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: SEPTEMBER 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.
35,214,738 shares $.01 par value outstanding at November 14, 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
September 30, December 31,
1995 1994
_____________ ______________
(Unaudited)
ASSETS
Current Assets:
Cash $ 3,969,803 $ 434,157
Trade accounts receivable 1,451,295 774,362
Crude oil inventory 21,650 17,350
Prepaid expenses 48,961 113,754
_____________ _____________
Total Current Assets 5,491,709 1,339,623
Property and Equipment, at cost, using full
cost method for oil and gas properties 21,920,122 21,746,729
Accumulated depletion, depreciation
and amortization (4,168,893) (4,299,078)
_____________ _____________
17,751,229 17,447,651
Land 1,133,333 1,700,000
Other Assets 842,867 272,064
_____________ _____________
Total Assets $ 25,219,138 $ 20,759,338
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 871,145 $ 643,754
Oil and gas lease bonus payable 1,438,848 ---
Current portion of long-term debt --- 1,392,299
Current portion of accrued abandonment costs 552,875 716,144
Accrued interest payable --- 50,566
Accrued income taxes payable 453,598 55,400
_____________ _____________
Total Current Liabilities 3,316,466 2,858,163
Long-Term Debt, less current portion 10,000 4,450,000
Accrued Abandonment Costs, less current portion 1,335,358 1,924,321
Deferred income taxes 467,976 ---
Dividends Payable on Preferred Stock 1,674,845 1,456,442
Cumulative Convertible Preferred Stock 1,456,048 1,456,048
Common Stock 352,064 343,791
Additional Paid-in Capital 14,311,635 13,210,354
Accumulated Earnings(Deficit) since
January 1, 1990 2,294,746 (4,939,781)
_____________ _____________
Total Liabilities and
Stockholders' Equity $ 25,219,138 $ 20,759,338
============= =============
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
Ended September 30,
_______________________
1995 1994
_____________ _____________
Revenue from operations:
Pipeline operations (See Footnotes) $ 827,377 $ 1,368,243
Oil and gas sales and operating fees 327,013 427,619
_____________ _____________
REVENUE FROM OPERATIONS 1,154,390 1,795,862
Cost of operations:
Pipeline operating expenses (See Footnotes) 242,153 290,477
Lease operating expenses 225,385 190,649
Repair and maintenance costs 116,947 197,157
Depletion, depreciation, and amortization 164,222 181,576
_____________ _____________
COST OF OPERATIONS 748,707 859,859
____________ _____________
405,683 936,003
Other income (expense):
General and administrative (328,111) (369,302)
Interest expense (103,822) (141,371)
Gain on sale of assets 8,809,114 ---
Interest and other income 28,650 1,319
_____________ _____________
INCOME BEFORE INCOME TAXES 8,811,514 426,649
Provision for income taxes (1,687,802) (171,286)
_____________ _____________
NET INCOME 7,123,712 255,363
Dividend requirements on preferred stock 72,801 72,801
_____________ _____________
Net income applicable to common stockholders $ 7,050,911 $ 182,562
============= =============
Net income per common share $ 0.148 $ 0.004
============= =============
Weighted average number of common shares and
common share equivalents outstanding 47,762,793 47,665,617
============= =============
Net income per common share (fully diluted) $ 0.112
=============
Weighted average number of common shares and
dilutive common share equivalents outstanding 63,657,649
=============
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Nine Months
Ended September 30,
______________________
1995 1994
_____________ _____________
Revenue from operations:
Pipeline operations (See Footnotes) $ 3,241,862 $ 3,926,756
Oil and gas sales and operating fees 972,179 1,429,639
_____________ _____________
REVENUE FROM OPERATIONS 4,214,041 5,356,395
Cost of operations:
Pipeline operating expenses (See Footnotes) 837,957 759,500
Lease operating expenses 650,928 598,133
Repair and maintenance costs 293,588 486,342
Depletion, depreciation, and amortization 483,280 567,405
_____________ _____________
COST OF OPERATIONS 2,265,753 2,411,380
_____________ _____________
1,948,288 2,945,015
Other income (expense):
General and administrative (1,050,007) (1,121,224)
Interest expense (405,677) (461,939)
Gain on sale of assets 8,809,114 ---
Interest and other income 37,111 37,414
_____________ _____________
INCOME BEFORE INCOME TAXES 9,338,829 1,399,266
Provision for income taxes (1,885,899) (556,428)
_____________ _____________
INCOME BEFORE EXTRAORDINARY ITEM 7,452,930 842,838
Extraordinary item-gain from early
retirement of debt, net of income taxes --- 616,695
___________ ___________
NET INCOME 7,452,930 1,459,533
Dividend requirements on preferred stock 218,403 218,403
Net income applicable to common stockholders $ 7,234,527 $ 1,241,130
========== ==========
Net income per common share, extraordinary item --- $ 0.013
==========
Net income per common share $ 0.153 $ 0.026
========== ==========
Weighted average number of common shares and
common share equivalents outstanding 47,198,495 48,129,073
========== ==========
Net income per common share (fully diluted) 0.119 $ 0.023
========== ==========
Weighted average number of common shares and
dilutive common share equivalents outstanding 62,400,983 62,812,076
========== ==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Nine Months
Ended September 30,
--------------------------
1995 1994
-------- --------
OPERATING ACTIVITIES
Net income $ 7,452,930 $ 1,459,533
Adjustments to reconcile net income to net
cash provided by operating activities:
Depletion, depreciation and amortization 483,280 567,405
Extraordinary gain-early retirement of debt --- (616,695)
Gain on sale of assets (8,809,114) ---
Gain on sale of securities --- (33,678)
Unrealized appreciation on government bonds --- (4,680)
Charge in lieu of taxes 992,573 449,128
Deferred income tax expense 467,976 ---
Changes in operating assets and liabilities:
(Increase) Decrease in trade accounts receivable (676,933) 31,214
Decrease in crude oil inventory and prepaid expenses 60,493 30,942
Increase (Decrease) in accounts payable and accrued
expenses 11,451 (754,133)
Increase in oil and gas lease bonus payable 1,438,848 ---
---------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,421,504 1,129,036
INVESTING ACTIVITIES
Oil and gas prospect generation costs (1,305,938) (103,449)
Purchases of property and equipment (183,660) (976,517)
Investment in other assets (270,456) ---
Net proceeds from sale of assets 9,940,051 ---
Net proceeds from redemption of investments --- 305,688
Exploration and development costs (1,773) (90,578)
---------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 8,178,224 (864,856)
FINANCING ACTIVITIES
Payments on borrowings (6,757,299) (5,930,667)
Proceeds from borrowings 925,000 5,321,284
Funds escrowed for future abandonment obligations (348,764) (168,378)
Net proceeds from capital funding 116,981 87,512
---------- ---------
NET CASH (USED IN)
FINANCING ACTIVITIES (6,064,082) (690,249)
---------- ---------
INCREASE (DECREASE) IN CASH 3,535,646 (426,069)
CASH AT BEGINNING OF YEAR 434,157 650,933
---------- ---------
CASH AT SEPTEMBER 30, $ 3,969,803 $ 224,864
========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ 405,677 $ 783,000
========== ==========
Income taxes paid $ 37,572 $ 78,450
========== ==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 1995
SALE OF ASSETS
Effective August 1, 1995, the Company sold a one-third interest in
its' Blue Dolphin Pipeline System and Freeport, Texas, acreage, for
$10,000,000 cash. The Blue Dolphin Pipeline System (the "Blue
Dolphin Pipeline System") consists of the Blue Dolphin pipeline,
the Buccaneer pipeline and barge loading terminal, and onshore
receiving, separation, dehydration, and general processing
facilities (the "Shore Facilities"). The Freeport, Texas, acreage
consists of 360 acres upon which are located the Shore Facilities
and associated pipeline rights-of-way and easements.
The Company recorded federal and state tax expense at statutory
rates and reduced its deferred tax valuation allowance on the gain
recognized from the sale of assets as noted above. Due to the
utilization of net operating loss carryforwards, management
believes that the deferred income tax assets more likely than not
will be realized. Accordingly, income tax expense was reduced by
the tax benefit from the decrease in the deferred income tax asset
valuation allowance attributable to post quasi-reorganization net
operating loss carryforwards of $1,444,964. The deferred tax asset
valuation allowance attributable to pre-quasi-reorganization net
operating loss carryforwards of $827,039 was credited to additional
paid-in-capital.
EARNINGS PER COMMON SHARE
Fully diluted earnings per share have not been presented for the
three months ended September 30, 1994, because conversion of the
preferred stock was antidilutive.
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.
As previously reported, the Company sold a one-third interest in its'
Blue Dolphin Pipeline System for $10,000,000, in an all cash
transaction. The sale was effective August 1, 1995.
Sale of the minority interest in the Blue Dolphin Pipeline System
represents the successful partial monetization of assets sought to
provide resources to meet planned operating and growth requirements.
Proceeds from the sale have been and/or will be used for funding
diversification and acquisition opportunities, debt retirement and for
general corporate purposes.
The transaction resulted in approximately $8,800,000 of other income
before taxes, reported as a gain on sale of assets, in the third quarter
1995. Coincident with closing the transaction on August 31, 1995, the
Company retired its' senior debt totaling approximately $5,600,000.
For the nine months ended September 30, 1995, net income increased
$5,993,397 or 411% to $7,452,930, compared to net income of $1,459,533
for the nine months ended September 30, 1994. Results for the nine
months ended September 30, 1995, included a provision for income taxes
of $1,885,899 of which, $992,573 was offset with an increase to paid-in
capital reflecting utilization of net operating loss carryforwards that
were incurred prior to a quasi-reorganization recorded at December 31,
1989, with $467,976 recorded as a deferred tax liability.
FINANCIAL CONDITION
At September 30, 1995, the Company's working capital (current assets
less current liabilities) increased by $3,693,783 to $2,175,243 as
compared with a working capital deficit of $1,518,540 at December 31,
1994. The increase in working capital is due to the receipt of the
proceeds from the sale of the one-third interest in the Blue Dolphin
Pipeline System in August 1995.
Upon receipt of the sale proceeds the Company paid down the borrowings
under its $10,000,000 reducing revolving credit facility with Bank One,
Texas, N.A. to $10,000. The borrowing base and reducing amount are
currently being redetermined. The facility is available for the
acquisition of oil and gas reserve based assets and other working
capital needs. 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.
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 1995, an
existing shipper drilled and completed three 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 producer's offshore
platform facilities were being modified to handle the increased oil
production. Production from the second and third wells has commenced,
but is being limited until the Company completes expansion of its
onshore liquids handling facilities. Existing onshore liquids handling
capacity restricts receipt of additional liquids throughput. The
Company is currently increasing the capacity of its onshore oil and
condensate handling facilities at an estimated cost of $570,000, with
completion expected by late-November 1995. Additionally, production
from a new shipper transporting both gas and oil commenced in October
1995.
The Company's 3-D seismic based offshore oil and gas prospect generation
program has identified oil and gas prospects on four offshore federal
lease blocks in the High Island Area of the Gulf of Mexico. The Company
participated in the Minerals Management Service September 13, 1995,
Western Gulf of Mexico lease sale to acquire the necessary acreage for
further development of the prospects for sale to industry. To date, the
Company has been awarded two of the lease blocks with award of the
remaining two lease blocks expected by mid-December 1995. Acquisition
cost for the four leases totals approximately $4,000,000. A 25%
interest in the four blocks has been sold to a third party participant.
The participant has provided funding for an additional 25% of the lease
acquisition costs, with such funding to be recovered by the participant
from proceeds from sale of the remaining interest. The Company is
currently pursuing the sale of the remaining interest in each prospect
to other third party participants. In addition to recovering its out of
pocket costs to develop the prospects, the Company will retain a
reversionary interest in each prospect.
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.
In general, the Company believes that it has or can obtain adequate
capital resources and liquidity to continue to meet its anticipated
business requirements.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1995, ("current
period") represents an increase of $5,993,397 or 411%, compared to net
income of $1,459,533 reported for the corresponding period of the
previous year ("previous period"). The increase in current period net
income is due to the gain on the sale of the one-third interest in the
Blue Dolphin Pipeline System. The previous period net income included
an extraordinary gain from early retirement of debt of $616,695.
REVENUES:
Revenues for the current period decreased by $1,142,354 or 21% to
$4,214,041 compared to revenues of $5,356,395 reported for the previous
period.
Revenues from pipeline operations decreased by $684,894 or 17% during
the current period. Gas transportation revenues decreased by $922,438
due primarily to a 30% reduction in gas transportation volumes which
resulted in a $768,438 reduction in revenues and the sale of the
one-third interest in the Blue Dolphin Pipeline System effective August
1, 1995, which resulted in a $154,000 reduction in revenues. The
decreased gas transportation revenues were partially offset by an
increase in revenues from transportation of oil and condensate of
$218,691, which resulted 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 $457,460. Gas sales decreased
$360,000 due to a 37% decline in Buccaneer Field gas production and a 12
1/2% decline in gas prices. Operating fees declined $79,000 due to
termination of production activities by a producer for whom the Company
provided contract operation and maintenance services.
COSTS AND EXPENSES:
Pipeline operating expenses for the current period increased by $78,457
from those of the previous period. The increase was due primarily to
incremental costs associated with the transportation and handling of
increased oil throughput. The increase in pipeline operating expenses
was partially offset by the sale of the one-third interest in the Blue
Dolphin Pipeline System effective August 1, 1995.
Lease operating expenses increased $52,795 in the current period from
those of the previous period. The increase is due to increased labor
and supply costs of $79,000, partially offset by a decrease in insurance
and contract transportation costs of $35,000.
Repair and maintenance costs for the current period decreased by
$192,754. The previous period included non-recurring costs of $160,000
associated with repairs to the Blue Dolphin pipeline, $106,000 for
required five year subsea inspection of the Buccaneer Field production
and quarters platforms, and $43,000 for general repairs to a Buccaneer
Field production platform. The current period included non-recurring
costs of $37,000 for repairs to an onshore Blue Dolphin Pipeline System
oil storage tank, $43,000 for downhole well repairs and $31,000 for
repairs to a Buccaneer Field production platform.
Depletion, depreciation, and amortization expense for the current period
decreased by $84,126 compared to the previous period. The decrease
resulted from a reduction in depletion of approximately $80,000 due to a
decline in gas sales in the current period and an approximately $12,000
decrease in depreciation resulting from the sale of the one-third
interest in the Blue Dolphin Pipeline System in August 1995.
General and administrative expenses decreased $71,215 in the current
period. This decrease is primarily due to legal expenses incurred in
the prior period of approximately $55,000 associated with the Company's
participation in hearings related to competing interstate pipeline
system rate restructurings under FERC Order No. 636.
Interest expense decreased in the current period by $56,263 as a result
of the Company retiring substantially all of its outstanding debt on
August 31, 1995, upon consummation of the sale of the minority interest
in the Blue Dolphin Pipeline System.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
A) Exhibits - None
B) Report on Form 8-K/A - Form 8-K/A dated August 31, 1995,
relating to the sale of a one-third interest
in the Blue Dolphin Pipeline System
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: November 14, 1995
Michael J. Jacobson
Michael J. Jacobson
President and Chief Executive Officer
G. Brian Lloyd
G. Brian Lloyd
Secretary and Treasurer