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, 1995
[ ] 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 19, 1996, was approximately $6,806,000.
As of March 19, 1996, there were outstanding 35,324,739 shares of
Common Stock, par value $.01 per share, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for the 1996 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 development of offshore terminaling and storage for
imported 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 the result of
the corporate combination of ZIM Energy Corporation ("ZIM"), a Texas
corporation founded in 1983, and Petra Resources, Inc., an Oklahoma
corporation formed in 1980 ("Petra"). The Company succeeded to the
business, properties and assets of ZIM and Petra. In June 1987, the
Company changed its name from ZIM Energy Corp. 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 subsidiaries Blue Dolphin Exploration Company, a Delaware
corporation f/k/a Ivory Production Co., Mission Energy, Inc., a Delaware
corporation d/b/a MEI Mission Energy, Inc., Blue Dolphin Pipe Line
Company, a Delaware corporation, Buccaneer Pipe Line Co., a Texas
corporation, Blue Dolphin Services Co., a Texas corporation, and
Petroport, Inc., a Delaware corporation. 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". In 1995, the Company
established a home page on the world wide web. The Company's home page
address is http://www.blue-dolphin.com.
FINANCING ACTIVITIES
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. Investa purchased the Company's
senior debt of approximately $1,650,000 from First Interstate Bank of
Texas ("Senior Debt"). The Senior Debt agreement was amended with
principal and interest payments deferred. The credit facility 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").
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, 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") were renegotiated. Under the
Land Note as originally issued, a final lump sum payment of
approximately $1,000,000 was due and payable in January 1993. 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 all of its holdings
in the Company. The Company participated in the purchase 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,
$61,905 of debt under the Credit Facility, and $12,381 of the Long-Term
Notes. The above securities acquired by the Company were retired in
April 1993.
In May 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. 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.
In June 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. See Note 5 to
Consolidated Financial Statements of Blue Dolphin Energy Company and
Subsidiaries included in Item 8 and incorporated herein by reference.
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 remaining Long-Term Notes, and its 7 1/2% Convertible
Subordinated Notes, Series B. 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.
Effective August 1, 1995, the Company sold a one-third interest in
its' Blue Dolphin Pipeline System and Freeport, Texas, acreage, for
$10,000,000. The Blue Dolphin Pipeline System consists of the Blue
Dolphin pipeline, the Buccaneer pipeline and barge loading terminal, and
onshore receiving, separation, dehydration, and general processing
facilities. The Freeport, Texas, acreage consists of 360 acres on which
are located the Blue Dolphin Pipeline System shore facilities and
pipeline rights-of-way and easements. Coincident with closing the
transaction on August 31, 1995, the Company retired substantially all of
its senior debt, totalling approximately $5,600,000.
BUSINESS AND PROPERTIES
The Company conducts its operations in three primary business
segments: (i) oil and gas exploration and production, (ii) pipeline
operations, and (iii) development of offshore terminaling and storage
for imported crude oil and refined products. The Company's oil and gas
exploration and production activities include the exploration,
acquisition, development, operation and, when appropriate, disposition
of oil and gas properties, including the marketing of production. The
Company also develops for sale to third parties oil and gas exploration
prospects in the Gulf of Mexico. The Company owns and operates through
its subsidiaries, natural gas and oil pipeline gathering 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 port and storage
facility. Facility development activities and operations associated
with this acquisition will be conducted by Petroport, Inc., a wholly
owned subsidiary of the Company, and represents further diversification
from the Company's traditional business activities. Petroport was
formed in 1995.
OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
The Company's oil and gas assets are held and operations conducted by
Blue Dolphin Exploration Company ("BDEX"), a wholly owned subsidiary.
The following is a description of the Company's major oil and gas
exploration and production assets and activities:
THE BUCCANEER FIELD. The Buccaneer Field is comprised of interests
in parts of four blocks covering 14,660 acres located approximately 36
miles south of Freeport, 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.
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 4,230 acres as to certain depths, which are assigned to
the Farmee pursuant to a Farmout Agreement entered into in 1993. The
Company retains 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 Buccaneer Field
leasehold interests represent 100% of the discounted present value of
estimated future net revenues from Proved Reserves of the Company as of
December 31, 1995. Production from the Buccaneer Field accounted for
100% of the total revenues from oil and gas sales of the Company for the
years ended December 31, 1995, 1994 and 1993. See "Proved Oil and Gas
Reserves", below.
Buccaneer Field condensate and natural gas production are delivered
to the Blue Dolphin Pipeline, which transports the production along with
production of third parties to shore.
Natural gas produced from the Buccaneer Field is sold under a gas
purchase contract dated May 1, 1991, with an initial three year term
with extensions thereafter. Currently, the contract has been extended
through September 1996. From May 1994 through October 1994, the Company
received a monthly price based on a floating industry index which
averaged $1.87/MMBtu. From October 1995 through September 1996, a fixed
monthly price of $1.70/MMBtu is in effect. Buccaneer Field gas sales
represented 94% of the oil and gas sales revenues and 13% of the total
revenues of the Company for the year ended December 31, 1995.
Buccaneer Field condensate sales are based on spot market prices at
the time of sale. Sale of condensate from the Buccaneer Field
represented 6% of oil and gas sales revenues and 1% of total revenues of
the Company for the year ended December 31, 1995.
In August 1993, the U. S. Department of the Interior, Minerals
Management Service ("MMS") informed BDEX 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. BDEX provided the MMS a supplemental surety bond in the
amount of $700,000. The bond is being funded over approximately a six
year period which began February 1994, 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 Buccaneer Field 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. The Company estimates the
remaining life of its major Buccaneer Field facilities to be in excess
of ten years.
In January 1994, the Company began plugging and abandoning certain
wells and satellite platform facilities for which there was no further
utility in future Buccaneer Field development. Work to abandon the
facilities was completed in June 1994, at a cost of approximately
$1,990,000. Vendor financing was arranged. Remaining payments of
approximately $547,943 are payable during 1996.
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.
Currently, such contract operation and maintenance services are provided
to two third party producer/shippers. During 1995, revenues
attributable to provision of contract operation and maintenance
services, and transportation and processing services for these
customers, represented 24% of the Company's total revenues.
In addition to realizing revenues attributable to the sale of
Buccaneer Field gas and condensate production, the Company also receives
economic benefits from the marketing of certain third party gas
transported through the Blue Dolphin Pipeline.
OFFSHORE OIL AND GAS EXPLORATION PROSPECT GENERATION ACTIVITIES. In
August 1994, BDEX initiated a program to develop oil and gas exploration
prospects in the Gulf of Mexico for sale to third parties. The program
utilizes the latest technology in 3-D seismic processing. A 3-D seismic
data acquisition and licensing agreement was arranged whereby a minimum
of $1,500,000 has been committed over a five year period ending July 31,
1999, to acquire 3-D seismic data. In addition to recovering prospect
development costs, BDEX will retain a reversionary working interest in
each prospect sold. Initially, four lease blocks in the High Island
Area of the Western Gulf of Mexico have been identified as prospective
for oil and gas. At the September 13, 1995, Western Gulf of Mexico
Federal lease sale conducted by the MMS, BDEX bid on and was
subsequently awarded the four lease blocks for further development and
sale. The cost to BDEX was approximately $2,000,000. A twenty-five
percent interest in all four lease blocks has been sold to a third party
participant. Commitments to purchase the remaining 75% interest in one
of the lease blocks has been received. Currently, BDEX is aggressively
attempting to sell the remaining 75% interest in the three other lease
blocks.
Concurrent with this sales effort, BDEX is seeking to attract
participants for funding the ongoing prospect generation program.
The oil and gas exploration 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, 1995,
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, 1995, using the SEC Method
(defined below).
PROVED RESERVES INFORMATION
As of December 31, 1995
Net Oil Net Gas Future Discounted Future
Reserves Reserves Net Revenues Net Revenues(3)
BUCCANEER FIELD: (MB) (MMCF) ($000) ($000)
Proved Reserves (1) 202 33,097 $39,192 $18,858
======== ======== ======== ========
Proved Developed 126 19,973 $27,473 $14,060
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 $275,000,
$2,250,000, 2,275,000 and $2,000,000 in the years ending December 31,
1997, 1998, 1999, and 2000, 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 the timing of the development of such reserves will be 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, 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,
and production and development costs, were estimated based on such costs
in effect at the end of the year, 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, 8% of its estimated gas reserves and 12% of its
estimated oil reserves were being produced at December 31, 1995.
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, 1995.
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 8730 8730 5930 5930
(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, 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,
1995 1994 1993
-------- -------- --------
Gas:
Production (Mcf) 326,388 490,587 554,346
Revenue $645,727 $1,073,324 $1,302,514
Average Mcf Per Day 894.2 1,344.1 1,518.8
Average Sales Price
per Mcf $1.98 $2.19 $2.35
Oil:
Production (Bbls) 2,327 3,791 3,666
Revenue (1) $38,934 $58,312 $62,566
Average Bbls
per Day 6.4 10.4 10.0
Average Sales Price
per BBL $16.73 $15.38 $17.07
Production Costs:
Per Equivalent Mcf (2): $2.76 $1.93 $1.11
(1) Recognition of Buccaneer Field oil revenue is based upon
production.
(2) Production costs, exclusive of workover costs, are costs incurred
to operate and maintain wells and equipment and to pay production
taxes.
The Company sells its condensate production at market prices at the
time of sale, and its natural gas production under a multi-month
contract. Gas sales accounted for 94% of oil and gas sales and 13% of
the total revenues of the Company in the year ended December 31, 1995.
Condensate sales accounted for approximately 6% of total oil and gas
sales during the year ended December 31, 1995.
DRILLING ACTIVITY. There was no drilling activity during 1995.
There was one Farmout well drilled in 1994 which was dry, and one
Farmout well drilled in 1993, with production commencing 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.
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's pipeline assets are held and operations conducted by
Blue Dolphin Pipe Line Company ("BDPC"), MEI Mission Energy, Inc., and
Buccaneer Pipe Line Co., all wholly owned subsidiaries.
Pipeline assets consist of a 67% undivided interest in the Blue
Dolphin Pipeline System, including the Blue Dolphin Pipeline, Buccaneer
Pipeline, onshore facilities for oil and gas separation and dehydration,
70,000 BBLS of crude oil and condensate tank storage, a barge loading
terminal on the Intracoastal Waterway and 360 acres of land in Brazoria
County, Texas where the Blue Dolphin Pipeline comes ashore and on which
are located the pipeline system shore facilities, pipeline easements and
rights-of-way..
The Company is engaged in both natural gas and oil pipeline
operations offshore in the Gulf of Mexico and onshore Texas. The Blue
Dolphin Pipeline System gathers and transports gas, crude oil and
condensate from the Buccaneer Field and other offshore fields in the
market area to shore facilities located in Freeport, Texas. After
processing, the gas is transported to an end user and a major intrastate
pipeline system with further tie-ins to other intrastate and interstate
pipeline systems and end-users. The Buccaneer Pipeline, an 8" oil and
condensate pipeline, transports oil and condensate from the shore
facility to the Company's barge loading terminal on the Intracoastal
Waterway near Freeport, Texas.
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
shore facility at Freeport, Texas. The onshore segment consists of
approximately 2.0 miles of 16-inch pipeline from the shore facility to a
sales point at a Freeport, Texas chemical plants' complex and intrastate
pipeline system tie-in.
Various fees are charged to producer/shippers for provision of
transportation and shore facility services. Blue Dolphin Pipeline
System throughput averaged approximately 41% of capacity during 1995.
Current capacity of the system is approximately 160 MMcf per day of gas
and 7,000 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. See Note 11 to the Consolidated Financial Statements
of Blue Dolphin Energy Company and Subsidiaries included in Item 8 and
incorporated herein by reference.
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 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 economic return to the Company on its pipeline system investment
is solely dependent upon the amounts of gas and oil gathered and
transported through the Blue Dolphin Pipeline.
The Company aggressively markets pipeline system gathering and
transportation services to prospective third party producer/shippers in
the vicinity of the Blue Dolphin Pipeline. 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 gather
and transport their oil and gas production through the Company's
pipeline system.
DEVELOPMENT OF DEEPWATER PORT AND OFFSHORE STORAGE FACILITY
The Company's investment in and development of an offshore deepwater
crude oil import terminal and storage facility is conducted by
Petroport, Inc., a wholly owned subsidiary.
In March 1995, the Company acquired Petroport, L.C. The form of the
transaction was a merger of Petroport, L.C. into Petroport, Inc.
("Petroport"). Petroport 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 primary Petroport facility is planned
for the Western Gulf of Mexico about 40 miles southwest of Freeport,
off the Texas coast in waters depth of approximately 120 feet deep. The
design concept of the facility, which is unique to Petroport,
incorporates salt dome cavern storage offshore directly under the
terminal platforms and the 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.
Ownership, construction and operation of the Petroport facility must
conform to the requirements of a number of Federal, State and local laws
and regulations. While many regulations are generic in nature, specific
laws apply to deepwater port facilities such as the planned Petroport
facility. Among other requirements, the Petroport facility must be
issued a license by the Department of Transportation in accordance with
the Deepwater Port Act of 1974.
The Company has focused its efforts on pre-licensing activities and
certain regulatory issues associated with the Oil Pollution Act of 1990,
specifically addressing deepwater ports. See "Competition, Markets and
Regulation - Governmental Regulations" below.
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 construction and operation; facility
commercial profile development; development of the engineering design
and (+ 10%) capital and operating cost estimates; development of (+ 10%)
estimate of the cost of obtaining the necessary license and permits; and
development of a financing strategy.
The Company has identified two favorable offshore sites for location
of the primary facility. The Petroport deepwater port license
application is expected to be submitted in 1997, with operations
expected to commence in the year 2000.
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. Alternative
transportation options exist for potential customers of the Company's
traditional gas and oil gathering and transportation business as well as
for importers of crude oil for whom the Company's proposed Petroport
facility would serve. 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 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
properties and market 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 System 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, the availability of
vessels for lightering and transshipment and other means of
transportation and 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,
importation, 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 or transportation, terminaling, and storage
services, for which the Company does now or may provide in the future.
Notwithstanding recent increases in natural gas and crude oil prices,
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 $16.50 per Bbl in 1995, discounting
volatile market fluctuations.
Governmental Regulation
The production, processing, marketing and transportation of oil and
natural gas and planned terminaling and storage of imported crude oil 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)
required interstate pipelines to provide transportation and storage
services to all customers (including third-party gas sellers) on a
comparable basis, (ii) required 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) provided 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 subsequent cases.
While FERC restructuring of the gas industry has not directly
affected 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". BDPC was among the parties objecting
to institution of this rate design in a pending FERC rate case of
Transcontinental Gas Pipe Line Corporation ("Transco"), a large
interstate pipeline whose offshore laterals straddle BDPC. The
presiding administrative law judge in this case ruled that the proposed
rate design would be anticompetitive, and the matter is now pending
before the full commission.
Additionally, 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. In February 1996, Transco proposed to FERC to "spin
down" the facilities near BDPC, by having them declared unregulated and
transferring them to a Williams Companies subsidiary. It is unclear how
Transco under its new management will proceed. Thus it is not only
infeasible to predict whether Transco will be able to employ an
anticompetitive rate design, it is also infeasible to predict what
impact Transco's proposals would have on BDPC. It is possible, however,
that if Transco is able to institute the proposed rate design, BDPC may
experience difficulty in competing to attract new production to its'
pipeline system in the future. In addition, Order No. 636, whose appeal
is pending in court, 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 for 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. More recently, FERC issued a policy
statement on OCS pipelines reaffirming the requirement that all
pipelines provide nondiscriminatory service. Since BDPC already
operates on the basis required under OCSLA, the Company does not
anticipate significant changes resulting from those rulings. If
however, BDPC's throughput increases to the extent that the pipeline's
capacity 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 Buccaneer Pipeline has not taken action to
become subject to Order No. 561, 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.
REGULATION OF DEEPWATER PORTS: PERMITTING AND LICENSING. The
ownership, construction and operation of a deepwater crude oil port and
storage facility, such as the Company's proposed Petroport facility,
must conform to the requirements of a number of Federal, State and local
laws. A license from the Department of Transportation ("DOT") is
required under the Deepwater Port Act of 1974 ("DWPA"). Department of
Interior, U.S. Army Corps of Engineers and various state permits are
also required to construct ancillary port facilities, such as pipelines
and onshore facilities.
The DWPA empowers the Secretary of Transportation (in consultation
with the Secretary of the Interior) to license and regulate Deepwater
Ports beyond the territorial sea of the United States. Private parties
or Governmental entities may propose ports in deepwater. License
applications must include sufficient information to allow the Secretary
of Transportation to judge whether the port will comply with all
technical, environmental, and economic criteria. The application and
licensing process includes an extensive environmental impact assessment,
development of detailed operations procedures, submission of extensive
financial and ownership data and public hearings. Once a license is
issued, it remains in effect unless terminated by the licensee or
suspended by the Secretary of Transportation.
Regulations provide for extensive consultation among all interested
Federal agencies, any potentially affected coastal State, and the
general public. Adjacent coastal States are granted an effective power
or reservation over proposed projects. Under the statue, if a Governor
of an adjacent coastal State notifies the Secretary of Transportation
that a proposal is inconsistent with the State programs relating to
environmental protection, land and water use, and coastal zone
management, then the Secretary of DOT shall grant the license on the
condition that the proposal is made consistent with such State programs.
Governors may also reject the proposed projects on other grounds.
In addition, the Attorney General of the United States and the
Federal Trade Commission must review any application for its effects on
competition. The Act requires all deepwater ports and related storage
facilities to be operated as common carriers, unless the licensee is
subject to "effective competition".
Given the nature, complexity and costs associated with obtaining the
necessary license and permits, there can be no assurance that the
Company will be successful in developing the necessary data for
submission of the various applications, and if the applications are
developed and submitted, will be successful in the review and approval
process, with ultimate issuance of a Deepwater Port license and other
necessary permits.
LIMITS OF LIABILITY AND CERTIFICATE OF FINANCIAL RESPONSIBILITY
REQUIREMENTS FOR DEEPWATER PORTS. In February 1995, DOT published a
Notice of Proposed Rulemaking under The Oil Pollution Act of 1990
("OPA90"), which among other things, would have resulted in a limit of
liability for Petroport under OPA90 and required Petroport provide a
Certificate of Financial Responsibility ("COFR") before a license under
DWPA would be issued, of $350,000,000. The limit of liability and
associated COFR could be reduced by the Secretary of DOT to as low as
$50,000,000, through a separate rulemaking procedure, if the results of
a study evaluating a deepwater port's risks, including spill history
(meaning the facility must be up and running), warranted a limit
reduction. Since it would be virtually impossible to provide a
$350,000,000 COFR, the matter posed a potentially insurmountable
obstacle to the Petroport project.
In August 1995, the DOT issued its' final rulemaking. As a direct
result of the Company's intervention in the rulemaking proceeding, the
final rule provides that the Secretary of DOT, through a separate
rulemaking, can set the limit of liability/COFR for future deepwater
ports (i.e., Petroport) concurrent with the overall processing of the
license application, as opposed to after the facility is up and running.
The development of the liability limit would be based upon engineering
and environmental analyses provided in the licensing process. While
this is a major compromise on the part of DOT, the uncertainty as to
what the revision to the limit, if any, would be, still presented a
significant obstacle to Petroport, affecting the ability to raise
funding for permitting activities and obtain future throughput
commitments.
In an effort to remove this uncertainty, and allow the project to
proceed, the Company prepared and submitted to DOT a preliminary
"Detailed Analysis of Spill Potential and A Determination of Expected
Oil Spill Quantities" for the proposed Petroport facility. The results
of the analysis indicated that the worst case credible spill for the
Petroport facility would be 2215 barrels. This compares to a worst case
credible spill of 5194 barrels as calculated by DOT for the Louisiana
Offshore Oil Port ("LOOP"). LOOP is the only existing deepwater crude
oil port licensed under the DWPA in U.S. waters. The number of barrels
as determined by DOT in the Oil Spill Risk Analysis for LOOP, was
multiplied by the maximum cost per barrel for cleanup of a barrel of oil
of $11,965, also as determined by DOT, resulting in a reduced liability
limit of $62,000,000 for LOOP. Per the Company's analysis, if DOT
applied this same methodology in determining Petroport's worst case
credible spill liability, a $50,000,000 liability limit (the minimum
allowable) would be established for Petroport.
The Petroport oil spill analysis was formally presented to DOT in
early November 1995, along with a request that DOT provide Petroport
with a letter or memorandum of understanding stating that DOT (1) has
reviewed the Petroport oil spill risk analysis and found the methodology
to be valid; (2) intends to use that methodology for analyzing the risk
Petroport would pose when the final specific operation and other
relevant information are received through the licensing process; (3)
will apply the same calculation employed in the final rulemaking issued
by DOT on August 4, 1995 on "Limit of Liability for Deepwater Ports" for
LOOP, to determine Petroport's "maximum credible spill liability"
(multiplying the maximum credible spill by the unit spill cost); and (4)
will use $11,965 (escalated by the CPI) per barrel as the unit spill
cost in making the calculation.
Such a letter or memorandum of understanding would enable Petroport
to satisfy, to a significant degree, the uncertainty of prospective
importers and investors regarding (1) the environmental risk posed by
using the Petroport facility, (2) the limit of liability/COFR, and (3)
the cost of demonstrating financial responsibility.
In February 1996, DOT informed the Company that it had concluded (1)
that the Petroport facility, as currently planned, poses no greater oil
spill risk to the environment than does LOOP, (2) that Petroport's
offshore storage caverns show virtually zero spill potential, (3) that
Petroport's worst case credible spill would be 2308 barrels, and (4)
that the preliminary risk analysis for Petroport is based upon valid
methodologies and reasonable assumptions.
FEDERAL OIL AND GAS LEASES. The Company's operations conducted on
the Buccaneer Field leases and any other Company operations conducted on
federal OCS 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 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 gross 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. In 1993, the MMS announced its
intent pursuant to OPA90 to publish regulations that would significantly
increase levels of financial responsibility for certain offshore
operations (excluding deepwater ports which are addressed separately in
OPA90).
In response to overwhelming opposition to this proposal from
virtually all industry parties including the Company, the Department of
the Interior announced in December 1994 the appointment of a special
advisory group that will recommend ways to implement OPA90 without
causing severe economic damage. Legislation pending in the House and in
the Senate would amend OPA90 to establish base financial responsibility
levels and associated COFR requirements, at $35,000,000 for OCS
operations. The Company currently maintains the statutory $35,000,000
coverage. Prospects for passage are favorable. 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. 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, 1995.
PART II
Item 5. Market for Registrant's Common Stock 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, 1996, there were an
estimated 1,000 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 bid and ask quotations for the Common Stock,
as reported on NASDAQ.
Bid Ask
High Low High Low
---- --- ---- ---
Quarter Ended March 31, 1994.......... .59 .31 .63 .38
Quarter Ended June 30, 1994........... .50 .34 .53 .38
Quarter Ended September 30, 1994...... .41 .28 .44 .31
Quarter Ended December 31, 1994....... .28 .19 .34 .25
Quarter Ended March 31, 1995.......... .38 .22 .44 .25
Quarter Ended June 30, 1995........... .34 .16 .41 .19
Quarter Ended September 30, 1995...... .56 .22 .59 .25
Quarter Ended December 31, 1995....... .41 .31 .44 .34
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, 1995, 1994, 1993, 1992, and 1991. 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,
1995 1994 1993 (2) 1992 1991
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $5,123,053 $6,792,765 $5,220,330 $3,105,296 $3,284,961
Income (Loss) from
continuing operations 7,355,686(3) 930,659 358,694 (1,143,305) (1,960,330)
Income (Loss) from
continuing operations
per primary Common
Share (1) $.15 $.02 --- $(.05) $(.08)
Weighted average number of
common shares and common
share equivalents
outstanding, primary 47,525,088 47,626,300 38,479,361 27,268,659 26,644,156
Income (Loss) from continuing
operations per fully diluted
Common Share (1) $.11 $.01 --- $(.05) $(.08)
Weighted average number of
common shares and dilutive
common share equivalents
outstanding 62,763,059 62,278,671 67,817,957 27,268,659 26,644,156
Net Income 7,355,686 1,542,699 855,799 (958,269) (1,960,330)
Working Capital
(deficit) 659,692 (1,415,091) (2,282,435) (2,240,206) (1,302,221)
Total Assets 25,069,178 20,759,338 21,351,080 20,070,712 20,423,830
Long-term obligations
Bonds --- --- 2,500,000 4,100,000 4,500,000
Other long-term debt 10,000 4,450,000 2,642,303 3,282,496 3,892,787
</TABLE>
(1) Income from continuing operations per share of Common Stock in
1995, 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 1991 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.
(3) Includes the sale of a one-third interest in the Blue Dolphin
Pipeline System effective August 1, 1995.
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 in Item 8 and incorporated herein by reference
and Item I, Business and Properties.
As previously reported, the Company sold an undivided one-third
interest in its' Blue Dolphin Pipeline System for $10,000,000, in an all
cash transaction. The sale was effective August 1, 1995.
The transaction resulted in $8,693,228 of other income on a pretax
basis, and was reflected as a gain on sale of assets, in the third
quarter 1995. Coincident with closing the transaction on August 31,
1995, the Company retired substantially all of its' senior debt
totalling approximately $5,600,000.
Sale of the minority interest in the Blue Dolphin Pipeline System
represents the successful partial monetization of assets sought to
provide resources to meet planned operating and growth requirements.
Proceeds from the sale have been and or will be used to fund
diversification and acquisition activities, debt retirement and for
general corporate purposes.
In addition to the earnings impact in 1995, both working capital and
liquidity were favorably and significantly impacted by the sale.
FINANCIAL CONDITION: LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995, the Company's working capital (current
assets less current liabilities) was $659,692, representing an
improvement of $2,074,783 as compared with a working capital deficit of
$1,415,091 at December 31, 1994. The improvement was due to the sale of
the undivided one-third interest in the Blue Dolphin Pipeline System
("Pipeline Sale"). Pursuant to the rules of the full cost method of
accounting for oil and gas properties, $2,402,796 of lease acquisition
costs, which the Company expects to recover in 1996 through sale of
prospects, are excluded from working capital.
Upon receipt of the proceeds in August 1995, borrowings under the
Company's $10,000,000 reducing revolving credit facility with Bank One,
Texas, N.A. ("Loan Agreement") were retired. The borrowing availability
and reducing amount are redetermined semi-annually. Effective December
1, 1995, the borrowing base was adjusted to $3,335,000, reducing by
$155,000 per month beginning January 1, 1996. Maturity date is January
14, 1997, when the then outstanding principal balance, if any, is due
and payable. Currently, $10,000 is outstanding under the Loan
Agreement, which incurs interest at Bank One's prime rate of interest
plus 1.5%. 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. See Note 7 to
Consolidated Financial Statements of Blue Dolphin Energy Company and
Subsidiaries included in Item 8 and incorporated herein by reference
regarding Preferred Stock dividends.
During 1995, an existing Blue Dolphin Pipeline System shipper drilled
and completed three new oil wells. Production from the first well
commenced in May 1995. However, production was shut-in during most of
June and July while the producer's offshore platform facilities were
being modified to handle the increased oil production. Limited
production from the second and third wells commenced in August 1995.
The Company modified its onshore liquids handling facilities to
accommodate receipt of the additional liquids throughput. The cost
associated with the onshore modifications, completed in January 1996,
was approximately $700,000 ($633,000 to the Company's interest).
Offshore drilling activity in the vicinity of the Blue Dolphin
Pipeline has remained active. A new discovery has recently been
reported in the Blue Dolphin Pipeline corridor. The Company is
aggressively competing to attract this potential throughput to its
pipeline system. A tie-in decision is expected to be made during the
second quarter 1996, with production operations commencing during the
third quarter 1996. Additionally, development drilling and well
workovers on two blocks currently tied-in to the Blue Dolphin Pipeline
System have recently been completed. Additional production from the
first block began in February 1996, and production from the second block
is expected to commence in April 1996.
Future utilization of the Company's pipelines and related facilities
will depend upon the success of drilling programs in the Blue Dolphin
Pipeline corridor, attraction 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
and other issues before FERC may affect the Company when competing for
future pipeline system transportation volumes. Impact on the Company if
its interstate pipeline competitors implement such rate designs or are
successful in other regulatory matters 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 $275,000, $2,250,000, $2,275,000, and $2,000,000
in the years ending December 31, 1997, 1998, 1999 and 2000,
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 Company plans to rework a
currently producing well in the Buccaneer Field in April 1996 to
increase existing production from the well. Additionally, application
of new recovery methods to the Buccaneer Field are currently being
evaluated. The timing of capital expenditures and future revenues could
be significantly impacted based upon the results of these current plans
and activities.
In November 1992, BDEX entered into a Farmout Agreement with a third
party ("Farmee"). The initial well under the Farmout Agreement was
placed on production in March 1994. A second well drilled in 1994 was
unsuccessful. The drilling option under which the Farmee could earn
additional acreage expired March 27, 1995.
In 1994, BDEX abandoned certain wells and satellite platform
facilities that had no further utility in future development of the
Buccaneer Field at a cost of approximately $1,990,000. Vendor financing
was provided. Remaining payments of approximately $570,000 are payable
in 1996.
The Company's 3-D seismic based offshore oil and gas exploration
prospect generation program has identified four High Island Area lease
blocks prospective for oil and gas. In September 1995, the Company
participated in the annual MMS Western Gulf of Mexico lease sale to
acquire the acreage for further prospect development and planned sale of
the prospects to third parties. All four lease blocks have been awarded
to the Company. The Company invested approximately $2,000,000 to
acquire the acreage, in addition to costs of approximately $400,000
associated with general development of the prospects. As of March 1996,
the Company has received third party commitments to purchase 100% of one
of these lease blocks and has sold a 25% interest in each of the three
remaining lease blocks. Sales of the remaining interests in each block
are being aggressively pursued as well as developing third party program
underwriting to support future prospect development. In addition to
recovering prospect development costs, the Company will retain a
reversionary working interest in each prospect sold.
In March 1995, the Company completed acquisition of Petroport, L.C.
The form of the transaction was a merger of Petroport, L.C. into
Petroport, Inc., a wholly owned subsidiary of the Company. Terms of the
transaction 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.
Through December 31, 1995, approximately $420,000 has been committed
to develop the Petroport deepwater port and offshore storage facility
project, with approximately $225,000 associated with the acquisition of
Petroport L.C. Efforts are currently focused on pre-licensing activities
and other regulatory matters. See Item I Business and
Properties-Government and Regulations. It is currently estimated that
pre-licensing costs will total between $1,000,000 - $1,250,000. A
financing strategy will be developed during 1996 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, with operations
expected to commence in the year 2000.
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.
RESULTS OF OPERATIONS
For the year ended December 31, 1995 ("1995"), the Company reported
net income of $7,355,686, representing a $5,812,987 or 377 percent
increase over net income of $1,542,699 reported for the year ended
December 31, 1994 ("1994"). The increase in earnings is primarily due
to the sale of the undivided one-third interest in the Blue Dolphin
Pipeline System effective August 1, 1995. As discussed below, operating
revenues decreased $1,669,712 or 25 percent to $5,123,053 compared to
1994 operating revenues of $6,792,765. Pretax earnings, before
extraordinary gains, increased 504% to $9,195,869 in 1995. Results for
the year ended December 31, 1995, included a provision for income taxes
of $1,840,183. Of this amount, $827,039 was a non-cash charge in lieu
of taxes allocated directly to paid-in capital reflecting utilization of
net operating loss carryforwards that were incurred prior to a
quasi-reorganization recorded at December 31, 1989. $756,602 was
recorded as a deferred tax liability partially offset by a current tax
liability of $173,188.
Net income for 1994 of $1,542,699 represented a $686,900 improvement
over net income of $855,799 reported for the year ended December 31,
1993 ("1993"). Operating revenues increased $1,572,435 or 30 percent in
1994 as compared to operating revenues of $5,220,330 in 1993. Results
for 1994 included an extraordinary gain from early retirement of debt of
$612,000, after taxes.
REVENUES
1995 VS. 1994. In 1995, the Company recorded as other income a
pretax gain of $8,693,228 from the Pipeline Sale.
Revenues from pipeline system operations decreased by $1,123,695 or
22% in 1995 from those of 1994, due primarily to a 29% reduction in gas
transportation volumes which resulted in a $911,000 reduction in
revenues and the Pipeline Sale, which resulted in a $586,161 reduction
in revenues. The decrease in gas transportation revenues was partially
offset by an increase in revenues from oil transportation of $307,974,
resulting from an increase in throughput volumes.
Revenues from oil and gas sales and operating fees decreased by
$546,017 in 1995 from those of 1994. Gas sales decreased $408,099 or
40% due to a 33% decrease in production and a 7% decrease in the average
sales price. Operating fees declined $99,041, due to termination of
production activities by a producer for whom the Company provided
contract operation and maintenance services.
1994 VS. 1993. Pipeline system revenues increased by $1,814,275 or
57% in 1994 over those of 1993. The increase was 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 well mechanical
problems, and a 7% decrease in the average sales price, partially offset
by new production from the overriding royalty interest in the Farmout
acreage.
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.
COSTS AND EXPENSES
1995 VS. 1994. Pipeline system operating expenses decreased $242,120
in 1995 from those in 1994. The decrease was due to a $189,625
reduction in costs resulting from the Pipeline Sale and a reduction of
approximately $240,000 associated with repairs to the Blue Dolphin
Pipeline in 1994. Partially offsetting these decreases was an increase
in contract labor cost of $117,822 associated with a new labor contract
negotiated in April 1995, $35,782 in costs associated with repairs made
to the Company's onshore oil storage tanks and an $18,316 increase in
salt water disposal fees.
Depletion, depreciation and amortization expense decreased by
$113,133 in 1995 from 1994. The decrease was primarily due to the
Pipeline Sale.
Interest expense decreased by $201,986 in 1995 from 1994. The
Company retired substantially all of its bank debt in August 1995.
1994 VS. 1993. Pipeline system operating expenses increased by
$549,850 or 63% in 1994 over those in 1993. Additional operating costs
of $215,000 were incurred in 1994 associated with an onshore vapor
recovery system installed in August 1993, and the onshore gas capacity
expansion completed in November 1993. Non-recurring costs of
approximately $240,000 associated with repairs to the Blue Dolphin
Pipeline and $32,000 associated with repairs to an onshore oil storage
tank were incurred in 1994.
Oil and gas 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 production platform general repairs.
Depletion, depreciation, and amortization expense decreased by
$296,348 in 1994 from 1993. The decrease was 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 in 1994.
General and administrative expenses increased $106,958 in 1994 over
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.
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 has elected to retain the approach of
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees," (the intrinsic value method) for recognizing
stock-based expense in the consolidated financial statements. The
Company will adopt SFAS No. 123 in 1996 with respect to the disclosure
requirements set forth therein for companies retaining the intrinsic
value approach of APB No. 25.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements:
Independent Auditors' Report............................
Consolidated Balance Sheets, at December 31, 1995 and 1994.
Consolidated Statements of Operations, for the years
ended December 31, 1995, 1994, and 1993.............
Consolidated Statements of Stockholders' Equity, for the
years ended December 31, 1995, 1994, and 1993.......
Consolidated Statements of Cash Flows, for the years
ended December 31, 1995, 1994, and 1993.............
Notes to Consolidated Financial Statements...............
Supplementary Data - Unaudited Selected Quarterly
Financial Data......................................
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Blue Dolphin Energy Company:
We have audited the accompanying consolidated balance sheets of Blue
Dolphin Energy Company and subsidiaries as of December 31, 1995 and
1994, 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, 1995. 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, 1995 and
1994, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Houston, Texas
March 21, 1996
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
-------- ------
Current assets:
Cash and cash equivalents $ 2,748,467 434,157
Trade accounts receivable 860,691 774,362
Crude oil inventory, at market 19,180 17,350
Prepaid expenses and other assets 72,824 217,203
Current deferred taxes 173,188 --
---------- ----------
Total current assets 3,874,350 1,443,072
---------- ----------
Property and equipment, at cost:
Oil and gas properties, including $2,402,796
of leases expected to be sold in 1996
(full-cost method) 20,561,239 18,156,320
Onshore separation and handling facilities 1,845,791 1,917,186
Land 1,133,333 1,700,000
Pipelines 848,198 1,493,418
Other property and equipment 80,150 76,356
---------- ----------
24,468,711 23,343,280
Less accumulated depletion, depreciation and
amortization 4,267,431 4,299,078
---------- ----------
20,201,280 19,044,202
---------- ----------
Other assets 993,548 272,064
---------- ----------
$25,069,178 $20,759,338
========== ==========
See accompanying notes to consolidated financial statements.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Liabilities and Stockholders Equity 1995 1994
-------- --------
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 1,008,251 606,065
Lease bonus payable 1,375,488 --
Current portion of long-term debt -- 1,392,299
Current portion of accrued abandonment costs 547,948 716,144
Accrued interest payable -- 50,566
Other liabilities and accrued expenses 32,871 37,689
Income taxes payable 250,100 55,400
---------- ----------
Total current liabilities 3,214,658 2,858,163
---------- ----------
Long-term debt, less current portion 10,000 4,450,000
Deferred federal income taxes 756,602 --
Accrued abandonment costs, less current portion 1,242,615 1,924,321
Dividends payable on preferred stock 1,747,646 1,456,442
---------- ----------
Total long-term liabilities 3,756,863 7,830,763
---------- ----------
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, 1995 and 1994 1,456,048 1,456,048
Common stock, $.01 par value, 100,000,000
shares authorized, 35,324,739 shares issued
and outstanding at December 31, 1995; 34,379,116
shares issued and outstanding at December 31 353,247 343,791
Additional paid-in capital 14,163,661 13,210,354
Accumulated earnings (deficit) since January 2,124,701 (4,939,781)
---------- ----------
Total stockholders' equity 18,097,657 10,070,412
Commitments and contingencies -- --
---------- ----------
$ 25,069,178 20,759,338
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue from operations:
Pipeline operations $ 3,893,770 5,017,465 3,203,190
Oil and gas sales and operating fees 1,229,283 1,775,300 2,017,140
---------- ---------- ----------
Revenue from operations 5,123,053 6,792,765 5,220,330
---------- ---------- ----------
Cost of operations:
Pipeline operating expenses 1,178,517 1,420,637 870,787
Lease operating expenses 1,082,178 1,084,425 949,688
Depletion, depreciation and amortization 619,586 732,719 1,029,067
General and administrative expenses 1,410,175 1,463,578 1,356,620
---------- ---------- ----------
Cost of operations 4,290,456 4,701,359 4,206,162
---------- ---------- ----------
Income from operations 832,597 2,091,406 1,014,168
Other income (expense):
Interest expense (405,980) (607,966) (285,633)
Interest expense, related parties -- -- (295,002)
Gain on sale of assets 8,693,228 -- --
Gain on sale of government bonds -- 33,678 142,491
Interest and other income 76,024 5,712 62,907
---------- ---------- ----------
Income before income taxes and
extraordinary item 9,195,869 1,522,830 638,931
Income taxes (1,840,183) (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
---------- ---------- ----------
Net income 7,355,686 1,542,699 855,799
Dividend requirements on preferred stock (291,204) (291,204) (293,916)
---------- ---------- ----------
Net income attributable to
common stockholders $ 7,064,482 1,251,495 561,883
========== ========== ==========
Primary earnings per common share:
Income before extraordinary item and after
dividend requirements on preferred stock $ 0.15 0.02 --
Extraordinary item -- 0.01 0.01
---------- ---------- ----------
Net income $ 0.15 0.03 0.01
========== ========== ==========
Weighted average number of common shares
and common share equivalents outstanding 47,525,088 47,626,300 38,479,361
========== ========== ==========
Fully diluted earnings per common share:
Income before extraordinary item $ 0.11 0.01 --
Extraordinary item -- 0.01 0.01
---------- ---------- ----------
Net income $ 0.11 0.02 0.01
========== ========== ==========
Weighted average number of common shares
and dilutive common share equivalents outstanding 62,763,059 62,278,671 67,819,957
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Convertible Additional Accumulated Total
Common preferred paid-in earnings stockholders'
stock stock capital (deficit) equity
------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
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 parties 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
Exercise of 260,620 warrants 2,606 -- 23,456 -- 26,062
Exercise of 693,336 stock options 6,850 -- 102,812 -- 109,662
Pre-quasi reorganization net operating
loss carryforwards utilized -- -- 827,039 -- 827,039
Dividend requirements on preferred
stock -- -- -- (291,204) (291,204)
Net income -- -- -- 7,355,686 7,355,686
--------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 $ 353,247 1,456,048 14,163,661 2,124,701 18,097,657
========= ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Operating activities:
Net income $ 7,355,686 1,542,699 855,799
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary gain-early retirement of debt -- (612,040) (497,105)
Depletion, depreciation and amortization 619,586 732,719 1,029,067
Deferred income taxes 1,410,363 494,370 217,237
Gain on sale of property and equipment (8,693,228) -- --
Gain on sale of government bonds -- (33,678) (142,492)
Accretion of discount on government bonds -- (4,998) (41,193)
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts rece (86,329) 342,990 (784,913)
(Increase) decrease in crude oil inventory,
prepaid expenses and other assets 39,100 (276,615) (37,179)
Increase (decrease) in trade accounts payable,
accrued interest and other liabilities (135,979) (2,320,825) 534,005
---------- ---------- ----------
Net cash provided by (used in)
operating activities 509,199 (135,378) 1,133,226
---------- ---------- ----------
Investing activities:
Oil and gas prospect generation costs (924,039) -- --
Purchases of property and equipment (602,309) (479,028) (716,760)
Increase in other assets (338,489) -- --
Proceeds from sales of property and equipment 9,824,165 -- 75,383
Proceeds from redemption of government bonds -- 306,000 949,194
Funds escrowed for abandonment costs (457,642) (112,174) --
---------- ---------- ----------
Net cash provided by (used in)
investing activities 7,501,686 (285,202) 307,817
---------- ---------- ----------
Financing activities:
Proceeds from borrowings 925,000 5,916,653 --
Proceeds from borrowings from related parties -- -- 15,000
Payments on borrowings (6,757,299) (5,819,362) (1,644,421)
Payments on borrowings from related parties -- (15,000) (44,556)
Net proceeds from the exercise of stock options
and warrants 135,724 121,513 71,321
Repurchase of capital stock -- -- (46,041)
---------- ---------- ----------
Net cash provided by (used in)
financing activities (5,696,575) 203,804 (1,648,697)
---------- ---------- ----------
Increase (decrease) in cash 2,314,310 (216,776) (207,654)
Cash and cash equivalents at beginning of year 434,157 650,933 858,587
---------- ---------- ----------
Cash and cash equivalents at end of year $ 2,748,467 434,157 650,933
========== ========== ==========
Supplementary cash flow information:
Interest paid $ 406,000 915,000 357,000
========== ========== ==========
Income taxes paid $ 235,030 106,572 --
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
(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 pursuant
to a reorganization effective June 9, 1986.
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.
ACCOUNTING ESTIMATES
Management has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and to the disclosure of
contingent assets and liabilities as well as reserve information
which affects the depletion calculation as well as the computation
of the full cost ceiling limitation to prepare these financial
statements in conformity with Generally Accepted Accounting
Principles. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents include liquid investments with an original
maturity of three months or less.
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, including
directly related internal costs, 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. Costs directly associated with the
acquisition and evaluation of unproved properties are excluded from
the amortization computation until it is determined whether or not
proved reserves can be assigned to the properties or impairment has
occurred. Estimated proved oil and gas reserves are based upon
reports of an independent petroleum engineer. The net carrying
value of oil and gas properties, less related deferred income
taxes, 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. Disposition of
oil and gas properties are recorded as adjustments to capitalized
costs, with no gain or loss recognized unless such adjustments
would significantly alter the relationship between capitalized
costs and proved reserves.
Included in oil and gas properties are $2,402,796 of leases
acquired with the intention of selling to third party participants
as drillable oil and gas prospects. Pursuant to the full cost
rules such leases are considered a component of the full cost pool,
however management expects to sell these leases and substantially
recover this cost in 1996.
PIPELINES AND FACILITIES
Pipelines and facilities are recorded at cost. Depreciation is
computed using the straight-line method over estimated useful lives
of 10-25 years.
The Company in 1995 adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, with no impact to the Company's consolidated financial
statements. Assets are grouped and evaluated based on the ability
to identify separate cash flows generated therefrom.
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.
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 also provided using the straight-line method
over the estimated useful lives of the pipeline and pipeline
facilities. These provisions are included in accumulated
depletion, depreciation and amortization and accrued abandonment
costs, respectively. The Company's share of the aggregate
abandonment liability is estimated to be approximately $4,000,000
at December 31, 1995.
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.
OPERATIONS OF OIL AND GAS PROPERTIES
The Company operates, for a monthly fee, oil and gas properties in
which it does not own an interest. Revenues and costs from these
activities are included in oil and gas sales and operating fees and
lease operating expenses, respectively.
INCOME TAXES
The Company provides for income taxes using the asset and liability
method pursuant to Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (Statement 109). 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. 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.
NET INCOME PER SHARE
Net income 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 per share
when the effect is dilutive.
NONCASH INVESTING AND FINANCING ACTIVITIES
The Company purchased oil and gas leases during 1995, of which
$1,375,488 was paid in 1996.
(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 were credited to additional paid-in capital (see note 4).
(3) SALE OF ASSETS
Effective August 1, 1995, the Company sold an undivided, one-third
interest in its Blue Dolphin Pipeline System and Freeport, Texas,
acreage, for $10,000,000 cash and recorded a pre-tax gain of
$8,693,228. The Blue Dolphin Pipeline System consists of the Blue
Dolphin pipeline, the Buccaneer pipeline and barge loading
terminal, and onshore receiving, separation, dehydration, and
general processing facilities (the Shore Facilities). The
Freeport, Texas acreage consists of 360 acres upon which are
located the Shore Facilities and associated pipeline rights-of-way
and easements.
(4) INCOME TAXES
Income taxes were allocated as follows for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Income from continuing operations $ 1,840,183 592,171 280,237
Extraordinary gains -- 315,293 260,862
Stockholders' equity, related to
gain on refinancing of notes
to related parties (see note 5) -- -- 36,430
---------- ---------- ----------
$ 1,840,183 907,464 577,529
========== ========== ==========
</TABLE>
Income tax expense attributable to continuing operations for 1995,
1994 and 1993 consists of:
1995 1994 1993
---- ---- ----
Current
Federal $ 189,500 29,000 40,000
State 240,320 68,801 23,000
Deferred Federal 1,410,363 494,370 217,237
---------- ---------- ---------
$ 1,840,183 592,171 280,237
========== ========== =========
During 1995, 1994 and 1993, the valuation allowance decreased
approximately $2,272,000, $809,000 and $500,000, respectively. As
a result of the quasi-reorganization described in note 2, the
benefits of the reduction in 1993 and 1994 and $827,000 of the
reduction in 1995 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, 1995 and 1994 are presented below.
1995 1994
---- ----
Deferred tax assets:
Accrued abandonment costs $ 400,068 481,050
Net operating loss carryforwards 2,230,409 5,447,812
Alternative minimum tax credit 230,240 69,000
---------- ----------
Total gross deferred tax assets 2,860,717 5,997,862
Less valuation allowance -- (2,272,003)
Net deferred tax assets 2,860,717 3,725,859
Deferred tax liabilities:
Bases differences in property and equipment (3,444,131) (3,725,859)
---------- ----------
Net deferred tax liability $ 583,414 --
========== ==========
1995 1994
---- ----
Allocated as follows:
Current deferred taxes $ (173,188) --
Noncurrent deferred tax liability 756,602 --
---------- ---------
$ 583,414 --
========== =========
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
establishes 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.
The Company's effective tax rate applicable to continuing
operations in 1995, 1994 and 1993 differs from the expected tax
rate of 34% due to the following:
1995 1994 1993
---- ---- ----
Expected tax rate 34% 34% 34%
State taxes, net of federal benefit 2 3 2
Expenses not deductible for tax purposes - 2 8
Decrease in valuation allowance recognized
in earnings (16) - -
-- -- --
20% 39% 44%
== == ==
At December 31, 1995, the Company had the following estimated net
operating loss carryforwards (NOL):
Year of Net operating loss
expiration carryforwards
---------- ------------------
2002 $ 1,572,310
2003 1,954,812
2004 2,066,517
2005 --
2006 564,039
2007 402,349
----------
$ 6,560,027
==========
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 maturity date under
the Loan Agreement is January 14, 1997.
With the proceeds from the sale of an interest in its Blue Dolphin
Pipeline System, the Company reduced the borrowings outstanding
under the Loan Agreement to a minimal amount ($10,000) to maintain
the availability of the revolving credit facility.
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 in 1994.
Long-term debt at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<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. $ 10,000 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 was
secured by certain equipment. -- 194,645
-------- ---------
10,000 5,842,299
Less current maturities -- (1,392,299)
-------- ---------
$ 10,000 4,450,000
======== =========
</TABLE>
Maturities of long-term debt as of December 31, 1995 are as follows:
1996 $ --
1997 10,000
-------
$ 10,000
=======
(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 (Series A Notes)
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 (Series B Notes). 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 ($612,040
net of related income tax) 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 collaterialized 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 ($497,105 net of related income
tax) gain on the early retirement of these notes was recorded as an
extraordinary item in 1993.
(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, 1995, 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, $1,747,646 of dividends are in arrears and have been
accrued as of December 31, 1995. As a result of the debt
refinancing described in note 5, dividends are prohibited from
being paid under the bank credit facility. The dividend arrearages
restrict the Company's ability to pay common dividends or reacquire
common stock. The reacquisition of common stock during 1994 was
approved by the Board of Directors, which, as described above, is
controlled by holders of the preferred stock.
At December 31, 1995, the Company has reserved a total of
approximately 2,494,260 shares of common stock for issuance under
its stock option plan (the 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:
<TABLE>
<CAPTION>
Price per share
Shares From To
------ ---- --
<S> <C> <C> <C>
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
Granted 910,000 .1859 .1859
Exercised (693,337) .1594 .3453
Balance, December 31, 1995 2,344,997 $ .0625 .2922
</TABLE>
As of December 31, 1995, 565,000 options are immediately
exercisable.
Outstanding options at December 31, 1995 expire between May 12,
1996 and August 17, 2000. The Plan specifies that the options are
exercisable as granted; however, generally only one-third of
options granted are exercisable in any one year. Optionees must
continue their association 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 at $.10 per share per warrant, issued in
connection with the 1993 debt refinancings described in note 5, are
as follows:
Warrants
Balance, December 31, 1993 17,257,140
Exercised (420,941)
----------
Balance, December 31, 1994 16,836,199
Exercised (260,621)
----------
Balance, December 31, 1995 16,575,578
==========
Outstanding warrants at December 31, 1995 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 16,575,578 shares of common stock in the event the outstanding
warrants are exercised.
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (Statement 123) was issued in October
1995. Statement 123 addresses the timing and measurement of
stock-based compensation expense. The Company has elected to
retain the approach of Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, (the intrinsic
value method) for recognizing stock-based expense in the
consolidated financial statements. The Company will adopt
Statement 123 in 1996 with respect to the disclosure requirements
set forth herein for companies retaining the intrinsic value
approach of APB No. 25.
(8) RELATED PARTY TRANSACTIONS
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 $90,000 under
the contract in 1995, 1994 and 1993.
(9) LEASES
The Company's capital lease for a vapor recovery unit was
capitalized and included in property, plant and equipment in 1993.
The lease expired in 1995. The Company paid $405,000 during the
term of the lease to acquire the vapor recovery unit.
In addition, the Company has various noncancelable operating leases
which continue through 1998.
The following is a schedule of future minimum lease payments
required under long-term noncancelable operating leases at December
31, 1995:
Years ending
December 31,
------------
1996 $ 130,770
1997 108,420
1998 77,382
--------
$ 316,572
========
Rental expense under operating leases for the years indicated were
as follows:
Years ended
December 31,
1995 $ 253,430
1994 225,576
1993 185,019
=========
(10) COMMITMENTS AND CONTINGENCIES
As a result of filing development plans for the contemplated wells
under a certain farmout agreement, the United States Department of
the Interior, Minerals Management Service (MMS) required the
Company's wholly-owned subsidiary, Blue Dolphin Exploration Company
(BDEX), formerly Ivory Production Co., to provide additional
security to ensure it could meet the future abandonment obligations
associated with the Buccaneer Field. In February 1994, BDEX 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, BDEX 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.
Additionally, a sinking fund was established in 1994 wherein the
greater of the net proceeds from the farmout agreement 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. The Company estimates the
remaining useful life of its major Buccaneer Field facilities to be
in excess of ten years.
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 Buccaneer 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 $548,000 are payable during
1996 and are included in the current portion of accrued abandonment
costs.
In July 1994, BDEX entered into a Regional 3-D Seismic Data
Acquisition and Purchase Agreement with a third party provider of
seismic data which provides BDEX access to the third party's 3-D
and 2-D seismic data base. BDEX's minimum commitment during the
five-year term of the agreement is $1,500,000.
(11) BUSINESS SEGMENT INFORMATION
The Company's income producing operations are conducted 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 certain
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, 1995,
1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Operating Depletion,
Intersegment income Identifiable depreciation and
Revenues revenues (loss)(1) assets amortization(2)
-------- ------------ ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Oil and gas exploration
and production $ 1,229,283 -- (470,115) 16,873,765 357,501
Pipeline operations 3,965,293 71,523 1,783,416 2,156,380 180,918
Consolidated 5,123,053 832,597 25,069,178 619,586
========= ========== ========= ========== =========
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
========= ========== ========= ========== =========
</TABLE>
(1) Consolidated income from operations includes $328,013,
$380,558, and $403,955 in unallocated general and
administrative expenses and unallocated depletion, depreciation
and amortization of $81,168, $70,441, and $10,803 for the years
ended December 31, 1995, 1994 and 1993, respectively.
(2) Pipeline depletion, depreciation and amortization includes a
provision for pipeline abandonment of $33,970, $39,420 and
$360,000 for each of the years ended December 31, 1995, 1994
and 1993, respectively. Oil and gas depletion, depreciation
and amortization includes a provision for abandonment costs of
platforms and wells of $51,898, $33,760, and $58,490 for the
years ended December 31, 1995, 1994 and 1993, 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 $603,181 were
incurred for pipeline operations for the year ended December 31,
1995.
The Company's primary market area is the Texas Gulf Coast region of
the United States. The Company has 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. Revenues from major customers exceeding
10% of segment revenues were as follows for the periods indicated:
<TABLE>
<CAPTION>
Oil and gas
sales and Pipeline
operating fees operations Total
-------------- ---------- ---------
<S> <C> <C> <C>
Year ended December 31, 1995:
Apache Oil Corp. $ 395,321 779,432 1,174,753
The Coastal Corporation 46,218 922,096 968,314
The Dow Chemical Company 645,727 97,930 743,657
The Louisiana Land and Exploration Co. -- 453,036 453,036
========= ========= =========
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 Corporation -- 873,088 873,088
The Coastal Corporation 65,567 729,576 795,143
Houston Exploration Company -- 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
========= ========= =========
</TABLE>
(12) ACQUISITIONS
In March 1995, the Company acquired Petroport, L.C. Petroport,
L.C. held 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. The Company will continue to capitalize all
costs associated with Petroport and will not begin amortizing the
costs until the Petroport facility is placed into service.
(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, 1995, 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, Gerald W. DuPont Enterprises, Inc. 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, 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
--------- ----------
Revisions to previous estimates 9,088 (51,572)
Production (2,327) (326,388)
--------- ----------
Total proved reserves at December 31, 1995 202,166 33,097,136
========= ==========
Proved developed reserves:
December 31, 1995 126,088 19,973,190
December 31, 1994 119,327 20,351,150
December 31, 1993 148,216 24,642,484
========= ==========
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.
<TABLE>
<CAPTION>
December 31,
------------------
1995 1994
---- ----
<S> <C> <C>
Unproved properties not being amortized $ 2,402,796 103,449
Proved properties being amortized 18,158,443 18,156,320
Less accumulated depletion,
depreciation and amortization 3,687,474 3,381,871
---------- ----------
Net capitalized costs $ 16,873,765 14,877,898
========== ==========
Accrued offshore platform and
well abandonment costs $ 1,262,908 1,888,580
========== =========
</TABLE>
The Company is attempting to sell leases which make up unproved
properties not being amortized, and expects such sales to occur
during the year ended December 31, 1996.
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.
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Property acquisition costs -
unproved properties $ 2,402,796 103,449 --
Exploration costs -- 136,290 45,701
Development costs 349 249,050 306,751
--------- --------- ---------
$ 2,403,145 488,789 352,452
Amortization expense per Mcf
equivalent produced $ 1.05 .86 .80
========= ========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Future cash inflows $ 63,264,355 61,759,797
Future development costs (9,935,722) (9,950,732)
Future production costs (14,136,174) (14,238,221)
---------- ----------
Future net cash inflows
before income taxes 39,192,459 37,570,844
Future income taxes (11,293,210) (9,700,652)
---------- ----------
Future net cash flows 27,899,249 27,870,192
10% discount factor (13,620,440) (12,661,504)
---------- ----------
Standardized measure of discounted
future net cash inflows $ 14,278,809 15,208,688
========== ==========
</TABLE>
Future net cash flows at each year 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, 1995, such prices were $18.25 per barrel of oil and
$1.80 per Mcf of gas) 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 available net operating loss
carryforwards. 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,
----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales and transfers, net of production costs $ (397,517) (47,212) (415,925)
Net change in estimated future development
costs 7,222 840,437 (650,266)
Net change in income taxes (1,201,592) 7,453,049 (1,902,960)
Revisions in previous quantity estimates 1,734 (3,147,268) 4,325,304
Net changes in sales and transfer prices,
net of production costs (2,502,045) (13,437,157) 3,751,721
Accretion of discount 1,838,675 3,471,079 2,882,229
Change in production rates (timing)
and other 1,323,644 (4,003,917) (4,004,564)
---------- ---------- ----------
Net change $ (929,879) (8,870,989) 3,985,539
========== ========== ==========
</TABLE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Selected Quarterly Financial Data
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
QUARTER ENDED 1995 1995 1995 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,478,603 $ 1,581,048 $ 1,154,390 $ 909,012
Operating Earnings 356,484 464,225 77,572 (65,684)
Net Income (1) 131,866 197,352 7,123,712 (97,244)
Earnings available
to common
stockholders 59,065 124,551 7,050,911 (170,045)
Earnings per primary
common share 0.001 0.003 0.148 (0.005)
Earnings per fully
diluted common share -- -- 0.112 --
- -----------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
QUARTER ENDED 1994 1994 1994 1994
- ------------------------------------------------------------------------------------
Revenues $ 1,710,046 $ 1,850,487 $ 1,795,862 $ 1,436,370
Operating Earnings 542,407 714,683 566,701 267,615
Net income before
extraordinary item 242,267 345,208 255,363 87,821
Net Income 858,962 345,208 255,363 83,166
Earnings available
to common
stockholders 786,161 272,407 182,562 10,365
Earnings per primary
common share 0.016 0.006 0.004 --
Earnings per fully
diluted common share 0.014 0.005 -- --
- -----------------------------------------------------------------------------------
</TABLE>
(1) Net income for the quarter ended September 30, 1995 included a pre-tax gain
of $8,693,228 from the sale of assets.
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, 1995, 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 and Supplementary Data:
Consolidated Balance Sheets, at December 31, 1995
and 1994.
Consolidated Statements of Operations, for the
years ended December 31, 1995, 1994, and 1993.
Consolidated Statements of Stockholders' Equity, for the
years ended December 31, 1995, 1994, and 1993.
Consolidated Statements of Cash Flows, for the
years ended December 31, 1995, 1994, and 1993.
Notes to Consolidated Financial Statements.
Supplementary Data - Unaudited Selected Quarterly Financial Data.
(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 (4) Specimen Form of Warrant Certificate
* 10.3 (5) Blue Dolphin Energy Company 1985 Employee Stock
Option Plan
10.11 (3) Gas Purchase Agreement between Dow Chemical Company
and Ivory Production Co. dated May 1, 1991
10.18 Form of Consulting Agreement between Blue Dolphin
Services Co. and Columbus Petroleum Ltd., dated
July 1, 1995
10.22 (4) Equipment acquisition lease between MEI Mission
Energy, Inc., and Banc One Leasing Corporation,
dated November 23, 1993
10.23 (4) Loan Agreement by and among Blue Dolphin Energy
Company, Blue Dolphin Pipe Line Company, Buccaneer
Pipe Line Co., Mission Energy, Inc. dba MEI Mission
Energy, Inc., Ivory Production Co., Blue Dolphin
Services Co., and Bank One, Texas, N. A., dated
January 14, 1994
10.24 (5) Plan and Agreement of Merger between Petroport,
L.C. and Blue Dolphin Acquisition Company dated
March 8, 1995
10.25 First Amendment to Loan Agreement dated January 14,
1994 by and among Blue Dolphin Energy Company, Blue
Dolphin Pipe Line Company, Buccaneer Pipe Line Co.,
Mission Energy, Inc. d/b/a MEI Mission Energy,
Inc., Ivory Production Co., Blue Dolphin Services
Co., and Bank One, Texas, N.A., dated February 7,
1995
10.26 Second Amendment to Loan Agreement dated January
14, 1994 by and among Blue Dolphin Energy Company,
Blue Dolphin Pipe Line Company, Buccaneer Pipe Line
Co., Mission Energy, Inc. d/b/a MEI Mission Energy,
Inc., Blue Dolphin Exploration Company, previously
known as Ivory Production Co., Blue Dolphin
Services Co., and Bank One, Texas, N. A., dated
December 22, 1995
10.27 Asset Purchase Agreement by and among Blue Dolphin
Pipe Line Company, Buccaneer Pipe Line Co. and
Mission Energy, Inc. as Sellers and CoEnergy
Offshore Pipeline & Processing Company, as
Purchaser dated as of August 31, 1995.
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, 1993 under the Securities and Exchange Act of 1934,
dated March 30, 1994.
(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, 1994 under the Securities and Exchange Act of 1934,
dated March 28, 1995.
* Management Compensation Plan.
(b) Reports on Form 8-K
Form 8-K/A dated November 8, 1995, relating to the sale
of a one-third interest in the Blue Dolphin Pipeline
System effective August 1, 1995.
(c) Exhibit Index
(1) Form of Consulting Agreement between Blue Dolphin
Services Co. and Columbus Petroleum Ltd., dated
July 1, 1995
(2) First Amendment to Loan Agreement dated January
14, 1994 by and among Blue Dolphin Energy
Company, Blue Dolphin Pipe Line Company,
Buccaneer Pipe Line Co., Mission Energy, Inc.
d/b/a MEI Mission Energy, Inc., Ivory Production
Co., Blue Dolphin Services Co., and Bank One,
Texas, N.A., dated February 7, 1995
(3) Second Amendment to Loan Agreement dated January
14, 1994 by and among Blue Dolphin Energy
Company, Blue Dolphin Pipe Line Company,
Buccaneer Pipe Line Co., Mission Energy, Inc.
d/b/a MEI Mission Energy, Inc., Blue Dolphin
Exploration Company, previously known as Ivory
Production Co., Blue Dolphin Services Co., and
Bank One, Texas, N. A., dated December 22, 1995
(4) Asset Purchase Agreement by and among Blue
Dolphin Pipe Line Company, Buccaneer Pipe Line
Co. and Mission Energy, Inc. as Sellers and
CoEnergy Offshore Pipeline & Processing Company,
as Purchaser dated as of August 31, 1995.
(5) List of Subsidiaries of the Company
(6) Consent of Gerald W. DuPont Enterprises, Inc.,
independent petroleum engineers
(7) Financial Data Schedule
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:Michael J. Jacobson
Michael J. Jacobson, President
(principal executive officer)
Date: March 26, 1996
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
Michael J. Jacobson President (principal March 26, 1996
Michael J. Jacobson executive officer)
G. Brian Lloyd Treasurer/Secretary March 26, 1996
G. Brian Lloyd
Ivar Siem Chairman March 26, 1996
Ivar Siem
Harris A. Kaffie Director March 26, 1996
Harris A. Kaffie
Daniel B. Porter Director March 26, 1996
Daniel B. Porter
Michael S. Chadwick Director March 26, 1996
Michael S. Chadwick
Christian Hysing-Dahl Director March 26, 1996
Christian Hysing-Dahl
CONSULTING AGREEMENT
Between
BLUE DOLPHIN SERVICES CO. AND COLUMBUS PETROLEUM LTD.
Confirming our recent discussions, Columbus Petroleum Ltd. ("CPL") will
utilize its resources to assist Blue Dolphin Services Co. ("Blue
Dolphin") in identifying and developing suitable business opportunities.
Both parties recognize that considerable work needs to be done to find
and evaluate a project, and that this work typically will stretch over a
significant period of time.
CPL will utilize its resources to search for and develop investment
opportunities in the order of magnitude of $500,000 to $10 million. The
opportunities shall be, but not limited to: producing oil and gas
properties, pipelines, storage facilities, gas plants and similar
infrastructure to handle oil and gas. The emphasis will be on gas and
the geographical area will be outside the United States.
CPL will analyze each business opportunity in sufficient detail to
enable Blue Dolphin to make a preliminary decision as to whether or not
to invest.
CPL will invoice Blue Dolphin monthly, at the rate of $200.00 per hour,
for time spent in provision of the contemplated services to Blue
Dolphin.
CPL is an independent contractor, and is not and shall not be construed
as an agent, employee or attorney-in-fact of Blue Dolphin. CPL is
responsible for payment of all Federal and/or state taxes, fees and/or
assessments to which any consideration paid by Blue Dolphin to CPL may
be subject.
Accepted and agreed to this 1st day of July, 1995.
Michael J. Jacobson Ivar Siem
Blue Dolphin Services Co. Columbus Petroleum Ltd.
FIRST AMENDMENT TO
LOAN AGREEMENT DATED JANUARY 14, 1994
BY AND AMONG BLUE DOLPHIN ENERGY COMPANY,
BLUE DOLPHIN PIPE LINE COMPANY, BUCCANEER PIPE LINE CO.,
MISSION ENERGY, INC. D/B/A/ MEI MISSION ENERGY, INC.,
IVORY PRODUCTION CO., BLUE DOLPHIN SERVICES CO.,
AND BANK ONE, TEXAS, N.A.
This First Amendment to Loan Agreement dated January 14,
1994 (this "First Amendment") by and among BLUE DOLPHIN ENERGY
COMPANY, BLUE DOLPHIN PIPE LINE COMPANY, BUCCANEER PIPE LINE CO.,
MISSION ENERGY, INC. D/B/A/ MEI MISSION ENERGY, INC., IVORY
PRODUCTION CO., AND BLUE DOLPHIN SERVICES CO. (collectively, the
"Borrower") and BANK ONE, TEXAS, N.A., a national banking
association (the "Bank") is entered into on this 7th day of
February, 1995.
W I T N E S S E T H:
Borrower and Bank entered into a Loan Agreement dated
January 14, 1994 (the "Loan Agreement").
Borrower has requested that Bank amend certain covenants
in the Loan Agreement so that Blue Dolphin Energy Company may form
a wholly owned Subsidiary, Blue Dolphin Acquisition Company, a
Delaware corporation, and Blue Dolphin Acquisition Company may then
merge with Petroport L.C., a Texas limited liability company, with
Blue Dolphin Acquisition Company being the survivor of such merger.
Bank is willing to enter into the requested amendment
subject to and conditioned upon the amendment of certain other
provisions of the Loan Agreement.
NOW, THEREFORE, in consideration of the promises herein
contained, and each intending to be legally bound hereby, the
parties agree as follows:
I. AMENDMENTS TO LOAN AGREEMENT.
SECTION 1.01 is amended by adding the following definitions
thereto:
"BDAC" shall mean Blue Dolphin Acquisition Company,
a Delaware corporation to be formed as a wholly
owned subsidiary of the Parent Company, as permitted
by Sections 7.03 and 7.13.
"First Amendment" shall mean that certain First
Amendment to the Loan Agreement, entered into by
Bank and Borrower on February 7, 1995.
"MERGER AGREEMENT" shall mean that certain agreement
entitled "A Plan and Agreement of Merger" to be
entered into by and among the Parent Company, BDAC,
Petroport L.C., a Texas limited liability company,
and the current owners of Petroport L.C., which
shall be in substantially the form attached as
Exhibit "A" to the First Amendment.
SECTION 5.25 is amended to read:
SUBSIDIARIES. The Parent Company has no
Subsidiaries other than the Dolphin Subsidiaries and
BDAC, which is the surviving entity resulting from
the merger of BDAC and Petroport L.C. pursuant to
the Merger Agreement, the name of which may be
changed from BDAC to Petroport, Inc. following the
merger.
SECTION 5.27, which reads as follows, is hereby added to the
Loan Agreement:
Section 5.27 REPRESENTATIONS AND WARRANTIES
REGARDING SUBSIDIARIES. The representations and
warranties stated in Sections 5.01, 5.04, 5.06,
5.07, 5.08, 5.12, 5.14, 5.17, and 5.20 are true not
only as to each Borrower, but are also true with
respect to each of its Subsidiaries that is not a
party to this Loan Agreement, to the same extent as
if such representations and warranties had also been
made by and with respect to such Subsidiary.
SECTION 6.38, which reads as follows, is hereby added to the
Loan Agreement:
Section 6.38 AFFIRMATIVE COVENANTS REGARDING
SUBSIDIARIES. Each Borrower will cause each of its
Subsidiaries that is not a party to this Loan
Agreement to perform the covenants stated in the
following enumerated Sections of the Loan Agreement
with the same effect as if said covenants had also
been entered into by and with respect to each such
Subsidiary: Sections 6.02 through 6.06, 6.08, 6.10
through 6.12, 6.14 through 6.17, 6.20 through 6.28,
6.30, and 6.37.
SECTION 7.01 is amended to read:
"OTHER INDEBTEDNESS. No Borrower will incur,
create, assume or permit to exist, or permit any of
its Subsidiaries to incur, create, assume or permit
to exist, any Indebtedness, except (i) Indebtedness
to Bank, (ii) existing Indebtedness among or between
any of the Borrowers, as described on the Financial
Statements dated September 30, 1993, (iii) accounts
payable in the ordinary course of business, (iv)
letters of credit or performance bonds required to
be obtained by any Borrower or any of its
Subsidiaries in the normal course of its business to
assure the proper plugging and abandonment of oil
and gas drilling or production locations,
(v) Indebtedness among the Borrowers as described in
Section 7.06, and (vi) Indebtedness arising from the
endorsement of instruments for collection in the
ordinary course of business. Notwithstanding
anything to the contrary set forth in this Agreement
or in any other Loan Document, the Bank agrees that
it will permit the Borrowers to establish the
Newfield/MMS Funding Arrangement (defined herein as
defined in Schedule 2 hereto), and shall execute
such partial releases, subordination agreements, and
other documents as are reasonably necessary to
enable Ivory to establish the Newfield/MMS Funding
Arrangement."
SECTION 7.03 is amended by deleting the first sentence of
that Section and inserting the following text in its place:
No Borrower will make any advance, loan, extension
of credit, capital contribution to, or investment in
any person, except: (a) as permitted elsewhere in
this Agreement (including, but not limited to
Section 7.06), and (b) a loan or capital
contribution from the Parent Company to BDAC in an
amount not to exceed $300,000.00 for purposes of
forming BDAC, as permitted by Section 7.13,
consummating the Merger Agreement, and paying costs
and expenses generally relating to or associated
with such activities and/or transactions.
SECTION 7.08 is amended to read:
NATURE OF BUSINESS. No Borrower will engage in any
business concerning the Borrowing Base Assets or the
Collateral Property other than the business in which
it is engaged as of the date hereof; provided that
this covenant shall not preclude BDAC from
continuing the business of Petroport L.C. following
the consummation of the merger contemplated by the
Merger Agreement.
SECTION 7.13 is amended to read:
CHANGES IN CORPORATE STRUCTURE. Consolidate, merge
with, or purchase (for cash or securities) all or
part of the assets or capital stock of any
corporation, firm, association or enterprise, or
allow any such entity to be merged into the Parent
Company or any of its Subsidiaries, nor shall the
Parent Company or any of its Subsidiaries cause or
permit any change to occur in the ownership of the
capital stock of the Subsidiaries or the basic
business operations of the Parent Company or any of
its Subsidiaries; except that: (a) the Parent
Company shall be permitted, within thirty (30) days
from the date of the First Amendment, to form as a
wholly owned subsidiary a new Delaware corporation
to be named Blue Dolphin Acquisition Company, using
funding from a loan or capital contribution made by
the Parent Company as permitted by Section 7.03, and
(b) the Parent Company and BDAC shall be permitted,
for a period of thirty (30) days from the date of
the First Amendment, to enter into the Merger
Agreement with Petroport L.C. and the owners of
Petroport L.C., provided the Merger Agreement is
executed by all intended signatory parties, as
designated therein, within thirty (30) days from the
date of the First Amendment.
SECTION 7.16, which reads as follows, is hereby added to the
Loan Agreement:
Section 7.16 NEGATIVE COVENANTS REGARDING
SUBSIDIARIES. Each Borrower will cause each of its
Subsidiaries that is not a party to this Loan
Agreement to perform and observe the negative
covenants stated in the following enumerated
Sections of the Loan Agreement with the same effect
as if said covenants had also been entered into by
and with respect to each such Subsidiary: Sections
7.01 through 7.08, 7.10, 7.12 through 7.14; provided
that the Subsidiaries which are not Borrowers shall
not be entitled to receive any of the short term
cash advances referred to in Section 7.06; and
provided further that Section 7.13 shall not be
deemed to preclude the consummation of the
transactions contemplated by the Merger Agreement.
II. EXTENT OF AMENDMENTS. This First Amendment shall not be
deemed to be a waiver by Bank of any covenant, condition or
obligation on the part of the Borrower under the Loan Agreement, as
amended hereby, except as expressly set forth herein. In addition,
this First Amendment shall in no respect evidence any commitment by
the Bank to grant any future waivers of any covenant, condition or
obligation on the part of the Borrower under the Loan Agreement, as
amended hereby. Any further waivers or consents must be
specifically agreed to in writing in accordance with Section 9.10
of the Loan Agreement.
III. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. To induce
the Bank to enter into this First Amendment, each Borrower hereby
reaffirms, represents, and warrants that as of the date hereof and
after taking into consideration the consummation of the
transactions contemplated under the Merger Agreement and in all
other documents executed pursuant thereto:
A. The execution and delivery of this First Amendment and
the performance by the Borrower of its obligations under this
First Amendment are within the Borrower's power, have been
duly authorized by all necessary corporate action, have
received all necessary governmental approval (if any shall be
required), and do not and will not contravene or conflict
with any provision of law or of the charter or by-laws of the
Borrower or of any agreement binding upon the Borrower.
B. This First Amendment represents the legal, valid and
binding obligations of the Borrower enforceable against the
Borrower in accordance with its terms subject as to
enforcement only to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally.
C. Since the date of the Loan Agreement, no change, event or
state of affairs has occurred and is continuing which would
constitute an Event of Default or an Unmatured Event of
Default.
D. The form of Merger Agreement attached hereto as Exhibit
"A" is a true and complete copy of the form of Merger
Agreement that has been negotiated, to date, among the
parties designated therein, and promptly after the Parent
Company and BDAC have entered into the Merger Agreement with
the other parties designated therein, the Parent Company
shall provide to the Bank true and complete copies of the
fully executed Merger Agreement and of all agreements and
instruments to be executed or entered into in connection
therewith.
IV. DEFINED TERMS. Terms used herein that are defined in the
Loan Agreement shall have the same meanings herein, unless the
context otherwise requires.
V. REAFFIRMATION OF LOAN AGREEMENT. This First Amendment shall
be deemed to be an amendment to the Loan Agreement, and the Loan
Agreement, as amended hereby, is hereby ratified, adopted and
confirmed in each and every respect.
VI. GOVERNING LAW. THIS First Amendment SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. This First
Amendment has been entered into in Harris County, Texas, and it
shall be performable for all purposes in Harris County, Texas.
Courts within the State of Texas shall have jurisdiction over any
and all disputes between the Borrower and the Bank, whether in law
or equity, including, but not limited to, any and all disputes
arising out of or relating to this First Amendment or any other
Loan Documents; and venue in any such dispute whether in federal or
state court shall be laid in Harris County, Texas.
VII. SEVERABILITY. Whenever possible each provision of this First
Amendment shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this First
Amendment shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this First Amendment.
VIII. EXECUTION IN COUNTERPARTS. This First Amendment may be
executed in any number of counterparts and by the different parties
on separate counterparts on different dates, and each such
counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same
agreement.
IX. SECTION CAPTIONS. Section captions used in this First
Amendment are for convenience of reference only, and shall not
affect the construction of this First Amendment.
X. SUCCESSORS AND ASSIGNS. This First Amendment shall be
binding upon the Borrower, the Bank and its respective successors
and assigns, and shall inure to the benefit of the Borrower, the
Bank and the respective successors and assigns of the Bank.
XI. NON-APPLICATION OF CHAPTER 15 OF TEXAS CREDIT CODE. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas
Civil Statutes, Article 5069-15) are specifically declared by the
parties hereto not to be applicable to this First Amendment or any
of the other Loan Documents or to the transactions contemplated
hereby.
XII. NOTICE. THE LOAN AGREEMENT, AS HEREBY AMENDED, EMBODIES THE
ENTIRE AGREEMENT BETWEEN THE BORROWER AND THE BANK AND SUPERSEDES
ALL PRIOR PROPOSALS, AGREEMENTS AND UNDERSTANDINGS RELATING TO THE
SUBJECT MATTER HEREOF. THE BORROWER CERTIFIES THAT IT IS RELYING
ON NO REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT EXCEPT FOR
THOSE SET FORTH IN THE LOAN AGREEMENT, AS HEREBY AMENDED, AND THE
OTHER DOCUMENTS PREVIOUSLY EXECUTED IN CONNECTION THEREWITH.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the day and year first above
written.
BORROWERS:
BLUE DOLPHIN ENERGY COMPANY
By: Michael J. Jacobson
Michael J. Jacobson
President
BLUE DOLPHIN PIPE LINE COMPANY
By: Michael J. Jacobson
Michael J. Jacobson
President
BUCCANEER PIPE LINE CO.
By: Michael J. Jacobson
Michael J. Jacobson
President
MISSION ENERGY, INC. dba
MEI MISSION ENERGY, INC.
By: Michael J. Jacobson
Michael J. Jacobson
President
IVORY PRODUCTION CO.
By: Michael J. Jacobson
Michael J. Jacobson
President
BLUE DOLPHIN SERVICES CO.
By: Michael J. Jacobson
Michael J. Jacobson
President
BANK:
BANK ONE, TEXAS, N.A.
By: Melanie M. Ottens
Melanie M. Ottens
Vice President
SECOND AMENDMENT TO
LOAN AGREEMENT DATED JANUARY 14, 1994
BY AND AMONG BLUE DOLPHIN ENERGY COMPANY,
BLUE DOLPHIN PIPE LINE COMPANY, BUCCANEER PIPE LINE CO.,
MISSION ENERGY, INC. D/B/A/ MEI MISSION ENERGY, INC.,
BLUE DOLPHIN EXPLORATION COMPANY, PREVIOUSLY KNOWN AS
IVORY PRODUCTION CO., BLUE DOLPHIN SERVICES CO.,
AND BANK ONE, TEXAS, N.A.
This Second Amendment to Loan Agreement dated January 14, 1994
(this "Second Amendment") by and among BLUE DOLPHIN ENERGY COMPANY,
BLUE DOLPHIN PIPE LINE COMPANY, BUCCANEER PIPE LINE CO., MISSION ENERGY,
INC. D/B/A/ MEI MISSION ENERGY, INC., BLUE DOLPHIN EXPLORATION COMPANY,
PREVIOUSLY KNOWN AS IVORY PRODUCTION CO., AND BLUE DOLPHIN SERVICES CO.
(collectively, the "Borrowers") and BANK ONE, TEXAS, N.A., a national
banking association (the "Bank") is entered into on this 22nd day of
December, 1995.
W I T N E S S E T H:
Borrowers and Bank entered into a Loan Agreement dated January
14, 1994, which was amended by that certain First Amendment thereto
dated February 7, 1995 (the "Loan Agreement").
Borrowers have requested that Bank (i) increase the Borrowing
Base and the Revolving Commitment Limit to $3,335,000.00, (ii) waive
compliance by the Borrowers with certain of the financial covenants
contained in the Loan Agreement for certain accounting periods, and
(iii) make certain other modifications to the Loan Agreement.
Bank is willing to enter into the requested amendment subject
to and conditioned upon the amendment of and/or addition to certain
other provisions of the Loan Agreement.
NOW, THEREFORE, in consideration of the promises herein
contained, and each intending to be legally bound hereby, the parties
agree as follows:
I. AMENDMENTS TO LOAN AGREEMENT.
SECTION 1.01 is amended by adding the following definitions
thereto:
"ASSET PURCHASE AGREEMENT" shall mean that certain Asset
Purchase Agreement dated August 31, 1995, entered into by and
among Blue Dolphin, Buccaneer and Mission Energy, as sellers,
and CoEnergy Offshore Pipeline & Processing Company, a
Michigan corporation ("COPPC"), as purchaser.
"COPPC AGREEMENTS" shall mean the Asset Purchase Agreement,
the Operating Agreements, and the Purchase Rights Agreement.
"OPERATING AGREEMENTS" shall mean those certain Operating
Agreements as hereinafter described each dated effective
August 1, 1995 as follows: (i) by and between Mission Energy
as Operator and Owner, and COPPC as Owner, (ii) by and between
Blue Dolphin as Operator and Owner, and COPPC as Owner, and
(iii) by and between Buccaneer as Owner and Operator, and
COPPC as Owner.
"PURCHASE RIGHTS AGREEMENT" shall mean that certain Purchase
Rights and Participation Agreement dated effective August 1,
1995 entered into by and among Blue Dolphin, Buccaneer,
Mission Energy and the Parent Company and COPPC and Pipeline &
Processing Group, Inc.
"SECOND AMENDMENT" shall mean that certain Second Amendment to
the Loan Agreement, entered into by and among Bank and
Borrowers on December 22, 1995.
The first sentence of SECTION 2.04 is amended to read as follows:
The Borrowing Base is hereby established at $3,335,000.00
effective as of the execution date of the Second Amendment,
declining in the amount of $155,000.00, monthly, beginning on
January 1, 1996, and at the beginning of each successive month
thereafter until the effective date of the next
redetermination of the Borrowing Base as set forth in this
Section.
The first sentence of SECTION 5.17 is amended to read as follows:
Other than the Contracts and the COPPC Agreements, no Borrower
is a party to, nor bound by any agreement, condition, contract
or arrangement which might in the future have a material
adverse effect on the business, operations, or financial
condition of such Borrower.
SECTION 6.11 is amended by adding the following text at the end of
that section: "Each Borrower that is currently the operator of any
pipeline system or other facilities that comprise a part of the
Collateral Property shall at all times continue to be the operator
thereof."
SECTION 6.25 is amended by adding the following text at the end of
that section: ", including, but not limited to, the COPPC
Agreements. In addition, the Borrowers, or any of them, shall use
reasonable efforts to cause COPPC to comply in all material
respects with the terms and provisions of the COPPC Agreements."
SECTION 6.39, which reads as follows, is hereby added to the Loan
Agreement:
Section 6.39 ADDITIONAL REPORTING REQUIRE-MENTS.
Deliver to the Bank a copy of the annual budgets prepared in
accordance with Section 4.02 of each of the Operating
Agreements as approved by the Budget Committee (defined in the
Operating Agreements) within five (5) Business Days of their
completion, provided that the most recent of such budgets
existing as of the date of execution of the Second Amendment
shall be provided to the Bank contemporaneously therewith;
deliver to the Bank, within fifty (50) days after the end of
each month, a copy of the Regular Statements prepared as
described in Section 5.01 of each of the Operating Agreements;
and deliver to the Bank, within five (5) Business Days' of
preparation thereof by the operator, a copy of any Special
Statements prepared as described in Section 5.02 of each of
the Operating Agreements.
SECTION 7.03 is amended by changing $300,000.00 to $400,000.00 in
subsection (b) thereof, and by adding "for 1995" following
$400,000.00.
SECTION 7.14 is amended to read:
"CERTAIN CAPITAL EXPENDITURES". Make any capital expenditures
for items other than for acquisitions and abandonment costs
exceeding $1,310,000.00 in 1994; $700,000.00 in 1995
(exclusive of the $400,000.00 loan or capital contribution
from the Parent Company to BDAC described in Section 7.03(b));
and $200,000.00 per annum thereafter, on a consolidated basis.
SECTION 8.01(l), which reads as follows, is hereby added to the
Loan Agreement:
(l) COPPC is in violation of, or is not in compliance with,
any material terms, provisions, or covenants of any of
the COPPC Agreements.
II. WAIVERS TO COVENANT VIOLATIONS BY BANK. The Bank has agreed to
waive compliance by the Borrowers with the following covenants, subject
to the limitations specifically stated:
A. The general and administrative expenses covenant in Section
6.20 of the Loan Agreement for the quarter ending September
30, 1995.
B. The capital expenditures covenant in Section 7.14 of the Loan
Agreement for the quarter ending September 30, 1995.
C. Any of the provisions of the Loan Agreement, including but not
limited to, Section 7.07 thereof, with respect to any prior
violation thereof arising solely from the execution or
performance of the COPPC Agreements.
III. EXTENT OF AMENDMENTS. This Second Amendment shall not be deemed
to be a waiver by Bank of any covenant, condition or obligation on the
part of the Borrowers under the Loan Agreement, as amended hereby,
except as expressly set forth herein. In addition, this Second
Amendment shall in no respect evidence any commitment by the Bank to
grant any future waivers of any covenant, condition or obligation on the
part of the Borrowers under the Loan Agreement, as amended hereby. Any
further waivers or consents must be specifically agreed to in writing in
accordance with Section 9.10 of the Loan Agreement.
IV. CONDITION TO CLOSING THE SECOND AMENDMENT. This Second Amendment
shall not become effective until the Bank has received a an original or
a certified copy of an instrument from the Office of the Secretary of
State of the State of Delaware evidencing the change of name of Ivory to
Blue Dolphin Exploration Company, and evidence satisfactory to the Bank
that such instrument has been filed with the Minerals Management Service
and in the Official Public Records of Real Property in Brazoria and
Galveston Counties, Texas.
V. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. To induce the
Bank to enter into this Second Amendment, each Borrower hereby
reaffirms, as of the date hereof, its representations and warranties
contained in Article V of the Loan Agreement and in all other documents
executed pursuant thereto, and additionally represents and warrants as
follows:
A. The execution and delivery of this Second Amendment and the
performance by each of the Borrowers of its obligations under this
Second Amendment are within each Borrower's power, have been duly
authorized by all necessary corporate action, have received all
necessary governmental approval (if any shall be required), and do
not and will not contravene or conflict with any provision of law
or of the charter or by-laws of any of the Borrowers or of any
agreement binding upon any Borrower.
B. This Second Amendment represents the legal, valid and binding
obligations of each Borrower enforceable against each Borrower in
accordance with its terms subject as to enforcement only to
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally.
C. Since the date of the Loan Agreement, no change, event or
state of affairs has occurred and is continuing which would
constitute an Event of Default or an Unmatured Event of Default.
VI. DEFINED TERMS. Terms used herein that are defined in the Loan
Agreement shall have the same meanings herein, unless the context
otherwise requires.
VII. REAFFIRMATION OF LOAN AGREEMENT. This Second Amendment shall be
deemed to be an amendment to the Loan Agreement, and the Loan Agreement,
as amended hereby, is hereby ratified, adopted and confirmed in each and
every respect.
VIII. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. This Second Amendment
has been entered into in Harris County, Texas, and it shall be
performable for all purposes in Harris County, Texas. Courts within the
State of Texas shall have jurisdiction over any and all disputes between
the Borrowers and the Bank, whether in law or equity, including, but not
limited to, any and all disputes arising out of or relating to this
Second Amendment or any other Loan Documents; and venue in any such
dispute whether in federal or state court shall be laid in Harris
County, Texas.
IX. SEVERABILITY. Whenever possible each provision of this Second
Amendment shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Second
Amendment shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Second Amendment.
X. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed
in any number of counterparts and by the different parties on separate
counterparts on different dates, and each such counterpart shall be
deemed to be an original, but all such counterparts shall together
constitute but one and the same agreement.
XI. SECTION CAPTIONS. Section captions used in this Second Amendment
are for convenience of reference only, and shall not affect the
construction of this Second Amendment.
XII. SUCCESSORS AND ASSIGNS. This Second Amendment shall be binding
upon each of the Borrowers, the Bank and its respective successors and
assigns, and shall inure to the benefit of the Borrowers, the Bank and
the respective successors and assigns of the Bank.
XIII. NON-APPLICATION OF CHAPTER 15 OF TEXAS CREDIT CODE. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties
hereto not to be applicable to this Second Amendment or any of the other
Loan Documents or to the transactions contemplated hereby.
XIV. NOTICE. THE LOAN AGREEMENT, AS HEREBY AMENDED, EMBODIES THE
ENTIRE AGREEMENT BETWEEN THE BORROWERS AND THE BANK AND SUPERSEDES ALL
PRIOR PROPOSALS, AGREEMENTS AND UNDERSTANDINGS RELATING TO THE SUBJECT
MATTER HEREOF. EACH OF THE BORROWERS CERTIFIES THAT IT IS RELYING ON NO
REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT EXCEPT FOR THOSE SET
FORTH IN THE LOAN AGREEMENT, AS HEREBY AMENDED, AND THE OTHER DOCUMENTS
PREVIOUSLY EXECUTED IN CONNECTION THEREWITH.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the day and year first above
written.
BORROWERS:
BLUE DOLPHIN ENERGY COMPANY
By: Michael J. Jacobson
Michael J. Jacobson
President
BLUE DOLPHIN PIPE LINE COMPANY
By: Michael J. Jacobson
Michael J. Jacobson
President
BUCCANEER PIPE LINE CO.
By: Michael J. Jacobson
Michael J. Jacobson
President
MISSION ENERGY, INC. dba
MEI MISSION ENERGY, INC.
By: Michael J. Jacobson
Michael J. Jacobson
President
BLUE DOLPHIN EXPLORATION COMPANY,
PREVIOUSLY KNOWN AS IVORY PRODUCTION
CO.
By: Michael J. Jacobson
Michael J. Jacobson
President
BLUE DOLPHIN SERVICES CO.
By: Michael J. Jacobson
Michael J. Jacobson
President
BANK:
BANK ONE, TEXAS, N.A.
By: Melanie M. Ottens
Melanie M. Ottens
Vice President
ASSET PURCHASE AGREEMENT
by and among
BLUE DOLPHIN PIPE LINE COMPANY,
BUCCANEER PIPE LINE CO. AND MISSION ENERGY, INC.,
as Sellers
and
COENERGY OFFSHORE PIPELINE & PROCESSING COMPANY,
as Purchaser
Dated as of August 31, 1995
TABLE OF CONTENTS
ARTICLE I
SALE AND PURCHASE OF THE ASSETS
Section 1.01 Agreement to Purchase and Sell. . . . . . . . . .1
Section 1.02 Purchase Price. . . . . . . . . . . . . . . . . .2
Section 1.03 Customer Contracts. . . . . . . . . . . . . . . .2
Section 1.04 Effective Time. . . . . . . . . . . . . . . . . .3
Section 1.05 Other Agreements. . . . . . . . . . . . . . . . .3
ARTICLE II
CLOSING
ARTICLE III
ACTIONS TAKEN AT THE CLOSING
Section 3.01 Actions Taken by the Blue Dolphin Companies . . .4
Section 3.02 Actions Taken by COPP . . . . . . . . . . . . . .5
ARTICLE IV
REPRESENTATIONS BY AND WARRANTIES OF THE BLUE DOLPHIN COMPANIES
Section 4.01 The Blue Dolphin Companies. . . . . . . . . . . .5
(a) Organization and Powers. . . . . . . . . . .5
(b) Agreements and Consents. . . . . . . . . . .5
(c) Litigation; Orders . . . . . . . . . . . . .6
(d) Validity and Enforceability. . . . . . . . .6
(e) Condition of Assets. . . . . . . . . . . . .7
(f) Ownership of Assets. . . . . . . . . . . . .7
(g) Governmental Licenses and Permits. . . . . .7
(h) Contracts. . . . . . . . . . . . . . . . . .7
(i) Compliance with Laws . . . . . . . . . . . .7
(j) Environmental Matters. . . . . . . . . . . .8
(k) No Brokers . . . . . . . . . . . . . . . . .8
(l) Conformity of Copies . . . . . . . . . . . .9
(m) No Changes . . . . . . . . . . . . . . . . .9
(n) Accuracy as of the Closing Date. . . . . . .9
(o) Not a Retailer . . . . . . . . . . . . . . .9
(p) Employees. . . . . . . . . . . . . . . . . .9
(q) Forecasts and Projections. . . . . . . . . .9
(r) Corporate Structure. . . . . . . . . . . . .9
(s) Disclosure of Other Matters. . . . . . . . .9
Section 4.02 No Other Warranties . . . . . . . . . . . . . . 10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COPP
Section 5.01 By COPP . . . . . . . . . . . . . . . . . . . . 10
(a) Organization and Powers. . . . . . . . . . 10
(b) Agreements and Consents. . . . . . . . . . 10
(c) Litigation; Orders . . . . . . . . . . . . 11
(d) Validity and Enforceability. . . . . . . . 11
(e) No Brokers . . . . . . . . . . . . . . . . 11
(f) No Distribution. . . . . . . . . . . . . . 12
(g) Corporate Structure. . . . . . . . . . . . 12
(h) Accuracy as of the Closing Date. . . . . . 12
ARTICLE VI
ADDITIONAL COVENANTS
Section 6.01 Exclusivity . . . . . . . . . . . . . . . . . . 12
Section 6.02 Public Announcements. . . . . . . . . . . . . . 12
Section 6.03 Tax Matters . . . . . . . . . . . . . . . . . . 13
Section 6.04 Further Assurances. . . . . . . . . . . . . . . 14
Section 6.05 Casualty Loss & Condemnation. . . . . . . . . . 14
Section 6.06 Conduct and Preservation of Business. . . . . . 14
Section 6.07 Restrictions on Certain Actions . . . . . . . . 14
Section 6.08 Third Party Consents. . . . . . . . . . . . . . 15
Section 6.09 Amendment of Schedules. . . . . . . . . . . . . 16
Section 6.10 Assignment of Customer Contracts. . . . . . . . 16
Section 6.11 Texas Land Office . . . . . . . . . . . . . . . 17
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.01 Conditions to COPP's Obligation to Close. . . . 17
(a) Representation and Warranties True . . . . 17
(b) Compliance with Covenants. . . . . . . . . 17
(c) Officer's Certificate. . . . . . . . . . . 18
(d) No Injunction. . . . . . . . . . . . . . . 18
(e) Casualty Loss. . . . . . . . . . . . . . . 18
(f) Due Diligence. . . . . . . . . . . . . . . 18
(g) Condition of the Assets. . . . . . . . . . 18
(h) All Necessary Consents and Approvals . . . 18
(i) Opinion of Counsel . . . . . . . . . . . . 18
(j) Bank One Lien Release. . . . . . . . . . . 18
Section 7.02 Conditions to the Obligation
of the Blue Dolphin Companies to Close. . . . . 18
(a) Representation and Warranties True . . . . 18
(b) Compliance with Covenants. . . . . . . . . 19
(c) Officer's Certificate. . . . . . . . . . . 19
(d) No Injunction. . . . . . . . . . . . . . . 19
(e) Casualty Loss. . . . . . . . . . . . . . . 19
(f) All Necessary Consents and Approvals . . . 19
(g) Opinion of Counsel . . . . . . . . . . . . 19
(h) Bank One Lien Release. . . . . . . . . . . 20
ARTICLE VIII
ASSUMPTION AND INDEMNIFICATION
Section 8.01 Assumption of Liabilities Relating
to the Purchased Interests. . . . . . . . . . . 19
Section 8.02 Indemnification by the Blue Dolphin Company . . 20
Section 8.03 Indemnification by COPP . . . . . . . . . . . . 20
Section 8.04 Notice of Asserted Liability. . . . . . . . . . 20
Section 8.05 Opportunity to Defend . . . . . . . . . . . . . 21
Section 8.06 Negligence and Strict Liability Waiver. . . . . 21
Section 8.07 Exclusive Remedy. . . . . . . . . . . . . . . . 21
ARTICLE IX
MISCELLANEOUS
Section 9.01 Survival. . . . . . . . . . . . . . . . . . . . 22
Section 9.02 Due Diligence Review. . . . . . . . . . . . . . 22
Section 9.03 Counterparts. . . . . . . . . . . . . . . . . . 22
Section 9.04 Governing Law . . . . . . . . . . . . . . . . . 22
Section 9.05 Entire Agreement. . . . . . . . . . . . . . . . 22
Section 9.06 Expenses. . . . . . . . . . . . . . . . . . . . 23
Section 9.07 Notices . . . . . . . . . . . . . . . . . . . . 23
Section 9.08 Successors and Assigns. . . . . . . . . . . . . 24
Section 9.09 Headings. . . . . . . . . . . . . . . . . . . . 24
Section 9.10 DTPA Waiver . . . . . . . . . . . . . . . . . . 24
Section 9.11 Severability. . . . . . . . . . . . . . . . . . 24
Section 9.12 No Third Party Beneficiaries. . . . . . . . . . 25
Section 9.13 Cross-references. . . . . . . . . . . . . . . . 25
ASSET PURCHASE AGREEMENT
This Agreement is made and entered into as of the 31st day of
August, 1995, by and among Blue Dolphin Pipe Line Company, a Delaware
corporation ("BDPL"), Buccaneer Pipe Line Co., a Texas corporation
("BPC"), Mission Energy, Inc., a Delaware corporation doing business in
Texas under the name "MEI Mission Energy, Inc." ("MEI") (BDPL, BPC, and
MEI are sometimes collectively referred to herein as the "Blue Dolphin
Companies" or singularly as a "Blue Dolphin Company"), and CoEnergy
Offshore Pipeline & Processing Company, a Michigan corporation ("COPP").
WITNESSETH:
WHEREAS, BDPL is engaged in the business (the "Blue Dolphin
Pipeline Business") of providing services relating to the transportation
of natural gas and liquids through the Blue Dolphin Pipeline (as
hereinafter defined);
WHEREAS, MEI is engaged in the business (the "Shore Facilities
Business") of providing services relating to the dehydration of natural
gas and the separation and storage of liquids on and at the Land and the
Shore Facilities (as hereinafter defined);
WHEREAS, BPC is engaged in the business (the "Buccaneer Pipeline
Business") of providing services relating to the transportation of
liquids through the Buccaneer Pipeline (as hereinafter defined); and
WHEREAS, COPP desires to purchase an undivided 1/3 interest in the
assets comprising the Blue Dolphin Pipeline Business, the Shore
Facilities Business, and the Buccaneer Pipeline Business (collectively,
the "Businesses"), and the Blue Dolphin Companies desire to sell to COPP
an undivided 1/3 interest in said assets on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and covenants
herein contained, and the benefits to be derived herefrom, the parties
hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.01 AGREEMENT TO PURCHASE AND SELL. Subject to the terms and the
conditions set forth in this Agreement, at the Closing (as defined in
Article II):
(a) BDPL will sell to COPP, and COPP will purchase from BDPL, an
undivided 1/3 interest in and to that certain pipeline system owned by
BDPL located both onshore in Brazoria County, Texas, and offshore of the
coast of Texas, which is referred to and described in Exhibit 1.01(a),
including an undivided one-third (1/3) interest in all pipelines and
related equipment and fixtures and any easements, right-of-ways, and
permits necessary to conduct the Blue Dolphin Pipeline Business (the
"Blue Dolphin Pipeline");
(b) BPC will sell to COPP, and COPP will purchase from BPC, an
undivided 1/3 interest in and to that certain pipeline system owned by
BPC located onshore in Brazoria County, Texas, which is referred to and
described in Exhibit 1.01(b), including an undivided one-third (1/3)
interest in all pipelines and related equipment and fixtures and any
easements, right-of-ways, and permits necessary to conduct the Buccaneer
Pipeline Business (the "Buccaneer Pipeline");
(c) MEI will sell to COPP, and COPP will purchase from MEI,
undivided 1/3 interests in and to:
(i) those certain tracts or parcels of real estate described
in Exhibit 1.01(c)(i) (the "Land"), and
(ii) the onshore separation, vapor recovery, and dehydration
facilities, related equipment and fixtures owned by MEI
which are located on the Land on the date of this
Agreement (the "Shore Facilities").
The assets comprising the Businesses which are subject to the sale
and assignment of 1/3 undivided interests pursuant to this Section are
sometimes referred to herein collectively as the "Assets". The
undivided 1/3 interests in the Assets to be acquired by COPP pursuant to
this Section are sometimes referred to herein collectively as the
"Purchased Interests" or singularly as a "Purchased Interest".
1.02 PURCHASE PRICE. The aggregate purchase price (the "Purchase
Price") for the Purchased Interests shall be U.S. $10,000,000 together
with the assumption by COPP of the Assumed Obligations (as defined in
Section 8.01). The Purchase Price includes COPP's pro rata share of the
capital improvements described on Exhibit 1.02 to the extent the cost of
such capital improvements does not exceed $500,000. In addition, COPP
shall pay its pro rata share of any such capital improvements to the
extent such costs exceeds $500,000, provided, however, that COPP's pro
rata share of such costs shall not exceed $83,300. The Purchase Price
shall be allocated to Class III assets as defined in Temp. Treas. Reg.
1.1060-1T(d)(2)(ii) and among the Purchased Interests in the manner set
forth in Section 6.03(d).
1.03 CUSTOMER CONTRACTS. Subject to Section 6.10, the sale and
purchase of the Purchased Interests shall include an assignment of an
undivided 1/3 interest in and to the rights of the respective Blue
Dolphin Company in the agreements described on Schedule 1.03 (the
"Customer Contracts") pursuant to which certain persons have entered
into agreements with one or more of the Blue Dolphin Companies with
respect to (a) the transportation, separation, dehydration, or storage
of natural gas, crude oil, and/or condensate through, by, and/or on
certain of the Assets, or (b) the vapor recovery processes performed by
MEI.
1.04 EFFECTIVE TIME. The transfer of the ownership of the
Purchased Interests shall be effective as of 7:00 a.m., Central Daylight
Time, on the first day of the calendar month within which the Closing
Date occurs (the "Effective Time"). All sums owing on account of the
ownership, operation, or use of the Purchased Interests prior to the
Effective Time shall be for the account of and charged to the respective
Blue Dolphin Company, and all sums owing on account of the ownership,
operation, or use of the Purchased Interests on or after the Effective
Time shall be charged to and for the account of COPP. The respective
Blue Dolphin Company shall be entitled to any and all revenues, refunds,
sums or amounts attributable to the ownership, operation, or use of the
Purchased Interests prior to the Effective Time. COPP shall be entitled
to any and all revenues, refunds, sums or amounts attributable to the
ownership, operation, or use of the Purchased Interests on and after the
Effective Time. Nothing set forth in this Section 1.04 shall be
construed, however, to supersede any agreements made pursuant to the
Operating Agreements (as defined in Section 1.05) with respect to the
operation of the Assets subsequent to the Effective Time, which shall be
controlling for all such purposes. For purposes of this Section 1.04,
(a) revenues shall be treated as realized with respect to the storage of
crude oil, condensate, and natural gas liquids prior to the Effective
Time to the extent such liquids were in storage in or on the Assets at
the Effective Time and (b) such liquids shall be deemed delivered from
storage on a "FIFO" basis.
1.05 OTHER AGREEMENTS. At the Closing, COPP, BDPL, BPC, and MEI
will enter into (a) operating agreements for each Business (the
"Operating Agreements") substantially identical in form and content to
Exhibit 1.05(a) pursuant to which the parties will make certain
covenants, give certain agreements, and incur certain obligations in
connection with the operation of the Assets subsequent to Closing, and
(b) a purchase rights and participation agreement (the "Purchase Rights
Agreement") substantially identical in form and content to Exhibit
1.05(b) pursuant to which the parties will be subjected to certain
restrictions on future transfers of their interests in the Assets.
ARTICLE II
CLOSING
The closing of the transactions contemplated by this Agreement
("Closing") shall take place at the offices of Cokinos, Bosien & Young,
Houston, Texas as soon as possible following execution of this
Agreement, but in no event later than August 31, 1995, at 9:00 a.m.,
Houston time. The date of the Closing is referred to herein as the
"Closing Date". The Closing Date will not be extended past August 31,
1995, regardless of whether the satisfaction of the conditions described
in Article VII remain pending, except the Closing Date will be extended
past August 31, 1995 if (a) the Closing Date is extended in writing by
mutual agreement of the parties, or (b) receipt of required and material
governmental consents or approvals remains pending, in which case the
Closing Date shall be extended until the grant or denial of the
necessary consents or approvals.
ARTICLE III
ACTIONS TAKEN AT THE CLOSING
3.01 ACTIONS TAKEN BY THE BLUE DOLPHIN COMPANIES. At the Closing,
the Blue Dolphin Companies shall execute and deliver the following:
(a) an Assignment and Bill of Sale substantially identical in form
and content to Exhibit 3.01(a) (the "Assignment") and any other
instruments reasonably necessary to transfer an undivided 1/3 interest
in the Blue Dolphin Pipeline, the Buccaneer Pipeline and the Shore
Facilities to COPP, free and clear of all Liens, other than Permitted
Encumbrances;
(b) a Special Warranty Deed substantially identical in form and
content to Exhibit 3.01(b) (the "Deed"), and any other instruments
reasonably necessary to transfer an undivided 1/3 interest in the Land
to COPP free and clear of all Liens, other than Permitted Encumbrances;
(c) the Operating Agreements;
(d) the Purchase Rights Agreement; and
(e) an affidavit or other certification that such Blue Dolphin
Company is not a "foreign person" within the meaning of Section 1445 (or
similar provisions) of the Internal Revenue Code of 1986, as amended
(i.e., such Blue Dolphin Company is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust or foreign estate as
those terms are defined in such code and the regulations promulgated
thereunder).
As used in this Agreement: (a) the term "Liens" shall mean any lien,
pledge, claim, charge, security interest or other encumbrance, and (b)
the term "Permitted Encumbrances" shall mean: (i) Liens for taxes not
yet due and payable or which are being contested in good faith and
disclosed in Schedule 3.01; (ii) materialmen's, mechanics', workers',
repairmen's, or other similar Liens arising in the ordinary course of
the operation of the Assets for amounts not due and payable or which are
being contested in good faith and disclosed on Schedule 3.01; (iii) all
rights to, consents by, required notices to, filings with, or other
actions by governmental entities if the same are customarily obtained
subsequent to sale or conveyance; (iv) rights reserved to or vested in
any local, state, and federal governmental bodies, authorities, or
agencies to control or regulate any of the real property occupied by the
Assets in any manner, and all laws, rules, regulations, ordinances, and
orders of any such bodies, authorities, or agencies; (v) Liens to be
released at or before Closing; (vi) any other Liens that do not,
individually or in the aggregate, have a material adverse effect on the
ownership, operation, or value of the Purchased Interests; (vii) the
encumbrances and restrictions with respect to the Land described in
Exhibit "B" to the Deed and (viii) the Applicable Operating Agreements
(as defined in Section 4.01(h)).
3.02 ACTIONS TAKEN BY COPP. At the Closing, COPP shall deliver or
cause to be delivered, by wire transfer of immediately available funds
to the bank accounts designated by each Blue Dolphin Company, that Blue
Dolphin Company's share of the Purchase Price, and shall execute and
deliver the following:
(a) the Assignment;
(b) the Operating Agreements; and
(c) the Purchase Rights Agreement.
ARTICLE IV
REPRESENTATIONS BY AND WARRANTIES OF THE BLUE DOLPHIN COMPANIES
4.01 THE BLUE DOLPHIN COMPANIES. Each Blue Dolphin Company,
jointly and severally, represents and warrants to COPP as set forth
below:
(a) ORGANIZATION AND POWERS. BDPL and MEI are corporations duly
organized, validly existing, and in good standing under the laws of the
State of Delaware and are duly qualified to do business in, and are in
good standing under the laws of, the State of Texas. BPC is a
corporation duly organized, validly existing, and in good standing under
the laws of the State of Texas. The Blue Dolphin Company has all
corporate power and authority necessary to conduct its business as
presently conducted, and to own, lease, or operate all properties now
owned, leased, or operated by the Blue Dolphin Company.
(b) AGREEMENTS AND CONSENTS. Neither the execution, delivery, nor
performance of this Agreement, the Operating Agreements, the Assignment,
the Deed, the Purchase Rights Agreement or any other documents or
instruments executed and delivered at the Closing (the "Closing
Agreements") by the Blue Dolphin Company will (i) conflict with or
result in any breach of any provisions of the articles of incorporation,
certificate of incorporation, or bylaws of that Blue Dolphin Company;
(ii) to the knowledge of that Blue Dolphin Company, require the consent,
approval, authorization or permit of, or filing with or notification to,
any governmental or regulatory authority, except as set forth in
Schedule 4.01(b) or Section 6.11, or any regulatory approvals or routine
governmental consents normally acquired after consummation of
transactions such as transactions of the nature contemplated by this
Agreement, (iii) except as set forth in Schedule 4.01(b), violate,
effect acceleration of or result in the termination, cancellation, or
modification of any material agreement, indenture, instrument, lease,
contract, or other undertaking to which that Blue Dolphin Company is a
party or is bound, except as provided in Section 6.10 or for such
defaults (or rights of termination, cancellation, or acceleration) as to
which requisite waivers or consents have been obtained or will be
obtained prior to the Closing; (iv) violate any order, writ, injunction,
or decree to which the Blue Dolphin Company is bound or may be bound,
(v) to the knowledge of the Blue Dolphin Company, violate any statute,
rule, or regulation to which that Blue Dolphin Company is bound or may
be bound; or (vi) result in the imposition or creation of any Lien upon
any of the Assets other than a Permitted Encumbrance.
(c) LITIGATION; ORDERS. There is no action, suit, investigation,
inquiry, or proceeding ("Litigation") pending, or to the knowledge of
the Blue Dolphin Company threatened, to which such Blue Dolphin Company
is or would be a party and which relates to the Assets. As of the date
hereof there is no Litigation, judgment or outstanding order, writ,
injunction, decree, stipulation, or award (whether rendered by a court
or administrative agency, or by arbitration) to which that Blue Dolphin
Company is bound that would prohibit or delay in any material respect
the consummation of the transactions contemplated hereby or in the
Closing Agreements or that could otherwise be reasonably expected to
materially adversely affect the Purchased Interests.
(d) VALIDITY AND ENFORCEABILITY. The Blue Dolphin Company has the
corporate power and authority to execute and deliver this Agreement and
the Closing Agreements. The execution and delivery by the Blue Dolphin
Company of this Agreement and the Closing Agreements and the
consummation by the Blue Dolphin Company of the transactions and
performance of the terms and conditions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action
on behalf of that Blue Dolphin Company. This Agreement has been, and at
the Closing the Closing Agreements will be, duly and validly executed
and delivered by the Blue Dolphin Company and, assuming this Agreement
and the Closing Agreements constitute valid and binding obligations of
COPP, this Agreement constitutes, and at the Closing this Agreement and
the Closing Agreements will constitute, valid and binding obligations of
the Blue Dolphin Company, enforceable in accordance with their
respective terms (except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, bank moratorium, fraudulent
conveyance, or similar laws affecting creditors' rights generally,
general principles of equity, and laws restricting the availability of
equitable remedies).
(e) CONDITION OF ASSETS. Except as set forth on Schedule 4.01(e),
the Assets constitute all of the assets and properties used in
connection with the Businesses. To the knowledge of the Blue Dolphin
Company, the Assets owned by the Blue Dolphin Company are in serviceable
and functional condition, subject only to (i) normal maintenance
requirements and normal wear and tear reasonably expected in the
ordinary course of business based on the age and nature of such Assets
or (ii) any other matters which do not have a material adverse effect on
the Purchased Interests, and are suitable for the purposes used and are
adequate for the normal operation of the respective Business.
(f) OWNERSHIP OF ASSETS. The Blue Dolphin Company is the owner of
and has title to the Purchased Interests which are to be assigned by
that Blue Dolphin Company pursuant to Section 1.01, free and clear of
all Liens other than Permitted Encumbrances.
(g) GOVERNMENTAL LICENSES AND PERMITS. To the knowledge of the
Blue Dolphin Company, (i) the Blue Dolphin Company possesses all
governmental licenses, franchises, permits, certificates, orders,
approvals, authorizations, exemptions, registrations, and similar
documents or instruments (the "Permits") necessary for the ownership,
operation, and maintenance of the Assets as currently operated (all of
which are listed on Schedule 4.01(g)), and (ii) the Assets are in
compliance with the Permits and all orders, judgments and decrees
applicable to the ownership, use, maintenance, and operation of the
Assets.
(h) CONTRACTS. Schedule 1.03 sets forth all of the Customer
Contracts. The contracts and agreements listed on Schedule 4.01(h) (the
"Applicable Operating Agreements") constitute all of the material
contracts and agreements (other than the Customer Contracts) relating to
the continued ownership, operation, and maintenance of the Assets by the
Blue Dolphin Company and, except as set forth on Schedule 4.01(h), each
of the Customer Contracts and the Applicable Operating Agreements is in
full force and effect and there is no breach or default by the Blue
Dolphin Company under any such contract or agreement (or the occurrence
of any event which, after the giving of notice or the passage of time or
otherwise, will result in a breach or default) that could reasonably be
expected to have a material adverse effect on the ownership, operation,
or maintenance of the Purchased Interests. To the knowledge of the Blue
Dolphin Company, no other party to any of such contracts or agreements
is in breach of or in default under such contracts and agreements, nor
has any assertion been made by the Blue Dolphin Company of any such
breach or default. Except as disclosed on Schedule 4.01(h) and Section
6.10, each of such contracts and agreements are freely and fully
assignable to COPP without penalty or other adverse consequence.
(i) COMPLIANCE WITH LAWS. To the knowledge of the Blue Dolphin
Company, the Blue Dolphin Company is operating the Assets in compliance
with all laws, rules and regulations of federal, state, or local
entities (other than Environmental Laws (as defined below)) which have
jurisdiction over the Blue Dolphin Company or the ownership, operation,
and maintenance of the Assets. The Blue Dolphin Company is not charged
or, to the knowledge of the Blue Dolphin Company, threatened with or
under investigation with respect to, any violation of any applicable law
relating to any aspect of the ownership or operation of the Assets or
the operation of the respective Business.
(j) ENVIRONMENTAL MATTERS. Except as set forth on Schedule
4.01(j), to the knowledge of the Blue Dolphin Company, the Assets have
been operated by the Blue Dolphin Company in compliance with all
applicable Environmental Laws (as defined below), other than violations
which individually or in the aggregate do not and will not have a
material adverse effect on the operation and ownership of the Assets or
the results of operations and the condition (financial or otherwise) or
prospects of the respective Business. There is at the date hereof no
pending Litigation or, to the knowledge of that Blue Dolphin Company,
any threatened Litigation, relating to any violation of any
Environmental Laws with respect to the Assets; and to the Blue Dolphin
Company's knowledge, all material notices, permits, or similar
authorization, if any, required to be obtained or filed in connection
with the ownership and operation of the Assets, including, without
limitation, the treatment, storage, disposal, or release of a hazardous
substance or solid waste into the environment, have been duly obtained
or filed. As used in this Agreement "Environmental Laws" means any and
all laws, statutes, ordinances, rules, regulations, orders, judicial, or
arbitrated decisions, or determinations of any governmental authority or
court pertaining to the environment currently in effect in Brazoria or
Galveston County, Texas and offshore of the Texas Gulf Coast, including,
without limitation, the Clean Air Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended
("CERCLA"), the Federal Water Pollution Control Act, as amended, the
Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended ("RCRA"), the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act, as amended, comparable
state and local laws, and other safety, health, and environmental
conservation or protection laws. The term "release" has the meaning
specified in the CERCLA, and the term "disposal" (or "disposed") has the
meaning specified in the RCRA.
(k) NO BROKERS. Neither the Blue Dolphin Company nor any of its
affiliates has employed any investment banker, broker, or finder in
connection with the transactions contemplated by this Agreement, nor has
any of them taken any action which would give rise to any valid claim
against COPP or any of its affiliates, officers, directors, or employees
for a brokerage commission, finder's fee, or other like payment in
connection with the transaction evidenced hereby.
(l) CONFORMITY OF COPIES. The Blue Dolphin Companies have made
available to COPP accurate and complete copies of all Customer Contracts
and Applicable Operating Agreements.
(m) NO CHANGES. Except as disclosed on Schedule 4.01(m), since
July 20, 1995 (i) there has not been any material adverse change in, or
any event or condition that might reasonably be expected to result in
any material adverse change in, the business, assets, results of
operations, or condition of the Businesses or the ownership or operation
of the Assets or any material portion thereof; (ii) the Businesses have
been conducted only in the ordinary course consistent with past
practice; (iii) the Blue Dolphin Company has not, in respect of the
Business conducted by that Blue Dolphin Company, incurred any material
liability, engaged in any material transaction, or entered into any
material agreement outside the ordinary course of business consistent
with past practice; (iv) the Blue Dolphin Company has not suffered any
material loss, damage, destruction, or other casualty to any of the
Assets (whether or not covered by insurance); and (v) the Blue Dolphin
Company has not, in respect of the Business conducted by that Blue
Dolphin Company, taken any of the actions set forth in Section 6.07
except as permitted thereunder.
(n) ACCURACY AS OF THE CLOSING DATE. The representations and
warranties made in this Article IV will be true and correct on and as of
the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing
Date, except that any such representations and warranties which
expressly relate only to an earlier date shall be true and correct on
the Closing Date as of such earlier date.
(o) NOT A RETAILER. MEI is not engaged in the business of selling
tangible personal property at retail, does not hold a sales and use tax
permit issued by the state of Texas, and has not made any retail sale of
tangible personal property during the twelve month period ending on the
Closing Date.
(p) EMPLOYEES. None of the Blue Dolphin Companies employ any
individuals.
(q) FORECASTS AND PROJECTIONS. To the knowledge of the Blue
Dolphin Companies, the forecasts of future throughput and operating
expenses previously provided to COPP by the Blue Dolphin Companies were
prepared based upon reasonable assumptions.
(r) CORPORATE STRUCTURE. Each Blue Dolphin Company is wholly
owned by Blue Dolphin Energy Company, a Delaware corporation.
(s) DISCLOSURE OF OTHER MATTERS. To the knowledge of the Blue
Dolphin Company, no representation or warranty made by the Blue Dolphin
Company in this Agreement, and no statement of the Blue Dolphin Company
contained in any Closing Agreement, contains or will contain, at the
time of delivery, any untrue statement of a material fact or omits or
will omit, at the time of delivery, to state any material fact necessary
in order to make the statements contained therein, in light of the
circumstances under which they are made, not misleading. To the
knowledge of the Blue Dolphin Company, it is not aware of any
information which could not have been discovered pursuant to a
reasonable and diligent investigation of the files and records
maintained by the Blue Dolphin Company (including the records listed on
Schedule 9.02) which would materially and adversely affect the operation
or ownership of the Assets. The Blue Dolphin Company has made available
to COPP accurate and complete copies of all agreements, documents, and
other writings referred to or listed in this Article or any Schedule
hereto, exclusive of the records listed on Schedule 9.02.
4.02 NO OTHER WARRANTIES. Except as and to the extent set forth
in this Article IV, the Blue Dolphin Company (i) has not made any
representations or warranties to COPP whatsoever, and (ii) hereby
disclaims all liability and responsibility for any other representation,
warranty, statement, or information made or communicated (orally or in
writing) to COPP by any person, including without limitation a Blue
Dolphin Company or any of their representatives. Specifically, COPP
acknowledges that none of the Blue Dolphin Companies nor any of their
affiliates have made any representation or warranty other than that
which is set forth in Section 4.01(e) relating to the condition,
fitness, or suitability of any of the tangible assets included in the
Purchased Interests, and acknowledges that it will acquire such tangible
assets, except for the representations set forth in Section 4.01(e), "AS
IS" and "WHERE IS" without any representation or warranty from any of
the Blue Dolphin Companies or any of their affiliates relating to their
condition, merchantability or fitness for a specific purpose.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COPP
5.01 BY COPP. COPP represents and warrants to each of the Blue
Dolphin Companies as set forth below:
(a) ORGANIZATION AND POWERS. COPP (i) is a corporation duly
organized, validly existing, and in good standing under the laws of the
state of Michigan, (ii) is duly qualified to do business in, and is in
good standing under the laws of, the state of Texas, and (iii) has all
corporate power and authority necessary to conduct its business as it is
presently conducted.
(b) AGREEMENTS AND CONSENTS. Neither the execution, delivery, nor
performance of this Agreement or the Closing Agreements by COPP will (i)
conflict with or result in any breach of any provisions of the
certificate of incorporation or bylaws of COPP; (ii) to COPP's
knowledge, require the consent or approval, authorization, or permit of,
or filing with or notification to, any governmental or regulatory
authority, except any regulatory approvals or routine governmental
consents normally acquired after consummation of transactions such as
transactions of the nature contemplated by this Agreement, (iii)
violate, effect acceleration of, or result in termination, cancellation,
or modification of any material agreement, indenture, instrument, lease,
contract, or other undertaking to which COPP is a party or by which it
is bound, except for such defaults (or rights of termination,
cancellation, or acceleration) as to which requisite waivers or consents
have been obtained or will be obtained prior to the Closing; or (iv)
violate any order, writ, or injunction to which COPP is bound or may be
bound, or (v) to the knowledge of COPP, violate any decree, statute,
rule, or regulation to which COPP is bound or may be bound.
(c) LITIGATION; ORDERS. There is no Litigation, judgment or
outstanding order, writ, injunction, decree, stipulation, or award
(whether rendered by a court or administrative agency, or by
arbitration) pending, or to the knowledge of COPP threatened, to which
COPP is or would be a party or to which COPP is bound that would have an
adverse effect on the ability of COPP to consummate the transactions
contemplated hereby or in the Closing Agreements or that would prevent
or delay in any material respect the consummation of the transactions
contemplated hereby or in the Closing Agreements or could otherwise be
reasonably expected to materially adversely affect the Purchased
Interests.
(d) VALIDITY AND ENFORCEABILITY. COPP has the corporate power and
authority to execute and deliver this Agreement and the Closing
Agreements. The execution and delivery by COPP of this Agreement and
the Closing Agreements and the consummation by COPP of the transactions
and performance of the terms and conditions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate
action on behalf of COPP. This Agreement has been, and at the Closing
the Closing Agreements will be, duly and validly executed and delivered
by COPP and, assuming this Agreement and the Closing Agreements
constitute a valid and binding obligation of the Blue Dolphin Companies,
the Agreements constitute, and at the Closing the Closing Agreements
will constitute, valid and binding obligations of COPP, enforceable
against COPP in accordance with their respective terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, bank moratorium, fraudulent conveyance, or similar laws
affecting creditors' rights generally, general principles of equity, and
laws restricting the availability of equitable remedies).
(e) NO BROKERS. COPP has advised the Blue Dolphin Companies that
at the Closing COPP (but not any of the Blue Dolphin Companies) will
incur an obligation to Cherry McNeil Associates ("CMA") for the payment
of a fee in connection with this transaction. Except as described in
the immediately preceding sentence, neither COPP nor any of its
affiliates has employed any investment banker, broker, or finder in
connection with the transactions contemplated by this Agreement, nor has
any of them taken any action which would give rise to any valid claim
against any Blue Dolphin Company or any of their affiliates, officers,
directors, or employees for a brokerage commission, finder's fee, or
other like payment in connection with the transaction evidenced hereby.
(f) NO DISTRIBUTION. COPP is an experienced and knowledgeable
investor in the natural gas and liquids pipeline business. Prior to
entering into this Agreement, COPP was advised by its counsel and such
other persons it has deemed appropriate concerning this Agreement. COPP
is acquiring the Purchased Interests for its own account and for
investment, and not in connection with a distribution thereof in
violation of the Securities Act of 1933, as amended, and the rules and
regulations as promulgated thereunder or any applicable state blue sky
laws.
(g) CORPORATE STRUCTURE. COPP is wholly owned by Pipeline &
Processing Group, Inc., a Michigan corporation, which is wholly owned by
MCN Investment Corporation, a Michigan corporation.
(h) ACCURACY AS OF THE CLOSING DATE. The representations and
warranties made in this Article V will be true and correct on and as of
the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing
Date, except that any such representations and warranties which
expressly relate only to an earlier date shall be true and correct on
the Closing Date as of such earlier date.
ARTICLE VI
ADDITIONAL COVENANTS
6.01 EXCLUSIVITY. On or before August 31, 1995 or the occurrence
of the Closing, whichever occurs first, the Blue Dolphin Companies shall
not, indirectly or directly, through any director, officer, agent,
financial advisor, affiliate or otherwise, solicit, initiate or
encourage submission of proposals of offers from any person relating to
any acquisition or purchase of all or a portion of the Assets, and shall
not participate in any negotiations regarding, or furnish to any other
person any information with respect to, or otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the
foregoing, unless COPP has indicated that it does not intend to
consummate the transactions contemplated hereby on or before the Closing
Date for any reason, in which case the obligations of the Blue Dolphin
Companies under this Section 6.01 shall terminate.
6.02 PUBLIC ANNOUNCEMENTS. Without the prior written approval of
the other parties hereto, which approval shall not be unreasonably
withheld, no party hereto will issue, or permit any agent or affiliate
to issue, any press releases or otherwise make or cause any agent or
affiliate to make, any public statements with respect to this Agreement
or the transactions contemplated hereby except where such release or
statement is deemed in good faith by the releasing party to be required
by applicable law or any national securities exchange. Any party or
parties issuing such a release or statement will use its or their
reasonable efforts to provide a copy to the other parties prior to the
issuance of such release or statement.
6.03 TAX MATTERS.
(a) The term "Taxes" shall mean all income, gross receipts,
profits, franchise, sales, use, occupation, property (including in
lieu-of-taxes), ad valorem, capital, wealth, environmental, employment,
severance, production, excise, stamp, transfer, workers' compensation,
social security, withholding or similar taxes, motor vehicle
registration fees, customs or import duties and all other taxes or other
governmental fees or charges imposed by any country or political
subdivision thereof, together with any interest, additions or penalties
with respect thereto.
(b) COPP shall pay all transfer taxes, including without
limitation, sales, use, excise (including excise taxes on petroleum,
products of petroleum, petrochemicals, chemicals, and other taxable
substances), stamp, documentary, filing, recording, permit, license,
authorization, and other similar Taxes, filing fees and similar charges
("Transfer Taxes"), incurred or imposed in connection with or as a
result of the transactions effected pursuant to this Agreement
regardless of upon whom such Transfer Tax is levied or imposed by law.
COPP shall prepare and file all returns and reports for such Transfer
Taxes. Should any of the Blue Dolphin Companies be required by law to
pay such Transfer Tax, COPP shall notify the appropriate Blue Dolphin
Company of such amount and the due dates thereof and remit the amount of
such Transfer Tax and pre-prepared filings associated therewith to the
Blue Dolphin Company for remittance at least ten days before such
Transfer Tax is due.
(c) The Blue Dolphin Companies shall be liable for all Taxes
(other than Transfer Taxes described in Section 6.03(b)) incurred in
connection with the sale of the Purchased Interests and all taxes with
respect to the ownership and operation of the Purchased Interests for
taxable periods ending on or before the Effective Time. COPP shall be
liable for its pro rata share of all Taxes (other than (subject to its
obligations under the Operating Agreements) employment, workers'
compensation, social security, withholding, or similar taxes relating to
employees) imposed with respect to the ownership and operation of the
Assets for periods beginning after the Effective Time. With respect to
the taxable period which includes the Effective Time (i) property and
other ad valorem Taxes accruing with respect to the Purchased Interests
shall be apportioned between the respective Blue Dolphin Company, on the
one hand, and COPP, on the other hand, based on the daily proration of
such Taxes, and (ii) any other Taxes accruing during such period shall
be equitably apportioned among the parties.
(d) The Blue Dolphin Companies and COPP agree that the Purchase
Price shall be allocated among the Purchased Interests in the manner set
forth in Schedule 6.03(d). Each party agrees to complete IRS Form 8594
consistently with the agreed allocation and to furnish the other party
with a draft copy of such form within a reasonable period before the
filing due date of such form. Neither the Blue Dolphin Companies nor
COPP shall file any return with a tax authority that is inconsistent
with such allocation.
6.04 FURTHER ASSURANCES. After the Closing, the Blue Dolphin
Companies and COPP shall, and shall cause their affiliates to, execute,
acknowledge, and deliver all such further conveyances, notices,
assumptions, releases, and acquittances, and such other instruments, and
shall take such further actions, as may be necessary or appropriate more
fully to assure to COPP, and its successors or assigns, all of the
properties, rights, titles, interests, estates, remedies, powers, and
privileges intended to be conveyed to COPP pursuant to this Agreement
and to assure fully to the Blue Dolphin Companies, their affiliates and
successors and assigns, the assumption of the liabilities and
obligations intended to be assumed by COPP pursuant to this Agreement.
6.05 CASUALTY LOSS AND CONDEMNATION. In the event that there
exist at and as of the Closing any casualty loss or condemnation
proceeding with respect to the Purchased Interests, the Blue Dolphin
Companies shall assign to COPP at and as of the Closing any rights it
may have to claims against any insurance carrier, governmental entity,
or third party with respect to such casualty loss or condemnation
proceeding.
6.06 CONDUCT AND PRESERVATION OF BUSINESS. Except as expressly
provided in this Agreement, during the period from the date hereof to
the Closing, each Blue Dolphin Company (i) shall conduct the Business
now conducted by that Blue Dolphin Company only in the ordinary course
consistent with past practice and in compliance with all applicable
laws; (ii) shall use its reasonable best efforts to preserve, maintain,
and protect the Assets; and (iii) shall use its reasonable best efforts
to preserve intact the business organization of such Business, to keep
available the services of the employees of the Business, and to maintain
existing relationships with licensors, licensees, suppliers,
contractors, distributors, customers, and others having business
relationships with the Business.
6.07 RESTRICTIONS ON CERTAIN ACTIONS. Without limiting the
generality of Section 6.06, and except as otherwise expressly provided
in this Agreement, prior to the Closing, each Blue Dolphin Company shall
not, without the prior written consent of COPP:
(a) make any material change in the ongoing operations of the
Assets or the Business;
(b) except in the ordinary course of the Business consistent
with past practice, create, incur, guarantee, or assume any
indebtedness for borrowed money in respect of the Business;
(c) mortgage or pledge any of the Assets or create or suffer
to exist any encumbrance thereupon, other than the Permitted
Encumbrances;
(d) sell, lease, transfer, or otherwise dispose of, directly
or indirectly, any of the Assets, other than inventories of
finished goods sold in the ordinary course of the Business
consistent with past practice;
(e) make any capital expenditure or expenditures relating to
any of the Businesses which, individually, is in excess of $75,000
or, in the aggregate, are in excess of $75,000;
(f) permit any current insurance or reinsurance policies
covering the Assets to be cancelled or terminated or any of the
coverages thereunder to lapse if such policy covers Assets or
insures risks, contingencies, or liabilities of the Business,
unless simultaneously with such cancellation, termination, or
lapse, replacement policies providing coverage equal to or greater
than the coverage cancelled, terminated, or lapsed are in full
force and effect and written copies thereof have been provided to
COPP;
(g) take any action which would make any of the
representations or warranties of a Blue Dolphin Company contained
in this Agreement untrue or inaccurate as of any time from the date
of this Agreement to the Closing or would result in any of the
conditions set forth in this Agreement not being satisfied; or
(h) authorize or agree in writing or otherwise to take any of
the actions described in this Section.
6.08 THIRD PARTY CONSENTS. The Blue Dolphin Companies and COPP
shall use their respective reasonable best efforts to obtain all
consents, approvals, orders, authorizations, and waivers of, and to
effect all declarations, filings, and registrations with, all third
parties (including governmental entities) that are necessary or required
to enable the Blue Dolphin Companies to transfer the Purchased Interests
to COPP as contemplated by this Agreement and to otherwise consummate
the transactions contemplated hereby. All costs and expenses of
obtaining or effecting any and all of the consents, approvals, orders,
authorizations, waivers, declarations, filings, and registrations
referred to in this Section shall be borne by the Blue Dolphin Company,
provided, however, that the foregoing shall not affect the obligation of
COPP to pay such expenses as required for it to comply with regulatory
requirements imposed on it.
6.09 AMENDMENT OF SCHEDULES. Each Blue Dolphin Company agrees
that, with respect to the representations and warranties of such Blue
Dolphin Company contained in this Agreement, such Blue Dolphin Company
shall have the continuing obligation until the Closing to supplement or
amend promptly the Schedules with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth
in Section 7.01 has been fulfilled, the Schedules shall be deemed to
include only that information contained therein on the date of this
Agreement and shall be deemed to exclude all information contained in
any supplement or amendment thereto; provided, however, that if the
Closing shall occur, then all matters disclosed pursuant to any such
supplement or amendment at or prior to the Closing shall be waived and
no party shall be entitled to make a claim thereon pursuant to the terms
of this Agreement.
6.10 ASSIGNMENT OF CUSTOMER CONTRACTS. Substantially all of the
Customer Contracts include provisions which require that a party
thereto, prior to assigning the respective Customer Contract, must
obtain the consent of the other party thereto, which consent is not to
be unreasonably withheld. In order to comply with these provisions, the
parties hereto have agreed that the Blue Dolphin Companies will not
assign an interest in the Customer Contracts at Closing. The Blue
Dolphin Companies will (a) from and after the Closing use reasonable
best efforts to promptly obtain the consent of the customers to the
assignment of the Customer Contracts to COPP pursuant to Section 1.03,
and (b) will deliver to COPP on or before the day which is ninety (90)
days after the Closing Date an Assignment substantially in the form of
Exhibit 6.10 pursuant to which undivided 1/3 interests in the Customer
Contracts are assigned to COPP pursuant to Section 1.03. The Blue
Dolphin Companies will mail a letter to each of the Major Customers (as
hereinafter defined) requesting their consent to the assignment of the
respective Customer Contract to COPP within thirty (30) days of the
Closing Date. If the written consent of any of the Major Customers is
not received within fifty (50) days of the Closing Date, the Blue
Dolphin Company shall within sixty (60) days of the Closing Date mail a
second letter to the Major Customers who have not consented requesting
their consent to the transaction. If the consent of any of the Major
Customers is not received within eighty (80) days of the Closing Date,
the Blue Dolphin Companies will mail a third letter to such Major
Customers requesting their consent and stating that their consent will
be deemed given on the ninetieth (90th) day after the Closing Date. The
Blue Dolphin Companies shall provide copies of all such letters to COPP.
The failure of any of the Blue Dolphin Companies to mail a letter
required of it pursuant to this Section shall result in the Blue Dolphin
Companies being jointly and severally obligated to pay COPP an aggregate
amount of $2,000 per week until such failure is cured. The maximum
liability of all of the Blue Dolphin Companies collectively shall be
$2,000 per week pursuant to this Section. For the purpose of this
Section, the term "Major Customer" shall mean any customer whose average
daily throughput through the Blue Dolphin Pipeline exceeds 1500 MCF of
gas per day, or forty (40) barrels of condensate per day, based on
average daily throughput during the ninety (90) days prior to the
Closing Date. The Blue Dolphin Companies represent and warrant that the
Major Customers represent over ninety-five percent (95%) of the revenue
attributable to the Businesses. Notwithstanding anything to the
contrary herein, with respect to any Customer Contract that has not been
assigned, COPP shall be entitled to receive its pro rata share of the
benefits and shall bear its pro rata share of the obligations of such
Customer Contract as if it had been assigned.
6.11 TEXAS LAND OFFICE. The easements listed on Exhibits 1.01(a)
and 1.01(b) which have been issued by the state of Texas purport to
require the advance consent of the state of Texas to an assignment
thereof. The Blue Dolphin Companies have been advised by counsel,
however, that such consents are normally obtained after the consummation
of the applicable transaction. Accordingly, the parties have agreed to
use their reasonable best efforts to obtain such consents subsequent to
the Closing.
ARTICLE VII
CONDITIONS TO CLOSING
7.01 CONDITIONS TO COPP'S OBLIGATION TO CLOSE. The obligation of
COPP to consummate the transactions contemplated hereby is subject to
the satisfaction or waiver at or prior to the Closing of all of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Blue Dolphin Companies contained in this Agreement
shall be true and correct in all material respects at and as of the
Closing with the same effect as though such representations and
warranties had been made at and as of the Closing, except for the
representations and warranties that speak as of a specific date or time
other than the date of this Agreement, which need only be true and
correct as of such date or time. For the sole purpose of determining
whether or not any of such representations and warranties are true and
correct as aforesaid on and as of the Closing Date, no effect shall be
given to any statement herein that any such representation or warranty
is "to the knowledge of Blue Dolphin Company."
(b) COMPLIANCE WITH COVENANTS. The Blue Dolphin Companies shall
have performed in all material respects the covenants and agreements to
be performed on or before the Closing in accordance with this Agreement.
(c) OFFICER'S CERTIFICATE. COPP shall have received at the
Closing a certificate confirming the matters referred to in Section 7.01
(a) and (b) dated the Closing Date and validly executed on behalf of the
Blue Dolphin Companies by duly authorized officers thereof.
(d) NO INJUNCTION. At and as of the Closing, there shall be no
injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect
that restrains or prohibits the Closing.
(e) CASUALTY LOSS. The Purchased Interests shall not have been
materially damaged, lost, or destroyed and there shall have been no
condemnation of the Purchased Interests where the cost to repair or
replace such assets to the condition prior to such damage, loss,
destruction, or taking exceeds an amount equal to 5% of the Purchase
Price.
(f) DUE DILIGENCE. COPP shall be satisfied with the results of
its due diligence review of the Assets (including an outward examination
of the structural integrity of the Blue Dolphin Pipeline and the
performance of an environmental review).
(g) CONDITION OF THE ASSETS. There shall have been no material
adverse change in the condition of the Assets since the date of this
Agreement.
(h) ALL NECESSARY CONSENTS AND APPROVALS. Except as provided in
Sections 6.10 and 6.11, all material consents and approvals of third
parties (including governmental entities) necessary or required in
connection with the consummation of the transactions contemplated to
occur at the Closing shall have been obtained, including the consent of
Bank One, Texas, N.A. ("Bank One").
(i) OPINION OF COUNSEL. COPP shall have received an opinion of
Cokinos, Bosien & Young, legal counsel to the Blue Dolphin Companies,
dated the Closing Date, in the form of Exhibit 7.01(i).
(j) BANK ONE LIEN RELEASE. Bank One shall have released its
security interests and liens against the Purchased Interests.
7.02 CONDITIONS TO THE OBLIGATION OF THE BLUE DOLPHIN COMPANIES TO
CLOSE. The obligation of the Blue Dolphin Companies to consummate the
transactions contemplated hereby is subject to the satisfaction or
waiver at or prior to the Closing of all of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of COPP contained in this Agreement shall be true and correct
in all material respects at and as of the Closing with the same effect
as though such representations and warranties had been made at and as of
the Closing, except for the representations and warranties that speak as
of a specific date or time other than the date of this Agreement, which
need only be true and correct as of such date or time. For the sole
purpose of determining whether or not any of such representations and
warranties are true and correct as aforesaid on and as of the Closing
Date, no effect shall be given to any statement herein that any such
representation or warranty is "to the knowledge of COPP".
(b) COMPLIANCE WITH COVENANTS. COPP shall have performed in all
material respects the covenants and agreements to be performed at or
before the Closing in accordance with this Agreement.
(c) OFFICER'S CERTIFICATE. The Blue Dolphin Companies shall have
received at the Closing a certificate confirming the matters referred to
in Section 7.02 (a) and (b) dated the Closing Date and validly executed
on behalf of COPP by a duly authorized officer thereof.
(d) NO INJUNCTION. At and as of the Closing, there shall be no
injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect
that restrains or prohibits the Closing.
(e) CASUALTY LOSS. The Purchased Interests shall not have been
materially damaged, lost, or destroyed and there shall have been no
condemnation of the Purchased Interests where the cost to repair or
replace such assets to the condition prior to such damage, loss,
destruction, or taking exceeds an amount equal to 5% of the Purchase
Price.
(f) ALL NECESSARY CONSENTS AND APPROVALS. Except as provided in
Sections 6.10 and 6.11, all material consents and approvals of third
parties (including governmental entities) necessary or required in
connection with the consummation of the transactions contemplated to
occur at the Closing shall have been obtained, including the consent of
Bank One.
(g) OPINION OF COUNSEL. The Blue Dolphin Companies shall have
received an opinion of Daniel L. Schiffer, General Counsel to MCN and
legal counsel to COPP, dated the Closing Date, in the form of Exhibit
7.02(g).
(h) BANK ONE RELEASE. Bank One shall have released its Liens
against the Purchased Interests.
ARTICLE VIII
ASSUMPTION AND INDEMNIFICATION
8.01 ASSUMPTION OF LIABILITIES RELATING TO THE PURCHASED
INTERESTS. As of the Effective Time, COPP shall assume and agree to
pay, perform, and discharge or cause to be paid, performed, and
discharged all duties, obligations, and liabilities ("Obligations")
arising out of, in connection with, or otherwise in respect of the
ownership or operation of the Purchased Interests, whether primary or
secondary, fixed or contingent, arising after the Effective Time,
including (a) a pro rata portion of the duties, obligations, and
liabilities of the Blue Dolphin Companies under the Customer Contracts
and the Applicable Operating Agreements, and (b) a pro rata share of the
cost of the improvements described on Exhibit 1.02 to the extent the
gross amount of such costs exceed $500,000, up to a maximum liability of
$83,300 (collectively, the "Assumed Obligations"); provided, however,
that COPP does not assume any Obligations of the Blue Dolphin Companies
associated with or arising out of matters as to which a Blue Dolphin
Company is obligated to indemnify COPP pursuant to Section 8.02.
8.02 INDEMNIFICATION BY THE BLUE DOLPHIN COMPANY. Each Blue
Dolphin Company shall jointly and severally indemnify, defend, and hold
harmless COPP (and its directors, officers, employees, affiliates,
successors, and assigns) from and against any Obligations based upon,
arising out of or otherwise in respect of (a) any inaccuracy in or
breach of any representation, warranty, or covenant of any Blue Dolphin
Company contained in this Agreement; (b) any Obligations arising out of,
in connection with, or otherwise in respect to the ownership of the
Purchased Interests arising before the Effective Time, and (c) any
liability for Taxes the responsibility for the payment of which is
retained by that Blue Dolphin Company pursuant to Section 6.05(c);
provided, however, that the Blue Dolphin Companies shall have no
liability under this Section 8.02 with respect to matters described in
clause (a) above for Obligations until the aggregate amount of such
Obligations shall exceed the sum of $200,000 and, in any event only with
respect to the amount in excess thereof, subject at all times, to the
provisions of this Article VIII. Notwithstanding anything to the
contrary herein contained, the maximum aggregate amount of the
obligations of the Blue Dolphin Companies to indemnify COPP pursuant to
this Section 8.02 shall be $10,000,000.
8.03 INDEMNIFICATION BY COPP. COPP shall indemnify, defend, and
hold harmless each of the Blue Dolphin Companies (and their respective
directors, officers, employees, affiliates, successors, and assigns)
from and against any Obligations based upon, arising out of or otherwise
in respect of (a) any inaccuracy in or breach of any representation,
warranty, or covenant of COPP contained in this Agreement; (b) any
liability for Taxes the responsibility for the payment of which is
assumed by COPP pursuant to Section 6.05(b) and (c) hereof; (c) the
Assumed Obligations, and (d) any claim asserted by CMA arising from the
consummation of the transactions contemplated hereby.
8.04 NOTICE OF ASSERTED LIABILITY. Promptly after receipt by any
party hereto (the "Indemnitee") of notice of any demand, claim, or
circumstance which, with the lapse of time, would give rise to a claim
or the commencement (or threatened commencement), or any action,
proceeding, or investigation (an "Asserted Liability") that may result
in an Obligation, the Indemnitee shall give notice thereof (the "Claims
Notice") to the other party hereto (the "Indemnifying Party"). The
Claims Notice shall describe the Asserted Liability in reasonable
detail, and shall indicate the amount (estimated, if necessary) of the
Obligation that has been or may be suffered by the Indemnitee.
Notwithstanding the foregoing, no party shall have any liability for
claims arising pursuant to Section 8.02(a) or 8.03(a) unless a Claims
Notice has been delivered within the appropriate time period indicated
in Section 9.01.
8.05 OPPORTUNITY TO DEFEND. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any
Asserted Liability and if it does so the Indemnifying Party shall have
the right to make all judgments and decisions in respect of the handling
of the defense of such Asserted Liability and the settlement or
compromise of the Asserted Liability, subject to the provisions of this
Section 8.05. If the Indemnifying Party elects to defend such Asserted
Liability, it shall within 30 days of the Claims Notice (or sooner, if
the nature of the Asserted Liability so requires) notify the Indemnitee
of its intent to do so, and the Indemnitee shall cooperate, as requested
by and at the expense of the Indemnifying Party, in the compromise of,
or defense against, such Asserted Liability. If the Indemnifying Party
elects not to defend the Asserted Liability, fails to notify the
Indemnitee of its election as herein provided or contests its obligation
to indemnify under this Agreement, the Indemnitee may pay, compromise,
or defend such Asserted Liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or
compromise any claim subject to indemnification over the objection of
the other, provided, however, that consent to settlement or compromise
shall not be unreasonably withheld. In any event, the Indemnitee and
the Indemnifying Party may participate, at their own expense, in the
defense of such Asserted Liability. If the Indemnifying Party chooses
to defend any claim, the Indemnitee shall make available to the
Indemnifying Party any books, records, or other documents within its
control that are necessary or appropriate for such defense.
8.06 NEGLIGENCE AND STRICT LIABILITY WAIVER. The indemnification
provided for in this Article VIII shall be applicable regardless of
whether Obligations in question arose solely or in part from the active,
passive, or concurrent negligence of any Indemnitee (or under any theory
of strict liability) prior to the Effective Time or after the Effective
Time, as the case may be.
8.07 EXCLUSIVE REMEDY. After the Closing, and to the extent
permitted by applicable law, the rights and remedies expressly set forth
in this Agreement and in the Closing Agreements shall be the exclusive
rights and remedies of the parties hereto with respect to the matters
set forth herein.
ARTICLE IX
MISCELLANEOUS
9.01 SURVIVAL. The representations and warranties made by the
Blue Dolphin Companies and COPP pursuant to this Agreement shall expire
eighteen (18) months after the Closing Date and shall thereafter be of
no force and effect except such representations and warranties shall be
considered as continuing until three (3) years after the Closing Date
with respect to any intentional and willful misrepresentations set forth
herein, after which time no claim or suit may be brought with respect to
the same.
9.02 DUE DILIGENCE REVIEW. COPP acknowledges that it has assumed
the responsibility for conducting its own due diligence review with
respect to the Assets and the transactions contemplated hereby. COPP
acknowledges that except as set forth on Schedule 9.02 it has been
provided full access to such information as it has requested from the
Blue Dolphin Companies with respect to the Assets and the books,
records, facilities, leases, equipment, consultants, and personnel of
the Blue Dolphin Companies and all other matters and things sought to be
examined by COPP in connection with its due diligence investigation, and
that it has conducted its due diligence review to its satisfaction.
COPP acknowledges that it has conducted its own independent evaluation
of any forecast or projection provided to it by any of the Blue Dolphin
Companies or their representatives, and specifically has independently
evaluated the future throughput, revenue, and expenses of the Purchased
Interests.
9.03 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other party.
9.04 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas without
reference to the conflicts of law principles thereof.
9.05 ENTIRE AGREEMENT. The Agreements and the Schedules and
Exhibits hereto supersede all prior agreements between the parties
(written or oral) other than the Confidentiality Agreement executed by
Blue Dolphin Energy Company and COPP, dated March 21, 1995 and, except
as aforesaid, is intended as a complete and exclusive statement of the
terms of the agreement between the parties. This Agreement may be
amended only by a written instrument duly executed by the parties.
9.06 EXPENSES. Except as expressly set forth in this Agreement,
whether the transactions contemplated hereby are or are not consummated,
all legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses.
9.07 NOTICES. All notices hereunder shall be sufficiently given
(and deemed made) for all purposes hereunder if in writing and (a)
delivered personally, (b) sent by documented overnight delivery service,
(c) to the extent receipt is confirmed, sent by telecopy, telefax, or
other electronic transmission service to the appropriate address or
number as set forth below, or (d) sent by United States mail, postage
prepaid with return receipt requested. Notices to any of the Blue
Dolphin Companies shall be transmitted or addressed to:
(Name of Blue Dolphin Company) 11 Greenway Plaza, Suite 1606
Houston, Texas 77046 Attention: President Telecopier No.: (713)
621-4687
with a copy to:
Cokinos, Bosien & Young 1500 Liberty Tower 2919 Allen Parkway
Houston, Texas 77019 Attention: Mr. Casey W. Doherty Telecopier
No.: (713) 535-5533
or at such other addresses or telefax numbers and to the attention of
such other person as the Blue Dolphin Company may designate by written
notice to each of the other parties.
Notices to COPP shall be transmitted or addressed to:
150 West Jefferson Avenue Suite 1800 Detroit, Michigan 48226
Attention: Vice President Telecopier No.: (313) 256-5851 with a
copy to:
MCN Corporation 500 Griswold Street Detroit, Michigan 48226
Attention: Daniel L. Schiffer
or at such other addresses or telefax numbers and to the attention of
such other person as COPP may designate by written notice to each of the
other parties.
9.08 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that no party hereto may
assign its rights or delegate its obligations under this Agreement
without the express prior written consent of each other party hereto.
9.09 HEADINGS. The section and article headings contained in this
Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement.
9.10 DTPA WAIVER. COPP HEREBY REPRESENTS AND ACKNOWLEDGES THAT IT
IS A "BUSINESS CONSUMER" FOR THE PURPOSES OF THE TEXAS DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT (SUBCHAPTER E OF CHAPTER 17 OF THE
TEXAS BUSINESS AND COMMERCE CODE), THAT IT HAS ASSETS OF $5,000,000 OR
MORE ACCORDING TO ITS MOST RECENT FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, THAT IT HAS
KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE
IT TO EVALUATE THE MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, THAT IT HAS BEEN REPRESENTED BY LEGAL COUNSEL OF ITS
CHOICE IN ENTERING INTO THIS AGREEMENT AND THE RELATED AGREEMENTS AND
THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, AND THAT IT IS NOT IN
A SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH RESPECT TO THE
PARTIES TO AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. COPP
HEREBY WAIVES THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT (OTHER THAN SECTION 17.555 THEREOF)
(THE "DTPA"), AS FROM TIME TO TIME AMENDED, COPP EXPRESSLY RECOGNIZES
THAT THE PRICE FOR WHICH THE BLUE DOLPHIN COMPANIES HAVE AGREED TO SELL
THE PURCHASED INTERESTS AND PERFORM THEIR RESPECTIVE OBLIGATIONS UNDER
THIS AGREEMENT HAS BEEN PREDICATED ON THE INAPPLICABILITY OF THE DTPA
AND THIS WAIVER OF THE DTPA. COPP FURTHER RECOGNIZES THAT THE BLUE
DOLPHIN COMPANIES, IN DETERMINING TO PROCEED WITH THE ENTERING INTO OF
THIS AGREEMENT, HAVE EXPRESSLY RELIED ON THIS WAIVER AND THE
INAPPLICABILITY OF THE DTPA.
9.11 SEVERABILITY. If any term or provision of this Agreement is
invalid, illegal, or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is
not affected in any material adverse manner to any party. Upon such
determination that any term or other provision is invalid, illegal, or
incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent
possible.
9.12 NO THIRD PARTY BENEFICIARIES. Except as provided in Article
VIII, nothing in this Agreement shall entitle any person other than the
Blue Dolphin Companies and COPP or their respective successors and
assigns permitted hereby to any claim, cause of action, remedy, or right
of any kind.
9.13 CROSS-REFERENCES. References in this Agreement to Articles,
Sections, Exhibits, or Schedules shall be deemed to be references to
Articles, Sections, Exhibits, and Schedules of this Agreement unless the
context specifically and expressly requires otherwise.
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf
of each of the parties as of the date first above written.
COENERGY OFFSHORE PIPELINE & BLUE DOLPHIN PIPE LINE COMPANY,
PROCESSING COMPANY, a Delaware corporation
a Michigan corporation
By:Joseph L. Roberts By:William Fisher
Joseph L. Roberts, William Fisher,
Vice President Senior Vice President
BUCCANEER PIPE LINE CO.,
a Texas corporation
By:William Fisher
William Fisher,
Senior Vice President
MISSION ENERGY, INC.,
a Delaware corporation
By:William Fisher
William Fisher,
Senior Vice President
EXHIBIT 21.1
BLUE DOLPHIN ENERGY COMPANY
List of Subsidiaries
Company State of Incorporation
Blue Dolphin Exploration Company Delaware
Mission Energy, Inc. Delaware
Blue Dolphin Pipe Line Company Delaware
Buccaneer Pipe Line Co. Texas
Blue Dolphin Services Co. Texas
Petroport, Inc. Delaware
GERALD DUPONT ENTERPRISES, INC.
PETROLEUM ENGINEER
P.O. BOX 1590
SUGAR LAND, TEXAS 77487-1590
(713)240-2822 FAX (713)242-2822
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, 1995, included in the
Annual Report on Form 10-K of Blue Dolphin Energy Company for the year
ended December 31, 1995.
Gerald W. DuPont
Petroleum Engineer
February 27, 1996
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 INCORPORATED HEREIN BY REFERENCE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,748,467
<SECURITIES> 0
<RECEIVABLES> 860,691
<ALLOWANCES> 0
<INVENTORY> 19,180
<CURRENT-ASSETS> 3,874,350
<PP&E> 24,468,711
<DEPRECIATION> 4,267,431
<TOTAL-ASSETS> 25,069,178
<CURRENT-LIABILITIES> 3,214,658
<BONDS> 10,000
<COMMON> 353,247
0
1,456,048
<OTHER-SE> 16,288,362
<TOTAL-LIABILITY-AND-EQUITY> 25,069,178
<SALES> 684,661
<TOTAL-REVENUES> 5,123,053
<CGS> 1,190,298
<TOTAL-COSTS> 4,290,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 405,980
<INCOME-PRETAX> 9,195,869
<INCOME-TAX> 1,840,183
<INCOME-CONTINUING> 7,355,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,355,686
<EPS-PRIMARY> .15
<EPS-DILUTED> .11
</TABLE>
