UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended: MARCH 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ..................to ...................
Commission File Number: 0-15905
BLUE DOLPHIN ENERGY COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 73-1268729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ELEVEN GREENWAY PLAZA, SUITE 1606, HOUSTON, TEXAS 77046
(Address of principal executive offices) (Zip Code)
(713) 621-3993
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
34,787,451 shares $.01 par value outstanding at May 11, 1995
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART. I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of Blue Dolphin Energy
Company and Subsidiaries (the "Company") included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the
opinion of management, reflect all adjustments necessary to present a
fair statement of operations, financial position and cash flows. The
Company follows the full cost method of accounting for oil and gas
properties, wherein costs incurred in the acquisition, exploration and
development of oil and gas reserves are capitalized. The Company
believes that the disclosures are adequate and the information presented
is not misleading, although certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1995 1994
____________ ____________
(Unaudited)
ASSETS
Current Assets:
Cash $ 230,504 $ 434,157
Trade accounts receivable 753,660 774,362
Inventory 17,800 17,350
Prepaid expenses and other current assets 315,199 217,203
____________ _____________
Total Current Assets 1,317,163 1,443,072
Property and equipment, at cost, using full
cost method for oil and gas properties 21,657,583 21,643,280
Accumulated depletion, depreciation
and amortization (4,414,775) (4,299,078)
____________ ____________
17,242,808 17,344,202
Land 1,700,000 1,700,000
Other assets 463,246 272,064
____________ ____________
Total Assets $ 20,723,217 $ 20,759,338
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 552,423 $ 643,754
Current portion of long-term debt 1,593,100 1,392,299
Current portion of accrued abandonment costs 546,641 716,144
Accrued interest payable 51,577 50,566
Accrued income taxes payable 73,400 55,400
____________ ____________
Total Current Liabilities 2,817,141 2,858,163
Long-Term Debt, less current portion 4,350,000 4,450,000
Accrued Abandonment Costs, less current portion 1,815,539 1,924,321
Dividends payable on preferred stock 1,529,243 1,456,442
Cumulative Convertible Preferred Stock 1,456,048 1,456,048
Common Stock 344,675 343,791
Additional Paid in Capital 13,291,287 13,210,354
Accumulated deficit since January 1, 1990 (4,880,716) (4,939,781)
____________ ___________
Total Liabilities and
Stockholders' Equity $ 20,723,217 $ 20,759,338
============ ============
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
Ended March 31,
_________________________
1995 1994
____________ ____________
Revenue from operations:
Pipeline operations $ 1,185,208 $ 1,204,400
Oil and gas sales and operating fees 293,395 505,646
____________ ____________
REVENUE FROM OPERATIONS 1,478,603 1,710,046
Cost of operations:
Pipeline operating expenses 281,964 239,799
Lease operating expenses 247,125 198,696
Repairs and maintenance costs 80,971 201,778
Depletion, depreciation, and amortization 152,622 175,438
____________ ____________
COST OF OPERATIONS 762,682 815,711
____________ ____________
715,921 894,335
Other income (expense):
General and administrative (359,437) (351,928)
Interest expense (146,217) (169,882)
Interest and other income 3,780 35,797
____________ ____________
INCOME BEFORE INCOME TAXES 214,047 408,322
Provision for income taxes 82,181 166,055
____________ ___________
INCOME BEFORE EXTRAORDINARY ITEM 131,866 242,267
Extraordinary item-gain from early retirement
of debt, net of income taxes --- 616,695
____________ ____________
NET INCOME 131,866 858,962
Dividend requirements on preferred stock 72,801 72,801
____________ ____________
Net income applicable to common stockholders $ 59,065 $ 786,161
============ ============
Net income per primary common share, $ --- $ 0.013
extraordinary item ============ ============
Net income per primary common share $ 0.001 $ 0.016
============ ============
Weighted average number of common and common
equivalent shares outstanding (primary) 47,167,138 48,378,573
============ ============
Net income per common share (fully diluted) $ 0.014
============
Weighted average number of common shares
(fully diluted) 63,451,366
============
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three Months
Ended March 31,
__________________________
1995 1994
___________ _____________
OPERATING ACTIVITIES
Net income $ 131,866 $ 858,962
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary gain-early retirement of debt --- (616,695)
Depletion, depreciation and amortization 152,622 175,438
Gain on sale of securities --- (38,358)
Charge in lieu of taxes 67,931 129,955
Changes in operating assets and liabilities:
(Increase) Decrease in trade accounts receivable 20,702 (42,331)
(Increase) in prepaid expenses, crude inventory
and other assets (274,701) (38,287)
(Decrease) in accounts payable and accrued
expenses (371,454) (36,609)
____________ ____________
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (273,034) 392,075
INVESTING ACTIVITIES
Purchases of property and equipment (13,502) (246,535)
Proceeds from redemption of investments --- 305,688
Exploration and development costs (800) (44,857)
____________ ____________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (14,302) 14,296
FINANCING ACTIVITIES
Payments on borrowings (399,199) (5,560,627)
Proceeds from borrowings 500,000 5,321,650
Funds escrowed for abandonment costs (31,004) (20,000)
Net proceeds from capital funding 13,886 56,260
____________ ____________
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 83,683 (202,717)
____________ ____________
INCREASE (DECREASE) IN CASH (203,653) 203,654
CASH AT BEGINNING OF YEAR 434,157 650,933
____________ ____________
CASH AT MARCH 31, $ 230,504 $ 854,587
============ ============
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ 144,129 $ 506,000
============ ============
Income taxes paid $ --- $ 40,000
============ ============
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a review of certain aspects of the financial condition
and results of operations of the Company and should be read in
conjunction with the Condensed Consolidated Financial Statements of the
Company included in Item 1. of this report.
For the three months ended March 31, 1995, revenues decreased $231,443
or 14% to $1,478,603 compared to revenues of $1,710,046 for the three
months ended March 31, 1994. Excluding a $616,695 extraordinary gain
reflected in the three months ended March 31, 1994, first quarter 1995
net income decreased $110,401 or 45% to $131,866 compared to net income
of $242,267 before the extraordinary gain in 1994.
Results for both the first quarter 1995 and 1994 included provisions for
income taxes of $82,181 and $483,747 respectively, of which $67,931 and
$447,647 are offset with increases to paid in capital, reflecting
utilization of net operating loss carryforwards that were incurred prior
to a quasi-reorganization recorded at December 31, 1989.
FINANCIAL CONDITION
Working capital and liquidity have been adversely affected by reduced
Buccaneer Field production, lower gas prices received for Buccaneer
Field gas sales and unscheduled well repairs. While transportation
revenues were generally flat for both the first quarter 1995 and 1994,
increased oil and condensate throughput offset reduced gas volumes.
Although no significant change is expected in the Company's oil and gas
production activities in the short term, revenues from its pipeline
operations business segment are expected to improve. During the first
quarter 1995, producers in two Galveston Area fields transporting
production through the Blue Dolphin Pipeline drilled and completed new
wells with production commencing late in the first quarter 1995. A
third existing producer drilled and completed a new development well.
Production from the well commenced in May 1995. A second well in the
field was spud in April 1995 and is now drilling. Additionally, two new
field discoveries have recently been reported in Galveston Area lease
blocks in the vicinity of the Blue Dolphin Pipeline. The Company is
aggressively competing to provide transportation services for these
fields. Tie-in decisions are expected during the second quarter 1995
with production operations expected to commence during the third
quarter.
The Company expects that funds available from its reducing revolving
credit facility and funds generated through its regular operations will
provide sufficient liquidity to meet anticipated obligations during
1995.
At March 31, 1995, the Company's working capital deficit (current assets
less current liabilities) increased by $84,887 to $1,499,978 compared
with a working capital deficit of $1,415,091 at December 31, 1994.
The Company's $10,000,000 reducing revolving credit facility with Bank
One, Texas, N.A. provides for the borrowing availability and reducing
amount to be redetermined semi-annually or at such other times as may be
requested by the company. In March 1995, the borrowing base was
increased from $5,300,000 to $5,800,000. Effective May 1, 1995, the
borrowing base was increased from $5,500,000 to $6,100,000, reducing by
$175,000 per month beginning June 1, 1995. The facility was made
available for debt retirement and consolidation, and to finance working
capital needs, including the acquisition of oil and gas reserve based
assets.
The Loan Agreement includes certain restrictive covenants, including
restrictions on the payment of dividends on capital stock, and the
maintenance of certain financial coverage ratios.
In November 1992, a subsidiary of the Company, Ivory Production Co.
("Ivory") entered into a Farmout agreement with a third party
("Farmee"). The initial well under the Farmout Agreement was drilled in
1993. As a result of regulatory delays, production did not commence
until March 1994. The drilling option under which the Farmee could earn
additional acreage expired March 27, 1995.
As a result of filing development plans under the Farmout Agreement, the
Minerals Management Service ("MMS") required Ivory provide additional
security to ensure it could meet future abandonment obligations
associated with the Buccaneer Field. In February 1994, Ivory and the
MMS agreed on the amount of the future obligations and the form of such
security.
As additional security for its meeting future Buccaneer Field
abandonment obligations, Ivory provided the MMS with a $700,000
supplemental surety bond. Additionally, a sinking fund was established
in April 1994 wherein the greater of the net proceeds from the farmout
acreage or $250,000 annually is being set aside until a total of
approximately $2,300,000 has been accumulated to meet end of lease
abandonment and site clearance obligations. The remaining useful life
of the major Buccaneer Field facilities is estimated to be in excess of
ten years.
In 1993, Ivory entered into a "turnkey" agreement with a third party
contractor to physically abandon certain wells and satellite platform
facilities for which Ivory had previously determined had no further
utility in future development of the Buccaneer Field. Work to abandon
these facilities began in January 1994 and was completed in June 1994,
at a cost of approximately $1,810,000. Vendor financing was provided
under the agreement. Payments of approximately $412,000 will be due
during the remainder of 1995 and $532,000 will be due in 1996.
In August 1994, Blue Dolphin Exploration Company, a division of Ivory,
initiated a program to develop drillable oil and gas prospects offshore
in the Gulf of Mexico for sale to industry. The program utilizes the
latest technology in 3-D seismic processing. A 3-D seismic data
acquisition agreement has been arranged whereby a minimum of $1,500,000
will be committed over a five year period to acquire 3-D seismic data.
The Company has generated two prospects which are ready for sale, with
work progressing on additional prospects. Prior to sale of the initial
two prospects, the Company is attempting to attract program underwriting
through which advance payments would be received by the Company to
offset future prospect generation costs. The Company believes that
individual sale of prospects, if underwriting is not currently obtained,
will provide funding for a program of a more limited size. The Company
does not intend to invest in the development of a significant prospect
inventory at this time, but rather will limit its investment to
prospects salable shortly after completion, to limit out of pocket costs
associated with the program.
In March 1995, the Company completed acquisition of Petroport, L.C.
Petroport, L.C. holds proprietary technology, represented by certain
patents issued and/or pending, associated with the development and
operation of an offshore deepwater crude oil and products port and
storage facility. The form of the transaction was a merger of
Petroport, L.C. into Petroport, Inc., a wholly owned subsidiary of the
Company.
Consideration paid included a small amount of cash and future
consideration contingent upon the successful development and operation
of the primary Petroport facility, planned for the western Gulf of
Mexico off the Texas coast. The contingent consideration primarily
includes the issuance of Common Stock, with issuance dependent upon
successful completion of the facility and maintaining a prespecified
throughput volume.
The Petroport offshore terminal and storage facility will receive and
store imported crude oil and refined products with deliveries into U.S.
markets. Petroport will provide importers with a competitive and
environmentally attractive alternative to the lightering of large
tankers as well as low cost, long-term storage of crude oil and
products. Cost of the facility is currently estimated at approximately
$500 million, with operations expected to commence in late 1998 or early
1999.
Petroport represents a new business segment for the Company. At this
time, the Company is developing its business plan focusing on initial
activities, including determination of financing requirements and
alternatives, associated with the project.
In general, the Company believes that it has or can obtain adequate
capital resources and liquidity to continue to finance and otherwise
meet its anticipated business requirements. However, if the Company's
or its transportation system customers' oil and gas production were to
substantially decline, or if prices for the Company's oil and gas
production substantially decline or if purchases by Dow and the
Company's other oil and gas transportation system customers are
substantially curtailed, the Company's cash needs could impose
significant additional financing requirements on the Company. Depending
upon the timing and amounts of required payments, restrictions in
certain of the Company's outstanding debt instruments, and other
factors, the liquidity of the Company could be adversely affected, with
the Company not being able to raise all of the funds needed. Even if it
were able to finance such amounts, the financing could place severe
restrictions on capital resources and business operations.
RESULTS OF OPERATIONS
Net income of $131,866 for the three months ended March 31, 1995,
("current period") represents a decrease of $727,096 or 85%, compared to
net income of $858,962 reported for the corresponding period of the
previous year ("previous period"). Previous period net income included
an extraordinary gain from early retirement of debt of $616,695.
REVENUES:
Revenues for the current period decreased from those of the previous
period by $231,443 or 14%.
Revenues from pipeline operations decreased by $19,192 or 2% during the
current period. Gas transportation revenues decreased by $231,907 during
the current period from the previous period, due primarily to production
declines. The decrease in gas transportation revenues was substantially
offset by an increase in oil transportation revenues of $212,715
resulting from new production volumes from an existing shipper. The
additional volumes began in the third quarter of 1994.
Oil and gas sales and operating fees decreased in the current period
from those of the previous period by $212,252. Gas sales decreased
$204,009 due to a 54% decline in gas production and downtime associated
with well repairs in March 1995.
COSTS AND EXPENSES:
Pipeline operating expenses for the current period increased by $42,165
from those of the previous period. The increase was due primarily to
increases in contract labor costs and costs for general operating
supplies.
Lease operating expenses for the current period increased by $48,429
from those of the previous period. The increase was also due primarily
to increases in contract labor costs and costs for general operating
supplies.
Repairs and maintenance costs for the current period decreased by
$120,807. The decrease is primarily due to previous period non-
recurring costs of approximately $160,000 associated with repairs to the
Blue Dolphin Pipeline. Costs of approximately $40,000 were incurred in
the current period for repairs to the Company's offshore production
facilities.
Depletion, depreciation, and amortization expense for the current period
decreased by $22,816 compared to the previous period. The decrease
resulted from decreased depletion due to decreased gas sales in the
current period.
Interest expense decreased $23,666 in the current period from the
previous period due primarily to the early retirement of debt in the
previous period.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company's definitive Proxy Statement, dated April 14, 1995, for the
Annual Meeting of Stockholders is incorporated by reference herein.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
A) Exhibits - None
B) Form 8-K - Form 8-K dated March 23, 1995, relating to the
acquisition of Petroport, L.C.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: BLUE DOLPHIN ENERGY COMPANY
Date: May 12, 1995
Michael J. Jacobson
Michael J. Jacobson
President and Chief Executive Officer
G. Brian Lloyd
G. Brian Lloyd
Secretary and Treasurer