UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended: MARCH 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _________________
Commission File Number: 0-15905
BLUE DOLPHIN ENERGY COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 73-1268729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 TRAVIS, SUITE 2100, HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)
(713) 227-7660
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
5,950,880 SHARES $.01 PAR VALUE OUTSTANDING AT APRIL 28, 2000
-------------------------------------------------------------
1
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART. I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of Blue Dolphin Energy Company
and Subsidiaries (the "Company") included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission and, in the opinion of management, reflect all
adjustments necessary to present a fair statement of operations, financial
position and cash flows. The Company follows the full cost method of accounting
for oil and gas properties, wherein costs incurred in the acquisition,
exploration and development of oil and gas reserves are capitalized. The Company
believes that the disclosures are adequate and the information presented is not
misleading, although certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
2
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash ........................................ $ 961,090 $ 1,166,730
Trade accounts receivable ................... 1,841,956 1,542,328
Prepaid expenses ............................ 339,450 318,139
------------ ------------
Total Current Assets ............ 3,142,496 3,027,197
Property and Equipment, at cost, using full cost
method for oil and gas properties .......... 32,163,461 32,143,258
Accumulated depletion, depreciation
and amortization ........................... (17,853,990) (17,412,195)
------------ ------------
14,309,471 14,731,063
Land ........................................... 930,500 930,500
Acquisition and development costs - Petroport .. 1,765,667 1,741,823
Other Assets ................................... 1,688,567 1,574,621
------------ ------------
Total Assets ................ $ 21,836,701 $ 22,005,204
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ....... $ 1,450,997 $ 1,614,921
Current portion of long term debt ........... 218,412 319,045
Note payable - related party ................ 1,000,000 1,000,000
------------ ------------
Total Current Liabilities .......... 2,669,409 2,933,966
Accrued Abandonment Costs ...................... 478,418 466,988
Minority interest .............................. 990,307 958,521
Common Stock ................................... 59,509 59,509
Additional Paid-in Capital ..................... 25,823,817 25,823,817
Accumulated Deficit since January 1, 1990 ...... (8,184,759) (8,237,597)
------------ ------------
Total Liabilities and
Stockholders' Equity ............ $ 21,836,701 $ 22,005,204
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
2000 1999
----------- -----------
<S> <C> <C>
Revenue from operations:
Pipeline operations ................................................... $ 470,846 $ 435,855
Oil and gas sales and operating fees .................................. 1,113,935 148,587
Management fees ....................................................... 203,850 70,425
----------- -----------
REVENUE FROM OPERATIONS ............................... 1,788,631 654,867
Cost of operations:
Pipeline operating expenses ........................................... 240,993 209,493
Lease operating expenses .............................................. 283,588 296,504
Depletion, depreciation, and amortization ............................. 456,270 101,107
General and administrative ............................................ 702,385 547,733
----------- -----------
COST OF OPERATIONS .................................... 1,683,236 1,154,837
----------- -----------
INCOME FROM OPERATIONS ............................... 105,395 (499,970)
Other income (expense):
Interest expense ...................................................... (23,895) (59,318)
Interest and other income (expense) ................................... 3,124 13,660
Gain on sale of assets ................................................ -- 2,068,986
----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF A CHANGE IN AN ACCOUNTING PRINCIPLE ......... 84,624 1,523,358
Minority interest ......................................................... (31,786) --
Provision for income taxes ................................................ -- (518,191)
----------- -----------
Income before cumulative effect of a change in an accounting principle .... 52,838 1,005,167
Cumulative effect at January 1, 1999 of a change in accounting principle
for start up costs, net of income tax benefit of $41,480 .................. -- (80,334)
----------- -----------
Net income ................................................................ $ 52,838 $ 924,833
=========== ===========
Earnings per common share-basic
Income before accounting change ....................................... $ 0.01 $ 0.22
Cumulative effect of a change in accounting principle ................. -- (0.02)
----------- -----------
Net income ............................................................ $ 0.01 $ 0.20
=========== ===========
Earnings per common share-diluted
Income before accounting change ....................................... $ 0.01 $ 0.22
Cumulative effect of a change in accounting principle ................. -- (0.02)
----------- -----------
Net income ............................................................ $ 0.01 $ 0.20
=========== ===========
Weighted average number of common shares outstanding and dilutive potential
common shares:
Basic ................................................................. 5,950,880 4,517,960
=========== ===========
Diluted ............................................................... 6,020,721 4,544,895
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .......................................................... $ 52,838 $ 924,833
Adjustments to reconcile net income to net cash provided by
operating activities:
Depletion, depreciation and amortization ................. 456,270 101,107
Deferred income taxes .................................... -- 463,199
Change in accounting principle ........................... -- 121,814
Gain on sale of assets ................................... -- (2,068,986)
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable .............. (299,628) (615,552)
(Increase) in prepaid expenses and other asssets ..... (38,895) (98,060)
(Decrease) increase in accounts payable and
other current liabilities .................... (132,138) 840,910
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES .......... 38,447 (330,735)
INVESTING ACTIVITIES
Purchases of property and equipment ................................. (20,203) (5,507,803)
Net proceeds from sale of assets .................................... -- 5,497,923
Funds escrowed for abandonment costs ................................ (14,625) --
Investment in New Avoca ............................................. (81,737) --
Development costs - Petroport ....................................... (26,889) (85,036)
----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES .......... (143,454) (94,916)
FINANCING ACTIVITIES
Net proceeds from borrowings ........................................ -- 200,000
Payments on borrowings .............................................. (100,633) --
Other ............................................................... -- 15,000
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES .......... (100,633) 215,000
----------- -----------
DECREASE IN CASH .............. (205,640) (210,651)
CASH AT BEGINNING OF YEAR ............................................... 1,166,730 593,509
----------- -----------
CASH AT MARCH 31, ....................................................... $ 961,090 $ 382,858
=========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid ....................................................... $ 13,267 $ 110,216
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
MARCH 31, 2000
EARNINGS PER SHARE
The Company follows SFAS No. 128 (Statement 128), EARNINGS PER SHARE, for
computing and presenting earnings per share and requires, among other things,
dual presentation of basic and diluted earnings per share on the face of the
statement of operations.
The following table provides a reconciliation between basic and diluted earnings
per share:
WEIGHTED
AVERAGE
COMMON
OUTSTANDING
AND DILUTIVE PER
NET POTENTIAL SHARE
INCOME COMMON AMOUNT
--------- --------- -----
Three Months ended March 31, 2000:
Basic .......................... $ 52,838 5,950,880 $0.01
Effect of dilutive stock options 69,841
--------- --------- -----
Diluted earnings ............... $ 52,838 6,020,721 $0.01
========= ========= =====
Three Months ended March 31, 1999:
Basic earnings ................. $ 924,833 4,517,960 $0.20
Effect of dilutive stock options 26,935
--------- --------- -----
Diluted earnings ............... $ 924,833 4,544,895 $0.20
========= ========= =====
6
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133), was issued by the Financial
Accounting Standards Board in June 1998. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. In July 1999, SFAS NO. 137, "Deferral of the
Effective Date of SFAS NO. 133," was issued and delays the effective date for
one year, to fiscal years beginning after June 15, 2000. The Company believes
that adoption of this financial accounting standard will not have a material
effect on its financial condition or results of operations.
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, general processing
and storage fees charged by certain subsidiaries to another for natural gas and
crude oil transported through the Blue Dolphin Pipeline System. The intercompany
revenues and expenses are eliminated in consolidation. Information concerning
these segments for the three months ended March 31, 2000 and 1999, and at March
31, 2000 and December 31, 1999 is as follows:
<TABLE>
<CAPTION>
DEPLETION
OPERATING DEPRECIATION
INTERSEGMENT INCOME AND
REVENUES REVENUES (LOSS)(1) AMORTIZATION(2)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Three months ended March 31, 2000:
Oil and gas exploration
and production ........... $ 1,115,435 1,500 304,776 360,987
Pipeline operations ........... 477,331 6,485 80,031 85,235
Management fees ............... 453,850 250,000 386,274 --
Other ......................... (257,985) -- (665,686) 10,048
------------ ------------ ------------
Consolidated .................. 1,788,631 -- 105,395 456,270
Other income (expense) ........ (20,771)
------------
Income before income taxes .... 84,624
Three months ended March 31, 1999:
Oil and gas exploration
and production ........... $ 150,087 1,500 (173,583) 25,666
Pipeline operations ........... 440,109 4,254 159,801 66,561
Management fees and other ..... 70,425 -- 70,425 --
Other income (expense) ........ (5,754) -- (415,763) 8,880
------------ ------------ ------------
Consolidated .................. 654,867 -- (499,970) 101,107
Other income (expense) ........ 2,023,328
------------
Income before income taxes .... 1,523,358
</TABLE>
7
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(CONTINUED)
<TABLE>
<CAPTION>
IDENTIFIABLE IDENTIFIABLE
ASSETS ASSETS
------------ ------------
<S> <C> <C>
Three months ended March 31, 2000: . Year ended December 31, 1999
Oil and gas exploration ........ Oil and gas exploration
and production ............. $ 12,574,752 and production ....... $ 12,816,861
Pipeline operations ............ 6,632,333 Pipeline operatio ........ 6,340,568
Other .......................... 2,629,616 Other .................... 2,847,775
------------ ------------
Consolidated ................... 21,836,701 Consolidated ............. 22,005,204
</TABLE>
1. Consolidated income from operations includes $397,653 and $20,219 in
unallocated general and administrative expenses, and unallocated
depletion, depreciation and amortization of $10,048 and $3,310 for the
three months ended March 31, 2000 and 1999, respectively.
2. Pipeline depletion, depreciation and amortization includes a provision
for pipeline abandonment of $4,935 and $6,035 for the three months
ended March 31, 2000 and 1999, respectively. Oil and gas depletion,
depreciation and amortization includes a provision for abandonment
costs of platforms and wells of $6,495 and $5,337 for the three months
ended March 31, 2000 and 1999, respectively.
LEGAL PROCEEDINGS
On May 8, 2000, ARO, a 75% owned subsidiary of the Company, and Ralph Currie,
ARO's former Chief Financial Officer, were named in a lawsuit in the United
States District Court for the Southern District of Texas, Houston Division,
styled H&N GAS AND HOWARD ENERGY MARKETING, L.L.C. V. AMERICAN RESOURCES
OFFSHORE, INC. AND RALPH CURRIE, ET AL (Case No H-00-1371). The lawsuit alleges
that H&N Gas and ARO entered into illegal and fraudulent natural gas purchase
option agreements that benefited ARO at the expense of H&N Gas. H&N Gas is
seeking a claim against ARO of $2.8 million plus treble damages. ARO intends to
vigorously defend this claim.
8
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain of the statements included below, including those regarding future
financial performance or results, or that are not historical facts, are or
contain "forward-looking" information as that term is defined in the Securities
Act of 1933, as amended. The words "expect," "plan" "believe," "anticipate,"
"project," "estimate," and similar expressions are intended to identify
forward-looking statements. The Company cautions readers that any such
statements are not guarantees of future performance or events and such
statements involve risks, uncertainties and assumptions, including but not
limited to industry conditions, prices of crude oil and natural gas, regulatory
changes, general economic conditions, interest rates and competition. Should one
or more of these risks or uncertainties materialize or should the underlying
assumptions prove incorrect, actual results and outcomes may differ materially
from those indicated in the forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
The following is a review of certain aspects of the financial condition and
results of operations of the Company and should be read in conjunction with the
Condensed Consolidated Financial Statements included in Item 1. of this report.
FINANCIAL CONDITION
At March 31, 2000, the Company had working capital of $473,087 representing an
increase of $379,856 as compared with working capital of $93,231 at December 31,
1999.
On December 2, 1999, the Company acquired a 75% ownership interest in American
Resources Offshore, Inc. ("ARO"). The purchase price for the ARO shares was
approximately $4.5 million. Concurrently with the sale to the Company, ARO sold
an 80% interest in its Gulf of Mexico assets to Fidelity Oil Holdings, Inc. a
subsidiary of MDU Resources Group, Inc. ("MDU"). The proceeds received by ARO
were used to retire certain indebtedness.
In order to provide funding for the acquisition of ARO in December 1999, the
Company arranged a private placement and conversion of principal and accrued
interest on promissory notes into common stock, $.01 par value per share, of
701,820 shares and 314,898 shares, respectively. The shares were issued at a
price of $6.00 per share. Consideration for the common stock sold consisted of
approximately $4,210,919 cash and the surrender of approximately $1,811,555 of
the Company's promissory notes due December 31, 2000, along with accrued
interest of $77,835 through December 1, 1999. The Company also issued a
$1,000,000 convertible promissory note to a director of the Company. This
convertible promissory note is due June 1, 2000, and is convertible into common
stock at $6.60 per share. The Company believes that if the $1,000,000
convertible promissory note is not converted, the amount due will be refinanced.
Pursuant to the terms of the investment agreement with ARO, the Company entered
into an agreement with ARO to provide management services for a fee of
$1,000,000 per year. Additionally, the Company entered into an agreement with
Fidelity Oil Holdings, Inc. to manage their interest in the properties acquired
from ARO for $40,000 per month. Both agreements are in effect through December
2000 and provide for continuation thereafter on a year to year basis unless
terminated by either party.
9
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Company maintains a $10,000,000 reducing revolving credit facility with Bank
One, Texas, N.A. ("Loan Agreement"). In January 2000, the Company paid the
$80,000 outstanding balance on the credit facility and the borrowing base was
adjusted to $0. The borrowing base is redetermined semi-annually and is next due
to be redetermined in June 2000. The maturity date has been extended to December
31, 2000, when the then outstanding principal balance, if any, is due and
payable. The facility is available for the acquisition of oil and gas reserve
based assets and other working capital needs. The Loan Agreement includes
certain restrictive covenants, including restrictions on the payment of
dividends on capital stock, and the maintenance of certain financial coverage
ratios.
The Company has exploration and development opportunities associated with its
ARO properties. The Company will evaluate each of the exploration and
development opportunities and its available capital resources to determine
whether to participate, sell its interest or sell a portion of its interest and
use the proceeds to participate at a reduced interest.
In April 2000, the Company amended the agreement with the participant in its
prospect generation program, whereby in exchange for certain participation
rights of up to 100%, the participant will fund $1,060,000 of the costs
associated with the program during 2000. The participant will also reimburse the
company for seismic data acquired. The available interests in the prospect
inventory are for sale on an individual prospect basis.
The Company recently announced a new natural gas discovery in High Island Area
Block A-7, in federal waters off the Texas coast. The Company acquired the block
at MMS Sale 155 in 1995, and owns an 8.9% after payout reversionary working
interest. High Island Block A-7 was one of four blocks the Company acquired
through its offshore prospect generation program during its first year of
operation in 1995.
In October 1999, the Company and Equilon Enterprises, LLC (an alliance of two
major oil companies, Shell and Texaco), agreed to jointly continue development
of the Petroport deepwater port project. Development efforts have focused on
optimizing the facility design configuration and determining the level of market
support. It is expected that a decision to proceed with obtaining the requisite
license and permits for the port facilities will be made following completion
and evaluation of the results of the development effort. Although the commercial
evaluation, based upon the original facility design concept was favorable,
alternative design configurations, which would result in significantly reduced
capital costs and a more flexible, responsive, market driven, system fee
structure have been developed.
Cost of the offshore terminal complex, the pipeline to shore, onshore facilities
and facility licensing is estimated at $200 million. The Company expects that
its' partner or partners in the Petroport project would be responsible for all
licensing and permitting costs, currently estimated to be approximately $6
million. The Company would seek financing for the costs associated with facility
construction which the Company believes it can obtain. If the Company decides to
proceed with the project, it expects to submit the license application and
associated permit requests in late 2000, with operations commencing in the year
2004.
10
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
In November 1999, the Company and WBI Holdings, Inc. formed New Avoca, 25% owned
and managed by the Company and 75% owned by WBI, and acquired the Avoca gas
storage assets for $400,000 ($100,000 net to the Company's interest) from
Northeastern Gas Caverns ("Northeastern"). Additionally, a contingent payment of
$500,000 ($125,000 net to the Company's interest) is due to Northeastern on May
22, 2000. The contingent payment will be excused if Northeastern successfully
settles a claim associated with Avoca Gas Storage, Inc. (the original owner of
the Avoca gas storage assets). A pending settlement of the claim is expected to
be completed, and the Company believes that the contingent payment will not be
made. New Avoca can elect to liquidate the project at any time. If liquidated,
after settling all accrued obligations, the first $400,000 of proceeds, if any,
goes to New Avoca, the next $500,000 goes to Northeastern (if the $500,000 has
not yet been paid as described above) and anything over $900,000, subject to
Northeastern successfully settling its claim with Avoca Gas Storage, Inc. goes
to New Avoca. New Avoca is currently evaluating all previously gathered data and
is preparing to test existing brine disposal wells to determine whether or not
to go forward with construction of the project or to liquidate. Testing of the
brine disposal wells is needed in order to complete the evaluation of the
project. It is currently estimated that the Company's share of costs associated
with these activities for 2000 will be approximately $300,000. The Company's
share of construction costs, should New Avoca decide to go forward with the
project, and the timing of such costs have not been determined.
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. The availability or cost of capital resources
may, however, adversely affect the Company's timing for major pipeline
expansions, further development of the Buccaneer Field, growth in oil and gas
prospect generation activities and the Petroport project.
RESULTS OF OPERATIONS
The Company reported net income for the three months ended March 31, 2000,
(current period) of $52,838, compared to net income of $924,833 reported for the
first quarter 1999 (previous period). The decrease is primarily due to the gain
on sale of a one-sixth (1/6) interest in the Blue Dolphin Pipeline System of
$2,052,920 during the first quarter of 1999.
REVENUE FROM PIPELINE OPERATIONS. Current period revenues from pipeline
operations increased by $34,991 or 8% from the previous period. The increase is
due to the acquisition of the Black Marlin Pipeline System in March 1999, offset
by lower transportation volumes in the Blue Dolphin Pipeline System.
REVENUE FROM OIL AND GAS SALES AND OPERATING FEES. Revenues from oil and gas
sales and operating fees for the current period increased by $965,348 or 650%
from those of the previous period due to the acquisition of ARO in December
1999, providing revenues of approximately $925,317 in the current period.
MANAGEMENT FEES. Management fees for the current period increased by $133,425 or
189%. The increase was due to the fees associated with the ARO acquisition.
11
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
PIPELINE OPERATING EXPENSES. Pipeline operating expenses in the current period
increased by $31,500 or 15% from those of the previous period. The increase is
due primarily to additional costs associated with the operation of the Black
Marlin pipeline acquired in March 1999.
LEASE OPERATING EXPENSES. Lease operating expenses in the current period
decreased by $12,916 from those of the previous period. Previous period lease
operating expenses included repairs and maintenance costs associated with the
Buccaneer Field of $129,616, offset by current period lease operating expenses
associated with the ARO properties acquired in December 1999 of $141,693, and
$24,993 of reduced Buccaneer Field expenses in the current period.
DEPLETION, DEPRECIATION AND AMORTIZATION ("DD&A"). Depletion, depreciation and
amortization expense for the current period increased by $355,163, or 351%. The
increase was due to the acquisitions of the Black Marlin System in March 1999,
resulting in current period depreciation of approximately $49,934, and ARO in
December 1999, resulting in current period depletion of approximately $327,908.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
current period increased $154,652, or 28% from the previous period. The increase
is principally due to an increase in staff costs associated with asset
acquisitions during 1999.
GAIN ON SALE OF ASSETS. In March 1999, the Company reported a gain on the sale
of a one-sixth interest in the Blue Dolphin System of $2,052,920.
12
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET PRICE
The Company is exposed to market risk, including adverse changes in commodity
prices and interest rates as discussed below.
COMMODITY PRICE RISK- The Company produces and sells natural gas, crude oil, and
natural gas liquids. As a result, the Company's financial results can be
significantly affected if these commodity prices fluctuate widely in response to
changing market forces. The Company has not used derivative products in the past
to manage commodity price risk.
INTEREST RATE RISK- The Company's exposure to changes in interest rates
primarily results from its short-term and long-term debt with floating interest
rates. Based upon the current outstanding debt a 10% change in the interest rate
on the credit facility would result in a minimal increase in interest expense.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 8, 2000, ARO, a 75% owned subsidiary of the Company, and Ralph
Currie, ARO's former Chief Financial Officer, were named in a lawsuit
in the United States District Court for the Southern District of Texas,
Houston Division, styled H&N GAS AND HOWARD ENERGY MARKETING, L.L.C. V.
AMERICAN RESOURCES OFFSHORE, INC. AND RALPH CURRIE, ET AL (Case No
H-00-1371). The lawsuit alleges that H&N Gas and ARO entered into
illegal and fraudulent natural gas purchase option agreements that
benefited ARO at the expense of H&N Gas. H&N Gas is seeking a claim
against ARO of $2.8 million plus treble damages. ARO intends to
vigorously defend this claim.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company's Proxy Statement dated April 20, 2000 is incorporated
herein by reference.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
A) Exhibits - None
B) Form 8-K - On February 15, 2000, the Company filed a current report
of Form 8-KA dated February 15, 2000, with respect to the
acquisition of American Resources Offshore, Inc. The items reported
in such current report were Item 2 (Acquisitions or Dispositions of
Assets) and Item 7 (Financial Statement and Exhibits).
Form 8-K - On February 16, 2000, the Company filed a current report
of Form 8-KA dated February 16, 2000, with respect to the
acquisition of American Resources Offshore, Inc. The items reported
in such current report were Item 2 (Acquisitions or Dispositions of
Assets) and Item 7 (Financial Statement and Exhibits).
13
<PAGE>
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: BLUE DOLPHIN ENERGY COMPANY
Date: MAY 12, 2000 /s/ MICHAEL J. JACOBSON
Michael J. Jacobson
President and Chief Executive Officer
/s/ G. BRIAN LLOYD
G. Brian Lloyd
Vice President, Treasurer
14
<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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 961,090
<SECURITIES> 0
<RECEIVABLES> 1,841,956
<ALLOWANCES> 0
<INVENTORY> 42,734
<CURRENT-ASSETS> 3,142,496
<PP&E> 33,093,961
<DEPRECIATION> 17,853,990
<TOTAL-ASSETS> 21,836,701
<CURRENT-LIABILITIES> 2,669,409
<BONDS> 0
0
0
<COMMON> 59,509
<OTHER-SE> 17,639,057
<TOTAL-LIABILITY-AND-EQUITY> 21,836,701
<SALES> 995,087
<TOTAL-REVENUES> 1,584,781
<CGS> 280,198
<TOTAL-COSTS> 980,851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,895
<INCOME-PRETAX> 52,838
<INCOME-TAX> 0
<INCOME-CONTINUING> 52,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,838
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
