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, 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.
52,026,984 shares $.01 par value outstanding at August 13, 1996
---------------------------------------------------------------
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,
1996 1995
--------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash $ 2,305,047 $ 2,748,467
Trade accounts receivable 947,934 860,691
Crude oil inventory 34,640 19,180
Prepaid expenses 128,725 72,824
Current deferred taxes -- 173,188
---------- ----------
Total Current Assets 3,416,346 3,874,350
Property and Equipment, at cost, using full
cost method for oil and gas properties, including
$1,902,995 at June 30, 1996 and $2,402,796 at
December 31, 1995, of leases expected to be
sold in 1996 and 1997 23,485,801 23,335,378
Accumulated depletion, depreciation
and amortization (4,420,362) (4,267,431)
---------- ----------
19,065,439 19,067,947
Land 1,133,333 1,133,333
Escrow for abandonment costs 831,487 569,861
Other Assets 492,811 423,687
---------- ----------
Total Assets $ 24,939,416 $ 25,069,178
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 902,215 $ 1,008,251
Oil and gas lease bonus payable -- 1,375,488
Current portion of accrued abandonment costs -- 547,948
Other liabilities and accrued expenses 54,493 32,871
Accrued income taxes payable 237,688 250,100
---------- ----------
Total Current Liabilities 1,194,396 3,214,658
Long-Term Debt, less current portion 10,000 10,000
Accrued Abandonment Costs, less current portion 1,276,987 1,242,615
Deferred Income Taxes 702,587 756,602
Dividends Payable on Preferred Stock 1,893,248 1,747,646
Cumulative Convertible Preferred Stock 1,456,048 1,456,048
Common Stock 520,003 353,247
Additional Paid-in Capital 15,675,713 14,163,661
Accumulated Earnings since January 1, 1990 2,210,434 2,124,701
---------- ----------
Total Liabilities and
Stockholders' Equity $ 24,939,416 $ 25,069,178
=========== ===========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
Ended June 30,
1996 1995
---------- ----------
Revenue from operations:
Pipeline operations $ 798,690 $ 1,229,277
Oil and gas sales and operating fees 259,586 351,771
---------- ----------
REVENUE FROM OPERATIONS 1,058,276 1,581,048
Cost of operations:
Pipeline operating expenses 207,450 313,840
Lease operating expenses 158,688 178,418
Repair and maintenance costs 89,934 95,670
Depletion, depreciation, and amortization 113,381 166,436
---------- ----------
COST OF OPERATIONS 569,453 754,364
---------- ----------
488,823 826,684
Other income (expense):
General and administrative (324,469) (362,459)
Interest expense (9,382) (155,638)
Interest and other income 34,631 4,681
INCOME BEFORE INCOME TAXES 189,603 313,268
Provision for income taxes (73,870) (115,916)
---------- ----------
NET INCOME 115,733 197,352
Dividend requirements on preferred stock 72,801 72,801
---------- ----------
Net income applicable to common stockholders $ 42,932 $ 124,551
========== ==========
Net income per common share $ 0.001 $ 0.003
========== ==========
Weighted average number of common shares and
common share equivalents outstanding 47,935,067 46,659,352
========== ==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Six Months
Ended June 30,
1996 1995
--------- -----------
Revenue from operations:
Pipeline operations $ 1,599,782 $ 2,414,485
Oil and gas sales and operating fees 525,851 645,166
---------- ----------
REVENUE FROM OPERATIONS 2,125,633 3,059,651
Cost of operations:
Pipeline operating expenses 427,718 595,804
Lease operating expenses 338,924 425,543
Repair and maintenance costs 139,522 176,641
Depletion, depreciation, and amortization 245,451 319,058
---------- ----------
COST OF OPERATIONS 1,151,615 1,517,046
---------- ----------
974,018 1,542,605
Other income (expense):
General and administrative (640,240) (721,896)
Interest expense (13,587) (301,855)
Interest and other income 58,817 8,461
INCOME BEFORE INCOME TAXES 379,008 527,315
Provision for income taxes (147,673) (198,097)
---------- ----------
NET INCOME 231,335 329,218
Dividend requirements on preferred stock 145,602 145,602
---------- ----------
Net income applicable to common stockholders $ 85,733 $ 183,616
========== ==========
Net income per common share $ 0.002 $ 0.004
========== ==========
Weighted average number of common shares and
common share equivalents outstanding 48,457,547 46,914,141
========== ==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Six Months
Ended June 30,
---------------
1996 1995
--------- ----------
OPERATING ACTIVITIES
Net income $ 231,335 $ 329,218
Adjustments to reconcile net income to net
cash provided by operating activities:
Depletion, depreciation and amortization 245,451 319,058
Charge in lieu of taxes -- 169,597
Deferred income tax expense 119,173 --
Changes in operating assets and liabilities:
(Increase) Decrease in trade accounts
receivable (87,243) 4,851
(Increase) in crude oil inventory and prepaid
expenses (71,361) (97,821)
(Decrease) in accounts payable and accrued
expenses (644,649) (541,176)
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (207,294) 183,727
INVESTING ACTIVITIES
Oil and gas prospect generation costs (1,155,795) --
Purchases of property and equipment (339,352) (75,155)
Investment in other assets (107,185) (217,084)
Exploration and development costs (50,976) (1,280)
Funds escrowed for abandonment costs (261,626) (63,217)
---------- ----------
NET CASH (USED IN)
INVESTING ACTIVITIES (1,914,934) (356,736)
FINANCING ACTIVITIES
Payments on borrowings -- (751,849)
Proceeds from borrowings -- 925,000
Net proceeds from capital funding 1,678,808 90,824
---------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,678,808 263,975
---------- -----------
INCREASE (DECREASE) IN CASH (443,420) 90,966
CASH AT BEGINNING OF YEAR 2,748,467 434,157
CASH AT JUNE 30, $ 2,305,047 $ 525,123
========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ 13,587 $ 301,289
========== ===========
Income taxes paid $ 46,365 $ 37,600
========== ===========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
JUNE 30, 1996
EARNINGS PER COMMON SHARE
Fully diluted earnings per share have not been presented for 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. There are no
outstanding warrants remaining.
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 Standards ("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.
DEPLETION, DEPRECIATION AND AMORTIZATION
Effective January 1, 1996, the Company extended the estimated useful
lives of its pipelines and related shore facilities, which lives are
used to determine the rates at which provision of depreciation and
abandonment expenses are calculated. The change in the estimated useful
lives of the pipelines and related shore facilities has resulted in a
decrease in depletion, depreciation and amortization of $23,794 for the
six months ended June 30, 1996.
LONG-TERM DEBT
The Company maintains a $10,000,000 reducing revolving credit facility
with Bank One, Texas, N.A. Bank One is currently in the process of
documenting an extension of the maturity date of the facility from
January 14, 1997 to January 14, 2000.
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
included in Item 1. of this report.
FINANCIAL CONDITION
At June 30, 1996, the Company's working capital (current assets less
current liabilities) was $2,221,950, representing an increase of
$1,562,258 as compared with working capital of $659,692 at December 31,
1995. The increase in working capital was a result of the exercise of
warrants to purchase Company Common Stock in April 1996. The Company
received cash of $1,657,558 and issued 16,575,578 shares of Common
Stock. Pursuant to the rules of the full cost method of accounting for
oil and gas properties, $1,902,995 and $2,402,796 of lease acquisition
costs associated with the Company's oil and gas prospect generation
activities, which costs the Company expects to recover in 1996 and 1997
through sale of prospects, are excluded from working capital at June 30,
1996 and December 31, 1995, respectively.
The Company maintains a $10,000,000 reducing revolving credit facility
with Bank One, Texas, N.A. Effective December 1, 1995, the borrowing
base was adjusted to $3,335,000, reducing by $155,000 per month
beginning January 1, 1996. The borrowing base is currently being
redetermined. The borrowing base and reducing amount are redetermined
semi-annually. Maturity date is January 14, 1997, when the then
outstanding principal balance, if any, is due and payable. Bank One is
currently in the process of documenting an extension of the facility
maturity date from January 14, 1997 to January 14, 2000. The current
outstanding balance under the credit facility is $10,000. 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.
Offshore activity in the vicinity of the Blue Dolphin Pipeline has
remained active. The Company is currently negotiating agreements for
provision of transportation and related services for a new discovery in
the vicinity of the Blue Dolphin Pipeline. Production operations are
expected to commence during late third quarter or early fourth quarter
1996.
In April 1996, the Company reperforated a currently producing well in
the Buccaneer Field, resulting in a moderate increase in production.
The Company is currently evaluating application of horizontal drilling
and new completion techniques to existing shut-in wells in the Field.
If feasible, additional drilling in the Field utilizing these recovery
methods could commence in 1997.
The current focus of the Company's 3-D seismic based offshore oil and
gas prospect generation program is the development of biddable prospects
for the upcoming Federal Western Gulf of Mexico and Texas State Lease
Sales in September and October 1996, respectively. Agreements are being
negotiated with various partners to form a bidding group to participate
in the above sales.
The Company purchased four lease blocks in the High Island Area of the
Gulf of Mexico prospective for oil and gas in the last Federal Western
Gulf of Mexico lease sale. Approximately $2,000,000 was 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. One of these prospective lease blocks
was sold in June 1996. An unsuccessful well was drilled and has been
plugged and abandoned. A 43.75% interest in each of the three remaining
prospective lease blocks has been sold. Sale of the remaining interests
in each block will be pursued after additional technical development of
the prospects has been completed following the upcoming Federal and
State lease sales.
Development of the Petroport deepwater port and offshore storage
facility project has focused on pre-licensing activities and regulatory
matters. 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; facility commercial profile development; development of the
engineering design and capital and operating cost estimates; development
of the cost estimate for 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
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 to submit the Petroport deepwater port license
application and associated permit requests in 1997, with operations
commencing in the year 2000.
The Company believes that it has or can obtain adequate
capital resources to continue to meet its anticipated business
requirements.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 1996, ("current period")
represents a decrease of $97,883 or 30%, compared to net income of
$329,218 reported for the corresponding period of the previous year
("previous period").
REVENUES:
Revenues for the current period decreased by $934,018 or 31% to
$2,125,633 compared to revenues of $3,059,651 reported for the previous
period.
Revenues from pipeline operations decreased by $814,703 or 34% due
primarily to a decrease in gas transportation revenues of $461,693
resulting from a 30% reduction in gas transportation volumes and the
sale of a one-third interest in the Blue Dolphin Pipeline System in
August 1995 (the "Pipeline Sale"), which resulted in a $392,036
reduction in revenues.
Revenues from oil and gas sales and operating fees for the current
period decreased by $119,315 from those of the previous period due
primarily to a 23% reduction in gas sales volumes which resulted in a
$105,457 decrease in revenues.
COSTS AND EXPENSES:
Pipeline operating expenses for the current period decreased by $168,086
from those of the previous period. The decrease was due primarily to a
reduction of expenses of $213,399 resulting from the Pipeline Sale.
This reduction in costs was partially offset by an increase in expenses
associated with transporting increased liquids volumes, incurred prior
to the completion of onshore pipeline system modifications which were
designed to lower the operating costs of handling the increased liquids
throughput.
Lease operating expenses decreased $86,619 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 $37,119
due primarily to the Pipeline Sale.
Depletion, depreciation, and amortization expense for the current period
decreased by $73,607 compared to the previous period, due to a decrease
of approximately $55,247 in depreciation and amortization resulting from
the Pipeline Sale, and a decrease of approximately $23,794 due to the
effect on depreciation and amortization rates of extending the estimated
useful lives of the pipelines and related shore facilities.
General and administrative expenses decreased $81,656 in the current
period. The decrease is primarily due to the Pipeline Sale.
Upon consummation of the Pipeline Sale in August 1995, the Company
retired substantially all of its bank debt. Elimination of the debt
resulted in a decrease in interest expense in the current period of
$288,268.
Investment of available cash from the Pipeline Sale and exercise of
warrants resulted in a $50,356 increase in interest income 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 14, 1996 -------------------------------
Michael J. Jacobson
Michael J. Jacobson
President and Chief Executive Officer
-------------------------------
G. Brian Lloyd
G. Brian Lloyd
Secretary and Treasurer