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, 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.
66,835,792 SHARES $.01 PAR VALUE OUTSTANDING AT AUGUST 7, 1997
1
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.
2
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
----------------- ------------------
(Unaudited)
ASSETS
Current Assets:
Cash $ 753,264 $ 1,207,323
Trade accounts receivable 736,858 744,283
Receivable from prospect sales 1,018,289 --
Crude oil inventory 26,080 28,460
Prepaid expenses 105,672 70,340
----------------- ------------------
Total Current Assets 2,640,163 2,050,406
Property and Equipment, at cost, using full cost
method for oil and gas properties. Includes
$884,706 and $1,902,995 of leases held for sale
at June 30, 1997 and December 31, 1996 23,283,381 24,029,957
Accumulated depletion, depreciation
and amortization (4,686,619) (4,535,945)
----------------- ------------------
18,596,762 19,494,012
Land 1,133,333 1,133,333
Other Assets 1,872,336 1,548,860
----------------- ------------------
Total Assets $ 24,242,594 $ 24,226,611
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 597,359 $ 1,094,473
Accrued interest payable 104,230 --
Current portion of accrued abandonment costs 450,000 --
Accrued income taxes payable 52,340 38,820
----------------- ------------------
Total Current Liabilities 1,203,929 1,133,293
Long-Term Debt, less current portion 2,060,600 2,060,600
Accrued Abandonment Costs, less current portion 278,077 798,185
Deferred Income Taxes 789,036 633,956
Common Stock 668,358 667,691
Additional Paid-in Capital 17,013,817 17,007,087
Accumulated Earnings since January 1, 1990 2,228,777 1,925,799
----------------- ------------------
Total Liabilities and
Stockholders' Equity $ 24,242,594 $ 24,226,611
================= ==================
3
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
Ended June 30
1997 1996
------------ ------------
Revenue from operations:
Pipeline operations .................................... $ 1,021,663 $ 798,690
Oil and gas sales and operating fees ................... 187,034 259,586
------------ ------------
REVENUE FROM OPERATIONS ................ 1,208,697 1,058,276
Cost of operations:
Pipeline operating expenses ............................ 205,813 207,450
Lease operating expenses ............................... 178,635 158,688
Repair and maintenance costs ........................... 65,137 89,934
Depletion, depreciation, and amortization .............. 81,628 113,381
------------ ------------
COST OF OPERATIONS ..................... 531,213 569,453
------------ ------------
677,484 488,823
Other income (expense):
General and administrative ............................. (342,737) (324,469)
Interest expense ....................................... (54,497) (9,382)
Interest and other income .............................. 20,978 34,631
------------ ------------
INCOME BEFORE INCOME TAXES ............. 301,228 189,603
Provision for income taxes ............. (112,594) (73,870)
------------ ------------
NET INCOME (LOSS) .......................................... 188,634 115,733
Dividend requirements on preferred stock ................... -- 72,801
------------ ------------
Net income applicable to common stockholders ............... $ 188,634 $ 42,932
============ ============
Net income per common share ................................ $ 0.003 $ 0.001
============ ============
Weighted average number of common shares
outstanding ........................................... 67,349,712 47,935,067
============ ============
Net income per common share (fully diluted) ................ $ 0.003
============
Weighted average number of common shares
outstanding ............................................ 67,349,712
============
4
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Six Months
Ended June 30,
1997 1996
------------ ------------
Revenue from operations:
Pipeline operations ...................................... $ 1,932,692 $ 1,599,782
Oil and gas sales and operating fees ..................... 434,825 525,851
------------ ------------
REVENUE FROM OPERATIONS .................. 2,367,517 2,125,633
Cost of operations:
Pipeline operating expenses .............................. 418,303 427,718
Lease operating expenses ................................. 324,521 338,924
Repair and maintenance costs ............................. 218,919 139,522
Depletion, depreciation, and amortization ................ 186,677 245,451
------------ ------------
COST OF OPERATIONS ....................... 1,148,420 1,151,615
------------ ------------
1,219,097 974,018
Other income (expense):
General and administrative ............................... (667,759) (640,240)
Interest expense ......................................... (110,930) (13,587)
Interest and other income ................................ 48,318 58,817
------------ ------------
INCOME BEFORE INCOME TAXES ............... 488,726 379,008
Provision for income taxes ............... (185,748) (147,673)
------------ ------------
NET INCOME (LOSS) ............................................ 302,978 231,335
Dividend requirements on preferred stock ..................... -- 145,602
------------ ------------
Net income applicable to common stockholders ................. $ 302,978 $ 85,733
============ ============
Net income per common share .................................. $ 0.004 $ 0.002
============ ============
Weighted average number of common shares
outstanding ............................................. 67,552,718 48,457,547
============ ============
Net income per common share (fully diluted) .................. $ 0.004
============
Weighted average number of common shares
outstanding .............................................. 67,552,718
============
5
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Six Months
Ended June 30,
1997 1996
----------- -----------
OPERATING ACTIVITIES
Net income .................................................................. $ 302,978 $ 231,335
Adjustments to reconcile net income to net cash provided by
operating activities:
Depletion, depreciation and amortization ........................... 186,677 245,451
Deferred income taxes .............................................. 155,080 119,173
Changes in operating assets and liabilities:
(Increase) Decrease in trade accounts receivable ............... 7,425 (87,243)
(Increase) in crude oil inventory and prepaid expenses ......... (32,952) (71,361)
(Decrease) in accounts payable and
other current liabilities ................................. (379,364) (644,649)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ................ 239,844 (207,294)
INVESTING ACTIVITIES
Oil and gas prospect generation costs ..................................... (160,750) (1,155,795)
Purchases of property and equipment ....................................... (107,470) (339,352)
Increase in other assets .................................................. (37,930) (107,185)
Funds escrowed for abandonment costs ...................................... (291,636) (261,626)
Abandonment of oil and gas properties ..................................... (98,634) --
Exploration and development costs ......................................... (4,880) (50,976)
----------- -----------
NET CASH (USED IN)
INVESTING ACTIVITIES ................ (701,300) (1,914,934)
FINANCING ACTIVITIES
Net proceeds from the exercise of warrants ................................ -- 1,657,558
Net proceeds from the exercise of stock options ........................... 7,397 21,250
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ................ 7,397 1,678,808
(DECREASE) IN CASH .................. (454,059) (443,420)
CASH AT BEGINNING OF YEAR ..................................................... 1,207,323 2,748,467
----------- -----------
CASH AT JUNE 30 ............................................................... $ 753,264 $ 2,305,047
=========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid ............................................................. $ 6,741 $ 13,587
=========== ============
Income taxes paid ......................................................... $ 39,660 $ 46,365
=========== ============
6
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
JUNE 30, 1997
EARNINGS PER COMMON SHARE
Fully diluted earnings per share has not been presented for the three months and
six months ended June 30, 1996, because conversion of the outstanding options
and preferred stock was antidilutive. All outstanding preferred shares were
converted to an equivalent number of common shares effective December 31, 1996.
ACCOUNTING STANDARDS
Blue Dolphin Energy Company will implement SFAS No. 128, "Earnings per Share"
for year-end 1997 financial reporting. This standard requires presentation of
both "basic" and, where capital structures are complex, "diluted" earnings per
share disclosure in the statement of operations. The Company expects that
implementation of this standard will not have a material effect on earnings per
share as currently calculated.
7
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 June 30, 1997, the Company's working capital (current assets less current
liabilities) was $1,436,234, representing an increase of $519,121 as compared
with working capital of $917,113 at December 31, 1996. The increase in working
capital is principally due to sale of an oil and gas prospect in the second
quarter 1997 for approximately $1,000,000, offset in part by reclassification
from long term to current of certain well abandonment costs of approximately
$450,000. Pursuant to the rules of the full cost method of accounting for oil
and gas properties, approximately $900,000 of lease acquisition costs associated
with the Company's oil and gas prospect generation activities, which costs the
Company expects to recover in late 1997 through sale of prospects, are excluded
from working capital at June 30, 1997.
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 can be 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 continues
to be active. During the six months ended June 30, 1997, four new wells from
existing producers/shippers were tied into the pipeline system, resulting in a
24% increase in daily gas volumes transported compared to the first half of
1996. An existing producer/shipper has notified the Company that it will
terminate its oil transportation and processing
8
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
agreements with the Company during the third quarter 1997. Revenues generated
from oil transportation and processing fees from this producer/shipper
represented 24% of the Company's revenues for the six months ended June 30,
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.
In August 1996, the Minerals Management Service conducted an annual inspection
of the Buccaneer Field production platforms and facilities. In addition to
effecting 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. For the period ended June
30, 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 plugged and abandoned a previously inactive
well, in July 1997, at a cost of approximately $450,000. Removal of the
associated satellite platform and site clearance is expected to take place later
this year or early in 1998, at an estimated cost of $250,000.
The Company currently holds interests in two lease blocks in the High Island
Area of the Gulf of Mexico prospective for oil and gas. The lease blocks were
acquired in January 1996. Approximately $825,000 was invested to acquire the two
leases for further prospect development, in addition to costs of approximately
$60,000 associated with technical development of the prospects. A 43.75%
interest in each of these prospective lease blocks has been sold. Efforts to
sell the remaining 56.25% interest in each lease block are ongoing.
Additionally, the Company expects to finalize shortly, a multi-year agreement
with several independent oil and gas companies, whereby in exchange for certain
participation rights, these companies would partially fund the costs associated
with the Company's ongoing prospect generating program. 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 being evaluated.
9
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
It is currently estimated that pre-licensing costs will total between $1,000,000
- - $1,250,000. Approximately $650,000 has been committed through June 30, 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 six months ended June 30,
1997, ("current period") increased 253% to $302,978 compared to net income
applicable to common stockholders of $85,733 reported for the first half of 1996
("previous period").
REVENUES:
Revenues for the current period increased by $241,884 or 11% to $2,367,517
compared to revenues of $2,125,633 reported for the previous period.
Revenues from pipeline operations increased by $332,910 or 21% from the previous
period. Gas transportation revenues increased $242,000, resulting from a 36%
increase in gas transportation volumes. Oil transportation revenues increased
$88,000, resulting from a 5% increase in oil transportation volumes.
Revenues from oil and gas sales and operating fees for the current period
decreased by $91,026 from those of the previous period. Oil and gas sales
decreased $45,000 due to decreased production volumes. Operating fees declined
approximately $27,000 due to termination of production activities by a producer
for whom the Company provided contract operation and maintenance services and
$17,000 due to decreased production volumes from a second producer for whom the
Company provides similar services.
COSTS AND EXPENSES:
Repair and maintenance costs for the current period increased by $79,397 due
primarily to repairs and modifications to the Buccaneer Field production
platforms and facilities of approximately $98,000 incurred in the first half
1997.
Depletion, depreciation, and amortization expense for the current period
decreased $58,774 as compared to the previous period, due to a decrease of
approximately $32,000 in amortization as a result of deferred loan costs being
fully amortized during 1996, and a decrease of approximately $26,000 in
depletion, resulting from decreased oil and gas production volumes.
10
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
General and administrative expenses increased $27,519 in the current period due
primarily to timing differences between the current and previous periods that is
expected to even out by year end, and an increase in health insurance costs.
Interest expense increased $97,343 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.
11
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
12
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 7, 1997 /s/ MICHAEL J. JACOBSON
Michael J. Jacobson
President and Chief Executive Officer
/s/ G. BRIAN LLOYD
G. Brian Lloyd
Secretary and Treasurer
14