UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
[ ] 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 Identification No.)
incorporation or organization)
Eleven Greenway Plaza, Suite 1606, Houston, Texas 77046
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (713) 621-3993
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports 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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. " X "
The aggregate market value (estimated solely for purposes of this
calculation) of the voting stock held by non-affiliates of the
registrant as of March 27, 1995, was approximately $6,435,000.
As of March 27, 1995, there were outstanding 34,442,450 shares of
Common Stock, par value $.01 per share, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for the 1995 Annual
Meeting of Stockholders of the registrant (Sections entitled "Ownership
of Securities of the Company", "Election of Directors", "Executive
Compensation" and "Transactions With Related Persons"), to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A, is
incorporated by reference in Part III of the report.
PART I
ITEM 1. BUSINESS
THE COMPANY
Blue Dolphin Energy Company (referred to herein, with its
predecessors and subsidiaries, as "Blue Dolphin" or the "Company") is
engaged in the exploration, acquisition, development and operation of
oil and gas properties, oil and gas transportation, processing and
marketing, and the terminaling and storage of crude oil and refined
products. It's primary business activities are located offshore in the
Gulf of Mexico and along the Texas Gulf Coast. The Company was
incorporated in 1986 as a Delaware corporation as the result of the
corporate combination of ZIM Energy Corporation, a Texas corporation
founded in 1983 whose name was changed to ZIM Exploration and Production
Co. ("ZEPCO"), and Petra Resources, Inc., an Oklahoma corporation formed
in 1980 ("Petra"). The Company succeeded to the business, properties
and assets of ZEPCO and Petra. During the year ended January 31, 1988,
the Company changed its name from ZIM Energy Corporation to Mustang
Resources Corp. In January 1990, the Company's name was changed to Blue
Dolphin Energy Company.
The Company's principal assets are owned and operations conducted by
its wholly-owned subsidiaries Ivory Production Co., a Delaware
corporation ("Ivory"), Blue Dolphin Exploration Company, a division of
Ivory ("BDEX"), Mission Energy, Inc., a Delaware corporation d/b/a MEI
Mission Energy, Inc. ("Mission"), Blue Dolphin Pipe Line Company., a
Delaware corporation ("BDPC"), Buccaneer Pipe Line Co., a Texas
corporation, Blue Dolphin Services Co., a Texas corporation, and
Petroport, Inc., a Delaware corporation ("Petroport"). The Company is a
holding company that conducts substantially all of its operations
through its subsidiaries.
The principal executive office of the Company is located at Eleven
Greenway Plaza, Suite 1606, Houston, Texas, 77046, telephone number
(713) 621-3993. A shore base facility is maintained in Freeport, Texas
serving Gulf of Mexico operations. The Company has 14 full-time
employees. The Company's Common Stock is traded on the National
Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") under the trading symbol "BDCO".
FINANCING ACTIVITIES
In December 1990, Dolphin Pipeline, Inc. ("Dolphin") owner of
approximately 66% of the voting stock of the Company, transferred to the
Company $3,500,000 face amount of the Company's 7 1/2% Convertible
Subordinated Notes, Series B, due 2001, held by Dolphin, 7,030,017
shares of Common Stock, and a small amount of cash in exchange for the
issuance to Dolphin of 13,292,874 shares of Common Stock. Immediately
following the exchange, Dolphin distributed its 13,292,874 shares of
Common Stock and 15,000,000 shares of Series A Preferred Stock
("Preferred Stock") to the individual shareholders of Dolphin. The
distribution, which represented all of its holdings in the Company,
resulted in a deconcentration of the Company's ownership. Also in
December 1990, pursuant to a Regulation S Offshore Offering, 809,000
shares of Common Stock were sold for $353,938.
In December 1991, the Company restructured certain of its outstanding
debt, and arranged for a credit facility from A/S Investa ("Investa"), a
principal shareholder of the Company. On December 31, 1991, Investa
purchased the Company's senior debt of approximately $1,650,000 from
First Interstate Bank of Texas ("Senior Debt"). The Company and Investa
amended the Senior Debt agreement effective December 31, 1991. Among
other things, the amendment provided for deferral of principal and
interest payments. The credit facility from Investa provided for a draw
down line of credit in the amount of $1,500,000 (the "Credit Facility").
The Company fully drew down the Credit Facility in 1992. Additionally,
$788,000 principal amount of short-term notes from certain affiliates
arranged during 1991, were exchanged for $788,000 principal amount of
Non-negotiable Long-Term Convertible Notes ("Long-Term Notes"),
effective December 31, 1991.
From October 1992 through November 1993, the Company purchased and
retired $2,000,000 principal amount of its 7 1/2% Convertible
Subordinated Notes, Series A, due 2001 ("Series A Notes") for
$1,139,000. The Series A Notes were secured by U.S. Treasury securities
which were released to the Company and sold for approximately
$1,165,000.
In March 1993, the Company completed renegotiation of the payment
terms of a note payable incurred to acquire 360 acres of land in
Freeport, Texas, upon which the Company's shore facilities are located
(the "Land Note"). A final lump sum payment of approximately $1,000,000
was due and payable in January 1993, under the Land Note as originally
issued. Under the restructured note, the principal balance was retired
through monthly payments of principal and interest during the period
March 1, 1993 through March 1, 1994.
In April 1993, Investa sold to various purchasers, including the
Company, all of its holdings in the Company. Such holdings included
5,062,812 shares of Common Stock; 10,650,000 shares of Preferred Stock,
along with cumulative unpaid dividends of $704,675; the Senior Debt, in
the principal amount of $1,691,276, along with accrued interest of
$175,662; the Credit Facility, in the principal amount of $1,500,000,
along with accrued interest of $87,371; and certain Long-Term Notes, in
the principal amount of $300,000, along with accrued interest of
$22,760. The Company participated in the purchase of these securities
in the amount of $150,000, and received 208,942 shares of Common Stock;
439,525 shares of Preferred Stock, along with cumulative unpaid
dividends of $28,672; $69,799 of the Senior Debt, along with accrued
interest of $7,250; $61,905 of debt under the Credit Facility, along
with accrued interest of $3,606; and $12,381 of the Long-Term Notes,
along with accrued interest of $939. The above securities acquired by
the Company were retired in April 1993.
Effective May 1, 1993, the Company rearranged and restructured the
remaining outstanding debt of $3,347,191 which had been purchased from
Investa by others. Payment terms of the Senior Debt were extended. See
Note 5 to Consolidated Financial Statements of Blue Dolphin Energy
Company and Subsidiaries included in Item 8 and incorporated herein by
reference. The principal balances due under the Credit Facility and the
Long-Term Notes, $1,438,095 and $287,691, respectively, were combined
into the Credit Facility and accrued interest of $107,530 was
eliminated. In addition, payment terms were extended and conversion
rights were replaced with warrants. The conversion features of the
Credit Facility and Long-Term Notes, wherein the debt holders had the
right to convert the principal balances outstanding into Common Stock,
at the rate of $0.05 per share (34,514,280 shares if fully converted)
were replaced with detachable warrants to purchase 17,257,140 shares of
Common Stock. The warrants are exercisable through April 30, 1996 at the
rate of $.10 per share.
Effective June 1, 1993, the Company renegotiated the terms of a
$150,000 Long- Term Note with an affiliate (Harris A. Kaffie), whereby,
among other things, until September 30, 1993, the principal balance
could be converted, at the lender's option, into Common Stock, at a rate
of 13.3 shares for each $1.00 of principal balance outstanding. The
original terms of the note provided for conversion at a rate of 20
shares of Common Stock for each $1.00 of principal outstanding. During
September 1993, the entire $150,000 was converted into 2,000,000 shares
of Common Stock. Also, in June 1993, holders of $219,000 principal
amount of Long-Term Notes ($150,000 from Harris A. Kaffie and $69,000
from Columbus Petroleum, Ltd.) converted the notes into 4,380,000 shares
of Common Stock.
In January 1994, the Company arranged a reducing revolving credit
facility with Bank One, Texas, N.A., ("Loan Agreement") in an amount of
$10,000,000, with an initial availability of $6,500,000. The amount
available under the Loan Agreement can be redetermined semi-annually.
The facility was made available for retirement and consolidation of
existing debt and to finance future working capital needs, including the
acquisition and development of oil and gas reserve based assets.
Upon consummation of the Loan Agreement, the Company purchased and
retired its Senior Debt, outstanding debt under the Credit Facility, the
Land Note, its Long-Term Notes, and the Series B Notes. Face amount of
the above debt, totaling $6,350,729, inclusive of interest, was
purchased for approximately $5,460,000.
Also in the first quarter 1994, the remaining $500,000 of Series A
Notes were purchased at a cost of $470,000. The Series A Notes were
secured by U. S. Treasury securities which were released to the Company
and sold for approximately $306,000. The Company has retired all
$8,000,000 of its 7 1/2% Convertible Subordinated Notes, Series A and B,
issued in 1986.
BUSINESS AND PROPERTIES
The Company conducts its traditional operations in two primary
business segments: (i) oil and gas exploration and production, and (ii)
pipeline operations. The Company's oil and gas activities include the
exploration, acquisition, development, operation and, when appropriate,
disposition of oil and gas properties, including the marketing of
production therefrom. The Company also develops for sale to industry
drillable exploration prospects in the Gulf of Mexico. The Company owns
and operates through its subsidiaries, natural gas and oil pipeline
facilities including related processing facilities. See Note 11 to
Consolidated Financial Statements of Blue Dolphin Energy Company and
Subsidiaries included in Item 8 and incorporated herein by reference for
information relating to revenues, operating profit or loss and
identifiable assets of the Company's business segments. In March 1995,
the Company acquired exclusive rights to certain proprietary technology
represented by patents, associated with the development and operation of
a deepwater crude oil and products terminal and storage facility.
Operations associated with this acquisition will be conducted in a newly
formed subsidiary, and represent a new business segment for the Company.
See Note 12 to Consolidated Financial Statements of Blue Dolphin Energy
Company and Subsidiaries included in Item 8 and incorporated herein by
reference for information relating to Petroport, Inc.
OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
The following is a description of the Company's major oil and gas
exploration and production properties and activities:
THE BUCCANEER PROPERTIES. In 1985, the Company purchased leasehold
interests covering the Galveston Block 288 Field (the "Buccaneer
Field"). The Buccaneer Field is comprised of interests in parts of four
blocks covering 14,660 acres of land located approximately 30 miles
south of Galveston, Texas, offshore in United States territorial waters
in the Gulf of Mexico. Operation of the field is conducted from two
platforms located in waters averaging approximately 65 feet in depth.
Contemporaneously with the acquisition of the Buccaneer Field, certain
lands and facilities related to the Buccaneer Field and its operations
were also acquired including: approximately 360 acres of land in
Brazoria County, Texas (the "Buccaneer Real Estate"), all of the issued
and outstanding shares of BDPC, which owns the Blue Dolphin Pipeline
described in "Pipeline Operations" below; onshore facilities located on
the Buccaneer Real Estate for oil and gas separation and dehydration,
and tankage for liquids storage with capacity totalling 85,000 Bbls (the
"Processing Facility"); and a barge loading terminal located on the
Intracoastal Waterway near Freeport, Texas, together with an 8 inch oil
pipeline to transport crude oil and condensate from the Processing
Facility to the barge loading terminal (together, the "Buccaneer
Pipeline"). In 1994, a 15,000 Bbl capacity liquids storage tank was
taken out of service. The tank had not been utilized since its'
acquisition.
The Company owns a 100% working interest in the Buccaneer Field
(81.33% net revenue interest), less and except 100% of the Operating
Rights covering 2,340 acres in Galveston Block 295 and 1,890 acres in
Galveston Block 296 as to certain depths, which will be assigned to the
Farmee pursuant to the Farmout Agreement. The Company will retain a
6.33% overriding royalty interest before payout in the Operating Rights
assigned. See Note 10 to Consolidated Financial Statements of Blue
Dolphin Energy Company and Subsidiaries included in Item 8 and
incorporated herein by reference. The Company's leasehold interests in
the Buccaneer Field represent 100% of the discounted present value of
estimated future net revenues from Proved Reserves of the Company as of
December 31, 1994. Production from the Buccaneer Field accounted for
100% of the total revenues from oil and gas sales of the Company for the
year ended December 31, 1994. See "Proved Oil and Gas Reserves", below.
Buccaneer Field condensate and natural gas production are separated
offshore at the Company's Galveston Block 296-B platform, metered,
recombined and then delivered to the Blue Dolphin Pipeline, which
transports the production along with production of third parties to the
Processing Facility where the natural gas is again separated from the
crude oil and condensate. The crude oil and condensate are stored in
tanks at the Processing Facility and subsequently transported through
the Buccaneer Pipeline to a barge loading terminal where the liquids are
sold. Sale of condensate from the Buccaneer Field represented 5% of the
revenues of the Company from oil and gas sales in the year ended
December 31, 1994. During 1994, condensate sales represented 1% of the
Company's total revenues.
Natural gas produced from the Buccaneer Field is sold to Dow Chemical
Company. The gas delivered through the Blue Dolphin Pipeline to the
Processing Facility, following the separation of crude oil and
condensate from the gas stream and dehydration of the gas, is delivered
directly to Dow's Intrastate pipeline system and chemical plants complex
in Freeport, Texas. Under a gas purchase contract dated May 1, 1991,
(the "Dow Contract") Dow agreed to purchase the gas produced from the
Buccaneer Field for an initial three year term with monthly extensions
thereafter. Currently, Dow and the Company have extended the contract
through June 1995. From May 1994 through October 1994, the Company
received a monthly price based on a floating industry index which
averaged $1.87/MMBtu per month. From November 1994 through June 1995,
the Company will receive a variable monthly price based on an agreed
fixed monthly rate schedule which averages $1.90/MMBtu per month.
Purchases of gas by Dow from the Buccaneer Field represented 95% of the
oil and gas sales revenues and 16% of the total revenues of the Company
for the year ended December 31, 1994. Deliveries averaged approximately
1,100 MMBtu of gas per day during February 1995.
In November 1992, the Company entered into a Farmout Agreement (the
"Farmout Agreement") with a third party ("Farmee"), wherein the third
party earned an interest in certain of the non-producing and undeveloped
acreage in the Buccaneer Field through successful drilling and
development of the acreage. The farmout acreage consists of two project
areas. In January 1993, the initial well under the Farmout Agreement
was drilled and production casing was set. Production commenced in
March 1994 from the initial well. The drilling of a second well in
March 1994 resulted in a dry hole. The drilling option under which the
Farmee could earn additional acreage expired March 27, 1995.
In August 1993, the U. S. Department of the Interior, Minerals
Management Service ("MMS") informed Ivory that additional security would
be required to provide for the estimated future abandonment obligations
associated with the Buccaneer Field. In February 1994, agreement was
reached with the MMS as to the amount and form of such additional
security. In February 1994, Ivory provided the MMS a supplemental
surety bond in the amount of $700,000. The bond is being funded over
approximately a six year period, through escrowing with the surety of
$10,000 per month. Additionally, a sinking fund has been established
wherein the greater of the net proceeds from the Farmout acreage or
$250,000 annually will be set aside until a total of approximately
$2,400,000 has been accumulated to meet end of lease abandonment and
site clearance obligations. Ivory estimates the remaining life of its
major Buccaneer Field facilities to be in excess of ten years.
To meet current abandonment obligations, in November 1993, a
"turnkey" agreement was arranged with a third party contractor to
physically plug and abandon certain wells and satellite platform
facilities for which there was no further utility in future field
development. Work to abandon the facilities was completed in June 1994,
at a cost of approximately $1,990,000. Vendor financing was provided
under the agreement. Remaining payments of approximately $720,000 and
$532,000 are payable during 1995 and 1996, respectively.
In addition to conducting traditional oil and gas production
operations for itself, the Company operates and maintains oil and gas
production facilities for third parties who also utilize the Blue
Dolphin Pipeline System for transportation of their production. Such
contract operation and maintenance services are currently provided to
two third party producer/shippers. During 1994, revenues attributable
to provision of contract operation and maintenance services, and
transportation and processing services for these customers, represented
19% of the Company's total revenues.
In addition to realizing revenues attributable to the sale of
Buccaneer Field gas and oil production, the Company also receives
economic benefits from the marketing of certain gas transported through
the Blue Dolphin Pipeline.
OFFSHORE OIL AND GAS PROSPECT GENERATION ACTIVITIES. In August 1994,
BDEX initiated a program to develop drillable oil and gas prospects in
the Gulf of Mexico for sale to industry. The program utilizes the
latest technology in 3-D seismic processing. A 3-D seismic data
acquisition agreement has been arranged whereby a minimum of $1,500,000
will be committed over a five year period to acquire 3-D seismic data.
The prospect generation program was initiated to take advantage of
several favorable factors including: increased industry activity
offshore in the Gulf of Mexico; availability of 3-D seismic data;
availability of experienced, qualified personnel; and the available
market for high quality, high potential, 3-D seismic based offshore oil
and gas prospects.
PROVED OIL AND GAS RESERVES. Estimates of Proved Reserves, future
net revenues, and discounted present value of future net revenues to the
net interest of the Company have been prepared as of December 31, 1994,
by Gerald W. DuPont Enterprises, Inc., independent petroleum engineers.
The following table summarizes the estimates of Proved Reserves,
Proved Developed Reserves (as hereinafter defined), future net revenues
and the discounted present value of future net revenues from Proved
Reserves before income taxes to the net interest of the Company in oil
and gas properties as of December 31, 1994, using the SEC Method.
PROVED RESERVES INFORMATION
As of December 31, 1994
Net Oil Net Gas Undiscounted Discounted
Reserves Reserves Net Revenue Net Revenue(3)
Buccaneer Field (MB) (MMCF) ($000) ($000)
Proved Reserves (1) 195 33,475 $37,571 $18,311
======== ======== ======== ========
Proved Developed 119 20,351 $26,980 $14,005
Reserves (2) ======== ======== ======== ========
MB = Thousand Barrels MMCF = Million Cubic Feet
(1) "Proved Reserves" means the estimated quantities of oil, natural
gas and condensate which geological and engineering data
demonstrate with reasonable certainty to be recoverable by
primary producing mechanisms in future years from known
reservoirs under existing economic and operating conditions.
(2) "Proved Developed Reserves" are those quantities of oil, natural
gas and condensate which are expected to be recovered through
existing wells with existing equipment and operating methods.
(3) The estimated future net revenues before deductions for income
taxes from the Company's Proved Reserves have been determined and
discounted at a 10% annual rate in accordance with requirements
for reporting oil and gas reserves pursuant to regulations
promulgated by the United States Securities and Exchange
Commission (the "SEC Method").
The quantities of proved natural gas and crude oil reserves presented
include only those amounts which the Company reasonably expects to
recover in the future from known oil and gas reservoirs under existing
economic and operating conditions. Therefore, Proved Reserves are
limited to those quantities that are believed to be recoverable
commercially at prices and costs, and under regulatory practices and
technology existing at the time of the estimate. Accordingly, changes
in prices, costs, regulations, technology and other factors could
significantly affect the estimates of Proved Reserves and the discounted
present value of future net revenues attributable thereto.
The reserves and future net revenues presented in the evaluations
summarized above reflect capital expenditures totalling $250,000,
$2,320,000, $2,250,000 and $2,025,000 in the years ending December 31,
1996, 1997, 1998, and 1999, respectively. Management will continue to
evaluate its capital expenditure program based on, among other things,
demand and prices obtainable for the Company's production. The
availability of capital resources may affect the Company's timing for
further development of the Buccaneer Field, and there can be no
assurance that such reserves will be developed as currently planned.
The discounted present value of estimated future net revenues
attributable to Proved Reserves has been prepared in accordance with the
SEC Method after deduction of royalties and other third-party interests,
lease operating expenses, ad valorem taxes, and estimated production,
development, workover and recompletion costs, but before deduction of
income taxes, general and administrative costs, debt service and
depletion and amortization. Estimated future net revenues are based on
prices of oil and gas in effect as of the date of the evaluation without
escalation except to the extent contractually committed. Lease
operating expenses, production and development costs, and ad valorem
taxes were estimated based on such costs in effect on the date of the
evaluation, assuming the continuation of existing economic conditions
and without adjustment for inflation or other factors. The present
value of estimated future net revenues is computed by discounting future
net revenues at a rate of 10% per annum. Revenues from wells not
currently producing are included at the time they are expected to be
placed into production based upon estimates of future development;
workover and recompletion costs are included at the time they are
expected to be incurred. Of the Company's total Proved Developed
Reserves, 10% of its estimated gas reserves and 7% of its estimated oil
reserves were being produced at December 31, 1994.
Estimates of production and future net revenues cannot be expected to
represent accurately the actual production or revenues that may be
recognized with respect to oil and gas properties or the actual present
market value of such properties. For further information concerning the
Company's Proved Reserves, changes in Proved Reserves, estimated future
net revenues and costs incurred in the Company's oil and gas activities
and the discounted present value of estimated future net revenues from
the Company's Proved Reserves, see Supplemental Disclosures - Oil and
Gas Producing Activities of Blue Dolphin Energy Company and Subsidiaries
included in Item 8 and incorporated herein by reference. The Company
has not filed with, or included in reports to, any federal authority or
agency, any estimates of total oil and gas reserves.
PRODUCTIVE WELLS AND ACREAGE. The following table sets forth the
Company's interest in productive wells and developed and undeveloped
acreage as of December 31, 1994.
ACREAGE AND WELLS
Productive Wells (1) Developed Undeveloped
Gross Net Acres (1) Acres (1)
Oil Gas Oil Gas Gross Net Gross Net
---- --- --- --- ----- --- ----- ---
Buccaneer Field 0 2 0 1.1 8,730 8,730 5,930 5,930
(1) "Productive wells" are producing wells and wells capable of
production, and include gas wells awaiting pipeline connections or
necessary governmental certifications to commence deliveries and
oil wells to be connected to production facilities. "Developed
acres" include all acreage as to which proved reserves are
attributed, whether or not currently producing, but exclude all
producing acreage as to which the Company's interest is limited to
royalty, overriding royalty, and other similar interests.
"Undeveloped acres" are considered to be those acres on which wells
have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas regardless of
whether such acreage contains Proved Reserves. "Gross" as it
applies to wells or acreage refers to the number of wells or acres
in which a working interest is owned, while "net" applies to the
sum of the fractional working interests in gross wells or acreage.
PRODUCTION, PRICE AND COST DATA. The following table sets forth the
approximate production volumes and revenues, average sales prices and
costs (after deduction of royalties and interests of others) with
respect to crude oil, condensate, plant liquids and natural gas
attributable to the interest of the Company for each of the periods
indicated:
NET PRODUCTION, PRICE AND COST DATA
Year Ended December 31,
1994 1993 1992
--------- --------- ---------
Gas:
Production (Mcf) 490,587 554,346 518,031
Revenue $1,073,324 $1,302,514 $1,016,001
Average Mcf Per Day 1,344.1 1,518.8 1,415.4
Average Sales Price
per Mcf $2.19 $2.35 $1.96
Oil: (1)
Production (Bbls) 3,791 3,666 14,178
Revenue (2) $58,312 $62,566 $271,852
Average Bbls
per Day 10.4 10.0 38.7
Average Sales Price
per BBL $15.38 $17.07 $19.17
Production Costs:
Per Equivalent Mcf (3): $1.93 $1.11 $1.60
(1) Includes condensate. The majority of oil production reported in
1992 relates to the Constantin Property sold in September 1992.
(2) Recognition of Buccaneer Field oil revenue is based upon
production.
(3) Production costs, exclusive of workover costs, are costs incurred
to operate and maintain wells and equipment and to pay production
taxes. Costs totalling $222,000, $303,000, and $287,000 for the
years ended December 31, 1994, 1993, and 1992, respectively, for
contract production operations and maintenance services provided
to third party producers have been excluded. Oil production is
converted to equivalent Mcf at the rate of six Mcf per Bbl.
The Company sells its condensate production at market prices at the
time of sale, and its natural gas production under a short-term
contract. The Company sold all of its Buccaneer Field gas production to
Dow under a contract which accounted for 95% of oil and gas sales and
16% of the total revenues of the Company in the year ended December 31,
1994, and all of its condensate from the Buccaneer Field to Coastal
States Trading, Inc. at posted prices which accounted for approximately
5% of total oil and gas sales during the year ended December 31, 1994.
DRILLING ACTIVITY. There was one farmout well drilled in 1994 which
was dry, and one farmout well drilled in 1993, which began production in
1994. See Note 10 to the Consolidated Financial Statements of Blue
Dolphin Energy Company and Subsidiaries included in Item 8 and
incorporated herein by reference. There was no drilling activity during
1992.
The Company maintains a professional staff capable of supervising and
coordinating the operation and administration of its oil and gas
properties and other assets. From time to time, major maintenance and
engineering design and construction projects are contracted to
third-party engineering and service companies.
PIPELINE OPERATIONS AND ACTIVITIES
The Company is engaged in both natural gas and oil pipeline
operations onshore and offshore Texas in the Gulf of Mexico. The
Company, through BDPC, owns and operates the Blue Dolphin Pipeline,
which is engaged in the transportation of gas, crude oil and condensate
from the Buccaneer Field and other fields in the market area to the
Company's Processing Facility located in Freeport, Texas. After
processing, the gas is transported to Dow. The Company, through its
Buccaneer Pipe Line Co. subsidiary, owns and operates the Buccaneer
Pipeline, which transports oil and condensate from the Processing
Facility to the Company's barge loading terminal on the Intracoastal
Waterway near Freeport, Texas. Both of these pipeline operations are
critical to the Company's successful production and marketing of gas and
oil from the Buccaneer Field. These operations are also of significant
value to third-party producers who have or may connect to the Blue
Dolphin Pipeline for the transportation of gas and oil to shore for
ultimate delivery to markets.
Prior to February 5, 1992, BDPC was classified as a "natural gas
company" pursuant to the Natural Gas Act of 1938 ("NGA") and the Blue
Dolphin Pipeline was classified as an "interstate pipeline" pursuant to
the Natural Gas Policy Act of 1978 ("NGPA"). On February 5, 1992, by
Declaratory Order, the Federal Energy Regulatory Commission ("FERC")
ruled that BDPC's facilities, including the Blue Dolphin Pipeline, were
gathering facilities, and no longer subject to FERC rate jurisdiction.
The ruling allows the Company to set transportation rates for the Blue
Dolphin Pipeline that are responsive to market conditions and reflective
of the value of the service provided. The Company now also has the
flexibility to expand the system, with the ability to earn additional
fees associated with the added service without the necessity of
petitioning FERC through a rate case proceeding.
The Blue Dolphin Pipeline consists of two separate segments. The
offshore segment is comprised of approximately 36 miles of twenty inch
pipeline from the Buccaneer Field platforms to shore and 4 miles to the
Processing Facility at Freeport, Texas. The onshore segment consists of
approximately 2.0 miles of 16-inch pipeline from the Processing Facility
to a delivery point at Dow's Freeport, Texas plants' complex and Dow
Pipeline Company's intrastate pipeline system.
Various fees are charged to producer/shippers for provision of
transportation and Processing Facility services. Blue Dolphin Pipeline
throughput averaged approximately 53% of capacity during 1994. Current
capacity of the system is approximately 165 MMcf per day of gas and
4,000 Bbls per day of oil and condensate. Ninety eight percent of gas
volumes transported and 99% of oil and condensate volumes transported
are attributable to production from third party producer/shippers.
The economic return to the Company on its pipeline investment is
solely dependent upon the amounts of gas and oil transported through the
Blue Dolphin Pipeline. Similarly, since currently the only source of
hydrocarbons available for processing by the Processing Facility is the
production delivered to shore by the Blue Dolphin Pipeline, the return
on the Processing Facility investment is directly linked to Blue Dolphin
Pipeline throughput volumes.
The Company is aggressively marketing pipeline system transportation
services to prospective third party producer/shippers in the vicinity of
the Blue Dolphin Pipeline. In February 1995, the pipeline system
operated at approximately 43% of capacity. Future utilization of the
pipelines and related facilities will depend upon the success of
drilling programs in the Blue Dolphin Pipeline corridor, attraction to
the system, and execution of contracts with producer/shippers to
transport their oil and gas production through the Company's pipeline
systems.
OFFSHORE DEEPWATER PORT AND STORAGE FACILITY
In March 1995, the Company completed acquisition of Petroport, L.C.
Petroport, L.C. was merged into Petroport. Petroport, L.C. holds
proprietary technology, represented by certain patents issued and or
pending, associated with the development and operation of an offshore
deepwater crude oil and products port and storage facility. The
Petroport offshore terminal and storage facility will receive and store
imported crude oil and refined products with deliveries into U.S.
markets. The design concept of the facility, which is unique to
Petroport, incorporates salt dome cavern storage directly under a
delivery vessel, thereby reducing construction costs and vessel
turnaround time. Petroport will provide importers with a competitive
and environmentally attractive alternative to the lightering of large
tankers as well as low cost long-term storage of crude oil and products.
At this time, the Company is developing its business plan focusing on
the initial activities associated with the project. See Item 7
Managements Discussion and Analysis of Financial Condition and Results
of Operations - Financial Condition: Liquidity and Capital Resources.
The Company expects to focus its efforts in the future on the
acquisition, exploration and development of oil and gas reserve based
assets, generation of oil and gas exploration prospects, the further
development and expansion of its pipeline transportation system, and
development of Petroport.
COMPETITION, MARKETS AND REGULATION
COMPETITION
The oil and gas industry is highly competitive in all phases.
Competition is particularly intense with respect to the acquisition of
desirable producing properties and the marketing of oil and gas
production. There is also competition for the acquisition of oil and
gas leases suitable for exploration and for the hiring of experienced
personnel to manage and operate the Company's assets. Competition also
exists with other industries in supplying the energy and fuel needs of
consumers.
The competitors of the Company in the acquisition, exploration and
development of oil and gas properties and in the production,
transportation and marketing of oil, gas and other hydrocarbons include
the major oil companies and large gas pipeline companies in addition to
numerous independent oil and gas companies and pipelines, individual
proprietors, and income and drilling programs. Many of these
competitors possess and employ financial and personnel resources
substantially in excess of those which are available to the Company,
which may allow them to pay greater amounts for desirable properties, to
define, evaluate, bid for and purchase a greater number of potential
properties, to obtain equipment, services and other resources necessary
to operate producing properties and facilities at prices more favorable
than the Company, and to market production at higher prices and on
better terms than the Company. The ability of the Company to replace
and add reserves, and generate revenues in the future will be dependent
on the Company's ability to select, acquire and develop suitable
producing properties and market its production and pipeline capacity in
competition with these companies and individuals.
In addition to competition in oil and natural gas exploration and
production activities, there is intense competition in the marketing and
transportation of oil and natural gas. Because the revenues from the
Company's production, transportation and other services are dependent
upon the ability of the Company and other oil and gas producers to
locate and maintain markets for oil and gas production, the marketing of
oil and gas by the Company and by other producers or marketers
transporting gas through the Blue Dolphin Pipeline and the Buccaneer
Pipeline is of great importance to the Company. In general, gas sellers
have numerous competitors, including marketing affiliates of interstate
pipelines, the major integrated oil companies, gas producers and
pipelines, and local and national gas gatherers, brokers and marketers
of widely varying sizes, financial resources and experience.
Notwithstanding Order No. 636 (discussed below) the Company believes
that some of the marketing affiliates of interstate pipelines may enjoy
competitive advantages over independent gas marketers, including the
Company. Certain competitors, such as the major producers, have capital
resources many times greater than the Company and control substantially
greater supplies of gas. Local utilities and distributors of gas are,
in some cases, engaged directly and through affiliates in marketing
activities that may compete with those of the Company and other
producers transporting gas through the Blue Dolphin Pipeline.
MARKETS
The availability of a ready market for natural gas and oil, and the
prices of such natural gas and oil, depend upon a number of factors
which are beyond the control of the Company. These include, among other
things, the level of domestic production, the availability of imported
oil and gas, actions taken by foreign oil and gas producing nations, the
availability of pipelines with adequate capacity and other
transportation facilities, the availability and marketing of other
competitive fuels, fluctuating and seasonal demand for oil, gas and
refined products, and the extent of governmental regulation and taxation
(under both present and future legislation) of the production, refining,
transportation, pricing, use and allocation of oil, natural gas, refined
products and alternative fuels.
Accordingly, in view of the many uncertainties affecting the supply
and demand for crude oil, natural gas and refined petroleum products, it
is not possible to predict accurately the prices or marketability of the
natural gas and oil obtained as a result of the Company's operations.
Notwithstanding increases in natural gas prices over the last several
years, the prices of crude oil, natural gas, and refined petroleum
products, generally, have declined significantly in the past ten years
as a result of an oversupply of a number of fuels, including certain
petroleum products such as natural gas, gasoline and fuel oils, relative
to the demand for such products. The spot market price for certain
grades of crude oil has declined from a high price of approximately $40
per Bbl in 1981 to an average of approximately $15 per Bbl in 1994,
discounting volatile market fluctuations.
GOVERNMENTAL REGULATION
The production, processing, marketing and transportation of oil and
natural gas by the Company are subject to federal, state and local
regulations which can have a significant impact upon the Company's
overall operations.
FEDERAL REGULATION OF NATURAL GAS TRANSPORTATION. The transportation
and sale for resale of natural gas in interstate commerce are regulated
pursuant to the NGA and the NGPA. Both statutes are administered by the
FERC.
The Natural Gas Wellhead Decontrol Act of 1989 removed all NGPA and
NGA price and non-price controls affecting wellhead sales of gas
effective January 1, 1993. The FERC still has general investigatory and
other powers under both the NGA and the NGPA which now largely apply to
transportation of natural gas in interstate commerce. Failure to comply
with the terms of the NGPA, the NGA, other applicable legislation or the
regulations promulgated thereunder may result in the imposition of civil
or criminal penalties.
In April 1992, FERC issued Order No. 636, which calls for the
unbundling of pipelines' merchant and transportation functions. The
goal of Order No. 636, as amended by Order Nos. 636-A and 636-B, is to
enhance competition in the industry through maximum efficient, flexible
use of the national grid. Among other things, Order No. 636 (i)
requires interstate pipelines to provide transportation and storage
services to all customers (including third-party gas sellers) on a
comparable basis, (ii) requires interstate pipelines to design their
rates using a straight-fixed-variable methodology, under which all of
the pipeline's fixed costs are allocated to the pipeline's reservation
charges, and (iii) provides several mechanisms by which unused
interstate pipeline transportation capacity can be reallocated in the
marketplace. Although the pipelines have gone through Order No. 636
restructuring, the specific details of each interstate pipeline's
restructuring are continuing to evolve through compliance filings and
subsequent rate cases.
While Order No. 636 will not directly regulate the Company's
activities, it may have an indirect effect because of its broad scope.
In particular gas consumers, producers, certain interstate pipelines and
independent gathering companies such as BDPC have expressed concern to
FERC in various forums that "straight-fixed-variable to the wellhead"
rate design (which results in effectively zero-rate interstate pipeline
fees for production area transportation due to subsidies paid by
market-area customers) is in fact an anticompetitive "tying". FERC has
instituted industry-wide reevaluation of this rate design in the
production area in a generic proceeding. Meanwhile, BDPC is among the
parties objecting to institution of this rate design in a pending FERC
rate case of Transcontinental Gas Pipe Line Corporation, a large
interstate pipeline whose offshore laterals straddle BDPC. BDPC has
testified in that case that to the extent that Transco is correct in
alleging that Transco's lack of this rate design handicaps Transco in
competing against pipelines able to employ it, the same disadvantages
Transco alleges would impact BDPC as well. Nonetheless, BDPC's
testimony has also pointed out that notwithstanding Transco's
allegations of competitive disadvantage, Transco's throughput has
actually increased during the period in question. In early 1995, The
Williams Companies, whose Williams Gas Marketing subsidiary made
essentially the same arguments as BDPC to oppose Transco's rate design
proposal as grossly anticompetitive, acquired Transco. Accordingly, it
is unclear how Transco under its new management will be able to persist
with this proposal. Thus it is not only infeasible to predict whether
Transco will be able to employ this rate design, it is also infeasible
to predict what impact Transco's use of firm-to-the-wellhead rates would
have on BDPC. It is possible, however, that if Transco is able to
institute this rate design, BDPC may anticipate difficulty in competing
to attract new production in the future. In addition, Order No. 636
will bring a degree of confusion and uncertainty to interstate natural
gas sales and transportation for an unknown period of time.
Some of the above-described orders are subject to further revision by
FERC or the courts and it is currently unclear how and when those orders
will be resolved or further modified. The Company cannot accurately
predict how the above-described laws and regulations, or future laws and
regulations, will affect its operations.
SAFETY AND OPERATIONAL REGULATIONS. The operations of the Company
are generally subject to safety and operational regulations administered
primarily by the MMS, the U.S. Department of Transportation, the U.S.
Coast Guard, the FERC and/or various state agencies.
DECERTIFICATION OF BLUE DOLPHIN PIPELINE. On February 5, 1992, the
FERC issued a Declaratory Order granting BDPC's petition which had
requested a finding that the pipeline and facilities are exempt from
further FERC jurisdiction under the NGA by virtue of that act's
gathering exemption. In a subsequent ruling in February 1994, the FERC
cited with approval the February 5, 1992, BDPC Declaratory Order, when
it issued an order granting nonjurisdictional gathering status to a 20-
inch, 95-mile offshore pipeline with characteristics far closer to those
of an interstate pipeline than BDPC. Nonetheless, in that same February
1994 order, FERC stated that nonjurisdictional gathering lines, as well
as interstate pipelines, are fully subject to the open access and
nondiscriminatory requirements of Section 5 of the Outer Continental
Shelf Lands Act (OCSLA) which generally authorizes FERC to insure that
natural gas pipelines on the OCS will transport for non-owner shippers
in a nondiscriminatory manner and will be operated in accordance with
certain pro-competitive principles. Since BDPC already operates on the
basis required under OCSLA, the Company does not anticipate significant
changes resulting from this ruling. If however, BDPC's throughput
increases to the extent that the pipeline is completely utilized, under
OCSLA, FERC may be petitioned to direct capacity allocation on BDPC.
Accordingly, the Company cannot predict how application of the OCSLA to
BDPC may ultimately affect Company operations.
Aside from OCSLA requirements and federal safety and operational
regulations, regulation of natural gas gathering activities is primarily
a matter of state oversight. Regulation of gathering activities in
Texas includes various transportation, safety, environmental and
non-discriminatory purchase/transport requirements.
FEDERAL REGULATION OF OIL PIPELINES. The Company's operation of the
Buccaneer Pipeline is currently subject to a variety of regulations
promulgated by the FERC and imposed on all oil pipelines pursuant to
federal law. In particular, the rates chargeable by the Company are
subject to prior approval by the FERC, as are operating conditions and
related matters contained in the Company's transportation tariffs which
are on file with the FERC. In October 1993, FERC issued Order No. 561,
whose intent was to simplify oil pipeline ratemaking, largely through
use of a ceiling based on an indexing system. At the same time, FERC
launched an inquiry to explore ways to improve the collection of data on
oil pipeline costs. Because operation of Order No. 561 has not yet come
fully into play, the Company cannot predict whether or how an indexed
rate system will affect the Buccaneer Pipeline's rates. Similarly, it
is not possible to predict the impact of possible additional reporting
requirements.
FEDERAL OIL AND GAS LEASES. The Company's operations conducted on
the Buccaneer Field leases and any other Company operations conducted on
federal oil and gas leases must be conducted in accordance with permits
issued by the MMS and are subject to a number of other regulatory
restrictions similar to those imposed by the states. Moreover, on
certain federal leases, prior approval of drillsite locations must be
obtained from the Environmental Protection Agency ("EPA").
With respect to any Company operations conducted on offshore federal
leases, including operations in the Buccaneer Field, liability may
generally be imposed under the Outer Continental Shelf Lands Act
("OCSLA") for costs of clean-up and damages caused by pollution
resulting from such operations, other than damages caused by acts of war
or the negligence of third parties. Under certain circumstances,
including but not limited to conditions deemed a threat or harm to the
environment, the MMS may also require any Company operations on federal
leases to be suspended or terminated in the affected area. Furthermore,
the MMS generally requires that offshore facilities be dismantled and
removed when production ceases, although the MMS is considering the
establishment of procedures under which certain of such facilities may
be left in place, with EPA approval. See "Oil and Gas Exploration and
Production Activities - The Buccaneer Properties".
ENVIRONMENTAL REGULATIONS. The Company may generally be liable for
defined clean-up costs to the U.S. Government, with respect to its
operations on both onshore and offshore properties, under the Federal
Clean Water Act for each incident of oil or hazardous substance
pollution and under the Comprehensive Environmental Response,
Compensation and Liability Act of 1981, as amended (Superfund), for
hazardous substance contamination. Such liability may be unlimited in
cases of negligence or willful misconduct, and there is no limit on
liability for environmental clean-up costs or damages with respect to
claims by the states or by private persons or entities. In addition,
the EPA requires the Company to obtain permits to authorize the
discharge of pollutants into navigable waters. State and local permits
and/or approvals may also be needed with respect to wastewater
discharges and air pollutant emissions. Violations of environmental
related lease conditions or environmental permits can result in
substantial civil and criminal penalties as well as potential court
injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.
PROPOSED LEGISLATION AND RULEMAKING. On August 25, 1993, the MMS
published an Advance Notice of Proposed Rulemaking. The MMS announced
its intent pursuant to the Oil Pollution Act of 1990 ("OPA 90") to
publish regulations governing the establishment of financial
responsibility and requested comments from interested parties thereto.
These regulations, as initially proposed, will increase the current
level of financial responsibility from $35,000,000 to $150,000,000 for
certain offshore operations. The Company currently maintains the
statutory $35,000,000 coverage.
In response to overwhelming opposition to this proposal from the
Company and virtually all other industry parties, the Department of the
Interior announced in December 1994 the appointment of a special
advisory group that will recommend ways to implement OPA 90 without
causing severe economic damage. This group will explore ways to
implement the financial responsibility requirements of the new law,
including legislative proposals to avert severe economic consequences
Congress may not have intended. Nonetheless, the Company cannot predict
how these rules and/or future laws, will affect its operations.
Legislative proposals and administrative rules and regulations are
pending in Congress and in the legislatures of various states and at
federal agencies, that, if enacted, could significantly affect the oil
and gas industry. These include proposals by FERC and Congress to
streamline the certification process for certain types of pipelines, and
several Congressional energy bills and executive branch energy
initiatives which have as their goal the decreased reliance by the
United States on foreign energy supplies. It is impossible to predict
which of these state and federal proposals and rules, if any, will be
adopted and what effect, if any, they would have on the operations of
the Company.
In addition, various federal, state and local laws and regulations
covering the discharge of materials into the environment, or otherwise
relating to the protection of the public health and the environment, may
affect the Company's operations, expenses and costs. The trend in
environmental regulation has been to place more restrictions and
limitations on activities that may impact the environment, such as
emissions of pollutants, generation and disposal of wastes, and use and
handling of chemical substances. Increasingly strict environmental
restrictions and limitations may result in increased operating costs for
the Company and other similar businesses throughout the United States.
It is possible that the costs of compliance with environmental laws and
regulations will continue to increase. In addition, the Company is
subject to laws and regulations concerning occupational health and
safety. It is not anticipated that the Company will be required in the
near future to expend amounts that are material in relation to its total
capital expenditures program by reason of environmental or occupational
health and safety laws and regulations, but in as much as such laws and
regulations are frequently changed, the Company is unable to predict the
ultimate cost of compliance.
ITEM 2. PROPERTIES
Information appearing in Item 1 describing the Company's properties
under the caption "Business and Properties" is incorporated herein by
reference.
In addition, the Company leases, under a lease expiring September 30,
1998, 6,069 square feet for its corporate and subsidiaries' executive
offices in Houston, Texas.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its property is subject to any
material pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders
during the quarter ended December 31, 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock trades in the over-the-counter market and is quoted
on NASDAQ under the symbol "BDCO". As of March 15, 1995, there were an
estimated 1000 stockholders of record of the Common Stock. NASDAQ
quotations reflect inter-dealer prices, without adjustment for retail
mark-ups, mark-downs or commissions and may not represent actual
transactions. The following table sets forth, for the periods
indicated, the high and low closing bid and ask quotations for the
Common Stock, as reported on NASDAQ.
Bid Ask
High Low High Low
---- --- ---- ---
Quarter Ended March 31, 1993.......... 0.06 0.03 0.09 0.06
Quarter Ended June 30, 1993........... 0.38 0.03 0.47 0.06
Quarter Ended September 30, 1993...... 0.41 0.19 0.47 0.25
Quarter Ended December 31, 1993....... 0.34 0.25 0.41 0.28
Quarter Ended March 31, 1994.......... 0.59 0.31 0.63 0.38
Quarter Ended June 30, 1994........... 0.50 0.34 0.53 0.38
Quarter Ended September 30, 1994...... 0.41 0.28 0.44 0.31
Quarter Ended December 31, 1994....... 0.28 0.19 0.34 0.25
The Company currently intends to retain earnings for its capital
needs and expansion of its business and does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. The Company is
restricted, pursuant to the Loan Agreement, from paying dividends on
Preferred and Common Stock. In addition, the Company is in arrears on
payment of dividends on its Preferred Stock which imposes limits on the
payment of dividends on the Common Stock. Future policy with respect to
dividends will be determined by the Board of Directors based upon the
Company's earnings and financial condition, capital requirements and
other considerations. The Company is a holding company that conducts
substantially all of its operations through its subsidiaries. As a
result, the Company's ability to pay dividends on the Common Stock is
dependent on the cash flow of its subsidiaries. The Company has not
declared or paid any dividends on the Common Stock since its
incorporation.
ITEM 6. SELECTED FINANCIAL DATA
The comparative selected financial data of the Company and its
consolidated subsidiaries is presented for the fiscal years ended
December 31, 1994, 1993, 1992, 1991, and 1990. Such information should
be read in conjunction with Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of the Company and the related notes
thereto included elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992 1991 1990
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $6,792,765 $5,220,330 $3,105,296 $3,284,961 $4,212,298
Income (Loss) from
continuing operations 930,659 358,694(2) (1,143,305) (1,960,330) (2,934,560)
Income (Loss) from
continuing operations
per primary Common
Share (1) .02 --- (.05) (.08) (.17)
Weighted average number of
common shares and common
share equivalents
outstanding 47,626,300 38,479,361 27,268,659 26,644,156 19,403,040
Per Fully Diluted Common
Share (1) .01 --- (.05) (.08) (.17)
Weighted average number of
common shares and dilutive
common share equivalents
outstanding 62,278,671 67,817,957 27,268,659 26,644,156 19,403,040
Working Capital
(deficit) (1,415,091) (2,282,435) (2,240,206) (1,302,221) (1,577,226)
Total Assets 20,759,338 21,351,080 20,070,712 20,423,830 21,257,807
Long-term obligations
Bonds --- 2,500,000 4,100,000 4,500,000 4,500,000
Other long-term debt 4,450,000 2,642,303 3,282,496 3,892,787 2,815,368
</TABLE>
(1) Income from continuing operations per share of Common Stock in
1994 and 1993 is based on the weighted average number of common
and common equivalent shares outstanding. The losses from
continuing operations per share of Common Stock for years 1992
and prior are based on the weighted average number of common
shares outstanding. See Note 1 to Consolidated Financial
Statements of Blue Dolphin Energy Company and Subsidiaries
included in Item 8 and incorporated herein by reference.
(2) The Company changed its method of accounting for income taxes in
1993. See Note 4 to Consolidated Financial Statements of Blue
Dolphin Energy Company and Subsidiaries included in Item 8 and
incorporated herein by reference.
ITEM 7. 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 Consolidated Financial Statements of the Company
and Subsidiaries included elsewhere in this report.
For the year ended December 31, 1994, revenues increased $1,572,435
or 30% to $6,792,765 compared to revenues of $5,220,330 reported for the
year ended December 31, 1993. Pre-tax earnings increased $1,053,265 or
75% to $2,450,163 compared to 1993 pre-tax earnings of $1,396,898. Net
income increased $686,900 or 80% to $1,542,699 compared to 1993 net
income of $855,799.
Results for both 1994 and 1993 included extraordinary gains from
early retirement of debt. After tax gains of $612,040 and $497,105 were
realized in 1994 and 1993, respectively. Excluding the extraordinary
gains, 1994 net income increased 159% to $930,659 compared to $358,694
in 1993.
Results for 1994 included provision for income taxes of $907,464, of
which $809,663 is offset with an increase to paid in capital, reflecting
utilization of net operating loss carryforwards that were incurred prior
to a quasi-reorganization recorded at December 31, 1989.
FINANCIAL CONDITION: LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1994, the Company's working capital deficit
(current assets less current liabilities) was $1,415,091, representing
an improvement of $867,344 as compared with a working capital deficit of
$2,282,435 at December 31, 1993.
The improvement in the Company's working capital position during
1994, was due to the refinancing of debt, which resulted in a decrease
in accrued interest payable of approximately $434,000, and a reduction
in accounts payable of approximately $1,036,000. These decreases were
offset in part by the reclassification of accrued abandonment costs of
approximately $365,000 from long- term to current, as a result of the
physical abandonment of certain facilities in 1994, and a reduction in
accounts receivable of approximately $343,000.
In January 1994, the Company arranged a $10,000,000 reducing
revolving credit facility with Bank One, Texas, N.A. ("Loan Agreement"),
with initial borrowing availability of $6,500,000. The borrowing
availability and reducing amount are redetermined semi-annually.
Effective March 1, 1995, the borrowing base was increased from
$5,300,000 to $5,800,000, reducing by $150,000 per month beginning April
1, 1995. The facility was made available for debt retirement and
consolidation, and to finance future working capital needs, including
the acquisition of oil and gas reserve based assets. Upon consummation
of the Loan Agreement in January 1994, the Company purchased and retired
debt totalling $6,350,729 including interest, for approximately
$5,460,000 with funds from the new facility. See Notes 3 and 5 to
Consolidated Financial Statements of Blue Dolphin Energy Company and
Subsidiaries included in Item 8 and incorporated herein by reference.
The Loan Agreement includes certain restrictive covenants, including
restriction of the payment of dividends on capital stock, and the
maintenance of certain financial coverage ratios.
Although Blue Dolphin Pipeline System throughput volumes and
associated revenues increased significantly in 1994 as compared to 1993
levels, the increases have been less than previously anticipated. Low
gas prices have resulted in producers shutting-in or curtailing
production. Additionally, certain production was and has been
temporarily shut-in during operations associated with drilling of
development wells and well workovers and/or recompletions, on various
Galveston Area lease blocks tied-in to the Blue Dolphin Pipeline System.
Combined with normal production declines, fourth quarter gas volumes
transported averaged approximately 71 MMBTU per day, 22 percent below
the full year 1994 average daily gas throughput volume of approximately
92 MMBTU per day. First quarter 1995 gas throughput volumes have been
generally flat as compared with fourth quarter 1994.
Offshore drilling activity in the vicinity of the Blue Dolphin
Pipeline has remained active. Two new discoveries have recently been
reported in Galveston Area lease blocks in the vicinity of the Blue
Dolphin Pipeline. The Company is aggressively competing to attract
these producer/shippers to its pipeline system. Tie-in decisions are
expected to be made during the second quarter 1995, with production
operations expected to commence during the third quarter 1995 for both
discoveries. Additionally, development drilling is currently under way
or planned for blocks currently tied-in to the Blue Dolphin Pipeline
System. If successful, additional production from these blocks could
begin in the second and third quarters 1995. To provide capacity for
possible increased system liquids throughput, expansion of the Company's
onshore liquids handling capacity is now being evaluated, along with
financing alternatives. See Note 3 to Consolidated Financial Statements
of Blue Dolphin Energy Company and Subsidiaries included in Item 8 and
incorporated herein by reference.
Future utilization of the pipeline and related facilities will depend
upon the success of drilling programs in the Blue Dolphin Pipeline
corridor, attraction to the system, and execution of contracts with
producer/shippers to transport their gas and oil through the Company's
pipeline system. Additionally, certain rate designs associated with
interstate pipeline restructuring under Order No. 636 may affect the
Company's rate structure when competing for future pipeline system
transportation volumes. Impact on the Company if its interstate
pipeline competitors implement such rate designs cannot accurately be
predicted at this time (See "Competition, Markets and Regulation -
Government Regulation").
The reserves and future net revenues presented in Item 1 Business -
Oil and Gas Exploration and Production Activities reflect capital
expenditures totalling $250,000, $2,320,000, $2,250,000 and $2,025,000
in the years ending December 31, 1996, 1997, 1998, and 1999,
respectively. Management will continue to evaluate its capital
expenditure program based on, among other things, demand and prices
obtainable for the Company's production. The availability of capital
resources may affect the Company's timing for further development of the
Buccaneer Field, and there can be no assurance that such reserves will
be developed as currently planned.
In November 1992, Ivory entered into a Farmout Agreement with a third
party ("Farmee"). In January 1993, the initial well under the Farmout
Agreement was drilled and production casing set. As a result of
regulatory delays, production did not commence until March 1994. The
drilling option under which the Farmee could earn additional acreage
expired March 27, 1995.
As a result of filing development plans in 1993 for the contemplated
wells under the Farmout Agreement, the MMS required that the Company
provide additional security to ensure it could meet its future
abandonment obligations associated with the Buccaneer Field. See Note
10 to Consolidated Financial Statements of Blue Dolphin Energy Company
and Subsidiaries included in Item 8 and incorporated herein by
reference.
In 1993, Ivory entered into a "turnkey" agreement with a third party
contractor to physically abandon certain wells and satellite platform
facilities for which Ivory had previously determined had no further
utility in future development of the Buccaneer Field. Work to abandon
these facilities began in January 1994 and was completed in June 1994,
at a cost of approximately $1,810,000. Vendor financing was provided
under the agreement and remaining payments of approximately $720,000 and
$532,000 will be due in 1995 and 1996, respectively. Additional costs
for site clearance and environmental monitoring during platform
abandonment work totaled approximately $180,000. The Company is pleased
that the platform structures removed were contributed to the Texas Parks
and Wildlife Department's, Rigs to Reef program.
In August 1994, Blue Dolphin Exploration Company, a division of
Ivory, initiated a program to develop drillable oil and gas prospects
offshore in the Gulf of Mexico for sale to industry. The program
utilizes the latest technology in 3-D seismic processing. A 3-D seismic
data acquisition agreement has been arranged whereby a minimum of
$1,500,000 will be committed over a five year period to acquire 3-D
seismic data. The Company has generated two prospects which are ready
for sale, with work progressing on four additional prospects. Prior to
sale of the initial two prospects, the Company is attempting to attract
program underwriting through which advance payments would be received by
the Company to offset future prospect generation costs. The Company
believes that individual sale of prospects, if underwriting is not
currently obtained, will provide funding for a program of a more limited
size. The Company does not intend to invest in the development of a
significant prospect inventory at this time, but rather will limit its
investment to prospects salable shortly after completion, to limit out
of pocket costs associated with the program.
In March 1995, the Company completed acquisition of Petroport, L.C.
Petroport, L.C. holds proprietary technology, represented by certain
patents issued and or pending, associated with the development and
operation of an offshore deepwater crude oil and products port and
storage facility. The form of the transaction was a merger of
Petroport, L.C. into Petroport, Inc., a wholly owned subsidiary of the
Company.
Consideration paid included a small amount of cash and future
consideration contingent upon the successful development and operation
of the primary Petroport facility, planned for the western Gulf of
Mexico off the Texas coast. The contingent consideration primarily
includes the issuance of Common Stock, with issuance dependent upon
successful completion of the facility and maintaining a prespecified
throughput volume.
The Petroport offshore terminal and storage facility will receive and
store imported crude oil and refined products with deliveries into U.S.
markets. Petroport will provide importers with a competitive and
environmentally attractive alternative to the lightering of large
tankers as well as low cost, long-term storage of crude oil and
products. Cost of the facility is currently estimated at approximately
$500 million, with operations expected to commence in late 1998 or early
1999.
Petroport represents a new business segment for the Company. At this
time, the Company is developing its business plan focusing on initial
activities, including determination of financing requirements and
alternatives, associated with the project. The Company will report its
progress in the future as the Petroport project develops.
In general, the Company believes that it has or can obtain adequate
capital resources and liquidity to continue to finance and otherwise
meet its anticipated business requirements. However, if the Company's
or its transportation system customers' oil and gas production were to
substantially decline, or if prices for the Company's oil and gas
production substantially decline or if purchases by Dow and the
Company's other oil and gas transportation system customers are
substantially curtailed, the Company's cash needs could impose
significant additional financing requirements on the Company. Depending
upon the timing and amounts of required payments, restrictions in
certain of the Company's outstanding debt instruments, and other
factors, the liquidity of the Company could be adversely affected with
the Company not being able to raise all of the funds needed. Even if it
were able to finance such amounts, the financing could place severe
restrictions on the Company's capital resources and business operations.
RESULTS OF OPERATIONS
For the year ended December 31, 1994 ("1994"), the Company realized
net income of $1,542,699, representing a $686,900 or 80 percent increase
over net income of $855,799 reported for the year ended December 31,
1993 ("1993"). Revenues increased $1,572,435 or 30 percent to
$6,792,765 in 1994 compared to 1993 revenues of $5,220,330.
Net income reported for 1993 of $855,799 represented a $1,814,068
improvement over a net loss of $958,269 reported for the year ended
December 31, 1992 ("1992"). Revenues increased $2,115,034 or 68 percent
in 1993 as compared to revenues of $3,105,296 reported for 1992.
REVENUES
1994 VS. 1993. Pipeline System revenues increased by $1,814,275 or
57% in 1994 from those of 1993. The increase is due to the addition of
new shippers to the Company's Blue Dolphin Pipeline System in November
and December 1993, March 1994, and additional volumes from an existing
shipper beginning in May 1994. These increases were slightly offset by
normal production declines.
Revenues from oil and gas sales and operating fees decreased by
$241,840 in 1994 from those of 1993. Gas sales decreased $229,190 or
18% due to an 11% decrease in production resulting from a down hole
mechanical problem, partially offset by new production from the
overriding royalty interest in the Farmout acreage and a 7% decrease in
the average sales price received.
Interest and other income declined by $57,195 or 91% in 1994 from
1993 due primarily to the sale of government bonds that had been used to
collateralize long term notes which were retired in early 1994.
1993 VS. 1992. Pipeline System revenues increased by $1,770,757 or
124% in 1993 from those of 1992. The increase is due to the addition of
new shippers to the Company's Blue Dolphin Pipeline System in the fourth
quarter 1992, and in the first and the fourth quarters of 1993,
providing additional 1993 revenues of $1,450,000, and increased oil and
gas production and pricing escalations under existing transportation
contracts of approximately $340,000 in 1993.
Revenues from oil and gas sales and operating fees increased by
$344,277 in 1993 from those of 1992. Gas sales increased $286,513 or
28%, of which 7% was attributable to increased operating efficiencies
and 21% was due to an increase in the average sales price received. Oil
sales decreased by $208,286 or 77% in 1993 from those of 1992. The
decrease was primarily due to the sale of a certain producing oil
property in 1992, which provided revenues totaling approximately
$200,000 in 1992. Operating fees increased by $266,517 or 69% in 1993
from those of 1992, primarily due to the addition of a new producer in
January 1993 for whom the Company provided contract operations and
maintenance services, resulting in additional revenues of $322,400 in
1993.
Interest and other income declined by $848,779 or 93% in 1993 from
1992 due mainly to the sale of an inactive section of onshore pipeline
for $800,000 in 1992.
COSTS AND EXPENSES
1994 VS. 1993. Pipeline operating expenses increased by $549,850 or
63% in 1994 from those in 1993. Additional operating costs of $215,000
were incurred in 1994 associated with a vapor recovery system installed
onshore in August 1993, and the onshore system expansion completed in
November 1993 to handle the significantly increased oil and gas
transportation volumes from new contracts. Non-recurring costs of
approximately $240,000 associated with repairs to the Blue Dolphin
Pipeline and $32,000 associated with repairs to an oil storage tank at
the Processing Facilities onshore were incurred in 1994.
Lease operating expenses increased $134,737 or 14% in 1994 from those
of 1993 primarily due to non-recurring 1994 costs of approximately
$106,000 for required five year subsea inspections of the Buccaneer
Field production and quarters platforms, and approximately $43,000 for
general repairs to a production platform.
Depletion, depreciation, and amortization expense decreased by
$296,348 in 1994 from 1993. The decrease is due to the effect on
depletion, depreciation, and amortization rates of extending the
estimated useful lives for pipelines and related shore facilities of
$445,000, offset in part by an increase in depreciable costs associated
with the onshore pipeline system capacity expansion and modifications to
the shore facilities in the fourth quarter 1993, resulting in an
increase in depreciation in 1994 of approximately $90,000, and
amortization of loan costs of approximately $59,000.
General and administrative expenses increased $106,958 in 1994 from
those of 1993 due to incurrence of legal expenses of approximately
$61,000 associated with the Company's participation in hearings related
to competing interstate pipeline rate restructurings under FERC Order
No. 636, and an increase in staffing and contract labor costs of
approximately $53,000.
1993 VS. 1992. Pipeline operating expenses decreased by $129,664 or
13% in 1993 from those of 1992 due to non-recurring costs of
approximately $160,000 for repairs at the Company's onshore facilities
incurred in 1992, offset by slightly increased costs associated with the
increased transportation volumes handled at the Company's onshore
facilities in 1993.
Lease operating expenses decreased by $304,109 or 24% in 1993 from
1992 due primarily to non-recurring repair and maintenance projects at
the Company's offshore Buccaneer Field facilities incurred in 1992
totalling approximately $250,000.
Interest expense decreased by $74,454 or 11% in 1993 from 1992 due
primarily to the purchase and retirement of $2,000,000 principal amount
of the Series A Notes during the period October 1992 through November
1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements:
Independent Auditors' Report............................
Consolidated Balance Sheets, at December 31, 1994 and 1993.
Consolidated Statements of Operations, for the years
ended December 31, 1994, 1993, and 1992.............
Consolidated Statements of Stockholders' Equity, for the
years ended December 31, 1994, 1993, and 1992.......
Consolidated Statements of Cash Flows, for the years
ended December 31, 1994, 1993, and 1992.............
Notes to Consolidated Financial Statements..............
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
In accordance with paragraph (3) of General Instruction G to Form
10-K, Part III of this Report is omitted because the Registrant will
file with the Securities and Exchange Commission not later than 120 days
after December 31, 1994, a definitive proxy statement pursuant to
Regulation 14A involving the election of Directors. Reference is made
to the sections of such proxy statement entitled "Ownership of
Securities", "Election of Directors", "Executive Compensation" and
"Transactions With Related Persons", which sections of such proxy
statement are incorporated herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements:
Consolidated Balance Sheets, at December 31, 1994
and 1993.
Consolidated Statements of Operations, for the
years ended December 31, 1994, 1993, and 1992.
Consolidated Statements of Stockholders' Equity, for the
years ended December 31, 1994, 1993, and 1992.
Consolidated Statements of Cash Flows, for the
years ended December 31, 1994, 1993, and 1992.
Notes to Consolidated Financial Statements.
(a) 3.Exhibits:
No. Description
3.1 (1) Certificate of Incorporation of the Company
3.2 (2) Certificate of Correction to the Certificate of Incorporation of
the Company dated June 30, 1987
3.3 (2) Certificate of Amendment to the Certificate of Incorporation of the
Company dated June 30, 1987
3.4 (2) Certificate of Amendment to the Certificate of Incorporation of the
Company dated December 11, 1989
3.5 (2) Certificate of Stock Designation of the Company dated December 11,
1989
3.6 (2) Certificate of Amendment to the Certificate of Incorporation of the
Company dated December 14, 1989
3.7 (2) Bylaws of the Company
4.1 (2) Specimen Certificate of Blue Dolphin Energy Company Preferred Stock
4.2 (2) Specimen Certificate of Blue Dolphin Energy Company Common Stock
4.3 (5) Specimen Form of Warrant Certificate
10.11 (3) Gas Purchase Agreement between Dow Chemical Company and Ivory
Production Co. dated May 1, 1991
10.18 (4) Form of Consulting Agreement between Blue Dolphin Services Co. and
Soil, Inc. dated July 22, 1992
10.19 (5) Fourth Amendment to Loan Agreement between Blue Dolphin Energy
Company, MEI Mission Energy, Inc., Ivory Production Co., Blue
Dolphin Pipe Line Company, Buccaneer Pipe Line Co., and Soil, Inc.,
dated May 1, 1993
10.20 (5) First Amendment to Credit Facility Agreement between Blue Dolphin
Energy Company and Soil, Inc., dated May 1, 1993
10.21 (5) Form of Non-negotiable Long-Term Convertible Note between Blue
Dolphin Energy Company and Harris Kaffie, dated June 1, 1993
10.22 (5) Equipment acquisition lease between MEI Mission Energy, Inc., and
Banc One Leasing Corporation, dated November 23, 1993
10.23 (5) Loan Agreement between Blue Dolphin Energy Company, Blue Dolphin
Pipe Line Company, Buccaneer Pipe Line Co., MEI Mission Energy,
Inc., Ivory Production Co., Blue Dolphin Services Co., and Bank
One, Texas, N. A., dated January 14, 1994
10.24 Plan and Agreement of Merger between Petroport, L.C. and Blue
Dolphin Acquisition Company
10.3 Blue Dolphin Energy Company 1985 Employee Stock Option Plan
21.1 List of Subsidiaries of the Company
23.1 Consent of Gerald W. DuPont Enterprises, Inc., independent
petroleum engineers
27.1 Financial Data Schedule
(1) Incorporated herein by reference to Exhibits filed in connection
with Registration Statement on Form S-4 of ZIM Energy Corp. filed
under the Securities Act of 1933 (Commission File No. 33-5559).
(2) Incorporated herein by reference to Exhibits filed in connection
with Form 10-K of Blue Dolphin Energy Company for the year ended
December 31, 1989 under the Securities and Exchange Act of 1934,
dated March 30, 1990.
(3) Incorporated herein by reference to Exhibits filed in connection
with Form 10-K of Blue Dolphin Energy Company for the year ended
December 31, 1991 under the Securities and Exchange Act of 1934,
dated March 27, 1992.
(4) Incorporated herein by reference to Exhibits filed in connection
with Form 10-K of Blue Dolphin Energy Company for the year ended
December 31, 1992 under the Securities and Exchange Act of 1934,
dated March 30, 1993.
(5) Incorporated herein by reference to Exhibits filed in connection
with Form 10-K of Blue Dolphin Energy Company for the year ended
December 31, 1993 under the Securities and Exchange Act of 1934,
dated March 30, 1994.
(b) Reports on Form 8-K
(1) Form 8-K dated March 23, 1995, relating to the
acquisition of Petroport, L.C.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BLUE DOLPHIN ENERGY COMPANY
(Registrant)
By: /s/ Michael J. Jacobson
Michael J. Jacobson, President
(principal executive officer)
Date: March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Michael J. Jacobson President (principal March 28, 1995
Michael J. Jacobson executive officer)
/s/ Brian Lloyd Treasurer, Secretary and March 28, 1995
Brian Lloyd Controller
/s/ Ivar Siem Chairman March 28, 1995
Ivar Siem
/s/ Harris Kaffie Director March 28, 1995
Harris Kaffie
/s/ Daniel Porter Director March 28, 1995
Daniel B. Porter
/s/ Michael Chadwick Director March 28, 1995
Michael Chadwick
/s/ Christian Hysing-Dahl Director March 28, 1995
Christian Hysing-Dahl
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Blue Dolphin Energy Company:
We have audited the accompanying consolidated balance sheets of Blue Dolphin
Energy Company and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Blue Dolphin Energy
Company and subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 4 to the consolidated financial statements, the
Company changed its method of accounting for income taxes to adopt the
provisions of Statement of Financial Accounting Standards No. 109, ACCOUNTING
FOR INCOME TAXES, in 1993.
KPMG PEAT MARWICK LLP
Houston, Texas
March 17, 1995
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
Assets 1994 1993
---- ----
Current assets:
Cash and cash equivalents ........................ $ 434,157 650,933
Trade accounts receivable ........................ 774,362 1,117,352
Crude oil inventory, at market ................... 17,350 16,935
Prepaid expenses and other assets ................ 217,203 132,724
---------- ----------
Total current assets .................. 1,443,072 1,917,944
---------- ----------
Property and equipment, at cost:
Oil and gas properties (full-cost method) ........ 18,156,320 17,770,980
Onshore separation and handling facilities ....... 1,917,186 1,877,316
Land ............................................. 1,700,000 1,700,000
Pipelines ........................................ 1,493,418 1,440,830
Other property and equipment ..................... 76,356 75,126
---------- ----------
23,343,280 22,864,252
Less accumulated depletion, depreciation and
amortization .................................... 4,299,078 3,698,441
---------- ----------
19,044,202 19,165,811
---------- ----------
Other assets ...................................... 272,064 -
Investment in government bonds, at cost which
approximates market value, restricted ............ - 267,325
---------- ----------
$20,759,338 21,351,080
========== ==========
See accompanying notes to consolidated financial statements.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
Liabilities and Stockholders Equity 1994 1993
---- ----
Current liabilities:
Trade accounts payable .......................... $ 606,065 $ 1,641,835
Current portion of long-term debt ............... 1,392,299 1,545,038
Current portion of accrued abandonment costs .... 716,144 351,000
Accrued interest payable ........................ 50,566 484,679
Other liabilities and accrued expenses .......... 37,689 114,827
Income taxes payable ............................ 55,400 63,000
---------- ----------
Total current liabilities ............ 2,858,163 4,200,379
__________ __________
Long-term debt, less current portion ............. 4,450,000 2,642,303
Convertible subordinated notes ................... - 2,500,000
Accrued abandonment costs, less current portion .. 1,924,321 2,982,489
Dividends payable on preferred stock ............. 1,456,442 1,165,238
---------- ----------
Total long-term liabilities .......... 7,830,763 9,290,030
Stockholders' equity:
Cumulative convertible preferred stock,
Series A, $.10 par value, 25,000,000 shares
authorized, 14,560,475 shares issued and
outstanding at December 31, 1994 and 1993 ...... 1,456,048 1,456,048
Common stock, $.01 par value, 100,000,000
shares authorized, 34,379,116 shares issued
and outstanding at December 31, 1994;
33,651,507 shares issued and
outstanding at December 31, 1993 ............... 343,791 336,515
Additional paid-in capital ...................... 13,210,354 12,259,384
Accumulated deficit since January 1, 1990 ....... (4,939,781) (6,191,276)
---------- ----------
Total stockholders equity ............ 10,070,412 7,860,671
---------- ----------
Commitments and contingencies .................... $ 20,759,338 21,351,080
========== ==========
See accompanying notes to consolidated financial statements.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenue from operations:
Pipeline operations .............................................. $ 5,017,465 3,203,190 1,432,433
Oil and gas sales and operating fees ............................. 1,775,300 2,017,140 1,672,863
------------- ----------- -----------
Revenue from operations ..................................... 6,792,765 5,220,330 3,105,296
------------- ----------- -----------
Cost of operations:
Pipeline operating expenses ...................................... 1,420,637 870,787 1,000,451
Lease operating expenses ......................................... 1,084,425 949,688 1,253,797
Depletion, depreciation and amortization ......................... 732,719 1,029,067 996,635
General and administrative expenses .............................. 1,463,578 1,356,620 1,283,090
------------- ----------- -----------
Cost of operations .......................................... 4,701,359 4,206,162 4,533,973
------------- ----------- -----------
Income (loss) from operations ............................... 2,091,406 1,014,168 (1,428,677)
Other income (expense):
Interest expense ................................................. (607,966) (285,633) (417,012)
Interest expense, related parties ................................ -- (295,002) (238,077)
Gain on sale of government bonds ................................. 33,678 142,491 28,775
Interest and other income ........................................ 5,712 62,907 911,686
------------- ----------- -----------
Income (loss) before income taxes and
extraordinary item ......................................... 1,522,830 638,931 (1,143,305)
Income taxes ...................................................... (592,171) (280,237) --
Extraordinary item - gains from early retirement of
debt (net of income tax charge of $315,293 in
1994 and $260,862 in 1993) ....................................... 612,040 497,105 185,036
------------- ----------- -----------
Net income (loss) ........................................... 1,542,699 855,799 (958,269)
============= =========== ===========
Dividend requirements on preferred stock .......................... (291,204) (293,916) (300,000)
Net income (loss) applicable to
common stockholders ........................................ $ 1,251,495 561,883 (1,258,269)
Primary per common share:
Income (loss) before extraordinary item and after
dividend requirements on preferred stock ......................... $ 0.02 -- (0.05)
Extraordinary item ................................................ 0.01 0.01 --
Net income (loss) ................................................. $ 0.03 0.01 (0.05)
Weighted average number of common shares
and common share equivalents outstanding ......................... 47,626,300 38,479,361 27,268,659
============= =========== ===========
Fully diluted per common share:
Income (loss) before extraordinary item ........................... $ 0.01 -- (0.05)
Extraordinary item ................................................ 0.01 0.01 --
------------- ----------- -----------
Net income (loss) ................................................. $ 0.02 0.01 (0.05)
============= =========== ===========
Weighted average number of common shares
and dilutive common share equivalents outstanding ................ 62,278,671 67,819,957 27,268,659
============= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Convertible
preferred
Common stock, series Additional Treasury Total
stock, $.0 A, $.10 paid-in stock, $.01 Accumulated stockholders'
par value par value capital par value deficit equity
-------- ---------- ---------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991 ........................ $ 272,353 1,500,000 11,138,419 (58,132) (5,494,890) 7,357,750
Adjustments to treasury stock
and other ....................................... (8,499) -- 3,362 58,132 -- 52,995
Exercise of 350,000 stock opt ..................... 3,500 -- 73,530 -- -- 77,030
Dividend requirements on
preferred stock ................................. -- -- -- -- (300,000) (300,000)
Net loss .......................................... -- -- -- -- (958,269) (958,269)
-------- ---------- ---------- ------- ---------- -----------
Balance at December 31, 1992 ........................ 267,354 1,500,000 11,215,311 -- (6,753,159) 6,229,506
Cancellation of 439,525 shares of
repurchased preferred stock ..................... -- (43,952) -- -- -- (43,952)
Cancellation of 208,942 shares of
repurchased common stock ........................ (2,089) -- -- -- -- (2,089)
Gain on refinancing of notes to
related parties, net ............................ -- -- 106,475 -- -- 106,475
Exercise of 744,998 stock options.................. 7,450 -- 88,315 -- -- 95,765
Conversion of long-term
convertible notes, related ...................... 63,800 -- 334,754 -- -- 398,554
Pre-quasi reorganization net operating
loss carryforwards utilized ..................... -- -- 514,529 -- -- 514,529
Dividend requirements on
preferred stock ................................. -- -- -- -- (293,916) (293,916)
Net income ........................................ -- -- -- -- 855,799 855,799
-------- ---------- ---------- ------- ---------- -----------
Balance at December 31, 1993 ........................ 336,515 1,456,048 12,259,384 -- (6,191,276) 7,860,671
Exercise of 420,941 warrants ...................... 4,209 -- 37,885 -- -- 42,094
Exercise of 436,668 stock options.................. 4,367 -- 75,052 -- -- 79,419
Cancellation of common stock ...................... (1,300) -- 1,300 -- -- --
Pre-quasi reorganization net operating
loss carryforwards utilized ..................... -- -- 809,663 -- -- 809,663
Dividend requirements on preferred
stock ........................................... -- -- -- -- (291,204) (291,204)
Net income ........................................ -- -- -- -- 1,542,699 1,542,699
Other ............................................. -- -- 27,070 -- -- 27,070
-------- ---------- ---------- ------- ---------- -----------
Balance at December 31, 1994 ........................ $ 343,791 1,456,048 13,210,354 -- (4,939,781) 10,070,412
======== ========== ========== ======= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net income (loss) .................................................... $ 1,542,699 855,799 (958,269)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary gain-early retirement of debt ........................ (612,040) (497,105) (185,036)
Depletion, depreciation and amortization ........................... 732,719 1,029,067 996,635
Provision for loss on receivables .................................. -- -- 2,600
Charge in lieu of income taxes ..................................... 494,370 217,237 --
Gain on sales of property and equipment ............................ -- -- (800,000)
Gain on redemption of investments .................................. (33,678) (142,492) (28,775)
Accretion of discount on government bonds .......................... (4,998) (41,193) (89,132)
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable................... 342,990 (784,913) 163,561
(Increase) decrease in crude oil inventory,
prepaid expenses and other assets ................................ (276,615) (37,179) 34,111
Increase (decrease) in trade accounts payable,
accrued interest and other liabilities ........................... (2,320,825) 534,005 (322,248)
----------- ---------- ----------
Net cash provided by (used in)
operating activities .......................................... (135,378) 1,133,226 (1,186,553)
----------- ---------- ----------
Investing activities:
Purchases of property and equipment .................................. (479,028) (716,760) (159,333)
Proceeds from sales of property and equipment ........................ -- 75,383 1,065,000
Proceeds from redemption of investments .............................. 306,000 949,194 216,155
Funds escrowed for abandonment costs ................................. (112,174) -- --
----------- ---------- ----------
Net cash provided by (used in)
investing activities .......................................... (285,202) 307,817 1,121,822
----------- ---------- ----------
Financing activities:
Proceeds from borrowings ............................................. 5,916,653 -- --
Proceeds from borrowings from related parties ........................ -- 15,000 1,100,000
Payments on borrowings ............................................... (5,819,362) (1,644,421) (436,934)
Payments on borrowings from related parties .......................... (15,000) (44,556) (50,000)
Net proceeds from the exercise of stock options and warrants.......... 121,513 71,321 77,030
Repurchase of capital stock .......................................... -- (46,041) --
----------- ---------- ----------
Net cash provided by (used in)
financing activities .......................................... 203,804 (1,648,697) 690,096
----------- ---------- ----------
Increase (decrease) in cash .................................... (216,776) (207,654) 625,365
Cash and cash equivalents at beginning of year ........................ 650,933 858,587 233,222
----------- ---------- ----------
Cash and cash equivalents at end of year .............................. $ 434,157 650,933 858,587
=========== ========== ==========
Supplementary cash flow information:
Interest paid ........................................................ $ 915,000 357,000 431,000
=========== ========== ==========
Income taxes paid .................................................... $ 106,572 -- --
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Blue Dolphin Energy Company (the Company) was incorporated in Delaware in
January 1986 to engage in oil and gas exploration, production and acquisition
activities and oil and gas transportation, processing and marketing. It was
formed for the purpose of changing the domicile and combining the business and
properties of ZIM Energy Corporation, a Texas corporation founded in 1983, and
Petra Resources, Inc., an Oklahoma corporation founded in 1980, pursuant to a
reorganization effective June 9, 1986. During the year ended January 31, 1988,
ZIM Energy Corporation changed its name to Mustang Resources Corp.
On January 5, 1990, Mustang Resources Corp. changed its name to Blue Dolphin
Energy Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash includes all currency and any liquid investments with an original
maturity of three months or less. See notes 5 and 7 for discussion of
significant noncash investing and financing activities.
CRUDE OIL INVENTORY
Inventory represents crude oil in storage tanks at the Company's shore
facility near Freeport, Texas. Such inventories are recorded at their fair
market value as of the balance sheet date.
OIL AND GAS PROPERTIES
Oil and gas properties are accounted for using the full-cost method of
accounting, whereby all costs associated with acquisition, exploration, and
development of oil and gas properties are capitalized on a country-by-country
cost center basis. Amortization of such costs and estimated future development
costs is determined using the unit-of-production method. Estimated proved oil
and gas reserves are based upon reports of an independent petroleum engineer.
The net carrying value of oil and gas properties is limited to the lower of
unamortized cost or the cost center ceiling, defined as the sum of the present
value (10% discount rate applied) of estimated future net revenues from proved
reserves after giving effect to income taxes and the lower of cost or estimated
fair value of unproved properties.
PIPELINES AND FACILITIES
Pipelines and facilities are recorded at cost. Depreciation is computed
using the straight-line method over estimated useful lives of 10-15 years. In
1994, the Company extended the estimated useful lives for pipeline and
facilities. The effect of the change in estimate is a decrease in depreciation
of approximately $445,000 in 1994.
OTHER PROPERTY AND EQUIPMENT
Depreciation of furniture, fixtures and other equipment, including assets
held under capital leases, is computed using the straight-line method over
estimated useful lives of 2-5 years.
GOVERNMENT BONDS
Investments in government bonds are recorded at cost which approximates
market value and collateralized a portion of the Convertible Subordinated Notes
which were redeemed in 1994. In May 1993, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, which is effective for fiscal
years beginning after December 15, 1993. The Company believes that the adoption
of this accounting standard has not had a significant impact on the consolidated
financial statements.
ABANDONMENT
A provision for the abandonment, dismantlement and site remediation of
offshore production platforms and existing wells is made using the
unit-of-production method applied to estimates based on current costs. A
provision for pipeline and pipeline facilities abandonment costs is made using
the straight-line method over the estimated useful lives of the pipeline and
pipeline facilities. These provisions are included in depletion, depreciation
and amortization expense and accrued abandonment costs, respectively. The
aggregate abandonment liability is estimated to be approximately $4,500,000 at
December 31, 1994.
RECOGNITION OF CRUDE OIL REVENUE
Revenue from crude oil produced and sold from the Buccaneer Field is
recognized when such crude oil is produced rather than when sold.
RECOGNITION OF PIPELINE TRANSPORTATION REVENUE
Revenue from the transportation of gas, condensate and crude oil is
recognized on the accrual basis as products are transported.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES
(Statement 109). Statement 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability method
of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109. There was no
cumulative effect of the change in the method of accounting for income taxes.
NET INCOME (LOSS) PER SHARE
Net income (loss) per common share is computed after consideration of
dividend requirements on preferred stock, using the weighted average number of
common shares outstanding and common share equivalents during each of the years
presented. Outstanding stock options and warrants are common share equivalents
and are considered when the effect is dilutive. Cumulative convertible preferred
stock and convertible debt are other potentially dilutive securities and are
considered in fully diluted net income (loss) per share when the effect is
dilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial statements
to conform with the current year presentation.
(2) QUASI-REORGANIZATION
In connection with the Company's emergence from Chapter 11 proceedings in
1989, the Board of Directors authorized the Company to revalue its consolidated
balance sheet at December 31, 1989 to fair value in accordance with principles
of accounting for quasi-reorganizations. The principal adjustments to fair value
included an $810,000 increase in the carrying value of land and the elimination
of the remaining deferred debt offering costs associated with the Convertible
Subordinated Notes of $994,192, resulting in a net charge to the accumulated
deficit of $184,192.
The Company's remaining assets and liabilities at December 31, 1989
approximated fair value; accordingly, the accumulated depletion, depreciation
and amortization at December 31, 1989 was eliminated against the original cost
of the assets. The accumulated deficit of $14,031,556 at December 31, 1989 was
then transferred to additional paid-in capital. Any benefits realized upon the
utilization of tax operating losses generated prior to January 1, 1990 will be
credited to additional paid-in capital (see note 4).
(3) LIQUIDITY
At December 31, 1994, the Company has negative working capital of
approximately $1,400,000.
In January 1994, the Company entered into a reducing revolving credit
facility with Bank One, Texas, NA, in the amount of $10,000,000. At March 1,
1995, the borrowing availability was $5,800,000 reducing by $150,000 per month
beginning April 1, 1995. The balance borrowed under the agreement was $5,800,000
at March 17, 1995. The borrowing availability and reducing amount are to be
redetermined semiannually or on such other frequency as requested by the
Company. Determination of the borrowing availability is significantly impacted
by third party reserves producing into the Company's Blue Dolphin Pipeline
System.
During the first quarter 1995, producer/shippers of two Galveston Area
fields transporting production through the Blue Dolphin Pipeline, drilled and
completed new wells with production commencing late first quarter 1995. A third
existing producer/shipper began drilling an additional development well in March
1995. Additionally, two new field discoveries have recently been reported in
Galveston Area lease blocks in the vicinity of the Blue Dolphin Pipeline. The
Company is aggressively competing to attract these producer/shippers to the Blue
Dolphin Pipeline System. Tie-in decisions are expected to be made during the
second quarter 1995 and production operations are expected to commence during
the third quarter 1995 for both fields. As the pipeline system is currently
being utilized at less than full capacity, additional revenues can be generated
in excess of additional operating expenses.
Management expects that funds available from the reducing revolving credit
facility and funds generated through its regular operations will provide
sufficient liquidity to meet its anticipated obligations during 1995.
To the extent funds from operations are not sufficient to meet obligations
when they become due, the Company may be required to seek additional equity or
debt financing, defer its development or discretionary capital expenditures, or
seek other financing alternatives.
(4) INCOME TAXES
As discussed in note 1, the Company adopted Statement 109 as of January 1,
1993. There was no cumulative effect of the change in the method of accounting
for income taxes. Prior years' financial statements were not restated to apply
the provisions of Statement 109.
For 1992, the Company did not record a provision for income tax benefits
related to operating losses.
Total income taxes were allocated as follows for 1994 and 1993:
1994 1993
-------- -------
Income from continuing operations ........................ $592,171 280,237
Extraordinary gains ...................................... 315,293 260,862
Stockholders' equity, related to gain on refinancing
of notes to related parties (see note 5) ............. -- 36,430
-------- -------
$907,464 577,529
======== =======
Income tax expense attributable to continuing operations for 1994 and 1993
consists of:
Current
Federal .......................................... $ 29,000 40,000
State ............................................ 68,801 23,000
Deferred federal-charge in lieu of taxes ........... 494,370 217,237
-------- -------
$592,171 280,237
======== =======
During 1994 and 1993, the valuation allowance decreased approximately
$809,000 and $500,000, respectively. As a result of the quasi-reorganization
described in note 2, the benefits of such reductions have been recorded directly
to stockholders' equity and the statements of operations include a charge in
lieu of taxes, allocated as described above.
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1993 are presented below.
1994 1993
----------- ----------
Deferred tax assets:
Accrued abandonment costs ..................... $ 481,050 1,133,386
Net operating loss carryforwards .............. 5,447,812 5,539,321
Alternative minimum tax credit ................ 69,000 40,000
----------- ----------
Total gross deferred tax assets ......... 5,997,862 6,712,707
Less valuation allowance ................ (2,272,003) (3,081,666)
----------- ----------
Net deferred tax assets ................. 3,725,859 3,631,041
Deferred tax liabilities:
Bases differences in property and equipment ... (3,725,859) (3,631,041)
Net deferred tax liability .............. $ -- --
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The Company has established a valuation allowance
for such deferred tax assets to the extent such amounts are not expected to be
realized as a reduction in future taxable income generated from existing
deferred tax liabilities.
If income tax benefits related to the valuation allowance are recognized
subsequent to December 31, 1994, approximately $1.1 million will be allocated to
stockholders' equity (see note 2).
The Company's effective tax rate applicable to continuing operations in 1993
and 1994 differs from the expected tax rate of 34% due to the following:
1994 1993
Expected tax rate ...................................... 34% 34%
State taxes, net of federal benefit .................... 3 2
Expenses not deductible for tax purposes ............... 2 8
-- --
39% 44%
At December 31, 1994, the Company had the following estimated net operating
loss carryforwards (NOL) for tax reporting purposes:
Year of Net operating loss
EXPIRATION CARRYFORWARDS
---------- -------------
2001 ............................... $ 3,306,730
2002 ............................... 4,081,357
2003 ............................... 2,217,525
2004 ............................... 2,167,468
2005 ............................... 2,572,302
2006 ............................... 1,099,663
2007 ............................... 402,349
2008 ............................... 175,580
------------
$ 16,022,974
The Tax Reform Act of 1986 significantly limits the amount of NOL available
to offset future taxable income when a change in ownership occurs. Such a
limitation of the NOL in a given year could prevent the Company from realizing
the full benefit of the NOL within the 15 year statutory limit. The Company had
two changes in ownership prior to 1994. The Company believes that the
limitation, if any, would not have a significant impact on the consolidated
financial statements.
(5) LONG-TERM DEBT
In January 1994, the Company arranged a reducing revolving credit facility
(Loan Agreement) with Bank One, Texas, N.A. (Bank One), in an amount of
$10,000,000, with an initial availability of $6,500,000 reducing $217,000 per
month beginning February 1, 1994. The borrowing availability and reducing amount
are to be redetermined semi-annually. Beginning March 1, 1994 and the first day
of each month thereafter, interest is due and payable on the outstanding loan
balance at the rate of 1.5% above Bank One's prime rate of interest. Borrowings
under the Loan Agreement are secured by first liens on the Buccaneer Field, the
Blue Dolphin Pipeline, the Buccaneer Pipeline, the Freeport, Texas acreage and
the shore facilities. The Loan Agreement matures January 14, 1997.
The Loan Agreement includes certain restrictive covenants, including a
restriction of the payment of dividends on capital stock and the maintenance of
certain financial coverage ratios.
Upon consummation of the Loan Agreement in January 1994, the Land Note, the
Credit Facility, the Senior Debt, and $2,000,000 of the Series B notes (see note
6), totaling $6,350,729 including accrued interest, were retired for
approximately $5,460,000. The resulting gain was recorded as an extraordinary
item.
Long-term debt at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
$10,000,000 bank credit facility - initial availability
$6,500,000 interest payable monthly at prime rate plus
1.5% beginning March 1, 1994. Borrowing availability
and reducing base amount are redetermined semiannually ................ $ 5,647,654 --
Capital lease obligation to a third party, interest at 9.75%
per annum, principal and interest payable in monthly
installments through November 15, 1995. The debt is
secured by certain equipment .......................................... 194,645 389,497
Senior debt - payable to various investors who purchased
this debt from a related party (A/S Investa) on April 22, 1993. At May
1, 1993, the terms were amended such that no principal or interest
payments were due until April 1, 1994, when accrued interest only was
due and payable. Beginning July 1, 1994, principal and accrued interest
was payable in quarterly installments through July 1, 1996, with
interest calculated at the prime rate of interest plus 1.75%. The debt
was secured by oil and gas properties, pipelines and shore facilities . -- 1,621,477
Credit facility - payable to various investors, who purchased this debt
from a related party (A/S Investa) on April 22, 1993. At May 1, 1993,
the terms were amended such that no principal or interest payments were
due until January 1, 1994. On January 1, 1994 and April 1, 1994,
accrued interest only was due and payable. Beginning July 1, 1994,
principal and interest was payable in quarterly installments through
October 1, 1995, with interest calculated at 11% per annum. The debt
was secured by oil and gas properties, pipelines, and shore facilities -- 1,725,714
Note payable to a partnership collateralized by land (the "Land Note"),
purchased for $1.7 million in January 1990, interest at LIBOR plus 3.5%
effective January 1, 1993, principal and interest payable in monthly
installments through March 1, 1994, as renegotiated in early 1993 ..... -- 435,653
Notes payable to employees, interest at 14% per annum .................... -- 15,000
------------ ------------
5,842,299 4,187,341
Less current maturities .................................................. (1,392,299) (1,545,038)
$ 4,450,000 2,642,303
============ ============
</TABLE>
Maturities of long-term debt as of December 31, 1994 are as follows:
1995 $ 1,392,299
1996 1,800,000
1997 2,650,000
-----------
$ 5,842,299
===========
In connection with the gain on refinancing of notes to related parties, as
described in the table above, approximately $106,000 of accrued interest
was forgiven in 1993. Such amount is included as interest expense for 1993
and earlier years and an increase to additional paid-in capital,
representing contributions from stockholders.
(6) CONVERTIBLE SUBORDINATED NOTES
In June 1986, the Company issued $8,000,000 of 7-1/2% convertible
subordinated notes due 2001, convertible at $4.80 per share into 2,083.25
shares of common stock for each $10,000 note. Pursuant to the note
agreement, a portion of the proceeds were reserved as collateral. At
December 31, 1993, $500,000 face amount of the notes were collateralized
by government bonds scheduled to mature in May 2001 for $500,000. The
remaining $2,000,000 of the notes at December 31, 1993 were collateralized
by a third lien on oil and gas properties. The net proceeds of the notes
were originally used to acquire and develop oil and gas properties.
In 1994, $500,000 of the notes collateralized by government bonds, plus
accrued interest of approximately $25,000, were purchased at a cost of
approximately $470,000. The remaining $2,000,000 of the notes, plus
accrued interest of approximately $87,500, were purchased at a cost of
approximately $1,250,000. The applicable portion of the government bonds
collateralizing the notes purchased was released to the Company and sold.
The $928,000 gain on the early retirement of these notes and the
indebtedness in note 5 was recorded as an extraordinary item in 1994.
In 1993, $1,600,000 of the notes collateralized by government bonds, plus
accrued interest of approximately $82,000, were purchased at a cost of
approximately $924,000. The applicable portion of the collateral for the
notes purchased was released to the Company and sold. The $758,000 gain on
the early retirement of these notes was recorded as an extraordinary item.
In 1992, $400,000 of the notes collateralized by government bonds were
purchased at a cost of approximately $215,000. The applicable portion of
the collateral for the notes purchased was released to the Company and
sold. The $185,000 gain on the early retirement of these notes was
recorded as an extraordinary item.
(7) STOCKHOLDERS' EQUITY
Each share of series A cumulative convertible preferred stock, $.10 par
value, is entitled to receive dividends in the annual amount of $.02 per
share on each June 30, which are cumulative from the date of issue, are
convertible at the option of the holders of the preferred stock into one
share of the Company's $.01 par value common stock, are redeemable at the
option of the Company for $.20 per share, has a preference in liquidation
equal to $.20 per share and the accrued dividends on the date thereon, and
have equal voting rights with the common stock, except that the holders of
the preferred stock are entitled to elect a majority of the Board of
Directors in the event of certain dividend arrearages. As of December 31,
1994, the holders of the preferred stock are entitled to elect a majority
of the Board of Directors, and currently do exercise such control of the
Board of Directors. The Company has not declared or paid any dividends
since the date of issuance; accordingly, $1,456,442 of dividends are in
arrears and have been accrued as of December 31, 1994. As a result of the
debt refinancing described in note 5, dividends are prohibited from being
paid until the bank credit facility indebtedness is retired. Accordingly,
the accrued dividends have been reclassified from current liabilities to
noncurrent liabilities at December 31, 1994. The dividend arrearages
restrict the Company's ability to pay common dividends or reacquire common
stock. The reacquisition of common stock during 1993 was approved by the
Board of Directors, which as described above, is controlled by holders of
the preferred stock.
At December 31, 1994, the Company has reserved a total of approximately
2,447,000 shares of common stock for issuance under its stock option plan.
The outstanding stock options granted to key employees, officers and
directors for the purchase of shares of the Company's common stock are as
follows:
PRICE PER SHARE
---------------------
SHARES FROM TO
---------- --------- ------
Balance, December 31, 1992 .......... 2,050,000 $ .0625 .3453
Granted .......................... 550,000 .1594 .1594
Exercised ........................ (744,998) .0625 .3453
Terminated ....................... (25,000) .2125 .2125
---------- --------- ------
Balance, December 31, 1993 .......... 1,830,002 $ .0625 .3453
Granted .......................... 735,000 .2922 .2922
Exercised ........................ (436,668) .0625 .2125
---------- --------- ------
Balance, December 31, 1994 .......... 2,128,334 $ .0625 .3453
========== ========= ======
As of January 1, 1995, 745,002 options are immediately exercisable.
Outstanding options at December 31, 1994 expire between April 5, 1995 and
August 9, 1999. The Plan specifies that the options are exercisable as
granted; however, generally only one-third of options granted are
exercisable in any one year. Employees must continue their employment with
the Company for one year after exercising the options, or the underlying
stock reverts to the Company.
The outstanding exercisable warrants to purchase shares of the Company's
common stock, issued in connection with the 1993 debt refinancings
described in note 5, are as follows:
PRICE PER SHARE
---------------
SHARES FROM TO
----------- ----- ----
Balance, December 31, 1992 .............. -- $ -- --
Granted ................................. 17,257,140 0.10 0.10
----------- ----- ----
Balance, December 31, 1993 .............. 17,257,140 0.10 0.10
Exercised ............................... (420,941) 0.10 0.10
----------- ----- ----
Balance, December 31, 1994 .............. 16,836,199 $ 0.10 0.10
=========== ===== ====
Outstanding warrants at December 31, 1994 are immediately exercisable and
expire April 30, 1996.
The Company has reserved 14,560,475 shares of common stock in the event
the series A convertible preferred stock is fully converted and 16,836,198
shares of common stock in the event the outstanding warrants are
exercised.
(8) RELATED PARTY TRANSACTIONS
Significant related party transactions which are not disclosed elsewhere
in these consolidated financial statements are discussed in the following
paragraphs.
In 1993, the Company paid $20,000 to a director for financial advisory
services rendered in association with financing activities and debt
restructuring.
In 1992, the Company entered into a contract with a company, in which a
director of the Company is a principal, for business development
consulting services. The Company paid $37,500 under the contract in 1992,
$90,000 in 1993, and $90,000 in 1994.
(9) LEASES
The Company is obligated under a capital lease for a vapor recovery unit
that has been capitalized and is included in property, plant and
equipment. The lease expires in 1995.
In addition, the Company has various noncancelable operating leases which
continue through 1998.
The following is a schedule of future minimum lease payments under capital
lease obligations (the principal of which is recorded in long-term debt)
and rental payments required under long-term noncancelable operating
leases at December 31, 1994:
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASE LEASES
------------ ----- ------
1995 $ 203,510 225,576
1996 -- 125,526
1997 -- 103,176
1998 -- 77,382
--------- --------
$ 203,510 531,660
========= =======
Rental expense under operating leases for the years indicated were as
follows:
YEARS ENDED
DECEMBER 31,
------------
1994 $ 225,576
1993 185,019
1992 86,299
========
(10) COMMITMENTS AND CONTINGENCIES
In November 1992, the Company entered into a Farmout Agreement with a
third party, wherein the third party will earn an interest in certain of
the non-producing and undeveloped acreage in the Buccaneer Field through
the successful drilling and development of the acreage. The Company will
retain an overriding royalty interest convertible at the Company's
election to a working interest upon Project Payout. In January 1993 the
initial well under the Farmout Agreement was drilled and production casing
was set. As a result of regulatory delays, the well was not completed
until March 1994. Production from this initial well commenced in March
1994. Drilling of a second well under the Farmout Agreement resulted in a
dry hole. The drilling option under which interest in additional acreage
can be earned will expire March 27, 1995.
As a result of filing development plans for the contemplated wells under
the Farmout Agreement, the United States Department of the Interior,
Minerals Management Service (MMS) required the Company's wholly-owned
subsidiary, Ivory Production Co. (Ivory) to provide additional security to
ensure it could meet the future abandonment obligations associated with
the Buccaneer Field. In February 1994, Ivory and the MMS agreed on the
form of such security and the amount of the future obligations.
As additional security for the future Buccaneer Field abandonment
obligations, in February 1994, Ivory provided the MMS with a $700,000
supplemental surety bond. The bond will be fully funded over approximately
a six year period, through the escrowing with the surety of $10,000 per
month. Such escrow funding began in February 1994.
A sinking fund was established in 1994 wherein the greater of the net
proceeds from the Farmout acreage or $250,000 annually will be set aside
until a total of approximately $2,400,000 has been accumulated to meet end
of lease abandonment and site clearance obligations. Ivory estimates the
remaining useful life of its major Buccaneer Field facilities to be in
excess of ten years.
To meet current abandonment obligations, in November 1993, a "turnkey"
agreement was arranged with a third party contractor to physically plug
and abandon certain wells and satellite platform facilities for which
there was no further utility in future field development. Work to abandon
the facilities was completed in June 1994, at a cost of approximately
$1,990,000. Vendor financing was provided under the agreement. Remaining
payments of approximately $720,000 and $532,000 are payable during 1995
and 1996, respectively and are included in accrued abandonment costs.
In July 1994, the Company entered into a Regional 3-D Seismic Data
Acquisition and Purchase Agreement with a third party provider of seismic
data which provides the Company access to the third party's 3-D and 2-D
seismic data base. The Company's minimum commitment during the five-year
term of the agreement is $1,500,000.
(11) BUSINESS SEGMENT INFORMATION
The Company conducts its operations in two principal business segments:
oil and gas exploration and production, and pipeline operations.
Intersegment revenues consist of transportation, processing and storage
fees charged by wholly-owned subsidiaries to another for natural gas and
crude oil transported through the pipeline and pipeline system. The
intercompany revenues and expenses are eliminated in consolidation.
Information concerning these segments for the years ended December 31,
1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
DEPLETION,
OPERATING DEPRECIATION
INTERSEGMENT INCOME IDENTIFIABLE AND
REVENUES REVENUES (LOSS)(1) ASSETS AMORTIZATION(2)
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Oil and gas exploration
and production .......................... $1,775,300 -- (34,273) 14,774,449 443,563
Pipeline operations ....................... 5,122,238 104,773 2,681,451 2,557,582 218,715
Consolidated .............................. 6,792,765 -- 2,091,406 20,759,338 732,719
========== ========== ========== ========== =========
Year ended December 31, 1993:
Oil and gas exploration
and production .......................... $2,017,140 -- 232,610 14,798,913 463,303
Pipeline operations ....................... 3,303,956 100,766 1,297,082 2,644,455 554,961
Consolidated .............................. 5,220,330 -- 1,014,168 21,351,080 1,029,067
========== ========== ========== ========== =========
Year ended December 31, 1992:
Oil and gas exploration
and production .......................... $1,672,863 -- (520,763) 14,926,657 460,702
Pipeline operations ....................... 1,516,358 83,925 (411,915) 1,080,759 519,676
Consolidated .............................. 3,105,296 -- (1,428,677) 20,070,712 996,635
========== ========== ========== ========== =========
</TABLE>
(1) Consolidated income (loss) from operations includes $380,558,
$403,955 and $395,817 in unallocated general and administrative
expenses for the years ended December 31, 1994, 1993 and 1992,
respectively.
(2) Pipeline depletion, depreciation and amortization includes a
provision for pipeline abandonment of $39,420 for the year ended
December 31, 1994 and $360,000 for each of the years ended December
31, 1993 and 1992. Oil and gas depletion, depreciation and
amortization includes a provision for abandonment costs of platforms
and wells of $33,760, $58,490, and $62,339 for the years ended
December 31, 1994, 1993 and 1992, respectively.
See the supplemental disclosures for oil and gas producing activities for
discussion of capitalized costs incurred for oil and gas production
operations. Capital expenditures of $179,331 were incurred for pipeline
operations for the year ended December 31, 1994.
The Company's primary market area is the Texas Gulf Coast region of the
United States. For the year ended December 31, 1994 and prior years the
Company had a concentration of credit risk with customers in the energy
and chemical industries. The Company's customers may be similarly affected
by changes in economic, regulatory or other factors. Trade receivables are
generally not collateralized; however, the Company's customers' historical
and future credit positions are thoroughly analyzed prior to extending
credit. Management believes that the concentration of credit risk referred
to above will decrease with the addition of new fields to the Blue Dolphin
pipeline system. Revenues from major customers exceeding 10% of segment
revenues were as follows for the periods indicated:
<TABLE>
<CAPTION>
OIL AND GAS
EXPLORATION AND PIPELINE
PRODUCTION OPERATIONS TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31, 1994:
The Dow Chemical Company ......................................... $1,073,324 137,709 1,211,033
Apache Oil Corp .................................................. 362,630 711,653 1,074,283
Seagull Energy ................................................... -- 873,088 873,088
The Coastal Corporation .......................................... 65,567 729,576 795,143
Houston Exploration Corporation .................................. -- 558,156 558,156
========== ========== ==========
Year ended December 31, 1993:
The Dow Chemical Company ......................................... $1,345,346 -- 1,345,346
The Louisiana Land and Exploration Company ....................... -- 578,560 578,560
The Coastal Corporation .......................................... 78,874 422,746 501,620
========== ========== ==========
Year ended December 31, 1992:
The Dow Chemical Company ......................................... $1,016,001 -- 1,016,001
The Louisiana Land and Exploration Company ....................... -- 420,927 420,927
Cockrell Oil Corporation ......................................... 234,320 107,566 341,886
The Coastal Corporation .......................................... 72,872 258,196 331,068
========== ========== ==========
</TABLE>
(12) SUBSEQUENT EVENTS
In March 1995, the Company completed acquisition of Petroport, L.C.
Petroport, L.C. holds proprietary technology, represented by certain
patents issued and or pending, associated with the development and
operation of an offshore deepwater crude oil and products port and storage
facility. The form of the transaction was a merger of Petroport, L.C. into
Petroport, Inc., a wholly-owned subsidiary of the Company.
Consideration paid included $150,000 cash and future consideration
contingent upon the successful development and operation of the primary
Petroport facility, planned for the western Gulf of Mexico off the Texas
coast. The contingent consideration includes $350,000 to be paid when the
Company obtains funding for the licensing and permitting phase of the
project and 9,000,000 shares of Company common stock, with issuance
dependent upon successful completion of the facility and maintaining a
prespecified throughput volume.
(13) SUPPLEMENTAL OIL AND GAS INFORMATION - UNAUDITED
The following supplemental information regarding the oil and gas
activities of the Company is presented pursuant to the disclosure
requirements promulgated by the Securities and Exchange Commission (SEC)
and Statement of Financial Accounting Standards No. 69 DISCLOSURES ABOUT
OIL AND GAS PRODUCING ACTIVITIES (Statement 69).
At December 31, 1994 the Buccaneer Field accounted for 100% of the
Company's future net cash flows from proved reserves.
The timing and amount of the estimated future development costs may
significantly increase or decrease the Company's total proved and proved
developed reserve volumes, the "Standardized Measure of Discounted Future
Net Cash Flows," and the components and changes therein.
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
Set forth below is a summary of the changes in the estimated quantities of
the Company's crude oil and natural gas reserves for the periods
indicated, as estimated by the Company's independent petroleum engineer.
All of the Company's reserves are located within the United States. Proved
reserves cannot be measured exactly because the estimation of reserves
involves numerous judgmental determinations. Accordingly, reserve
estimates must be continually revised as a result of new information
obtained from drilling and production history, new geological and
geophysical data and changes in economic conditions.
Proved reserves are estimated quantities of natural gas, crude oil, and
condensate which geological and engineering data demonstrate, with
reasonable certainty, to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved
developed reserves are proved reserves that can be expected to be
recovered through existing wells with existing equipment and operating
methods.
OIL GAS
QUANTITY OF OIL AND GAS RESERVES (BBLS) (MCF)
----------- -----------
Total proved reserves at December 31, 1991 ..... 655,488 30,699,281
Sale of reserves ............................... (222,498) --
Revisions to previous estimates ................ 21,437 2,843,620
Production ..................................... (14,178) (518,031)
----------- -----------
Total proved reserves at December 31, 1992 ..... 440,249 33,024,870
Revisions to previous estimates ................ (212,289) 5,295,906
Production ..................................... (3,666) (554,346)
----------- -----------
Total proved reserves at December 31, 1993 ..... 224,294 37,766,430
----------- -----------
Revisions to previous estimates ................ (25,098) (3,800,747)
Production ..................................... (3,791) (490,587)
----------- -----------
Total proved reserves at December 31, 1994 ..... 195,405 33,475,096
=========== ===========
Proved developed reserves:
December 31, 1994 ............................ 119,327 20,351,150
December 31, 1993 ............................ 148,216 24,642,484
December 31, 1992 ............................ 280,820 21,867,545
CAPITALIZED COSTS OF OIL AND
GAS PRODUCING ACTIVITIES
The following table sets forth the aggregate amounts of capitalized costs
relating to the Company's oil and gas producing activities and the
aggregate amount of related accumulated depletion, depreciation and
amortization as of the dates indicated.
DECEMBER 31,
----------------------------
1994 1993
------------ ------------
Productive and nonproductive properties
being amortized .............................. $ 18,156,320 17,770,980
Less accumulated depletion, depreciation
and amortization ............................. 3,381,871 2,972,067
------------ ------------
Net capitalized costs ................... $ 14,774,449 14,798,913
============ ============
Accrued offshore platform and
well abandonment costs ................ $ 1,888,580 1,053,488
============ ============
COSTS INCURRED IN OIL AND
GAS PRODUCING ACTIVITIES
The following table reflects the costs incurred in oil and gas property
acquisition, exploration and development activities during the periods
indicated.
DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
Property acquisition costs - unproved properties . $ -- -- --
Exploration costs ................................ 136,290 45,701 35,689
Development costs ................................ 249,050 306,751 107,068
-------- -------- --------
$385,340 352,452 142,757
======== ======== ========
Amortization expense per Mcf
equivalent produced ........................ $ .86 .80 .76
======== ======== ========
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS
The following table reflects the Standardized Measure of Discounted Future
Net Cash Flows relating to the Company's interest in proved oil and gas
reserves as of:
DECEMBER 31,
-----------------------------
1994 1993
------------ ------------
Future cash inflows .......................... $ 61,759,797 94,915,996
Future development costs ..................... (9,950,732) (11,668,045)
Future production costs ...................... (14,238,221) (14,278,849)
------------ ------------
Future net cash inflows
before income taxes ....................... 37,570,844 68,969,102
Future income taxes .......................... (9,700,652) (21,123,645)
------------ ------------
Future net cash flows ........................ 27,870,192 47,845,457
10% discount factor .......................... (12,661,504) (23,765,780)
------------ ------------
Standardized measure of discounted
future net cash inflows ............. $ 15,208,688 24,079,677
============ ============
Future net cash flows at each period-end as reported in the above schedule
were determined by summing the estimated annual net cash flows computed
by: (1) multiplying estimated quantities of proved reserves to be produced
during each year by current prices (at December 31, 1994, such prices were
$16.00 per barrel and $1.75 per Mcf) and (2) deducting estimated
expenditures to be incurred during each year to develop and produce the
proved reserves (based on current costs). Income taxes were computed by
applying year-end statutory rates to pretax net cash flows, reduced by the
tax basis of the properties and the post-December 31, 1989 estimated net
operating loss carryforwards. The future income taxes computation gives
effect to permanent differences but does not reflect the impact of future
operations relating to the Company's proved oil and gas reserves (see note
4). The annual future net cash flows were discounted, using a prescribed
10% rate, and summed to determine the standardized measure of discounted
future net cash flows.
The Company cautions readers that the standardized measure information
which places a value on proved reserves is not indicative of either fair
market value or present value of future cash flows. Other logical
assumptions could have been used for this computation which would likely
have resulted in significantly different amounts. Such information is
disclosed solely in accordance with Statement 69 and the requirements
promulgated by the SEC to provide readers with a common base for use in
preparing their own estimates of future cash flows and for comparing
reserves among companies. Management of the Company does not rely on these
computations when making investment and operating decisions.
Principal changes in the "Standardized Measure of Discounted Future Net
Cash Flows" attributable to the Company's proved oil and gas reserves for
the periods indicated are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Sales and transfers, net of production costs ................................. $ (47,212) (415,925) (34,056)
Net change in estimated future development costs ............................. 840,437 (650,266) (450,193)
Net change in income taxes ................................................... 7,453,049 (1,902,960) (1,939,472)
Revisions in previous quantity estimates ..................................... (3,147,268) 4,325,304 2,923,029
Net changes in sales and transfer prices, net of production costs ............ (13,437,157) 3,751,721 4,894,098
Sales of reserves ............................................................ -- -- (1,433,912)
Accretion of discount ........................................................ 3,471,079 2,882,229 2,299,665
Change in production rates (timing) and other ................................ (4,003,917) (4,004,564) (2,372,991)
------------ ------------ ------------
Net change ............................................................. $ (8,870,989) 3,985,539 3,886,168
============ ============ ============
</TABLE>
PLAN AND AGREEMENT OF MERGER
This Plan and Agreement of Merger (the "Plan") is entered
into effective the 16th day of February, 1995, by and among
Petroport, L.C., a Texas limited liability company ("Petroport"),
Blue Dolphin Acquisition Company, a Delaware corporation
("BDAC"), Blue Dolphin Energy Company, a Delaware corporation
("Blue Dolphin"), and IPB Holdings, L.C., a Texas limited
liability company (the "Petroport Owner").
W I T N E S S E T H:
WHEREAS, Petroport is engaged in the development of an
offshore oil terminal and storage facility utilizing one or more
subsurface salt domes located beneath the Gulf of Mexico off the
coast of the state of Texas, U.S.A.;
WHEREAS, pursuant to that certain Assignment Agreement (the
"Assignment") between Petroport and PB-KBB, Inc., a Texas
corporation ("PB-KBB"), PB-KBB has assigned to Petroport all of
its right, title and interest throughout the world to the
invention (the "Patented Invention") described and claimed in
United States Patent 5,129,759 (the "Patent") and the non-U.S.
patents listed on Exhibit "A" (the "Foreign Patents");
WHEREAS, Blue Dolphin is the sole stockholder of BDAC;
WHEREAS, on or before the Effective Time of the Merger, as
hereinafter defined, the Petroport Owner has become the sole
member of Petroport; and
WHEREAS, it would benefit BDAC, Petroport (collectively
referred to herein sometimes as the "Constituent Entities"), Blue
Dolphin and the Petroport Owner for Petroport to be merged into
BDAC pursuant to Part Ten of the Texas Limited Liability Company
Act (the "Texas Act") and Section 264 of the General Corporation
Law of the state of Delaware (the "Delaware Law").
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, and for the
purpose of prescribing the terms and conditions of the Merger (as
hereinafter defined), and the mode of carrying the same into
effect, the parties hereto adopt and agree to the following
agreements, terms, and conditions:
ARTICLE I
THE MERGER
Section 1.01. The Merger. In accordance with the
provisions of the Texas Act and the Delaware Law, at the
Effective Time of the Merger (as defined in Section 1.03),
Petroport and BDAC shall be merged into a single corporation,
BDAC, which shall continue as a corporation organized under the
laws of the state of Delaware (the merger effected pursuant to
this Section 1.01 is referred to herein as the "Merger").
Section 1.02. Effect of Merger. Except as herein
specifically set forth, (i) the corporate existence and identity
of BDAC, with all of its purposes, powers, objects, franchises,
privileges, rights and immunities, shall continue unaffected and
unimpaired by the Merger, and (ii) the existence and identity of
Petroport, with all of its purposes, powers, objects, franchises,
privileges, rights and immunities, at the Effective Time of the
Merger, shall be merged with and into that of BDAC and BDAC shall
be fully vested therewith, and the separate existence and
identity of Petroport shall thereafter cease except to the extent
continued by statute.
Section 1.03. Effective Time of the Merger. The Merger
shall become effective on the date upon which all of the
following actions shall have been completed:
(i) The approval and adoption of this Plan by (a) the
sole stockholder of BDAC, (b) the sole member of Petroport,
(c) the Board of Directors of BDAC, and (d) the managers of
Petroport;
(ii) A Certificate of Merger shall have been filed with
the Secretary of State of Delaware pursuant to Sections 264
and 103 of the Delaware Law and the Secretary of State of
Delaware shall have issued a Certificate of Merger pursuant
thereto; and
(iii) Articles of Merger shall have been filed with the
Secretary of State of Texas pursuant to Article 10.03 of the
Texas Act and the Secretary of State of Texas shall have
issued a Certificate of Merger pursuant thereto.
The date when the Merger shall become effective pursuant to
this Section 1.03 is herein called the "Effective Time of the
Merger."
Section 1.04. Certificate of Incorporation. The
Certificate of Incorporation of BDAC as in effect at the
Effective Time of the Merger shall continue as the Certificate of
Incorporation of BDAC subsequent to the Merger, until altered,
amended or repealed in the manner provided by law.
Section 1.05. Bylaws. The Bylaws of BDAC as in effect at
the Effective Time of the Merger shall continue to be the Bylaws
of BDAC subsequent to the Merger until altered, amended or
repealed as provided therein.
Section 1.06. Directors and Officers. The directors of
BDAC in office at the Effective Time of the Merger shall be the
directors of BDAC subsequent to the Merger, to hold office
subject to the terms of the Delaware Law and the Certificate of
Incorporation and Bylaws of BDAC. The officers of BDAC in office
at the Effective Time of the Merger shall be the officers of BDAC
subsequent to the Merger, to hold office subject to the terms of
the Delaware Law and the Bylaws of BDAC.
Section 1.07. Rights and Liabilities. At the Effective
Time of the Merger, all of the rights, privileges, powers and
franchises, and all of the tangible or intangible intellectual
property, know-how, and other properties, real, personal and
mixed, belonging to either of the Constituent Entities, shall be
taken and deemed to be transferred to, and shall be vested in,
BDAC without further act or deed, including specifically the
rights of Petroport with respect to: (i) the Assignment, and (ii)
the Patented Invention; and all properties, rights, privileges,
powers and franchises of the Constituent Entities and all and
every other interest of the Constituent Entities shall be
thereafter as effectively the property of BDAC as they were of
the Constituent Entities.
Section 1.08. Further Assurances. From time to time after
the Effective Time of the Merger, as and when requested by BDAC,
or by its successors or assigns, Petroport and the Petroport
Owner shall execute and deliver, or cause to be executed and
delivered, all such deeds and other instruments, and shall take
or cause to be taken all such further actions as BDAC, or its
successors or assigns, may reasonably deem necessary or desirable
in order to vest in and confirm to BDAC, and its successors and
assigns, title to and possession of all of the properties,
rights, privileges, powers and franchises referred to in Section
1.07 and otherwise to carry out the intents and purposes of this
Plan. Specifically, the Petroport Owner shall cause the Data (as
defined in Article VII) and the Reports (as defined in Section
4.04) to be transferred to the possession of the officers of BDAC
at the Effective Time of the Merger. In no event shall the
Petroport Owner be required to incur any expenses in complying
with this Section 1.08 other than expenses incurred in connection
with the delivery of the Data and Reports.
ARTICLE II
MERGER CONSIDERATION
Section 2.01. To the Petroport Owner. The limited
liability company interest of the Petroport Owner in Petroport
shall, by virtue of the Merger and without any action on the part
of the Petroport Owner or Petroport, be cancelled and converted
at the Effective Time of the Merger into the following rights
(the "Merger Consideration"):
(i) The right to receive from BDAC $150,000 in cash
payable at the Effective Time of the Merger (the "Initial
Payment");
(ii) The right to receive from BDAC $350,000 in cash
payable on the date (the "Phase II Funding Date") of the
receipt by BDAC of the Phase II Funding (as defined in
Section 6.02), subject, however, to the right of the Board
of Directors of BDAC to make a Termination Determination
pursuant to Section 6.02;
(iii) The right to enter into with BDAC and Blue Dolphin a
participation agreement which is substantially identical in
form and content to Exhibit 2.01(iii) (the "Participation
Agreement") pursuant to which the Petroport Owner will be
granted the right to participate in certain transactions;
(iv) Effective upon the payment to Blue Dolphin of $9,000,
the right to receive from Blue Dolphin the issuance of
9,000,000 shares (the "Shares") of the common stock of Blue
Dolphin, $0.01 par value (the "Blue Dolphin Common Stock"),
within 45 days of the Throughput Date (as defined in Section
3.08), subject, however, to: (a) the obligation of the
Petroport Owner to deliver an executed Investment Letter to
Blue Dolphin pursuant to Section 6.05, (b) the right of the
Board of Directors of BDAC to make a Termination
Determination pursuant to Section 6.02, and (c) adjustments
from time to time in the number of Shares which are issuable
hereunder as provided in Section 2.04. Such Shares, when
and if issued, shall be fully paid and nonassessable;
(v) The right to enter into with Blue Dolphin a
registration rights agreement which is substantially
identical in form and content to Exhibit 2.01(v) (the
"Registration Rights Agreement") pursuant to which the
Petroport Owner will be granted certain rights to cause the
registration of the Shares; and
(vi) The right to receive Revenue Payments as provided
pursuant to Article III.
Section 2.02. To Blue Dolphin. Each share of the stock of
BDAC issued and outstanding immediately prior to the Effective
Time of the Merger shall continue to be issued and outstanding
subsequent to the Merger, until redeemed or otherwise cancelled
as permitted by law.
Section 2.03. The Closing. The parties hereto agree to use
their best efforts to cause the Effective Time of the Merger to
occur on or before March 9, 1995. At the Effective Time of the
Merger, (i) the Initial Payment shall be paid by BDAC to the
Petroport Owner, and (ii) the Participation Agreement, the
Registration Rights Agreement, the Noncompetition and
Confidentiality Agreement, and the Indemnification Agreement (the
two immediately preceding capitalized terms being defined in
Section 6.01) shall be executed by the parties thereto. BDAC and
Blue Dolphin acknowledge that as of the date of their execution
of this Plan, they have been advised that PB-KBB has not
delivered to Petroport the executed Assignment, and the members
and managers of Petroport and the Petroport Owner have not yet
reviewed or authorized the transactions contemplated herein.
Petroport agrees to use its best efforts to (a) cause PB-KBB to
execute and deliver the Assignment on or before March 9, 1995,
and (b) cause Petroport's and the Petroport Owner's managers and
members to approve the transactions contemplated herein and to
execute any requisite documents. If despite the best efforts of
Petroport the executed Assignment has not been delivered by PB-
KBB on or before March 9, 1995, or the transactions contemplated
herein have not been authorized by Petroport's and the Petroport
Owner's members and managers, this Plan shall be voidable by any
of the parties hereto. In that event, no party shall have any
liability to any of the other parties.
Section 2.04. Subdivision or Combination of Shares. (i) In
the event that, prior to the Throughput Date, Blue Dolphin shall
subdivide or combine the outstanding shares of Blue Dolphin
Common Stock, or issue additional shares of Blue Dolphin Common
Stock as a dividend or other distribution on the Blue Dolphin
Common Stock (an "Adjustment Event"), the number of Shares
issuable pursuant to Section 2.01(iv) shall be proportionately
increased (in the event of a dividend, distribution, or
subdivision) or decreased (in the event of a combination). No
adjustment shall be made by reason of the issuance of shares of
Blue Dolphin Common Stock or of any securities convertible into
shares of Blue Dolphin Common Stock in exchange for cash,
property or services, or in any event other than those
specifically set forth in this Section.
(ii) If prior to the Throughput Date Blue Dolphin issues
shares of Blue Dolphin Common Stock (or any securities
convertible into or exchangeable for Blue Dolphin Common
Stock)(the "Securities") in a transaction in which all holders of
Blue Dolphin Common Stock are eligible to participate (a "Below
Market Issuance"), and the sum of (a)the aggregate amount paid
for the Securities plus (b) the aggregate amount to be paid for
shares of any Blue Dolphin Common Stock upon any conversion or
exchange of the Securities is less than the aggregate fair market
value of the Blue Dolphin Common Stock subject to the Below
Market Issuance, the number of Shares issuable pursuant to
Section 2.01(iv) shall be increased to account for any dilution
as a result of such difference.
Convertible or exchangeable securities which have lapsed
without being exercised will not be considered in the above-
described calculations.
The parties acknowledge that the fair market value of a
share of Blue Dolphin Common Stock issued and outstanding prior
to the Below Market Issuance may be different from the fair
market value of shares that may be issued or issuable pursuant to
a Below-Market Issuance.
If Blue Dolphin gives the Petroport Owner an opportunity to
participate in a Below-Market Issuance on the same terms and to
the same extent as they would have been entitled to participate
if the Shares had been issued at the time of the Below-Market
Issuance, the other provisions of this Section 2.04 shall not
apply to that transaction.
ARTICLE III
REVENUE PAYMENTS
Section 3.01. Definitions. The definitions of certain
terms used in this Article III are set forth in Section 3.09.
References in this Article III to "BDAC" shall be deemed to refer
to BDAC and any other person who is an owner of the Facilities,
as appropriate to the context.
Section 3.02. Revenue Payment Computation. BDAC agrees to
pay the Petroport Owner, subject to Section 3.05, an amount of
revenue payments ("Revenue Payments") for each Quarter subsequent
to the Effective Time of the Merger which equals the percentage
(the "Revenue Percentage") of the quarterly Revenues of the
Primary Facility set forth below:
Average Daily Throughput for the Quarter Revenue Percentage
0 - 500,000 bbl 0
500,001 - 700,000 bbl 1.0% of all Revenues
700,001 - 800,000 bbl 1.2% of all Revenues
800,001 - 900,000 bbl 1.8% of all Revenues
900,001- 1,000,000 bbl 2.4% of all Revenues
Over 1,000,000 bbl 3.0% of all Revenues
It is understood and agreed that no Revenue Payments will accrue
unless either a sea floor brine pond or a sub-sea salt cavern are
utilized by the Primary Facility.
Section 3.03. Payment. Revenue Payments due under Section
3.02 shall accrue as they are earned. Forty-five days following
the end of each Quarter, BDAC shall pay in cash to the Petroport
Owner the amount of the Accrued Revenue Payments as of the end of
such Quarter to the extent of the positive amount of Annual Cash
Flow (if any) for that Reporting Year at the end of the Quarter
(the limitation of Revenue Payments to Annual Cash Flow is
referred to herein as the "Annual Cash Flow Limitation"). To the
extent any Revenue Payments remain accrued but unpaid as of the
end of a Reporting Year as a result of the Annual Cash Flow
Limitation, the obligation of BDAC to pay such Accrued Revenue
Payments shall be cancelled and shall not be carried forward to
any subsequent period, regardless of whether positive cash flow
is thereafter realized from the Primary Facility.
Section 3.04. Access to Records. Upon the reasonable
request of the Petroport Owner, BDAC shall make available to the
Petroport Owner and its employees and agents, at the offices of
BDAC, such financial records as are necessary for the Petroport
Owner to confirm the amounts of Average Daily Throughput and
Revenue. Any such review shall be at the expense of the
Petroport Owner. Within 120 days of the end of each fiscal year
of BDAC which is subsequent to Start-Up, BDAC shall deliver to
the Petroport Owner a statement of an independent certified
public accounting firm certifying that the Revenue Payments
reported to have been owed by BDAC pursuant to this Agreement
with respect to such fiscal year have been correctly determined
in accordance with this Plan. The Petroport Owner shall keep
confidential and not disclose any information disclosed to it
pursuant to this Plan, including information disclosed pursuant
to this Section 3.04, except as required by law.
Section 3.05. Offset of Revenue Payments. BDAC shall be
entitled from time to time to offset and reduce its obligation to
make Revenue Payments by the following amounts: (i) the amount of
any Ongoing Payments which (a) have been paid by BDAC, or (b) are
payable in the following Quarter, and (ii) 50% of any Upfront
Payments which (a) have been paid by BDAC, or (b) are payable in
the following Quarter. If: (i) Revenue Payments for a Quarter
are reduced to reflect Ongoing Payments or Upfront Payments which
are accrued and payable in the following Quarter (the "Future
Payments"), and (ii) any of such Future Payments are not paid by
the end of the following Quarter (the "Unpaid Future Payments"),
the Unpaid Future Payments shall be added to the amount of
Revenue Payments which accrues with respect to such following
Quarter. If the Unpaid Future Payments are paid in a subsequent
Quarter, the amount of such payment shall be taken into account
in the manner required pursuant to the first sentence of this
Section.
Section 3.06. Secondary Facilities. Revenue Payments shall
accrue with respect to each Secondary Facility in a manner which
is identical to the manner in which Revenue Payments are to
accrue with respect to the Primary Facility, including the
treatment of Third-Party Technology, except (i) for this purpose
the Revenue Percentage shall equal 60% of the Revenue Percentage
provided for pursuant to Section 3.02 and (ii) the minimum and
maximum amount of barrels indicated under the heading "Average
Daily Throughput for the Quarter" in Section 3.02 shall be
proportionately reduced if the daily throughput design capacity
of the Secondary Facility is less than 1,250,000 barrels.
Average Daily Throughput, Quarterly Cash Flow, and all other
elements taken into account in computing Revenues and Revenue
Payments, will be accounted for and calculated separately for
each of the Facilities, so that none of the amounts taken into
account in computing Revenues and the amount of any Revenue
Payment due in connection with any of the Facilities shall be
taken into account in computing Revenues or the amount of any
Revenue Payment due in connection with any of the other
Facilities.
Section 3.07. GAAP; Transactions with Affiliates. All
computations of Revenues and Revenue Payments shall be made using
Generally Accepted Accounting Principles, consistently applied
("GAAP"). All transactions between BDAC and Blue Dolphin or any
of its other affiliates in connection with the Facilities shall
be on an arm's-length basis, and all charges between any such
affiliated parties in connection with the Facilities shall be
reasonably similar to those which reasonably could be obtained in
dealings between unrelated parties.
Section 3.08. Assignability of Revenue Payment Rights. The
Petroport Owner (and its assigns) may assign ownership interests
in the right to receive the Revenue Payments provided that after
the consummation of the proposed assignment, or series of
proposed assignments, Revenue Payments will continue to be
payable to a single recipient on behalf of all owners.
Section 3.09. Definitions.
For purposes of this Plan, the following terms shall have
the meaning indicated:
(i) The term "Accrued Revenue Payments" shall mean the amount of
Revenue Payments which as of the end of the Quarter in question
are accrued but unpaid with respect to the Reporting Year which
includes such Quarter.
(ii) The term "Annual Cash Flow" shall mean with
respect to each Reporting Year, the sum of the Quarterly
Cash Flows of the Quarters included in that Reporting Year
which have been completed as of the date of the
determination.
(iii) The term "Average Daily Throughput" shall
mean the result of dividing: (a) the total number of 42
gallon barrels (or 42 gallon barrel equivalents) of Products
delivered to, stored in or transported through or from the
Primary Facility by (b) the total number of days included
within the period for which the determination is being made.
For purposes of the foregoing, no barrel of Product shall be
counted more than one time unless such barrel completely
exits the Primary Facility and then reenters the Primary
Facility.
(iv) The term "Cost Recovery Amount" shall mean the
amount of depreciation and amortization determined assuming
all capitalized costs relating to the development,
construction, improvement or alteration of the Primary
Facility (other than Ongoing Payments and Upfront Payments)
are recovered on a straight line basis (A) over a 10 year
period beginning on the date of Start-Up, with respect to
all such costs incurred prior to Start-Up, and (B) over a 15
year period beginning on the date of the incurrance of the
costs, with respect to all other costs.
(v) The term "Primary Facility" shall mean the first
offshore terminal and storage facility for Products (and any
expansions or additions thereto) built by BDAC, Blue
Dolphin, any of their affiliates, their successors or
assigns or persons licensed by any of the foregoing to build
the Primary Facility, in the Gulf of Mexico or in the
territorial waters of the United States which utilizes a sea
floor brine pond or sub-sea salt cavern, including any
pipelines which connect the same to the mainland.
(vi) The term "Facilities" shall mean the Primary
Facility and the Secondary Facilities, collectively.
(vii) The term "Ongoing Payments" shall mean any
amounts paid by BDAC, Blue Dolphin, any of their affiliates,
or their successors or assigns, for the right to use any
Third Party Technology other than amounts which are Upfront
Payments.
(viii) The term "Products" shall mean crude petroleum,
refined petroleum products, and liquified natural gas.
(ix) The term "Quarter" shall mean a calendar quarter,
e.g., the period beginning on January 1st and ending on
March 31st.
(x) The term "Quarterly Cash Flow" shall mean the
positive or negative amount which equals the amount of
Revenues of a Quarter minus: (a) the direct and indirect
operating expenses of the Primary Facility incurred for the
Quarter, including allocable overhead costs and taxes but
excluding (1) Revenue Payments, (2) all amounts offsetting
Revenue Payments pursuant to Section 3.05, (3) depreciation,
amortization, and other deductions which are in recovery of
capitalized costs as taken into account by BDAC for
financial accounting or tax purposes, and (4) all other
direct and indirect expenses which (A) do not require cash
payments during the Quarter or in the following Quarter, or
(B) which have been deducted in the computation of Quarterly
Cash Flow for a previous Quarter, (b) the Cost Recovery
Amount for that Quarter, (c) direct and indirect expenses
excluded under (a)(4)(A) above in a previous Quarter which
are paid during the Quarter or which are payable in the
following Quarter, and (d) interest paid during the Quarter
or which is payable in the following Quarter on any debt
incurred in connection with the development, construction,
improvement, or alteration of the Primary Facility to the
extent such interest has not already been included under the
first clause of (a) above.
(xi) The term "Reporting Year" shall mean the period of
12 calendar months beginning on the first day of the
calendar Quarter during which Start-Up occurs, and each
successive 12 month period thereafter.
(xii) The term "Revenues" shall mean all fees, tariffs,
and other charges paid by customers of the Primary Facility
to BDAC for the receiving, storage, handling, and/or
transportation of Products at or through the Primary
Facility. For purposes of the preceding sentence,
"Revenues" shall be reduced by the amount by which
"Distribution Costs" exceed 25% of the transportation tariff
of the Primary Facility. The term "Distribution Costs"
shall mean any amounts payable by BDAC to third parties for
the transportation of Products through the pipelines of such
third parties downstream of the Primary Facility.
"Revenues" shall not include any compensation received in
connection with the transportation of Products through the
Pipeline (as defined in the Participation Agreement).
(xiii) The term "Start-Up" shall mean the date the
Primary Facility is first deemed placed into service for
federal income tax purposes.
(xiv) The term "Secondary Facility" shall mean any
offshore terminal and storage facility for Products other
than the Primary Facility which is placed in service by
BDAC, Blue Dolphin, any of their affiliates, their
successors or assigns, or persons licensed by any of the
foregoing to build a Secondary Facility, which utilizes a
sea floor brine pond or sub-sea salt cavern, including any
pipelines which connect the same to the mainland.
(xv) The term "Third-Party Technology" shall mean any
technology, know-how, or expertise utilized in connection
with the Primary Facility with respect to which BDAC or its
assigns are required to pay any amounts of consideration in
exchange therefor which is necessary to make the Primary
Facility commercially operational.
(xvi) The term "Throughput Date" shall mean the last
day of the first Quarter subsequent to Start-Up in which the
Average Daily Throughput of the Primary Facility equals: (a)
1,000,000 barrels of Product, if the daily throughput design
capacity of the Primary Facility is 1,250,000 barrels or
more, or (b) 80% of the daily throughput design capacity of
the Primary Facility, if the daily throughput design
capacity of the Primary Facility is less than 1,250,000
barrels.
(xvii) The term "Upfront Payments" shall mean any
amounts paid to acquire the right to use any Third Party
Technology pursuant to a transaction in which BDAC or its
assigns is required to pay a single upfront payment with no
subsequent ongoing payment obligation to the transferor or
provider of the Third-Party Technology.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PETROPORT
AND THE PETROPORT OWNER
Petroport and the Petroport Owner each jointly and severally
represent and warrant to BDAC and Blue Dolphin that, as of the
Effective Time of the Merger:
Section 4.01. Organization, Good Standing, and Power.
Petroport and the Petroport Owner are each limited liability
companies duly organized, validly existing and in good standing
under the laws of the state of Texas and each of them have the
requisite limited liability company power and authority to own
and operate their respective properties and assets and to carry
on their respective businesses as now being conducted.
Section 4.02. Authorization. Petroport and the Petroport
Owner each have all requisite power and authority to execute and
deliver this Plan and to perform their respective obligations
hereunder. This Plan has been duly and validly executed and
delivered by Petroport and the Petroport Owner and has been duly
and validly authorized by all requisite action on the part of
Petroport and the Petroport Owner. The performance by Petroport
and the Petroport Owner of their respective obligations under
this Plan will not violate the Articles of Organization or
Regulations of Petroport or the Petroport Owner.
Section 4.03. Binding Obligation; Conflicting Agreements.
This Plan is a valid and legally binding obligation of Petroport
and the Petroport Owner enforceable against them in accordance
with its terms, except as such enforcement is subject to the
effect of: (i) any applicable bankruptcy, insolvency,
reorganization or other law relating to or affecting creditors'
rights generally, or (ii) general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law). The execution and delivery by
Petroport and the Petroport Owner of this Plan and the
performance by Petroport and the Petroport Owner of their
obligations hereunder will not: (i) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to
Petroport or the Petroport Owner or any of their properties or
assets, (ii) violate any note, bond, indenture, mortgage, lease,
license, agreement or other instrument or obligation to which
Petroport or the Petroport Owner are parties, or by which
Petroport or the Petroport Owner or any of their properties or
assets are bound, (iii) be in conflict with, result in a breach
of or constitute a default under any such note, bond, indenture,
mortgage, lease, license, agreement or other agreement,
instrument or obligation, and (iv) result in the creation or
imposition of any lien, charge or encumbrance of any kind or
nature whatsoever upon any of the assets of Petroport. No
consent of, approval by, order or authorization of, or
registration, declaration or filing by Petroport or the Petroport
Owner with any court or any governmental or regulatory agency or
authority having jurisdiction over Petroport or the Petroport
Owner or any of their properties or assets is required in
connection with the consummation by Petroport or the Petroport
Owner of the transactions described in this Plan.
Section 4.04. The Transferred Information. The data and
information set forth in the reports (the "Reports") described on
Schedule 4.04 (the "Transferred Information") have been duly and
lawfully obtained by Petroport. Petroport has fully paid all
third parties who provided services in connection with the
production and development of the Transferred Information. The
Reports are in the possession of Petroport. The Reports and the
Transferred Information are not subject to any mortgages, liens,
pledges, charges, claims, options, licenses, restrictions, or
encumbrances of any nature whatsoever. To the best knowledge of
Petroport and the Petroport Owner, the use by BDAC of the
Transferred Information will not infringe upon the rights of any
other party. Petroport does not represent that it is the sole
owner of the Transferred Information, or that it or BDAC have or
shall have the right to exclude any person from using any of the
Transferred Information.
Section 4.05. The Patented Invention.
(i) To Petroport and the Petroport Owner's knowledge,
the Patent is a valid and subsisting U.S. Patent. Petroport
has the right to use the Patent to develop the Primary
Facility in the Gulf of Mexico free and clear of any liens,
mortgages, pledges, encumbrances, security interests,
charges, licenses, royalty interests, or obligations of any
kind. As a result of the Merger, BDAC and its assigns will
acquire all of the rights of Petroport in the Patent and the
Foreign Patents. Petroport and the Petroport Owner
specifically disclaim any representations or warranties with
respect to the value of the Patent or the Foreign Patents
and the rights arising under the Patent and the Foreign
Patents.
(ii) The Assignment is a valid and legally binding
obligation of PB-KBB enforceable against it in accordance
with its terms.
(iii) Neither Petroport nor the Petroport Owner are
aware of any technology other than the Patented Invention
and the Transferred Information which is in existence which
is necessary for BDAC to develop the Primary Facility.
Except as set forth in the immediately preceding sentence,
neither Petroport nor the Petroport Owner make any warranty
that the Patented Invention or the Transferred Information
constitute all or any particular portion of the technology
necessary for the development of the Primary Facility, it
being acknowledged that the plans for the Primary Facility
are in the early stages of development as of the date of
this Plan.
Section 4.06. Absence of Defaults and Liabilities.
Petroport is not obligated for, nor are any of its assets or
properties subject to, any liabilities, claims, agreements, or
other obligations of any nature whatsoever, whether fixed,
contingent, executory, or otherwise, other than legal and
accounting fees payable with respect to this transaction.
Petroport has never agreed to act as a guarantor or other surety
with respect to the obligations of any other party.
Section 4.07. Contracts and Agreements. Petroport is not a
party to any agreement, contract, or commitment with respect to
which Petroport has not fully, completely, and adequately
performed all of its obligations with respect thereto. Petroport
is not a party to any executory contracts. Schedule 4.07 sets
forth a complete list, including the title of each amendment (if
any), of all existing contracts, commitments, and agreements,
including licenses, assignments, or other documents: (i) to which
Petroport or the Petroport Owner is a party, or (ii) of which
Petroport or the Petroport Owner has knowledge which concerns the
use, ownership, or rights inherent in the Patented Invention or
the Transferred Information. All obligations of Petroport,
whether performable now or in the future, pursuant to that
certain letter agreement dated November 17, 1993, between Morgan
Stanley & Co., Incorporated and Petroport (the "Morgan Stanley
Agreement") have either been performed or terminated. Schedule
4.07 sets forth a complete list, including addresses and
telephone numbers, of all consultants, advisors, experts, and
other individuals and entities which have been retained or
engaged by Petroport at any time to provide services or expertise
in connection with the development of the Primary Facility. Each
such consultant, advisor, etc. has been paid in full with respect
to services performed prior to the date hereof and has no
continuing right to perform services for Petroport or to
otherwise receive payments from Petroport.
Section 4.08. Financial Statements. Petroport has furnished
BDAC with the balance sheet and income statement for Petroport as
of December 31, 1994, which is set forth as Exhibit 4.08 (the
"Financial Statements"). The Financial Statements: (i) are
materially in accordance and consistent with the books and
records of Petroport, and (ii) fairly present the financial
condition and the results of operations of Petroport at and for
the periods therein specified.
Section 4.09. Absence of Certain Changes or Events. Since
December 31, 1994, Petroport has not:
(i) incurred any obligation or liability (contingent
or otherwise) other than legal and accounting fees payable
with respect to this transaction;
(ii) transferred, leased, or otherwise disposed of any
of its material assets or properties, except for the
distribution of current assets prior to Closing permitted
pursuant to Section 6.07;
(iii) entered into, amended or terminated any
agreement, contract or commitment; or
(iv) suffered any material adverse change in its
financial condition, earnings, assets, properties or
business.
Section 4.10. Litigation. There is no claim, action, suit,
proceeding, investigation or inquiry before any: (i) arbitration
tribunal, (ii) federal, state, municipal, foreign or other court,
or (iii) governmental or administrative body or agency, now
pending against, relating to or affecting, Petroport, its assets,
properties or businesses, nor, to the knowledge of Petroport and
the Petroport Owner, is any such claim, action, suit, proceeding,
investigation or inquiry threatened.
Section 4.11. The Trade Name and Logo. To the knowledge of
Petroport and the Petroport Owner, the use by BDAC subsequent to
the Merger of the name "Petroport" (the "Trade Name") and the
logo set forth on Exhibit 4.11 (the "Logo") will not infringe on
the rights of any other person. Petroport advises Blue Dolphin
that there is a New York corporation named "Petroport
Corporation." Petroport makes no warranties or representations
of any kind regarding the Trade Name and Logo other than those
expressly made herein. Specifically, and without limiting the
foregoing, Petroport does not represent that it is the sole owner
of the Trade Name or Logo, or that it has any right to exclude
any person from using the Trade Name or Logo. This limitation of
warranty is necessary because Petroport does not own any
registered trademark or other registration rights relating to the
Trade Name or Logo.
Section 4.12. Petroport Members. The members of the
Petroport Owner (the "Petroport Members"), and their relative
ownership percentages in the Petroport Owner, are set forth on
Schedule 4.12.
Section 4.13. Compliance with Laws. Petroport has
materially complied with and is not in violation in any material
respect of, any applicable federal, state, or local statutes,
laws, or regulations (including, without limitation, any
environmental law, ordinance, or regulation) affecting it or its
properties or operations. Petroport has provided to BDAC copies
of all written communications received by it from any federal or
state agency or authority concerning the Patented Invention, the
Transferred Information, or the Primary Facility.
Section 4.14. Projections. The projections of financial
results previously prepared by Petroport and provided to BDAC in
connection with the negotiation of this Plan (the "Projections")
have been prepared by Petroport based on all information known to
Petroport, using assumptions and methods which Petroport in good
faith deems reasonable. BDAC acknowledges that it has been given
an opportunity to conduct its own due diligence review of the
Projections and the assumptions and methods employed therein.
Except for the representations and warranties set forth in the
first sentence of this Section, Petroport hereby disclaims all
warranties of any kind regarding the Projections.
Section 4.15. Brokers and Finders. Neither Petroport nor
the Petroport Owner have retained any broker or finder in
connection with the transactions contemplated hereby and neither
Petroport nor the Petroport Owner have taken any action in
connection with this transaction which would entitle any person
to receive a brokerage commission, finder's fee or other like
payment from BDAC or Petroport.
Section 4.16. Tax Matters. All federal, foreign, state,
county, or local tax returns or reports which are required to be
filed by or on behalf of Petroport on or prior to the date hereof
have been duly filed and all taxes, interest, penalties,
assessments, or deficiencies shown to be due on such tax returns
or reports or claimed to be due by any taxing authority, notice
of which claim has been received by any of the Petroport Owner or
Petroport have been paid in full as of the date hereof and such
returns and reports are true and correct in all material
respects. There are no pending examinations by the Internal
Revenue Service or by any foreign, state, county, or local tax
authority regarding the tax liability of Petroport. The
Petroport Owner shall cause to be prepared, at its expense, any
tax returns due with respect to Petroport for any period prior to
the Effective Time of the Merger.
Section 4.17. Employees. Petroport is not now and has
never been a party to any written or oral contract, arrangement,
or understanding regarding the employment of any person by
Petroport. In the past, Petroport has employed certain
consultants as independent contractors. All such consultants
have been paid in full, and the work product they have provided
to Petroport has been delivered to BDAC.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BDAC AND BLUE DOLPHIN
BDAC and Blue Dolphin hereby jointly and severally represent
and warrant to Petroport and the Petroport Owner that:
Section 5.01. Organization, Good Standing and Power. BDAC
and Blue Dolphin are each corporations duly organized, validly
existing and in good standing under the laws of the state of
Delaware and each of them have the requisite corporate power and
authority to own, operate and lease their respective properties
and assets and to carry on their respective businesses as now
being conducted.
Section 5.02. Authorization. BDAC and Blue Dolphin each
have all corporate power and authority to execute and deliver
this Plan and to perform their respective obligations hereunder.
This Plan has been duly and validly executed and delivered by
BDAC and Blue Dolphin and has been duly and validly authorized by
all requisite corporate action on the part of BDAC and Blue
Dolphin. The performance by BDAC and Blue Dolphin of their
obligations under this Plan will not violate the Certificate of
Incorporation or Bylaws of BDAC or Blue Dolphin.
Section 5.03. Binding Obligation; Conflicting Agreements.
This Plan is a valid and legally binding obligation of BDAC and
Blue Dolphin, enforceable against them in accordance with its
terms, except as such enforcement is subject to the effect of:
(i) any applicable bankruptcy, insolvency, reorganization or
other law relating to or affecting creditors' rights generally,
and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law). The execution and delivery by BDAC and Blue Dolphin of
this Plan and the performance by BDAC and Blue Dolphin of their
obligations hereunder will not: (i) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to
BDAC or Blue Dolphin or any of their properties or assets, (ii)
violate any note, bond, indenture, mortgage, lease, license,
agreement or other instrument or obligation to which BDAC or Blue
Dolphin are parties, or by which BDAC or Blue Dolphin or any of
the properties or assets of BDAC or Blue Dolphin are bound, (iii)
be in conflict with, result in a material breach of or constitute
a default under any such note, bond, indenture, mortgage, lease,
license, agreement or other instrument or obligation to which
BDAC or Blue Dolphin are parties, or by which BDAC or Blue
Dolphin or any of the properties or assets of BDAC or Blue
Dolphin is bound, or (iv) result in the creation or imposition of
any lien, charge or encumbrance of any kind or nature whatsoever
upon any of the properties or assets of BDAC or Blue Dolphin. No
consent of, approval by, or filing with, any court or
governmental agency or authority having jurisdiction over BDAC or
Blue Dolphin or any of their properties or assets or any other
person is required in connection with the consummation by BDAC or
Blue Dolphin of the transactions contemplated by this Plan which
have not been obtained prior to the date hereof.
Section 5.04. Capitalization. The authorized capital stock
of Blue Dolphin consists of 100,000,000 shares of Blue Dolphin
Common Stock, and 25,000,000 shares of Preferred Stock, $0.10 par
value per share. At the close of business on January 31, 1995,
the issued and outstanding capital stock of Blue Dolphin consists
of 34,379,116 shares of the Blue Dolphin Common Stock and
14,560,475 shares of Cumulative Convertible Preferred Stock,
Series A, $0.10 par value per share, of Blue Dolphin. All of the
outstanding shares of Blue Dolphin stock have been validly issued
and are fully paid and non-assessable. As of the date hereof,
there are issued and outstanding (i) warrants to acquire
16,836,199 shares of the Blue Dolphin Common Stock, and (ii)
options to acquire 2,128,334 shares of the Blue Dolphin Common
Stock which are held by the employees and directors of Blue
Dolphin and its affiliates. Copies of all documents governing
the rights to such warrants and options and any rights any
persons have to cause Blue Dolphin to register Blue Dolphin
Common Stock have been provided to Petroport.
Section 5.05. SEC Reports; Other Information. Blue Dolphin
has filed in a timely manner all reports required to be filed by
it pursuant to Sections 13 and 15(d) of the Securities Exchange
Act of 1934. Blue Dolphin has delivered to Petroport true and
correct copies of Blue Dolphin's Quarterly Report on Form 10-Q
for the Quarter ended September 30, 1994, and Blue Dolphin's
Annual Report on Form 10-K for the year ended December 31, 1993.
Blue Dolphin shall furnish to Petroport copies of any exhibit
required to have been filed with the Commission as part of any
Form 10-K or 10-Q Report of Blue Dolphin upon written request by
Petroport.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.01. Other Agreements. At the Effective Time of
the Merger, the Petroport Owner shall execute and shall cause
each of the Petroport Members and Harold H. Hammer to execute:
(i) a noncompetition and confidentiality agreement which is
substantially identical in form and content to Exhibit 6.01(i)(a)
(the "Noncompetition and Confidentiality Agreement"), and (ii) an
indemnification agreement which is substantially identical in
form and content to Exhibit 6.01(i)(b) (the "Indemnification
Agreement").
Section 6.02. Phase II Funding. BDAC agrees to use its
best efforts to obtain debt and/or equity financing in the amount
required to fund the payment of the costs which are anticipated
to be incurred in obtaining the permits which are requisite for
the construction, fabrication, and/or operation of the Primary
Facility (the "Phase II Funding"), up to a maximum amount of
funding of $12,000,000, provided, that if the Board of Directors
of BDAC determines at any time for any reason whatsoever not to
pursue the development of the Primary Facility (a "Termination
Determination"), the obligations of BDAC under this Section 6.02
shall terminate. Neither Blue Dolphin nor BDAC have made any
express or implied covenant to exploit the Patented Invention or
to develop any of the Facilities. Petroport and the Petroport
Owner acknowledge that notwithstanding anything to the contrary
set forth in this Agreement: (i) a Termination Determination may
be made at any time for any reason, in the sole and absolute
discretion of BDAC and its Board of Directors, and (ii) neither
Petroport, the Petroport Owner, nor any of their members shall
have any recourse whatsoever against BDAC, Blue Dolphin, or their
respective directors or officers with respect to: (a) the fact
that a Termination Determination has been made, or (b) the timing
of, or reasons for, a Termination Determination. If BDAC makes a
Termination Determination, BDAC will give the Petroport Owner
prompt notice that such Termination Determination has been made.
If a Termination Determination is made, BDAC and Blue Dolphin
will continue to have all of their obligations under and in
connection with the transactions contemplated in this Plan if a
Primary or Secondary Facility is subsequently constructed.
Section 6.03. Opinions of Counsel. Petroport shall cause
to be delivered to BDAC and Blue Dolphin at the Effective Time of
the Merger, (i) the written opinion of Matthews & Branscomb,
counsel for Petroport, in form and substance satisfactory to BDAC
and Blue Dolphin, to the effect set forth in Exhibit 6.03(i), and
(ii) the written opinion of counsel reasonably satisfactory to
BDAC to the effect set forth in Exhibit 6.03(i) with respect to
PB-KBB and the Assignment. BDAC and Blue Dolphin shall cause to
be delivered to Petroport and the Petroport Owner at the
Effective Time of the Merger the written opinion of Cokinos,
Bosien & Young, counsel for BDAC and Blue Dolphin, in form and
substance satisfactory to Petroport, to the effect set forth in
Exhibit 6.03(ii).
Section 6.04. Tax Matters. The parties hereto acknowledge
that, solely for federal income tax purposes, the Merger will be
characterized as the acquisition of the assets of Petroport by
BDAC, followed by the liquidation of Petroport and the
distribution of the Merger Consideration to the Petroport Owner
(an "Asset Acquisition/Liquidation"). The parties hereto agree
to characterize the Merger as an Asset Acquisition/Liquidation on
all tax returns filed by them and to act in all matters relating
to federal tax reporting in a manner which is consistent with the
characterization of the Merger as an Asset
Acquisition/Liquidation. For all other purposes the parties
agree that the transaction is a merger under all applicable laws.
Section 6.05. Blue Dolphin Shares. The Petroport Owner
understands and agrees that: (i) the issuance of the Shares
pursuant to this Plan is intended to be exempt from registration
under the Securities Act of 1933 (the "1933 Act") by virtue of
Section 4(2) of the 1933 Act and the provisions of Regulation D
("Regulation D") promulgated thereunder by the Securities and
Exchange Commission (the "Commission"), (ii) the issuance of the
Shares may be reported to the Commission pursuant to the
requirements of Regulation D and to certain state securities
commissions, and (iii) the transfer by the Petroport Owner of the
Shares will be restricted pursuant to the terms of this Plan and
applicable securities laws. The Petroport Owner acknowledges
that it and the Petroport Members have been given the opportunity
to ask questions and receive answers regarding the business of
Blue Dolphin and BDAC. The Petroport Owner agrees that it and
the Petroport Members have the duty to conduct a due diligence
review of the business and operations of Blue Dolphin, and each
of them have conducted such review to their satisfaction prior to
the date of its execution of this Plan. The Petroport Owner and
each Petroport Member are "accredited investors" for purposes of
Rule 501(a) of Regulation D. Petroport confirms that: (i) each
of the representations and warranties set forth in the investment
letter which is attached as Exhibit 6.05 (the "Investment
Letter") are true and correct with respect to the Petroport Owner
and the Petroport Members as of the date hereof, and (ii) it must
deliver an executed Investment Letter to Blue Dolphin subsequent
to the Throughput Date before Blue Dolphin will be required to
issue the Shares. The Investment Letter shall also include such
additional representations and warranties as counsel to Blue
Dolphin shall reasonably determine to be necessary to cause the
issuance of the Shares to comply with applicable securities laws,
as amended from time to time.
Section 6.06. Liability of Blue Dolphin. The Petroport
Owner and the Petroport Members shall have no recourse against
Blue Dolphin with respect to, and Blue Dolphin shall have no
liability for, any of the agreements or obligations of BDAC
pursuant to this Plan, including the agreements and obligations
set forth in Sections 2.01(i), (ii) and (vi). Nothing in this
Section 6.06 shall relieve Blue Dolphin from any liability it
otherwise has to the Petroport Owner and the Petroport Members,
their heirs, successors and assigns. In addition, nothing in
this Section 6.06, shall limit or relieve Blue Dolphin from any
liability to Petroport or the Petroport Owner for tortious acts
on the part of Blue Dolphin which contribute to BDAC's failure to
perform any of its agreements and obligations pursuant to this
Plan, subject to the limitations of Section 6.02.
Section 6.07. Legal and Accounting Fees; Permitted
Distribution. BDAC acknowledges that it has been advised that
Petroport has incurred certain legal and accounting fees in
connection with the negotiation, preparation, and consummation of
this Plan. The Petroport Owner and Petroport agree to cause such
fees to be paid in full prior to the Effective Time of the
Merger. Any cash or other funds of Petroport remaining after the
payment of such legal and accounting fees may be distributed to
the Petroport Owner on or prior to the Effective Time of the
Merger. To the extent such fees exceed the cash and other funds
of Petroport, the Petroport Owner shall be responsible for the
payment of such fees.
Section 6.08. Limitations on Distributions and Sales. The
Petroport Owner agrees to retain complete unencumbered ownership
of, and thus agrees not to distribute, sell, pledge, transfer, or
assign, 4,500,000 of the Shares (the "Retained Shares")
throughout the period beginning on the Throughput Date and ending
on the Distribution Date (as hereinafter defined). BDAC and Blue
Dolphin shall have recourse against the Retained Shares for all
claims which accrue against the Petroport Owner and the Petroport
Members pursuant to the terms of the Indemnification Agreement.
The term "Distribution Date" shall mean the date which is two
years subsequent to Start-Up, unless there is a lawsuit which
involves claims by BDAC or Blue Dolphin against the Petroport
Owner or the Petroport Members pursuant to the Indemnification
Agreement which is pending as of such date, in which case the
Distribution Date shall be the date upon which such litigation
has been resolved (including any available appeals remedy) and
the Retained Shares have been applied against the liabilities of
the Petroport Owner and the Petroport Members to BDAC and Blue
Dolphin. The Petroport Owner agrees that the certificates
representing the Retained Shares shall bear a legend which places
potential transferees of the Retained Shares on notice of the
restrictions of this Section in compliance with the Delaware Law.
Section 6.09. Information Regarding the Facilities. BDAC
shall keep the Petroport Owner reasonably informed regarding the
development of the Facilities, including: (i) the status of the
permitting process for the Facilities, and (ii) the progress of
the construction of the Facilities. BDAC shall provide such
information to the Petroport Owner pursuant to this Section at
such times as it, in its sole discretion, deems appropriate,
provided, however, that the information required pursuant to this
Section shall be provided no less often than semi-annually.
ARTICLE VII
CONDUCT OF BUSINESS
Petroport agrees that during the period from the date of
this Plan to the Effective Time of the Merger, except as
expressly contemplated by this Plan or to the extent that BDAC
may otherwise consent in writing, Petroport shall operate its
business in, and only in, the usual, regular and ordinary course
of business in substantially the same manner as operated on the
date of this Plan. Without limiting the generality of the
foregoing, Petroport agrees that during the period from the date
of this Plan to the Effective Time of the Merger, Petroport will
not:
(i) amend its Articles of Organization or Regulations;
(ii) merge or consolidate with, or agree to merge or
consolidate with, or purchase or agree to purchase all or
substantially all of the assets of, or otherwise acquire any
corporation, partnership, association or other business
organization or division thereof;
(iii) sell, lease or otherwise dispose of, or agree to
sell, lease or otherwise dispose of, any of its assets;
(iv) make any distributions to Petroport or the
Petroport Owner except as permitted pursuant to Section
6.07;
(v) solicit or encourage (including by way of
furnishing information) any inquiries or proposals for the
acquisition of any equity ownership interest in Petroport or
all or any part of its assets; or
(vi) destroy, erase, or modify any data which is in its
possession on the date hereof relating to the development of
any of the Facilities, the Patented Invention, or the
Transferred Information, whether stored on paper or magnetic
media, including but not limited to any records, reports,
work papers, files, computer diskettes, computer hard
drives, or computer tapes (collectively, the "Data").
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Arbitration. Any dispute between the
Petroport Owner and BDAC or their assigns regarding the amount of
Revenue Payments payable (a "Dispute") shall be settled by
arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. Notice of demand for
arbitration shall be filed in writing with the other parties to
this Plan and with the American Arbitration Association (the
"AAA"). A demand for arbitration shall be made within a
reasonable time after the Dispute has arisen, and in no event
shall it be made after the date when institution of legal or
equitable proceedings based on such Dispute would be barred by
the applicable statute of limitations. No arbitration arising
out of or relating to this Plan shall include, by consolidation
or joinder or in any other manner, parties and persons other than
the parties hereto substantially involved in a common question of
fact or law whose presence is required if complete relief is to
be accorded in arbitration, unless such other parties agree to
participate in the arbitration. In the event other parties or
persons are involved in a common question of fact or law who have
not agreed or do not agree to participate in the arbitration, any
and all Disputes shall nonetheless and without exception be
settled by arbitration, and any issues remaining following such
arbitration shall be resolved in any other lawful manner.
Each party hereto shall have the right to be represented by
an attorney at any arbitration proceeding or hearing, and any
waiver thereof prior to the proceeding or hearing shall be
ineffective. This agreement to submit to arbitration shall be
specifically enforceable under applicable law in any court having
jurisdiction thereof.
The award rendered by the arbitrators shall be final, such
judgment shall be entered upon it in accordance with applicable
law in a court having jurisdiction thereof, and any such award
and judgment shall be subject to appeal according to the same
procedures and on the same legal basis as a final judgment of the
trial court in which said judgment is entered. The parties
hereto agree to expedite and cooperate in obtaining the entry of
such judgment with respect to such award.
The arbitration proceedings shall be conducted by three
disinterested, neutral arbitrators who shall be appointed from a
panel in accordance with Section 13 of the Commercial Arbitration
Rules (Revised Rules and Fees of Cases Filed on or After May 1,
1992) of the AAA (the "Commercial Arbitration Rules"); provided,
however, that if three disinterested, neutral arbitrators cannot
be selected and appointed by the parties to the dispute from the
first list of names submitted by the AAA, then the AAA shall
submit to each party to the dispute a second list of names of
persons chosen from the panel, and if three such arbitrators
cannot be appointed for any reason from such second list, then
the AAA shall then be deemed authorized and directed to and shall
select and appoint, on behalf of all parties to the dispute,
three disinterested, neutral arbitrators (but in no event shall
the AAA appoint arbitrators whose names have previously been
rejected by the parties to the Dispute). All persons submitted
as prospective arbitrators by the AAA shall be persons having
substantial knowledge of the substantive commercial laws of the
state of Texas and the general issues in question for
arbitration.
The three arbitrators shall conduct the arbitration
proceedings as provided hereinabove and in the Commercial
Arbitration Rules. The arbitrators rendering the judgment or
award shall deliver a brief written opinion explaining such
judgment or award and the legal and factual reasons therefor.
Section 8.02. Amendment. This Plan may only be amended
with the agreement of all of the parties hereto.
Section 8.03. Notices. All notices and other
communications hereunder shall be in writing and shall be deemed
to have been given if: (i) delivered personally, (ii) sent by
registered or certified mail (return receipt requested), postage
paid, to the parties to this Plan at the following addresses, or
(iii) telefaxed to the number indicated below:
If to BDAC Eleven Greenway Plaza
or Blue Dolphin: Suite 1606
Houston, Texas 77046
Attn: Michael J. Jacobson
Telefax: (713) 621-4687
with a copy to: Cokinos, Bosien & Young
2919 Allen Parkway
Suite 1500
Houston, Texas 77019
Attn: Casey W. Doherty
Telefax: (713) 535-5533
If to Petroport: 615 North Upper Broadway
Suite 2020
Corpus Christi, Texas 78477
Attn: Edwin Singer
Telefax: (512) 883-6755
and to: 802 N. Carancahua
Suite 1840
Corpus Christi, Texas 78470
Attn: Harris Kaffie
Telefax (512) 882-3604
with a copy to: Matthews & Branscomb, P.C.
802 N. Carancahua
Suite 1900
Corpus Christi, TX 78470-0700
Attn: Mark J. Hulings
Telefax: (512) 888-8504
The addresses and telefax numbers set forth above may be changed
by a notice given to the other parties hereto which complies with
this Section.
Section 8.04. Entire Agreement. This Plan (including the
documents and instruments referred to herein) constitutes the
entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements and
undertakings, written and oral.
Section 8.05. Binding Effects; Benefits. This Plan shall
be binding upon and inure to the benefit of the parties to this
Plan and their respective successors and permitted assigns.
Nothing expressed or implied in this Plan is intended to or shall
be construed to give any person other than the parties to this
Plan or their respective successors or permitted assigns any
legal or equitable right, remedy or claim under or in respect to
this Plan, it being the intention of the parties to this Plan
that this Plan shall be for the sole and exclusive benefit of
such parties or such successors or permitted assigns and for the
benefit of no other person.
Section 8.06. Assignment.
(i) Subject to the remainder of this Section, neither this
Plan nor any right, remedy, obligation or liability arising
hereunder or by reason hereof shall be assignable by any party to
this Plan without the prior written consent of the other parties
hereto. If the Petroport Owner grants its written consent, which
consent shall not be unreasonably withheld, BDAC shall be
permitted to license and/or assign its rights under, in or to:
(a) this Plan, (b) the Patented Invention or (c) any of the
Facilities, to any other party pursuant to such terms and
conditions deemed appropriate by BDAC, provided, however, that
BDAC may only effect such a license or assignment if the terms of
such license or assignment require the licensee or assignee to be
bound by the obligations of BDAC pursuant to this Plan.
Notwithstanding any such license or assignment, BDAC shall
continue to be primarily liable under this Plan and Blue Dolphin
shall continue to have its obligations hereunder as well. Except
as provided herein, BDAC may not sell, assign, or otherwise
dispose of any interest in, any of its rights under this Plan
without the prior written consent of the Petroport Owner, which
consent, as provided above, is not to be unreasonably withheld.
(ii) In case of any capital reorganization or
reclassification of the Blue Dolphin Common Stock not covered by
Section 2.04, or the consolidation or merger of Blue Dolphin with
or into any other entity, or any distribution by Blue Dolphin to
its shareholders (a) arising out of any disposition by Blue
Dolphin, BDAC or any of their affiliates of all or any part of
the Patent, the Foreign Patents, the Patented Invention or any of
the Facilities or (b) of all or substantially all of the assets
of Blue Dolphin (a "Major Corporate Transaction"), then if the
Petroport Owner becomes entitled to receive the Shares subsequent
to the Major Corporate Transaction, the Petroport Owner shall
receive, when it is entitled to receive the Shares, its
proportionate share of all stock, securities, or other property
issued, paid, or delivered for or in respect of the Blue Dolphin
Common Stock ("Shares Equivalent Consideration"), as if the
Shares had been issued immediately prior to the Major Corporate
Transaction. Blue Dolphin shall arrange for the Shares
Equivalent Consideration to be held and invested in accordance
with prudent investment practices by a major bank in Houston,
Texas, until disbursed, together with all earnings thereon, to
the Petroport Owner pursuant to this Plan, provided, however,
Blue Dolphin's obligations under this sentence shall terminate on
the Initial Date (as such term is defined in the License
Agreement between BDAC and the Petroport Owner).
(iii) For purposes of Section 2.04(ii)(a) above, a
disposition does not include a license in which the consideration
paid by the licensee is paid substantially proportionately over
the term of the license and upon the termination of the license
the licensee's rights in the licensed asset become vested in the
licensor.
Section 8.07. Applicable Law. This Plan shall be governed
by and construed in accordance with the laws of the state of
Texas applicable to contracts made and to be performed within
that state. Venue for any action brought hereunder, or connected
in any respect to the transactions contemplated hereunder, shall
lay in Harris County, Texas.
Section 8.08. Article and Section Headings. The article,
section and other headings contained in this Plan are for
reference purposes only and shall not affect the meaning or
interpretation of this Plan.
Section 8.09. Counterparts. This Plan may be executed in
any number of counterparts, each of which shall be deemed to be
an original and all of which together shall be deemed to be a
single agreement.
Section 8.10. Legal and Other Costs. If any legal action
or other proceeding is brought for the enforcement of this Plan,
or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of
this Plan, the prevailing party or parties shall be entitled to
recover reasonable attorney's fees and other costs incurred in
such action or proceeding, in addition to other relief to which
it may be entitled.
Section 8.11. Survival of Representations, Warranties,
Covenants and Agreements. The representations, warranties,
covenants and agreements of Petroport, the Petroport Owner, Blue
Dolphin, and BDAC contained herein shall survive the closing of
the Merger and any investigation by the parties hereto.
Notwithstanding the foregoing, any claim for a breach of the
representations and warranties contained in Articles IV and V can
only be preserved by the filing of a lawsuit in a court of
competent jurisdiction on or before two years from the date of
this Plan, except with respect a claim which is based in whole or
in part on an alleged breach of the representations and
warranties contained in Sections 4.05, 4.06, 4.07, 4.11, 4.13,
and 4.16, which may be brought at any time prior to the date
which is two years after Start-Up.
Section 8.12. Severability. Any provision of this Plan
which is invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining
provisions of this Plan, and to the extent permitted by law, any
determination of invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
Section 8.13. Sections and Exhibits. Except to the extent
the context specifically indicates otherwise, all references to
sections refer to Sections of this Plan, and all references to
exhibits refer to Exhibits attached hereto, each of which is made
a part hereof for all purposes.
IN WITNESS WHEREOF, the parties to this Plan have caused
this Plan to be duly executed as of the date first written above.
BLUE DOLPHIN ENERGY COMPANY,
a Delaware corporation
By:
Michael J. Jacobson, President
BLUE DOLPHIN ACQUISITION COMPANY,
a Delaware corporation
By:
Michael J. Jacobson, President
PETROPORT, L.C.,
a Texas limited liability company
By:
Edwin Singer, Manager
IPB HOLDINGS, L.C.
a Texas limited liability company
By:
Edwin Singer, Manager
cwd016a
BLUE DOLPHIN ENERGY COMPANY
f/k/a Zim Energy Corporation
1985 Stock Option Plan
1. PURPOSE. This Stock Option Plan (the "Plan") of Blue
Dolphin Energy Company (the "Company"), for directors, executives and
other key personnel, is intended to advance the best interests of the
Company by providing such persons who have a substantial responsibility
for its management and growth with additional incentive and by
increasing their proprietary interest in the success of the Company.
2. ADMINISTRATION. The Plan shall be administered by a
committee comprised of not less than three members who shall be
appointed by the Board of Directors of the Company (the "Committee").
The Committee shall consist of not less than two members of the Board of
Directors. The Board of Directors of the Company shall have the power
from time to time to add or remove members of the Committee, and to fill
vacancies thereon arising by resignation, death, removal, or otherwise.
The Committee shall designate a chairman from among its members, who
shall preside at all of its meetings and shall designate a secretary,
without regard to whether that person is a member of the Committee, who
shall keep the minutes of the proceedings and all records, documents,
and data pertaining to its administration of the Plan. Meetings shall
be held at such times and places as determined by the Committee. A
majority of the members of the Committee shall constitute a quorum for
the transaction of business, and the vote of a majority of those members
present at any meeting shall decide any question brought before that
meeting. In addition, the Committee may take any action otherwise
proper under the Plan by the affirmative vote, taken without a meeting,
of a majority of its members, which vote shall be evidenced by a written
consent of the voting members. No member of the Committee shall be
liable for any act or omission of any other member of the Committee or
for any act or omission on his own part, including but not limited to
the exercise of any power or discretion given to him under the Plan,
except those resulting from his own gross negligence or willful
misconduct. All questions of interpretation and application of the
Plan, or of options granted hereunder (the "Options"), shall be subject
to the determination, which shall be final and binding, of a majority of
the whole Committee. The Plan shall be administered without regard to
whether or not any of the Options granted hereunder are "incentive stock
options" described in Section 422A of the Internal Revenue Code of 1954,
as amended, because the Options granted hereunder are not intended to be
such incentive stock options.
3. OPTION SHARES. (As Amended) The stock subject to the
Options and other provisions of the Plan shall be shares of the
Company's common stock, $0.01 par value (the "Stock"). The total amount
of the Stock with respect to which Options may be granted shall not
exceed in the aggregate five (5) percent of the number of issued and
outstanding shares of Stock and Preferred Stock, $0.10 par value, of the
Company; provided, that such aggregate number of shares shall be subject
to adjustment in accordance with the provisions of Paragraph 15 hereof.
Such shares may be Treasury shares or authorized but unissued shares.
In the event that any outstanding Option for any reason shall expire or
terminate by reason of the death or severance of employment of the
Optionee, the surrender of any such Option, or any other cause, the
shares of Stock allocable to the unexercised portion of such Option may
again be subject to an Option under the Plan. 4. ELIGIBILITY. The
individuals who shall be eligible to participate in the Plan shall be
such members of the Board of Directors and key employees (including
officers who may be members of the Board of Directors) of the Company,
or of any subsidiary corporation as the committee shall determine from
time to time.
Except as otherwise provided, for all purposes of the Plan the
term "subsidiary corporation" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if, on the date of
grant of the Option in question, each of the corporations other than the
last corporation in the chain owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
5. AUTHORITY TO GRANT OPTIONS. The Committee may grant
options from time to time to such eligible individuals as it shall from
time to time determine. The Committee may grant to an eligible
individual an Option, or Options, to buy a stated number of shares of
Stock under the terms and conditions of the Plan, without regard to
whether or not the Option will be an "incentive stock option" within the
meaning of Section 422A of the Internal Revenue Code of 1954, as
amended, because Options granted hereunder are not intended to be such
incentive stock options. Subject only to any applicable limitations set
forth in the Plan, the number of shares of Stock to be covered by any
Option shall be as determined by the Committee.
6. OPTION PRICE. The price at which shares may be purchased
pursuant to Options shall be not less than eight-five percent (85%) of
the fair market value of the shares of Stock on the date the Option is
granted and the Committee in its discretion may provide that the price
at which shares may be so purchased shall be more than eighty-five
percent (85%) of such fair market value.
7. DURATION OF OPTIONS. No Option shall be exercisable after
the expiration of five years from the date such Option is granted; and
the Committee in its discretion may provide that an Option shall be
exercisable during such five-year period or during any lesser period of
time.
8. AMOUNT EXERCISABLE. Each Option may be exercised, so long
as it is valid and outstanding, from time to time in part or as a whole,
as the Committee in its discretion may provide. Provided, however, the
Committee shall not grant Options which (together with any other Options
which are exercisable under applicable provisions of the Plan) may be
exercisable in any one calendar year to purchase more than one-third of
the shares of Stock described in Paragraph 3 of the Plan.
9. EXERCISE OF OPTIONS. Options shall be exercised by the
delivery of written notice to the Company setting forth the number of
shares of Stock with respect to which the Option is to be exercised,
subject to the subsequent provisions hereof, and the address to which
the certificates representing shares of the Stock issuable upon the
exercise of such Option shall be mailed. In order to be effective, such
written notice shall be accompanied at the time of its delivery to the
Company by payment of the option price of such shares of Stock, which
payment shall be made by cashier's check, certified check, or postal or
express money order payable to the order of the Company in an amount in
United States dollars equal to the option price of such shares of Stock.
Such notice shall be delivered in person to the Secretary of the Company
or shall be sent by registered mail, return receipt requested, to the
Secretary of the Company, in which case, delivery shall be deemed made
on the date such notice is deposited in the mail. In its sole and
absolute discretion, the Committee may require as an additional
condition to the issuance of Stock upon exercise of an Option that the
optionee furnish the Committee with an executed copy of a stock purchase
agreement in such from as may be required by the Committee at the time
notice of exercise is delivered to the Company. In addition, the
Committee may request that there be presented to and filed with it such
evidence as it may deem necessary to establish that the shares of Stock
to be purchased are being acquired for investment and not with a view to
their distribution. Also, the Committee may require an additional
amount payable in the form stated above equal to any federal, state or
local taxes which the Committee, with the advice of legal counsel, deems
necessary or appropriate to be withheld in connection with the exercise
of an option hereunder. To the extent that shares of Stock subject to
Options granted under the Plan are registered under the Securities Act
of 1933 (as now in effect or hereafter amended) any investment
representation required by the Committee or any requirement that a stock
purchase agreement be executed upon exercise of an Option shall be
waived upon the date such registration is effective.
Alternatively, payment of the option price may be made, in
whole or in part, in shares of Stock previously issued to the Optionee.
If payment is made in whole or in part in shares of Stock, then the
Optionee shall deliver to the Company, in payment of the option price of
the shares of Stock with respect to which such Option is exercised (i)
certificates registered in the name of such Optionee representing a
number of shares of Stock legally and beneficially owned by such
Optionee, free of all liens, claims and encumbrances of every kind and
having fair market value on the date of delivery of such notice that is
not greater than the option price of the shares of Stock with respect to
which such Option is to be exercised, such certificates to be
accompanied by stock powers duly endorsed in blank by the record holder
of the shares represented by such certificates; and (ii) if the option
price of the shares of Stock with respect to which such Option is to be
exercised exceeds such fair market value, a cashier's check, certified
check, or postal or express money order payable to the order of the
Company in an amount in United States dollars equal to the amount of
such excess. Not withstanding the foregoing provisions of this
Paragraph 9, the Committee, in its sole discretion, may refuse to accept
shares of Stock in payment of the option price of the shares with
respect to which such Option is to be exercised and, in that event, any
certificates representing shares of Stock which were delivered to the
Company with such written notice shall be returned to such Optionee
together with notice by the Company to such Optionee of the refusal of
the Committee to accept such shares of Stock.
As promptly as practicable after the receipt by the Company of
(i) such written notice from the Optionee setting forth the number of
shares of Stock with respect to which such Option is to be exercised,
(ii) payment of the Option price of such shares in the form required by
the foregoing provisions of this Paragraph 9 (iii) a fully executed
stock purchase agreement in the form required by the Committee, if any
is so required, (iv) such evidence of intent to acquire such Stock for
investment, as may be required by the Committee and (v) an amount equal
to any federal, state or local taxes which the Committee deems necessary
or appropriate to be withheld incident to the exercise of an Option
hereunder, the Company shall cause to be delivered to such Optionee (or
to a specified escrow agent if so required under the terms of any
applicable stock purchase agreement) certificates representing the
number of shares of Stock with respect to which such Option has been so
exercised; provided, that such delivery shall be deemed effected for all
purposes when a stock transfer agent of the Company shall have deposited
such certificate in the United States mail, addressed to the Optionee,
at the address specified pursuant to this Paragraph 9, or to the escrow
agent if the Committee requires the execution of a stock purchase
agreement as a condition of purchase. For purposes of this Paragraph 9,
the "fair market value" of a share of Stock at any particular date shall
mean the closing price of a share of Stock on that date as reported on
any officially recognized exchange or the closing bid price in the
over-the- counter-market provided that if no shares of Stock were traded
on any officially recognized exchange or over-the-counter-market on that
date or if, in the discretion of the Committee, another means of
determining the fair market value of a share of Stock at such date shall
be necessary or advisable in order to comply with or conform to the
requirements of any applicable law, governmental regulation or ruling of
the Internal Revenue Service or the Securities and Exchange Commission,
the Committee may provide for another means for determining such fair
market value.
10. TRANSFERABILITY OF OPTIONS. Options shall not be
transferable by the Optionee otherwise than by will or under the laws of
descent and distribution, and shall be exercisable, during his lifetime,
only by him.
11. TERMINATION OF OPTIONS. Subject to the subsequent
provisions of this Paragraph 11, upon severance of the employment
relationship between the Company and the Optionee for any reason, for or
without cause, Options granted to the Optionee under the Plan shall
terminate on the date the Optionee ceases to be an employee. Whether
authorized leave of absence, or absence on military or government
service, shall constitute severance of the employment relationship
between the Company and the Optionee shall be determined by the
Committee at the time thereof. Similarly, except as otherwise provided
in the following sentence, an Option granted to an individual, who is a
member of the Board of Directors and not an eligible employee described
in Paragraph 4, shall terminate on the date the Optionee ceases to be a
member of the Board of Directors for whatever reason and has no
employment relationship described in Paragraph 4. In the event of the
death of the holder of an Option while serving as a member of the Board
of Directors, or while in the employ of the Company, or (solely with
respect to an Optionee who is a retired employee) during the thirty (30)
day period described in the second succeeding sentence, and before the
date of expiration of such Option, such Option shall terminate on the
earlier of the date of expiration of such Option or thirty (30) days
following the date of such death. After the death of the Optionee, his
executors, administrators or any person or persons to whom his Option
may be transferred by will or by the laws of descent and distribution
shall have the right, at any time prior to termination of such time, to
exercise the Option to the extent to which the deceased Optionee was
entitled to exercise such option immediately prior to the Optionee's
death. If, before the date of expiration of the Option, the Optionee
shall be retired in good standing from the employ of the Company for
reasons of age or disability under the then established rules of the
Company, the Option shall terminate on the earlier of the date of
expiration of the Option or thirty (30) days after the date of such
retirement. In the event of such retirement, the Optionee shall have
the right prior to the termination of such Option to exercise the Option
to the extent to which he was entitled to exercise such Option
immediately prior to such retirement. An employment relationship
between the Company and the Optionee shall be deemed to exist during any
period in which the Optionee is employed by the Company, by any
subsidiary corporation, by a corporation issuing or assuming a stock
option in a transaction to which Section 425(a) of the Internal Revenue
Code of 1954, as amended, applies, or by a parent or subsidiary
corporation of such corporation issuing or assuming a stock option (and
for this purpose, the phrase "corporation issuing or assuming a stock
option" shall be substituted for the word "Company" in the definition of
subsidiary corporation specified in Paragraph 4 of the Plan, and the
subsidiary relationship shall be determined at the time of the corporate
action described in Section 425(a)).
12. REQUIREMENTS OF LAW. The Company shall not be required to
sell or issue any shares of Stock under any Option if the issuance of
such shares constitute a violation by the Optionee or the Company of any
provision of any law, statute, or regulation of any governmental
authority whether it be Federal or State. Specifically in connection
with the Securities Act of 1933 (as now in effect or hereafter amended),
upon exercise of any Option, unless a registration statement under such
Act is in effect with respect to the shares of Stock covered by such
Option, the Company shall not be required to issue such shares unless
the Committee has received evidence satisfactory to it to the effect
that the holder of such Option is acquiring such shares of Stock for
investment and not with a view to the distribution thereof and that such
shares of Stock may otherwise be issued without registration under such
Act or state securities laws. Any determination in this connection by
the Committee shall be final, binding and conclusive. The Company may,
but shall in no event be obligated to, register any securities covered
hereby pursuant to the Securities Act of 1933 (as now in effect or as
hereafter amended). The Company shall not be obligated to take any
affirmative action in order to cause the exercise of an Option or the
issuance of shares pursuant thereto to comply with any law or regulation
of any governmental authority.
13. NO RIGHTS AS SHAREHOLDER. No Optionee shall have rights
as a Shareholder with respect to shares covered by his Option until the
date of issuance of a stock certificate for such shares; and, except as
otherwise provided in Paragraph 15 hereof, no adjustment for dividends,
or otherwise, shall be made if the record date therefor is prior to the
date of issuance of such certificate.
14. EMPLOYMENT OBLIGATION. The granting of any Option shall
not impose upon the Company any obligation to employ or continue to
employ any Optionee; and the right of the Company to terminate the
employment of any officer or other employee shall not be diminished or
affected by reason of the fact that an Option had been granted to him.
15. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence
of outstanding Options shall not affect in any way the right or power of
the Company or its shareholders to make or authorize, any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Stock or
the rights thereof, or the dissolution or liquidation of the Company, or
any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding, whether of a similar character or
otherwise.
If the Company shall effect a subdivision or consolidation of
shares or other capital readjustment, the payment of a stock dividend,
or other increase or reduction of the number of shares of Stock
outstanding, without receiving compensation therefor in money, services
or property, then (a) the number, class, and per share price of shares
of Stock subject to outstanding Options hereunder shall be appropriately
adjusted in such a manner as to entitle an Optionee to receive upon
exercise of an Option, for the same aggregate cash consideration, the
same total number and class of shares as he would have received had he
exercised his Option in full immediately prior to the event requiring
the adjustment; and (b) the number and class of shares then reserved for
issuance under the Plan shall be adjusted by substituting for the total
number and class of shares of Stock then reserved that number and class
of shares of Stock that would have been received by the owner of an
equal number of outstanding shares of each class of Stock as the result
of the event requiring the adjustment.
After a merger of one or more corporations into the Company or
after a consolidation of the Company and one or more corporations in
which the Company shall be the surviving corporation, each holder of an
outstanding Option shall, at no additional cost, be entitled upon
exercise of such Option to receive (subject to any required action by
stockholders) in lieu of the number and class of shares as to which such
Option shall then be so exercisable, the number and class of shares of
stock or other securities to which such holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if
immediately prior to such merger or consolidation, such holder had been
the holder of record of the number and class of shares of Stock equal to
the number and class of shares as to which such Option shall be so
exercised.
If the Company is merged into or consolidated with another
corporation under circumstances where the Company is not the surviving
corporation, or if the Company is liquidated, or sells or otherwise
disposes of substantially all of its assets to another corporation while
unexercised Options remain outstanding under the Plan, (i) subject to
the provisions of clause (iii) below, after the effective date of such
merger, consolidation or sale, as the case may be, each holder of an
outstanding Option shall, at no additional cost, be entitled, upon
exercise of such Option, to receive, in lieu of shares of Stock, shares
of such stock or other securities as the holders of shares of Stock
received pursuant to the terms of the merger, consolidation or sale;
(ii) the Board of Directors may waive any limitations set forth in or
imposed pursuant to Paragraph 8 hereof so that all Options, from and
after a date prior to the effective date of such merger, consolidation,
liquidation or sale, as the case may be, specified by the Board of
Directors, shall be exercisable in full; and (iii) all outstanding
Options may be canceled by the Board of Directors as of the effective
date of any such merger, consolidation, liquidation or sale provided
that (x) notice of such cancellation shall be given to each holder of an
Option and (y) each holder of an Option shall have the right to exercise
such Option in full (without regard to any limitations set forth in or
imposed pursuant to Paragraph 8 hereof) during a 30-day period preceding
the effective date of such merger, consolidation, liquidation, sale or
acquisition.
Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number, class, or price of shares of Stock
then subject to outstanding Options.
16. SUBSTITUTION OPTIONS. Options may be granted under this
Plan from time to time in substitution for stock options held by
employees of other corporations who are about to become employees of the
Company as the result of a merger or consolidation of the employing
corporation with the Company, or the acquisition by the Company of the
assets of the employing corporation, or the acquisition by the Company
of stock of the employing corporation as the result of which it becomes
a subsidiary of the Company. The terms and conditions of the
substitution Options so granted may vary from the terms and conditions
set forth in this Plan to such extent as the Board of Directors of the
Company at the time of grant may deem appropriate to conform, in whole
or in part, to the provisions of the stock options in substitution for
which they are granted.
17. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors
may modify, revise or terminate this Plan at any time and from time to
time; provided, however, that absent consent of the Optionee, such
amendment shall not adversely affect the rights of any Optionee under
Options granted prior to such amendment.
18. WRITTEN AGREEMENT. Each Option granted hereunder shall be
embodied in a written option agreement, which shall be subject to the
terms and conditions prescribed above and shall be signed by the
Optionee and by the President or any Vice President of the Company for
and in the name and on behalf of the Company. Such an option agreement
shall contain such other provisions as the Committee in its discretion
shall deem advisable.
19. INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF
DIRECTORS. With respect to administration of the Plan, the Company
shall indemnify each present and future member of the Committee and the
Board of Directors against, and each member of the Committee and the
Board of Directors shall be entitled without further act on his part to
indemnity from the Company for, all expenses (including the amount of
judgements and the amount of approved settlements made with a view to
the curtailment of costs of litigation, other than amounts paid to the
Company itself) reasonably incurred by him in connection with or arising
out of any action, suite, or proceeding in which he may be involved by
reason of his being or having been a member of the Committee and/or the
Board of Directors, whether or not he continues to be such member of the
Committee and/or the Board of Directors at the time of incurring such
expenses; provided, however, that such indemnity shall not include any
expenses incurred by any such member of the Committee and/or the Board
of Directors (a) in respect of matters as to which he shall finally be
adjudged in any such action, suit or proceeding to have been guilty of
gross negligence or willful misconduct in the performance of his duty as
such member of the Committee and/or the Board of Directors, or (b) in
respect of any matter in which any settlement is effected, to an amount
in excess of the amount approved by the Company on the advice if its
legal counsel; and provided further, that no right of indemnification
under the provisions set forth herein shall be available to or
enforceable by any such member of the Committee and/or the Board of
Directors unless, within ten (10) days after institution of any such
action, suit or proceeding, he shall have offered the Company, in
writing, the opportunity to handle and defend same at its own expense.
The foregoing right of indemnification shall inure to the benefit of the
heirs, executors or administrators of each such member of the Committee
and/or the Board of Directors and shall be in addition to all other
rights to which such member of the Committee and/or the Board of
Directors may be entitled as a matter of law, contract, or otherwise.
20. CONDITION OF GRANT. Each person to whom an option is
granted under the Plan, if requested by the Committee at the time of
grant, must agree in writing as a condition to the granting or exercise
of the option that he will remain associated with the Company or one or
more of its subsidiary corporations in a specified capacity following
the date of the granting or exercise of the option for a specified
period after the date of exercise of the option which shall be
determined by the Committee. Such agreement may also specify that the
transfer of the shares of Stock issued upon exercise of the option will
be prohibited until fulfillment of such condition for such specified
period, and may specify the penalties for violation of such condition,
which shall be fixed in the discretion of the Committee and may include
forfeiture of the applicable securities.
In addition, the Committee, may as a condition to the grant of
an option under the Plan, require an option holder to give the Company
the right to repurchase shares issued upon exercise of such option upon
such terms and conditions as may be specified by the Committee. The
Committee may determine the amount of such shares subject to such
repurchase right or obligation and the conditions under which such right
or obligation to repurchase shall come into existence. A grant of an
option under the Plan may also be subject to other conditions, including
the termination of other options previously granted to the option
holder.
The foregoing enumeration of conditions of grant is not
intended in any way to limit the discretion of the Committee in imposing
other or different conditions of grant.
21. EFFECTIVE DATE OF PLAN. The Plan shall become effective
and shall be deemed to have been adopted on December 27, 1985. In order
to ensure that Options granted hereunder shall not be considered to be
incentive stock options described in Section 422A of the Code, no option
shall be granted pursuant to the Plan after one day more than ten years
after the date the Plan was adopted by the Board of Directors of the
Company.
IN WITNESS WHEREOF, this Plan is re-executed this 30th day of June,
1992, to reflect the Plan as amended, as indicated above, pursuant to
resolution approved by the Board of Directors.
BLUE DOLPHIN ENERGY COMPANY
By Michael J. Jacobson
President
EXHIBIT 22.1
BLUE DOLPHIN ENERGY COMPANY
List of Subsidiaries
Company State of Incorporation
Ivory Production Co. Delaware
Mission Energy, Inc. Delaware
Blue Dolphin Pipe Line Company Delaware
Buccaneer Pipe Line Co. Texas
Blue Dolphin Services Co. Texas
Blue Dolphin Acquisition Company Delaware
GERALD DUPONT ENTERPRISES, INC.
Petroleum Engineer
P.O. Box 1590
Sugar Land, Texas 77487-1590
(713)240-2822 FAX (713)242-2822
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
Gerald W. DuPont Enterprises, Inc. consents to the incorporation by
reference of our evaluation of the estimated reserves and future net
revenues of certain interests owned by Blue Dolphin Energy Company in
the Galveston Block 288 Field, dated December 31, 1994, included in the
Annual Report on Form 10-K of Blue Dolphin Energy Company for the year
ended December 31, 1994.
Gerald W. DuPont
Petroleum Engineer
March 1, 1995
Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BLUE DOLPHIN
ENERGY COMPANY AND SUBSIDIARIES' CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 434,157
<SECURITIES> 0
<RECEIVABLES> 774,362
<ALLOWANCES> 0
<INVENTORY> 17,350
<CURRENT-ASSETS> 1,443,072
<PP&E> 23,343,280
<DEPRECIATION> 4,299,078
<TOTAL-ASSETS> 20,759,338
<CURRENT-LIABILITIES> 2,858,163
<BONDS> 4,450,000
<COMMON> 343,791
0
1,456,048
<OTHER-SE> 8,270,573
<TOTAL-LIABILITY-AND-EQUITY> 20,759,338
<SALES> 1,131,637
<TOTAL-REVENUES> 6,792,765
<CGS> 1,305,897
<TOTAL-COSTS> 4,701,359
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 607,966
<INCOME-PRETAX> 1,522,830
<INCOME-TAX> 592,171
<INCOME-CONTINUING> 930,659
<DISCONTINUED> 0
<EXTRAORDINARY> 612,040
<CHANGES> 0
<NET-INCOME> 1,542,699
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
