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: JUNE 30, 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. 34,957,118 shares $.01 par value outstanding at August 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 June 30, December 31, 1995 1994 ____________ ____________ (Unaudited) ASSETS Current Assets: Cash $ 525,123 $ 434,157 Trade accounts receivable 769,512 774,362 Inventory 7,210 17,350 Prepaid expenses and other current assets 325,164 217,203 ____________ _____________ Total Current Assets 1,627,009 1,443,072 Property and equipment, at cost, using full cost method for oil and gas properties 21,503,080 21,643,280 Accumulated depletion, depreciation and amortization (4,322,884) (4,299,078) ____________ ____________ 17,180,196 17,344,202 Land 1,700,000 1,700,000 Other assets 520,118 272,064 ____________ ____________ Total Assets $ 21,027,323 $ 20,759,338 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 652,273 $ 749,720 Current portion of long-term debt 2,190,450 1,392,299 Current portion of accrued abandonment costs 570,989 716,144 ____________ ____________ Total Current Liabilities 3,413,712 2,858,163 Long-Term Debt, less current portion 3,825,000 4,450,000 Accrued Abandonment Costs, less current portion 1,672,118 1,924,321 Dividends Payable on Preferred Stock 1,602,044 1,456,442 Cumulative Convertible Preferred Stock 1,456,048 1,456,048 Common Stock 349,405 343,791 Additional Paid in Capital 13,465,161 13,210,354 Accumulated Deficit since January 1, 1990 (4,756,165) (4,939,781) ____________ ___________ Total Liabilities and Stockholders' Equity $ 21,027,323 $ 20,759,338 ============ ============ BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS - UNAUDITED Three Months Ended June 30, _________________________ 1995 1994 ____________ ____________ Revenue from operations: Pipeline operations $ 1,229,277 $ 1,354,113 Oil and gas sales and operating fees 351,771 496,374 ____________ ____________ REVENUE FROM OPERATIONS 1,581,048 1,850,487 Cost of operations: Pipeline operating expenses 313,840 229,224 Lease operating expenses 178,418 208,788 Repair and maintenance costs 95,670 87,407 Depletion, depreciation, and amortization 166,436 210,391 ____________ ____________ COST OF OPERATIONS 754,364 735,810 ____________ ____________ 826,684 1,114,677 Other income (expense): General and administrative (362,459) (399,994) Interest expense (155,638) (150,686) Interest and other income 4,681 298 ____________ ____________ INCOME BEFORE INCOME TAXES 313,268 564,295 Provision for income taxes (115,916) (219,087) ____________ ___________ NET INCOME 197,352 345,208 Dividend requirements on preferred stock 72,801 72,801 ____________ ____________ Net income applicable to common stockholders $ 124,551 $ 272,407 ============ ============ Net income per common share $ 0.003 $ 0.006 ============ ============ Weighted average number of common and common equivalent shares outstanding 46,659,352 48,337,968 ============ ============ Net income per common share (fully diluted) $ 0.005 ============ Weighted average number of common and common equivalent shares outstanding (fully diluted) 62,898,443 ============ BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS - UNAUDITED Six Months Ended June 30, ---------------------------- 1995 1994 ------------- ------------- Revenue from operations: Pipeline operations $ 2,414,485 $ 2,558,513 Oil and gas sales and operating fees 645,166 1,002,020 ------------- ------------- REVENUE FROM OPERATIONS 3,059,651 3,560,533 Cost of operations: Pipeline operating expenses 595,804 469,023 Lease operating expenses 425,543 407,484 Repair and maintenance costs 176,641 289,185 Depletion, depreciation, and amortization 319,058 385,829 ------------- ------------- COST OF OPERATIONS 1,517,046 1,551,521 ------------- ------------- 1,542,605 2,009,012 Other income (expense): General and administrative (721,896) (751,921) Interest expense (301,855) (320,568) Interest and other income 8,461 36,095 ------------- ------------- INCOME BEFORE INCOME TAXES 527,315 972,618 Provision for income taxes (198,097) (385,142) ------------- ------------- INCOME BEFORE EXTRAORDINARY ITEM 329,218 587,476 Extraordinary item-gain from early retirement of debt, net of income taxes --- 616,695 ------------- ------------- NET INCOME 329,218 1,204,171 Dividend requirements on preferred stock 145,602 145,602 ------------- ------------- Net income applicable to common stockholders $ 183,616 $ 1,058,569 ============= ============= Net income per common share, extraordinary item --- $ 0.013 ============= Net income per common share $ 0.004 $ 0.022 ============= ============= Weighted average number of common and common equivalent shares outstanding 46,914,141 48,358,971 ============= ============= Net income per common share (fully diluted) $ 0.019 ============= Weighted average number of common and common equivalent shares outstanding (fully diluted) 63,103,237 ============= BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED Six Months Ended June 30, --------------------------- 1995 1994 ----------- ------------- OPERATING ACTIVITIES Net income $ 329,218 $ 1,204,171 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary gain-early retirement of debt, net of income taxes --- (616,695) Depletion, depreciation and amortization 319,058 385,829 Gain on sale of securities --- (33,678) Unrealized appreciation on government bonds --- (4,680) Charge in lieu of taxes 169,597 312,942 Changes in operating assets and liabilities: (Increase) Decrease in trade accounts receivable 4,851 (13,017) (Increase) Decrease in prepaid expenses, crude inventory and other assets (97,821) 6,127 (Decrease) in accounts payable and accrued expenses (541,176) (631,019) ----------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 183,727 609,980 INVESTING ACTIVITIES Purchases of property and equipment (75,155) (567,038) Investment in other assets (217,084) --- Proceeds from redemption of investments --- 305,688 Exploration and development costs (1,280) (89,784) ----------- ------------- NET CASH (USED IN) INVESTING ACTIVITIES (293,519) (351,134) FINANCING ACTIVITIES Payments on borrowings (751,849) (5,664,470) Proceeds from borrowings 925,000 5,321,284 Funds escrowed for future abandonment obligations (63,217) (87,657) Net proceeds from capital funding 90,824 56,260 ----------- ------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 200,758 (374,583) ----------- ------------- (INCREASE) DECREASE IN CASH 90,966 (115,737) CASH AT BEGINNING OF YEAR 434,157 650,933 ----------- ------------- CASH AT JUNE 30, $ 525,123 $ 535,196 =========== ============= SUPPLEMENTARY CASH FLOW INFORMATION Interest paid $ 301,289 $ 657,000 =========== ============= Income taxes paid $ 37,600 $ 69,450 =========== ============= 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. First half 1995 revenues declined 14% to $3,059,651 compared to revenues of $3,560,533 reported for the first half 1994. Excluding a $616,695 extraordinary gain recorded in the first half 1994, first half 1995 net income decreased $258,258 or 44% to $329,218 compared to net income of $587,476 in the first half 1994. Both first half 1995 and 1994 included provisions for income taxes of $198,097 and $702,833 respectively, of which $169,597 and $630,633 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 and lower gas prices received for Buccaneer Field gas sales. First half 1995 transportation revenues decreased slightly from first half 1994. Lower gas throughput was offset in part by increased oil and condensate throughput. Additionally, an increase in the current portion of long term debt has resulted in an increase in the working capital deficit. 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 half 1995, an existing shipper drilled and completed two new oil wells. Production from the first well commenced in May 1995. However, production was shut-in during most of June and July while the offshore platform facilities were being modified to handle the increased oil production. The Company is planning to increase the capacity of its onshore oil and condensate facilities. Costs associated with the onshore capacity expansion are estimated to be $550,000, with completion of the modifications expected by mid-November 1995. The Company plans to fund the expansion with its reducing revolving credit facility and/or vendor financing. At June 30, 1995, the Company's working capital deficit (current assets less current liabilities) increased by $371,612 to $1,786,703 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. 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. The Company's 3-D seismic based offshore prospect generation program has resulted in generation of several prospects available for sale. Discussions with potential program participants and/or candidates for the purchase of individual prospects are ongoing. The Company does not intend to invest in the development of a significant prospect inventory, 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 acquisition of Petroport, L.C. was completed. 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 1999. The Company is continuing to evaluate resources needed to meet current working capital and growth requirements. Combinations of utilization of the existing credit facility, vendor financings, asset monetization and additional investment in the Company will be sought to meet requirements and goals. 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 for the six months ended June 30, 1995, ("current period") represents a decrease of $874,953 or 73%, compared to net income of $1,204,171 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 $500,882 or 14%. Revenues from pipeline operations decreased by $144,028 or 6% during the current period. Gas transportation revenues decreased by $531,854 due primarily to production declines. However, the decrease in gas transportation revenues were substantially offset by an increase in oil transportation revenues of $388,702, resulting from an increase in throughput volumes from an existing shipper. Oil and gas sales and operating fees decreased in the current period from those of the previous period by $356,854. Gas sales decreased $294,574 due to a 44% decline in Buccaneer Field gas production and a 12% decline in gas prices. COSTS AND EXPENSES: Pipeline operating expenses for the current period increased by $126,781 from those of the previous period. The increase was due primarily to incremental costs associated with the transportation and handling of increased oil throughput. Repair and maintenance costs for the current period decreased by $112,544. The decrease was due primarily to non-recurring costs of approximately $160,000 associated with repairs to the Blue Dolphin Pipeline in the previous period, offset in part by non-recurring maintenance costs associated with the Company's offshore production facilities incurred in the current period. Depletion, depreciation, and amortization expense for the current period decreased by $66,771 compared to the previous period. The decrease resulted from decreased depletion due to decreased gas sales in the current period. BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORT ON FORM 8-K A) Exhibits - None B) Form 8-K - None 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: August 11, 1995 Michael J. Jacobson Michael J. Jacobson President and Chief Executive Officer G. Brian Lloyd G. Brian Lloyd Secretary and Treasurer