of operations, financial condition, cash requirements and other relevant factors, as well as be subject to the discretion of the Board.

Voting Rights – Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders.

Effect of Potential Issuance on Current Stockholders

Issuance of the BDEC Shares will result in substantial dilution to existing stockholders since they will own a smaller percentage of the Common Stock after the close of the transaction. In addition, issuance will provide LEH with a controlling interest in Blue Dolphin, which could encourage the possibility of, or render easier, certain transactions or proxy contests.

Based on information currently available, the Board considered the possible negative impact that issuance of the BDEC Shares could have on the current stockholders and concluded that any such impact would be outweighed by the positive effect on the stockholders resulting from the acquisition of the Transaction Assets.

Effect of Failure to Approve Issuance of BDEC Shares

If stockholders do not approve the issuance of the BDEC Shares pursuant to the PSA, we will not be able to acquire the Transaction Assets, which will restrict our entry into the downstream sector of the petroleum industry. Although we completed an asset sale in August 2011, for which we received proceeds of approximately

$3.7 million in cash, we currently have no other prospects to generate sufficient cash from operations to sustain our business long-term. Over the past four years, we have used a significant portion of our cash reserves to fund working capital requirements. Low commodity prices, production problems, declines in production, disappointing drilling results and other factors beyond our control have significantly reduced funds available from operations. Once current cash reserves are depleted, we may be forced to sell additional assets at unfavorable terms or on an untimely basis.

Effect of Current Litigation

In 2010, we foreclosed on the collateral and filed a lawsuit against the guaranty that secured a $2.0 million loan, net of credited and recovered amounts, made to LLRII, as borrower, and LEH, as guarantor. In March 2011, we were awarded a partial summary judgment in the amount of $1.7 million against LLRII and LEH. The only claim that remains pending is a counter-claim alleging breach of contract under a confidentiality agreement. In May 2011, the parties entered into a Rule 11 Agreement in the interests of resolving the claims and disputes that are part of the litigation described herein. The parties have extended the deadline under the Rule 11 Agreement multiple times in an ongoing effort to re-establish a business arrangement that is beneficial to all involved parties. Upon consummation of the transaction, we have agreed to release LLRII of its obligation to pay the outstanding balance due under the Note, as well as to release our claims against LLRII and LEH pursuant to the related lawsuit(s).

Recommendation

The Board has unanimously determined that the contemplated acquisition of the Transaction Assets is advisable and in the best interest of our stockholders and has approved the contemplated PSA. In reaching its determination, the Board: (i) consulted with Blue Dolphin’s management and legal and financial advisors; (ii) reviewed the terms of the PSA, including both parties’ representations, warranties and covenants, and the conditions to their respective obligations; and (iii) evaluated information related to the Lazarus Entities, including but not limited to information concerning business operations, financial performance and condition, technology, competitive position and businesses and strategic objectives.

THE BOARD RECOMMENDS A VOTE “FOR” THE

ISSUANCE OF THE BDEC SHARES.

(6) ADJOURNMENT OR POSTPONEMENT

Although it is not expected, holders of a majority of the Common Stock, represented in person or by proxy, although representing less than a quorum, may adjourn or postpone the Annual Meeting for the purpose of soliciting additional proxies. If announced at the Annual Meeting, the By-Laws permit an adjournment, without notice being given to the stockholders, if: (i) the adjournment is not more than thirty (30) days from the date of the Annual Meeting or (ii) no new record date is fixed for such adjourned meeting. Stockholders already having sent in their proxies could revoke such proxies at any time prior to their use at the adjournment or postponement.

(7) TRANSACTION OF OTHER MATTERS

At the date of this proxy statement, the Board was not aware of any matter to be acted upon at the Annual Meeting other than those matters as describedset forth in Proposal Nos. (1) through (6)and (2), as described herein. If other business comes before the Annual Meeting, the persons named on the proxy will vote the proxy in accordance with their best judgment.

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TRANSACTION SUMMARYLAZARUS ENERGY ACQUISITION

Transaction Assets

As previously reported in our Form 10-K filed with the SEC on March 30, 2012, we entered into a Purchase and Sale Agreement (the “PSA”) with Lazarus Energy Holdings, LLC, a Delaware limited liability company (“LEH”) and LEH’s wholly-owned subsidiaries to acquire one hundred percent (100%) of the issued and outstanding membership interests of Lazarus Energy, LLC, a Delaware limited liability company (“LE”)(the “Acquisition”). LE’s primary asset is thea 56-acre crude oil processing facility located in Nixon, Crude Processing FacilityTexas (the “Nixon Refinery”Facility”). The Nixon Refinery is locatedOn February 15, 2012, we consummated the Acquisition and issued, in reliance on the border between Gonzales and Wilson Counties near Nixon, Texas, which lies in the heartexemption provided by Section 4(2) of the Eagle Ford Shale and is within close proximitySecurities Act of 1933, as amended (the “Securities Act”), 8,393,560 shares of Common Stock, subject to some ofanti-dilution adjustments, to LEH as consideration for LE (the “Original BDEC Shares”). Additionally, on February 21, 2012, pursuant to the highest producing wells drilled in the Eagle Ford Shale thus far. The Nixon Refinery has a processing capacity of 15,000 barrels of oil per day with a storage capacity of 295,000 barrels and, as a topping unit, has a low operating cost. Currently idle, the Nixon Refinery has undergone some refurbishment activities and is set for the final phase of refurbishment with an estimated restart in the fourth quarter of 2011. Once complete, the refinery will be able to separate input crude oil and condensate into diesel and jet fuel for sale into nearby markets, as well as naphtha and atmospheric gasoil for sale to nearby refineries for further processing. Initial throughput is estimated at approximately 10,000 barrels per day.

Key Terms of PSA

For and in consideration of the premises and the mutual covenants and agreements set forthanti-dilution provisions contained in the PSA, key considerationsand in reliance on the exemption provided by Section 4(2) of the Securities Act, we issued 32,896 shares of Common Stock to LEH (the “Anti-Dilution Shares” and together with the Original BDEC Shares, the “BDEC Shares”) effective February 15, 2012. As a result of our issuance of the BDEC Shares, LEH currently owns eighty percent (80%) of our issued and outstanding Common Stock. The issuance of the BDEC Shares to LEH resulted in a change in control of Blue Dolphin. For additional information regarding the Acquisition, see Pages 4 and 5 of our Form 10-K for each party arethe year ended December 31, 2011.

In connection with the Acquisition, the composition of the Board and management changed effective February 15, 2012, as follows:

Blue DolphinOutgoing

LEH

Organizational Structure Post Transaction

Executive Officers – Upon consummation of the transaction, Mr. Siem will step downresigned as Chief Executive Officer, President, Assistant Treasurer and Secretary of Blue Dolphin. He was also serving as our Principal Executive Officer at the Company, but will remaintime of his resignation. Mr. Siem remained as the Chairman of the Board.

Incoming

There is no arrangement pursuant to which Messrs. Kline, Sherman and Whitney have agreed to serve on the Board.

Pursuant to the PSA, one (1) of the continuing members of the Board who was on the Board prior to closing of the transaction will be requiredDr. Benz has agreed to resign theirhis position as a director upon the earlier of either the next2013 annual meeting of stockholders or subject to the approval of the issuance of the BDEC Shares, the Nixon RefineryFacility achieving a production rate of at least 10,000 barrels of oil per day for thirty (30) consecutive days. Dr. Benz

Post-Acquisition Executive Officers

The following sets forth, as of the Record Date, the name and age of each executive officer, as well as their principal occupation during the past five (5) years:

Jonathan P. Carroll was appointed Chief Executive Officer, President, Assistant Treasurer and Secretary of Blue Dolphin in February 2012. He has agreedalso been a member of LEH since 2006, and has served as a Principal at Carroll and Company Capital Management since 1988. LEH owns eighty percent (80%) of our issued and outstanding Common Stock. Mr. Carroll serves on the Board of Managers of LEH, as well as a trustee to resignthe Salient MLP & Infrastructure Fund (NYSE:SMF), the Salient Absolute Return Fund and The Endowment Fund. Mr. Carroll earned a Bachelor of Arts in Human Biology and a Bachelor of Arts in Economics from Stanford University.

Tommy L. Byrd was appointed Interim Chief Financial Officer, Treasurer and Assistant Secretary of Blue Dolphin in February 2012 having previously served as our Controller since November 2011. He is also the Chief Financial Officer of LEH, where he has served since 2006. Mr. Byrd has extensive financial management, accounting and internal audit experience in the energy industry. Prior to joining LEH, he served as Chief Financial Officer of Baard Energy LLC from 2004 to 2006. From 2000 to 2004, he was Project Audit Manager at that time.TXU Energy. From 1987 to 1998, Mr. Byrd held various positions, including Controller, at MG Trade Finance Corp. He earned a Bachelor of Business Administration in Accounting from Stephen F. Austin State University.

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The following sets forth, as of December 12, 2011, each LEH director appointee’s name, age, principal occupation and directorships during the past five (5) years, as well as their relevant knowledge and experience that served as consideration for their appointment to the Board:

Transaction Background

District, in the District Court of Harris County, State of Texas (the “Court”) against LEH, as guarantor of the Note, alleging breach of contract and asserting our right to the unpaid principal balance and all accrued interest due and payable under the Note. LEH filed a counter-claim alleging usurious interest based on the Consulting Agreement.

Transaction Evaluation

With respect to the contemplated transaction, we met with our legal counsel to identify the appropriate regulatory and SEC filing requirements, and our independent registered public accounting firm to determine the proper accounting treatment. We also conducted due diligence to evaluate the Transaction Assets and LE. The due diligence process included, but was not limited to, interviewing personnel, reviewing contracts and agreements, performing equipment inventories, evaluating business models and obtaining independent, third party evaluations for the Transaction Assets.

Notification of Certain Events

Subject to applicable law and certain limitations, we have agreed to consult in good faith on a reasonable basis with LEH to report material (individually or in the aggregate) operational developments, the status of relationships with customers and resellers, the status of ongoing operations and other matters reasonably requested by LEH. In addition, Blue Dolphin and LEH will promptly notify the other party of: (i) any notice received indicating that consent from any entity or person is required for the consummation of the PSA, (ii) any notice received from any governmental authority in connection with the transaction contemplated, (iii) any litigation commenced or, to Blue Dolphin’s or LEH’s knowledge, threatened against Blue Dolphin or any of its subsidiaries or LEH or any of its subsidiaries that breaches or violates the representations and warranties regarding litigation in the PSA and (iv) any inaccuracy of a representation or warranty or breach of covenant or agreement in the PSA that could be reasonably expected to cause the conditions to the PSA not to be satisfied. Further, Blue Dolphin will promptly notify LEH of any notice or other communication from any party to a material contract that such party is terminating or otherwise materially adversely modifying its relationship with Blue Dolphin or any of its subsidiaries as a result of the PSA.

Regulatory Approval and Permits

Consummation of the transaction is not subject to the receipt of any approval and/or consent from any governmental and regulatory authority. LEH, LE and Blue Dolphin agree to keep in full force and effect, and to cooperate with each other to make application for assignment of, existing permits of LE (effective with the consummation of the transaction) or to cooperate with each other to make application for the issuance of new permits subsequent to the consummation of the transaction.

Accounting Treatment

For accounting and financial reporting purposes, the acquisition will be accounted for as a “reverse acquisition” as that term is used under U.S. generally accepted accounting principles, in which LE is deemed to be the accounting Acquirer and accounting predecessor and Blue Dolphin is deemed to be the accounting Acquiree. Under the acquisition method of accounting, the assets (including identifiable intangible assets) and liabilities (including executor contracts and other commitments) of Blue Dolphin as of the closing date of the acquisition will be recorded at their respective fair values and any excess of fair values over consideration issued the fair values is recorded as goodwill.

Net Operating Loss Carry-Forwards

For federal tax purposes, we had net operating loss carry-forwards (“NOLs”) of approximately $21.3 million at December 31, 2010. These NOLs must be used prior to their expiration, which will occur between 2011 and 2030. Utilization of these NOLs will be subject to annual limitations as a result of the change of control that will occur in connection with the transaction. We have historically determined it is more likely than not that some portion or all of our NOLs will not be realized. A full valuation allowance against our deferred tax assets was recognized at September 30, 2011 and December 31, 2010 and 2009 due to our uncertainty as to the utilization of our deferred tax assets in the foreseeable future. We assigned no fair value in our preliminary allocation of fair value to net assets acquired as presented in the accompanying unaudited pro forma combined financial statements based on continued uncertainty as to the utilization of our deferred tax assets in the foreseeable future. Following the closing of the transaction, we will complete our fair value determination of Blue Dolphin’s deferred tax assets. If, as a result of final fair valuations of net assets acquired, it is determined that it is more likely than not that some portion or all of our NOLs and other deferred tax assets will be realized in the foreseeable future, we will adjust our preliminary estimate of fair value of deferred tax assets.

Acquired Debt

Pursuant to the PSA, we have agreed to repay existing and new indebtedness of LE not to exceed approximately $17.5 million, as follows: (i) new debt financing obtained by LEH for the benefit of LE in an amount at least equal to $3.7 million, the proceeds of which are to primarily be used for completion and startup of the Nixon Refinery (the “Debt Financing”), (ii) an existing note previously held by Notre Dame Investors, Inc., which is currently held by John Kissick in the amount of approximately $2.0 million (the “Kissick Debt”); and (iii) an existing U.S. Department of Agriculture loan payable to 1^st International Bank or its assignee (the “Payee”) in the amount not to exceed approximately $11.8 million, including outstanding penalties and interest (the “USDA Loan”);

Kissick Debt – Under the PSA, the Kissick Debt shall be amended to provide for an interest rate of no more than six percent (6%) with monthly payments commencing upon the Nixon Refinery becoming operational. Payments will be calculated to provide for a one (1) year amortization from the date of the first payment (approximate amount of $165,262), provided that such payments shall not exceed ten percent (10%) of the payments to be made with respect to the Debt Financing;

Debt Financing– LEH’s consideration under the PSA is to obtain a minimum of $3.7 million in debt financing for use by LE for the completion and startup of the Nixon Refinery, which has occurred as of the date of this filing. The terms of the Debt Financing provide for the application of the gross profit of the Nixon

Refinery, as follows: (i) first, to the repayment to the provider(s) of such financing of $150,000 per month, (ii) second, to LE to pay the operating expenses of the Nixon Refinery and debt service, up to a maximum amount of $750,000 per month and (iii) thereafter, in payments to the provider(s) of such financing which do not exceed eighty percent (80%) of the net cash flow of the Nixon Refinery prior to payout and twenty percent (20%) of the net cash flow of the Nixon Refinery after payout, with such payment obligations expiring after the third year of operation of the Nixon Refinery, and having such terms and conditions as shall be reasonably acceptable to Blue Dolphin; and

USDA Loan – Under the PSA, we agreed to assume the USDA Loan. The USDA Loan is evidenced by a Promissory Note dated as of September 28, 2008 as amended, supplemented or modified from time to time, and further described in that certain Loan Agreement dated September 29, 2008 by and among LE and 1^st International Bank, as well as Mr. Carroll, Gina Carroll and LEH (together the guarantors).

Principal Amount: The principal amount of the USDA Loan is $10 million, together with interest per annum on the unpaid principal balance from day-to-day remaining.

Interest: Interest per annum is calculated on the basis of a 360-day year and computed from the date of advance until maturity at the rate equal to the lesser of (a) the maximum rate allowed by law or (b) prime rate (as printed in the Wall Street Journal or an equivalent publication) plus two and one quarter percent (Prime Rate + 2.25%). The interest rate is adjusted on the first day of each calendar quarter.

Payments: A principal and interest payment under the USDA Loan is due monthly through October 1, 2028 (the “Maturity Date”), when all unpaid principal and unpaid interest shall be due and payable in full. Monthly payments are increased or decreased based on the changes in the interest rate to ensure that the entire loan balance is paid in full on the final Maturity Date.

Other Considerations: As of the seventh anniversary of the USDA Loan, should the outstanding principal amount due be greater than $7.85 million, LE shall make a one-time principal reduction in an amount sufficient to reduce the principal balance to $7.85 million (the “Required Principal Reduction”). The Required Principal Reduction will be subject to a prepayment consideration as stipulated in the loan agreement.

Default: Upon the occurrence of a default, payee may, at its option, without notice or demand, declare the unpaid principal balance of, and the accrued but unpaid interest on the USDA Loan immediately due and payable and exercise and pursue any and all other rights and remedies as provided under the agreement.

In 2010, LE went into default under the USDA Loan as a result of failure to pay certain amounts due and payable and failure to perform certain covenants in the agreement. As a result, the Payee accelerated the USDA Loan and initiated foreclosure proceedings. In August 2011, the Payee agreed to forebear taking certain actions with respect to the USDA Loan for a period of one (1) year, subject to termination by the Payee in the event certain events occur (the “Forbearance Agreement”). An extension of one (1) additional year is permissible under the Forbearance Agreement so long as certain other conditions are met within the first one (1) year extension period.

As of the date of this filing, the principal balance, on an accelerated basis, was approximately $9.7 million. Post-default interest, late charges, costs incurred by the Payee related to foreclosure, taxes paid by the Payee and annual renewal fees paid by the Payee to the U.S. Department of Agriculture in relation to the USDA Loan (collectively the “Arrearage”) was approximately $1.4 million. The Arrearage, which requires a minimum monthly payment of approximately $70,000, must be fully paid by the expiration date of the extended forbearance period. In addition, after the Arrearage is paid in full, LE shall pay to Payee twelve (12) consecutive monthly payments of approximately $83,000 to replenish a $1.0 million payment reserve as required under the USDA Loan (the “Payment Reserve”).

Debt Repayment

In August 2011, LE and a third-party entered into: (i) a Construction and Funding Contract (the “Construction Agreement”), whereby the third-party agreed to provide the Debt Financing, activate and make operable the

Nixon Refinery and secure all of LE’s obligations in exchange for a first-priority security interest in the collateral, (ii) a Joint Marketing Agreement (the “Marketing Agreement”), whereby LE and the third-party will market the refined and processed crude oil (the “Nixon Product”) and (iii) a Crude Oil Supply and Throughput Services Agreement (the “Supply Agreement”), whereby the third-party will supply one hundred percent (100%) of the crude oil requirements of the Nixon Refinery up to a maximum of 15,000 barrels of oil per day and LE will store and process the crude oil at the Nixon Refinery. (The Construction Agreement, Marketing Agreement and Supply Agreement are collectively referred to herein as the “Nixon Agreements”).

Profits from the sale of the Nixon Product under the agreements between LE and the third-party, as described herein, will provide the funds for repayment of the Kissick Debt and Debt Financing. Pursuant to the Forbearance Agreement, LE agreed that certain payments due to LE under the Nixon Agreements would be paid directly to the Payee as repayment of the Arrearage and for replenishment of the Payment Reserve. The third-party is currently leasing storage tanks at the Nixon Refinery and LE’s revenue that is derived from the lease is being used to service the Arrearage until sale of the Nixon Product begins.

Unaudited Pro Forma Information

On July 12, 2011, Blue Dolphin entered into a PSA with the Lazarus Entities. Under terms of the PSA, Blue Dolphin agreed to acquire one hundred percent (100%) of the membership interest of LE in exchange for 8,393,560 shares of Blue Dolphin common stock (the “Acquisition”). The number of Blue Dolphin shares to be issued as consideration will represent eighty percent (80%) of the issued and outstanding common stock of Blue Dolphin at closing, which will constitute a change in control of Blue Dolphin. Closing of the transaction is subject to: (i) approval by Blue Dolphin’s stockholders and (ii) completion of a minimum of $3.7 million in funding by LEH for the benefit of LE for the final phase of refurbishment of the Nixon Refinery, which has occurred as of the date of this filing.

The Acquisition will be accounted for as a “reverse acquisition” in which LE is deemed to be the “Acquirer” and accounting predecessor and Blue Dolphin is deemed to be the “Acquiree.” Following the Acquisition, the combined company will continue to operate under the name Blue Dolphin Energy Company.

In connection with the Acquisition, Blue Dolphin will also release the $2.0 million loan, net of credited and recovered amounts, made to LLRII, as borrower, and LEH, as guarantor, and the associated litigation. As of December 31, 2010 and September 30, 2011, the $2.0 million note held by Blue Dolphin was fully reserved against an allowance for doubtful accounts in Blue Dolphin’s consolidated balance sheets. Pursuant to the PSA, Blue Dolphin will repay certain existing and new indebtedness of LE not to exceed approximately $17.5 million.

Following the Acquisition, LEH will be entitled to receive payments based on the gross profit of the Nixon Refinery with respect to the years 2011, 2012, 2013 and 2014. These payments will be made monthly based on cumulative results through the end of each month. The amount of such monthly payments shall be equal to forty percent (40%) of the excess, if any, of cumulative gross profit of the Nixon Refinery over a threshold which shall increase by $2.5 million for each month that has elapsed since the beginning of that year.

The accompanying Unaudited Pro Forma Condensed Combined Balance Sheet at September 30, 2011 combines the historical consolidated balance sheets of Blue Dolphin and LE, giving effect to the Acquisition as if it had been consummated on September 30, 2011. The Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2011 and for the year ended December 31, 2010 combines the historical consolidated statements of operations of Blue Dolphin and LE, giving effect to the Acquisition as if it had occurred on January 1, 2011 and January 1, 2010, respectively. The unaudited pro forma combined financial data should be read in connection with these notes to the unaudited pro forma condensed combined financial statements and the following historical financial information:

The unaudited pro forma condensed combined financial statements have been prepared for informational purposes only. The historical financial information has been adjusted to give effect to pro forma events that are: (i) directly attributable to the Acquisition and (ii) factually supportable and reasonable under the circumstances.

The unaudited pro forma adjustments represent management’s estimates based on information available at this time. The unaudited pro forma combined financial statements are not necessarily indicative of what the financial position or results of operations actually would have been had the acquisition been completed at the dates indicated. In addition, the unaudited pro forma combined financial statements do not purport to project the future financial position or operating results of the consolidated company. The unaudited pro forma combined financial statements do not give consideration to the impact of possible revenue enhancements, expense efficiencies, future underwriting decisions or changes in the book of business that may result from the acquisition.

Remainder of Page Intentionally Left Blank

UNAUDITED PRO FORMA

CONDENSED COMBINED BALANCE SHEET

See accompanying notes to unaudited pro forma condensed combined financial statements.

UNAUDITED PRO FORMA

CONDENSED COMBINED STATEMENT OF OPERATIONS

See accompanying notes to unaudited pro forma condensed combined financial statements.

UNAUDITED PRO FORMA

CONDENSED COMBINED STATEMENT OF OPERATIONS

See accompanying notes to unaudited pro forma condensed combined financial statements.

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

On July 12, 2011, Blue Dolphin entered into a PSA with the Lazarus Entities. Under terms of the PSA, Blue Dolphin agreed to acquire one hundred percent (100%) of the membership interest of LE in exchange for 8,393,560 shares of Blue Dolphin common stock (the “Acquisition”). The number of Blue Dolphin shares to be issued as consideration will represent eighty percent (80%) of the issued and outstanding common stock of Blue Dolphin at closing, which will constitute a change in control of Blue Dolphin. Closing of the transaction is subject to: (i) approval by Blue Dolphin’s stockholders and (ii) completion of a minimum of $3.7 million in funding by LEH for the benefit of LE for the final phase of refurbishment of the Nixon Refinery, which has occurred as of the date of this filing.

The Acquisition will be accounted for as a “reverse acquisition”, in which LE is deemed to be the “Acquirer” and accounting predecessor and Blue Dolphin is deemed to be the “Acquiree.” The legacy Blue Dolphin is referred to herein as “Old Blue Dolphin”. Following the Acquisition, the combined company will continue to operate under the name Blue Dolphin Energy Company.

The unaudited pro forma condensed combined financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.

The acquisition method of accounting under US GAAP requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values at the acquisition date. Fair value is defined under US GAAP as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Market participants are assumed to be buyers and sellers in the principal (or most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. Fair value measurements can be highly subjective and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

Note 2 – Pro Forma Condensed Combined Financial Statements

The accompanying unaudited pro forma condensed combined financial statements present the pro forma consolidated financial position and operations of the combined company based upon the historical financial statements of Blue Dolphin and LE, after giving effect to the Acquisition and adjustments described in the following footnotes, and are intended to reflect the impact of the Acquisition on a pro forma basis. The accompanying unaudited pro forma condensed combined financial statements are presented for illustrative purposes only.

The accompanying unaudited Pro Forma Condensed Combined Balance Sheet at September 30, 2011 combines the historical consolidated balance sheets of Blue Dolphin and LE, giving effect to the Acquisition as if it had been consummated on September 30, 2011 and includes pro forma adjustments for preliminary valuations by management of certain tangible and intangible assets as of September 30, 2011. These adjustments are subject to further revision upon finalization of the fair value determinations, which will occur following the closing of the Acquisition.

The unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2011 and for the year ended December 31, 2010 combines the historical consolidated statements of operations of Blue Dolphin and LE, giving effect to the Acquisition as if it had occurred on January 1, 2011 and January 1, 2010, respectively.

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS

Note 3 – Acquisition

Assuming the Acquisition had occurred on September 30, 2011, Blue Dolphin would have acquired all of the membership interests of LE in exchange for 8,393,560 shares of common stock of Blue Dolphin at closing. Following the acquisition, the shares issued to the former owners of LE would constitute 80% of the Company’s common stock resulting in a change of control, in which LE controls Blue Dolphin post-acquisition.

The Acquisition is accounted for as a reverse acquisition, in which LE is deemed to be the Acquirer and accounting predecessor and Blue Dolphin is deemed to be the Acquiree, under the acquisition method of accounting in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations, and uses the fair value concepts defined in ASC 820, Fair Value Measurement and Disclosures. Under the acquisition method of accounting, the total estimated purchase price is allocated to Old Blue Dolphin’s tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the Acquisition.

Immediately preceding the Acquisition, assuming it was completed on September 30, 2011, Blue Dolphin shareholder’s held 2,098,390 shares of common stock. The purchase consideration to acquire Old Blue Dolphin was based on the fair value of the 2,098,390 shares of common stock (utilizing the closing price of $2.35 on September 30, 2011), which was determined to be $4,931,217.

The purchase price allocation is dependent upon certain valuations and other studies that have not progressed to a stage where there is sufficient information to make a definitive measure and allocation. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma consolidated financial statements. Material revisions to the ongoing company’s current estimates could be necessary when the final purchase price is determined and the valuation process is completed after closing of the Acquisition.

The following table summarizes the preliminary allocation of the purchase price:

For purposes of this pro forma analysis, the purchase price has been allocated based on an estimate of the fair value of net assets acquired and consideration expected to be paid as of the assumed date of the acquisition. The estimated fair values were determined based on management’s best estimates at the time of this filing. The preliminary purchase price allocation for the transaction is based on preliminary estimates of fair value as of the assumed acquisition date, which will not be the closing date of the Acquisition, and will be adjusted upon completion of the ongoing company’s valuation of the related net assets acquired of the business and its review of the closing balance sheet as of the closing date of the Acquisition. Any deferred taxes or deferred tax liabilities will be recognized upon the completion of final valuations, if applicable. The final evaluation of net assets acquired is expected to be completed as soon as a final accounting is performed, but no later than one year from the acquisition date. Any changes in the preliminary value of the net assets acquired will be offset by a corresponding change in goodwill.

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS

Note 4 – Pro Forma Adjustments

Pro forma adjustments are necessary to reflect events that are: directly attributable to the Acquisition; factually supportable, and expected to have a continuing impact. The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:

Note 5 – Income (Loss) per Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

The combined entity’s financial statements are prepared as if the transaction had been completed at the beginning of the period. The net income (loss) and shares used in computing the net income (loss) per share for the year ended December 31, 2010 and the nine months ended September 30, 2011 are based on weighted average common shares outstanding during the respective periods. The effect of the additional shares of common stock issued as part of the Acquisition has been included for purposes of presenting pro forma net income (loss) per share.

COMMITTEES AND MEETINGS OF THE BOARD

Board

During 2010,2011, the Board consisted of Dr. Benz and Messrs. Siem, Goodpasture, Kaffie and Ostbye. Mr. Siem served as Chairman. During the fiscal year ended December 31, 2010,2011, the Board held six (6)one (1) regular meetingsmeeting and eight (8)seven (7) special meetings. Each director attended at least 75% of the total number of meetings of the Board and committees on which he served. The Board has two standing committees, the Audit Committee and the Compensation Committee.

Audit Committee

During 2010,2011, the Audit Committee consisted of Dr. Benz and Messrs. Kaffie and Ostbye with Dr. Benz serving as Chairman. During the fiscal year ended December 31, 2010,2011, the Audit Committee met five (5)four (4) times. The Board has affirmatively determined that all current members of the Audit Committee are independent and that Dr. Benz qualifiesand Mr. Sherman qualify as an Audit Committee Financial Expert. The Audit Committee’s duties include overseeing financial reporting and internal control functions and thefunctions. The Audit Committee’s charter is available on our website (www.blue-dolphin.comwww.blue-dolphin-energy.com).

Compensation Committee

During 2010,2011, the Compensation Committee consisted of Messrs. Goodpasture and Kaffie. During the fiscal year ended December 31, 2010,2011, the Compensation Committee met one (1) time. The Board has affirmatively determined that all current members of the Compensation Committee are independent. The Compensation Committee does not have a charter, however, its duties are to oversee and set our compensation policies, to approve compensation of executive officers and to administer the Plan.our 2000 Stock Option Plan (the “Plan”).

Nominating Committee

Given the size of the Board and that a majority of its members are independent, as defined under NASDAQ Listing Rules, the Board adopted a “Board Nomination Procedures” policy in July 2005 in lieu of appointing a standing nominating committee. Independent members of the Board use the policy when choosing nominees to stand for election to the Board.

The Board will consider for possible nomination qualified nominees recommended by stockholders. As addressed in the “Board Nomination Procedures” policy, the manner in which independent directors evaluate stockholder nominees for director is the same as that for nominees received from other sources. Stockholders who wish to propose a qualified candidate for consideration should submit complete information as to the identity and qualifications of that person to the Secretary of Blue Dolphin no later than February 22, 2012,March 5, 2013, for the 20122013 Annual Meeting of Stockholders. The information should be sent to: Blue Dolphin Energy Company, Attention: Secretary, 801 Travis Street, Suite 2100, Houston, Texas 77002. See “Director Nominations and Stockholder Proposals by Stockholders for an Annual Meeting of Stockholders” in this proxy statement for more information. In addition to stockholder nominations, the Board may utilize a variety of methods for identifying potential nominees for directors, including considering potential candidates who come to their attention through current officers, directors, professional search firms or other persons.

The Board will continue to nominate qualified directors of whom it believes will make important contributions to the Board and Blue Dolphin. The Board generally requires that director nominees have sound ethical character, represent all stockholders fairly, demonstrate professional achievements, possess meaningful experience and appreciate the major business issues facing Blue Dolphin. TheAlthough not part of a formal policy, the Board also considers issues of diversity and background in its selection process, recognizing that it is desirable for its members to have differences in viewpoints, professional experiences, educational backgrounds, skills, race, gender, age and national origin.

The membership of the Board immediately after closing of the transaction, subject to approval of the issuance of the BDEC Shares, will consist of six members: (i) three (3) of the existing members of the Board, which will

consist of Messrs. Siem and Goodpasture, as well as Dr. Benz (Messrs. Kaffie and Ostbye will resign) and (ii) three (3) persons as agreed to by the parties. The parties have agreed to and the Board has recommended the appointments of Frank R. Kline, A. Haag Sherman and Bruce A. Smith, each first time appointees, to serve as directors upon consummation of the transaction. There is no arrangement pursuant to which Messrs. Kline, Sherman and Smith have agreed to serve on the Board.

Pursuant to the PSA, one (1) of the continuing members of the Board who was on the Board prior to closing of the transaction will be required to resign their position as director upon the earlier of either the next annual meeting of stockholders or, subject to the approval of the issuance of the BDEC Shares, the Nixon Refinery achieving a production rate of at least 10,000 barrels of oil per day. Dr. Benz has agreed to resign at that time.

Director Attendance at Annual Meeting

We seek to accommodate directors choosing to participate in person at the annual Board meeting. In an effort to manage expenses,Although we do not have a formal policy regarding attendance by members of the Board typically holds the annual Board meeting immediately following the annual stockholder’s meeting. If a director is unableat our Annual Meeting, we encourage directors to attend the annual Board meeting in person, participation by telephone is permitted. In 2010, one (1) directorattend. Two directors attended the annual Board meeting in person and four (4) directors attended by telephone.

AUDIT COMMITTEE REPORT

The duties and responsibilities of the Audit Committee are set forth in a written charter adopted by the Board. The Audit Committee is comprised solely of independent directors who have the requisite financial experience and expertise and meet the requirements of NASDAQ Listing Rule 5605(c) and SEC Rule 10A-3. The Audit Committee reviews and reassesses its written charter annually and recommends any changes to the Board for approval. In addition, the Audit Committee periodically reviews relevant requirements of the Sarbanes-Oxley Act of 2002, as well as proposed and adopted rules of the SEC and new listing standards of the NASDAQ regarding Audit Committee procedures and responsibilities to ensure compliance. The Audit Committee charter was last amended by the Board in August 2008 and is available on our website (www.blue-dolphin.comwww.blue-dolphin-energy.com). Although the Audit Committee Charter was reviewed in 2010,2011, no changes to the charter were made at that time.

The Audit Committee’s primary duties and responsibilities are to:

Management is responsible for our internal controls and the financial reporting process. Our independent registered public accounting firm is responsible for performing an independent audit of our consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board (“PCAOB”) and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.

The Audit Committee reviewed and discussed theour audited our consolidated financial statements for the fiscal year ended December 31, 20102011 with our management and management represented to the Audit Committee that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The Audit Committee discussed with UHY the matters required to be discussed pursuant to PCAOB guidance related to communication with Audit Committees.

The Audit Committee received written disclosures and the letter from UHY as required by the PCAOB guidance related to communications with Audit Committees concerning independence, and the Audit Committee discussed with UHY their independence. The Audit Committee considered the non-audit services provided by UHY and determined that the services provided are compatible with maintaining UHY’s independence. The Audit Committee must pre-approve all audit and non-audit services provided to us by our independent registered public accounting firm.

Fees we paid to UHY in the fiscal years ended December 31, 20102011 and 20092010 were as follows:

Audit fees for 20102011 and 20092010 included fees related to the audit of our consolidated financial statements and review of our annual and quarterly reports that are filed with the SEC. Audit-related fees for 2009 included other fees for consultation related to our transaction with LEH. Tax fees for 2011 and 2010 and 2009 primarily includeincluded fees for preparation of federal and state income tax returns as well as tax planning services. The Audit Committee must pre-approve all audit and non-audit services provided to us by our independent registered public accounting firm.

Based on discussions with management and UHY, review of the representation of management and review of the report of UHY to the Audit Committee, the Audit Committee recommended to the Board that our audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010,2011, as filed with the SEC.

The Audit Committee:

A. Haag Sherman, Chairman

Laurence N. Benz Chairman

Harris A. KaffieJohn N. Goodpasture

Erik Ostbye

CORPORATE GOVERNANCE

Leadership Structure

We are led by Mr. Siem who has servedserves as Chairman of the Board since 1989and Mr. Carroll serves as Chief Executive Officer and President. The positions of Chairman of the Board and Chief Executive Officer since 2004. Having a single leader for Blue Dolphin is a common practice at public companieswere separated in the United States, particularly those with small market capitalizations. We believe our current leadership structureFebruary 2012 in connection with the same person serving as both principal executive officer andAcquisition. Our Board determined that the separation of these roles would maximize management’s efficiency. Separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairman of the Board is effective forto lead the us as it; (i) demonstratesBoard in its fundamental role of providing guidance to our employees, customers and stockholders that we are under strong leadership, with a single person setting the tone and having primary responsibility for managing our operations and (ii) eliminates the potential for confusion or duplicationoversight of efforts.management.

Risk Oversight

Our Board does not have a lead independent director. Independent directors, individually and collectively, are actively involved in overseeing our risk management through presentations by management to the Board, as well as through telephonic and other electronic communications. Such interactions include consideration of the challenges and risks we face. Furthermore, the two standing Board committees provide appropriate risk oversight. The Audit Committee oversees the accounting and financial reporting processes, as well as compliance, internal control, legal and risk matters. The Compensation Committee oversees compensation policies, including the approval of compensation for our Chairman and Chief Executive Officer. We believe that the processes established to report and monitor systems for material risks applicable to us are appropriate and effective.

Director Independence

TheWith the exception of Messrs. Siem and Whitney, the Board has affirmatively determined that each of its members as well asand the director nominees (withare independent. Prior to the exceptionAcquisition, Mr. Siem served as our Chief Executive Officer, President, Assistant Treasurer and Secretary. Mr. Whitney currently serves as a consultant to LEH.

No member of Mr. Siem), are independent and have nothe Board or director nominee has a material relationship with Blue Dolphin, either directly or indirectly or as a stockholder or officer of an organization that has a relationship with Blue Dolphin. Furthermore, all members of the Audit and Compensation Committees are independent, pursuant to NASDAQ Listing and SEC rules.

Pursuant to the PSA, subject to approval of the issuance of the BDEC Shares, the parties have agreed to and the Board has recommended the appointments of Messrs. Kline, Sherman and Smith, each first time appointees, to serve as directors upon consummation of the transaction. There is no arrangement pursuant to which Messrs. Kline, Sherman and Smith have agreed to serve on the Board. The Board has affirmatively determined that each of the appointees are independent pursuant to NASDAQ Listing and SEC rules.

Code of Conduct

In July 2005, the Board adopted a Code of Conduct applicable to all directors, officers and employees, as required by the Sarbanes-Oxley Act of 2002. The Code of Conduct is publicly available on our website (www.blue-dolphin.comwww.blue-dolphin-energy.com). The Code of Conduct requires all directors, officers and employees to act ethically at all times, and prohibits any employee from retaliating or taking any adverse action against anyone for raising or helping to resolve an integrity concern.

The Audit Committee established procedures to enable anyone who has a concern about Blue Dolphin’s conduct or policies, or any employee who has a concern about our accounting, internal accounting controls or auditing matters, to communicate that concern directly to the Chairman of the Audit Committee. Violations and/or concerns may be sent anonymously by mail to Dr. Laurence N. BenzA. Haag Sherman (Audit Committee Chairman, Blue Dolphin Energy Company), 13000 Equity Place, Suite 105, Louisville, Kentucky 40223, via email tolarry@physicaltherapist.comhaagsherman@gmail.com or such other contact information for Dr. BenzMr. Sherman that we may post on our website from time to time.

Code of Ethics

In April 2003, the Board adopted a Code of Ethics policy that is applicable to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Ethics policy is posted on our website (www.blue-dolphin.comwww.blue-dolphin-energy.com) and is available to any stockholder, without charge, upon written request to Blue Dolphin Energy Company, Attention: Secretary, 801 Travis Street, Suite 2100, Houston, Texas 77002. Any amendments or waivers to provisions of the Code of Ethics policy will be disclosed on our website.

Communicating with the Directors

At the present time, the Board does not have a formal process by which stockholders can communicate with the Board. The Board currently does not receive a large volume of correspondence from stockholders, so such a formal process would be inefficient. However, any stockholder who desires to contact the Board or specific members of the Board may do so by writing to: Blue Dolphin Energy Company, Attention: Secretary for the(for Board of Directors), 801 Travis Street, Suite 2100, Houston, Texas 77002. Currently, all communications addressed in such manner are sent directly to the indicated directors. In the future, if the Board adopts a formal process for determining how communications are to be relayed to directors, that process will be disclosed on our website.

EXECUTIVE AND DIRECTOR COMPENSATION

Executive Compensation Policy and Procedures

Compensation for our executive officers consists of base salary, cash bonuses and incentive awards that have historically consisted of stock options. We do not offer a retirement plan that provides for the payment of retirement benefits. In the event that an employee retires after age 65, the non-vested portion of any stock options held by the retired employee expires immediately. The vested portion of any stock options held by the retired employee expires, to the extent not exercised, three months after retirement. The Compensation Committee has the authority to approve all forms of executive and director compensation based on its experience and informal consideration of compensation practices of oil and gas companies of similar size and business focus. The Compensation Committee has not used compensation consultants in the past in making its determinations. We believe that stock ownership by our executive officers and other employees furthers the alignment between the interests of the executive officers and other employees and the stockholders, thereby enhancing our efforts to improve stockholder returns and increase stockholder value.

The Plan provides that upon a change in control, the Compensation Committee maymay: (i) accelerate the vesting of options, cancel options and make payments in respect thereof in cash in accordance with the terms of the Plan, (ii) adjust the outstanding options as appropriate to reflect such change of control or (iii) provide that each option shall thereafter be exercisable for the number and class of securities or property that the optionee would have been entitled to receive had the option been exercised. The Plan provides that a change of control occurs if any person, entity or group acquires or gains ownership or control of more than fifty percent (50%) of the outstanding Common Stock or, if after certain enumerated transactions, the persons who were directors before such transactions cease to constitute a majority of the Board.

The proposed issuance Issuance of Common Stock to LEH pursuant to the BDEC Shares will resultPSA resulted in a change in control under the Plan. Unless otherwise provided in the participant’s incentive agreement, upon a change in control, any restrictions on restricted stock and other stock-based awards will be deemed satisfied, all outstanding ISOs, NSOs and SARs may become immediately exercisable and all the performance shares and units and any other stock-based awards may become fully vested and deemed earned in full.

The compensation of executive officers is reviewed on an annual basis, as well as when changes in responsibilities occur. The Compensation Committee may not delegate its authority to approve compensation determinations for executive officers. The Compensation Committee determines compensation for executive officers and other employees based on the recommendation of the principal executive officer. The Compensation Committee determines the compensation of the principal executive officer.

Executive Officers

In addition to Mr. Siem, listed in this proxy statement as a Director Nominee, we had one (1) other executive officer at December 31, 2010. The following sets forth the person’s name, age and principal occupation during the past five (5) years, as well as their relevant knowledge and experience that led to their appointment as an executive officer:

On October 31, 2011, Mr. Howard resigned as Treasurer and Assistant Secretary, effective November 15, 2011. His resignation was not the result of a disagreement with us on any matter relating to our operations, policies or practices.

Family Relationships between Directors and Executive Officers

As of December 12, 2011,the Record Date, there were no relationships between any of our directors or executive officers and any other director or executive officer of Blue Dolphin.

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Compensation for Named Executives

The following table sets forth the compensation paid to our principal executive officer and the most highly compensated executive officer other than the principal executive officer whose annual salary exceeded $100,000 in the fiscal year ended December 31, 20102011 (collectively, the “Named Executive Officers”) for services rendered to us:

SUMMARY COMPENSATION TABLE

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Compensation Risk Assessment

Our approach to compensation practices and policies applicable for non-executive employees throughout our organization is consistent with that followed for executive employees. Base pay is based on market median for each position, and bonuses and stock based incentives are based on individual and Blue Dolphin performance. Accordingly, we believe our compensation practices and policies in this regard are not reasonably likely to have a material adverse effect on us.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END