e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: June 30, 2011
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o |
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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)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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73-1268729
(I.R.S. Employer
Identification No.) |
801 Travis Street, Suite 2100, Houston, Texas 77002
(Address of principal executive offices)
(713) 568-4725
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Number of shares of common stock, par value $0.01 per share (the
Common Stock) outstanding as of August 12, 2011: 2,090,486
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Condensed Consolidated Balance Sheets
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June 30, |
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December 31, |
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2011 |
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2010 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
30,271 |
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$ |
625,854 |
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Accounts receivable, net of allowance for doubtful accounts |
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568,350 |
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598,391 |
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Prepaid expenses and other current assets |
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173,122 |
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213,071 |
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Loan receivable, net of allowance for loan receivable |
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Total current assets |
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771,743 |
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1,437,316 |
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Property and equipment, at cost: |
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Oil and gas properties (full-cost method) |
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2,246,335 |
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2,222,535 |
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Pipelines |
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4,659,686 |
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4,659,686 |
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Onshore separation and handling facilities |
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1,919,402 |
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1,919,402 |
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Land |
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860,275 |
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860,275 |
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Other property and equipment |
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503,813 |
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503,813 |
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10,189,511 |
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10,165,711 |
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Less: Accumulated depletion, depreciation and amortization |
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5,914,266 |
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5,630,730 |
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Total property and equipment, net |
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4,275,245 |
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4,534,981 |
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Loan receivable, net of allowance for loan receivable |
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Other assets |
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9,463 |
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9,463 |
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Total assets |
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$ |
5,056,451 |
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$ |
5,981,760 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
428,700 |
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$ |
543,327 |
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Note payable insurance |
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31,234 |
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124,936 |
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Asset retirement obligations, current portion |
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191,752 |
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192,470 |
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Accrued expenses and other current liabilities |
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26,091 |
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2,142 |
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Total current liabilities |
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677,777 |
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862,875 |
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Long-term liabilities: |
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Asset retirement obligations, net of current portion |
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2,601,197 |
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2,535,386 |
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Total liabilities |
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3,278,974 |
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3,398,261 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock ($0.01 par value, 100,000,000 shares authorized,
2,090,486 and
2,078,514 shares issued and outstanding at June 30, 2011 and
December 31, 2010, respectively) |
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20,905 |
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20,785 |
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Additional paid-in capital |
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33,733,140 |
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33,693,260 |
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Accumulated deficit |
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(31,976,568 |
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(31,130,546 |
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Total stockholdersequity |
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1,777,477 |
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2,583,499 |
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Total liabilities and stockholders equity |
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$ |
5,056,451 |
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$ |
5,981,760 |
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See accompanying notes to the condensed consolidated financial statements.
3
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Revenue from operations: |
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Pipeline operations |
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$ |
267,375 |
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$ |
462,392 |
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$ |
610,005 |
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$ |
891,479 |
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Oil and gas sales |
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353,027 |
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21,199 |
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702,731 |
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40,221 |
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Total revenue from operations |
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620,402 |
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483,591 |
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1,312,736 |
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931,700 |
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Cost of operations: |
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Pipeline operating expenses |
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245,032 |
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325,323 |
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466,366 |
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612,311 |
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Lease operating expenses |
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271,836 |
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7,824 |
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530,279 |
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29,012 |
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Depletion, depreciation and amortizaton |
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136,828 |
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128,855 |
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283,536 |
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246,701 |
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General and administrative |
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349,245 |
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359,027 |
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822,636 |
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838,249 |
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Stock-based compensation |
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13,440 |
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53,760 |
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Accretion expense |
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32,993 |
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29,057 |
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66,079 |
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58,115 |
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Total cost of operations |
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1,035,934 |
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863,526 |
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2,168,896 |
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1,838,148 |
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Loss from operations |
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(415,532 |
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(379,935 |
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(856,160 |
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(906,448 |
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Other income: |
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Interest and other income |
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1,598 |
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9,998 |
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10,138 |
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10,757 |
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Loss before income taxes |
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(413,934 |
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(369,937 |
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(846,022 |
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(895,691 |
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Income taxes |
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Net loss |
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$ |
(413,934 |
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$ |
(369,937 |
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$ |
(846,022 |
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$ |
(895,691 |
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Loss per common share |
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Basic |
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$ |
(0.20 |
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$ |
(0.22 |
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$ |
(0.41 |
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$ |
(0.53 |
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Diluted |
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$ |
(0.20 |
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$ |
(0.22 |
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$ |
(0.41 |
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$ |
(0.53 |
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Weighted average number of common shares
outstanding |
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Basic |
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2,088,637 |
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1,709,591 |
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2,085,604 |
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1,704,967 |
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Diluted |
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2,088,637 |
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1,709,591 |
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2,085,604 |
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1,704,967 |
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See accompanying notes to the condensed consolidated financial statements.
4
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Six Months Ended |
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June 30, |
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2011 |
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2010 |
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Operating Activities: |
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Net loss |
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$ |
(846,022 |
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$ |
(895,691 |
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Adjustments to reconcile net loss to net cash used in
operating activities: |
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Depletion, depreciation and amortization |
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283,536 |
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246,701 |
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Accretion of asset retirement obligations |
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66,079 |
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58,115 |
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Common stock issued for services |
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40,000 |
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40,000 |
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Compensation from issuance of stock options |
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53,760 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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30,041 |
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(62,844 |
) |
Prepaid expenses and other assets |
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39,949 |
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157,676 |
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Abandonment costs incurred |
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(986 |
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Accounts payable, accrued expenses, and other current liabilities |
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(90,678 |
) |
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23,670 |
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Net cash used in operating activities |
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(478,081 |
) |
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(378,613 |
) |
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Investing Activities: |
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Exploration and development costs |
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(23,800 |
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Net cash used in investing activities |
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(23,800 |
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Financing Activities: |
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Payments on insurance finance note |
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(93,702 |
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(141,934 |
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Net cash used in financing activities |
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(93,702 |
) |
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(141,934 |
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Net decrease in cash and cash equivalents |
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(595,583 |
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(520,547 |
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Cash and Cash Equivalents at Beginning of Period |
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625,854 |
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1,016,483 |
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Cash and Cash Equivalents at End of Period |
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$ |
30,271 |
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$ |
495,936 |
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See accompanying notes to the condensed consolidated financial statements.
5
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2011
(1) Organization
Company Summary
Blue Dolphin Energy Company (referred to herein, with its predecessors and subsidiaries, as Blue
Dolphin, we, us and our), a Delaware corporation, was formed in 1986 as a holding company
and conducts substantially all of its operations through its subsidiaries. Our operating
subsidiaries include:
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Blue Dolphin Pipe Line Company, a Delaware corporation; |
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Blue Dolphin Petroleum Company, a Delaware corporation; |
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Blue Dolphin Exploration Company, a Delaware corporation; |
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Blue Dolphin Services Co., a Texas corporation; and |
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Petroport, Inc., a Delaware corporation. |
Business Segments
We are engaged in two lines of business: (i) pipeline transportation services to
producers/shippers, and (ii) oil and gas exploration and production. Our pipeline assets are
located offshore and onshore in the Texas Gulf Coast area and our leasehold interests in properties
are located in the U.S. Gulf of Mexico and the North Sumatra Basin in offshore Indonesia.
(2) Significant Accounting Policies
Principles of Consolidation
We have prepared our condensed consolidated financial statements without audit, in accordance with
U.S. generally accepted accounting principles (GAAP) as codified by the Financial Accounting
Standards Board (FASB) in its Accounting Standards Codification (ASC), pursuant to the rules
and regulations of the Securities and Exchange Commission (the SEC). In the opinion of
management, such condensed consolidated financial statements reflect all adjustments necessary to
present fair condensed consolidated statements of operations, financial position and cash flows.
We believe that the disclosures are adequate and the presented information is not misleading. This
report has been prepared in accordance with the SECs Form 10-Q instructions and therefore, certain
information and footnote disclosures normally included in audited financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to the SECs rules and regulations.
Our accompanying unaudited condensed consolidated financial statements should be read in
conjunction with our audited consolidated financial statements and the notes thereto included in
our annual report on Form 10-K for the fiscal year ended December 31, 2010 (Annual Report). The
results of operations for the three and six months ended June 30, 2011, are not necessarily
indicative of the results of operations to be expected for the year ending December 31, 2011.
Accounting Estimates
We have made a number of estimates and assumptions related to the reporting of condensed
consolidated assets and liabilities and to the disclosure of contingent assets and liabilities to
prepare these unaudited condensed consolidated financial statements in conformity with GAAP. This
includes assessing the realization of an outstanding note receivable, the estimated useful life of
pipeline assets, valuation of stock-based payments and reserve information, which affects the
depletion calculation and the full-cost ceiling limitation. While we believe current estimates are
reasonable and appropriate, actual results could differ from those estimated.
Going Concern
Our condensed consolidated financial statements, which have been prepared in accordance with GAAP,
contemplated that we would continue as a going concern. As such, our condensed consolidated
financial statements do not contain any adjustments that might result if we were unable to continue
as a going concern. We incurred a
6
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2011
net loss of $846,022 for the six months ended June 30, 2011. At June 30, 2011, we had an
accumulated deficit of $31,976,568 and at December 31, 2010, we had an accumulated deficit of
$31,130,546.
As of the quarter ended June 30, 2011, our limited revenue and cash flow deficiencies raised
substantial doubt as to our ability to continue as a going concern. Then existing and anticipated
working capital needs, lower than anticipated revenue, increased expenses and/or the inability to
recover damages awarded under a partial summary judgment related to a defaulted loan affected our
ability to continue as a going concern. On August 3, 2011, we received net proceeds of
approximately $3.6 million in cash pursuant to the sale of a portion of our onshore facilities and
pipeline assets. We anticipate that our current cash reserves will provide us with sufficient cash
to fund our operations beyond the next twelve months. See Note (9), Subsequent Events, in the
Notes to Condensed Consolidated Financial Statements included in this report.
Cash and Cash Equivalents
Cash equivalents include liquid investments with an original maturity of three months or less. We
maintain cash and cash equivalent balances at one financial institution that is insured by the
Federal Deposit Insurance Corporation (the FDIC). Cash balances are maintained in depository and
overnight investment accounts with financial institutions which at times, exceed insured limits.
We monitor the financial condition of the financial institutions and have experienced no losses
associated with these accounts.
In October 2008, the FDIC amended its deposit insurance provisions to increase the basic limit
amount from $100,000 to $250,000 per depositor. The coverage increase, which was intended to be
temporary, was to revert back to $100,000 per depositor limit on December 31, 2009. However, in
May 2009, the FDIC extended the coverage date through December 31, 2013. The temporary increase was
made permanent in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade terms. The allowance for
doubtful accounts represents our estimate of the amount of probable credit losses existing in our
accounts receivable. We have a limited number of customers with individually large amounts due at
any given date. Any unanticipated change in any one of these customers credit worthiness or other
matters affecting the collectability of amounts due from such customers could have a material
adverse effect on our results of operations in the period in which such changes or events occur. We
regularly review all aged accounts receivables for collectability and establish an allowance as
necessary for individual customer balances. As of June 30, 2011 and December 31, 2010, there was
no allowance recorded related to trade accounts receivable.
Oil and Gas Properties
We account for our oil and gas properties using the full-cost method of accounting, whereby all
costs associated with acquisition, exploration, and development of oil and gas properties,
including directly related internal costs, are capitalized on a cost center basis. We use one cost
center for domestic properties and one cost center for foreign properties. Amortization of such
costs and estimated future development costs are determined using the unit-of-production method.
Costs directly associated with the acquisition and evaluation of unproved properties are excluded
from the amortization computation until it is determined whether or not proved reserves can be
assigned to the properties or impairment has occurred.
Impairment of Oil and Gas Properties
We account for our oil and natural gas exploration and development activities using the full cost
method of accounting. Under this method of accounting, we are required on a quarterly basis to
determine whether the book value of our oil and natural gas properties (excluding unevaluated
properties) is less than or equal to a ceiling, which is determined based upon the expected after
tax present value (discounted at 10%) of the future net cash flows
from our proved reserves, calculated using prevailing oil and natural gas prices on the last day of
the period, or a subsequent higher price under certain circumstances. Any excess of the net book
value of our oil and natural gas
7
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2011
properties over the ceiling must be recognized as a non-cash impairment expense. Our ceiling
for the three and six months ended June 30, 2011, was calculated using domestic prices of $90.09
per barrel of oil and $4.10 per MMbtu of gas and an international price of $98.02 per barrel of
oil. Our ceiling for the three and six months ended June 30, 2010, was calculated using domestic
prices of $76.21 per barrel of oil and $4.17 per MMbtu of gas.
Pipelines and Facilities
Pipelines and facilities are recorded at cost. Depreciation is computed using the straight-line
method over estimated useful lives ranging from 10 to 22 years. In accordance with FASBs standards
on accounting for the impairment or disposal of long-lived assets, assets are grouped and evaluated
for impairment based on the ability to identify separate cash flows generated therefrom. We did
not have any impairment of our pipelines and facilities for the three and six month periods ended
June 30, 2011 and 2010.
Other Property and Equipment
Depreciation of furniture, fixtures and other equipment is computed using the straight-line method
over estimated useful lives ranging from 3 to 10 years.
Stock-Based Compensation
Stock-based compensation is recognized in our condensed consolidated financial statements based on
the fair value, on the date of grant or modification, of the equity instrument awarded. Stock-based
compensation expense is recognized in the condensed consolidated financial statements on a
straight-line basis over the vesting period of the entire award.
Recognition of Oil and Gas Revenue
Sales from producing wells are recognized on the entitlement method of accounting, which defers
recognition of sales when, and to the extent that, deliveries to customers exceed our net revenue
interest in production. Similarly, when deliveries are below our net revenue interest in
production, sales are recorded to reflect the full net revenue interest. Our imbalance liability
at June 30, 2011 and 2010 was not material.
Recognition of Pipeline Transportation Revenue
Revenue from our pipelines is derived from fee-based contracts and is typically based on
transportation fees per unit of volume transported multiplied by the volume delivered. Revenue is
recognized when volumes have been physically delivered for the customer through the pipeline.
(3) Business Segment Information
Our operations are conducted in two principal business segments: (i) pipeline transportation
services and (ii) oil and gas exploration and production. The business segments are managed
jointly primarily due to the size of our employee base and the scope of our operations. Management
uses earnings before interest expense and income taxes (EBIT), a non-GAAP financial measure, to
assess the operating results and effectiveness of our business segments, which consist of our
consolidated businesses and investments. We believe EBIT is useful to our investors because it
allows them to evaluate our operating performance using the same performance measure analyzed
internally by management. EBIT is adjusted for: (i) items that do not impact our income or loss
from continuing operations, such as the impact of accounting changes, (ii) income taxes and (iii)
interest expense (or income). We exclude interest expense (or income) and other expenses or income
not pertaining to the operations of our segments from this measure so that investors may evaluate
our current operating results without regard to our financing methods or capital structure. We
understand that EBIT may not be comparable to measurements used by other companies. Additionally,
EBIT should be considered in conjunction with net income (loss) and other performance measures such
as operating cash flows.
8
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2011
Following is a reconciliation of our EBIT (by business segment) for the three months ended June 30,
2011, and at June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011 |
|
|
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
|
|
|
|
|
|
|
Pipeline |
|
|
Exploration & |
|
|
Corporate & |
|
|
|
|
|
|
Transportation |
|
|
Production |
|
|
Other(1) |
|
|
Total |
|
Revenues |
|
$ |
267,375 |
|
|
$ |
353,027 |
|
|
$ |
|
|
|
$ |
620,402 |
|
Operation cost(2) |
|
|
374,088 |
|
|
|
411,453 |
|
|
|
113,565 |
|
|
|
899,106 |
|
Depletion, depreciation
and amortization |
|
|
99,319 |
|
|
|
36,657 |
|
|
|
852 |
|
|
|
136,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
$ |
(206,032 |
) |
|
$ |
(95,083 |
) |
|
$ |
(114,417 |
) |
|
$ |
(415,532 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
|
|
|
$ |
20,036 |
|
|
$ |
|
|
|
$ |
20,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets(3) |
|
$ |
3,313,260 |
|
|
$ |
1,458,049 |
|
|
$ |
285,142 |
|
|
$ |
5,056,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes unallocated general and administrative costs associated with
corporate maintenance costs (such as director fees and legal expenses). It also includes
as identifiable assets corporate available cash of $0.03 million. |
|
(2) |
|
Allocable general and administrative costs are allocated based on revenue. |
|
(3) |
|
Identifiable assets contain related legal obligations of each segment including
cash, accounts receivable and payable and recorded net assets. |
Following is a reconciliation of our EBIT (by business segment) for the three months ended
June 30, 2010, and at June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
|
|
|
|
|
|
|
Pipeline |
|
|
Exploration & |
|
|
Corporate & |
|
|
|
|
|
|
Transportation |
|
|
Production |
|
|
Other(1) |
|
|
Total |
|
Revenues |
|
$ |
462,392 |
|
|
$ |
21,199 |
|
|
$ |
|
|
|
$ |
483,591 |
|
Operation cost(2) |
|
|
608,675 |
|
|
|
19,898 |
|
|
|
106,098 |
|
|
|
734,671 |
|
Depletion, depreciation
and amortization |
|
|
105,043 |
|
|
|
22,471 |
|
|
|
1,341 |
|
|
|
128,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
$ |
(251,326 |
) |
|
$ |
(21,170 |
) |
|
$ |
(107,439 |
) |
|
$ |
(379,935 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets(3) |
|
$ |
4,341,157 |
|
|
$ |
216,829 |
|
|
$ |
211,362 |
|
|
$ |
4,769,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes unallocated general and administrative costs associated with
corporate maintenance costs (such as director fees and legal expenses). It also includes
as identifiable assets corporate available cash of $0.5 million. |
|
(2) |
|
Allocable general and administrative costs are allocated based on revenue. |
|
(3) |
|
Identifiable assets contain related legal obligations of each segment including
cash, accounts receivable and payable and recorded net assets. |
9
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2011
Following is a reconciliation of our EBIT (by business segment) for the six months ended June 30,
2011, and at June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
|
|
|
|
|
|
|
Pipeline |
|
|
Exploration & |
|
|
Corporate & |
|
|
|
|
|
|
Transportation |
|
|
Production |
|
|
Other(1) |
|
|
Total |
|
Revenues |
|
$ |
610,005 |
|
|
$ |
702,731 |
|
|
$ |
|
|
|
$ |
1,312,736 |
|
Operation cost(2) |
|
|
805,652 |
|
|
|
855,904 |
|
|
|
223,804 |
|
|
|
1,885,360 |
|
Depletion, depreciation
and amortization |
|
|
202,491 |
|
|
|
79,182 |
|
|
|
1,863 |
|
|
|
283,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
$ |
(398,138 |
) |
|
$ |
(232,355 |
) |
|
$ |
(225,667 |
) |
|
$ |
(856,160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
|
|
|
$ |
23,800 |
|
|
$ |
|
|
|
$ |
23,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets(3) |
|
$ |
3,313,260 |
|
|
$ |
1,458,049 |
|
|
$ |
285,142 |
|
|
$ |
5,056,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes unallocated general and administrative costs associated with
corporate maintenance costs (such as director fees and legal expenses). It also includes
as identifiable assets corporate available cash of $0.03 million. |
|
(2) |
|
Allocable general and administrative costs are allocated based on revenue. |
|
(3) |
|
Identifiable assets contain related legal obligations of each segment including
cash, accounts receivable and payable and recorded net assets. |
Following is a reconciliation of our EBIT (by business segment) for the six months ended June
30, 2010, and at June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010 |
|
|
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas |
|
|
|
|
|
|
|
|
|
Pipeline |
|
|
Exploration & |
|
|
Corporate & |
|
|
|
|
|
|
Transportation |
|
|
Production |
|
|
Other(1) |
|
|
Total |
|
Revenues |
|
$ |
891,479 |
|
|
$ |
40,221 |
|
|
$ |
|
|
|
$ |
931,700 |
|
Operation cost(2) |
|
|
1,323,395 |
|
|
|
59,047 |
|
|
|
209,005 |
|
|
|
1,591,447 |
|
Depletion, depreciation
and amortization |
|
|
210,085 |
|
|
|
33,847 |
|
|
|
2,769 |
|
|
|
246,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
$ |
(642,001 |
) |
|
$ |
(52,673 |
) |
|
$ |
(211,774 |
) |
|
$ |
(906,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets(3) |
|
$ |
4,341,157 |
|
|
$ |
216,829 |
|
|
$ |
211,362 |
|
|
$ |
4,769,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes unallocated general and administrative costs associated with
corporate maintenance costs (such as director fees and legal expenses). It also includes
as identifiable assets corporate available cash of $0.5 million. |
|
(2) |
|
Allocable general and administrative costs are allocated based on revenue. |
|
(3) |
|
Identifiable assets contain related legal obligations of each segment including
cash, accounts receivable and payable and recorded net assets. |
10
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2011
(4) Asset Retirement Obligations
We have asset retirement obligations associated with the future abandonment of our pipelines and
related facilities and our offshore oil and gas properties. The following table summarizes our
asset retirement obligation transactions during the three months ended June 30, 2011:
|
|
|
|
|
Asset retirement obligations as of December 31, 2010 |
|
$ |
2,727,856 |
|
Liabilities incurred |
|
|
|
|
Liabilities settled |
|
|
(986 |
) |
Accretion expense |
|
|
66,079 |
|
|
|
|
|
Asset retirement obligations as of June 30, 2011 |
|
|
2,792,949 |
|
Less: current portion of asset retirement obligations |
|
|
191,752 |
|
|
|
|
|
Asset retirement obligations long-term balance as of June 30, 2011 |
|
$ |
2,601,197 |
|
|
|
|
|
(5) Earnings Per Share
We apply the provisions of FASBs guidance on earnings per share. The guidance requires the
presentation of basic earnings per share (EPS) which excludes dilution and is computed by
dividing net income (loss) available to common stockholders by the weighted-average number of
shares of common stock outstanding for the period. The guidance requires dual presentation of
basic EPS and diluted EPS on the face of the condensed consolidated statement of operations and
requires a reconciliation of the numerators and denominators of basic EPS and diluted EPS. Diluted
EPS is computed by dividing net income (loss) available to common shareholders by the diluted
weighted average number of common shares outstanding, which includes the potential dilution that
could occur if securities or other contracts to issue common stock were converted to common stock
that then shared in the earnings of the entity.
Employee stock options and stock warrants outstanding were not included in the computation of
diluted earnings per share for the quarters ended June 30, 2011 and 2010, because their assumed
exercise and conversion would have an anti-dilutive effect on the computation of diluted loss per
share.
The following table provides reconciliation between basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
Basic and Diluted |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Net loss |
|
$ |
(413,934 |
) |
|
$ |
(369,937 |
) |
|
$ |
(846,022 |
) |
|
$ |
(895,691 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common
stock outstanding and potential dilutive shares
of common stock |
|
|
2,088,637 |
|
|
|
1,709,591 |
|
|
|
2,085,604 |
|
|
|
1,704,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share amount |
|
$ |
(0.20 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.41 |
) |
|
$ |
(0.53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
11
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2011
(6) Stock Options
We adopted the 2000 Stock Incentive Plan effective April 14, 2000, following approval by our
stockholders. An amendment to the plan was approved by our stockholders in 2007. Under the plan,
as amended (the 2000 Plan), we are able to make awards of stock-based compensation. The 2000
Plan has expired and currently no shares may be issued under the plan. Options granted under the
2000 Plan have contractual terms from six to ten years. The exercise price of ISOs cannot be less
than 100% of the fair market value of a share of our common stock determined on the grant date.
Although the 2000 Plan provides for the granting of other incentive awards, only ISOs and
non-statutory stock options have been issued under the 2000 Plan. The 2000 Plan is administered by
the Compensation Committee of the Board.
Pursuant to FASB guidance on accounting for stock based compensation, we estimate the fair value of
stock options granted on the date of grant using the Black-Scholes-Merton option-pricing model.
There were no stock options granted in the three months ended June 30, 2011, and the year ended
December 31, 2010.
Expected volatility used in the model was based on the historical volatility of our common stock
and was weighted 50% for the historical volatility over a past period equal to the expected term
and 50% for the historical volatility over the past two years prior to the grant date. This
weighting method was chosen to account for the significant changes in our financial condition
beginning approximately three years ago. These changes include changes in our working capital,
changes in pipeline throughput and a reduction and ultimate elimination of our outstanding debt.
The expected term of options granted used in our models represent the period of time that options
granted are expected to be outstanding. The method used to estimate the expected term is the
simplified method as allowed under the provisions of the SECs Staff Accounting Bulletin No. 107.
This number is calculated by taking the average of the sum of the vesting period and the original
contract term. The risk-free interest rate for periods within the contractual life of the option
was based on the U.S. Treasury yield curve in effect at the date of the grant. As we have not
declared dividends on common stock since we became a public company, no dividend yields are used.
No forfeiture rate is assumed due to the lack of forfeiture history for these types of awards.
Actual value realized, if any, is dependent on the future performance of our common stock and
overall stock market conditions. There is no assurance that the value realized by an optionee will
be at or near the value estimated by the Black-Scholes-Merton option-pricing model.
At June 30, 2011, there were a total of 30,390 shares of common stock reserved for issuance upon
exercise of outstanding options under the 2000 Plan. A summary of the status of stock options
granted to key employees, officers and directors, for the purchase of shares of common stock for
the periods indicated, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Contractual Life |
|
|
Value |
|
Options outstanding at December 31, 2010 |
|
|
30,390 |
|
|
$ |
13.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired or cancelled |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2011 |
|
|
30,390 |
|
|
$ |
13.29 |
|
|
|
2.3 |
|
|
$ |
4,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2011 |
|
|
30,390 |
|
|
$ |
13.29 |
|
|
|
2.3 |
|
|
$ |
4,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2011
The following table summarizes additional information about stock options outstanding at June 30,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Remaining |
|
|
Weighted |
|
|
|
|
|
|
Average |
|
Range of Exercise |
|
Number |
|
|
Contractual Life |
|
|
Average Exercise |
|
|
Number |
|
|
Exercise |
|
Prices |
|
Outstanding |
|
|
(Years) |
|
|
Price |
|
|
Exercisable |
|
|
Price |
|
$2.45 to $5.60 |
|
|
10,118 |
|
|
|
1.8 |
|
|
$ |
3.06 |
|
|
|
10,118 |
|
|
$ |
3.06 |
|
$10.85 to $13.30 |
|
|
3,346 |
|
|
|
0.6 |
|
|
$ |
11.95 |
|
|
|
3,346 |
|
|
$ |
11.95 |
|
$19.67 |
|
|
16,926 |
|
|
|
2.9 |
|
|
$ |
19.67 |
|
|
|
16,926 |
|
|
$ |
19.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,390 |
|
|
|
|
|
|
|
|
|
|
|
30,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recognized no compensation expense for vested stock options for the three and six months ended
June 30, 2011, compared to $13,440 and $53,760 for the three and six months ended June 30, 2010,
respectively. As of June 30, 2011, there was no unrecognized compensation cost related to
non-vested stock options granted under the 2000 Plan.
We recognized $20,000 and $40,000 of expense related to the fair value issuance of restricted
common stock to our independent directors for the three and six months ended June 30, 2011,
respectively.
(7) Loan Receivable
We recorded an allowance for doubtful loan receivable of $1.5 million at December 31, 2009. The
loan receivable is associated with a $2.0 million loan, net of credited and recovered amounts (the
Loan), made to Lazarus Louisiana Refinery II, LLC (LLRII) on July 31, 2009 and due on January
31, 2010. As of June 30, 2011, we continued to maintain an allowance for the uncollected balance
of the Loan.
In the second quarter of 2010, we began foreclosure proceedings in Louisiana against the
collateral, as well as legal proceedings in Texas against the guaranty, that secured the Loan. As
a result of a foreclosure auction in Louisiana, we acquired a salt water disposal well in the third
quarter of 2010. Based on the assets appraised value, we recovered $201,000 of the allowance for
doubtful loan receivable. Under the legal proceedings in Texas, we were granted a partial summary
judgment on liability under the promissory note and guaranty in favor of Blue Dolphin. However,
the court deferred a ruling on the damages and attorneys fees to be awarded. On March 28, 2011,
our motion for entry of the partial summary judgment was heard before the court. The court entered
the partial summary judgment in the amount of $1.7 million in favor of Blue Dolphin and against
Lazarus Energy Holdings (LEH) and LLRII on the promissory note and guaranty. The only claim that
remains pending is the counter-claim alleging breach of contract under the confidentiality
agreement. On May 12, 2011, the parties entered into a Rule 11 Agreement in the interests of resolving the claims and
disputes related to this matter. See Note (9), Subsequent Events, in the Notes to Condensed Consolidated
Financial Statements included in this report.
13
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2011
(8) Commitments and Contingencies
We are involved in various claims and legal actions arising in the ordinary course of business. In
our opinion, the ultimate disposition of these matters will not have a material effect on our
condensed consolidated financial position, results of operations or cash flows.
(9) Subsequent Events
On July 13, 2011, we entered into a Purchase and Sale Agreement (the PSA) with LEH, LLRII,
Lazarus Texas Refinery II, LLC, Lazarus Environmental, LLC, Lazarus Energy, LLC (LE) and Lazarus
Energy Development, LLC whereby we will acquire 100% of the membership interest of LE, the primary
asset of which is the Nixon Refinery in Nixon, Texas. Our purchase consideration is 8,346,984
shares of common stock with such number being adjusted at closing to cause LEH to receive 80% of
the issued and outstanding shares of our common stock. Closing of the transaction is subject to:
(i) LEH obtaining funding of at least $3.7 million for startup of the Nixon Refinery and (ii)
approval of the transaction by our stockholders.
Pursuant to an Asset Purchase Agreement (the APA), our wholly owned subsidiary, Blue Dolphin Pipe
Line Company (BDPL) sold its eighty-three and one-third percent (831/3%) interest in the Buccaneer
Pipeline to Sunoco Partners Marketing & Terminals L.P. for net proceeds of approximately $3.6
million in cash. The transaction closed on August 3, 2011.
Remainder of Page Intentionally Left Blank
14
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statements
Forward Looking Statements. Certain of the statements included in this quarterly report on
Form 10-Q, including those regarding future financial performance or results or that are not
historical facts, are forward-looking statements as that term is defined in Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities
Act of 1933, as amended. The words expect, plan, believe, anticipate, project,
estimate, and similar expressions are intended to identify forward-looking statements. Blue
Dolphin (referred to herein, with its predecessors and subsidiaries, as Blue Dolphin, we, us
and our) cautions readers that these statements are not guarantees of future performance or
results and such statements involve risks and uncertainties that may cause actual results and
outcomes to differ materially from those indicated in forward-looking statements. Some of the
important factors, risks and uncertainties that could cause actual results to vary from
forward-looking statements include:
|
|
ability to continue as a going concern; |
|
|
|
collectability of a $2.0 million loan receivable, net of credited and recovered amounts; |
|
|
|
ability to complete a combination with one or more target businesses; |
|
|
|
ability to secure additional working capital to fund operations; |
|
|
|
ability to monetize our pipeline assets; |
|
|
|
ability to improve pipeline utilization levels; |
|
|
|
performance of third party operators for properties where we have an interest; |
|
|
|
production from oil and gas properties that we have interests in; |
|
|
|
volatility of oil and gas prices; |
|
|
|
uncertainties in the estimation of proved reserves, in the projection of future rates of
production, the timing of development expenditures and the amount and timing of property
abandonment; |
|
|
|
costly changes in environmental and other government regulations for which we are subject; |
|
|
|
adverse changes in the global financial markets; and |
|
|
|
potential delisting of our Common Stock by NASDAQ due to non-compliance with NASDAQ listing
requirements. |
Additional factors that could cause actual results to differ materially from those indicated in the
forward-looking statements are discussed in Item 1A Risk Factors in our Annual Report, as filed
with the Securities and Exchange Commission (the SEC). Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date hereof. We undertake
no duty to update these forward-looking statements. Readers are urged to carefully review and
consider the various disclosures made by us which attempt to advise interested parties of the
additional factors which may affect our business, including the disclosures made under the caption
Managements Discussion and Analysis of Financial Condition and Results of Operations in this
report.
Executive Summary
We are engaged in two lines of business: (i) pipeline transportation services to producer/shippers,
and (ii) oil and gas exploration and production.
Pipeline Operations. We market our gathering and transportation services to
producers/shippers operating in the vicinity of our pipelines, which are located offshore and
onshore in the Texas Gulf Coast area. We charge producer/shippers various fees for: (i)
transportation of their condensate and natural gas offshore to our onshore facilities, (ii)
separation, dehydration and storage of their condensate and natural gas at our onshore facilities
and (iii) the subsequent sale of their condensate through our barge-loading terminal and/or their
natural gas through our chemical plant complex and intrastate pipeline system tie-in. All of our
pipeline assets are held by and the business conducted by Blue Dolphin Pipe Line Company. Unless
otherwise stated herein, all gas liquid volumes transported are attributable to production from
third party producers/shippers.
15
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Pipeline Assets. The following provides a summary of our pipeline segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline |
|
|
|
|
|
|
|
|
|
Miles of |
|
|
Capacity |
|
|
Storage |
|
Segment |
|
Market |
|
|
Ownership |
|
|
Pipeline |
|
|
(MMcf/d) |
|
|
(Bbls) |
|
BDPS |
|
Gulf of Mexico |
|
|
83.3 |
% |
|
|
38 |
|
|
|
180 |
|
|
|
85,000 |
|
GA 350 |
|
Gulf of Mexico |
|
|
83.3 |
% |
|
|
13 |
|
|
|
65 |
|
|
|
|
|
Omega |
|
Gulf of Mexico |
|
|
83.3 |
% |
|
|
18 |
|
|
|
110 |
|
|
|
|
|
|
|
Blue Dolphin Pipeline System (BDPS) The BDPS includes the Blue Dolphin
Pipeline, an offshore platform, the Buccaneer Pipeline, onshore facilities for oil and gas
separation and dehydration, 85,000 Bbls of above-ground tankage for storage of crude oil and
condensate, a barge loading terminal on the Intracoastal Waterway and 360 acres of land in
Brazoria County, Texas where the Blue Dolphin Pipeline comes ashore and where the BDPS
onshore facilities, pipeline easements and rights-of-way are located. The BDPS gathers and
transports oil and gas from various offshore fields in the Galveston Area of the U.S. Gulf of
Mexico to our onshore facilities located in Freeport, Texas. After processing, the gas is
transported to the Dow Chemical Plant Complex and a major intrastate pipeline system with
further downstream tie-ins to other intrastate and interstate pipeline systems and end users.
The Blue Dolphin Pipeline, which is a component of the BDPS, consists of two segments: |
|
(i) |
|
the offshore segment, which transports both oil and gas and is
comprised of approximately 34 miles of 20-inch pipeline originating at an offshore
platform in Galveston Area Block 288 and running to shore; the offshore segment
also includes the platform in Galveston Area Block 288 and 5 field gathering lines
totaling approximately 27 miles connected to the main 20-inch line; an additional 2
miles of 20-inch pipeline onshore connects the offshore segment to the onshore
facility at Freeport, Texas; and |
|
|
(ii) |
|
the onshore segment, which includes approximately 2 miles of 16-inch
pipeline for transportation of gas from the onshore facility to a sales point at a
chemical plant complex and intrastate pipeline system tie-in in Freeport, Texas;
the Buccaneer Pipeline, an approximate 2 mile, 8-inch liquids pipeline, transports
crude oil and condensate from the onshore facility storage tanks to our
barge-loading terminal on the Intracoastal Waterway near Freeport, Texas for sale
to third parties. |
|
|
The BDPS spans approximately 38 miles from Galveston Area Block 288 offshore to our onshore
facilities and the Dow Chemical Plant Complex in Freeport, Texas. We own an 83% undivided
interest in the BDPS. The BDPS has an aggregate capacity of approximately 180 MMcf of gas and
7,000 Bbls of crude oil and condensate per day. The BDPS is currently transporting an
aggregate of approximately 2 MMcf of gas per day from 5 shippers, which represents 1% of
throughput capacity. |
|
|
|
Galveston Area Block 350 Pipeline (the GA 350 Pipeline) The GA 350 Pipeline is
an 8-inch, 13 mile offshore pipeline extending from Galveston Area Block 350 to an
interconnect with a transmission pipeline in Galveston Area Block 391 located approximately 14
miles south of the Blue Dolphin Pipeline. Current system capacity on the GA 350 Pipeline is
65 MMcf of gas per day. We own an 83% undivided interest in the GA 350 Pipeline. The GA 350
Pipeline is currently transporting an aggregate of approximately 15 MMcf of gas per day from 4
shippers, which represents 23% of throughput capacity. |
16
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
|
|
Omega Pipeline The Omega Pipeline originates in the High Island Area, East Addition
Block A-173 and extends to West Cameron Block 342, where it was previously connected to the
High Island Offshore System. We own an 83% undivided interest in the Omega Pipeline. The
Omega Pipeline is currently inactive. Reactivation of the Omega Pipeline is dependent upon
future drilling activity in the vicinity and successfully attracting producer/shippers to the
system. |
Exploration and Production. Our oil and gas exploration and production activities include
leasehold interests in properties located in the U.S. Gulf of Mexico and the North Sumatra Basin
offshore Indonesia. Our leasehold interests, which are held by and the business conducted by Blue
Dolphin Petroleum Company, are subject to royalty and overriding royalty interests. We evaluate and
manage oil and gas properties by considering geology, reserve life and hydrocarbon mix based on
seismic and other data.
Exploration and Production Assets. The following provides a summary of our oil and gas
properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Working / |
|
Field |
|
Operator |
|
|
Royalty Interest |
|
Indonesia: |
|
|
|
|
|
|
|
|
North Sumatra Basin-Langsa Field |
|
Blue Sky Langsa, Ltd. |
|
|
7.0 |
% |
U.S. Gulf of Mexico: |
|
|
|
|
|
|
|
|
High Island Block 115 |
|
Rooster Petroleum, LLC |
|
|
2.5 |
% |
Galveston Area Block 321 |
|
Maritech Resources, Inc. |
|
|
0.5 |
% |
High Island Block 37 |
|
Hilcorp Energy Company |
|
|
2.8 |
% |
|
|
North Sumatra Basin-Langsa Field Located offshore Indonesia, the North Sumatra
Basin-Langsa Field covers approximately 77 square kilometers and contains two oil fields in
waters less than 325 feet deep. Four wells have been completed in the Malacca Formation
one active, the H-4 Well, and three inactive. Production is gathered via a floating
production storage and offloading (FPSO) vessel operated by Mitsui Ocean Development &
Engineering Co., Ltd. We own a 7.0% working interest in the oil field. The H-4 Well is
currently producing approximately 400 barrels of oil per day. |
|
|
|
High Island Block 115 High Island Block 115 is located approximately 30 miles
southeast of Bolivar Peninsula in an average water depth of approximately 38 feet. The block
contains one active well, the B-1 ST2 Well. We own a 2.5% working interest in a single
production zone in the well. The lease is operated by Rooster Petroleum, LLC. The B-1 ST2
Well is currently producing approximately 4 MMcf of gas per day. |
|
|
|
Galveston Area Block 321 Galveston Area Block 321 is located approximately 32
miles southeast of Galveston in an average water depth of approximately 66 feet. The block
contains one active well, the A-4 Well. We own a 0.5% overriding royalty interest in the well.
The lease is operated by Maritech Resources. The A-4 Well is currently producing
approximately 2 MMcf of gas per day and 120 barrels of oil per day. |
|
|
|
High Island Block 37 High Island Block 37 is located approximately 15 miles
south of Sabine Pass in an average water depth of approximately 36 feet. The block contains
one active well, the A-2 Well, and one inactive well, the B-1 Well. We own an approximate
2.8% working interest in this lease that covers 5,760 acres. The lease is operated by Hilcorp
Energy Company. The A-2 Well, which was shut-in during the second quarter, remains off
production. |
We are primarily dependent on revenue from our pipeline systems and our interests in leasehold
properties. We may not be able to continue our operations unless we are able to: (i) generate
sufficient funds from our operations, (ii) increase pipeline utilization rates, (iii) offset
declining production revenue with revenue from interests in new oil and gas properties, (iv)
increase throughput from new or existing shippers/producers, (v) acquire other revenue generating
assets at a reasonable price; (vi) monetize our pipeline assets or (vii) obtain financing from
other sources.
17
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Results of Operations
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
For the three months ended June 30, 2011 (the current quarter), we reported a net loss of
$413,934 compared to a net loss of $369,937 for the three months ended June 30, 2010 (the previous
quarter).
Revenue from Pipeline Operations. Revenue from pipeline operations decreased by $195,017,
or 42%, in the current quarter to $267,375 primarily due to a decrease in gas volumes transported.
Revenue from the BDPS in the current quarter decreased to approximately $192,600 compared to
approximately $368,600 in the previous quarter. Daily gas volumes transported on the BDPS averaged
6 MMcf of gas per day in the current quarter compared to 16 MMcf of gas per day in the previous
quarter. Revenue on the GA 350 Pipeline decreased to approximately $74,800 in the current quarter
compared to approximately $94,000 in the previous quarter. Daily gas volumes transported on the GA
350 Pipeline averaged 14 MMcf of gas per day in the current quarter compared to 19 MMcf of gas per
day in the previous quarter.
Revenue from Oil and Gas Sales. Revenue from oil and gas sales increased by $331,828 to
$353,027 in the current quarter primarily due to the addition of production from the North Sumatra
Basin-Langsa Field.
Our average realized gas price per Mcf in the current quarter was $4.09 compared to $4.41 in the
previous quarter. The sales mix by product was 90% oil and 10% gas. Our average realized price
per barrel of oil was $117.00 in the current quarter compared to $36.39 in the previous quarter.
Revenue breakdown for the current quarter by field was approximately $308,800 for the North Sumatra
Basin-Langsa Field, approximately $29,200 for High Island Block 115, approximately $13,000 for
Galveston Area Block 321 and approximately $1,900 for High Island Block 37.
Pipeline Operating Expenses. Pipeline operating expenses in the current quarter decreased
by $80,291, or 25%, to $245,032 primarily due to decreases in consulting fees, insurance expense
and chemical expense.
Lease Operating Expenses. Lease operating expenses increased in the current quarter by
$264,012 to $271,836, primarily due to the addition of expenses from the North Sumatra Basin-Langsa
Field. Lease operating costs associated with the North Sumatra Basin-Langsa Field totaled
approximately $253,000 for the current quarter.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
For the six months ended June 30, 2011 (the current period), we reported a net loss of $846,022
compared to a net loss of $895,691 for the six months ended June 30, 2010 (the previous period).
Revenue from Pipeline Operations. Revenue from pipeline operations decreased by $281,474,
or 32%, in the current period to $610,005 primarily due to a decrease in gas volumes transported.
Revenue from the BDPS in the current period decreased to approximately $473,000 compared to
approximately $724,000 in the previous period. Daily gas volumes transported on the BDPS averaged
7 MMcf of gas per day in the current period compared to 15 MMcf of gas per day in the previous
period. Revenue on the GA 350 Pipeline decreased to approximately $137,000 in the current period
compared to approximately $167,000 in the previous period. Daily gas volumes transported on the GA
350 Pipeline averaged 13 MMcf of gas per day in the current period compared to 20 MMcf of gas per
day in the previous period.
Revenue from Oil and Gas Sales. Revenue from oil and gas sales increased by $662,510 to
$702,731 in the current period primarily due to the addition of production from the North Sumatra
Basin-Langsa Field.
Our average realized gas price per Mcf in the current period was $3.94 compared to $4.25 in the
previous period. The sales mix by product was 89% oil and 11% gas. Our average realized price per
barrel of oil was $110.95 in the current period compared to $69.08 in the previous period. Revenue
breakdown for the current period by field was approximately $619,900 for the North Sumatra
Basin-Langsa Field, approximately $57,500 for High Island Block 115, approximately $17,000 for
Galveston Area Block 321 and approximately $8,300 for High Island Block 37.
18
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
Pipeline Operating Expenses. Pipeline operating expenses in the current period decreased
by $145,945, or 24%, to $466,366 primarily due to decreases in insurance expense and chemical
expense. The decreases were partially offset by an increase in consulting fees.
Lease Operating Expenses. Lease operating expenses increased in the current period by
$501,267 to $530,279, primarily due to the addition of expenses from the North Sumatra Basin-Langsa
Field. Lease operating costs associated with the North Sumatra Basin-Langsa Field totaled
approximately $491,000 for the current period.
Depletion, Depreciation and Amortization. Depletion, depreciation and amortization
increased $36,835, or 15%, to $283,536 in the current period primarily due to the July 2010
acquisition of the North Sumatra Basin-Langsa Field, with associated depletion of approximately
$19,000.
Liquidity and Capital Resources
Sources and Uses of Cash. Our primary source of cash is cash flow from operations and cash
on hand. During the current period, we had negative cash flow from operations of approximately
$478,000, primarily as a result of low utilization of our pipeline systems. Our available cash
resources decreased from $625,854 at December 31, 2010, to $30,271 at June 30, 2011.
We do not enter into any hedges or any type of derivatives to offset changes in commodity prices.
We also do not have any outstanding debt or a credit facility with a bank or institution that may
restrict us from issuing debt or common stock.
Over the past three years, our cash flows from operations were not sufficient to fund our working
capital requirements. As a result, we have used a portion of our cash reserves to fund our working
capital requirements that were not funded from operations.
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
Cash flow from operations |
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(456,407 |
) |
|
$ |
(497,115 |
) |
Change in current assets and liabilities |
|
|
(21,674 |
) |
|
|
118,502 |
|
|
|
|
|
|
|
|
Total cash flow from operations |
|
|
(478,081 |
) |
|
|
(378,613 |
) |
|
Cash outflows |
|
|
|
|
|
|
|
|
Payments on note payable |
|
|
(93,702 |
) |
|
|
(141,934 |
) |
Capital expenditures |
|
|
(23,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total cash outflows |
|
|
(117,502 |
) |
|
|
(141,934 |
) |
|
|
|
|
|
|
|
|
Total change in cash |
|
$ |
(595,583 |
) |
|
$ |
(520,547 |
) |
|
|
|
|
|
|
|
Going Concern. As described in Note (2), Significant Accounting Policies, in the Notes to
Condensed Consolidated Financial Statements included in this report, our condensed consolidated
financial statements contemplated that we would continue as a going concern. We incurred a net loss
of $846,022 and $1,022,895 for the six month period ended June 30, 2011 and the year ended December
31, 2010, respectively. We had an accumulated deficit of $31,976,568 and $31,130,546 as of June
30, 2011 and December 31, 2010, respectively. As of the quarter ended June 30, 2011, our limited
revenue and cash flow deficiencies raised substantial doubt as to our ability to continue as a
going concern. Then existing and anticipated working capital needs, lower than anticipated
revenue, increased expenses and/or the inability to recover damages awarded under a partial summary
judgment related to a defaulted loan affected our ability to continue as a going concern. On
August 3, 2011, we received net proceeds of approximately $3.6 million in cash pursuant to the sale
of a portion of our onshore facilities and pipeline assets. We anticipate that our current cash
reserves will provide us with sufficient cash to fund our operations beyond the next
19
BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
twelve months. See Note (9), Subsequent Events, in the Notes to Condensed Consolidated Financial
Statements included in this report.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not Applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation under the
supervision and with the participation of our management, including our Chief Executive Officer and
Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act). Based upon this evaluation, as of June 30, 2011, our Chief Executive Officer and Principal
Financial and Accounting Officer concluded that our disclosure controls and procedures were
effective to ensure that information required to be disclosed by us in reports that we file or
submit under the Exchange Act, are recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Principal Financial and
Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls over financial reporting during the period
covered by this report that have materially affected, or that are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we are subject to various lawsuits, claims and administrative proceedings that
arise out of the normal course of business. At present, we are involved in a lawsuit against the
Lazarus Energy Holdings, LLC (LEH) to foreclose on a guaranty (the Guaranty) securing a $2.0
million loan, net of credited and recovered amounts (the Loan), that we made to Lazarus Louisiana
Refinery II, LLC (LLRII).
Blue Dolphin v. LEH. On May 26, 2010, we filed a petition in the 129th Judicial
District, in the District Court of Harris County, State of Texas (the Court) alleging breach of
contract and asserting our right to the unpaid principal balance and all accrued interest due and
payable under the Loan. Although LEH filed a counter-claim alleging usurious interest based on a
$500,000 consulting agreement made between the parties, in September 2010 we exercised our right to
cure the alleged usury without having to admit guilt based on a statutory provision. In so doing,
LLRII was credited $500,000 against the outstanding principal balance, and the matter proceeded
without undue delay. In response, LEH filed an amended counter-claim further alleging breach of
contract under the confidentiality agreement between the parties. By order dated February 7, 2011,
the Court granted a partial summary judgment on liability under the promissory note and Guaranty in
favor of Blue Dolphin and against LEH and LLRII. The Court, however, deferred a ruling on the
damages and attorneys fees to be awarded. Although the parties reached an agreement regarding the
amount of attorneys fees to be awarded, and the defendants do not dispute the calculation of
damages sought by Blue Dolphin, the defendants continue to contest Blue Dolphins entitlement to
summary judgment. On February 25, 2011, we filed a motion for entry of the partial summary
judgment. On March 28, 2011, our motion for entry of the partial summary judgment was heard before
the Court. The Court entered the partial summary judgment in the amount of $1.7 million in favor
of Blue Dolphin and against LEH and LLRII on the promissory note and Guaranty. The only claim that
remains pending is the counter-claim alleging breach of contract under the confidentiality
agreement. On May 12, 2011, the parties entered into a Rule 11 Agreement in the interests of resolving the claims and
disputes related to this matter. See Note (9), Subsequent Events, in the Notes to Condensed Consolidated Financial Statements included in this report.
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BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES
We believe that the resolution of our current pending matter will not have a material adverse
effect on our business, consolidated financial position, results of operations or cash flow.
See disclosures in: (i) our Annual Report and (ii) Note (7), Loan Receivable, Note (8), Commitments
and Contingencies and Note (9), Subsequent Events in the Notes to Condensed Consolidated Financial
Statements included in this report.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in our Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. (Removed and Reserved)
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
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(a)
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Exhibits:
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The following exhibits are filed herewith:
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31.1 |
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Ivar Siem Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
section 302 of the Sarbanes-Oxley Act of
2002. |
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31.2 |
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T. Scott Howard Certification Pursuant to
18 U.S.C. Section 1350, as adopted pursuant
to section 302 of the Sarbanes-Oxley Act of
2002. |
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32.1 |
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Ivar Siem Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of
2002. |
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32.2 |
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T. Scott Howard Certification Pursuant to
18 U.S.C. Section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of
2002. |
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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.
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By: |
BLUE DOLPHIN ENERGY COMPANY
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August 12, 2011 |
/s/ IVAR SIEM
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Ivar Siem |
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Chairman, Chief Executive Officer, President, Assistant
Treasurer and Secretary |
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August 12, 2011 |
/s/ T. SCOTT HOWARD
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T. Scott Howard |
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Treasurer and Assistant Secretary
(Principal Financial and Accounting Officer) |
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