-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N4nPZObfw/3boyJR0Htyn9lG03LfqynlTr+WpOPyPw/pRP5Tfig81Se4IOEorNyG EYm9CfdB86NlRFQkS1K1ew== 0000793306-96-000043.txt : 19961118 0000793306-96-000043.hdr.sgml : 19961118 ACCESSION NUMBER: 0000793306-96-000043 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUE DOLPHIN ENERGY CO CENTRAL INDEX KEY: 0000793306 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731268729 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15905 FILM NUMBER: 96663894 BUSINESS ADDRESS: STREET 1: 11 GREENWAY PLZ STE 1606 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7136213993 MAIL ADDRESS: STREET 2: 11 GREENWAY PLAZA SUITE 1606 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: MUSTANG RESOURCES CORP DATE OF NAME CHANGE: 19900122 FORMER COMPANY: FORMER CONFORMED NAME: ZIM ENERGY CORP DATE OF NAME CHANGE: 19870921 10-Q 1 QUARTERLY REPORT FOR 09/30/96 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended: SEPTEMBER 30, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ..................to................... Commission File Number: 0-15905 BLUE DOLPHIN ENERGY COMPANY (Exact name of registrant as specified in its charter) Delaware 73-1268729 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Eleven Greenway Plaza, Suite 1606, Houston, Texas 77046 (Address of principal executive offices) (Zip Code) (713)621-3993 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 52,053,651 shares $.01 par value outstanding at November 11, 1996 BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES PART. I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The condensed consolidated financial statements of Blue Dolphin Energy Company and Subsidiaries (the "Company") included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and, in the opinion of management, reflect all adjustments necessary to present a fair statement of operations, financial position and cash flows. The Company follows the full cost method of accounting for oil and gas properties, wherein costs incurred in the acquisition, exploration and development of oil and gas reserves are capitalized. The Company believes that the disclosures are adequate and the information presented is not misleading, although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1996 1995 ------------ ------------ (Unaudited) ASSETS Current Assets: Cash $ 1,817,278 $ 2,748,467 Trade accounts receivable 812,795 860,691 Crude oil inventory 10,600 19,180 Prepaid expenses 37,499 72,824 Current deferred taxes -- 173,188 ---------- ---------- Total Current Assets 2,678,172 3,874,350 Property and Equipment, at cost, using full cost method for oil and gas properties, including $1,902,995 at September 30, 1996 and $2,402,796 at December 31, 1995, of leases expected to be sold in 1996 and 1997 23,889,249 23,335,378 Accumulated depletion, depreciation and amortization (4,485,843) (4,267,431) ---------- ---------- 19,403,406 19,067,947 Land 1,133,333 1,133,333 Escrow for abandonment costs 896,815 569,816 Other Assets 553,791 423,732 ---------- ---------- Total Assets $24,665,517 $25,069,178 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 707,119 $ 1,008,251 Oil and gas lease bonus payable -- 1,375,488 Current portion of accrued abandonment costs 72,033 547,948 Other liabilities and accrued expenses 5,527 32,871 Accrued income taxes payable 274,993 250,100 ---------- ---------- Total Current Liabilities 1,059,672 3,214,658 Long-Term Debt, less current portion 10,000 10,000 Accrued Abandonment Costs, less current portion 1,175,644 1,242,615 Deferred Income Taxes 688,271 756,602 Dividends Payable on Preferred Stock 1,966,049 1,747,646 Cumulative Convertible Preferred Stock 1,456,048 1,456,048 Common Stock 520,530 353,247 Additional Paid-in Capital 15,679,458 14,163,661 Accumulated Earnings since January 1, 1990 2,109,845 2,124,701 ---------- ---------- Total Liabilities and Stockholders' Equity $24,665,517 $25,069,178 ========== ==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED Three Months Ended September 30, 1996 1995 ---------- ---------- Revenue from operations: Pipeline operations $ 775,459 $ 827,377 Oil and gas sales and operating fees 181,718 327,013 ---------- ---------- REVENUE FROM OPERATIONS 957,177 1,154,390 Cost of operations: Pipeline operating expenses 217,392 242,153 Lease operating expenses 146,359 225,385 Repair and maintenance costs 244,314 116,947 Depletion, depreciation, and amortization 80,830 164,222 ---------- ---------- COST OF OPERATIONS 688,895 748,707 ---------- ---------- 268,282 405,683 Other income (expense): General and administrative (328,510) (328,111) Interest expense (2,962) (103,822) Gain on sale of assets -- 8,809,114 Interest and other income 35,336 28,650 ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES (27,854) 8,811,514 Provision for income taxes 66 (1,687,802) ---------- ---------- NET INCOME (LOSS) (27,788) 7,123,712 Dividend requirements on preferred stock 72,801 72,801 ---------- ---------- Net income (loss) applicable to common stockholders $ (100,589) $ 7,050,911 ========== ========== Net income (loss) per common share $ (0.002) $ 0.148 ========== ========== Weighted average number of common shares and common share equivalents outstanding 53,027,407 47,762,793 ========== ========== Net income per common share (fully diluted) $ 0.112 ========== Weighted average number of common shares and dilutive common share equivalents outstanding 63,657,649 ========== BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED Nine Months Ended September 30, 1996 1995 --------- --------- Revenue from operations: Pipeline operations $ 2,375,241 $ 3,241,862 Oil and gas sales and operating fees 707,569 972,179 ---------- ---------- REVENUE FROM OPERATIONS 3,082,810 4,214,041 Cost of operations: Pipeline operating expenses 645,110 837,957 Lease operating expenses 485,283 650,928 Repair and maintenance costs 383,836 293,588 Depletion, depreciation, and amortizatio 326,281 483,280 ---------- ---------- COST OF OPERATIONS 1,840,510 2,265,753 ---------- ---------- 1,242,300 1,948,288 Other income (expense): General and administrative (968,750) (1,050,007) Interest expense (16,549) (405,677) Gain on sale of assets 4,397 8,809,114 Interest and other income 89,756 37,111 ---------- ---------- INCOME BEFORE INCOME TAXES 351,154 9,338,829 Provision for income taxes (147,607) (1,885,899) ---------- ---------- NET INCOME 203,547 7,452,930 Dividend requirements on preferred stock 218,403 218,403 ---------- ---------- Net income (loss) applicable to common stockholders $ (14,856) $ 7,234,527 ========== ========== Net income per common share $ 0.000 $ 0.153 ========== ========== Weighted average number of common shares and common share equivalents outstanding 50,007,664 47,198,495 ========== ========== Net income per common share (fully diluted) $ 0.119 ========== Weighted average number of common shares and dilutive common share equivalents outstanding 62,400,983 ========== BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Nine Months Ended September 30, 1996 1995 ---------- ---------- OPERATING ACTIVITIES Net income $ 203,547 $ 7,452,930 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization 326,281 483,280 Charge in lieu of income taxes -- 992,573 Gain on sale of property and equipment (4,397) (8,809,114) Deferred tax expense 104,857 467,976 Changes in operating assets and liabilities: Decrease in trade accounts receivable 47,896 42,491 Decrease in crude oil inventory and prepaid expenses 43,905 60,493 (Decrease) Increase in accounts payable and other current liabilities (895,673) 11,451 ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (173,584) 702,080 INVESTING ACTIVITIES Oil and gas prospect generation costs (1,497,953) (586,514) Purchases of property and equipment (339,705) (183,660) Investment in other assets (171,165) (270,456) Proceeds from sale of property and equipment 7,050 9,940,051 Funds escrowed for abandonment costs (326,999) (348,764) Exploration and development costs (111,913) (1,773) ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,440,685) 8,548,884 FINANCING ACTIVITIES Payments on borrowings -- (6,757,299) Proceeds from borrowings -- 925,000 Net proceeds from capital funding 1,683,080 116,981 ---------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,683,080 (5,715,318) ---------- ---------- INCREASE (DECREASE) IN CASH (931,189) 3,535,646 CASH AT BEGINNING OF YEAR 2,748,467 434,157 ---------- ---------- CASH AT SEPTEMBER 30, $ 1,817,278 $ 3,969,803 ========== ========== SUPPLEMENTARY CASH FLOW INFORMATION Interest paid $ 16,549 $ 405,677 ========== ========== Income taxes paid $ 46,365 $ 37,572 ========== ==========
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED SEPTEMBER 30, 1996 EARNINGS PER COMMON SHARE Fully diluted earnings per share has not been presented for 1996 because conversion of the preferred stock was antidilutive. STOCKHOLDERS EQUITY In April 1996, 16,575,578 warrants to purchase 16,575,578 shares of the Company's Common Stock at $.10 per share were exercised. Proceeds received by the Company from the exercise were $1,657,558. There are no outstanding warrants remaining. If the warrants had been exercised on January 1, 1995 or January 1, 1996, there would have been no effect on earnings per share. ACCOUNTING FOR STOCK-BASED COMPENSATION Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995. SFAS No. 123 addresses the timing and measurement of stock- based compensation expense. The Company adopted SFAS No. 123 on January 1, 1996, with respect to the disclosure requirements set forth therein for companies retaining the intrinsic value approach of Accounting Principles Board opinion No. 25. DEPLETION, DEPRECIATION AND AMORTIZATION Effective January 1, 1996, the Company extended the estimated useful lives of its pipelines and related shore facilities, which lives are used to determine the rates at which provision of depreciation and abandonment expenses are calculated. The change in the estimated useful lives of the pipelines and related shore facilities has resulted in a decrease in depletion, depreciation and amortization of $35,685 for the nine months ended September 30, 1996. LONG-TERM DEBT The Company maintains a $10,000,000 reducing revolving credit facility with Bank One, Texas, N.A. Effective November 1, 1996, the maturity date of the facility was extended to January 14, 2000. BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a review of certain aspects of the financial condition and results of operations of the Company and should be read in conjunction with the Condensed Consolidated Financial Statements included in Item 1. of this report. FINANCIAL CONDITION At September 30, 1996, the Company's working capital (current assets less current liabilities) was $1,618,500, representing an increase of $958,808 as compared with working capital of $659,692 at December 31, 1995. The increase in working capital was a result of the exercise of warrants to purchase Company Common Stock in April 1996. The Company received cash of $1,657,558 and issued 16,575,578 shares of Common Stock. Pursuant to the rules of the full cost method of accounting for oil and gas properties, $1,902,995 and $2,402,796 of lease acquisition costs associated with the Company's oil and gas prospect generation activities, which costs the Company expects to recover in 1996 and 1997 through sale of prospects, are excluded from working capital at September 30, 1996 and December 31, 1995, respectively. The Company maintains a $10,000,000 reducing revolving credit facility with Bank One, Texas, N.A. Effective November 1, 1996, the borrowing base was adjusted to $1,925,000, reducing by $75,000 per month beginning December 1, 1996. The borrowing base and reducing amount are redetermined semi- annually. The maturity date has been extended to January 14, 2000, when the then outstanding principal balance, if any, is due and payable. The current outstanding balance under the credit facility is $10,000. The facility is available for the acquisition of oil and gas reserve based assets and other working capital needs. The Loan Agreement includes certain restrictive covenants, including restrictions on the payment of dividends on capital stock, and the maintenance of certain financial coverage ratios. Offshore activity in the vicinity of the Blue Dolphin Pipeline has remained active. In October 1996, a new discovery was tied-in to the system, resulting in a 50% increase in gas and a 10% increase in oil volumes transported. The Company is currently competing to attract a second new discovery to its pipeline system. A tie-in decision is expected in the first quarter 1997, with production operations expected to commence by mid year 1997. In April 1996, the Company reperforated a producing well in the Buccaneer Field, resulting in a moderate increase in production. The Company is currently evaluating application of horizontal drilling and new completion techniques to existing shut-in wells in the Field. If feasible, additional drilling in the Field utilizing these recovery methods could commence in 1997. In August 1996, the U.S. Minerals Management Service ("MMS") conducted an annual inspection of the Buccaneer Field production platforms and facilities. In addition to certain repairs, the Company is required to remove piping and other equipment that is no longer in use. Additionally, certain major modifications and repairs were required to an existing producing well. The well has been off production since August 1996. Production operations are expected to resume in December 1996. As of September 30, 1996, costs associated with removal and partial abandonment activities, and costs associated with repairs to the platforms and well totalled approximately $114,000 and $137,000, respectively. Costs to complete the removal and abandonment work, and the repairs to the platforms and well, are estimated to be approximately $285,000 and $325,000, respectively. Additionally, the Company plans to plug and abandon a previously inactive well and remove an associated satellite platform in late fourth quarter 1996 at a cost of approximately $400,000. The Company purchased four lease blocks in the High Island Area of the Gulf of Mexico prospective for oil and gas in the September 1995 Federal Western Gulf of Mexico lease sale. Approximately $2,000,000 was invested to acquire the necessary acreage for further prospect development, in addition to costs of approximately $400,000 associated with technical development of the prospects. One of these prospective lease blocks was sold in June 1996. An unsuccessful well was drilled and has been plugged and abandoned. A 43.75% interest in each of the three remaining prospective lease blocks has been sold. Sale of the remaining interests in each block will be pursued after additional technical development of the prospects has been completed, with completion expected in December 1996. Development of the Petroport deepwater port and offshore storage facility project has focused on pre- licensing activities and regulatory matters. Major pre-licensing activities include: development of support for the project from both Federal and State agencies that have jurisdiction over or impact deepwater port licensing, construction and operation; facility commercial profile development; development of the engineering design and capital and operating cost estimates; development of the cost estimate for obtaining the necessary license and permits; and development of a financing strategy. In October 1996, a major component of the project's commercial profile was completed. The commercial profile is expressed in terms of both current conditions and conditions expected to prevail through the year 2015. The Company is currently evaluating the results of the work completed. The Company's efforts to amend the Deepwater Port Act of 1974 have been successful, with passage of the Deepwater Port Modernization Act in October 1996. Among other things the Deepwater Port Modernization Act simplifies the licensing and permitting process, grants the ability to receive, store and transport domestic production from the U.S. Outer Continental Shelf, and eliminates various facility use restrictions. It is currently estimated that pre-licensing costs will total between $1,000,000 - $1,250,000. A financing strategy will be developed addressing funding requirements for both the remaining pre-licensing activities and the actual licensing and permitting process. Total cost of the facility is currently estimated at approximately $500 million. The Company expects to submit the Petroport deepwater port license application and associated permit requests in 1997, with operations commencing in the year 2000. The Company believes that it has or can obtain adequate capital resources to continue to meet its anticipated business requirements. RESULTS OF OPERATIONS Net income for the nine months ended September 30, 1996, ("current period") was $203,547 compared to net income of $7,452,930 reported for the corresponding period of the previous year ("previous period"). The decrease in net income is due primarily to the previous period gain of $8,809,114 on a pretax basis on the sale of a one-third interest in the Blue Dolphin Pipeline System . REVENUES: Revenues for the current period decreased by $1,131,231 or 27% to $3,082,810 compared to revenues of $4,214,041 reported for the previous period. Revenues from pipeline operations decreased by $866,621 or 27% due primarily to a decrease in gas transportation revenues of $559,316 resulting from a 31% reduction in gas transportation volumes and the sale of a one-third interest in the Blue Dolphin Pipeline System in August 1995 (the "Pipeline Sale"), which resulted in a $406,034 reduction in revenues. The decrease in gas transportation revenues was partially offset by an increase in oil transportation revenues of $112,631, resulting from a 48% increase in oil transportation volumes. Revenues from oil and gas sales and operating fees for the current period decreased by $264,610 from those of the previous period. Oil and gas sales decreased by $221,219 due primarily to a 37% reduction in gas sales volumes which resulted in a $198,310 decrease in revenues. The reduction in gas sales is attributable to normal production declines and the suspension of production from a Buccaneer Field well in August 1996, as described above. Operating fees declined $43,390 due to termination of production activities by a producer for whom the Company provided contract operation and maintenance services. COSTS AND EXPENSES: Pipeline operating expenses for the current period decreased by $192,847 from those of the previous period. The decrease was due primarily to a reduction of expenses of $249,930 resulting from the Pipeline Sale. This reduction in costs was partially offset by an increase in expenses associated with transporting increased liquids volumes, incurred prior to the completion of onshore pipeline system modifications which were designed to lower the operating costs of handling the increased liquids throughput. Lease operating expenses decreased $165,645 in the current period from those of the previous period. The decrease is due to cost reductions for chemicals, contract labor, rental equipment and insurance program premiums. Repair and maintenance costs for the current period increased by $90,248 due primarily to repairs and modifications to the Buccaneer Field production platforms and facilities of approximately $199,000. Repairs in the previous period included Buccaneer Field producing well down hole repairs of approximately $43,000, onshore pipeline system oil storage tank repairs of approximately $28,000 and Buccaneer Field flowline repairs of approximately $28,000. Depletion, depreciation, and amortization expense for the current period decreased by $156,999 compared to the previous period due to a decrease of approximately $71,773 in depreciation and amortization resulting from the Pipeline Sale, and a decrease of approximately $35,685 due to the effect on depreciation and amortization rates of extending the estimated useful lives of the Company's pipelines and related shore facilities. General and administrative expenses decreased $81,257 in the current period. The decrease is primarily due to the Pipeline Sale. Upon consummation of the Pipeline Sale in August 1995, the Company retired substantially all of its bank debt. Elimination of the debt resulted in a decrease in interest expense in the current period of $389,128. Investment of available cash from the Pipeline Sale and exercise of warrants resulted in a $52,645 increase in interest income in the current period. BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORT ON FORM 8-K A) Exhibits - None B) Form 8-K - None BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. By: BLUE DOLPHIN ENERGY COMPANY Date: November 14, 1996 Michael J. Jacobson Michael J. Jacobson President and Chief Executive Officer G. Brian Lloyd G. Brian Lloyd Secretary and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES' CONSOLIDATED FINANCIAL STATEMENTS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 SEP-30-1996 1,817,278 0 812,795 0 10,600 2,678,172 25,022,582 4,485,843 24,665,517 1,059,672 10,000 0 1,456,048 520,530 17,789,303 24,665,517 343,389 3,082,810 794,888 2,809,260 0 0 16,549 351,154 147,607 203,547 0 0 0 203,547 0.000 0.003
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