UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended: SEPTEMBER 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ..................to...................
Commission File Number: 0-15905
BLUE DOLPHIN ENERGY COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-1268729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Eleven Greenway Plaza, Suite 1606, Houston, Texas 77046
(Address of principal executive offices) (Zip Code)
(713)621-3993
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
52,053,651 shares $.01 par value outstanding at November 11, 1996
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART. I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of Blue Dolphin Energy
Company and Subsidiaries (the "Company") included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the
opinion of management, reflect all adjustments necessary to present a
fair statement of operations, financial position and cash flows. The
Company follows the full cost method of accounting for oil and gas
properties, wherein costs incurred in the acquisition, exploration and
development of oil and gas reserves are capitalized. The Company
believes that the disclosures are adequate and the information presented
is not misleading, although certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 1,817,278 $ 2,748,467
Trade accounts receivable 812,795 860,691
Crude oil inventory 10,600 19,180
Prepaid expenses 37,499 72,824
Current deferred taxes -- 173,188
---------- ----------
Total Current Assets 2,678,172 3,874,350
Property and Equipment, at cost, using full cost
method for oil and gas properties, including
$1,902,995 at September 30, 1996 and $2,402,796 at
December 31, 1995, of leases expected to be sold
in 1996 and 1997 23,889,249 23,335,378
Accumulated depletion, depreciation
and amortization (4,485,843) (4,267,431)
---------- ----------
19,403,406 19,067,947
Land 1,133,333 1,133,333
Escrow for abandonment costs 896,815 569,816
Other Assets 553,791 423,732
---------- ----------
Total Assets $24,665,517 $25,069,178
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 707,119 $ 1,008,251
Oil and gas lease bonus payable -- 1,375,488
Current portion of accrued abandonment costs 72,033 547,948
Other liabilities and accrued expenses 5,527 32,871
Accrued income taxes payable 274,993 250,100
---------- ----------
Total Current Liabilities 1,059,672 3,214,658
Long-Term Debt, less current portion 10,000 10,000
Accrued Abandonment Costs, less current portion 1,175,644 1,242,615
Deferred Income Taxes 688,271 756,602
Dividends Payable on Preferred Stock 1,966,049 1,747,646
Cumulative Convertible Preferred Stock 1,456,048 1,456,048
Common Stock 520,530 353,247
Additional Paid-in Capital 15,679,458 14,163,661
Accumulated Earnings since January 1, 1990 2,109,845 2,124,701
---------- ----------
Total Liabilities and
Stockholders' Equity $24,665,517 $25,069,178
========== ==========
</TABLE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
Ended September 30,
1996 1995
---------- ----------
Revenue from operations:
Pipeline operations $ 775,459 $ 827,377
Oil and gas sales and operating fees 181,718 327,013
---------- ----------
REVENUE FROM OPERATIONS 957,177 1,154,390
Cost of operations:
Pipeline operating expenses 217,392 242,153
Lease operating expenses 146,359 225,385
Repair and maintenance costs 244,314 116,947
Depletion, depreciation, and amortization 80,830 164,222
---------- ----------
COST OF OPERATIONS 688,895 748,707
---------- ----------
268,282 405,683
Other income (expense):
General and administrative (328,510) (328,111)
Interest expense (2,962) (103,822)
Gain on sale of assets -- 8,809,114
Interest and other income 35,336 28,650
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (27,854) 8,811,514
Provision for income taxes 66 (1,687,802)
---------- ----------
NET INCOME (LOSS) (27,788) 7,123,712
Dividend requirements on preferred stock 72,801 72,801
---------- ----------
Net income (loss) applicable to common stockholders $ (100,589) $ 7,050,911
========== ==========
Net income (loss) per common share $ (0.002) $ 0.148
========== ==========
Weighted average number of common shares and common
share equivalents outstanding 53,027,407 47,762,793
========== ==========
Net income per common share (fully diluted) $ 0.112
==========
Weighted average number of common shares and dilutive
common share equivalents outstanding 63,657,649
==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Nine Months
Ended September 30,
1996 1995
--------- ---------
Revenue from operations:
Pipeline operations $ 2,375,241 $ 3,241,862
Oil and gas sales and operating fees 707,569 972,179
---------- ----------
REVENUE FROM OPERATIONS 3,082,810 4,214,041
Cost of operations:
Pipeline operating expenses 645,110 837,957
Lease operating expenses 485,283 650,928
Repair and maintenance costs 383,836 293,588
Depletion, depreciation, and amortizatio 326,281 483,280
---------- ----------
COST OF OPERATIONS 1,840,510 2,265,753
---------- ----------
1,242,300 1,948,288
Other income (expense):
General and administrative (968,750) (1,050,007)
Interest expense (16,549) (405,677)
Gain on sale of assets 4,397 8,809,114
Interest and other income 89,756 37,111
---------- ----------
INCOME BEFORE INCOME TAXES 351,154 9,338,829
Provision for income taxes (147,607) (1,885,899)
---------- ----------
NET INCOME 203,547 7,452,930
Dividend requirements on preferred stock 218,403 218,403
---------- ----------
Net income (loss) applicable to common stockholders $ (14,856) $ 7,234,527
========== ==========
Net income per common share $ 0.000 $ 0.153
========== ==========
Weighted average number of common shares and common
share equivalents outstanding 50,007,664 47,198,495
========== ==========
Net income per common share (fully diluted) $ 0.119
==========
Weighted average number of common shares and dilutive
common share equivalents outstanding 62,400,983
==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 203,547 $ 7,452,930
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization 326,281 483,280
Charge in lieu of income taxes -- 992,573
Gain on sale of property and equipment (4,397) (8,809,114)
Deferred tax expense 104,857 467,976
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 47,896 42,491
Decrease in crude oil inventory and prepaid
expenses 43,905 60,493
(Decrease) Increase in accounts payable and
other current liabilities (895,673) 11,451
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (173,584) 702,080
INVESTING ACTIVITIES
Oil and gas prospect generation costs (1,497,953) (586,514)
Purchases of property and equipment (339,705) (183,660)
Investment in other assets (171,165) (270,456)
Proceeds from sale of property and equipment 7,050 9,940,051
Funds escrowed for abandonment costs (326,999) (348,764)
Exploration and development costs (111,913) (1,773)
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (2,440,685) 8,548,884
FINANCING ACTIVITIES
Payments on borrowings -- (6,757,299)
Proceeds from borrowings -- 925,000
Net proceeds from capital funding 1,683,080 116,981
---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,683,080 (5,715,318)
---------- ----------
INCREASE (DECREASE) IN CASH (931,189) 3,535,646
CASH AT BEGINNING OF YEAR 2,748,467 434,157
---------- ----------
CASH AT SEPTEMBER 30, $ 1,817,278 $ 3,969,803
========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ 16,549 $ 405,677
========== ==========
Income taxes paid $ 46,365 $ 37,572
========== ==========
</TABLE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 1996
EARNINGS PER COMMON SHARE
Fully diluted earnings per share has not been presented for 1996 because
conversion of the preferred stock was antidilutive.
STOCKHOLDERS EQUITY
In April 1996, 16,575,578 warrants to purchase 16,575,578 shares of the
Company's Common Stock at $.10 per share were exercised. Proceeds
received by the Company from the exercise were $1,657,558. There are no
outstanding warrants remaining.
If the warrants had been exercised on January 1, 1995 or January 1,
1996, there would have been no effect on earnings per share.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," was issued in October 1995.
SFAS No. 123 addresses the timing and measurement of stock- based
compensation expense. The Company adopted SFAS No. 123 on January 1,
1996, with respect to the disclosure requirements set forth therein for
companies retaining the intrinsic value approach of Accounting
Principles Board opinion No. 25.
DEPLETION, DEPRECIATION AND AMORTIZATION
Effective January 1, 1996, the Company extended the estimated useful
lives of its pipelines and related shore facilities, which lives are
used to determine the rates at which provision of depreciation and
abandonment expenses are calculated. The change in the estimated useful
lives of the pipelines and related shore facilities has resulted in a
decrease in depletion, depreciation and amortization of $35,685 for the
nine months ended September 30, 1996.
LONG-TERM DEBT
The Company maintains a $10,000,000 reducing revolving credit facility
with Bank One, Texas, N.A. Effective November 1, 1996, the maturity date
of the facility was extended to January 14, 2000.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a review of certain aspects of the financial condition
and results of operations of the Company and should be read in
conjunction with the Condensed Consolidated Financial Statements
included in Item 1. of this report.
FINANCIAL CONDITION
At September 30, 1996, the Company's working capital (current assets
less current liabilities) was $1,618,500, representing an increase of
$958,808 as compared with working capital of $659,692 at December 31,
1995. The increase in working capital was a result of the exercise of
warrants to purchase Company Common Stock in April 1996. The Company
received cash of $1,657,558 and issued 16,575,578 shares of Common
Stock. Pursuant to the rules of the full cost method of accounting for
oil and gas properties, $1,902,995 and $2,402,796 of lease acquisition
costs associated with the Company's oil and gas prospect generation
activities, which costs the Company expects to recover in 1996 and 1997
through sale of prospects, are excluded from working capital at
September 30, 1996 and December 31, 1995, respectively.
The Company maintains a $10,000,000 reducing revolving credit facility
with Bank One, Texas, N.A. Effective November 1, 1996, the borrowing
base was adjusted to $1,925,000, reducing by $75,000 per month beginning
December 1, 1996. The borrowing base and reducing amount are
redetermined semi- annually. The maturity date has been extended to
January 14, 2000, when the then outstanding principal balance, if any,
is due and payable. The current outstanding balance under the credit
facility is $10,000. The facility is available for the acquisition of
oil and gas reserve based assets and other working capital needs. The
Loan Agreement includes certain restrictive covenants, including
restrictions on the payment of dividends on capital stock, and the
maintenance of certain financial coverage ratios.
Offshore activity in the vicinity of the Blue Dolphin Pipeline has
remained active. In October 1996, a new discovery was tied-in to the
system, resulting in a 50% increase in gas and a 10% increase in oil
volumes transported. The Company is currently competing to attract a
second new discovery to its pipeline system. A tie-in decision is
expected in the first quarter 1997, with production operations expected
to commence by mid year 1997.
In April 1996, the Company reperforated a producing well in the
Buccaneer Field, resulting in a moderate increase in production. The
Company is currently evaluating application of horizontal drilling and
new completion techniques to existing shut-in wells in the Field. If
feasible, additional drilling in the Field utilizing these recovery
methods could commence in 1997. In August 1996, the U.S. Minerals
Management Service ("MMS") conducted an annual inspection of the
Buccaneer Field production platforms and facilities. In addition to
certain repairs, the Company is required to remove piping and other
equipment that is no longer in use. Additionally, certain major
modifications and repairs were required to an existing producing well.
The well has been off production since August 1996. Production
operations are expected to resume in December 1996. As of September 30,
1996, costs associated with removal and partial abandonment activities,
and costs associated with repairs to the platforms and well totalled
approximately $114,000 and $137,000, respectively. Costs to complete the
removal and abandonment work, and the repairs to the platforms and well,
are estimated to be approximately $285,000 and $325,000, respectively.
Additionally, the Company plans to plug and abandon a previously
inactive well and remove an associated satellite platform in late fourth
quarter 1996 at a cost of approximately $400,000.
The Company purchased four lease blocks in the High Island Area of the
Gulf of Mexico prospective for oil and gas in the September 1995 Federal
Western Gulf of Mexico lease sale. Approximately $2,000,000 was
invested to acquire the necessary acreage for further prospect
development, in addition to costs of approximately $400,000 associated
with technical development of the prospects. One of these prospective
lease blocks was sold in June 1996. An unsuccessful well was drilled
and has been plugged and abandoned. A 43.75% interest in each of the
three remaining prospective lease blocks has been sold. Sale of the
remaining interests in each block will be pursued after additional
technical development of the prospects has been completed, with
completion expected in December 1996.
Development of the Petroport deepwater port and offshore storage
facility project has focused on pre- licensing activities and regulatory
matters. Major pre-licensing activities include: development of
support for the project from both Federal and State agencies that have
jurisdiction over or impact deepwater port licensing, construction and
operation; facility commercial profile development; development of the
engineering design and capital and operating cost estimates; development
of the cost estimate for obtaining the necessary license and permits;
and development of a financing strategy.
In October 1996, a major component of the project's commercial profile
was completed. The commercial profile is expressed in terms of both
current conditions and conditions expected to prevail through the year
2015. The Company is currently evaluating the results of the work
completed.
The Company's efforts to amend the Deepwater Port Act of 1974 have been
successful, with passage of the Deepwater Port Modernization Act in
October 1996. Among other things the Deepwater Port Modernization Act
simplifies the licensing and permitting process, grants the ability to
receive, store and transport domestic production from the U.S. Outer
Continental Shelf, and eliminates various facility use restrictions.
It is currently estimated that pre-licensing costs will total between
$1,000,000 - $1,250,000. A financing strategy will be developed
addressing funding requirements for both the remaining pre-licensing
activities and the actual licensing and permitting process. Total cost
of the facility is currently estimated at approximately $500 million.
The Company expects to submit the Petroport deepwater port license
application and associated permit requests in 1997, with operations
commencing in the year 2000.
The Company believes that it has or can obtain adequate capital
resources to continue to meet its anticipated business requirements.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1996, ("current
period") was $203,547 compared to net income of $7,452,930 reported for
the corresponding period of the previous year ("previous period"). The
decrease in net income is due primarily to the previous period gain of
$8,809,114 on a pretax basis on the sale of a one-third interest in the
Blue Dolphin Pipeline System .
REVENUES:
Revenues for the current period decreased by $1,131,231 or 27% to
$3,082,810 compared to revenues of $4,214,041 reported for the previous
period.
Revenues from pipeline operations decreased by $866,621 or 27% due
primarily to a decrease in gas transportation revenues of $559,316
resulting from a 31% reduction in gas transportation volumes and the
sale of a one-third interest in the Blue Dolphin Pipeline System in
August 1995 (the "Pipeline Sale"), which resulted in a $406,034
reduction in revenues. The decrease in gas transportation revenues was
partially offset by an increase in oil transportation revenues of
$112,631, resulting from a 48% increase in oil transportation volumes.
Revenues from oil and gas sales and operating fees for the current
period decreased by $264,610 from those of the previous period. Oil and
gas sales decreased by $221,219 due primarily to a 37% reduction in gas
sales volumes which resulted in a $198,310 decrease in revenues. The
reduction in gas sales is attributable to normal production declines and
the suspension of production from a Buccaneer Field well in August 1996,
as described above. Operating fees declined $43,390 due to termination
of production activities by a producer for whom the Company provided
contract operation and maintenance services.
COSTS AND EXPENSES:
Pipeline operating expenses for the current period decreased by $192,847
from those of the previous period. The decrease was due primarily to a
reduction of expenses of $249,930 resulting from the Pipeline Sale.
This reduction in costs was partially offset by an increase in expenses
associated with transporting increased liquids volumes, incurred prior
to the completion of onshore pipeline system modifications which were
designed to lower the operating costs of handling the increased liquids
throughput.
Lease operating expenses decreased $165,645 in the current period from
those of the previous period. The decrease is due to cost reductions
for chemicals, contract labor, rental equipment and insurance program
premiums.
Repair and maintenance costs for the current period increased by $90,248
due primarily to repairs and modifications to the Buccaneer Field
production platforms and facilities of approximately $199,000. Repairs
in the previous period included Buccaneer Field producing well down hole
repairs of approximately $43,000, onshore pipeline system oil storage
tank repairs of approximately $28,000 and Buccaneer Field flowline
repairs of approximately $28,000.
Depletion, depreciation, and amortization expense for the current period
decreased by $156,999 compared to the previous period due to a decrease
of approximately $71,773 in depreciation and amortization resulting from
the Pipeline Sale, and a decrease of approximately $35,685 due to the
effect on depreciation and amortization rates of extending the estimated
useful lives of the Company's pipelines and related shore facilities.
General and administrative expenses decreased $81,257 in the current
period. The decrease is primarily due to the Pipeline Sale.
Upon consummation of the Pipeline Sale in August 1995, the Company
retired substantially all of its bank debt. Elimination of the debt
resulted in a decrease in interest expense in the current period of
$389,128.
Investment of available cash from the Pipeline Sale and exercise of
warrants resulted in a $52,645 increase in interest income in the
current period.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
A) Exhibits - None
B) Form 8-K - None
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: BLUE DOLPHIN ENERGY COMPANY
Date: November 14, 1996 Michael J. Jacobson
Michael J. Jacobson
President and Chief Executive Officer
G. Brian Lloyd
G. Brian Lloyd
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES' CONSOLIDATED
FINANCIAL STATEMENTS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,817,278
<SECURITIES> 0
<RECEIVABLES> 812,795
<ALLOWANCES> 0
<INVENTORY> 10,600
<CURRENT-ASSETS> 2,678,172
<PP&E> 25,022,582
<DEPRECIATION> 4,485,843
<TOTAL-ASSETS> 24,665,517
<CURRENT-LIABILITIES> 1,059,672
<BONDS> 10,000
0
1,456,048
<COMMON> 520,530
<OTHER-SE> 17,789,303
<TOTAL-LIABILITY-AND-EQUITY> 24,665,517
<SALES> 343,389
<TOTAL-REVENUES> 3,082,810
<CGS> 794,888
<TOTAL-COSTS> 2,809,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,549
<INCOME-PRETAX> 351,154
<INCOME-TAX> 147,607
<INCOME-CONTINUING> 203,547
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,547
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.003
</TABLE>
