PORTER & HEDGES, L.L.P.
ATTORNEYS AND COUNSELORS AT LAW
1000 MAIN STREET, 36TH FLOOR
HOUSTON, TEXAS 77002-6336
BRYAN K. BROWN
PARTNER
Tel. Direct (713) 226-6691 MAILING ADDRESS:
Fax Direct (713) 226-6291 TELECOPIER (713) 228-1331 P.O. BOX 4744
BBROWN@PORTERHEDGES.COM TELEPHONE (713) 226-6000 HOUSTON, TX 77210-4744
July 6, 2005
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-0405
Attention: Carmen Moncada-Terry
Attorney-Adviser
Re: Blue Dolphin Energy Company
Form S-3, File No. 333-124908, as amended
Form 10-KSB
Form 10-QSB
File No. 0-15905
Dear Ms. Moncada-Terry:
I am writing in response to the staff's comment letter dated June 27,
2005, on the above referenced filing.
Form 10-KSB for the Fiscal Year Ended December 31, 2004
Oil and Gas Exploration and Production Activities, page 4
1. As a result of the placement of our interest in the Galveston Area
Blocks 287 and 297 leases, we received proceeds of approximately
$214,000 in 2005, of which approximately $74,000 was credited to the
carrying value of these unevaluated leases and approximately $140,000
was recorded as a gain.
A well was drilled on the Galveston Area Block 297 lease in 2005 which
was dry, this requires no adjustments to our financial statements. If
the well had been successful, we would have received a 7.5% working
interest after the working interest owners recover their costs in the
leases. Since we have no costs subject to depletion in our full cost
pool, no depletion would have been recorded.
Proved Reserves as of December 31, 2004 table, page 6
2. We have revised the disclosures in response to your comment to present
"Future Net Cash Outflows After Income Taxes" and "Present value of
Future Net Cash Outflows After Income Taxes." Please see page 6 of
the Amended 10-KSB. The revised
disclosure is consistent with the requirements of Statement of
Financial Accounting Standards No. 69 and required by U.S. Generally
Accepted Accounting Principles.
Financial Statements
Consolidated Statements of Stockholders Equity, page 33
3. We have revised the disclosure in response to your comment. Please see
Page 33 of the Amended 10-KSB
Note 1 -- Organization and Significant Accounting Policies, page 37
Recognition of Pipeline Transportation Revenue, page 41
4. Revenues from pipeline transportation are recorded when volumes of
natural gas and oil have been physically transported to the delivery
point specified in our customer contracts. Revenues recorded are based
on the contract transportation fees multiplied by volumes delivered. We
define "transported" as volumes that have been delivered pursuant to
our contracts. The guidelines provided in SAB 104 provide that "revenue
should not be recognized until it is realized or realizable and
earned," since we recognize revenue based on volumes physically
delivered whereby we have earned our fee, we believe that we are
recording our revenues in accordance with SAB 104.
We have revised the disclosures in response to your comment. Please see
page 40 of the Amended 10-KSB.
Note 8 - Stock Options, page 46
5. We have revised the disclosures in response to your comment. Please see
pages 46-47 of the Amended 10-KSB.
Note 9 - Related Party Transactions, page 47
6. In November 2003, we converted a contingent obligation due from
Drillmar into a convertible note, thus eliminating the contingent
obligation. In 2002, we recorded a full impairment of our investment in
Drillmar, and recorded a full reserve for the accounts receivable owed
to us from Drillmar, due to Drillmar's working capital deficiency and
delays in securing capital funding. The $162,000 convertible note from
Drillmar was not recorded in November 2003 due to Drillmar's continued
working capital deficiency and inability to secure capital funding. If
Drillmar is able to pay the note and accrued interest we will record it
as other income.
Note 12 - Business Segment Information, page 49
7. We have revised the disclosures in response to your comment. Please see
page 49 of the Amended 10-KSB, and page 8 of the Amended 10-QSB.
Note 13 - Supplemental Oil and Gas Information - Unaudited, page 50
8. As reflected on page 50 of our Form 10-KSB for the year ended December
31, 2004, we recognized a $25,809 gain from the sale of our working
interest in High Island Block 34 in June 2004 in accordance with Rule
4-10 (c) (6) (i) of Regulation S-X.
As of June 2004, our reserves associated with High Island Block 34
represented approximately 60% of the total reserves associated with our
full cost pool. Pursuant to Rule 4- 10 (c) (6) (i), sales of oil and
gas properties shall be accounted for as adjustments of capitalized
costs, with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and
proved reserves. In this case, 60% of our proved reserves were sold
which would significantly alter the relationship between capitalized
costs and proved reserves if all the sales proceeds were recorded as an
adjustment to capitalized costs, so we allocated 60% of the capitalized
costs in the full cost pool to the High Island Block 34 property and
credited the sales proceeds to that amount with the difference being
recorded as a gain.
9. We have revised the disclosures in response to your comment. Please see
page 52 of the Amended 10-KSB.
10. We used year-end prices to determine future net cash flows from our
reserves. We have revised the disclosure in response to your comment.
Please see page 52 of the Amended 10-KSB.
Controls and Procedures, page 54
11. We have revised the disclosures in response to your comment. Please see
page 53 of the Amended 10-KSB and page 17 of the Amended 10-QSB.
12. We have revised the disclosures in response to your comment. Please see
page 53 of the Amended 10-KSB and page 17 of the Amended 10-QSB.
In the event that the staff has additional or follow-up comments to the
company's filing and responses, please contact the undersigned at 713-226-6691
(phone) or 713-226-6291 (fax) or by e-mail at bbrown@porterhedges.com.
Very truly yours,
/s/ Bryan K. Brown
Bryan K. Brown
BKB/an
cc: G. Brian Lloyd