-----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, RIRV6tlxB0Qb6mao76beuHCk7NOqXA92XuKnw7ggimIchRP7fkx7WQgT/ktSvTQ6 XUrC/AryEXVqURLIFNszfA== 0000890566-00-000761.txt : 20000516 0000890566-00-000761.hdr.sgml : 20000516 ACCESSION NUMBER: 0000890566-00-000761 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: SEC FILE NUMBER: 000-15905 FILM NUMBER: 630542 BUSINESS ADDRESS: STREET 1: 801 TRAVIS SUITE 2100 CITY: HOUSTON STATE: TX ZIP: 77002-5729 BUSINESS PHONE: 7132277660 MAIL ADDRESS: STREET 1: 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 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 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 BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2000 1999 ------------ ------------ (Unaudited) ASSETS 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 ============ ============
See accompanying notes to consolidated financial statements. 3 BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED
THREE MONTHS ENDED MARCH 31, 2000 1999 ----------- ----------- 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 =========== ===========
See accompanying notes to consolidated financial statements. 4 BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
THREE MONTHS ENDED MARCH 31, 2000 1999 ----------- ----------- 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 =========== ===========
See accompanying notes to consolidated financial statements. 5 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 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:
DEPLETION OPERATING DEPRECIATION INTERSEGMENT INCOME AND REVENUES REVENUES (LOSS)(1) AMORTIZATION(2) ------------ ------------ ------------ ------------ 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
7 BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (CONTINUED)
IDENTIFIABLE IDENTIFIABLE ASSETS ASSETS ------------ ------------ 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
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 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 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 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 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 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 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 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND INCORPORATED HEREIN BY REFERENCE. 3-MOS DEC-31-2000 MAR-31-2000 961,090 0 1,841,956 0 42,734 3,142,496 33,093,961 17,853,990 21,836,701 2,669,409 0 0 0 59,509 17,639,057 21,836,701 995,087 1,584,781 280,198 980,851 0 0 23,895 52,838 0 52,838 0 0 0 52,838 0.01 0.01
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