þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Delaware (State or other jurisdiction of incorporation or organization) |
73-1268729 (I.R.S. Employer Identification No.) |
Large accelerated filer o | Accelerated filero | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
3 | ||||||||
Item 1. | 3 | |||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
Item 2. | 14 | |||||||
Item 3. | 19 | |||||||
Item 4. | 19 | |||||||
20 | ||||||||
Item 1. | 20 | |||||||
Item 1A. | 20 | |||||||
Item 2. | 20 | |||||||
Item 3. | 20 | |||||||
Item 4. | 20 | |||||||
Item 5. | 20 | |||||||
Item 6. | 21 | |||||||
22 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
2
Item 1. | Financial Statements |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,643,508 | $ | 625,854 | ||||
Accounts receivable, net of allowance for doubtful accounts |
716,750 | 598,391 | ||||||
Prepaid expenses and other current assets |
83,163 | 213,071 | ||||||
Loan receivable, net of allowance for loan receivable |
| | ||||||
Total current assets |
3,443,421 | 1,437,316 | ||||||
Property and equipment, at cost: |
||||||||
Oil and gas
properties (full-cost method) |
2,377,041 | 2,222,535 | ||||||
Pipelines |
4,342,480 | 4,659,686 | ||||||
Onshore separation and handling facilities |
1,344,455 | 1,919,402 | ||||||
Land |
473,225 | 860,275 | ||||||
Other property and equipment |
557,374 | 503,813 | ||||||
9,094,575 | 10,165,711 | |||||||
Less:
Accumulated depletion, depreciation and amortization |
5,233,243 | 5,630,730 | ||||||
Total
property and equipment, net |
3,861,332 | 4,534,981 | ||||||
Loan receivable, net of allowance for loan receivable |
| | ||||||
Other assets |
9,463 | 9,463 | ||||||
Total assets |
$ | 7,314,216 | $ | 5,981,760 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 463,094 | $ | 543,327 | ||||
Note payable insurance |
| 124,936 | ||||||
Asset retirement obligations, current portion |
138,538 | 192,470 | ||||||
Accrued expenses and other current liabilities |
39,598 | 2,142 | ||||||
Total
current liabilities |
641,230 | 862,875 | ||||||
Long-term liabilities: |
||||||||
Asset retirement obligations, net of current portion |
2,351,975 | 2,535,386 | ||||||
Total liabilities |
2,993,205 | 3,398,261 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock ($0.01 par value, 100,000,000 shares authorized,
2,098,390 and 2,078,514 shares issued and outstanding at September 30, 2011 and December 31,
2010, respectively) |
||||||||
20,984 | 20,785 | |||||||
Additional paid-in capital |
33,753,061 | 33,693,260 | ||||||
Accumulated deficit |
(29,453,034 | ) | (31,130,546 | ) | ||||
Total stockholders equity |
4,321,011 | 2,583,499 | ||||||
Total liabilities and stockholders equity |
$ | 7,314,216 | $ | 5,981,760 | ||||
3
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue from operations: |
||||||||||||||||
Pipeline operations |
$ | 219,006 | $ | 502,369 | $ | 829,011 | $ | 1,393,848 | ||||||||
Oil and gas sales |
301,417 | 237,940 | 1,004,148 | 278,161 | ||||||||||||
Total revenue from operations |
520,423 | 740,309 | 1,833,159 | 1,672,009 | ||||||||||||
Cost of operations: |
||||||||||||||||
Pipeline operating expenses |
532,931 | 243,531 | 999,297 | 855,842 | ||||||||||||
Lease operating expenses |
286,439 | 221,019 | 816,718 | 250,031 | ||||||||||||
Depletion, depreciation and amortizaton |
123,355 | 217,105 | 406,891 | 463,806 | ||||||||||||
Recovery on
previous allowance for doubtful loan receivable |
| (201,000 | ) | | (201,000 | ) | ||||||||||
General and administrative |
273,567 | 286,288 | 1,056,203 | 1,084,537 | ||||||||||||
Stock-based compensation |
20,000 | 20,000 | 60,000 | 113,760 | ||||||||||||
Accretion expense |
32,805 | 30,563 | 98,884 | 88,678 | ||||||||||||
Total cost of operations |
1,269,097 | 817,506 | 3,437,993 | 2,655,654 | ||||||||||||
Gain on sale
of property and equipment |
3,267,070 | | 3,267,070 | | ||||||||||||
Income (Loss) from operations |
2,518,396 | (77,197 | ) | 1,662,236 | (983,645 | ) | ||||||||||
Other income: |
||||||||||||||||
Interest and other income |
5,138 | 8,115 | 15,276 | 18,872 | ||||||||||||
Income (Loss) before income taxes |
2,523,534 | (69,082 | ) | 1,677,512 | (964,773 | ) | ||||||||||
Income taxes |
| | | | ||||||||||||
Net
income (loss) |
$ | 2,523,534 | $ | (69,082 | ) | $ | 1,677,512 | $ | (964,773 | ) | ||||||
Income (Loss) per common share |
||||||||||||||||
Basic |
$ | 1.20 | $ | (0.04 | ) | $ | 0.80 | $ | (0.54 | ) | ||||||
Diluted |
$ | 1.20 | $ | (0.04 | ) | $ | 0.80 | $ | (0.54 | ) | ||||||
Weighted
average number of common shares outstanding |
||||||||||||||||
Basic |
2,094,438 | 1,967,278 | 2,088,581 | 1,793,365 | ||||||||||||
Diluted |
2,095,166 | 1,967,278 | 2,091,428 | 1,793,365 | ||||||||||||
4
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Operating Activities: |
||||||||
Net income (loss) |
$ | 1,677,512 | $ | (964,773 | ) | |||
Adjustments
to reconcile net income (loss) to net cash used in operating activities: |
||||||||
Depletion, depreciation and amortization |
406,891 | 463,806 | ||||||
Gain on sale of property and equipment |
(3,267,070 | ) | | |||||
Recovery on previous allowance for doubtful loan receivable |
| (201,000 | ) | |||||
Accretion of asset retirement obligations |
98,884 | 88,678 | ||||||
Stock-based compensation |
60,000 | 113,760 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(118,359 | ) | (62,357 | ) | ||||
Prepaid expenses and other assets |
129,908 | 171,695 | ||||||
Abandonment costs incurred |
(336,227 | ) | (38,996 | ) | ||||
Accounts payable, accrued expenses and other current liabilities |
(42,777 | ) | 11,305 | |||||
Net cash used in operating activities |
(1,391,238 | ) | (417,882 | ) | ||||
Investing Activities: |
||||||||
Purchases of property and equipment |
(216,172 | ) | (58,719 | ) | ||||
Proceeds from sale of property and equipment |
3,750,000 | | ||||||
Net cash
provided by (used in) investing activities |
3,533,828 | (58,719 | ) | |||||
Financing Activities: |
||||||||
Payments on insurance finance note |
(124,936 | ) | (173,479 | ) | ||||
Net cash used in financing activities |
(124,936 | ) | (173,479 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
2,017,654 | (650,080 | ) | |||||
Cash and Cash Equivalents at Beginning of Period |
625,854 | 1,016,483 | ||||||
Cash and Cash Equivalents at End of Period |
$ | 2,643,508 | $ | 366,403 | ||||
Supplemental Information: |
||||||||
Non-cash investing and financing activities |
||||||||
Purchase of property and equipment with company stock |
$ | | $ | 685,714 | ||||
Property and equipment acquired as partial settlement of loan receivable |
$ | | $ | 201,000 | ||||
Increase in asset retirement obligation and property and equipment |
$ | | $ | 391,369 | ||||
5
| Blue Dolphin Pipe Line Company (BDPL), a Delaware corporation; |
| Blue Dolphin Petroleum Company, a Delaware corporation; |
| Blue Dolphin Exploration Company, a Delaware corporation; |
| Blue Dolphin Services Co., a Texas corporation; and |
| Petroport, Inc., a Delaware corporation. |
6
7
8
Three Months Ended September 30, 2011 | ||||||||||||||||
Segment | ||||||||||||||||
Oil and Gas | ||||||||||||||||
Pipeline | Exploration & | Corporate & | ||||||||||||||
Transportation | Production | Other(1) | Total | |||||||||||||
Revenues |
$ | 219,006 | $ | 301,418 | $ | | $ | 520,424 | ||||||||
Operation cost(2) |
641,004 | 399,174 | 105,565 | 1,145,743 | ||||||||||||
Depletion, depreciation
and amortization |
90,254 | 32,445 | 656 | 123,355 | ||||||||||||
Gain on sale
of property and equipment |
3,267,070 | | | 3,267,070 | ||||||||||||
EBIT |
$ | 2,754,818 | $ | (130,202 | ) | $ | (106,220 | ) | $ | 2,518,396 | ||||||
Capital expenditures |
$ | 8,105 | $ | 130,704 | $ | 53,561 | $ | 192,370 | ||||||||
Identifiable assets(3) |
$ | 5,151,988 | $ | 1,788,678 | $ | 373,550 | $ | 7,314,216 | ||||||||
(1) | Includes unallocated general and administrative costs associated with corporate maintenance costs (such as director fees and legal expenses). It also includes as identifiable assets corporate available cash of approximately $57,000 | |
(2) | Allocable general and administrative costs are allocated based on revenue. | |
(3) | Identifiable assets contain related legal obligations of each segment including cash, accounts receivable and payable and recorded net assets. |
Three Months Ended September 30, 2010 | ||||||||||||||||
Segment | ||||||||||||||||
Oil and Gas | ||||||||||||||||
Pipeline | Exploration & | Corporate & | ||||||||||||||
Transportation | Production | Other(1) | Total | |||||||||||||
Revenues |
$ | 502,369 | $ | 237,940 | $ | | $ | 740,309 | ||||||||
Operation cost(2) |
333,715 | 335,987 | 131,699 | 801,401 | ||||||||||||
Depletion, depreciation
and amortization |
105,043 | 110,881 | 1,181 | 217,105 | ||||||||||||
Recovery on
previous allowance for doubtful loan receivable |
| | 201,000 | 201,000 | ||||||||||||
EBIT |
$ | 63,611 | $ | (208,928 | ) | $ | 68,120 | $ | (77,197 | ) | ||||||
Capital expenditures |
$ | | $ | 1,135,802 | $ | 201,000 | $ | 1,336,802 | ||||||||
Identifiable assets(3) |
$ | 4,123,478 | $ | 1,257,593 | $ | 363,935 | $ | 5,745,006 | ||||||||
(1) | Includes unallocated general and administrative costs associated with corporate maintenance costs (such as director fees and legal expenses). It also includes as identifiable assets corporate available cash of $0.4 million. | |
(2) | Allocable general and administrative costs are allocated based on revenue. | |
(3) | Identifiable assets contain related legal obligations of each segment including cash, accounts receivable and payable and recorded net assets. |
9
Nine Months Ended September 30, 2011 | ||||||||||||||||
Segment | ||||||||||||||||
Oil and Gas | ||||||||||||||||
Pipeline | Exploration & | Corporate & | ||||||||||||||
Transportation | Production | Other(1) | Total | |||||||||||||
Revenues |
$ | 829,011 | $ | 1,004,148 | $ | | $ | 1,833,159 | ||||||||
Operation cost(2) |
1,446,655 | 1,255,077 | 329,370 | 3,031,102 | ||||||||||||
Depletion, depreciation
and amortization |
292,745 | 111,627 | 2,519 | 406,891 | ||||||||||||
Gain on sale of property and equipment |
3,267,070 | | | 3,267,070 | ||||||||||||
EBIT |
$ | 2,356,681 | $ | (362,556 | ) | $ | (331,889 | ) | $ | 1,662,236 | ||||||
Capital expenditures |
$ | 8,105 | $ | 154,506 | $ | 53,561 | $ | 216,172 | ||||||||
Identifiable assets(3) |
$ | 5,151,988 | $ | 1,788,678 | $ | 373,550 | $ | 7,314,216 | ||||||||
(1) | Includes unallocated general and administrative costs associated with corporate maintenance costs (such as director fees and legal expenses). It also includes as identifiable assets corporate available cash of approximately $57,000. | |
(2) | Allocable general and administrative costs are allocated based on revenue. | |
(3) | Identifiable assets contain related legal obligations of each segment including cash, accounts receivable and payable and recorded net assets. |
Nine Months Ended September 30, 2010 | ||||||||||||||||
Segment | ||||||||||||||||
Oil and Gas | ||||||||||||||||
Pipeline | Exploration & | Corporate & | ||||||||||||||
Transportation | Production | Other(1) | Total | |||||||||||||
Revenues |
$ | 1,393,848 | $ | 278,161 | $ | | $ | 1,672,009 | ||||||||
Operation cost(2) |
1,657,109 | 395,032 | 340,707 | 2,392,848 | ||||||||||||
Depletion, depreciation
and amortization |
315,128 | 144,729 | 3,949 | 463,806 | ||||||||||||
Recovery on
previous allowance for doubtful loan receivable |
| | 201,000 | 201,000 | ||||||||||||
EBIT |
$ | (578,389 | ) | $ | (261,600 | ) | $ | (143,656 | ) | $ | (983,645 | ) | ||||
Capital expenditures |
$ | | $ | 1,135,802 | $ | 201,000 | $ | 1,336,802 | ||||||||
Identifiable assets(3) |
$ | 4,123,478 | $ | 1,257,593 | $ | 363,935 | $ | 5,745,006 | ||||||||
(1) | Includes unallocated general and administrative costs associated with corporate maintenance costs (such as director fees and legal expenses). It also includes as identifiable assets corporate available cash of $0.4 million. | |
(2) | Allocable general and administrative costs are allocated based on revenue. | |
(3) | Identifiable assets contain related legal obligations of each segment including cash, accounts receivable and payable and recorded net assets. |
10
Asset retirement obligations as of December 31, 2010 |
$ | 2,727,856 | ||
Liabilities incurred |
| |||
Liabilities settled |
(336,227 | ) | ||
Accretion expense |
98,884 | |||
Asset retirement obligations as of September 30, 2011 |
2,490,513 | |||
Less: current portion of asset retirement obligations |
138,538 | |||
Asset retirement obligations long-term balance as of September 30, 2011 |
$ | 2,351,975 | ||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) |
$ | 2,523,534 | $ | (69,082 | ) | $ | 1,677,512 | $ | (964,773 | ) | ||||||
Basic |
||||||||||||||||
Weighted average number of shares of common
stock outstanding |
2,094,438 | 1,967,278 | 2,088,581 | 1,793,365 | ||||||||||||
Per share amount |
$ | 1.20 | $ | (0.04 | ) | $ | 0.80 | $ | (0.54 | ) | ||||||
Diluted |
||||||||||||||||
Weighted average number of shares of common
stock outstanding and potential dilutive shares
of common stock |
2,095,166 | 1,967,278 | 2,091,428 | 1,793,365 | ||||||||||||
Per share amount |
$ | 1.20 | $ | (0.04 | ) | $ | 0.80 | $ | (0.54 | ) | ||||||
11
Weighted Average | ||||||||||||||||
Weighted Average | Remaining | Aggregate | ||||||||||||||
Shares | Exercise Price | Contractual Life | Intrinisic Value | |||||||||||||
Options outstanding at December 31, 2010 |
30,390 | $ | 13.29 | |||||||||||||
Options granted |
| $ | | |||||||||||||
Options exercised |
| $ | | |||||||||||||
Options expired or cancelled |
| $ | | |||||||||||||
Options outstanding at September 30, 2011 |
30,390 | $ | 13.29 | 2.0 | $ | 408 | ||||||||||
Options exercisable at September 30, 2011 |
30,390 | $ | 13.29 | 2.0 | $ | 408 | ||||||||||
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted Average | Weighted | |||||||||||||||||||
Remaining | Average | |||||||||||||||||||
Range of Exercise | Number | Contractual Life | Weighted Average | Number | Exercise | |||||||||||||||
Prices | Outstanding | (Years) | Exercise Price | Exercisable | Price | |||||||||||||||
$2.45 to $5.60 |
10,118 | 1.6 | $ | 3.06 | 10,118 | $ | 3.06 | |||||||||||||
$10.85 to $13.30 |
3,346 | 0.4 | $ | 11.95 | 3,346 | $ | 11.95 | |||||||||||||
$19.67 |
16,926 | 2.7 | $ | 19.67 | 16,926 | $ | 19.67 | |||||||||||||
30,390 | 30,390 | |||||||||||||||||||
12
13
| ability to continue as a going concern; | |
| collectability of a $2.0 million loan receivable, net of credited and recovered amounts; | |
| ability to complete a combination with one or more target businesses; | |
| ability to secure additional working capital to fund operations; | |
| ability to monetize our pipeline assets; | |
| ability to improve pipeline utilization levels; | |
| performance of third party operators for properties where we have an interest; | |
| production from oil and gas properties that we have interests in; | |
| volatility of oil and gas prices; | |
| uncertainties in the estimation of proved reserves, in the projection of future rates of production, the timing of development expenditures and the amount and timing of property abandonment; | |
| costly changes in environmental and other government regulations for which we are subject; | |
| adverse changes in the global financial markets; and | |
| potential delisting of our Common Stock by NASDAQ due to non-compliance with NASDAQ listing requirements. |
14
Pipeline | Undivided Ownership | Miles of | Capacity | Storage | ||||||||||||||||
Segment | Market | Interest | Pipeline | (MMcf/d) | (Bbls) | |||||||||||||||
BDPS |
Gulf of Mexico | 83 1/3 | % | 38 | 180 | | ||||||||||||||
GA 350 |
Gulf of Mexico | 83 1/3 | % | 13 | 65 | | ||||||||||||||
Omega |
Gulf of Mexico | 83 1/3 | % | 18 | 110 | |
| Blue Dolphin Pipeline System (BDPS) The BDPS spans approximately 38 miles and runs from Galveston Area Block 288 offshore to our onshore facilities and the Dow Chemical Plant Complex in Freeport, Texas. The BDPS has an aggregate capacity of approximately 180 MMcf of gas and 7,000 Bbls of crude oil and condensate per day. The BDPS is currently transporting an aggregate of approximately 1.5 MMcf of gas per day from 4 shippers, which represents less than 1% of throughput capacity. | |
The BDPS includes: (i) approximately 290 acres of land in Brazoria County, Texas where the Blue Dolphin Pipeline comes ashore and where the BDPS onshore facilities, pipeline easements and rights-of-way are located, (ii) an offshore platform and (iii) the Blue Dolphin Pipeline. The Blue Dolphin Pipeline, which is a component of the BDPS, consists of two segments: |
- | the offshore segment, which transports oil and gas it is comprised of approximately 34 miles of 20-inch pipeline originating at an offshore platform in Galveston Area Block 288 and running to shore; the offshore segment also includes the platform in Galveston Area Block 288 and 5 field gathering lines totaling approximately 27 miles connected to the main 20-inch line; an additional 2 miles of 20-inch pipeline onshore connects the offshore segment to the onshore facility at Freeport, Texas; and | ||
- | the onshore segment, which transports gas it is comprised of approximately 2 miles of 16inch pipeline from the onshore facility to a sales point at a chemical plant complex and intrastate pipeline system tie-in in Freeport, Texas. |
| Galveston Area Block 350 Pipeline (the GA 350 Pipeline) The GA 350 Pipeline is an 8-inch, 13 mile offshore pipeline extending from Galveston Area Block 350 to an interconnect with a transmission pipeline in Galveston Area Block 391 located approximately 14 miles south of the Blue Dolphin Pipeline. Current system capacity on the GA 350 Pipeline is 65 MMcf of gas per day. The GA 350 Pipeline is currently transporting an aggregate of approximately 13.9 MMcf of gas per day from 2 shippers, which represents 21% of throughput capacity. | |
| Omega Pipeline The Omega Pipeline originates in the High Island Area, East Addition Block A-173 and extends to West Cameron Block 342, where it was previously connected to the High Island Offshore System. The Omega Pipeline is currently inactive. Reactivation of the Omega Pipeline is dependent upon future drilling activity in the vicinity and successfully attracting producer/shippers to the system. |
15
Approximate Working / | ||||||||
Field | Operator | Net Revenue Interest | ||||||
Indonesia: |
||||||||
North Sumatra Basin-Langsa Field |
Blue Sky Langsa, Ltd. | 7.0 | % | |||||
U.S. Gulf of Mexico: |
||||||||
High Island Block 115 |
Rooster Petroleum, LLC | 2.5 | % | |||||
Galveston Area Block 321 |
Black Elk Energy Offshore Operations LLC | 0.5 | % | |||||
High Island Block 37 |
Hilcorp Energy Company | 2.8 | % |
| North Sumatra Basin-Langsa Field Located offshore Indonesia, the North Sumatra Basin-Langsa Field covers approximately 77 square kilometers and contains two oil fields in waters less than 325 feet deep. Four wells have been completed in the Malacca Formation one active, the H-4 Well, and three inactive. Production is gathered via a floating production storage and offloading (FPSO) vessel operated by Mitsui Ocean Development & Engineering Co., Ltd. The H-4 Well is currently producing approximately 400 barrels of oil per day. | |
| High Island Block 115 High Island Block 115 is located approximately 30 miles southeast of Bolivar Peninsula in an average water depth of approximately 38 feet. The block contains one active well, the B-1 ST2 Well. The B-1 ST2 Well is currently producing approximately 2.4 MMcf of gas per day. | |
| Galveston Area Block 321 Galveston Area Block 321 is located approximately 32 miles southeast of Galveston in an average water depth of approximately 66 feet. The block contains one active well, the A-4 Well, which is currently shut-in. | |
| High Island Block 37 High Island Block 37, which covers 5,760 acres, is located approximately 15 miles south of Sabine Pass in an average water depth of approximately 36 feet. The block contains one active well, the A-2 Well, and one inactive well, the B-1 Well. The A-2 Well, which was shut-in during the second quarter of 2011, remains off production. |
16
17
18
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Cash frow from operations |
$ | (1,023,783 | ) | $ | (964,773 | ) | ||
Loss from operations |
(367,455 | ) | 546,891 | |||||
Change in current assets and liabilities |
(1,391,238 | ) | (417,882 | ) | ||||
Total cash flow from operations |
||||||||
Cash inflows (outflows) |
||||||||
Payments on note payable |
(124,936 | ) | (173,479 | ) | ||||
Capital expenditures |
(216,172 | ) | (58,719 | ) | ||||
Proceeds from sale of property and equipment |
3,750,000 | | ||||||
Total cash inflows (outflows) |
3,408,892 | (232,198 | ) | |||||
Total change in cash |
$ | 2,017,654 | $ | (650,080 | ) | |||
19
20
31.1
|
Ivar Siem Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
T. Scott Howard Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Ivar Siem Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
T. Scott Howard Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. | |
101
|
The following financial statements from the Companys 10-Q for the quarter ended September 30. 2011, formatted in XBRL: (i) Condensed Consolidated Balance Sheets - September 30, 2011 (unaudited) and December 31, 2010, (ii) Condensed Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended September 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements (Unaudited). |
21
By: | BLUE DOLPHIN ENERGY COMPANY | |||
November 14, 2011 | /s/ IVAR SIEM | |||
Ivar Siem | ||||
Chairman, Chief Executive Officer, President, Assistant Treasurer and Secretary |
||||
November 14, 2011 | /s/ T. SCOTT HOWARD | |||
T. Scott Howard | ||||
Treasurer and Assistant Secretary (Principal Financial and Accounting Officer) |
||||
22
1. | I have reviewed this Quarterly Report on Form 10-Q of Blue Dolphin Energy Company (the Registrant). | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; | |
4. | The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have: | |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; | ||
5. | The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants board of directors (or persons performing the equivalent functions): | |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and | ||
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
/s/ IVAR SIEM | ||||
Ivar Siem | ||||
Chairman, Chief Executive Officer,
President, Assistant Treasurer and Secretary |
1. | I have reviewed this Quarterly Report on Form 10-Q of Blue Dolphin Energy Company (the Registrant). | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; | |
4. | The Registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have: | |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; | ||
5. | The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants board of directors (or persons performing the equivalent functions): | |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and | ||
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
/s/ T. SCOTT HOWARD | ||||
T. Scott Howard | ||||
Treasurer and Assistant Secretary (Principal Financial and Accounting Officer) |
||||
/s/ IVAR SIEM | ||||
Ivar Siem | ||||
Chairman, Chief Executive Officer, President, Assistant Treasurer and Secretary |
||||
/s/ T. SCOTT HOWARD | ||||
T. Scott Howard | ||||
Treasurer and Assistant Secretary (Principal Financial and Accounting Officer) |
||||
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Stockholders' equity: | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 2,098,390 | 2,078,514 |
Common stock, shares outstanding | 2,098,390 | 2,078,514 |
Condensed Consolidated Statements of Operations (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Revenue from operations: | ||||
Pipeline operations | $ 219,006 | $ 502,369 | $ 829,011 | $ 1,393,848 |
Oil and gas sales | 301,417 | 237,940 | 1,004,148 | 278,161 |
Total revenue from operations | 520,423 | 740,309 | 1,833,159 | 1,672,009 |
Cost of operations: | ||||
Pipeline operating expenses | 532,931 | 243,531 | 999,297 | 855,842 |
Lease operating expenses | 286,439 | 221,019 | 816,718 | 250,031 |
Depletion, depreciation and amortization | 123,355 | 217,105 | 406,891 | 463,806 |
Recovery on previous allowance for doubtful loan receivable | (201,000) | (201,000) | ||
General and administrative | 273,567 | 286,288 | 1,056,203 | 1,084,537 |
Stock-based compensation | 20,000 | 20,000 | 60,000 | 113,760 |
Accretion expense | 32,805 | 30,563 | 98,884 | 88,678 |
Total cost of operations | 1,269,097 | 817,506 | 3,437,993 | 2,655,654 |
Gain on sale of property and equipment | 3,267,070 | 3,267,070 | ||
Income (Loss) from operations | 2,518,396 | (77,197) | 1,662,236 | (983,645) |
Other income: | ||||
Interest and other income | 5,138 | 8,115 | 15,276 | 18,872 |
Income (Loss) before income taxes | 2,523,534 | (69,082) | 1,677,512 | (964,773) |
Income taxes | ||||
Net income (loss) | $ 2,523,534 | $ (69,082) | $ 1,677,512 | $ (964,773) |
Income (Loss) per common share | ||||
Basic | $ 1.20 | $ (0.04) | $ 0.80 | $ (0.54) |
Diluted | $ 1.20 | $ (0.04) | $ 0.80 | $ (0.54) |
Weighted average number of common shares outstanding | ||||
Basic | 2,094,438 | 1,967,278 | 2,088,581 | 1,793,365 |
Diluted | 2,095,166 | 1,967,278 | 2,091,428 | 1,793,365 |
Document and Entity Information (USD $) In Millions, except Share data | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | Nov. 03, 2011 | Jun. 30, 2010 | |
Document and Entity Information [Abstract] | |||
Entity Registrant Name | BLUE DOLPHIN ENERGY CO | ||
Entity Central Index Key | 0000793306 | ||
Document Type | 10-Q | ||
Document Period End Date | Sep. 30, 2011 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q3 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 2.7 | ||
Entity Common Stock, Shares Outstanding | 2,098,390 |
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Loan Receivable | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Loan Receivable [Abstract] | |
Loan Receivable |
(7) Loan Receivable
We recorded an allowance for doubtful loan receivable of $1.5 million at December 31, 2009. The
loan receivable is associated with a $2.0 million loan, net of credited and recovered amounts (the
“Loan”), made to Lazarus Louisiana Refinery II, LLC (“LLRII”) on July 31, 2009 and due on January
31, 2010. As of September 30, 2011, we continued to maintain a full allowance for the uncollected
balance of the Loan.
In the second quarter of 2010, we began foreclosure proceedings in Louisiana against the
collateral, as well as legal proceedings in Texas against the guaranty that secured the Loan. As a
result of a foreclosure auction in Louisiana, we acquired a saltwater disposal well in the third
quarter of 2010. Based on the asset’s appraised value, we recovered $201,000 of the allowance for
doubtful loan receivable. Under the legal proceedings in Texas, we were granted a partial summary
judgment on liability under the promissory note and guaranty in favor of Blue Dolphin. However,
the court deferred a ruling on the damages and attorney’s fees to be awarded. On March 28, 2011,
our motion for entry of the partial summary judgment was heard before the court. The court entered
the partial summary judgment in the amount of $1.7 million in favor of Blue Dolphin and against
Lazarus Energy Holdings (“LEH”) and LLRII on the promissory note and guaranty. The only claim that
remains pending is the counter-claim alleging breach of contract under the confidentiality
agreement. On May 12, 2011, the parties entered into a Rule 11 Agreement in the interests of
resolving the claims and disputes related to this matter. The parties have extended the deadline
under the Rule 11 Agreement multiple times in an ongoing effort to re-establish a business
arrangement that is beneficial to all involved parties.
On July 13, 2011, we entered into a Purchase and Sale Agreement (the “PSA”) with LEH, LLRII,
Lazarus Texas Refinery II, LLC, Lazarus Environmental, LLC, Lazarus Energy, LLC (“LE”) and Lazarus
Energy Development, LLC whereby we will acquire 100% of the membership interest of LE, the primary
asset of which is the Nixon Refinery near Nixon, Texas. Our purchase
consideration is the issuance of eighty percent
(80%) of our issued and outstanding common stock to LEH, which will represent a change in control of the
Company. Closing of the transaction is subject to: (i) LEH obtaining funding of at least $3.7
million for startup of the Nixon Refinery and (ii) approval of the transaction by our stockholders.
Upon consummation of the transaction, we have agreed to release LLRII of its obligation to pay the outstanding
balance due under the Loan, as well as to
release our claims against LLRII and LEH pursuant to the related lawsuit(s).
|
Business Segment Information | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Business Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segment Information |
(3) Business Segment Information
Our operations are conducted in two principal business segments: (i) pipeline transportation
services and (ii) oil and gas exploration and production. The business segments are managed
jointly primarily due to the size of our employee base and the scope of our operations. Management
uses earnings before interest expense and income taxes (“EBIT”), a non-GAAP financial measure, to
assess the operating results and effectiveness of our business segments, which consist of our
consolidated businesses and investments. We believe EBIT is useful to our investors because it
allows them to evaluate our operating performance using the same performance measure analyzed
internally by management. EBIT is adjusted for: (i) items that do not impact our income or loss
from continuing operations, such as the impact of accounting changes, (ii) income taxes and (iii)
interest expense (or income). We exclude interest expense (or income) and other expenses or income
not pertaining to the operations of our segments from this measure so that investors may evaluate
our current operating results without regard to our financing methods or capital structure. We
understand that EBIT may not be comparable to measurements used by other companies. Additionally,
EBIT should be considered in conjunction with net income (loss) and other performance measures such
as operating cash flows.
Following is a reconciliation of our EBIT (by business segment) for the three months ended
September 30, 2011, and at September 30, 2011:
Following is a reconciliation of our EBIT (by business segment) for the three months ended
September 30, 2010, and at September 30, 2010:
Following is a reconciliation of our EBIT (by business segment) for the nine months ended
September 30, 2011, and at September 30, 2011:
Following is a reconciliation of our EBIT (by business segment) for the nine months ended
September 30, 2010, and at September 30, 2010:
|
Disposition of Assets | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Disposition of Assets [Abstract] | |
Disposition of Assets |
(9) Disposition of Assets
Pursuant
to an Asset Purchase Agreement, BDPL sold its eighty-three and one-third percent (83⅓%)
undivided interest in the Buccaneer Pipeline to Sunoco for proceeds of approximately $3.7 million in cash.
The transaction closed on August 3, 2011.
|
Commitments and Contingencies | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies |
(8) Commitments and Contingencies
We are involved in various claims and legal actions arising in the ordinary course of business. In
our opinion, the ultimate disposition of these matters will not have a material effect on our
condensed consolidated financial position, results of operations or cash flows.
|
Organization | 9 Months Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | ||||||||||||||||
Organization [Abstract] | ||||||||||||||||
Organization |
(1) Organization
Company Summary
Blue Dolphin Energy Company (referred to herein, with its predecessors and subsidiaries, as “Blue
Dolphin,” “we,” “us” and “our”), a Delaware corporation, was formed in 1986 as a holding company
and conducts substantially all of its operations through its subsidiaries. Our operating
subsidiaries include:
Business Segments
We are engaged in two lines of business: (i) pipeline transportation services to
producers/shippers, and (ii) oil and gas exploration and production. Our pipeline assets are
located offshore and onshore in the Texas Gulf Coast area and our leasehold interests in properties
are located in the U.S. Gulf of Mexico and the North Sumatra Basin in offshore Indonesia.
|
Asset Retirement Obligations | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset Retirement Obligations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset Retirement Obligations |
(4) Asset Retirement Obligations
We have asset retirement obligations associated with the future abandonment of our pipelines and
related facilities and our offshore oil and gas properties. The following table summarizes our
asset retirement obligation transactions during the three months ended September 30, 2011:
|
Earnings Per Share | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share |
(5) Earnings Per Share
We apply the provisions of the ASC for computing earnings per share. The guidance requires the
presentation of basic earnings per share (“EPS”), which excludes dilution and is computed by
dividing net income (loss) available to common stockholders by the weighted-average number of
shares of common stock outstanding for the period. The guidance requires dual presentation of
basic EPS and diluted EPS on the face of the condensed consolidated statement of operations and
requires a reconciliation of the numerators and denominators of basic EPS and diluted EPS. Diluted
EPS is computed by dividing net income (loss) available to common shareholders by the diluted
weighted average number of common shares outstanding, which includes the potential dilution that
could occur if securities or other contracts to issue common stock were converted to common stock
that then shared in the earnings of the entity.
Employee stock options and stock warrants outstanding were not included in the computation of
diluted earnings per share for the quarter ended September 30, 2010, because their assumed exercise
and conversion would have an anti-dilutive effect on the computation of diluted loss per share.
The following table provides reconciliation between basic and diluted loss per share:
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Stock Options |
(6) Stock Options
We adopted the 2000 Stock Incentive Plan effective April 14, 2000, following approval by our
stockholders. An amendment to the plan was approved by our stockholders in 2007. Under the plan,
as amended (the “2000 Plan”), we are able to make awards of stock-based compensation. The 2000
Plan has expired and currently no shares may be issued under the plan. Options granted under the
2000 Plan have contractual terms from six to ten years. The exercise price of ISOs cannot be less
than 100% of the fair market value of a share of our common stock determined on the grant date.
Although the 2000 Plan provides for the granting of other incentive awards, only ISOs and
non-statutory stock options have been issued under the 2000 Plan. The 2000 Plan is administered by
the Board’s Compensation Committee.
Pursuant to the ASC guidance on accounting for stock based compensation, we estimate the fair value
of stock options granted on the date of grant using the Black-Scholes-Merton option-pricing model.
There were no stock options granted in the nine months ended September 30, 2011, and the year ended
December 31, 2010.
At September 30, 2011, there were a total of 30,390 shares of common stock reserved for issuance
upon exercise of outstanding options under the 2000 Plan. A summary of the status of stock options
granted to key employees, officers and directors, for the purchase of shares of common stock for
the periods indicated, is as follows:
The following table summarizes additional information about stock options outstanding at September
30, 2011:
We recognized no compensation expense for vested stock options for the three and nine months ended
September 30, 2011, compared to $0 and $53,760 for the three and nine months ended September 30,
2010, respectively. As of September 30, 2011, there was no unrecognized compensation cost related
to non-vested stock options granted under the 2000 Plan.
We recognized $20,000 and $60,000 of expense related to the fair value issuance of restricted
common stock to our independent directors for the three and nine months ended September 30, 2011,
respectively.
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Significant Accounting Policies | 9 Months Ended |
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Sep. 30, 2011 | |
Significant Accounting Policies [Abstract] | |
Significant Accounting Policies |
(2) Significant Accounting Policies
Principles of Consolidation
We have prepared our condensed consolidated financial statements without audit, in accordance with
U.S. generally accepted accounting principles (“GAAP”) as codified by the Financial Accounting
Standards Board (“FASB”) in its Accounting Standards Codification (“ASC”), pursuant to the rules
and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of
management, such condensed consolidated financial statements reflect all adjustments necessary to
present fair condensed consolidated statements of operations, financial position and cash flows.
We believe that the disclosures are adequate and the presented information is not misleading. This
report has been prepared in accordance with the SEC’s Form 10-Q instructions and therefore, certain
information and footnote disclosures normally included in audited financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to the SEC’s rules and regulations.
Our accompanying unaudited condensed consolidated financial statements should be read in
conjunction with our audited consolidated financial statements and the notes thereto included in
our annual report on Form 10-K and Amendment No. 1 on Form 10-K/A for the fiscal year ended
December 31, 2010 (“Annual Report”). The results of operations for the three and nine months ended
September 30, 2011, are not necessarily indicative of the results of operations to be expected for
the year ending December 31, 2011.
Accounting Estimates
We have made a number of estimates and assumptions related to the reporting of condensed
consolidated assets and liabilities and to the disclosure of contingent assets and liabilities to
prepare these unaudited condensed consolidated financial statements in conformity with GAAP. This
includes assessing the realization of an outstanding note receivable, the estimated useful life of
pipeline assets, valuation of stock-based payments and reserve information, which affects the
depletion calculation and the full-cost ceiling limitation. While we believe current estimates are
reasonable and appropriate, actual results could differ from those estimated.
Going Concern
Our condensed consolidated financial statements, which have been prepared in accordance with GAAP,
contemplated that we would continue as a going concern. As such, our condensed consolidated
financial statements do not contain any adjustments that might result if we were unable to continue
as a going concern.
On August 3, 2011, we received proceeds of approximately $3.7 million in cash pursuant to the sale
of a portion of our onshore facilities and pipeline assets. We anticipate that our current cash
reserves will provide us with sufficient cash to fund our operations beyond the next twelve months.
See Note (9), Disposition of Assets, in the “Notes to Condensed Consolidated Financial Statements”
included in this report.
Cash and Cash Equivalents
Cash equivalents include liquid investments with an original maturity of three months or less. We
maintain cash and cash equivalent balances at one financial institution that is insured by the
Federal Deposit Insurance Corporation (the “FDIC”). Cash balances are maintained in depository and
overnight investment accounts with financial institutions which at times, exceed insured limits.
We monitor the financial condition of the financial institutions and have experienced no losses
associated with these accounts.
In October 2008, the FDIC amended its deposit insurance provisions to increase the basic limit
amount from $100,000 to $250,000 per depositor. The coverage increase, which was intended to be
temporary, was to revert back to $100,000 per depositor limit on December 31, 2009. However, in
May 2009, the FDIC extended the coverage date through December 31, 2013. The temporary increase was
made permanent in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade terms. The allowance for
doubtful accounts represents our estimate of the amount of probable credit losses existing in our
accounts receivable. We have a limited number of customers with individually large amounts due at
any given date. Any unanticipated change in any one of these customers’ credit worthiness or other
matters affecting the collectability of amounts due from such customers could have a material
adverse effect on our results of operations in the period in which such changes or events occur. We
regularly review all aged accounts receivables for collectability and establish an allowance as
necessary for individual customer balances. As of September 30, 2011 and December 31, 2010, there
was no allowance recorded related to trade accounts receivable.
Oil and Gas Properties
We account for our oil and gas properties 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 cost center basis. We use one cost
center for domestic properties and one cost center for foreign properties. Amortization of such
costs and estimated future development costs are 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.
Impairment of Oil and Gas Properties
We account for our oil and natural gas exploration and development activities using the full cost
method of accounting. Under this method of accounting, we are required on a quarterly basis to
determine whether the book value of our oil and natural gas properties (excluding unevaluated
properties) is less than or equal to a “ceiling,” which is determined based upon the expected after
tax present value (discounted at 10%) of the future net cash flows from our proved reserves,
calculated using prevailing oil and natural gas prices on the last day of the period, or a
subsequent higher price under certain circumstances. Any excess of the net book value of our oil
and natural gas properties over the ceiling must be recognized as a non-cash impairment expense.
Our ceiling for the three and nine months ended September 30, 2011, was calculated using domestic
prices of $94.50 per barrel of oil and $4.09 per MMbtu of gas and an international price of $107.59
per barrel of oil. Our ceiling for the three and nine months ended September 30, 2010, was
calculated using domestic prices of $77.61 per barrel of oil and $4.42 per MMbtu of gas.
Pipelines and Facilities
Pipelines and facilities are recorded at cost. Depreciation is computed using the straight-line
method over estimated useful lives ranging from 10 to 22 years. In accordance with the ASC on
accounting for the impairment or disposal of long-lived assets, assets are grouped and evaluated
for impairment based on the ability to identify separate cash flows generated therefrom. We did
not have any impairment of our pipelines and facilities for the three and nine month periods ended
September 30, 2011 and 2010. During the quarter ended September 30, 2011, BDPL sold its
eighty-three and one-third percent (83⅓%) undivided interest in the Buccaneer Pipeline to Sunoco Partners
Marketing and Terminals L.P. (“Sunoco”). BDPL still maintains its 83⅓% undivided interest in the
Galveston Area Block 350 Pipeline, as well as an 83⅓% undivided interest in the Omega Pipeline.
Other Property and Equipment
Depreciation of furniture, fixtures and other equipment is computed using the straight-line method
over estimated useful lives ranging from 3 to 10 years.
Stock-Based Compensation
Stock-based compensation is recognized in our condensed consolidated financial statements based on
the fair value, on the date of grant or modification, of the equity instrument awarded. Stock-based
compensation expense is recognized in the condensed consolidated financial statements on a
straight-line basis over the vesting period of the entire award.
Recognition of Oil and Gas Revenue
Sales from producing wells are recognized on the entitlement method of accounting, which defers
recognition of sales when, and to the extent that, deliveries to customers exceed our net revenue
interest in production. Similarly, when deliveries are below our net revenue interest in
production, sales are recorded to reflect the full net revenue interest. Our imbalance liability
at September 30, 2011 and 2010 was not material.
Recognition of Pipeline Transportation Revenue
Revenue from our pipelines is derived from fee-based contracts and is typically based on
transportation fees per unit of volume transported multiplied by the volume delivered. Revenue is
recognized when volumes have been physically delivered for the customer through the pipeline.
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