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, 1997
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.
66,819,125 SHARES $.01 PAR VALUE OUTSTANDING AT APRIL 28, 1997
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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,
1997 1996
--------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash $ 724,770 $ 1,207,323
Trade accounts receivable 710,272 744,283
Crude oil inventory 29,120 28,460
Prepaid expenses 99,713 70,340
---------- ----------
Total Current Assets 1,563,875 2,050,406
Property and Equipment, at cost, using full cost
method for oil and gas properties. Includes
$1,902,995 of leases held for sale at 24,138,186 24,029,957
March 31, 1997 and December 31, 1996
Accumulated depletion, depreciation
and amortization (4,621,717) (4,535,945)
---------- ----------
19,516,469 19,494,012
Land 1,133,333 1,133,333
Other Assets 1,619,271 1,548,860
---------- ----------
Total Assets $23,832,948 $24,226,611
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 524,785 $ 1,094,473
Accrued interest payable 51,827 -
Accrued income taxes payable 64,830 38,820
---------- ----------
Total Current Liabilities 641,442 1,133,293
Long-Term Debt, less current portion 2,060,600 2,060,600
Accrued Abandonment Costs, less current portion 716,875 798,185
Deferred Income Taxes 692,860 633,956
Common Stock 668,191 667,691
Additional Paid-in Capital 17,012,837 17,007,087
Accumulated Earnings since January 1, 1990 2,040,143 1,925,799
---------- ----------
Total Liabilities and
Stockholders' Equity $23,832,948 $24,226,611
========== ==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
Ended March 31,
1997 1996
-------- --------
Revenue from operations:
Pipeline operations $ 911,029 $ 801,092
Oil and gas sales and operating fees 247,791 266,265
---------- ----------
REVENUE FROM OPERATIONS 1,158,820 1,067,357
Cost of operations:
Pipeline operating expenses 212,490 220,268
Lease operating expenses 145,886 180,236
Repair and maintenance costs 153,782 49,588
Depletion, depreciation, and amortization 105,049 132,070
---------- ----------
COST OF OPERATIONS 617,207 582,162
---------- ----------
541,613 485,195
Other income (expense):
General and administrative (325,022) (315,771)
Interest expense (56,433) (4,205)
Interest and other income 27,340 24,186
---------- ----------
INCOME BEFORE INCOME TAXES 187,498 189,405
Provision for income taxes (73,154) (73,803)
---------- ----------
NET INCOME (LOSS) 114,344 115,602
Dividend requirements on preferred stock - 72,801
---------- ----------
Net income applicable to common stockholders $ 114,344 $ 42,801
========== ==========
Net income per common share $ 0.002 $ 0.001
========== ==========
Weighted average number of common shares and common
share equivalents outstanding 67,755,800 48,980,027
========== ==========
Net income per common share (fully diluted) $ 0.002
==========
Weighted average number of common shares and dilutive
common share equivalents outstanding 67,755,800
==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three Months
Ended March 31,
1997 1996
-------- --------
OPERATING ACTIVITIES
Net income $ 114,344 $ 115,602
Adjustments to reconcile net income to net cash provided by
operating activities:
Depletion, depreciation and amortization 105,049 132,070
Deferred income taxes 58,904 59,553
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 34,011 80,980
(Increase) in crude oil inventory and prep (30,033) (29,672)
(Decrease) in accounts payable and
other current liabilities (491,851) (128,592)
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (209,576) 229,941
INVESTING ACTIVITIES
Oil and gas prospect generation costs (94,867) (1,435,061)
Purchases of property and equipment (6,897) (254,576)
Increase in other assets (32,590) (45,640)
Funds escrowed for abandonment costs (47,331) (49,769)
Abandonment of oil and gas properties (97,542) -
---------- ----------
NET CASH (USED IN)
INVESTING ACTIVITIES (279,227) (1,785,046)
FINANCING ACTIVITIES
Net proceeds from the exercise of stock options 6,250 -
---------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 6,250 -
---------- ----------
(DECREASE) IN CASH (482,553) (1,555,105)
CASH AT BEGINNING OF YEAR 1,207,323 2,748,467
---------- ----------
CASH AT MARCH 31, $ 724,770 $ 1,193,362
========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ 4,606 $ 4,205
========== ==========
Income taxes paid $ - $ -
---------- ----------
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
MARCH 31, 1997
EARNINGS PER COMMON SHARE
Fully diluted earnings per share has not been presented for the three
months ended March 31, 1996 because conversion of the preferred stock
was antidilutive. All outstanding preferred shares were converted to an
equivalent number of common shares effective December 31, 1996.
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.
Certain of the statements included below, including those regarding
future financial performance or results, or that are not historical
facts, are or contain "forward-looking" information as that term is
defined in the Securities Act of 1933, as amended. The words "expect,"
"believe," "anticipate," "project," "estimate," and similar expressions
are intended to identify forward-looking statements. The Company
cautions readers that any such statements are not guarantees of future
performance or events and such statements involve risks, uncertainties
and assumptions, including but not limited to industry conditions,
prices of crude oil and natural gas, regulatory changes, general
economic conditions, interest rates, competition, and other factors
discussed below. Should one or more of these risks or uncertainties
materialize or should the underlying assumptions prove incorrect, actual
results and outcomes may differ materially from those indicated in the
forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
FINANCIAL CONDITION
At March 31, 1997, the Company's working capital (current assets less
current liabilities) was $922,433, representing an increase of $5,320 as
compared with working capital of $917,113 at December 31, 1996. Pursuant
to the rules of the full cost method of accounting for oil and gas
properties, $1,902,995 of lease acquisition costs associated with the
Company's oil and gas prospect generation activities, which costs the
Company expects to recover in 1997 through sale of prospects, are
excluded from working capital at March 31, 1997 and December 31, 1996,
respectively. In the second quarter 1997, commitments to purchase the
remaining interest in one of three prospect lease blocks held for sale
were received by the Company (see comments below).
The Company maintains a $10,000,000 reducing revolving credit facility
with Bank One, Texas, N.A. Effective November 1, 1996, the borrowing
base was adjusted to $1,925,000, reducing by $75,000 per month beginning
December 1, 1996. The borrowing base and reducing amount are
redetermined semi-annually. The maturity date is January 14, 2000, when
the then outstanding principal balance, if any, is due and payable. 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 System
has remained active. In February 1997, a new discovery was tied-in to
the System. The additional throughput resulted in an 8% increase in
daily gas volumes transported in the first quarter 1997 compared to the
fourth quarter 1996. The Company expects additional throughput from
this producer/shipper to result in an increase in daily gas volumes
transported in the second quarter 1997 compared to the first quarter
1997. An existing producer/shipper has notified the Company that it
will terminate its oil transportation and processing agreements with the
Company in the third quarter 1997. Revenues generated from oil
transportation and processing fees from this producer/shipper
represented 25% of the Company's total revenues for the quarter ended
March 31, 1997. The Company expects that certain of its operating costs
will be reduced and/or eliminated as a result of the reduced oil
throughput. Future utilization of the Company's pipelines and related
facilities will depend upon the success of drilling programs in the Blue
Dolphin Pipeline corridor, attraction and retention to the System, and
execution of contracts with producer/shippers to transport their gas and
oil through the Blue Dolphin Pipeline System.
The Company is evaluating application of horizontal drilling and new
completion techniques to existing shut-in wells in the Buccaneer Field.
If feasible, additional drilling in the Field utilizing these recovery
methods could commence in late 1997 or 1998.
In August 1996, the Minerals Management Service conducted an annual
inspection of the Buccaneer Field production platforms and facilities.
In addition to certain repairs, the Company was required to remove
piping and other equipment that was no longer in use. The removal and
abandonment work, and the repairs to the platforms were completed in
March 1997. During the three months ended March 31, 1997, the Company
incurred costs totalling approximately $100,000 for removal and
abandonment work and approximately $100,000 for repairs to the
platforms. Additionally, the Company plans to plug and abandon a
previously inactive well and remove the associated satellite platform at
a cost estimated to be approximately $500,000. The work is currently
expected to begin during the second half 1997.
The Company holds interests in three lease blocks in the High Island
Area of the Gulf of Mexico prospective for oil and gas. The lease
blocks were acquired in the September 1995 Federal Western Gulf of
Mexico lease sale. Approximately $1,750,000 was invested to acquire the
three leases for further prospect development, in addition to costs of
approximately $150,000 associated with technical development of the
prospects. A 43.75% interest in each of the three lease blocks has been
sold. Commitments to purchase the remaining 56.25% interest in one of
the lease blocks were received during the second quarter 1997. The
Company expects to complete the sale by late second quarter or early
third quarter 1997. Efforts to sell the available interests in each of
the two remaining lease blocks are ongoing.
Additionally, the Company is seeking funding for a multi-year 3-D
seismic based prospect generation and exploration and development
drilling program. Such funding will enable the Company to participate
as an initial working interest owner and possible operator rather than
participating on an after payout basis, as the prospect generation
program was originally structured. In August 1994, the Company entered
into a multi-year 3-D seismic data acquisition and licensing agreement
providing access to over 2,000,000 acres of 3-D seismic data, primarily
in the Western Gulf of Mexico, and over 200,000 line miles of close grid
2-D seismic data.
Development of the Petroport deepwater terminal and offshore storage
facility continues to proceed as anticipated. Efforts have 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.
Expansion of the proposed facility's capabilities to include the ability
to receive by pipeline and store natural gas, as well as crude oil and
condensate produced from deepwater discoveries on the U.S. Outer
Continental Shelf, is currently being evaluated.
It is currently estimated that pre-licensing costs will total between
$1,000,000 - $1,250,000. Approximately $640,000 has been committed
through March 31, 1997. 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 1998, with operations
commencing in the year 2001.
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 applicable to common stockholders for the three months ended
March 31, 1997, ("first quarter 1997 or current period") increased 267%
to $114,344 compared to net income applicable to common stockholders of
$42,801 reported for the first quarter 1996 ("previous period").
REVENUES:
Revenues for the current period increased by $91,463 or 9% to $1,158,820
compared to revenues of $1,067,357 reported for the previous period.
First quarter 1997 revenues from pipeline operations increased by
$109,937 or 14% from the previous period due to an increase in gas
transportation revenues of $76,882, resulting from a 20% increase in gas
transportation volumes. Oil transportation revenues increased $40,354,
resulting from a 16% increase in oil transportation rates.
Revenues from oil and gas sales and operating fees for the current
period decreased by $18,474 from those of the previous period.
Operating fees declined $33,434 due to termination of production
activities by a producer for whom the Company provided contract
operation and maintenance services. This decrease was partially offset
by a $21,026 increase in gas sales, due to a 19% increase in the gas
price received.
COSTS AND EXPENSES:
First quarter 1997 lease operating expenses decreased $34,350 from those
of the previous period. The decrease is due to cost reductions for
chemicals, supplies, contract labor, rental equipment and insurance
program premiums.
Repair and maintenance costs for the current period increased by
$104,194 due primarily to repairs and modifications to the Buccaneer
Field production platforms and facilities of approximately $98,000.
Depletion, depreciation, and amortization expense for the current period
decreased $27,021 as compared to the previous period, due to a decrease
of approximately $16,000 in amortization as a result of deferred loan
costs being fully amortized during 1996, and a decrease of approximately
$10,000 resulting from the effect on depreciation of extending the
estimated useful lives of the Company's pipelines and related shore
facilities in June 1996.
Interest expense increased $52,228 in the current period as a result of
promissory notes totalling $2,050,600, issued December 31, 1996. The
notes are associated with the conversion of the issued and outstanding
preferred stock to common stock.
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 17, 1997, 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, 1997 Michael J. Jacobson
Michael J. Jacobson
President and Chief Executive Officer
G. Brian Lloyd
G. Brian Lloyd
Secretary and Treasurer