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, 1996
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.
52,000,317 SHARES $.01 PAR VALUE OUTSTANDING OR IN THE PROCESS OF
DISTRIBUTION AT MAY 14, 1996 (INCLUDES 16,575,578 SHARES ISSUABLE FOR
WARRANTS EXERCISED ON APRIL 30, 1996, WHICH SHARES ARE IN THE PROCESS OF
DISTRIBUTION)
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,
1996 1995
---------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash $ 1,193,362 $ 2,748,467
Trade accounts receivable 779,711 860,691
Crude oil inventory 17,858 19,180
Prepaid expenses 103,818 72,824
Current deferred taxes 129,891 173,188
---------- ----------
Total Current Assets 2,224,640 3,874,350
Property and Equipment, at cost, using full
cost method for oil and gas properties,
including $2,402,796 at March 31, 1996 and
December 31, 1995, of leases expected to be
sold in 1996 23,629,315 23,335,378
Accumulated depletion, depreciation
and amortization (4,343,659) (4,267,431)
---------- ----------
19,285,656 19,067,947
Land 1,133,333 1,133,333
Other Assets 1,069,832 993,548
---------- ----------
Total Assets $ 23,713,461 $ 25,069,178
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 971,455 $ 1,008,251
Oil and gas lease bonus payable -- 1,375,488
Current portion of long-term debt 10,000 --
Current portion of accrued abandonment costs 426,319 547,948
Other liabilities and accrued expenses 46,144 32,871
Accrued income taxes payable 266,660 250,100
---------- ----------
Total Current Liabilities 1,710,578 3,214,658
Long-Term Debt, less current portion -- 10,000
Accrued Abandonment Costs, less current portion 1,259,120 1,242,615
Deferred income taxes 772,858 756,602
Dividends Payable on Preferred Stock 1,820,447 1,747,646
Cumulative Convertible Preferred Stock 1,456,048 1,456,048
Common Stock 353,247 353,247
Additional Paid-in Capital 14,163,661 14,163,661
Accumulated Earnings since January 1, 1990 2,167,502 2,124,701
---------- ----------
Total Liabilities and
Stockholders' Equity $23,713,461 $ 25,069,178
========== ==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
Ended March 31,
1996 1995
-------- --------
Revenue from operations:
Pipeline operations $ 801,092 $ 1,185,208
Oil and gas sales and operating fees 266,265 293,395
---------- ----------
REVENUE FROM OPERATIONS 1,067,357 1,478,603
Cost of operations:
Pipeline operating expenses 220,268 281,964
Lease operating expenses 180,236 247,125
Repair and maintenance costs 49,588 80,971
Depletion, depreciation, and amortization 132,070 152,622
---------- ----------
COST OF OPERATIONS 582,162 762,682
---------- ----------
485,195 715,921
Other income (expense):
General and administrative (315,771) (359,437)
Interest expense (4,205) (146,217)
Interest and other income 24,186 3,780
---------- ----------
INCOME BEFORE INCOME TAXES 189,405 214,047
Provision for income taxes (73,803) (82,181)
---------- ----------
NET INCOME 115,602 131,866
Dividend requirements on preferred stock 72,801 72,801
---------- ----------
Net income applicable to common stockholders $ 42,801 $ 59,065
========== ==========
Net income per common share $ 0.001 $ 0.001
========== ==========
Weighted average number of common shares and
common share equivalents outstanding 48,980,027 47,167,138
========== ==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three Months
Ended March 31,
------------------------
1996 1995
OPERATING ACTIVITIES
Net income $ 115,602 $ 131,866
Adjustments to reconcile net income to net
cash provided by operating activities:
Depletion, depreciation and amortization 132,070 152,622
Charge in lieu of taxes -- 67,931
Deferred income tax expense 59,553 --
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 80,980 20,702
(Increase) in crude oil inventory and
prepaid expenses (29,672) (274,701)
(Decrease) in accounts payable and accrued
expenses (128,592) (371,454)
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 229,941 (273,034)
INVESTING ACTIVITIES
Oil and gas prospect generation costs (1,435,061) --
Purchases of property and equipment (227,024) (13,502)
Investment in other assets (45,640) --
Exploration and development costs (27,552) (800)
Funds escrowed for abandonment costs (49,769) (31,004)
---------- ----------
NET CASH (USED IN)
INVESTING ACTIVITIES (1,785,046) (45,306)
FINANCING ACTIVITIES
Payments on borrowings -- (399,199)
Proceeds from borrowings -- 500,000
Net proceeds from capital funding -- 13,886
---------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES -- 114,687
---------- ----------
(DECREASE) IN CASH (1,555,105) (203,653)
CASH AT BEGINNING OF YEAR 2,748,467 434,157
---------- ----------
CASH AT MARCH 31, $ 1,193,362 $ 230,504
========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ 4,205 $ 144,129
========== ==========
Income taxes paid $ -- $ --
========== ==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
MARCH 31, 1996
EARNINGS PER COMMON SHARE
Fully diluted earnings per share have not been presented for the three
months ended March 31, 1996 and 1995, because conversion of the
preferred stock was antidilutive.
STOCKHOLDERS EQUITY
In April 1996, 16,575,578 warrants to purchase 16,575,578 shares of the
Company's Common Stock at $.10 per share were exercised. Proceeds
received by the Company from the exercise were $1,657,558.
If the warrants had been exercised on January 1, 1995 or January 1,
1996, there would have been no effect on earnings per share.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting
for Stock- Based Compensation," was issued in October 1995. SFAS No.
123 addresses the timing and measurement of stock-based compensation
expense. The Company adopted SFAS No. 123 on January 1, 1996, with
respect to the disclosure requirements set forth therein for companies
retaining the intrinsic value approach of Accounting Principles Board
opinion No. 25.
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.
FINANCIAL CONDITION
At March 31, 1996, the Company's working capital (current assets less
current liabilities) was $514,062, representing a decrease in working
capital of $145,630 as compared with working capital of $659,692 at
December 31, 1995. Pursuant to the rules of the full cost method of
accounting for oil and gas properties, $2,402,796 of lease acquisition
costs associated with the Company's oil and gas prospect generation
activities, which the Company expects to recover in 1996 through sale of
prospects, are excluded from working capital at December 31, 1995 and
March 31, 1996.
The Company maintains a $10,000,000 reducing revolving credit facility
with Bank One, Texas, N.A. The borrowing base and reducing amount are
redetermined semi-annually. Effective December 1, 1995 the borrowing
base was adjusted to $3,335,000, reducing by $155,000 per month
beginning January 1, 1996. Maturity date is January 14, 1997, when the
then outstanding principal balance, if any, is due and payable. The
current outstanding balance under the credit facility is $10,000. The
Company intends to maintain the credit facility beyond the current
maturity date and has requested a multi-year renewal and extension of
the facility. 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.
In April 1996, warrants to purchase Company Common Stock at $0.10 per
share were exercised. The Company received proceeds of $1,657,558 and
is in the process of issuing 16,575,578 shares of Common Stock in
exchange for such payment. There are no outstanding warrants remaining.
During 1995, an existing Blue Dolphin Pipeline System shipper drilled
and completed three new oil wells. The Company modified its onshore
liquids handling facilities to accommodate receipt of the additional
liquids throughput. The cost associated with the onshore modifications,
completed in January 1996, was approximately $700,000 ($633,000 to the
Company's interest).
Offshore activity in the vicinity of the Blue Dolphin Pipeline has
remained active. The Company is aggressively competing to attract a new
discovery in the vicinity of the pipeline to its pipeline system. A
tie-in decision is expected during the second quarter 1996, with
production operations expected to commence during the third quarter
1996. Development drilling and well workovers on two blocks currently
tied-in to the Blue Dolphin Pipeline System have recently been
completed. Additional production from the first block began in February
1996, and production from the second block is expected to commence in
May 1996.
In April 1996, the Company reperforated a currently producing well in
its Buccaneer Field, resulting in a moderate increase in production.
Additional work in the well is planned in 1996, with the objective to
further increase production. The Company is evaluating application of
horizontal drilling and new completion techniques to existing shut-in
wells in the Field. If feasible, initial application of these recovery
methods could commence during the later half of 1996.
The Company's 3-D seismic based offshore oil and gas exploration
prospect generation program has identified four lease blocks in the High
Island Area of the Western Gulf of Mexico prospective for oil and gas.
Approximately $2,000,000 has been invested to acquire the necessary
acreage for further prospect development, in addition to costs of
approximately $400,000 associated with technical development of the
prospects.
Through April 1996, the Company has received third party commitments for
the purchase of one of the prospect blocks, and has sold a 25% interest
in each of the three remaining prospective lease blocks. Sale of the
remaining interests in each block is being aggressively pursued as well
as developing third party program underwriting to support future
prospect development activities.
Development of the Petroport deepwater port and offshore storage
facility project has focused on pre-licensing activities and certain
specific regulatory issues. Major pre-licensing activities include:
development of support for the project from both Federal and State
agencies that have jurisdiction over or impact deepwater port licensing,
construction and operation; development of the facility's commercial
profile; development of the engineering design and capital and operating
cost estimates; development of the cost of obtaining the necessary
license and permits; and development of a financing strategy.
It is currently estimated that pre-licensing costs will total between
$1,000,000 - $1,250,000. A financing strategy will be developed during
1996 addressing funding requirements for both the remaining
pre-licensing activities and the actual licensing and permitting
process. Total cost of the facility is currently estimated at
approximately $500 million.
The Company expects the Petroport deepwater port license application and
associated permit requests will be submitted in 1997, with operations
commencing in the year 2000.
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 three months ended March 31, 1996, ("current period")
represents a decrease of $16,264 or 12%, compared to net income of
$131,866 reported for the corresponding period of the previous year
("previous period").
REVENUES:
Revenues for the current period decreased by $411,246 or 28% to
$1,067,357 compared to revenues of $1,478,603 reported for the previous
period.
Revenues from pipeline operations decreased by $384,116 or 32% during
the current period. Gas transportation revenues decreased by $370,508
due to a 29% reduction in gas transportation volumes which resulted in a
$156,521 reduction in revenues and the sale of a one-third interest in
the Blue Dolphin Pipeline System effective August 1, 1995 (the "Pipeline
Sale"), which resulted in a $200,560 reduction in revenues.
COSTS AND EXPENSES:
Pipeline operating expenses for the current period decreased by $61,696
from those of the previous period. The decrease was due primarily to
the Pipeline Sale resulting in a reduction of expenses of $108,145,
partially offset by an increase in expenses associated with transporting
increased liquids volumes, incurred prior to the completion of onshore
pipeline system modifications designed to lower the operating costs of
handling the increased liquids throughput.
Lease operating expenses decreased $66,889 in the current period from
those of the previous period. The decrease is due to cost reductions
for chemicals and other operating supplies realized in the current
period.
Repair and maintenance costs for the current period decreased by $31,383
due primarily to costs totalling approximately $40,000 incurred in the
prior period for repairs to the Company's offshore production
facilities.
Depletion, depreciation, and amortization expense for the current period
decreased by $20,552 compared to the previous period, due primarily to a
decrease of approximately $12,000 in depreciation resulting from the
Pipeline Sale.
General and administrative expenses decreased $43,666 in the current
period. The decrease is primarily due to the Pipeline Sale.
Interest expense decreased in the current period by $142,012 as a result
of the Company retiring substantially all of its bank debt in August
1995, upon consummation of the Pipeline Sale.
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 12,
1996, 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 - 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: May 13, 1996
Michael J. Jacobson
Michael J. Jacobson
President and Chief Executive Officer
G. Brian Lloyd
G. Brian Lloyd
Secretary and Treasurer