BLUE DOLPHIN ENERGY
COMPANY
|
FORM 10-Q
9/30/17
|
☑ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
Delaware
|
|
73-1268729
|
State or other
jurisdiction of incorporation or organization
|
|
(I.R.S. Employer
Identification No.)
|
801
Travis Street, Suite 2100
Houston,
Texas
|
|
77002
|
(Address of
principal executive offices)
|
|
(Zip
Code)
|
Large accelerated
filer
|
☐
|
Accelerated
filer
|
☐
|
|
|
|
|
Non-accelerated
filer
|
☐
|
Smaller reporting
company
|
☑
|
(Do not check if a
smaller reporting company)
|
|
|
|
|
Emerging growth
company
|
☐
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
GLOSSARY OF SELECTED OIL AND GAS
TERMS
|
3
|
|
|
PART I. FINANCIAL
INFORMATION
|
5
|
|
|
ITEM 1. FINANCIAL
STATEMENTS
|
5
|
|
|
Consolidated Balance Sheets
(Unaudited)
|
5
|
|
|
Consolidated Statements of Operations
(Unaudited)
|
6
|
|
|
Consolidated Statements of Cash Flows
(Unaudited)
|
7
|
|
|
Notes to Consolidated Financial
Statements
|
8
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|
|
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
36
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|
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ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
57
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|
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ITEM 4. CONTROLS AND
PROCEDURES
|
57
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PART II OTHER
INFORMATION
|
60
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|
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ITEM 1. LEGAL
PROCEEDINGS
|
58
|
|
|
ITEM 1A. RISK
FACTORS
|
58
|
|
|
ITEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS
|
60
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|
|
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
|
60
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|
|
ITEM 4. MINE SAFETY
DISCLOSURES
|
60
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|
|
ITEM 5. OTHER
INFORMATION
|
60
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|
|
ITEM 6.
EXHIBITS
|
61
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|
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SIGNATURES
|
62
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|
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BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
PART
I. FINANCIAL INFORMATION
|
ITEM
1. FINANCIAL STATEMENTS
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
ASSETS
|
|
|
CURRENT
ASSETS
|
|
|
Cash and cash
equivalents
|
$44,931
|
$1,152,628
|
Restricted
cash
|
1,500,380
|
3,347,835
|
Accounts
receivable, net
|
627,604
|
2,022,166
|
Accounts
receivable, related party
|
1,060,154
|
1,161,589
|
Prepaid
expenses and other current assets
|
1,631,352
|
1,046,191
|
Deposits
|
138,957
|
138,957
|
Inventory
|
2,775,440
|
2,075,538
|
Total current
assets
|
7,778,818
|
10,944,904
|
|
|
|
Total
property and equipment, net
|
64,396,811
|
62,324,463
|
Restricted
cash, noncurrent
|
150,530
|
1,582,305
|
Surety
bonds
|
230,000
|
205,000
|
Trade
name
|
303,346
|
303,346
|
Total
long-term assets
|
65,080,687
|
64,415,114
|
|
|
|
TOTAL
ASSETS
|
$72,859,505
|
$75,360,018
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
Long-term
debt less unamortized debt issue costs, current
portion
|
$35,756,045
|
$31,712,336
|
Long-term
debt, related party, current portion
|
4,000,000
|
500,000
|
Accounts
payable
|
2,759,479
|
14,552,383
|
Accounts
payable, related party
|
823,200
|
369,600
|
Asset
retirement obligations, current portion
|
17,065
|
17,510
|
Accrued
expenses and other current liabilities
|
1,220,074
|
1,281,582
|
Accrued
arbitration award payable
|
27,627,863
|
-
|
Interest
payable, current portion
|
2,659,786
|
323,756
|
Total current
liabilities
|
74,863,512
|
48,757,167
|
|
|
|
Long-term
liabilities:
|
|
|
Asset
retirement obligations, net of current portion
|
2,225,661
|
2,010,129
|
Deferred
revenues and expenses
|
52,119
|
83,390
|
Long-term
debt less unamortized debt issue costs, net of current
portion
|
-
|
1,300,000
|
Long-term
debt, related party, net of current portion
|
1,451,655
|
4,814,690
|
Long-term
interest payable, net of current portion
|
-
|
1,691,383
|
Total
long-term liabilities
|
3,729,435
|
9,899,592
|
|
|
|
TOTAL
LIABILITIES
|
78,592,947
|
58,656,759
|
|
|
|
Commitments
and contingencies (Note 18)
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
Common stock
($0.01 par value, 20,000,000 shares authorized; 10,818,371
and
|
|
|
10,624,714
shares issued at September 30,2017 and December 31, 2016,
respectively)
|
108,184
|
106,248
|
Additional
paid-in capital
|
36,877,604
|
36,818,528
|
Accumulated
deficit
|
(42,719,230)
|
(19,421,517)
|
Treasury
stock (0 and 150,000 shares at cost at September 30, 2017
and December 31, 2016,
respectively)
|
-
|
(800,000)
|
Total
stockholders' equity (deficit)
|
(5,733,442)
|
16,703,259
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$72,859,505
|
$75,360,018
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
Three Months
Ended September 30,
|
Nine Months
Ended September 30,
|
||
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
REVENUE FROM
OPERATIONS
|
|
|
|
|
Refined petroleum
product sales
|
$66,132,959
|
$53,951,293
|
$174,667,617
|
$126,546,716
|
Tank rental
revenue
|
766,133
|
717,487
|
2,173,555
|
1,624,461
|
Other
operations
|
-
|
19,526
|
-
|
71,865
|
Total revenue from
operations
|
66,899,092
|
54,688,306
|
176,841,172
|
128,243,042
|
|
|
|
|
|
COST OF
OPERATIONS
|
|
|
|
|
Cost of refined
products sold
|
58,785,827
|
51,689,474
|
165,185,276
|
125,316,249
|
Refinery operating
expenses
|
1,758,005
|
3,153,646
|
6,222,771
|
9,468,409
|
Joint Marketing
Agreement profit share
|
-
|
965,627
|
-
|
392,062
|
Other operating
expenses
|
67,969
|
100,974
|
183,095
|
298,566
|
Arbitration award
and associated fees
|
-
|
-
|
24,338,628
|
-
|
General and
administrative expenses
|
1,239,813
|
891,210
|
2,854,294
|
1,503,533
|
Depletion,
depreciation and amortization
|
455,437
|
504,719
|
1,355,780
|
1,415,519
|
Bad debt
recovery
|
-
|
-
|
-
|
(139,868)
|
Accretion
expense
|
71,844
|
28,186
|
215,532
|
84,558
|
|
|
|
|
|
Total cost of
operations
|
62,378,895
|
57,333,836
|
200,355,376
|
138,339,028
|
|
|
|
|
|
Income (loss) from
operations
|
4,520,197
|
(2,645,530)
|
(23,514,204)
|
(10,095,986)
|
|
|
|
|
|
OTHER INCOME
(EXPENSE)
|
|
|
|
|
Easement, interest
and other income
|
26,657
|
157,840
|
409,739
|
415,700
|
Interest and other
expense
|
(601,335)
|
(485,659)
|
(2,027,748)
|
(1,305,125)
|
Gain on disposal of
property
|
-
|
-
|
1,834,500
|
-
|
Total other income
(expense)
|
(574,678)
|
(327,819)
|
216,491
|
(889,425)
|
|
|
|
|
|
Income (loss)
before income taxes
|
3,945,519
|
(2,973,349)
|
(23,297,713)
|
(10,985,411)
|
|
|
|
-
|
|
Income tax
benefit
|
-
|
1,034,798
|
-
|
3,735,040
|
|
|
|
|
|
Net income
(loss)
|
$3,945,519
|
$(1,938,551)
|
$(23,297,713)
|
$(7,250,371)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per
common share:
|
|
|
|
|
Basic
|
$0.36
|
$(0.19)
|
$(2.19)
|
$(0.69)
|
Diluted
|
$0.36
|
$(0.19)
|
$(2.19)
|
$(0.69)
|
|
|
|
|
|
Weighted average
number of common shares outstanding:
|
|
|
|
|
Basic
|
10,818,371
|
10,464,715
|
10,644,654
|
10,460,849
|
Diluted
|
10,818,371
|
10,464,715
|
10,644,654
|
10,460,849
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
Nine Months
Ended September 30,
|
|
|
2017
|
2016
|
OPERATING
ACTIVITIES
|
|
|
Net
loss
|
$(23,297,713)
|
$(7,250,371)
|
Adjustments
to reconcile net loss to net cash
|
|
|
used in operating
activities:
|
|
|
Depletion,
depreciation and amortization
|
1,355,780
|
1,415,519
|
Unrealized gain on
derivatives
|
-
|
1,143,490
|
Deferred tax
benefit
|
-
|
(3,735,040)
|
Amortization of
debt issue costs
|
96,363
|
96,364
|
Accretion of asset
retirement obligations
|
215,532
|
84,558
|
Common stock issued
for services
|
30,000
|
50,000
|
Recovery of bad
debt
|
-
|
(139,868)
|
Changes in
operating assets and liabilities
|
|
|
Accounts
receivable
|
1,394,563
|
(1,815,584)
|
Accounts
receivable, related party
|
101,435
|
-
|
Prepaid expenses
and other current assets
|
(585,161)
|
945,539
|
Deposits and other
assets
|
(25,000)
|
570,444
|
Inventory
|
(699,902)
|
(1,011,662)
|
Accrued arbitration
award
|
27,627,863
|
-
|
Accounts payable,
accrued expenses and other liabilities
|
(12,802,731)
|
5,269,224
|
Accounts payable,
related party
|
453,600
|
(300,000)
|
Net cash used in
operating activities
|
(6,135,371)
|
(4,677,387)
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
Capital
expenditures
|
(1,777,219)
|
(11,255,725)
|
Net cash used in
investing activities
|
(1,777,219)
|
(11,255,725)
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
Proceeds from
issuance of debt
|
3,677,953
|
6,898,931
|
Payments on
debt
|
(1,120,267)
|
(1,414,406)
|
Net activity on
related-party debt
|
967,977
|
-
|
Net cash provided
by financing activities
|
3,525,663
|
5,484,525
|
Net decrease in
cash, cash equivalents, and restricted cash
|
(4,386,927)
|
(10,448,587)
|
|
|
|
CASH, CASH
EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF
PERIOD
|
6,082,768
|
20,645,652
|
CASH, CASH
EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD
|
$1,695,841
|
$10,197,065
|
|
|
|
Supplemental
Information:
|
|
|
Non-cash investing
and financing activities:
|
|
|
Financing of
capital expenditures via accounts payable
|
$1,650,910
|
$2,601,709
|
Financing of
guaranty fees via long-term debt, related party
|
$170,636
|
$-
|
Conversion of
related-party notes to common stock
|
$831,012
|
$-
|
Interest
paid
|
$1,573,996
|
$1,827,794
|
Income taxes
paid
|
$-
|
$-
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
Three Months
Ended September 30,
|
|||||
|
2017
|
2016
|
||||
|
Segment
|
|
|
Segment
|
|
|
|
Refinery
|
Corporate
&
|
|
Refinery
|
Corporate
&
|
|
|
Operations
|
Other
|
Total
|
Operations
|
Other
|
Total
|
Revenue from
operations
|
$66,899,092
|
$-
|
$66,899,092
|
$54,668,780
|
$19,526
|
$54,688,306
|
Less: cost of
operations(1)
|
(61,456,546)
|
(466,912)
|
(61,923,458)
|
(55,495,575)
|
(367,915)
|
(55,863,490)
|
Other non-interest
income(2)
|
-
|
-
|
-
|
-
|
156,396
|
156,396
|
Less: JMA Profit
Share(3)
|
-
|
-
|
-
|
(965,627)
|
-
|
(965,627)
|
EBITDA(4)
|
$5,442,546
|
$(466,912)
|
|
$(1,792,422)
|
$(191,993)
|
|
|
|
|
|
|
|
|
Depletion,
depreciation and
|
|
|
|
|
|
|
amortization
|
|
|
(455,437)
|
|
|
(504,719)
|
Interest expense,
net
|
|
|
(574,678)
|
|
|
(484,215)
|
|
|
|
|
|
|
|
Income (loss)
before income taxes
|
|
|
3,945,519
|
|
|
(2,973,349)
|
|
|
|
|
|
|
|
Income tax
benefit
|
|
|
-
|
|
|
1,034,798
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
$3,945,519
|
|
|
$(1,938,551)
|
|
|
|
|
|
|
|
Capital
expenditures
|
$538,801
|
$-
|
$538,801
|
$4,191,077
|
$-
|
$4,191,077
|
|
|
|
|
|
|
|
Identifiable
assets
|
$70,791,236
|
$2,068,269
|
$72,859,505
|
$85,585,499
|
$10,816,664
|
$96,402,163
|
(1)
|
Operation cost
within the Refinery Operations segment includes related general and
administrative expenses. Operation cost within Corporate
and Other includes general and administrative expenses associated
with corporate maintenance costs (such as accounting fees, director
fees, and legal expense), as well as expenses associated with our
pipeline assets and oil and/or gas leasehold interests (such as
accretion and impairment expenses).
|
(2)
|
Other non-interest
income reflects FLNG easement revenue.
|
(3)
|
The JMA Profit
Share represents the GEL Profit Share plus the Performance Fee for
the period pursuant to the Joint Marketing Agreement, under which
marketing activities have ceased. (See “Note (1)
Organization – Going Concern – Final
Arbitration Award” for further discussion related to
the contract-related dispute with GEL.)
|
(4)
|
EBITDA is a
non-GAAP financial measure. See “Part I, Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Results of Operations –
Non-GAAP Financial Measures” for additional information
related to EBITDA.
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
Nine Months
Ended September 30,
|
|||||
|
2017
|
2016
|
||||
|
Segment
|
|
|
Segment
|
|
|
|
Refinery
|
Corporate
&
|
|
Refinery
|
Corporate
&
|
|
|
Operations
|
Other
|
Total
|
Operations
|
Other
|
Total
|
Revenue from
operations
|
$176,841,172
|
$-
|
$176,841,172
|
$128,171,177
|
$71,865
|
$128,243,042
|
Less: cost of
operations(1)
|
(197,706,434)
|
(1,293,162)
|
(198,999,596)
|
(135,452,537)
|
(1,078,910)
|
(136,531,447)
|
Other non-interest
income(2)
|
-
|
-
|
-
|
(392,062)
|
-
|
(392,062)
|
Less: JMA Profit
Share(3)
|
-
|
2,216,251
|
2,216,251
|
-
|
412,061
|
412,061
|
EBITDA(4)
|
$(20,865,262)
|
$923,089
|
|
$(7,673,422)
|
$(594,984)
|
|
|
|
|
|
|
|
|
Depletion,
depreciation and
|
|
|
|
|
|
|
amortization
|
|
|
(1,355,780)
|
|
|
(1,415,519)
|
Interest expense,
net
|
|
|
(1,999,760)
|
|
|
(1,301,486)
|
|
|
|
|
|
|
|
Loss before income
taxes
|
|
|
(23,297,713)
|
|
|
(10,985,411)
|
|
|
|
|
|
|
|
Income tax
benefit
|
|
|
-
|
|
|
3,735,040
|
|
|
|
|
|
|
|
Net
loss
|
|
|
$(23,297,713)
|
|
|
$(7,250,371)
|
|
|
|
|
|
|
|
Capital
expenditures
|
$3,428,129
|
$-
|
$3,428,129
|
$13,857,434
|
$-
|
$13,857,434
|
|
|
|
|
|
|
|
Identifiable
assets
|
$70,791,236
|
$2,068,269
|
$72,859,505
|
$85,585,499
|
$10,816,664
|
$96,402,163
|
(1)
|
Operation cost
within the Refinery Operations segment includes related general and
administrative expenses and the arbitration award and associated
fees. Operation cost within Corporate and Other includes
general and administrative expenses associated with corporate
maintenance costs (such as accounting fees, director fees, and
legal expense), as well as expenses associated with our pipeline
assets and oil and/or gas leasehold interests (such as accretion
and impairment expenses).
|
||
(2)
|
Other non-interest
income reflects FLNG easement revenue.
|
||
(3)
|
The JMA Profit
Share represents the GEL Profit Share plus the Performance Fee for
the period pursuant to the Joint Marketing Agreement, under which
marketing activities have ceased. (See
“Note (1) Organization
– Going Concern – Final
Arbitration Award” for further discussion
related to the contract-related dispute with GEL.)
|
||
(4)
|
EBITDA is a
non-GAAP financial measure. See “Part I, Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Results of Operations –
Non-GAAP Financial Measures” for additional information
related to EBITDA.
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
Prepaid crude oil
and condensate
|
$1,332,439
|
$-
|
Prepaid
insurance
|
298,913
|
248,853
|
Short-term tax
bond
|
-
|
505,000
|
Prepaid exise
taxes
|
-
|
292,338
|
|
|
|
|
$1,631,352
|
$1,046,191
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
Crude oil and
condensate
|
$1,207,865
|
$26,123
|
AGO
|
910,189
|
143,362
|
HOBM
|
341,660
|
212,987
|
Chemicals
|
156,535
|
182,751
|
Naphtha
|
135,554
|
533,580
|
Propane
|
18,377
|
11,318
|
LPG
mix
|
5,260
|
1,293
|
Jet
fuel
|
-
|
964,124
|
|
|
|
|
$2,775,440
|
$2,075,538
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
Refinery and
facilities
|
$51,432,434
|
$50,814,309
|
Land
|
566,159
|
602,938
|
Other property and
equipment
|
652,795
|
652,795
|
|
52,651,388
|
52,070,042
|
|
|
|
Less: Accumulated
depletion, depreciation, and amortization
|
(8,041,024)
|
(6,685,244)
|
|
44,610,364
|
45,384,798
|
|
|
|
Construction in
progress
|
19,786,447
|
16,939,665
|
|
|
|
|
$64,396,811
|
$62,324,463
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
LEH
|
$4,000,000
|
$4,000,000
|
Ingleside
|
1,168,748
|
722,278
|
Jonathan
Carroll
|
282,907
|
592,412
|
|
|
|
|
5,451,655
|
5,314,690
|
|
|
|
Less: Long-term
debt, related party,
|
|
|
current
portion
|
(4,000,000)
|
(500,000)
|
|
|
|
|
$1,451,655
|
$4,814,690
|
|
Three Months
Ended September 30,
|
Nine Months
Ended September 30,
|
||
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Jet fuel
sales
|
$20,802,789
|
$14,536,997
|
$56,360,756
|
$23,449,071
|
Jet fuel storage
fees
|
56,386
|
426,000
|
675,000
|
750,000
|
HOBM
sales
|
-
|
-
|
3,425,455
|
-
|
|
|
|
|
|
|
$20,859,175
|
$14,962,997
|
$60,461,211
|
$24,199,071
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
Three Months
Ended September 30,
|
|||
|
2017
|
2016
|
||
|
Amount
|
Per
bbl
|
Amount
|
Per
bbl
|
|
|
|
|
|
LEH
|
$1,758,005
|
$1.53
|
$3,028,646
|
$2.66
|
Ingleside
|
-
|
-
|
125,000
|
0.11
|
|
|
|
|
|
|
$1,758,005
|
$1.53
|
$3,153,646
|
$2.77
|
|
Nine Months
Ended September 30,
|
|||
|
2017
|
2016
|
||
|
Amount
|
Per
bbl
|
Amount
|
Per
bbl
|
|
|
|
|
|
LEH
|
$6,222,771
|
$1.93
|
$8,618,409
|
$2.84
|
Ingleside
|
-
|
-
|
850,000
|
0.28
|
|
|
|
|
|
|
$6,222,771
|
$1.93
|
$9,468,409
|
$3.12
|
|
Three Months
Ended September 30,
|
Nine Months
Ended September 30,
|
||
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
LEH
|
$201,361
|
$80,000
|
$643,046
|
$80,000
|
Jonathan
Carroll
|
165,089
|
172,300
|
499,184
|
522,931
|
|
|
|
|
|
|
$366,450
|
$252,300
|
$1,142,230
|
$602,931
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
Unearned
revenue
|
$708,567
|
$408,770
|
Board of director
fees payable
|
203,929
|
136,429
|
Customer
deposits
|
109,029
|
450,000
|
Property
taxes
|
99,236
|
4,694
|
Excise and income
taxes payable
|
60,692
|
24,187
|
Other
payable
|
38,621
|
189,719
|
Insurance
|
-
|
67,783
|
|
|
|
|
$1,220,074
|
$1,281,582
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
First Term Loan Due
2034 (in default)
|
$23,382,570
|
$23,924,607
|
Second Term Loan
Due 2034 (in default)
|
9,553,728
|
9,729,853
|
Notre Dame
Debt
|
4,977,953
|
1,300,000
|
Term Loan Due
2017
|
-
|
184,994
|
Capital
Leases
|
8,427
|
135,879
|
|
$37,922,678
|
$35,275,333
|
|
|
|
Less: Current
portion of long-term debt, net
|
(35,756,045)
|
(31,712,336)
|
|
|
|
Less: Unamortized
debt issue costs
|
(2,166,633)
|
(2,262,997)
|
|
|
|
|
$-
|
$1,300,000
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
First Term Loan Due
2034 (in default)
|
$1,673,545
|
$1,673,545
|
Second Term Loan
Due 2034 (in default)
|
767,673
|
767,673
|
|
|
|
Less: Accumulated
amortization
|
(274,585)
|
(178,221)
|
|
|
|
|
$2,166,633
|
$2,262,997
|
|
June
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
Notre Dame
Debt
|
$1,846,964
|
$1,691,383
|
LEH Loan Agreement
(related party)
|
728,889
|
243,556
|
Second Term Loan
Due 2034 (in default)
|
47,635
|
44,984
|
First Term Loan Due
2034 (in default)
|
35,875
|
33,866
|
Capital
Leases
|
423
|
1,165
|
Term Loan Due
2017
|
-
|
185
|
|
|
|
|
2,659,786
|
2,015,139
|
|
|
|
Less: Interest
payable, current portion
|
(2,659,786)
|
(323,756)
|
|
|
|
Long-term interest
payable, net of current portion
|
$-
|
$1,691,383
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
Boiler
equipment
|
$538,598
|
$538,598
|
Less: accumulated
depreciation
|
-
|
-
|
|
|
|
|
$538,598
|
$538,598
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
Asset retirement
obligations, at the beginning of the period
|
$2,027,639
|
$1,985,864
|
Liabilities
settled
|
(445)
|
(70,969)
|
Accretion
expense
|
215,532
|
112,744
|
|
2,242,726
|
2,027,639
|
Less: asset
retirement obligations, current portion
|
(17,065)
|
(17,510)
|
|
|
|
Long-term asset
retirement obligations, at the end of the period
|
$2,225,661
|
$2,010,129
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
Three Months
Ended September 30,
|
Nine Months
Ended September 30,
|
||||||
|
2017
|
2016
|
2017
|
2016
|
||||
|
|
|
|
|
|
|
|
|
LPG mix
|
$-
|
0.0%
|
$237,009
|
0.4%
|
$120,542
|
0.1%
|
$621,313
|
0.5%
|
Naphtha
|
14,266,056
|
21.6%
|
11,870,484
|
22.0%
|
41,282,969
|
24.9%
|
28,183,809
|
22.3%
|
Jet fuel
|
20,802,789
|
31.5%
|
15,104,900
|
28.0%
|
56,360,757
|
32.8%
|
41,150,686
|
32.5%
|
HOBM
|
17,011,443
|
25.7%
|
14,206,759
|
26.4%
|
38,580,236
|
19.9%
|
25,259,753
|
20.0%
|
Reduced Crude
|
-
|
0.0%
|
-
|
0.0%
|
-
|
0.0%
|
3,791,919
|
3.0%
|
AGO
|
14,052,671
|
21.2%
|
12,532,141
|
23.2%
|
38,323,113
|
22.3%
|
27,539,236
|
21.7%
|
|
|
|
|
|
|
|
|
|
|
$66,132,959
|
100.0%
|
$53,951,293
|
100.0%
|
$174,667,617
|
100.0%
|
$126,546,716
|
100.0%
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
Net Operating
Loss Carryforward
|
|
|
|
Pre-Ownership
Change
|
Post-Ownership
Change
|
Total
|
|
|
|
|
Balance at December
31, 2015
|
$9,614,449
|
$9,616,941
|
$19,231,390
|
|
|
|
|
Net operating
losses
|
-
|
13,945,128
|
13,945,128
|
|
|
|
|
Balance at December
31, 2016
|
$9,614,449
|
$23,562,069
|
$33,176,518
|
|
|
|
|
Net operating
losses
|
-
|
6,469,611
|
6,469,611
|
|
|
|
|
Balance at
September 30, 2017
|
$9,614,449
|
$30,031,680
|
$39,646,129
|
|
September
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
Deferred tax
assets:
|
|
|
Net operating loss
and capital loss carryforwards
|
$15,750,006
|
$13,550,338
|
Accrued arbitration
award payable
|
6,674,017
|
-
|
Start-up costs
(Nixon Facility)
|
1,270,361
|
1,373,363
|
Asset retirement
obligations liability/deferred revenue
|
780,249
|
717,751
|
AMT credit and
other
|
224,647
|
266,522
|
Total deferred tax
assets
|
24,699,280
|
15,907,974
|
|
|
|
Deferred tax
liabilities:
|
|
|
Basis differences
in property and equipment
|
(6,762,850)
|
(5,895,943)
|
Total deferred tax
liabilities
|
(6,762,850)
|
(5,895,943)
|
|
|
|
|
17,936,430
|
10,012,031
|
|
|
|
Valuation
allowance
|
(17,936,430)
|
(10,012,031)
|
|
|
|
Deferred tax
assets, net
|
$-
|
$-
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
Three Months
Ended September 30,
|
Nine Months
Ended September 30,
|
||
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Net income
(loss)
|
$3,945,519
|
$(1,938,551)
|
$(23,297,713)
|
$(7,250,371)
|
|
|
|
|
|
Basic and diluted
income per share
|
$0.36
|
$(0.19)
|
$(2.19)
|
$(0.69)
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
|
Weighted average
number of shares of
|
|
|
|
|
common stock
outstanding and potential
|
|
|
|
|
dilutive shares of
common stock
|
10,818,371
|
10,464,715
|
10,644,654
|
10,460,849
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
|
|
Gain (Loss)
Recognized
|
|||
|
|
Three Months
Ended September 30,
|
Nine Months
Ended September 30,
|
||
Statements of Operations Location
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
|
|
Commodity
contracts
|
Cost of refined
products sold
|
$-
|
$770,838
|
$-
|
$(2,588,734)
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
9/30/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
|
Three Months Ended September
30,
|
|||||
|
2017
|
2016
|
||||
|
Segment
|
|
|
Segment
|
|
|
|
Refinery
|
Corporate &
|
|
Refinery
|
Corporate &
|
|
|
Operations
|
Other
|
Total
|
Operations
|
Other
|
Total
|
Revenue from
operations
|
$66,899,092
|
$-
|
$66,899,092
|
$54,668,780
|
$19,526
|
$54,688,306
|
Less: cost of
operations(1)
|
(61,456,546)
|
(466,912)
|
(61,923,458)
|
(55,495,575)
|
(367,915)
|
(55,863,490)
|
Other non-interest
income(2)
|
-
|
-
|
-
|
-
|
156,396
|
156,396
|
Less: JMA
Profit Share(3)
|
-
|
-
|
-
|
(965,627)
|
-
|
(965,627)
|
EBITDA
|
$5,442,546
|
$(466,912)
|
$4,975,634
|
$(1,792,422)
|
$(191,993)
|
$(1,984,415)
|
|
|
|
|
|
|
|
Depletion, depreciation
and
|
|
|
|
|
|
|
amortization
|
|
|
(455,437)
|
|
|
(504,719)
|
Interest expense,
net
|
|
|
(574,678)
|
|
|
(484,215)
|
|
|
|
|
|
|
|
Income (loss) before
income taxes
|
|
3,945,519
|
|
|
(2,973,349)
|
|
|
|
|
|
|
|
|
Income tax
benefit
|
|
|
-
|
|
|
1,034,798
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
$3,945,519
|
|
|
$(1,938,551)
|
(1)
|
Operation cost
within the Refinery Operations segment includes related general and
administrative expenses. Operation cost within Corporate
and Other includes general and administrative expenses associated
with corporate maintenance costs (such as accounting fees, director
fees, and legal expense), as well as expenses associated with our
pipeline assets and oil and/or gas leasehold interests (such as
accretion and impairment expenses).
|
(2)
|
Other non-interest
income reflects FLNG easement revenue.
|
(3)
|
The JMA Profit Share
represents the GEL Profit Share plus the Performance Fee for the
period pursuant to the Joint Marketing Agreement, under which
marketing activities have ceased. (See “Part I,
Item 1. Financial Statements – Note (1) Organization
– Going Concern – Final
Arbitration Award” for further discussion of
the contract-related dispute with GEL.)
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
|
Nine Months Ended September
30,
|
|||||
|
2017
|
2016
|
||||
|
Segment
|
|
|
Segment
|
|
|
|
Refinery
|
Corporate &
|
|
Refinery
|
Corporate &
|
|
|
Operations
|
Other
|
Total
|
Operations
|
Other
|
Total
|
Revenue from
operations
|
$176,841,172
|
$-
|
$176,841,172
|
$128,171,177
|
$71,865
|
$128,243,042
|
Less: cost of
operations(1)
|
(197,706,434)
|
(1,293,162)
|
(198,999,596)
|
(135,452,537)
|
(1,078,910)
|
(136,531,447)
|
Other non-interest
income(2)
|
-
|
2,216,251
|
2,216,251
|
-
|
412,061
|
412,061
|
Less: JMA
Profit Share(3)
|
-
|
-
|
-
|
(392,062)
|
-
|
(392,062)
|
EBITDA
|
$(20,865,262)
|
$923,089
|
$(19,942,173)
|
$(7,673,422)
|
$(594,984)
|
$(8,268,406)
|
|
|
|
|
|
|
|
Depletion, depreciation
and
|
|
|
|
|
|
|
amortization
|
|
|
(1,355,780)
|
|
|
(1,415,519)
|
Interest expense,
net
|
|
|
(1,999,760)
|
|
|
(1,301,486)
|
|
|
|
|
|
|
|
Loss before income
taxes
|
|
|
(23,297,713)
|
|
|
(10,985,411)
|
|
|
|
|
|
|
|
Income tax
benefit
|
|
|
-
|
|
|
3,735,040
|
|
|
|
|
|
|
|
Net loss
|
|
|
$(23,297,713)
|
|
|
$(7,250,371)
|
(1)
|
Operation cost
within the Refinery Operations segment includes related general and
administrative expenses and the arbitration award and associated
fees. Operation cost within Corporate and Other includes
general and administrative expenses associated with corporate
maintenance costs (such as accounting fees, director fees, and
legal expense), as well as expenses associated with our pipeline
assets and oil and/or gas leasehold interests (such as accretion
and impairment expenses).
|
(2)
|
Other non-interest
income reflects FLNG easement revenue.
|
(3)
|
The JMA Profit Share
represents the GEL Profit Share plus the Performance Fee for the
period pursuant to the Joint Marketing Agreement, under which
marketing activities have ceased. (See “Part I,
Item 1. Financial Statements – Note (1) Organization
– Going Concern – Final
Arbitration Award” for further discussion of
the contract-related dispute with GEL.)
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
|
Three Months Ended September
30,
|
Nine Months Ended September
30,
|
||
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Calendar
Days
|
92
|
92
|
273
|
274
|
Refinery
downtime
|
(3)
|
(1)
|
(17)
|
(30)
|
Operating
Days
|
89
|
91
|
256
|
244
|
|
|
|
|
|
Total refinery
throughput (bbls)
|
1,145,484
|
1,139,458
|
3,228,144
|
3,034,257
|
Operating days:
|
|
|
|
|
bpd
|
12,871
|
12,522
|
12,610
|
12,435
|
Capacity utilization
rate
|
85.8%
|
83.5%
|
84.1%
|
82.9%
|
Calendar days:
|
|
|
|
|
bpd
|
12,451
|
12,385
|
11,825
|
11,074
|
Capacity utilization
rate
|
83.0%
|
82.6%
|
78.8%
|
73.8%
|
|
|
|
|
|
Total refinery
production (bbls)
|
1,110,734
|
1,106,415
|
3,127,391
|
2,948,821
|
Operating days:
|
|
|
|
|
bpd
|
12,480
|
12,158
|
12,216
|
12,085
|
Capacity utilization
rate
|
83.2%
|
81.1%
|
81.4%
|
80.6%
|
Calendar days:
|
|
|
|
|
bpd
|
12,073
|
12,026
|
11,456
|
10,762
|
Capacity utilization
rate
|
80.5%
|
80.2%
|
76.4%
|
71.7%
|
Note:
|
The difference
between total refinery throughput (volume processed as input) and
total refinery production (volume processed as output) represents
refinery fuel use and loss.
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
|
Three Months Ended September
30,
|
Nine Months Ended September
30,
|
||
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Cash flow from
operations
|
|
|
|
|
Adjusted income (loss)
from operations
|
$4,504,921
|
$(879,483)
|
$(21,600,038)
|
$(8,335,348)
|
Change in assets and
current liabilities
|
(5,673,761)
|
(5,493,430)
|
15,464,667
|
3,657,961
|
|
|
|
|
|
Total cash inflows
(outflows) from operations
|
(1,168,840)
|
(6,372,913)
|
(6,135,371)
|
(4,677,387)
|
|
|
|
|
|
Cash inflows
(outflows)
|
|
|
|
|
Proceeds from issuance
of debt
|
3,677,953
|
6,898,931
|
3,677,953
|
6,898,931
|
Payments on
debt
|
(265,063)
|
(469,541)
|
(1,120,267)
|
(1,414,406)
|
Net activity on
related-party debt
|
(2,288,717)
|
-
|
967,977
|
-
|
Capital
expenditures
|
(369,518)
|
(4,182,747)
|
(1,777,219)
|
(11,255,725)
|
|
|
|
|
|
Total cash inflows
(outflows)
|
754,655
|
2,246,643
|
1,748,444
|
(5,771,200)
|
|
|
|
|
|
Total change in cash
flows
|
$(414,185)
|
$(4,126,270)
|
$(4,386,927)
|
$(10,448,587)
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
|
Three Months Ended September
30,
|
Nine Months Ended September
30,
|
||
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Capital expenditures
financed by:
|
|
|
|
|
Cash
disbursements
|
$369,518
|
$4,182,747
|
$1,777,219
|
$11,255,725
|
Accounts
payable(1)
|
169,283
|
8,330
|
1,650,910
|
2,601,709
|
|
$538,801
|
$4,191,077
|
$3,428,129
|
$13,857,434
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
|
June 30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
First Term Loan Due
2034 (in default)
|
$23,382,570
|
$23,924,607
|
Second Term Loan Due
2034 (in default)
|
9,553,728
|
9,729,853
|
LEH Loan
Agreement
|
4,000,000
|
4,000,000
|
Notre Dame
Debt
|
4,977,953
|
1,300,000
|
March Ingleside
Note
|
1,168,748
|
722,278
|
March Carroll
Note
|
282,907
|
592,412
|
Capital
Leases
|
8,427
|
135,879
|
Term Loan Due
2017
|
-
|
184,994
|
|
43,374,333
|
40,590,023
|
|
|
|
Less: Current portion of long-term
debt, net
|
(39,756,045)
|
(32,212,336)
|
|
|
|
Less: Unamoritized debt issue
costs
|
(2,166,633)
|
(2,262,997)
|
|
|
|
|
$1,451,655
|
$6,114,690
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
No.
|
|
Description
|
|
Letter Agreement
between GEL Tex Marketing, LLC, Lazarus Energy, LLC, Blue Dolphin
Energy Company, Lazarus Energy Holdings, LLC, and Jonathan Carroll
effective September 18, 2017.
|
|
|
Amendment to Letter
Agreement between GEL Tex Marketing, LLC, Lazarus Energy, LLC, Blue
Dolphin Energy Company, Lazarus Energy Holdings, LLC, and Jonathan
Carroll dated November 1, 2017.
|
|
|
Debt Assumption
Agreement by and among Lazarus Energy Holdings, LLC, Lazarus
Energy, LLC, and John H. Kissick dated effective September 18,
2017.
|
|
|
Sixth Amendment to
Promissory Note by and between Lazarus Energy, LLC and John H.
Kissick effective as of September 18, 2017.
|
|
|
Jonathan P. Carroll
Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
Tommy L. Byrd
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
Jonathan P. Carroll
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
Tommy L. Byrd
Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of
2002.
|
|
101.INS
|
|
XBRL Instance
Document.
|
101.SCH
|
|
XBRL Taxonomy
Schema Document.
|
101.CAL
|
|
XBRL Calculation
Linkbase Document.
|
101.LAB
|
|
XBRL Label Linkbase
Document.
|
101.PRE
|
|
XBRL Presentation
Linkbase Document.
|
101.DEF
|
|
XBRL Definition
Linkbase Document.
|
BLUE DOLPHIN ENERGY
COMPANY
|
|
FORM 10-Q
3/31/17
|
|
BLUE
DOLPHIN ENERGY COMPANY
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: November 16,
2017
|
By:
|
/s/ JONATHAN P.
CARROLL
|
|
|
|
Jonathan P.
Carroll
|
|
|
|
Chairman of the
Board,
Chief Executive
Officer, President,
Assistant Treasurer
and Secretary
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: November
16, 2017
|
By:
|
/s/ TOMMY L.
BYRD
|
|
|
|
Tommy L.
Byrd
|
|
|
|
Chief Financial
Officer,
Treasurer and
Assistant Secretary
(Principal
Financial Officer)
|
|
DLA Piper LLP (US)
|
|
|
|
|
DLA Piper LLP (US)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ THOMAS R. CALIFANO
|
|
|
|
|
/s/ CHRISTINA P. MACCIO
|
|
Thomas R. Califano
|
|
|
|
|
Christina P. Maccio
|
|
Partner
|
|
|
|
|
Partner
|
|
Attorney for GEL Tex Marketing, LLC
|
|
|
|
|
Attorney for GEL Tex Marketing, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ JONATHAN CARROLL
|
|
|
|
|
|
|
Jonathan Carroll, in his individual capacity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lazarus Energy, LLC
|
|
|
|
|
|
|
Blue Dolphin Energy Company
|
|
|
|
|
|
|
Lazarus Energy Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ JONATHAN CARROLL
|
|
|
|
|
|
|
By:
|
Jonathan Carroll
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ FRANK A MEROLA
|
|
|
|
|
|
|
Frank A. Merola
|
|
|
|
|
|
|
Attorney for Lazarus Energy, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ BRYAN MELTON
|
|
|
|
|
|
|
Bryan Melton
|
|
|
|
|
|
|
Attorney for Lazarus Energy, LLC
|
|
|
|
|
|
|
|
Entity
|
Debt / Commercial Agreements
|
Term
|
Payment Structure
|
Liens / Security Interest
|
Related Party(ies)
|
|
|
|
|
|
|
|
|
Attachment “A”Material Agreements and
IndebtednessI.
|
|
Blue Dolphin Energy Company (“BDCO”)
|
● Amended
and Restated Promissory Note dated June 30, 2017 between LEH, as
Lender, and BDCO, as Borrower (~$2.5 Million BDCO-LEH
Note)
|
Matures January 2019.
|
Interest accrues at 8.0%; balloon payment due at
maturity.
|
None
|
LEH
|
|
|
|
● Amended
and Restated Promissory Note dated March 31, 2017 between
Ingleside, as Lender, and BDCO, as Borrower (~$1.1 Million
BDCO-Ingleside Note)
|
Matures January 2019.
|
Interest accrues at 8.0%; balloon payment due at
maturity.
|
None
|
Ingleside
|
|
|
|
● Amended
and Restated Promissory Note dated March 31, 2017 between Lazarus
Capital, as Lender, and BDCO, as Borrower (~$0.1 Million
BDCO-Carroll Note)
|
Matures January 2019.
|
Revolver; principal and interest paid quarterly; interest accrues
at 8.0%; payment 50% cash and 50% BDCO common stock.
|
None
|
Lazarus Capital /
Jonathan Carroll
|
|
|
|
● Amended
and Restated Operating Agreement dated April 1, 2017 between BDCO,
LE, and LEH
|
Attachment “A”Material Agreements and
IndebtednessExpires April 1, 2020, upon written notice of either
party of a material breach, or upon 90 days’ notice by
BDCO’s Board of Directors if the Board determines the
agreement is no longer in BDCO’s best interests.
|
Attachment “A”Material Agreements and IndebtednessLEH
is reimbursed at cost plus 5% for reasonable costs incurred while
LEH performs the Services.
|
N/A
|
LE
LEH
|
|
A.
|
Lazarus Energy, LLC (“LE”)
|
● Loan
Agreement dated June 22, 2015 among Sovereign Bank, NA
(“Sovereign”), as Lender, LE, as Borrower, and Jonathan
Pitts Carroll, Sr., BDCO, LRM, and LEH, as Guarantors ($25.0
Million Veritex USDA Loan)
|
Matures June 2034.
|
Principal and interest paid monthly; interest accrues at Prime +
2.75%; monthly payment currently $198,786.
|
Secured by: (i) a first lien on all Nixon Facility business assets
(excluding accounts receivable and inventory), (ii) assignment of
all Nixon Facility contracts, permits, and licenses, (iii) absolute
assignment of Nixon Facility rents and leases, including tank
rental income, (iv) a $1.0 million payment reserve account held by
the bank, and (v) a pledge of $5.0 million of a life insurance
policy on Jonathan Carroll.
|
BDCO
LRM
LEH
Jonathan Carroll
|
|
|
|
● Promissory
Note dated June 1, 2006 between LE, as Maker, and Notre Dame
Investors, as Payee ($8.0 Million Notre Dame / Kissick
Loan)
|
Matures June 2018.
|
Balloon payment due at maturity.
|
Secured by Deed of Trust, Security Agreement and Financing
Statements, which encumber the Nixon Facility and general assets of
LE.
|
None
|
|
|
Entity
|
Debt / Commercial Agreements
|
Term
|
Payment Structure
|
Liens / Security Interest
|
Related Party(ies)
|
|
|
|
|
|
|
|
|
|
|
|
● Amended
and Restated Guaranty Fee Agreement dated April 1, 2017 between LE
and Jonathan Carroll (Guaranty Fee Agreement ties to $25.0 Million
Veritex USDA Loan; amounts owed to Jonathan Carroll captured under
~$1.0 Million BDCO-Carroll Note)
|
Terminates when $25.0 Million Veritex USDA Loan paid in
full.
|
2% fee per annum, paid monthly on outstanding balance.
|
N/A
|
Jonathan Carroll
|
|
|
|
● Amended
and Restated Operating Agreement dated April 1, 2017 between BDCO,
LE, and LEH
|
Expires April 1, 2020, upon written notice of either party of a
material breach, or upon 90 days’ notice by BDCO’s
Board of Directors if the Board determines the agreement is no
longer in BDCO’s best interests.
|
LEH is reimbursed at cost plus 5% for reasonable costs incurred
while LEH performs the Services.
|
N/A
|
BDCO
LEH
|
|
|
|
● Product
Sales Agreement between LE and LEH dated April 1, 2017 (jet fuel
sales)
|
Earliest to occur of: (i) one-year term expiring March 31, 2018
plus a 30-day carryover or (ii) delivery of the maximum quantity of
jet fuel.
|
$0.035 per gallon above relevant Platt’s Gulf Coast Pipeline
Index on the sales date plus cost of additives at $0.01635 per
gallon.
|
N/A
|
LEH
|
|
|
|
● Ground
Lease Agreement dated June 1, 2015 between LE and LRM
|
Terminates March 2035.
|
Base rent at $10,000 per month.
|
N/A
|
LRM
|
|
|
|
● Tolling
Agreement dated May 24, 2016 between LMT and LE (LE’s use of
barge loading facility in Ingleside, Texas)
|
5-year term expiring May 2021.
|
Monthly reservation fee of $50,400 up to 84,000 gallons per day;
additional $0.02 per gallon for tolling volumes greater than
210,000 per quarter.
|
N/A
|
LRM
|
|
|
|
● Tolling
Agreement dated October 1, 2015 between LRM, as Owner, and LE, as
Customer (LE’s use of certain Nixon Facility Processing
Units)
|
12-year term expiring October 2027.
|
Quarterly reservation fee of $180,000 up to 210,000 gallons per
quarter; additional $0.05 per gallon for tolling volumes greater
than 210,000 per quarter.
|
N/A
|
LRM
|
|
|
|
● Amended
and Restated Tank Lease Agreement dated January 1, 2016 between
Ingleside and LE (periodic additional product storage
needs)
|
Terminated April 2017.
|
N/A
|
N/A
|
Ingleside
|
|
|
Entity
|
Debt / Commercial Agreements
|
Term
|
Payment Structure
|
Liens / Security Interest
|
Related Party(ies)
|
|
|
|
|
|
|
|
|
|
B.
|
Lazarus Refining & Marketing, LLC
(“LRM”)
|
● Loan
Agreement dated December 4, 2015 among Sovereign, as Lender, LRM,
as Borrower, and Jonathan Pitts Carroll, Sr., BDCO, LE, and LEH, as
Guarantors ($10.0 Million Veritex USDA Loan)
|
Matures December 2034.
|
Principal and interest paid monthly; interest accrues at Prime +
2.75%; monthly payment currently $74,111.
|
Secured by: (i) a second priority lien on the rights of LE in the
Nixon Facility and the other collateral of LE pursuant to a
security agreement; (ii) a first priority lien on the real property
interests of LRM; (iii) a first priority lien on all of LRM’s
fixtures, furniture, machinery and equipment; (iv) a first priority
lien on all of LRM’s contractual rights, general intangibles
and instruments, except with respect to LRM’s rights in its
leases of certain specified tanks, with respect to which Sovereign
has a second priority lien in such leases subordinate to a prior
lien granted by LRM to Sovereign to secure obligations of LRM under
the $2.0 Million Sovereign Loan; and (v) all other collateral as
described in the security documents
|
BDCO
LE
LEH
Jonathan
Carroll
|
|
|
|
● Loan
and Security Agreement dated May 2, 2014 among Sovereign and LRM
($2.0 Million Sovereign Loan)
|
Retired.
|
NA
|
Secured by assignment of certain leases of LRM and certain assets
of LEH; guaranteed by Jonathan Carroll.
|
Jonathan Carroll
|
|
|
|
● Master
Lease Agreement / Amended and Restated Schedule No. 001 dated
January 7, 2015 between LRM and Tetra Financial Group,
Inc.
|
Matures November 2017.
|
Quarterly payment of $44,258.
|
Secured by cash collateral.
|
N/A
|
|
|
|
● Amended
and Restated Guaranty Fee Agreement dated April 1, 2017 between LRM
and Jonathan Carroll (Guaranty Fee Agreement ties to $10.0 Million
Veritex USDA Loan; amounts owed to Jonathan Carroll captured under
~$1.0 Million BDCO-Carroll Note)
|
Terminates when $10.0 Million Veritex USDA Loan paid in
full.
|
2% fee per annum, paid monthly on outstanding balance.
|
N/A
|
Jonathan Carroll
|
|
|
|
● Amended
and Restated Guaranty Fee Agreement dated April 1, 2017 between LRM
and Jonathan Carroll (Guaranty Fee Agreement ties to $2.0 Million
Sovereign Loan; amounts owed to Jonathan Carroll captured under
~$1.0 Million BDCO-Carroll Note)
|
Terminates
when $2.0 Million Sovereign Loan paid in full.
|
2% fee
per annum, paid monthly on outstanding balance.
|
N/A
|
Jonathan Carroll
|
|
|
|
● Ground
Lease Agreement dated June 1, 2015 between LE and LRM
|
Terminates
March 2035.
|
Base
rent at $10,000 per month.
|
N/A
|
LE
|
|
|
|
● Tolling
Agreement dated October 1, 2015 between LRM, as Owner, and LE, as
Customer (LE’s use of certain Nixon Facility Processing
Units)
|
12-year
term expiring October 2027.
|
Quarterly
reservation fee of $180,000 up to 210,000 gallons per quarter;
additional $0.05 per gallon for tolling volumes greater than
210,000 per quarter.
|
N/A
|
LE
|
|
C.
|
Blue Dolphin Pipe Line Company (“BDPL”)
|
● Loan
and Security Agreement dated August 15, 2016 between LEH, as
Lender, and BDPL, as Debtor ($4.0 Million BDPL-LEH
Loan)
|
Matures August 2018.
|
$500,000 payment per year; balloon payment due at maturity;
interest accrues at 16.0%.
|
Secured by: (i) remaining payments due under Master Easement
Agreement between BDPL and FLNG Land II, Inc. and (ii) real
property (193 acres of BDPL-owned land) and fixtures and personal
property located in Freeport, Texas.
|
LEH
|
|
D.
|
Blue Dolphin Services Company
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
E.
|
Blue Dolphin Exploration Company
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
F.
|
Blue Dolphin Petroleum Company
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
G.
|
Petroport, Inc.
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
|
Entity
|
Debt / Commercial Agreements
|
Term
|
Payment Structure
|
Liens / Security Interest
|
Related Party(ies)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I.
|
|
Lazarus Energy Holdings, LLC
|
● Note
Purchase Agreement dated December 6, 2006 between LEH, Lazarus
Refining & Marketing, LLC (previous LEH subsidiary), and
Louisiana I, Louisiana II, LE and LTRII, as Issuers, and John
Kissick and AP Energy Partners LLC, as Investors
|
SEE $2.0 MILLION KISSICK BRIDGE 1 AND $1.0 MILLION AP BRIDGE
PROMISSORY NOTES BELOW
|
N/A
|
N/A
|
N/A
|
|
|
|
● Promissory
Note (8% Senior Note Due 2007) dated December 6, 2006 between
Louisiana I, Louisiana II, LE and LTRII, as Issuers, and John
Kissick, as Holder ($2.0 Million Kissick Bridge 1)
|
Matured; past due.
|
Balloon payment due at maturity; accrues interest at 8.0%;
currently payments on demand.
|
Secured by Collateral Documents as defined in the Note Guaranty,
the Gatehouse Guaranty, and the Gatehouse Mortgage.
|
LEH
|
|
|
|
● Promissory
Note (8% Senior Note Due 2007) dated December 6, 2006 between
Louisiana I, Louisiana II, LE and LTRII, as Issuers, and AP Energy
Partners LLC, as Holder ($1.0 Million AP Bridge 1)
|
Matured; past due.
|
Balloon payment due at maturity; accrues interest at 8.0%;
currently payments on demand.
|
Secured by Collateral Documents as defined in the Note Guaranty,
the Gatehouse Guaranty, and the Gatehouse Mortgage.
|
LEH
|
|
|
|
● Note
Purchase Agreement dated February 21, 2007 between LEH, Lazarus
Refining & Marketing, LLC (previous LEH subsidiary), LE,
Louisiana I, Louisiana II, LTRII, as Issuers, and Initial
Noteholders, and Gatehouse Guarantor (~$2.9 Million Kissick Bridge
2)
|
Retired
|
N/A
|
N/A
|
N/A
|
|
|
|
● Promissory
Note (8% Senior Note) to John H. Kissick, as Holder ($1.0 Million
Kissick Bridge 3)
|
Matured; past due.
|
Balloon payment due at maturity; accrues interest at 8.0%;
currently payments on demand.
|
No security identified.
|
LEH
|
|
|
|
● Loan
and Security Agreement dated August 15, 2016 between John H.
Kissick, as Lender, and LEH, as Debtor ($4.0 Million Kissick 2016
Note)
|
Matures
October 2018.
|
$500,000
payment per year; balloon payment due at maturity; interest accrues
at 16.0%.
|
Secured
by substantially all of LEH’s personal property, as well as
(i) the Property described in that certain Deed of Trust, Mortgage,
Security Agreement, Assignment of Leases And Rents, Financing
Statement And Fixture Filing dated as of August 15, 2016,
executed by Debtor for the benefit of Lender; (ii) that
certain Easement Agreement dated as of December 11, 2013,
executed by BDPL and FLNG Land II, Inc.; and (iii) all Payment
Rights described in that certain Collateral
Assignment dated as of August 15, 2016, executed by Debtor in
favor of Lender.
|
John H. Kissick
|
|
|
|
● Promissory
Note with Notre Dame Investors, Inc., as Holder ($1.5 Million Notre
Dame/NDI Note)
|
Matures
July 2025.
|
Accrues
interest at 6.0%; current monthly payment of $13,068.
|
Secured
by promissory note between NALIC and LEH.
|
LTRII
|
|
|
|
● Promissory
Note dated May 21, 2013 between LEH, as Maker, and Scoggin LLC, as
Payee ($6.0 Million Scoggins Note)
|
Matures
December 2020.
|
Semi-annual
payments of $500,000.
|
Guaranteed
by Louisiana I, Louisiana II, and LTRII.
|
Louisiana I
Louisiana
II
LTRII
|
|
|
Entity
|
Debt / Commercial Agreements
|
Term
|
Payment Structure
|
Liens / Security Interest
|
Related Party(ies)
|
|
|
|
|
|
|
|
|
|
|
|
● Promissory
Note between North American Life Insurance Company, as Issuer, and
LEH, as Holder ($2.0 Million NALIC Note)
|
Matures
April 2024.
|
Accrues
interest at 8.0%; current monthly payment of $20,000 to David
Roberson.
|
No
security identified.
|
Jonathan Carroll
Gina
Carroll
|
|
|
|
● Loan
and Security Agreement dated August 15, 2016 between LEH, as
Lender, and BDPL, as Debtor ($4.0 Million BDPL-LEH
Loan)
|
Matures
August 2018.
|
$500,000
payment per year; balloon payment due at maturity; interest accrues
at 16.0%.
|
Secured
by: (i) remaining payments due under Master Easement Agreement
between BDPL and FLNG Land II, Inc. and (ii) real property (193
acres of BDPL-owned land) and fixtures and personal property
located in Freeport, Texas.
|
BDCO / BDPL
|
|
|
|
● Amended
and Restated Promissory Note dated June 30, 2017 between LEH, as
Lender, and BDCO, as Borrower (~$2.5 Million BDCO-LEH
Note)
|
Matures
January 2019.
|
Interest
accrues at 8.0%; balloon payment due at maturity.
|
N/A
|
BDCO
|
|
|
|
● Amended
and Restated Operating Agreement dated April 1, 2017 between BDCO,
LE, and LEH
|
Expires
April 1, 2020, upon written notice of either party of a material
breach, or upon 90 days’ notice by BDCO’s Board of
Directors if the Board determines the agreement is no longer in
BDCO’s best interests.
|
LEH is
reimbursed at cost plus 5% for reasonable costs incurred while LEH
performs the Services.
|
N/A
|
BDCO
LE
|
|
|
|
● Terminal
Services Agreement dated April 1, 2016 between LEH and LRM (storage
of jet fuel)
|
Terminated
April 2017.
|
N/A
|
N/A
|
LRM
|
|
A.
|
Lazarus Texas Refinery I, LLC (“LTRI”)
|
● Promissory
Note to National Oil Recovery Corporation, as Holder (~$2.7 Million
NORCO Note)
|
Retired.
|
N/A
|
N/A
|
N/A
|
|
B.
|
Lazarus Texas Refinery II, LLC (“LTRII”)
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
C.
|
Lazarus Louisiana Refinery, LLC (“Louisiana
I”)
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
D.
|
Lazarus Louisiana Refinery II, LLC (“Louisiana
II”)
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
E.
|
Lazarus Forest Products, LLC (“LFP”)
|
● Loan
Modification Agreement dated December 12, 2011 between One World
Bank, NA (“One World”), as Lender, LO, and LFP, as
Borrowers, and Jonathan P. Carroll, Sr. and LEH, as Guarantors (SEE
BELOW LFP USDA AND SBA LOANS)
|
No change to terms.
|
Principal and interest paid monthly; balloon payment due at
maturity.
|
Secured by collateral comprised of real estate described in the
Mortgages and the personal property described in the Security
Agreements; guaranteed by LEH and Jonathan Carroll.
|
LO
Jonathan
Carroll
LEH
|
|
|
Entity
|
Debt / Commercial Agreements
|
Term
|
Payment Structure
|
Liens / Security Interest
|
Related Party(ies)
|
|
|
|
|
|
|
|
|
|
|
|
● Loan
Agreement dated December 21, 2009 between One World, as Lender, LO
and LFP, as Borrowers ($1.6 Million LFP SBA Loan)
|
Matures December 2019.
|
Principal and interest paid monthly; balloon payment due at
maturity; monthly payment currently $18,448.
|
Secured by collateral comprised of real estate described in the
Mortgages and the personal property described in the Security
Agreements; guaranteed by LEH and Jonathan Carroll.
|
LO
LEH
Jonathan Carroll
|
|
|
|
● Promissory
Note dated December 31, 2008 between One World, as Lender, and
J&D Lumber, Inc., as Borrower / Assumption Agreement dated
December 31, 2009 wherein LO and LFP assumed J&D Lumber’s
Obligations as Borrowers ($3.3 Million LFP USDA Loan)
|
Matures December 2028.
|
Principal and interest paid monthly; balloon payment due at
maturity; monthly payment currently $22,596.
|
Secured by collateral comprised of real estate described in the
Mortgages and the personal property described in the Security
Agreements; guaranteed by LEH and Jonathan Carroll.
|
LO
LEH
Jonathan Carroll
|
|
F.
|
Lazarus Oklahoma, LLC (“LO”)
|
● Loan
Modification Agreement dated December 12, 2011 between One World,
as Lender, LO, and LFP, as Borrowers, and Jonathan P. Carroll, Sr.
and LEH, as Guarantors (SEE BELOW LO USDA AND SBA
LOANS)
|
No change to term.
|
Principal and interest paid monthly; balloon payment due at
maturity.
|
Secured by collateral comprised of real estate described in the
Mortgages and the personal property described in the Security
Agreements; guaranteed by LEH and Jonathan Carroll.
|
LFP
Jonathan
Carroll
LEH
|
|
|
|
● Loan
Agreement dated December 21, 2009 between One World, as Lender, LO
and LFP, as Borrowers ($1.6 Million LO SBA Loan)
|
Matures December 2019.
|
Principal and interest paid monthly; balloon payment due at
maturity; monthly payment currently $18,448.
|
Secured by collateral comprised of real estate described in the
Mortgages and the personal property described in the Security
Agreements; guaranteed by LEH and Jonathan Carroll.
|
LFP
LEH
Jonathan Carroll
|
|
|
|
● Promissory
Note dated December 31, 2008 between One World, as Lender, and
J&D Lumber, Inc., as Borrower / Assumption Agreement dated
December 31, 2009 wherein LO and LFP assumed J&D Lumber’s
Obligations as Borrowers ($3.3 Million LO USDA Loan)
|
Matures December 2028.
|
Principal and interest paid monthly; balloon payment due at
maturity; monthly payment currently $22,596.
|
Secured by collateral comprised of real estate described in the
Mortgages and the personal property described in the Security
Agreements; guaranteed by LEH and Jonathan Carroll.
|
LFP
LEH
Jonathan
Carroll
|
|
G.
|
Lazarus Energy Development, LLC
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
H.
|
Lazarus Environmental, LLC
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
I.
|
Lazarus Marine Terminal I, LLC (“LMT”)
|
● Loan
and Security Agreement dated May 31, 2016 among Sovereign, as
Lender, and LMT, as Borrower ($1.0 Million Veritex
Loan)
|
Matures May 2019.
|
Principal and interest paid monthly; interest accrues at Prime +
2.75%; monthly payment currently $31,648.
|
Personal property of Borrower; guaranteed by Jonathan Carroll and
LEH
|
Jonathan Carroll
LEH
|
|
|
|
● Tolling
Agreement dated May 24, 2016 between LMT and LE (LE’s use of
barge loading facility in Ingleside, Texas)
|
5-year term expiring May 2021.
|
Monthly reservation fee of $50,400 up to 84,000 gallons per day;
additional $0.02 per gallon for tolling volumes greater than
210,000 per quarter.
|
N/A
|
LE
|
|
J.
|
Lazarus Midstream GP, LLC
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
|
Entity
|
Debt / Commercial Agreements
|
Term
|
Payment Structure
|
Liens / Security Interest
|
Related Party(ies)
|
|
|
|
|
|
|
|
|
|
K.
|
Lazarus Midstream Partners, LP
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
L.
|
Lazarus Midstream LLC
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
M.
|
Lazarus Midstream Acquisition Corp.
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Entity
|
Debt / Commercial Agreements
|
Term
|
Payment Structure
|
Liens / Security Interest
|
Related Party(ies)
|
|
|
|
|
|
|
|
|
III.
|
|
Jonathan P. Carroll
|
|
|
|
|
|
|
A.
|
Ingleside Crude, LLC (“Ingleside”)
|
● Loan
Agreement dated July 18, 2013 between Green Bank, NA (“Green
Bank”), as Lender, and Ingleside, as Borrower ($1.9 Million
funded out of $3.2 Million)(Green Bank SBA Loan I)
|
Matures July 2023.
|
Monthly payment of principal and interest; interest accrues at
Prime + 2.75%; monthly payment currently $28,131.
|
Secured by 1st
perfected security interest, subject
to no other liens, in personal property (equipment and machinery);
pledge of corporate stock (100,000 shares of BDCO common stock), an
SBA guarantee, and a perfected 1st
lien and assignment of leases on all
existing, renovated and new tanks located at the Ingleside, Texas
tank farm; additional collateral includes assignment of life
insurance policy on Jonathan Carroll; loan guaranteed by Jonathan
Carroll.
|
Jonathan Carroll
|
|
|
|
● Construction
Loan Agreement dated October 7, 2015 between Green Bank, N.A., as
Lender, and Ingleside, as Borrower ($1.6 Million Green Bank SBA
Loan II)
|
Matures October 2025.
|
Principal and interest; interest accrues at Prime + 2.75%; monthly
payment currently $18,460.
|
Secured by all of Borrower’s property, now owned or hereafter
acquired and wherever located, together with all replacements,
accessions, proceeds, and products, to wit: all business assets,
including without limitation, all Equipment, Fixtures, Inventory,
Investment Property, Documents, Instruments, Chattel Paper,
Accounts, Contract Rights, Deposit Accounts, General Intangibles,
Intellectual Property and Farm Products, including without
limitation those items of property described in the Security
Agreement exhibits, incorporated therein for all purposes.;
guaranteed by Jonathan Carroll.
|
Jonathan Carroll
|
|
|
|
● Amended
and Restated Promissory Note dated March 31, 2017 between
Ingleside, as Lender, and BDCO, as Borrower (~$1.1 Million
BDCO-Ingleside Note)
|
Matures January 2019.
|
Interest accrues at 8.0%; balloon payment due at
maturity.
|
None
|
BDCO
|
|
|
|
● Amended
and Restated Tank Lease Agreement dated January 1, 2016 between
Ingleside and LE (periodic additional product storage
needs)
|
Terminated April 2017.
|
N/A
|
N/A
|
LE
|
|
B.
|
Lazarus Capital, LLC (f/k/a Lazarus Financial, LLC) (“Lazarus
Capital”)
|
● Amended
and Restated Promissory Note dated March 31, 2017 between Lazarus
Capital, as Lender, and BDCO, as Borrower (~$0.1 Million
BDCO-Carroll Note)
|
Matures January 2019.
|
Revolver; principal and interest paid quarterly; interest accrues
at 8.0%; payment 50% in cash and 50% in BDCO common
stock.
|
None
|
BDCO
|
|
C.
|
Carroll & Company Financial Holdings, LP
|
None
|
N/A
|
N/A
|
N/A
|
N/A
|
Lazarus Energy Holdings LLC and Related Entities
|
Notes Payable Summary
|
As of September 15, 2017
|
Rough Draft - Includes Estimates
|
Debt Description
|
Principal
|
Outstanding Interest
|
Total
|
Maturity
|
Payment Structure
|
|
|
|
|
|
|
|
|
LEH Debt
|
|
|
|
|
|
|
Kissick
Bridge 1
|
2,291,555
|
1,535,514
|
3,827,069
|
Past-due
|
Balloon
payment at maturity
|
|
AP
Bridge 1
|
1,145,778
|
767,757
|
1,913,535
|
Past-due
|
Balloon
payment at maturity
|
|
Kissick
Bridge 2
|
-
|
-
|
-
|
|
|
*Retired
|
Kissick
Bridge 3
|
1,000,000
|
576,512
|
1,576,512
|
Past-due
|
Balloon
payment at maturity
|
|
Kissick
2016 Note
|
4,000,000
|
700,000
|
4,700,000
|
10/31/18
|
Balloon
payment at maturity
|
|
Notre
Dame Note
|
1,107,483
|
132,898
|
1,240,381
|
7/1/25
|
Monthly
payments of $13,068
|
|
Scoggins
Note
|
3,220,511
|
362,307
|
3,582,819
|
12/15/20
|
Semi-annual
payments of $500,000
|
|
North
America Life Ins. Co.
|
1,252,319
|
-
|
1,252,319
|
4/15/24
|
Monthly
payments of $20,000
|
*Interest
through 2010
|
LEH Total
|
$14,017,647
|
$4,074,988
|
$18,092,635
|
|
|
|
|
|
|
|
|
|
|
LEH Subs Debt
|
|
|
|
|
|
|
LFP
One World Bank Loan (SBA)
|
1,112,874
|
94,594
|
1,207,469
|
12/21/19
|
Monthly
payments of $18,448 with balloon at maturity
|
|
LO
One World Bank Loan (USDA)
|
2,862,458
|
223,033
|
3,085,491
|
12/31/28
|
Monthly
payments of $22,596 with balloon at maturity
|
|
LTR
I Norco Note
|
-
|
-
|
-
|
|
|
*Retired
|
LMTI
Veritex Loan
|
611,111
|
42,608
|
653,719
|
5/31/19
|
Monthly
payments of $31,648 (variable)
|
|
LEH Subs Total
|
$4,586,444
|
$360,236
|
$4,946,680
|
|
|
|
|
|
|
|
|
|
|
Blue Dolphin Debt
|
|
|
|
|
|
|
Related-Party
LEH Note
|
500,000
|
-
|
500,000
|
1/1/19
|
Balloon
payment at maturity
|
|
(LE
Portion of LEH Note)
|
-
|
-
|
-
|
|
|
|
(LRM
Portion of LEH Note)
|
277,747
|
-
|
277,747
|
|
|
|
(Other
Portions of LEH Note)
|
222,253
|
-
|
222,253
|
|
|
|
Related-Party
IngCru Note
|
1,123,404
|
-
|
1,123,404
|
1/1/19
|
Balloon
payment at maturity
|
|
(LE
Portion of IngCru Note)
|
1,095,149
|
-
|
1,095,149
|
|
|
|
(LRM
Portion of IngCru Note)
|
3,000
|
-
|
3,000
|
|
|
|
(Other
Portions of IngCru Note)
|
25,254
|
-
|
25,254
|
|
|
|
Related-Party
Carroll Note
|
204,846
|
-
|
204,846
|
N/A
|
Revolver,
fully paid quarterly 50% in stock and 50% in cash
|
|
(LE
Portion of Carroll Note)
|
156,846
|
-
|
156,846
|
|
|
|
(LRM
Portion of Carroll Note)
|
48,000
|
-
|
48,000
|
|
|
|
(Other
Portions of Carroll Note)
|
-
|
-
|
-
|
|
|
|
Blue Dolphin Total
|
$1,828,250
|
$-
|
$1,828,250
|
|
|
|
|
|
|
|
|
|
|
Blue Dolphin Subs Debt
|
|
|
|
|
|
|
LE
Veritex Term Loan (USDA)
|
23,440,052
|
30,000
|
23,470,052
|
6/22/34
|
Monthly
payments of $198,786 (variable)
|
|
LE
Notre Dame Loan (Kissick) (Deed)
|
4,964,141
|
1,829,867
|
6,794,008
|
1/2/18
|
Balloon
payment at maturity
|
|
LRM
Veritex Term Loan (USDA)
|
9,553,728
|
40,000
|
9,593,728
|
12/4/34
|
Monthly
payments of $74,111
|
|
LRM
Tetra Boiler Loan (Lease)
|
44,258
|
-
|
44,258
|
11/5/17
|
Quarterly
payments of $44,258
|
|
LRM
Sovereign Term Loan
|
-
|
-
|
-
|
|
|
*Retired
|
BDPL
Related-Party LEH Loan (Freeport Deed)
|
4,000,000
|
700,000
|
4,700,000
|
8/15/18
|
One
payment of $500,000 due, balloon payment at maturity
|
|
Blue Dolphin Subs Total
|
$42,002,180
|
$2,599,867
|
$44,602,047
|
|
|
|
|
|
|
|
|
|
|
Ingleside Crude Debt
|
|
|
|
|
|
|
Green
Bank Loan I (SBA)
|
1,645,465
|
-
|
1,645,465
|
7/18/23
|
Monthly
payments of $28,131 (variable)
|
|
Green
Bank Loan II (SBA)
|
1,400,107
|
-
|
1,400,107
|
10/6/25
|
Monthly
payments of $18,460 (variable)
|
|
Ingleside Crude Total
|
$3,045,572
|
$-
|
$3,045,572
|
|
|
|
Haynes & Boone LLP
|
|
|
|
|
DLA Piper LLP (US)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
CHARLES A. BECKHAM, JR.
|
|
|
|
|
/s/
CHRISTINA P. MACCIO
|
|
Charles
A. Beckham, Jr.
|
|
|
|
|
Christina
P. Maccio
|
|
Partner
|
|
|
|
|
Partner
|
|
Attorney
for GEL Tex Marketing, LLC
|
|
|
|
|
Attorney
for GEL Tex Marketing, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
JONATHAN CARROLL
|
|
|
|
|
|
|
Jonathan
Carroll, in his individual capacity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lazarus
Energy, LLC
|
|
|
|
|
|
|
Blue
Dolphin Energy Company
|
|
|
|
|
|
|
Lazarus
Energy Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
JONATHAN CARROLL
|
|
|
|
|
|
|
By:
|
Jonathan
Carroll
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stroock & Stroock & Lavan LLP
|
|
|
|
|
Susman Godfrey LLP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
FRANK A MEROLA
|
|
|
|
|
/s/
BRYAN MELTON
|
|
Frank
A. Merola
|
|
|
|
|
Bryan
Melton
|
|
Attorney
for Lazarus Energy, LLC
|
|
|
|
|
Attorney
for Lazarus Energy, LLC
|
|
|
|
|
|
|
|
|
LAZARUS ENERGY HOLDINGS, LLC
|
|
By:
|
/s/
JONATHAN CARROLL
|
Name:
|
Jonathan
Carroll
|
Title:
|
Managing
Member
|
LAZARUS ENERGY, LLC
|
|
By:
|
/s/
JONATHAN CARROLL
|
Name:
|
Jonathan
Carroll
|
Title:
|
President
|
|
|
/s/ JOHN H.
KISSICK
|
|
JOHN
H. KISSICK
|
|
|
|
|
Lazarus
Energy, LLC, as Maker
|
|
|
|
|
|
|
|
By:
|
/s/
JONATHAN
P. CARROLL
|
|
|
|
Name:
Jonathan
P. Carroll
|
|
|
|
Title:
President
|
|
|
John
H. Kissick, as Payee
|
|
|
|
|
|
|
|
By:
|
/s/
JOHN
H. KISSICK
|
|
|
|
Name:
John H. Kissick
|
|
|
|
|
|
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
Registrant’s 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 Registrant’s 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 Registrant’s internal
control over financial reporting that occurred during the
Registrant’s most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
Registrant’s internal control over financial
reporting;
|
5.
|
The
Registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the Registrant’s auditors and the
audit committee of the Registrant’s 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 Registrant’s
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 Registrant’s
internal control over financial reporting.
|
Date:
November 16, 2017
|
By:
|
/s/
JONATHAN P. CARROLL
|
|
|
|
Jonathan
P. Carroll
|
|
|
|
Chairman
of the Board,
Chief
Executive Officer, President, Assistant Treasurer and
Secretary
|
|
|
|
(Principal
Executive Officer)
|
|
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
Registrant’s 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 Registrant’s 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 Registrant’s internal
control over financial reporting that occurred during the
Registrant’s most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
Registrant’s internal control over financial
reporting;
|
5.
|
The
Registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the Registrant’s auditors and the
audit committee of the Registrant’s 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 Registrant’s
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 Registrant’s
internal control over financial reporting.
|
Date:
November 16, 2017
|
By:
|
/s/
TOMMY L. BYRD
|
|
|
|
Tommy
L. Byrd
|
|
|
|
Chief
Financial Officer, Treasurer and Assistant Secretary
|
|
|
|
(Principal
Financial Officer)
|
|
Date:
November 16, 2017
|
By:
|
/s/
JONATHAN P. CARROLL
|
|
|
|
Jonathan
P. Carroll
|
|
|
|
Chairman
of the Board,
Chief
Executive Officer, President, Assistant Treasurer and
Secretary
|
|
|
|
(Principal
Executive Officer)
|
|
Date:
November 16, 2017
|
By:
|
/s/
TOMMY L. BYRD
|
|
|
|
Tommy
L. Byrd
|
|
|
|
Chief
Financial Officer, Treasurer and Assistant Secretary
|
|
|
|
(Principal
Financial Officer)
|
|
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Nov. 16, 2017 |
|
Document And Entity Information | ||
Entity Registrant Name | BLUE DOLPHIN ENERGY CO | |
Entity Central Index Key | 0000793306 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 10,818,371 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2017 |
Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
STOCKHOLDERS' EQUITY | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 20,000,000 | 20,000,000 |
Common stock, shares issued | 10,818,371 | 10,624,714 |
Common stock, shares Outstanding | 10,818,371 | 10,624,714 |
Treasury stock, shares | 0 | 150,000 |
Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
REVENUE FROM OPERATIONS | ||||
Refined petroleum product sales | $ 66,132,959 | $ 53,951,293 | $ 174,667,617 | $ 126,546,716 |
Tank rental revenue | 766,133 | 717,487 | 2,173,555 | 1,624,461 |
Other operations | 0 | 19,526 | 0 | 71,865 |
Total revenue from operations | 66,899,092 | 54,688,306 | 176,841,172 | 128,243,042 |
COST OF OPERATIONS | ||||
Cost of refined products sold | 58,785,827 | 51,689,474 | 165,185,276 | 125,316,249 |
Refinery operating expenses | 1,758,005 | 3,153,646 | 6,222,771 | 9,468,409 |
Joint Marketing Agreement profit share | 0 | 965,627 | 0 | 392,062 |
Other operating expenses | 67,969 | 100,974 | 183,095 | 298,566 |
Arbitration award and associated fees | 0 | 0 | 24,338,628 | 0 |
General and administrative expenses | 1,239,813 | 891,210 | 2,854,294 | 1,503,533 |
Depletion, depreciation and amortization | 455,437 | 504,719 | 1,355,780 | 1,415,519 |
Bad debt recovery | 0 | 0 | 0 | (139,868) |
Accretion expense | 71,844 | 28,186 | 215,532 | 84,558 |
Total cost of operations | 62,378,895 | 57,333,836 | 200,355,376 | 138,339,028 |
Income (loss) from operations | 4,520,197 | (2,645,530) | (23,514,204) | (10,095,986) |
OTHER INCOME (EXPENSE) | ||||
Easement, interest and other income | 26,657 | 157,840 | 409,739 | 415,700 |
Interest and other expense | (601,335) | (485,659) | (2,027,748) | (1,305,125) |
Gain on disposal of property | 0 | 0 | 1,834,500 | 0 |
Total other income (expense) | (574,678) | (327,819) | 216,491 | (889,425) |
Income (loss) before income taxes | 3,945,519 | (2,973,349) | (23,297,713) | (10,985,411) |
Income tax benefit | 0 | 1,034,798 | 0 | 3,735,040 |
Net income (loss) | $ 3,945,519 | $ (1,938,551) | $ (23,297,713) | $ (7,250,371) |
Loss per common share: | ||||
Basic | $ 0.36 | $ (0.19) | $ (2.19) | $ (0.69) |
Diluted | $ 0.36 | $ (0.19) | $ (2.19) | $ (0.69) |
Weighted average number of common shares outstanding: | ||||
Basic | 10,818,371 | 10,464,715 | 10,644,654 | 10,460,849 |
Diluted | 10,818,371 | 10,464,715 | 10,644,654 | 10,460,849 |
1. Organization |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Organization | Nature of Operations. Blue Dolphin Energy Company (“Blue Dolphin,”) is primarily an independent refiner and marketer of petroleum products. Our primary asset is a 15,000-bpd crude oil and condensate processing facility located in Nixon, Texas (the “Nixon Facility”). As part of our refinery business segment, we conduct petroleum storage and terminaling operations under third-party lease agreements at the Nixon Facility. We also own pipeline assets and have leasehold interests in oil and gas properties. (See “Note (4) Business Segment Information” for further discussion of our business segments.)
Structure and Management. Blue Dolphin was formed as a Delaware corporation in 1986. We are currently controlled by Lazarus Energy Holdings, LLC (“LEH”). LEH operates and manages all our properties pursuant to an Amended and Restated Operating Agreement (the “Amended and Restated Operating Agreement”). Jonathan Carroll is Chairman of the Board of Directors (the “Board”), Chief Executive Officer, and President of Blue Dolphin, as well as a majority owner of LEH. Together LEH and Jonathan Carroll own approximately 81% of our common stock, par value $0.01 per share (the “Common Stock). (See “Note (8) Related Party Transactions,” “Note (10) Long-Term Debt, Net” and “Note (18) Commitments and Contingencies – Financing Agreements” for additional disclosures related to LEH, the Amended and Restated Operating Agreement, and Jonathan Carroll.)
Our operations are conducted through the following active subsidiaries:
See "Part I, Item 1. Business and Item 2. Properties” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “Annual Report”) as filed with the Securities and Exchange Commission (the “SEC”) for additional information regarding our operating subsidiaries, principal facilities, and assets.
References in this Quarterly Report to “we,” “us,” and “our” are to Blue Dolphin and its subsidiaries unless otherwise indicated or the context otherwise requires.
Going Concern. Management has determined that certain factors raise substantial doubt about our ability to continue as a going concern. These factors include the following:
A hearing on confirmation of the Final Arbitration Award was scheduled to occur on September 18, 2017 in state district court in Harris County, Texas. Prior to the scheduled hearing, LE and GEL jointly notified the court that the hearing would be continued for a period of no more than 90 days after September 18, 2017 (the “Continuance Period”), to facilitate settlement discussions between the parties. On September 26, 2017, LE and Blue Dolphin, together with LEH and Jonathan Carroll, entered into a Letter Agreement with GEL, effective September 18, 2017 (the “GEL Letter Agreement”), confirming the parties’ agreement to the continuation of the confirmation hearing during the Continuance Period, subject to the terms of the GEL Letter Agreement.
Under the GEL Letter Agreement, GEL could have terminated the GEL Letter Agreement on the 45th day of the Continuance Period, or November 1, 2017, if it determined, in its sole discretion, that settlement discussions between the parties were not advancing to an acceptable resolution. As previously disclosed, on November 1, 2017, LE and GEL amended the GEL Letter Agreement (the “Amended GEL Letter Agreement”) to extend the date through which GEL has the right to terminate the GEL Letter Agreement to November 28, 2017. The Amended GEL Letter Agreement prohibits Blue Dolphin and its affiliates from making any pre-payments on indebtedness, other than in the ordinary course of business as described in the GEL Letter Agreement, and from making any payments to Jonathan Carroll under the Amended and Restated Guaranty Fee Agreements between November 1, 2017 and the end of the Continuance Period. If the parties are unable to reach an acceptable settlement with Genesis and GEL and GEL seeks to confirm and enforce the Final Arbitration Award, our business, financial condition and results of operations will be materially affected, and we likely would be required to seek protection under bankruptcy laws.
· Veritex Secured Loan Agreement Event of Default – Veritex Community Bank (“Veritex”), as successor in interest to Sovereign Bank by merger, has delivered to obligors notices of default under secured loan agreements with Veritex, stating that the Final Arbitration Award constitutes an event of default under the secured loan agreements. The occurrence of an event of default permits Veritex to declare the amounts owed under these loan agreements immediately due and payable, exercise its rights with respect to collateral securing obligors’ obligations under these loan agreements, and/or exercise any other rights and remedies available. Veritex has informed obligors that it is not currently exercising its rights and remedies under the secured loan agreements in light of the ongoing settlement discussions with GEL and the continuance of the hearing on confirmation of the Final Arbitration Award and to allow Veritex to evaluate any proposed settlement agreement related to the Final Arbitration Award, which would require Veritex’s approval. However, Veritex expressly reserved all of its rights, privileges and remedies related to events of default under the secured loan agreements and informed obligors that it would consider a final confirmation of the Final Arbitration Award to be a material event of default under the loan agreements. Any exercise by Veritex of its rights and remedies under the secured loan agreements would have a material adverse effect on our business, financial condition and results of operations and likely would require us to seek protection under bankruptcy laws. The debt associated with loans under secured loan agreements was classified within the current portion of long-term debt on our consolidated balance sheet at September 30, 2017 due to existing or potential events of default related to the Final Arbitration Award as well as the uncertainty of LE and LRM’s ability to meet financial covenants in the secured loan agreements in the future.
We are currently evaluating the effects of the Final Arbitration Award on our business, financial condition and results of operations. In addition to the matters described above, the Final Arbitration Award could materially and adversely affect our ability to procure adequate amounts of crude oil and condensate or our relationships with our customers. The contract-related dispute has negatively affected our customer relationships, prevented us from taking advantage of business opportunities, disrupted refinery operations, diverted management’s focus away from running the business, and impacted our ability to obtain financing.
We can provide no assurance as to whether negotiations with GEL will result in a settlement or as to the potential terms of any such settlement or whether Veritex would approve any such settlement. If LE is unable to reach an acceptable settlement with GEL or Veritex does not approve any such settlement and GEL seeks to confirm and enforce the Final Arbitration Award, our business, financial condition and results of operations will be materially adversely affected and we likely would be required to seek protection under bankruptcy laws.
Operating Risks. Successful execution of our business plan depends on several key factors, including having adequate crude oil and condensate supplies, increasing sales of refined petroleum products, and meeting contractual obligations. For the three and nine months ended September 30, 2017, execution of our business plan was negatively impacted by several factors, including:
During the nine months ended September 30, 2017, we continued aggressive actions to improve operations and liquidity. We began selling all our jet fuel immediately following production, which minimizes inventory, improves cash flow, and reduces commodity risk/exposure. We also completed construction of several new petroleum storage tanks at the Nixon Facility. Increasing petroleum storage capacity: (i) assists with de-bottlenecking the facility, (ii) supports increased refinery throughput up to approximately 17,000 bpd, and (iii) provides an opportunity to generate additional tank rental revenue by leasing to third-parties. Additional ongoing efforts to improve operations and liquidity include restructuring customer contracts on more favorable terms as they come up for renewal. Management believes that it is taking the appropriate steps to improve our financial stability. However, there can be no assurance that our plan will be successful, LEH and its affiliates will continue to fund our working capital needs, or that we will be able to obtain additional financing on commercially reasonable terms or at all. Among other factors, the Final Arbitration Award could prevent us from successfully executing our plan.
For additional disclosures related to the contract-related dispute with GEL, the Final Arbitration Award, the GEL Letter Agreement, defaults under secured loan agreements, and risk factors that could materially affect our future business, financial condition and results of operations, refer to the following sections within this Quarterly Report:
|
2. Basis of Presentation |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The accompanying unaudited consolidated financial statements, which include Blue Dolphin and subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim consolidated financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in our audited financial statements have been condensed or omitted pursuant to the SEC’s rules and regulations. Significant intercompany transactions have been eliminated in the consolidation. In management’s opinion, all adjustments considered necessary for a fair presentation have been included, disclosures are adequate, and the presented information is not misleading.
The consolidated balance sheet as of December 31, 2016 was derived from the audited financial statements at that date. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017, or for any other period.
|
3. Significant Accounting Policies |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies | The summary of significant accounting policies of Blue Dolphin is presented to assist in understanding our consolidated financial statements. Our consolidated financial statements and accompanying notes are representations of management who is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of our consolidated financial statements.
Use of Estimates. We have made several estimates and assumptions related to the reporting of our consolidated assets and liabilities and to the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with GAAP. We believe our current estimates are reasonable and appropriate, however, actual results could differ from those estimated.
Cash and Cash Equivalents. Cash and cash equivalents represent liquid investments with an original maturity of three months or less. Cash balances are maintained in depository and overnight investment accounts with financial institutions that, at times, may exceed insured deposit limits. We monitor the financial condition of the financial institutions and have experienced no losses associated with these accounts. Cash and cash equivalents were $44,931 at September 30, 2017 compared to cash and cash equivalents of $1,152,628 at December 31, 2016.
Restricted Cash. Restricted cash (current portion) primarily represents: (i) amounts held in our disbursement account with Veritex attributable to construction invoices awaiting payment from that account, (ii) a payment reserve account held by Veritex as security for payments under a loan agreement, and (iii) a construction contingency account under which Veritex will fund contingencies. Restricted cash, noncurrent represents funds held in the Veritex disbursement account for payment of future construction related expenses to build new petroleum storage tanks. At September 30, 2017, total restricted cash was $1,650,910, comprised of restricted cash (current portion) totaling $1,500,380 and restricted cash, noncurrent totaling $150,530. At December 31, 2016, total restricted cash was $4,930,140, comprised of restricted cash (current portion) totaling $3,347,835 and restricted cash, noncurrent totaling $1,582,305 (See “Note (10) Long-Term Debt, Net” for additional disclosures related to our loan agreements with Veritex.)
Accounts Receivable and Allowance for Doubtful Accounts. Our accounts receivable consists of customer obligations due in the ordinary course of business. Since we have a small number of customers with individually large amounts due on any given date, we evaluate potential and existing customers’ financial condition, credit worthiness, and payment history to minimize credit risk. Allowance for doubtful accounts is based on a combination of current sales and specific identification methods. If necessary, we establish an allowance for doubtful accounts to estimate the amount of probable credit losses. Allowance for doubtful accounts totaled $0 both at September 30, 2017 and December 31, 2016.
Inventory. Our inventory primarily consists of refined petroleum products, crude oil and condensate, and chemicals. Inventory is valued at lower of cost or net realizable value with cost being determined by the average cost method, and net realizable value being determined based on estimated selling prices less any associated delivery costs. If the net realizable value of our refined petroleum products inventory declines to an amount less than our average cost, we record a write-down of inventory and an associated adjustment to cost of refined products sold. (See “Note (6) Inventory” for additional disclosures related to our inventory.)
Property and Equipment.
Refinery and Facilities. Management expects to continue making improvements to the Nixon Facility based on operational needs and technological advances. Additions to refinery and facilities assets are capitalized. Expenditures for repairs and maintenance are expensed as incurred and included as operating expenses under the Amended and Restated Operating Agreement.
We record refinery and facilities at cost less any adjustments for depreciation or impairment. Adjustment of the asset and the related accumulated depreciation accounts are made for the refinery and facilities asset’s retirement and disposal, with the resulting gain or loss included in the consolidated statements of operations. For financial reporting purposes, depreciation of refinery and facilities assets is computed using the straight-line method using an estimated useful life of 25 years beginning when the refinery and facilities assets are placed in service. We did not record any impairment of our refinery and facilities assets for any period presented.
Pipelines and Facilities. Our pipelines and facilities are recorded at cost less any adjustments for depreciation or impairment. Depreciation is computed using the straight-line method over estimated useful lives ranging from 10 to 22 years. In accordance with Financial Accounting Standards Board (“FASB”) ASC guidance on accounting for the impairment or disposal of long-lived assets, management performed periodic impairment testing of our pipeline and facilities assets in the fourth quarter of 2016. Upon completion of that testing, our pipeline assets were fully impaired. All pipeline transportation services to third-parties have ceased, existing third-party wells along our pipeline corridor have been permanently abandoned, and no new third-party wells are being drilled near our pipelines. However, management believes our pipeline assets have future value based on large-scale, third-party production facility expansion projects near the pipelines.
Oil and Gas Properties. Our oil and gas properties are accounted for using the full-cost method of accounting, whereby all costs associated with acquisition, exploration and development of oil and gas properties, including directly related internal costs, are capitalized on a cost center basis. Amortization of such costs and estimated future development costs are determined using the unit-of-production method. All leases associated with our oil and gas properties have expired, and our oil and gas properties were fully impaired in 2011.
Construction in Progress. Construction in progress expenditures, which relate to construction and refurbishment activities at the Nixon Facility, are capitalized as incurred. Depreciation begins once the asset is placed in service.
(See “Note (7) Property, Plant and Equipment, Net” for additional disclosures related to our refinery and facilities assets, oil and gas properties, pipelines and facilities assets, and construction in progress.)
Intangibles – Other. Trade name, an intangible asset, represents the “Blue Dolphin Energy Company” brand name. At September 30, 2017 and December 31, 2016, trade name totaled $303,346. We have determined the trade name to have an indefinite useful life. We account for other intangible assets under FASB ASC guidance related to intangibles, goodwill, and other. Under the guidance, we test intangible assets with indefinite lives annually for impairment. Management performed its regular annual impairment testing of trade name in the fourth quarter of 2016. Upon completion of that testing, we determined that no impairment was necessary at December 31, 2016.
Debt Issue Costs. We have debt issue costs related to certain refinery and facilities assets debt. Debt issue costs are capitalized and amortized over the term of the related debt using the straight-line method, which approximates the effective interest method. Debt issue costs are presented net with the related debt liability. (See “Note (10) Long-Term Debt, Net” for additional disclosures related to debt issue costs.)
Revenue Recognition.
Refined Petroleum Products Revenue. Revenue from the sale of refined petroleum products is recognized when sales prices are fixed or determinable, collectability is reasonably assured, and title passes. Title passage occurs when refined petroleum products are delivered in accordance with the terms of the respective sales agreements, and customers assume the risk of loss when title is transferred. Transportation, shipping, and handling costs incurred are included in cost of refined products sold. Excise and other taxes that are collected from customers and remitted to governmental authorities are not included in revenue.
Tank Rental Revenue. We lease petroleum storage tanks to both related parties and third-parties. Tank rental fees are invoiced monthly in accordance with the terms of the related lease agreement. Tank rental revenue is recognized on a straight-line basis as earned.
Easement Revenue. Revenue from land easement fees was associated with a Master Easement Agreement between BDPL and FLNG Land II, Inc., a Delaware corporation (“FLNG”). Easement revenue was recognized monthly as earned and was included in other income. In February 2017, BDPL sold approximately 15 acres of property located in Brazoria County Texas to FLIQ Common Facilities, LLC, an affiliate of FLNG. In conjunction with the sale of real estate, the Master Easement Agreement was terminated.
Pipeline Transportation Revenue. Revenue from our pipeline operations was derived from fee-based contracts and was typically based on transportation fees per unit of volume transported multiplied by the volume delivered. Revenue was recognized when volumes were physically delivered for the customer through the pipeline. All pipeline transportation services to third-parties have ceased, existing third-party wells along our pipeline corridor have been permanently abandoned, and no new third-party wells are being drilled near our pipelines. (See “Note (4) Business Segment Information” for further discussion related to pipeline transportation revenue.)
Income Taxes. We account for income taxes under FASB ASC guidance related to income taxes, which requires recognition of income taxes based on amounts payable with respect to the current reporting period and the effects of deferred taxes for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial accounting and tax basis of assets and liabilities, as well as for operating losses and tax credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse.
As of each reporting date, management considers new evidence, both positive and negative, to determine the realizability of deferred tax assets. Management considers whether it is more likely than not that a portion or all the deferred tax assets will be realized, which is dependent upon the generation of future taxable income prior to the expiration of any net operating loss (“NOL”) carryforwards. When management determines that it is more likely than not that a tax benefit will not be realized, a valuation allowance is recorded to reduce deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2016. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Based on this evaluation, we recorded a full valuation allowance against the deferred tax assets as of December 31, 2016.
FASB ASC guidance related to income taxes also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, as well as guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. (See “Note (15) Income Taxes” for further information related to income taxes.)
Impairment or Disposal of Long-Lived Assets. In accordance with FASB ASC guidance on accounting for the impairment or disposal of long-lived assets, we periodically evaluate our long-lived assets for impairment. Additionally, we evaluate our long-lived assets when events or circumstances indicate that the carrying value of these assets may not be recoverable. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or group of assets. If the carrying value exceeds the sum of the undiscounted cash flows, an impairment loss equal to the amount by which the carrying value exceeds the fair value of the asset or group of assets is recognized. Significant management judgment is required in the forecasting of future operating results that are used in the preparation of projected cash flows and, should different conditions prevail or judgments be made, material impairment charges could be necessary.
Asset Retirement Obligations. FASB ASC guidance related to asset retirement obligations (“AROs”) requires that a liability for the discounted fair value of an ARO be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted towards its future value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.
Management has concluded that there is no legal or contractual obligation to dismantle or remove the refinery and facilities assets. Further, management believes that these assets have indeterminate lives under FASB ASC guidance for estimating AROs because dates or ranges of dates upon which we would retire these assets cannot reasonably be estimated at this time. When a legal or contractual obligation to dismantle or remove the refinery and facilities assets arises and a date or range of dates can reasonably be estimated for the retirement of these assets, we will estimate the cost of performing the retirement activities and record a liability for the fair value of that cost using present value techniques.
We recorded an ARO liability related to future asset retirement costs associated with dismantling, relocating, or disposing of our offshore platform, pipeline systems, and related onshore facilities, as well as for plugging and abandoning wells and restoring land and sea beds. We developed these cost estimates for each of our assets based upon regulatory requirements, structural makeup, water depth, reservoir characteristics, reservoir depth, equipment demand, current retirement procedures, and construction and engineering consultations. Because these costs typically extend many years into the future, estimating future costs are difficult and require management to make judgments that are subject to future revisions based upon numerous factors, including changing technology, political, and regulatory environments. We review our assumptions and estimates of future abandonment costs on an annual basis. (See “Note (11) Asset Retirement Obligations” for additional information related to our AROs.)
Computation of Earnings Per Share. We apply the provisions of FASB ASC guidance for computing earnings per share (“EPS”). The guidance requires the presentation of basic EPS, which excludes dilution and is computed by dividing net income 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 our consolidated statements of operations and requires a reconciliation of the denominator of basic EPS and diluted EPS. Diluted EPS is computed by dividing net income available to common stockholders 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 shares of common stock were converted to common stock that then shared in the earnings of the entity.
The number of shares related to options, warrants, restricted stock, and similar instruments included in diluted EPS is based on the “Treasury Stock Method” prescribed in FASB ASC guidance for computation of EPS. This method assumes theoretical repurchase of shares using proceeds of the respective stock option or warrant exercised, and, for restricted stock, the amount of compensation cost attributed to future services that has not yet been recognized and the amount of any current and deferred tax benefit that would be credited to additional paid-in-capital upon the vesting of the restricted stock, at a price equal to the issuer’s average stock price during the related earnings period. Accordingly, the number of shares includable in the calculation of EPS in respect of the stock options, warrants, restricted stock, and similar instruments is dependent on this average stock price and will increase as the average stock price increases. (See “Note (16) Earnings Per Share” for additional information related to EPS.)
Treasury Stock. We accounted for treasury stock under the cost method. In May 2017, our treasury stock was re-issued. The net change in share price after acquisition of the treasury stock was recognized as a component of additional paid-in-capital in our consolidated balance sheets. (See “Note (12) Treasury Stock” for additional disclosures related to treasury stock.)
New Pronouncements Adopted. The FASB issues an Accounting Standards Update (“ASU”) to communicate changes to the FASB ASC, including changes to non-authoritative SEC content. Recently adopted ASUs include:
ASU 2016-18, Statement of Cash Flows (Topic 230: Restricted Cash (A Consensus of the FASB Emerging Issues Task Force). In November 2016, FASB issued ASU 2016-18, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. We adopted this accounting pronouncement effective December 31, 2016. Accordingly, our consolidated statement of cash flows for the nine months ended September 30, 2016 was changed to combine restricted cash with cash and cash equivalents.
ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. In July 2015, FASB issued ASU 2015-11, which requires an entity to measure inventory at the lower of cost or net realizable value. We adopted this accounting pronouncement effective January 1, 2017. The adoption of ASU 2015-11 did not have a significant impact on our consolidated financial statements.
New Pronouncements Issued, Not Yet Effective. The following are recently issued, but not yet effective, ASU’s that may influence our consolidated financial position, results of operations, or cash flows:
ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. In January 2017, FASB issued ASU 2017-04. This guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. For public business entities that are SEC filers, the amendments in ASU 2017-04 are effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. ASU 2017-04 should be applied prospectively, and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect adoption of this guidance to have a significant impact on our consolidated balance sheets.
ASU 2016-02,Leases (Topic 842). In February 2016, FASB issued ASU 2016-02. This guidance increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For a public business entity, the amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. We are evaluating the impact that adoption of this guidance will have on our consolidated balance sheets.
ASU 2014-09, Revenue from Contracts with Customers. In May 2014, FASB issued ASU 2014-09 and has since amended the standard with ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date; ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net); ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update); ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These standards replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers. We are evaluating the impact that adoption of these ASU’s will have on our consolidated financial statements.
Other new pronouncements issued but not yet effective are not expected to have a material impact on our financial position, results of operations, or liquidity.
Reclassification. Effective January 1, 2017, we reclassified amounts associated with our Pipeline Transportation operations to Corporate and Other. (See “Note (4) Business Segment Information” for disclosures related to Corporate and Other.)
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4. Business Segment Information |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segment Information | Effective January 1, 2017, we began reporting as a single business segment – Refinery Operations. Business activities related to our Refinery Operations business segment are conducted at the Nixon Facility. Due to their small size, current and prior three and nine months’ amounts associated with Pipeline Transportation operations were reclassified to Corporate and Other. Pipeline Transportation operations diminished significantly as services to third-parties ceased and third-party wells along our pipeline corridor were permanently abandoned. Business segment information for the periods indicated (and as of the dates indicated), was as follows:
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5. Prepaid Expenses and Other Current Assets |
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Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid Expenses and Other Current Assets | Prepaid expenses and other current assets as of the dates indicated consisted of the following:
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6. Inventory |
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory | Inventory as of the dates indicated consisted of the following:
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7. Property, Plant and Equipment, Net |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment, Net | Property, plant and equipment, net, as of the dates indicated consisted of the following:
We capitalize interest cost incurred on funds used to construct property, plant, and equipment. The capitalized interest is recorded as part of the asset to which it relates and is depreciated over the asset’s useful life. Interest cost capitalized was $3,413,428 and $2,108,298 at September 30, 2017 and December 31, 2016, respectively.
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8. Related Party Transactions |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions | We are party to several agreements with related parties. We believe these related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions.
Related Parties.
LEH. LEH is our controlling shareholder. Jonathan Carroll, Chairman of the Board, Chief Executive Officer, and President of Blue Dolphin, is the majority owner of LEH. Together LEH and Jonathan Carroll own approximately 81% of our Common Stock. We are currently party to an Amended and Restated Operating Agreement, a Jet Fuel Sales Agreement, a Loan and Security Agreement, an Amended and Restated Promissory Note, and a Debt Assumption Agreement with LEH.
Ingleside Crude, LLC (“Ingleside”). Ingleside is a related party of LEH and Jonathan Carroll. We are currently party to an Amended and Restated Promissory Note with Ingleside.
Lazarus Marine Terminal I, LLC (“LMT”). LMT is a related party of LEH and Jonathan Carroll. We are currently party to a Tolling Agreement with LMT.
Jonathan Carroll. Jonathan Carroll is Chairman of the Board, Chief Executive Officer, and President of Blue Dolphin. We are currently party to Amended and Restated Guaranty Fee Agreements and an Amended and Restated Promissory Note with Jonathan Carroll.
Currently, we depend on LEH and its affiliates (including Jonathan Carroll and Ingleside) for financing when revenue from operations and borrowings under bank facilities are insufficient to meet our liquidity needs. Such borrowings are reflected in our consolidated balance sheets in accounts payable, related party, and/or long-term debt, related party. Each quarter amounts we owe to related parties are settled with amounts owed to us by LEH and its affiliates under certain related-party agreements as discussed within this Note (8), Related Party Transactions. As a result, these related-party transactions do not always reflect cash payments between the parties.
Operations Related Agreements.
Amended and Restated Operating Agreement. LEH operates and manages all our properties pursuant to the Amended and Restated Operating Agreement. The Amended and Restated Operating Agreement, which was restructured following cessation of crude supply and marketing activities under the Crude Supply Agreement and Joint Marketing Agreement with GEL, expires: (i) April 1, 2020, (ii) upon written notice by either party to the Amended and Restated Operating Agreement of a material breach by the other party, or (iii) upon 90 days’ notice by the Board if the Board determines that the Amended and Restated Operating Agreement is not in our best interest. We reimburse LEH at cost plus five percent (5%) for all reasonable Blue Dolphin expenses incurred while LEH performs the services. These expenses are reflected within refinery operating expenses in our consolidated statements of operations.
Jet Fuel Sales Agreement. We sell jet fuel and other products to LEH pursuant to a Jet Fuel Sales Agreement. LEH resells these products to a government agency. In support of the Jet Fuel Sales Agreement, we previously leased Nixon Facility petroleum storage tanks to LEH for the storage of the jet fuel under a Terminal Services Agreement (as described below). The Jet Fuel Sales Agreement terminates on the earliest to occur of: (a) a one-year term expiring March 31, 2018 plus a 30-day carryover or (b) delivery of a maximum quantity of jet fuel as defined therein. Sales to LEH under the Jet Fuel Sales Agreement are reflected within refined petroleum product sales in our consolidated statements of operations.
Terminal Services Agreement. Pursuant to a Terminal Services Agreement, LEH leased petroleum storage tanks at the Nixon Facility for the storage of Blue Dolphin purchased jet fuel under the Jet Fuel Sales Agreement (as described above). The Terminal Services Agreement was terminated in June 2017. Rental fees received from LEH under the Terminal Services Agreement are reflected within tank rental revenue in our consolidated statements of operations.
Amended and Restated Tank Lease Agreement. Pursuant to an Amended and Restated Tank Lease Agreement with Ingleside, we leased petroleum storage tanks to meet periodic, additional storage needs. The Amended and Restated Tank Lease Agreement was terminated in July 2017. Rental fees owed to Ingleside under the tank lease agreement are reflected within long-term debt, related party, net of current portion in our consolidated balance sheets. Amounts expensed as rental fees to Ingleside under the Amended and Restated Tank Lease Agreement are reflected within refinery operating expenses in our consolidated statements of operations.
Tolling Agreement. In May 2016, we entered a Tolling Agreement with LMT to facilitate loading and unloading of our petroleum products by barge at LMT’s dock facility in Ingleside, Texas. The Tolling Agreement has a five-year term and may be terminated at any time by the agreement of both parties. We pay LMT a flat monthly reservation fee of $50,400. The monthly reservation fee includes tolling volumes up to 84,000 gallons per day. Tolling volumes totaling more than 210,000 gallons per quarter are billed to us at $0.02 per gallon. Amounts expensed as tolling fees to LMT under the Tolling Agreement are reflected in cost of refined products sold in our consolidated statements of operations.
Financial Agreements.
Loan and Security Agreement. In August 2016, BDPL entered a loan and security agreement with LEH as evidenced by a promissory note in the original principal amount of $4.0 million (the “LEH Loan Agreement”). The LEH Loan Agreement matures in August 2018, and accrues interest at rate of 16.00%. Under the LEH Loan Agreement, BDPL makes a payment to LEH of $500,000 per year. A final balloon payment is due at maturity.
The proceeds of the LEH Loan Agreement were used for working capital. There are no financial maintenance covenants associated with the LEH Loan Agreement. The LEH Loan Agreement is secured by certain property owned by BDPL. Outstanding principal owed to LEH under the LEH Loan Agreement is reflected in long-term debt, related party, current portion in our consolidated balance sheets. Accrued interest under the LEH Loan Agreement is reflected in interest payable, current portion in our consolidated balance sheets.
Promissory Notes. We currently rely on LEH and its affiliates (including Jonathan Carroll) to fund our working capital requirements. The below promissory notes represent advances to fund our working capital requirements. There can be no assurance that LEH and its affiliates will continue to fund our working capital requirements.
Debt Assumption Agreement. On September 18, 2017, LEH paid, on LE’s behalf, certain obligations totaling $3,648,742 to GEL in connection with the GEL Arbitration and the GEL Letter Agreement. In exchange for such payments, LE agreed to assume $3,677,953 of LEH’s existing indebtedness pursuant to the Debt Assumption Agreement, entered into on November 14, 2017 and made effective September 18, 2017, by and among LE, LEH and John H. Kissick.
Amended and Restated Guaranty Fee Agreements. Pursuant to Amended and Restated Guaranty Fee Agreements, Jonathan Carroll receives fees for providing his personal guarantee on certain of our long-term debt. Jonathan Carroll was required to guarantee repayment of funds borrowed and interest accrued under certain loan agreements. Amounts owed to Jonathan Carroll under Amended and Restated Guaranty Fee Agreements are reflected within long-term debt, related party, net of current portion in our consolidated balance sheets. Amounts expensed related to Amended and Restated Guarantee Fee Agreements are reflected within interest and other expense in our consolidated statements of operations. (See “Note (10) Long-Term Debt, Net” for further discussion related to these guaranty fee agreements.)
Financial Statements Impact.
Consolidated Balance Sheets. Accounts payable, related party to LMT associated with the Tolling Agreement was $823,200 and $369,600 at September 30, 2017 and December 31, 2016, respectively. Long-term debt, related party associated with the LEH Loan Agreement, June LEH Note, March Ingleside Note, and March Carroll Note as of the dates indicated was as follows:
Accrued interest associated with the LEH Loan Agreement was $728,889 and $243,556 at September 30, 2017 and December 31, 2016, respectively.
Consolidated Statements of Operations. Related party revenue from LEH associated with:
Related party cost of goods sold associated with the Tolling Agreement with LMT totaled $151,200 and $0 for the three months ended September 30, 2017 and 2016; related party cost of goods sold for the nine months ended September 30, 2017 and 2016 totaled $453,600 and $0.
Related party refinery operating expenses associated with the Amended and Restated Operating Agreement with LEH and the Amended and Restated Tank Lease Agreement with Ingleside for the periods indicated were as follows:
For the three months ended September 30, 2017, refinery operating expenses per bbl decreased compared to the three months ended September 30, 2016 due to the revised cost-plus expense reimbursement structure under the Amended and Restated Operating Agreement. The Amended and Restated Operating Agreement was effective in April 2017.
For the nine months ended September 2017, refinery operating expenses per bbl decreased compared to the nine months ended September 30, 2017 due to the revised cost-plus expense reimbursement structure as noted above. In addition, refinery operating expenses per bbl were higher during the nine months ended September 30, 2016 due to significant refinery downtime.
Interest expense associated with the LEH Loan Agreement and Amended and Restated Guaranty Fee Agreements for the periods indicated was as follows:
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9. Accrued Expenses and Other Current Liabilities |
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Accrued Expenses and Other Current Liabilities | Accrued expenses and other current liabilities as of the dates indicated consisted of the following:
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10. Long-Term Debt, Net |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Debt, Net | Long-term debt, net represents the outstanding principal of long-term debt less associated debt issue costs. Long-term debt, net as of the dates indicated consisted of the following:
Unamortized debt issue costs, which relate to secured loan agreements with Veritex, as of the dates indicated consisted of the following:
Amortization expense associated with long-term debt, net, which is included in interest expense, was $32,121 and $32,121 for the three months ended September 30, 2017 and 2016, respectively. Amortization expense was $96,363 and $96,364 for the nine months ended September 30, 2017 and 2016, respectively.
Accrued interest associated with long-term debt, net is reflected as interest payable, current portion and long-term interest payable, net of current portion in our consolidated balance sheets and includes related party interest. Accrued interest as of the dates indicated consisted of the following:
Related Party. See “Note (8) Related Party Transactions” for additional disclosures with respect to related party long-term debt.
First Term Loan Due 2034 (In Default). LE has a 2015 loan agreement and related security agreement with Veritex as administrative agent and lender. The loan agreement is for a term loan in the principal amount of $25.0 million (the “First Term Loan Due 2034”). The First Term Loan Due 2034 matures in June 2034, has a current monthly payment of principal and interest of $198,786, and accrues interest at a rate based on the Wall Street Journal Prime Rate plus 2.75%. Pursuant to a construction rider in the First Term Loan Due 2034, proceeds available for use were placed in a disbursement account whereby Veritex makes payments for construction related expenses. Amounts held in the disbursement account are reflected as restricted cash (current portion) and restricted cash, noncurrent in our consolidated balance sheets.
As described elsewhere in this Quarterly Report, Veritex notified LE that the Final Arbitration Award constitutes an event of default under the First Term Loan Due 2034. In addition to existing or potential events of default related to the Final Arbitration Award, at September 30, 2017, LE was in violation of the debt service coverage ratio, the current ratio, and debt to net worth ratio financial covenants related to the first Term Loan Due 2034. LE also failed to replenish a payment reserve account as required. The occurrence of events of default under the First Term Loan Due 2034 permits Veritex to declare the amounts owed under the First Term Loan Due 2034 immediately due and payable, exercise its rights with respect to collateral securing LE’s obligations under the loan agreement, and/or exercise any other rights and remedies available. Veritex informed obligors that it is not currently exercising its rights, privileges and remedies under the First Term Loan Due 2034 in light of the ongoing settlement discussions with GEL and the continuance of the hearing on confirmation of the Final Arbitration Award and to allow Veritex to evaluate any proposed settlement agreement related to the Final Arbitration Award, which would require Veritex’s approval. However, Veritex expressly reserved all its rights, privileges and remedies related to events of default under the First Term Loan Due 2034 and informed LE that it would consider a final confirmation of the Final Arbitration Award to be a material event of default under the loan agreement. Any exercise by Veritex of its rights and remedies under the First Term Loan Due 2034 would have a material adverse effect on our business, financial condition and results of operations and likely would require us to seek protection under bankruptcy laws. (See “Note (1) Organization – Going Concern and Operating Risks” for additional disclosures related to the First Term Loan Due 2034, the Final Arbitration Award and financial covenant violations.)
As a condition of the First Term Loan Due 2034, Jonathan Carroll was required to guarantee repayment of funds borrowed and interest accrued under the loan. For his personal guarantee, LE entered a Guaranty Fee Agreement with Jonathan Carroll whereby he receives a fee equal to 2.00% per annum, paid monthly, of the outstanding principal balance owed under the First Term Loan Due 2034. Effective in April 2017, the Guaranty Fee Agreement associated with the First Term Loan Due 2034 was amended and restated to reflect payment in cash and shares of Blue Dolphin Common Stock. For the three months ended September 30, 2017 and 2016, guaranty fees related to the First Term Loan Due 2034 totaled $117,214 and $121,048, respectively. For the nine months ended September 30, 2017 and 2016, guaranty fees related to the First Term Loan Due 2034 totaled $354,286 and $365,420, respectively. Guaranty fees are recognized monthly as incurred and are included in interest and other expense in our consolidated statements of operations. LEH, LRM and Blue Dolphin also guaranteed the First Term Loan Due 2034. (See “Note (8) Related Party Transactions” for additional disclosures related to LEH and Jonathan Carroll)
A portion of the proceeds of the First Term Loan Due 2034 were used to refinance approximately $8.5 million of debt owed under a previous debt facility with American First National Bank. Remaining proceeds are being used primarily to construct new petroleum storage tanks at the Nixon Facility. The First Term Loan Due 2034 is secured by: (i) a first lien on all Nixon Facility business assets (excluding accounts receivable and inventory), (ii) assignment of all Nixon Facility contracts, permits, and licenses, (iii) absolute assignment of Nixon Facility rents and leases, including tank rental income, (iv) a payment reserve account held by Veritex, and (v) a pledge of $5.0 million of a life insurance policy on Jonathan Carroll. The First Term Loan Due 2034 contains representations and warranties, affirmative, restrictive, and financial covenants, as well as events of default which are customary for bank facilities of this type.
Second Term Loan Due 2034 (In Default). LRM has a 2015 loan agreement and related security agreement with Veritex as administrative agent and lender. The loan agreement is for a term loan in the principal amount of $10.0 million (the “Second Term Loan Due 2034”). The Second Term Loan Due 2034 matures in December 2034, has a current monthly payment of principal and interest of $74,111, and accrues interest at a rate based on the Wall Street Journal Prime Rate plus 2.75%. Pursuant to a construction rider in the Second Term Loan Due 2034, proceeds available for use were placed in a disbursement account whereby Veritex makes payments for construction related expenses. Amounts held in the disbursement account are reflected as restricted cash (current portion) and restricted cash, noncurrent in our consolidated balance sheets.
As described elsewhere in this Quarterly Report, Veritex notified LRM that the Final Arbitration Award constitutes an event of default under the Second Term Loan Due 2034. In addition to existing or potential events of default related to the Final Arbitration Award, at September 30, 2017, LRM was in violation of the debt service coverage ratio, the current ratio, and debt to net worth ratio financial covenants related to the Second Term Loan Due 2034. The occurrence of events of default under the Second Term Loan Due 2034 permits Veritex to declare the amounts owed under the Second Term Loan Due 2034 immediately due and payable, exercise its rights with respect to collateral securing LRM’s obligations under the loan agreement, and/or exercise any other rights and remedies available. Veritex informed obligors that it is not currently exercising its rights, privileges and remedies under the Second Term Loan Due 2034 considering the ongoing settlement discussions with GEL and the continuance of the hearing on confirmation of the Final Arbitration Award and to allow Veritex to evaluate any proposed settlement agreement related to the Final Arbitration Award, which would require Veritex’s approval. However, Veritex expressly reserved all its rights, privileges and remedies related to events of default under the Second Term Loan Due 2034 and informed LRM that it would consider a final confirmation of the Final Arbitration Award to be a material event of default under the loan agreement. Any exercise by Veritex of its rights and remedies under the Second Term Loan Due 2034 would have a material adverse effect on our business, financial condition and results of operations and likely would require us to seek protection under bankruptcy laws. (See “Note (1) Organization – Going Concern and Operating Risks” for additional disclosures related to the First Term Loan Due 2034, the Final Arbitration Award and financial covenant violations.)
As a condition of the Second Term Loan Due 2034, Jonathan Carroll was required to guarantee repayment of funds borrowed and interest accrued under the loan. For his personal guarantee, LRM entered a Guaranty Fee Agreement with Jonathan Carroll whereby he receives a fee equal to 2.00% per annum, paid monthly, of the outstanding principal balance owed under the Second Term Loan Due 2034. Effective in April 2017, the Guaranty Fee Agreement associated with the Second Term Loan Due 2034 was amended and restated to reflect payment in cash and shares of Blue Dolphin Common Stock. For the three months ended September 30, 2017 and 2016, guaranty fees related to the Second Term Loan Due 2034 totaled $47,874 and $49,094, respectively. For the nine months ended September 30, 2017 and 2016, guaranty fees related to the Second Term Loan Due 2034 totaled $144,487 and $148,261, respectively. Guaranty fees are recognized monthly as incurred and are included in interest and other expense in our consolidated statements of operations. LEH, LE and Blue Dolphin also guaranteed the Second Term Loan Due 2034. (See “Note (8) Related Party Transactions” for additional disclosures related to LEH and Jonathan Carroll.)
A portion of the proceeds of the Second Term Loan Due 2034 were used to refinance a previous bridge loan from Veritex in the amount of $3.0 million. Remaining proceeds are being used primarily to construct additional new petroleum storage tanks at the Nixon Facility. The Second Term Loan Due 2034 is secured by: (i) a second priority lien on the rights of LE in the Nixon Facility and the other collateral of LE pursuant to a security agreement; (ii) a first priority lien on the real property interests of LRM; (iii) a first priority lien on all of LRM’s fixtures, furniture, machinery and equipment; (iv) a first priority lien on all of LRM’s contractual rights, general intangibles and instruments, except with respect to LRM’s rights in its leases of certain specified tanks, with respect to which Veritex has a second priority lien in such leases subordinate to a prior lien granted by LRM to Veritex to secure obligations of LRM under the Term Loan Due 2017; and (v) all other collateral as described in the security documents. The Second Term Loan Due 2034 contains representations and warranties, affirmative, restrictive, and financial covenants, as well as events of default which are customary for bank facilities of this type.
Notre Dame Debt. LE entered a loan with Notre Dame Investors, Inc. as evidenced by a promissory note in the original principal amount of $8.0 million, which is currently held by John Kissick (the “Notre Dame Debt”). The Notre Dame Debt matures in January 2018, and accrues interest at a rate of 16.00%.
Pursuant to a Sixth Amendment to the Notre Dame Debt , entered into on November 14, 2017 and made effective September 18, 2017, the Notre Dame Debt was amended to increase the principal amount by $3,677,953 (the “Additional Principal”). The Additional Principal was used to make payments to GEL to reduce the balance of the Final Arbitration Award in the amount of $3,648,742 in accordance with the GEL Letter Agreement.
The Notre Dame Debt is secured by a Deed of Trust, Security Agreement and Financing Statements (the “Subordinated Deed of Trust”), which encumbers the Nixon Facility and general assets of LE. There are no financial maintenance covenants associated with the Notre Dame Debt. Pursuant to a Subordination Agreement dated June 2015, the holder of the Notre Dame Debt agreed to subordinate any security interest and liens on the Nixon Facility, as well as its right to payments, in favor of Veritex as holder of the First Term Loan Due 2034.
Term Loan Due 2017. LRM had a 2014 loan and security agreement with Veritex for a term loan facility in the principal amount of $2.0 million (the “Term Loan Due 2017”). The Term Loan Due 2017 was amended in March 2015, pursuant to a Loan Modification Agreement (the “March Loan Modification Agreement”). Under the March Loan Modification Agreement, the interest rate was modified to be the greater of the Wall Street Journal Prime Rate plus 2.75% or 6.00%, and the due date was extended to March 2017. Pursuant to the March Loan Modification Agreement, the Term Loan Due 2017 had a monthly principal payment of $61,665 plus interest. The Term Loan Due 2017 was paid off in March 2017.
As a condition of the Term Loan Due 2017, Jonathan Carroll was required to guarantee repayment of funds borrowed and interest accrued under the loan. For his personal guarantee, LRM entered a Guaranty Fee Agreement with Jonathan Carroll whereby he received a fee equal to 2.00% per annum, paid monthly, of the outstanding principal balance owed under the Term Loan Due 2017. Effective in April 2017, the Guaranty Fee Agreement associated with the Term Loan Due 2017 was amended and restated to reflect payment in cash and shares of Blue Dolphin Common Stock. (Guaranty Fee Agreements associated with the First Term Loan Due 2034, Second Term Loan Due 2034, and Term Loan Due 2017 are collectively referred to in this Quarterly Report as the “Amended and Restated Guaranty Fee Agreements”). For the three months ended September 30, 2017 and 2016, guaranty fees related to the Term Loan Due 2017 totaled $0 and $2,158, respectively. For the nine months ended September 30, 2017 and 2016, guaranty fees related to the Term Loan Due 2017 totaled $411 and $9,250, respectively. Guaranty fees are recognized monthly as incurred and are included in interest and other expense in our consolidated statements of operations.
Capital Leases. LRM entered a 36-month build-to-suit capital lease in August 2014 for the purchase of new boiler equipment for the Nixon Facility. The equipment, which was delivered in December 2014, was added to construction in progress. Once placed in service, the equipment will be reclassified to refinery and facilities and depreciation will begin. The capital lease, which requires a quarterly payment in the amount of $44,258, is guaranteed by Blue Dolphin.
A summary of equipment held under long-term capital leases as of the dates indicated follows:
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11. Asset Retirement Obligations |
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Asset Retirement Obligation Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset Retirement Obligations | Refinery and Facilities. Management has concluded that there is no legal or contractual obligation to dismantle or remove the refinery and facilities assets. Management believes that the refinery and facilities assets have indeterminate lives under FASB ASC guidance for estimating AROs because dates or ranges of dates upon which we would retire these assets cannot reasonably be estimated at this time. When a legal or contractual obligation to dismantle or remove the refinery and facilities assets arises and a date or range of dates can reasonably be estimated for the retirement of these assets, we will estimate the cost of performing the retirement activities and record a liability for the fair value of that cost using present value techniques.
Pipelines and Facilities and Oil and Gas Properties. We have AROs associated with the dismantlement and abandonment in place of our pipelines and facilities assets, as well as the plugging and abandonment of our oil and gas properties. We recorded a discounted liability for the fair value of an ARO with a corresponding increase to the carrying value of the related long-lived asset at the time the asset was installed or placed in service. We depreciate the amount added to property and equipment and recognize accretion expense relating to the discounted liability over the remaining life of the asset. Plugging and abandonment costs are recorded during the period incurred or as information becomes available to substantiate actual and/or probable costs.
Changes to our ARO liability for the periods indicated were as follows:
Liabilities settled represents amounts paid for plugging and abandonment costs against the asset’s ARO liability. At September 30, 2017 and December 31, 2016, we recognized $445 and $70,969, respectively, in liabilities settled. Abandonment expense represents amounts paid for plugging and abandonment costs that exceed the asset’s ARO liability. For the three and nine months ended September 30, 2017 and 2016, we recognized $0 in abandonment expense.
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12. Treasury Stock |
9 Months Ended |
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Sep. 30, 2017 | |
Equity [Abstract] | |
Treasury Stock | At September 30, 2017 and December 31, 2016, we had 0 and 150,000 shares of treasury stock, respectively. In May 2017, we issued 150,000 shares of treasury stock to Jonathan Carroll as payment for amounts due under the March Carroll Note. The issuance price of the treasury stock issued to Mr. Carroll was $2.48 per share, which represents the preceding 30-day average closing price of the Common Stock, in accordance with the Amended and Restated Guaranty Fee Agreements. The shares of treasury stock issued to Mr. Carroll are restricted per applicable securities holding periods for affiliates.
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13. Concentration of Risk |
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Risks and Uncertainties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Concentration of Risk | Bank Accounts. Financial instruments that potentially subject us to concentrations of risk consist primarily of cash, trade receivables and payables. We maintain our cash balances at financial institutions located in Houston, Texas. In the U.S., the Federal Deposit Insurance Corporation (the “FDIC”) insures certain financial products up to a maximum of $250,000 per depositor. At September 30, 2017 and December 31, 2016, we had cash balances (including restricted cash) of more than the FDIC insurance limit per depositor in the amount of $1,183,652 and $5,372,689, respectively.
Key Supplier.
We purchased light crude oil and condensate for the Nixon Facility from GEL pursuant to the Crude Supply Agreement. As discussed elsewhere in this Quarterly Report, we ceased purchases of crude oil and condensate from GEL under the Crude Supply Agreement in November 2016. (See “Part I, Item 1 Financial Statements – Note (18) Commitments and Contingencies – Legal Matters” in this Quarterly Report for disclosures related to the Crude Supply Agreement, the contract-related dispute with GEL, and the Final Arbitration Award.)
We currently have in place a month-to-month evergreen crude supply contract with a major integrated oil and gas company. This new supplier currently provides us with adequate amounts of crude oil and condensate, and we expect the supplier to continue to do so for the foreseeable future. However, our ability to purchase crude oil and condensate is dependent on our liquidity and access to capital, which have been adversely affected by net losses, working capital deficits, the contract-related dispute with GEL, and financial covenant defaults in secured loan agreements. The Final Arbitration Award could have a material adverse effect on our ability to procure adequate amounts and crude oil and condensate from our current supplier or otherwise.
Significant Customers. We routinely assess the financial strength of our customers and have not experienced significant write-downs in our accounts receivable balances. Therefore, we believe that our accounts receivable credit risk exposure is limited.
For the three months ended September 30, 2017, we had 4 customers that accounted for approximately 84% of our refined petroleum product sales. LEH, a related party, was 1 of these 4 significant customers and accounted for approximately 32% of our refined petroleum product sales. At September 30, 2017, these 4 customers represented approximately $1.5 million in accounts receivable. LEH represented approximately $1.1 million in accounts receivable.
For the three months ended September 30, 2016, we had 4 customers that accounted for approximately 70% of our refined petroleum product sales. LEH was one of these 4 significant customers and accounted for approximately 27% of our refined petroleum product sales. At September 30, 2016, these 4 customers represented approximately $6.7 million in accounts receivable. LEH represented approximately $2.9 million in accounts receivable.
For the nine months ended September 30, 2017, we had 3 customers that accounted for approximately 67% of our refined petroleum product sales. LEH was 1 of these 3 significant customers and accounted for approximately 34% of our refined petroleum product sales. At September 30, 2017, these 3 customers represented approximately $1.2 million in accounts receivable. LEH represented approximately $1.1 million in accounts receivable.
For the nine months ended September 30, 2016, we had 4 customers that accounted for approximately 64% of our refined petroleum product sales. LEH was one of these 4 significant customers and accounted for approximately 19% of our refined petroleum product sales. At September 30, 2016, these 4 customers represented approximately $5.5 in accounts receivable. LEH represented approximately $2.9 million in accounts receivable.
LEH purchases our jet fuel and resells the jet fuel to a government agency. (See “Note (8) Related Party Transactions” for additional disclosures related to our sale of jet fuel to LEH under the Jet Fuel Sales Agreement and the associated storage of LEH’s purchased jet fuel under the Terminal Services Agreement.)
Refined Petroleum Product Sales. Our refined petroleum products are primarily sold in the U.S. However, with the opening of the Mexican diesel market to private companies, we began exporting some of our low-sulfur diesel to Mexico during the second quarter of 2016. Total refined petroleum product sales by distillation (from light to heavy) for the periods indicated consisted of the following:
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14. Leases |
9 Months Ended |
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Sep. 30, 2017 | |
Leases, Operating [Abstract] | |
Leases | Our company headquarters are in downtown Houston, Texas. We lease 13,878 square feet of office space, 7,389 square feet of which is used and paid for by LEH. The office lease had a 10-year term expiring in September 2017, but we extended the lease through December 2017. We are currently exploring our leasing options. Rent expense is recognized on a straight-line basis. For the three months ended September 30, 2017 and 2016, rent expense totaled $31,681 and $33,251, respectively. For the nine months ended September 30, 2017 and 2016, rent expense totaled $107,853 and $92,966, respectively.
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15. Income Taxes |
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Income Taxes | Income Tax Benefit. For the three months ended September 30, 2017 and 2016, we recognized an income tax benefit of $0 and $1,034,798 respectively. For the nine months ended September 30, 2017 and 2016, we recognized an income tax benefit of $0 and $3,735,040, respectively.
Deferred Income Taxes. Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis, as well as from NOL carryforwards. We state those balances at the enacted tax rates we expect will be in effect when taxes are paid. NOL carryforwards and deferred tax assets represent amounts available to reduce future taxable income.
NOL Carryforwards. Under Section 382 of the Internal Revenue Code of 1986, as amended (“IRC Section 382”), a corporation that undergoes an “ownership change” is subject to limitations on its use of pre-change NOL carryforwards to offset future taxable income. Within the meaning of IRC Section 382, an “ownership change” occurs when the aggregate stock ownership of certain stockholders (generally 5% shareholders, applying certain look-through rules) increases by more than 50 percentage points over such stockholders' lowest percentage ownership during the testing period (generally three years). For income tax purposes, we experienced ownership changes in 2005, relating to a series of private placements, and in 2012, because of a reverse acquisition, that limit the use of pre-change NOL carryforwards to offset future taxable income. In general, the annual use limitation equals the aggregate value of common stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. The 2012 ownership change will subject approximately $16.3 million in NOL carryforwards that were generated prior to the ownership change to an annual use limitation of $638,196 per year. Unused portions of the annual use limitation amount may be used in subsequent years. As a result of the annual use limitation, approximately $6.7 million in NOL carryforwards that were generated prior to the 2012 ownership change will expire unused. NOL carryforwards that were generated after the 2012 ownership change are not subject to an annual use limitation under IRC Section 382 and may be used for a period of 20 years in addition to available amounts of NOL carryforwards generated prior to the ownership change.
NOL carryforwards that remained available for future use for the periods indicated were as follow (amounts shown are net of NOLs that will expire unused because of the IRC Section 382 limitation):
Deferred Tax Assets and Liabilities. At September 30, 2017 and December 31, 2016, we had $0 of net deferred tax assets available for future use. Significant components of deferred tax assets and liabilities as of the dates indicated were as follow:
Valuation Allowance. As of each reporting date, management considers new evidence, both positive and negative, to determine the realizability of deferred tax assets. Management considers whether it is more likely than not that some portion or all the deferred tax assets will be realized, which is dependent upon the generation of future taxable income prior to the expiration of any NOL carryforwards. At September 30, 2017 and December 31, 2016, management determined that cumulative losses incurred over the prior three-year period provided significant objective evidence that limited the ability to consider other subjective evidence, such as projections for future growth. Based on this evaluation, we recorded a full valuation allowance against the deferred tax assets as of September 30, 2017 and December 31, 2016.
Uncertain Tax Positions. We adopted the provisions of the FASB ASC guidance on accounting for uncertainty in income taxes. The guidance clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
As part of this guidance, we record income tax related interest and penalties, if applicable, as a component of the provision for income tax benefit (expense). However, there were no amounts recognized relating to interest and penalties in the consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016. Our federal income tax returns are subject to examination by the Internal Revenue Service for tax years ending December 31, 2013, or after and by the state of Texas for tax years ending December 31, 2012, or after. We believe there are no uncertain tax positions for both federal and state income taxes.
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16. Earnings Per Share |
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Earnings Per Share | A reconciliation between basic and diluted income per share for the periods indicated was as follows:
Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding. Diluted EPS for the three and nine months ended September 30, 2017 and 2016 was the same as basic EPS as there were no stock options or other dilutive instruments outstanding.
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17. Inventory Risk Management |
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Inventory Risk Management | During 2017, we began selling all our jet fuel immediately following production, which minimizes inventory, improves cash flow, and reduces commodity risk/exposure. Previously, Genesis/GEL used commodity futures contracts to mitigate the volatile change in value for our crude oil and refined petroleum products inventory.
When active, the fair value of commodity futures contracts was reflected in our consolidated balance sheets and the related net gain or loss was recorded within cost of refined products sold in our consolidated statements of operations. Quoted prices for identical assets or liabilities in active markets (Level 1) were considered to determine the fair values for marking to market the financial instruments at each period end. Commodity transactions were executed to minimize transaction costs, monitor consolidated net exposures, and allow for increased responsiveness to changes in market factors.
At September 30, 2017, we had no futures contracts of refined petroleum products and crude oil and condensate that were entered as economic hedges. We also had no derivative instruments that were reported in our consolidated balance sheets at September 30, 2017 and December 31, 2016.
The following table provides the effect of derivative instruments in our consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016:
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18. Commitments and Contingencies |
9 Months Ended | ||||
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Sep. 30, 2017 | |||||
Commitments and Contingencies Disclosure [Abstract] | |||||
Commitments and Contingencies |
Debt Assumption Agreement. On September 18, 2017, LEH paid, on LE’s behalf, certain obligations totaling $3,648,742 to GEL in connection with the GEL Arbitration and the GEL Letter Agreement. In exchange for such payments, LE agreed to assume $3,677,953 of LEH’s existing indebtedness pursuant to the Debt Assumption Agreement, effective September 18, 2017, by and among LE, LEH and John H. Kissick.
Amended and Restated Guaranty Fee Agreements. Pursuant to Amended and Restated Guaranty Fee Agreements, Jonathan Carroll receives fees for providing his personal guarantee on certain of our long-term debt. Jonathan Carroll was required to guarantee repayment of funds borrowed and interest accrued under certain loan agreements. Amounts owed to Jonathan Carroll under Amended and Restated Guaranty Fee Agreements are reflected within long-term debt, related party, net of current portion in our consolidated balance sheets. Amounts expensed related to Amended and Restated Guarantee Fee Agreements are reflected within interest and other expense in our consolidated statements of operations. (See “Note (10) Long-Term Debt, Net” for further discussion related to these guaranty fee agreements.)
Financial Statements Impact.
Consolidated Balance Sheets. Accounts payable, related party to LMT associated with the Tolling Agreement was $823,200 and $369,600 at September 30, 2017 and December 31, 2016, respectively. Long-term debt, related party associated with the LEH Loan Agreement, June LEH Note, March Ingleside Note, and March Carroll Note as of the dates indicated was as follows:
Other Legal Matters. From time to time we are involved in routine lawsuits, claims, and proceedings incidental to the conduct of our business, including mechanic’s liens and administrative proceedings. Management does not believe that such matters will have a material adverse effect on our financial position, earnings, or cash flows.
Amended and Restated Operating Agreement. See “Note (8) Related Party Transactions” for additional disclosures related to the Amended and Restated Operating Agreement.
Financing Agreements. See “Note (10) Long-Term Debt, Net” for additional disclosures related to financing agreements.
Health, Safety and Environmental Matters. All our operations and properties are subject to extensive federal, state, and local environmental, health, and safety regulations governing, among other things, the generation, storage, handling, use and transportation of petroleum and hazardous substances; the emission and discharge of materials into the environment; waste management; characteristics and composition of jet fuel and other products; and the monitoring, reporting and control of greenhouse gas emissions. Our operations also require numerous permits and authorizations under various environmental, health, and safety laws and regulations. Failure to obtain and comply with these permits or environmental, health, or safety laws generally could result in fines, penalties or other sanctions, or a revocation of our permits.
Nixon Facility Expansion. We have made and continue to make capital and efficiency improvements to the Nixon Facility. Therefore, we incurred and will continue to incur capital expenditures related to these improvements, which include, among other things, facility and land improvements and completion of petroleum storage tanks.
Supplemental Pipeline Bonds. In August 2015, we received a letter from the Bureau of Ocean Energy Management (the “BOEM”) requiring additional supplemental bonds or acceptable financial assurance of approximately $4.2 million for existing pipeline rights-of-way. In July 2016, the BOEM issued Notice to Lessees (“NTL”) No. 2016-N01 (Requiring Additional Security), which changes the way that lessees and rights-of-way holders demonstrate financial strength and reliability to plug and abandon wells, as well as decommission and remove platforms and pipelines at the end of production or service activities. The NTL, which changed an earlier supplemental waiver process to a self-insurance model, became effective in September 2016. Pursuant to the NTL, the BOEM requested that lessees submit any relevant information needed for an overall financial review of the lessees account. The BOEM indicated that it would use this information to evaluate a lessees’ ability to carry out its obligations and determine whether, and/or how much self-insurance a lessee can use.
In October 2016, we received a letter from the BOEM summarizing the amount required as additional security on our existing pipeline rights-of-way. The letter, which is a courtesy and does not constitute a formal order by the BOEM, requested that we provide additional supplemental pipeline bonds or acceptable financial reassurance of approximately $4.6 million. At September 30, 2017 and December 31, 2016, we maintained approximately $0.9 million in credit and cash-backed pipeline rights-of-way bonds issued to the BOEM. Of the five (5) pipeline rights-of-ways reflected in the BOEM’s October 2016 letter:
There can be no assurance that the BOEM will accept a reduced amount of supplemental financial assurance or not require additional supplemental pipeline bonds related to our existing pipeline rights-of-way. If we are required by the BOEM to provide significant additional supplemental bonds or acceptable financial assurance, we may experience a significant and material adverse effect on our operations, liquidity, and financial condition.
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19. Subsequent Events |
9 Months Ended |
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Sep. 30, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events |
Amended GEL Letter Agreement. As previously disclosed, on November 1, 2017, LE and GEL extended the date through which GEL has the right to terminate the GEL Letter Agreement to November 28, 2017. For additional information regarding the Final Arbitration Award, the GEL Letter Agreement, the Amended GEL Letter Agreement, and their potential effects on our business, financial condition and results of operations, see “Note (1) Organization – Going Concern” and “Note (10) Long-Term Debt, Net.”
Debt Assumption Agreement. On September 18, 2017, LEH paid, on LE’s behalf, certain obligations totaling $3,648,742 to GEL in connection with the GEL Arbitration and the GEL Letter Agreement. In exchange for such payments, LE agreed to assume $3,677,953 of LEH’s existing indebtedness pursuant to the Debt Assumption Agreement, entered into on November 14, 2017 and made effective September 18, 2017, by and among LE, LEH and John H. Kissick.
Sixth Amendment to Notre Dame Debt. Pursuant to a Sixth Amendment to the Notre Dame Debt, entered into on November 14, 2017 and made effective September 18, 2017, the Notre Dame Debt was amended by the Additional Principal. The Additional Principal was used to make payments to GEL in the amount of $3,648,742 in connection with the GEL Letter Agreement to reduce the balance of the Final Arbitration Award.
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3. Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Use of Estimates | Use of Estimates. We have made several estimates and assumptions related to the reporting of our consolidated assets and liabilities and to the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with GAAP. We believe our current estimates are reasonable and appropriate, however, actual results could differ from those estimated. |
Cash and Cash Equivalents | Cash and Cash Equivalents. Cash and cash equivalents represent liquid investments with an original maturity of three months or less. Cash balances are maintained in depository and overnight investment accounts with financial institutions that, at times, may exceed insured deposit limits. We monitor the financial condition of the financial institutions and have experienced no losses associated with these accounts. Cash and cash equivalents were $44,931 at September 30, 2017 compared to cash and cash equivalents of $1,152,628 at December 31, 2016. |
Restricted Cash | Restricted Cash. Restricted cash (current portion) primarily represents: (i) amounts held in our disbursement account with Veritex attributable to construction invoices awaiting payment from that account, (ii) a payment reserve account held by Veritex as security for payments under a loan agreement, and (iii) a construction contingency account under which Veritex will fund contingencies. Restricted cash, noncurrent represents funds held in the Veritex disbursement account for payment of future construction related expenses to build new petroleum storage tanks. At September 30, 2017, total restricted cash was $1,650,910, comprised of restricted cash (current portion) totaling $1,500,380 and restricted cash, noncurrent totaling $150,530. At December 31, 2016, total restricted cash was $4,930,140, comprised of restricted cash (current portion) totaling $3,347,835 and restricted cash, noncurrent totaling $1,582,305 (See “Note (10) Long-Term Debt, Net” for additional disclosures related to our loan agreements with Veritex.) |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts. Our accounts receivable consists of customer obligations due in the ordinary course of business. Since we have a small number of customers with individually large amounts due on any given date, we evaluate potential and existing customers’ financial condition, credit worthiness, and payment history to minimize credit risk. Allowance for doubtful accounts is based on a combination of current sales and specific identification methods. If necessary, we establish an allowance for doubtful accounts to estimate the amount of probable credit losses. Allowance for doubtful accounts totaled $0 both at September 30, 2017 and December 31, 2016. |
Inventory | Inventory. Our inventory primarily consists of refined petroleum products, crude oil and condensate, and chemicals. Inventory is valued at lower of cost or net realizable value with cost being determined by the average cost method, and net realizable value being determined based on estimated selling prices less any associated delivery costs. If the net realizable value of our refined petroleum products inventory declines to an amount less than our average cost, we record a write-down of inventory and an associated adjustment to cost of refined products sold. (See “Note (6) Inventory” for additional disclosures related to our inventory.) |
Property and Equipment |
Property and Equipment.
Refinery and Facilities. Management expects to continue making improvements to the Nixon Facility based on operational needs and technological advances. Additions to refinery and facilities assets are capitalized. Expenditures for repairs and maintenance are expensed as incurred and included as operating expenses under the Amended and Restated Operating Agreement.
We record refinery and facilities at cost less any adjustments for depreciation or impairment. Adjustment of the asset and the related accumulated depreciation accounts are made for the refinery and facilities asset’s retirement and disposal, with the resulting gain or loss included in the consolidated statements of operations. For financial reporting purposes, depreciation of refinery and facilities assets is computed using the straight-line method using an estimated useful life of 25 years beginning when the refinery and facilities assets are placed in service. We did not record any impairment of our refinery and facilities assets for any period presented.
Pipelines and Facilities. Our pipelines and facilities are recorded at cost less any adjustments for depreciation or impairment. Depreciation is computed using the straight-line method over estimated useful lives ranging from 10 to 22 years. In accordance with Financial Accounting Standards Board (“FASB”) ASC guidance on accounting for the impairment or disposal of long-lived assets, management performed periodic impairment testing of our pipeline and facilities assets in the fourth quarter of 2016. Upon completion of that testing, our pipeline assets were fully impaired. All pipeline transportation services to third-parties have ceased, existing third-party wells along our pipeline corridor have been permanently abandoned, and no new third-party wells are being drilled near our pipelines. However, management believes our pipeline assets have future value based on large-scale, third-party production facility expansion projects near the pipelines.
Oil and Gas Properties. Our oil and gas properties are accounted for using the full-cost method of accounting, whereby all costs associated with acquisition, exploration and development of oil and gas properties, including directly related internal costs, are capitalized on a cost center basis. Amortization of such costs and estimated future development costs are determined using the unit-of-production method. All leases associated with our oil and gas properties have expired, and our oil and gas properties were fully impaired in 2011.
Construction in Progress. Construction in progress expenditures, which relate to construction and refurbishment activities at the Nixon Facility, are capitalized as incurred. Depreciation begins once the asset is placed in service.
(See “Note (7) Property, Plant and Equipment, Net” for additional disclosures related to our refinery and facilities assets, oil and gas properties, pipelines and facilities assets, and construction in progress.)
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Intangibles - Other | Intangibles – Other. Trade name, an intangible asset, represents the “Blue Dolphin Energy Company” brand name. At September 30, 2017 and December 31, 2016, trade name totaled $303,346. We have determined the trade name to have an indefinite useful life. We account for other intangible assets under FASB ASC guidance related to intangibles, goodwill, and other. Under the guidance, we test intangible assets with indefinite lives annually for impairment. Management performed its regular annual impairment testing of trade name in the fourth quarter of 2016. Upon completion of that testing, we determined that no impairment was necessary at December 31, 2016. |
Debt Issue Costs | Debt Issue Costs. We have debt issue costs related to certain refinery and facilities assets debt. Debt issue costs are capitalized and amortized over the term of the related debt using the straight-line method, which approximates the effective interest method. Debt issue costs are presented net with the related debt liability. (See “Note (10) Long-Term Debt, Net” for additional disclosures related to debt issue costs.) |
Revenue Recognition | Revenue Recognition.
Refined Petroleum Products Revenue. Revenue from the sale of refined petroleum products is recognized when sales prices are fixed or determinable, collectability is reasonably assured, and title passes. Title passage occurs when refined petroleum products are delivered in accordance with the terms of the respective sales agreements, and customers assume the risk of loss when title is transferred. Transportation, shipping, and handling costs incurred are included in cost of refined products sold. Excise and other taxes that are collected from customers and remitted to governmental authorities are not included in revenue.
Tank Rental Revenue. We lease petroleum storage tanks to both related parties and third-parties. Tank rental fees are invoiced monthly in accordance with the terms of the related lease agreement. Tank rental revenue is recognized on a straight-line basis as earned.
Easement Revenue. Revenue from land easement fees was associated with a Master Easement Agreement between BDPL and FLNG Land II, Inc., a Delaware corporation (“FLNG”). Easement revenue was recognized monthly as earned and was included in other income. In February 2017, BDPL sold approximately 15 acres of property located in Brazoria County Texas to FLIQ Common Facilities, LLC, an affiliate of FLNG. In conjunction with the sale of real estate, the Master Easement Agreement was terminated.
Pipeline Transportation Revenue. Revenue from our pipeline operations was derived from fee-based contracts and was typically based on transportation fees per unit of volume transported multiplied by the volume delivered. Revenue was recognized when volumes were physically delivered for the customer through the pipeline. All pipeline transportation services to third-parties have ceased, existing third-party wells along our pipeline corridor have been permanently abandoned, and no new third-party wells are being drilled near our pipelines. (See “Note (4) Business Segment Information” for further discussion related to pipeline transportation revenue.)
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Income Taxes | Income Taxes. We account for income taxes under FASB ASC guidance related to income taxes, which requires recognition of income taxes based on amounts payable with respect to the current reporting period and the effects of deferred taxes for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial accounting and tax basis of assets and liabilities, as well as for operating losses and tax credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse.
As of each reporting date, management considers new evidence, both positive and negative, to determine the realizability of deferred tax assets. Management considers whether it is more likely than not that a portion or all the deferred tax assets will be realized, which is dependent upon the generation of future taxable income prior to the expiration of any net operating loss (“NOL”) carryforwards. When management determines that it is more likely than not that a tax benefit will not be realized, a valuation allowance is recorded to reduce deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2016. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Based on this evaluation, we recorded a full valuation allowance against the deferred tax assets as of December 31, 2016.
FASB ASC guidance related to income taxes also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, as well as guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. (See “Note (15) Income Taxes” for further information related to income taxes.)
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Impairment or Disposal of Long-Lived Assets | Impairment or Disposal of Long-Lived Assets. In accordance with FASB ASC guidance on accounting for the impairment or disposal of long-lived assets, we periodically evaluate our long-lived assets for impairment. Additionally, we evaluate our long-lived assets when events or circumstances indicate that the carrying value of these assets may not be recoverable. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or group of assets. If the carrying value exceeds the sum of the undiscounted cash flows, an impairment loss equal to the amount by which the carrying value exceeds the fair value of the asset or group of assets is recognized. Significant management judgment is required in the forecasting of future operating results that are used in the preparation of projected cash flows and, should different conditions prevail or judgments be made, material impairment charges could be necessary.
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Asset Retirement Obligations | Asset Retirement Obligations. FASB ASC guidance related to asset retirement obligations (“AROs”) requires that a liability for the discounted fair value of an ARO be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted towards its future value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.
Management has concluded that there is no legal or contractual obligation to dismantle or remove the refinery and facilities assets. Further, management believes that these assets have indeterminate lives under FASB ASC guidance for estimating AROs because dates or ranges of dates upon which we would retire these assets cannot reasonably be estimated at this time. When a legal or contractual obligation to dismantle or remove the refinery and facilities assets arises and a date or range of dates can reasonably be estimated for the retirement of these assets, we will estimate the cost of performing the retirement activities and record a liability for the fair value of that cost using present value techniques.
We recorded an ARO liability related to future asset retirement costs associated with dismantling, relocating, or disposing of our offshore platform, pipeline systems, and related onshore facilities, as well as for plugging and abandoning wells and restoring land and sea beds. We developed these cost estimates for each of our assets based upon regulatory requirements, structural makeup, water depth, reservoir characteristics, reservoir depth, equipment demand, current retirement procedures, and construction and engineering consultations. Because these costs typically extend many years into the future, estimating future costs are difficult and require management to make judgments that are subject to future revisions based upon numerous factors, including changing technology, political, and regulatory environments. We review our assumptions and estimates of future abandonment costs on an annual basis. (See “Note (11) Asset Retirement Obligations” for additional information related to our AROs.)
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Computation of Earnings Per Share | Computation of Earnings Per Share. We apply the provisions of FASB ASC guidance for computing earnings per share (“EPS”). The guidance requires the presentation of basic EPS, which excludes dilution and is computed by dividing net income 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 our consolidated statements of operations and requires a reconciliation of the denominator of basic EPS and diluted EPS. Diluted EPS is computed by dividing net income available to common stockholders 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 shares of common stock were converted to common stock that then shared in the earnings of the entity.
The number of shares related to options, warrants, restricted stock, and similar instruments included in diluted EPS is based on the “Treasury Stock Method” prescribed in FASB ASC guidance for computation of EPS. This method assumes theoretical repurchase of shares using proceeds of the respective stock option or warrant exercised, and, for restricted stock, the amount of compensation cost attributed to future services that has not yet been recognized and the amount of any current and deferred tax benefit that would be credited to additional paid-in-capital upon the vesting of the restricted stock, at a price equal to the issuer’s average stock price during the related earnings period. Accordingly, the number of shares includable in the calculation of EPS in respect of the stock options, warrants, restricted stock, and similar instruments is dependent on this average stock price and will increase as the average stock price increases. (See “Note (16) Earnings Per Share” for additional information related to EPS.)
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Treasury Stock | Treasury Stock. We accounted for treasury stock under the cost method. In May 2017, our treasury stock was re-issued. The net change in share price after acquisition of the treasury stock was recognized as a component of additional paid-in-capital in our consolidated balance sheets. (See “Note (12) Treasury Stock” for additional disclosures related to treasury stock.)
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New Pronouncements Adopted | New Pronouncements Adopted. The FASB issues an Accounting Standards Update (“ASU”) to communicate changes to the FASB ASC, including changes to non-authoritative SEC content. Recently adopted ASUs include:
ASU 2016-18, Statement of Cash Flows (Topic 230: Restricted Cash (A Consensus of the FASB Emerging Issues Task Force). In November 2016, FASB issued ASU 2016-18, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. We adopted this accounting pronouncement effective December 31, 2016. Accordingly, our consolidated statement of cash flows for the nine months ended September 30, 2016 was changed to combine restricted cash with cash and cash equivalents.
ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. In July 2015, FASB issued ASU 2015-11, which requires an entity to measure inventory at the lower of cost or net realizable value. We adopted this accounting pronouncement effective January 1, 2017. The adoption of ASU 2015-11 did not have a significant impact on our consolidated financial statements.
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New Pronouncements Issued but Not Yet Effective | New Pronouncements Issued, Not Yet Effective. The following are recently issued, but not yet effective, ASU’s that may influence our consolidated financial position, results of operations, or cash flows:
ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. In January 2017, FASB issued ASU 2017-04. This guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. For public business entities that are SEC filers, the amendments in ASU 2017-04 are effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. ASU 2017-04 should be applied prospectively, and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect adoption of this guidance to have a significant impact on our consolidated balance sheets.
ASU 2016-02,Leases (Topic 842). In February 2016, FASB issued ASU 2016-02. This guidance increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For a public business entity, the amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. We are evaluating the impact that adoption of this guidance will have on our consolidated balance sheets.
ASU 2014-09, Revenue from Contracts with Customers. In May 2014, FASB issued ASU 2014-09 and has since amended the standard with ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date; ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net); ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update); ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. These standards replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers. We are evaluating the impact that adoption of these ASU’s will have on our consolidated financial statements.
Other new pronouncements issued but not yet effective are not expected to have a material impact on our financial position, results of operations, or liquidity.
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Reclassification | Reclassification. Effective January 1, 2017, we reclassified amounts associated with our Pipeline Transportation operations to Corporate and Other. (See “Note (4) Business Segment Information” for disclosures related to Corporate and Other.)
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4. Business Segment Information (Tables) |
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5. Prepaid Expenses and Other Current Assets (Tables) |
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Prepaid balances |
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6. Inventory (Tables) |
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Inventory |
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7. Property, Plant and Equipment, Net (Tables) |
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Property and equipment |
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8. Related Party Transactions (Tables) |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Payable, Related Party |
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Accrued interest Expenses |
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|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Refinery operating expenses |
Interest expense associated with the LEH Loan Agreement and Amended and Restated Guaranty Fee Agreements for the periods indicated was as follows:
|
9. Accrued Expenses and Other Current Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure Text Block Supplement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued expenses and other current liabilities |
|
10. Long-Term Debt, Net (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long Term Debt |
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Schedule of Debt issue costs |
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Accrued interest related to our long-term debt, net |
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Schedule of summary of equipment held under long-term capital leases |
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11. Asset Retirement Obligations (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset Retirement Obligation Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset retirement obligations |
|
13. Concentration of Risk (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risks and Uncertainties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Percentages of all refined petroleum products sales to total sales |
|
15. Income Taxes (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOL carryforwards |
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Deferred tax assets and deferred tax liabilities |
|
16. Earnings Per Share (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per share |
|
17. Inventory Risk Management (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Effect of derivative instruments |
|
1. Organization (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||
Net income (loss) | $ 3,945,519 | $ (1,938,551) | $ (23,297,713) | $ (7,250,371) | |
Net Loss per common share | $ 0.36 | $ (0.19) | $ (2.19) | $ (0.69) | |
Improvement in net loss | $ .55 | $ (1.50) | |||
Working capital deficit current portion | $ 67,084,694 | $ 67,084,694 | $ 37,812,263 | ||
Working capital deficit payment of Operations | $ 27,328,649 | $ 27,328,649 | $ 5,599,927 |
3. Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Accounting Policies [Abstract] | |||||
Cash and cash equivalents | $ 44,931 | $ 44,931 | $ 1,152,628 | ||
Restricted cash | 1,650,910 | 1,650,910 | 4,930,140 | ||
Restricted cash (current portion) | 1,500,380 | 1,500,380 | 3,347,835 | ||
Restricted cash, noncurrent | 150,530 | 150,530 | 1,582,305 | ||
Allowance for doubtful accounts | 0 | 0 | 0 | ||
Trade name | 303,346 | 303,346 | $ 303,346 | ||
Gain on the disposal of property | $ 0 | $ 0 | $ 1,834,500 | $ 0 |
4. Business Segment Information (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
||||||||||
Revenue from operations | $ 66,899,092 | $ 54,688,306 | $ 176,841,172 | $ 128,243,042 | |||||||||
Depletion, depreciation and amortization | (32,121) | (32,121) | (96,363) | (96,364) | |||||||||
Income tax benefit | 0 | (1,034,798) | 0 | (3,735,040) | |||||||||
Net income (loss) | 3,945,519 | (1,938,551) | (23,297,713) | (7,250,371) | |||||||||
Refinery Operations [Member] | |||||||||||||
Revenue from operations | 66,899,092 | 54,668,780 | 176,841,172 | 128,171,177 | |||||||||
Less: cost of operations (1) | [1] | (61,456,546) | (55,495,575) | (197,706,434) | (135,452,537) | ||||||||
Other non-interest income (2) | [2] | 0 | 0 | 0 | (392,062) | ||||||||
Less: JMA Profit Share (3) | [3] | 0 | (965,627) | 0 | 0 | ||||||||
EBITDA (4) | [4] | 5,442,546 | (1,792,422) | (20,865,262) | (7,673,422) | ||||||||
Capital expenditures | 538,801 | 4,191,077 | 3,428,129 | 13,857,434 | |||||||||
Identifiable assets | 70,791,236 | 85,585,499 | 70,791,236 | 85,585,499 | |||||||||
Corporate and Other [Member] | |||||||||||||
Revenue from operations | 0 | 19,526 | 0 | 71,865 | |||||||||
Less: cost of operations (1) | [1] | (466,912) | (367,915) | (1,293,162) | (1,078,910) | ||||||||
Other non-interest income (2) | [2] | 0 | 156,396 | 0 | 0 | ||||||||
Less: JMA Profit Share (3) | [3] | 0 | 0 | 2,216,251 | 412,061 | ||||||||
EBITDA (4) | [4] | (466,912) | (191,993) | 923,089 | (594,984) | ||||||||
Capital expenditures | 0 | 0 | 0 | 0 | |||||||||
Identifiable assets | 2,068,269 | 10,816,664 | 2,068,269 | 10,816,664 | |||||||||
Total | |||||||||||||
Revenue from operations | 66,899,092 | 54,688,306 | 176,841,172 | 128,243,042 | |||||||||
Less: cost of operations (1) | [1] | (61,923,458) | (55,863,490) | (198,999,596) | (136,531,447) | ||||||||
Other non-interest income (2) | [2] | 0 | 156,396 | 0 | (392,062) | ||||||||
Less: JMA Profit Share (3) | [3] | 0 | (965,627) | 2,216,251 | 412,061 | ||||||||
Depletion, depreciation and amortization | (455,437) | (504,719) | (1,355,780) | (1,415,519) | |||||||||
Interest expense, net | (574,678) | (484,215) | (1,999,760) | (1,301,486) | |||||||||
Income (loss) before income taxes | 3,945,519 | (2,973,349) | (23,297,713) | (10,985,411) | |||||||||
Income tax benefit | 0 | 1,034,798 | 0 | 3,735,040 | |||||||||
Net income (loss) | 3,945,519 | (1,938,551) | (23,297,713) | (7,250,371) | |||||||||
Capital expenditures | 538,801 | 4,191,077 | 3,428,129 | 13,857,434 | |||||||||
Identifiable assets | $ 72,859,505 | $ 96,402,163 | $ 72,859,505 | $ 96,402,163 | |||||||||
|
5. Prepaid Expenses and Other Current Assets (Details) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
Prepaid crude oil and condensate | $ 1,332,439 | $ 0 |
Prepaid insurance | 298,913 | 248,853 |
Short-term tax bond | 0 | 505,000 |
Prepaid exise taxes | 0 | 292,338 |
Prepaid expenses, net | $ 1,631,352 | $ 1,046,191 |
6. Inventory (Details) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Crude oil and condensate | $ 1,207,865 | $ 26,123 |
AGO | 910,189 | 143,362 |
HOBM | 341,660 | 212,987 |
Chemicals | 156,535 | 182,751 |
Naphtha | 135,554 | 533,580 |
Propane | 18,377 | 11,318 |
LPG mix | 5,260 | 1,293 |
Jet fuel | 0 | 964,124 |
Inventories, net | $ 2,775,440 | $ 2,075,538 |
7. Property, Plant and Equipment, Net (Details) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Property, Plant and Equipment [Abstract] | ||
Refinery and facilities | $ 51,432,434 | $ 50,814,309 |
Land | 566,159 | 602,938 |
Other property and equipment | 652,795 | 652,795 |
Property, Plant and Equipment, Gross | 52,651,388 | 52,070,042 |
Less: Accumulated depletion, depreciation and amortization | (8,041,024) | (6,685,244) |
Property, plant and equipment, gross | 44,610,364 | 45,384,798 |
Construction in progress | 19,786,447 | 16,939,665 |
Property, plant and equipment, net | $ 64,396,811 | $ 62,324,463 |
8. Property, Plant and Equipment, Net (Details Narrative) - USD ($) |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
|
Property, Plant and Equipment [Abstract] | ||
Interest cost capitalized | $ 3,413,428 | $ 2,108,298 |
8. Related Party Transactions (Details) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
Dec. 30, 2016 |
Jun. 30, 2016 |
---|---|---|---|---|
Prepaid operating expenses, related party | $ 5,451,655 | $ 5,314,690 | ||
Less: Long-term debt - current portion, related party | (4,000,000) | (500,000) | ||
Long-term debt - net of current portion, related party | 1,451,655 | 4,814,690 | ||
LEH [Member] | ||||
Prepaid operating expenses, related party | 4,000,000 | $ 4,000,000 | ||
Ingleside [Member] | ||||
Prepaid operating expenses, related party | 1,168,748 | $ 722,278 | ||
Jonathan Carroll [Member] | ||||
Prepaid operating expenses, related party | $ 282,907 | $ 592,412 |
8. Related Party Transactions (Details 1) - LEH [Member] - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Jet fuel sales | $ 20,802,789 | $ 14,536,997 | $ 56,360,756 | $ 23,449,071 |
Jet fuel storag fees | 56,386 | 426,000 | 675,000 | 750,000 |
HOBM sales | 0 | 0 | 3,425,455 | 0 |
Total | $ 20,859,175 | $ 14,962,997 | $ 60,461,211 | $ 24,199,071 |
8. Related Party Transactions (Details 2) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017
USD ($)
$ / bbl
|
Sep. 30, 2016
USD ($)
$ / bbl
|
Sep. 30, 2017
USD ($)
$ / bbl
|
Sep. 30, 2016
USD ($)
$ / bbl
|
|
Refinery operating expenses, Amount | $ | $ 1,758,005 | $ 3,153,646 | $ 6,222,771 | $ 9,468,409 |
Refinery operating expenses, Per bbl | $ / bbl | 1.53 | 2.77 | 1.93 | 3.12 |
LEH [Member] | ||||
Refinery operating expenses, Amount | $ | $ 1,758,005 | $ 3,028,646 | $ 6,222,771 | $ 8,618,409 |
Refinery operating expenses, Per bbl | $ / bbl | 1.53 | 2.66 | 1.93 | 2.84 |
Ingleside [Member] | ||||
Refinery operating expenses, Amount | $ | $ 0 | $ 125,000 | $ 0 | $ 850,000 |
Refinery operating expenses, Per bbl | $ / bbl | 0.00 | .11 | 0.00 | .28 |
8. Related Party Transactions (Details 3) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Interest expenses under loan and guarantee, related party | $ 366,450 | $ 252,300 | $ 1,142,230 | $ 602,931 |
LEH [Member] | ||||
Interest expenses under loan and guarantee, related party | 201,361 | 80,000 | 643,046 | 80,000 |
Jonathan Carroll [Member] | ||||
Interest expenses under loan and guarantee, related party | $ 165,089 | $ 172,300 | $ 499,184 | $ 522,931 |
8. Related Party Transactions (Details Narrative) - USD ($) |
9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
Dec. 30, 2016 |
Jun. 30, 2016 |
|
Prepaid related party operating expenses | $ 5,451,655 | $ 5,314,690 | ||
Outstanding principal and interest | 282,904 | 592,412 | ||
Accounts payable, related party | 823,200 | 369,600 | ||
Sales to LMT totaled | 151,200 | |||
Accrued interest | 728,889 | 243,556 | ||
Jonathan Carroll [Member] | ||||
Prepaid related party operating expenses | 282,907 | 592,412 | ||
Outstanding principal and interest | 592,412 | 592,412 | ||
Ingleside [Member] | ||||
Prepaid related party operating expenses | 1,168,748 | $ 722,278 | ||
Outstanding principal and interest | 722,278 | 722,278 | ||
LEH [Member] | ||||
Prepaid related party operating expenses | 4,000,000 | $ 4,000,000 | ||
LEH Note [Member] | ||||
Outstanding principal and interest | $ 2,043,482 | $ 0 |
9. Accrued Expenses and Other Current Liabilities (Details) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Disclosure Text Block Supplement [Abstract] | ||
Unearned revenue | $ 708,567 | $ 408,770 |
Board of director fees payable | 203,929 | 136,429 |
Customer deposits | 109,029 | 450,000 |
Property taxes | 99,236 | 4,694 |
Excise and income taxes payable | 60,692 | 24,187 |
Other payable | 38,621 | 189,719 |
Insurance | 0 | 67,783 |
Accrued Expenses and Other Current Liabilities, Net | $ 1,220,074 | $ 1,281,582 |
10. Long-Term Debt, Net (Details) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Principal balance outstanding | $ 37,922,678 | $ 35,275,333 |
Less: Current portion of long-term debt, net | (35,756,045) | 35,275,333 |
Less: Unamortized debt issue costs | (216,633) | (2,262,997) |
Long term debt | 0 | 1,300,000 |
First Term Loan Due 2034 [Member] | ||
Principal balance outstanding | 23,382,570 | 23,924,607 |
Second Term Loan Due 2034 [Member] | ||
Principal balance outstanding | 9,553,728 | 9,729,853 |
Notre Dame Debt [Member] | ||
Principal balance outstanding | 4,977,953 | 1,300,000 |
Term Loan Due 2017 [Member] | ||
Principal balance outstanding | 0 | 184,994 |
Capital Leases [Member] | ||
Principal balance outstanding | $ 8,427 | $ 135,879 |
10. Long-Term Debt, Net (Details 1) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Debt Disclosure [Abstract] | ||
First Term Loan Due 2034 | $ 1,673,545 | $ 33,866 |
Second Term Loan Due 2034 | 767,673 | 767,673 |
Less: Accumulated amortization | (274,585) | (178,221) |
Long term debt | $ 2,166,633 | $ 2,262,997 |
10 Long-Term Debt, Net (Details 2) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Long-term Debt Net Details 2 | ||
Notre Dame Debt | $ 1,846,964 | $ 1,691,383 |
LEH Loan Agreement (related party) | 728,889 | 243,556 |
Second Term Loan Due 2034 | 47,635 | 44,984 |
First Term Loan Due 2034 | 35,875 | 33,866 |
Capital leases | 423 | 1,165 |
Term Loan Due 2017 | 0 | 185 |
Total | 2,659,786 | 2,015,139 |
Less: Interest payable, current portion | (2,659,786) | (323,756) |
Long term debt | $ 0 | $ 1,691,383 |
10. Long-Term Debt, Net (Details 3) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Debt Disclosure [Abstract] | ||
Boiler equipment | $ 538,598 | $ 538,598 |
Less: accumulated depreciation | 0 | 0 |
Capital lease obligation | $ 538,598 | $ 538,598 |
10.Long-Term Debt, Net (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Amortization expense | $ 32,121 | $ 32,121 | $ 96,363 | $ 96,364 |
First Term Loan Due 2034 | ||||
Guaranty fees | 117,214 | 121,048 | 354,286 | 365,420 |
Second Term Loan Due 2034 | ||||
Guaranty fees | 47,874 | 49,094 | 144,487 | 148,261 |
Term Loan Due 2017 [Member] | ||||
Guaranty fees | $ 0 | $ 2,158 | $ 411 | $ 9,250 |
11. Asset Retirement Obligations (Details) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Asset Retirement Obligation Disclosure [Abstract] | |||||
Asset retirement obligations, at the beginning of the period | $ 2,027,639 | $ 1,985,864 | $ 1,985,864 | ||
Liabilities settled | (445) | (70,969) | |||
Accretion expense | $ 71,844 | $ 28,186 | 215,532 | $ 84,558 | 112,744 |
Asset retirement obligations | 2,242,726 | 2,242,726 | 2,027,639 | ||
Less: asset retirement obligations, current portion | (17,065) | (17,065) | (17,510) | ||
Long-term asset retirement obligations, at the end of the period | $ 2,225,661 | $ 2,225,661 | $ 2,010,129 |
11. Asset Retirement Obligations (Details Narrative) - USD ($) |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
|
Asset Retirement Obligation Disclosure [Abstract] | ||
Liabilities settled recognized | $ 445 | $ 70,969 |
12. Treasury Stock (Details Narrative) - shares |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Equity [Abstract] | ||
Treasury stock | 0 | 150,000 |
13. Concentration of Risk (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Total refined petroleum product sales | $ 66,132,959 | $ 53,951,293 | $ 174,667,617 | $ 126,546,716 |
Concentration Risk | 100.00% | 100.00% | 100.00% | 100.00% |
LPG mix | ||||
Total refined petroleum product sales | $ 0 | $ 237,009 | $ 120,542 | $ 621,313 |
Concentration Risk | 0.00% | 0.40% | 0.10% | 0.50% |
Naphtha | ||||
Total refined petroleum product sales | $ 14,266,056 | $ 11,870,484 | $ 41,282,969 | $ 28,183,809 |
Concentration Risk | 21.60% | 22.00% | 24.90% | 22.30% |
Jet Fuel | ||||
Total refined petroleum product sales | $ 20,802,789 | $ 15,104,900 | $ 56,360,757 | $ 41,150,686 |
Concentration Risk | 31.50% | 28.00% | 32.80% | 32.50% |
HOBM | ||||
Total refined petroleum product sales | $ 17,011,443 | $ 14,206,759 | $ 38,580,236 | $ 25,259,753 |
Concentration Risk | 25.70% | 26.40% | 19.90% | 20.00% |
Reduced crude | ||||
Total refined petroleum product sales | $ 0 | $ 0 | $ 0 | $ 3,791,919 |
Concentration Risk | 0.00% | 0.00% | 0.00% | 3.00% |
AGO | ||||
Total refined petroleum product sales | $ 14,052,671 | $ 12,532,141 | $ 38,323,113 | $ 27,539,236 |
Concentration Risk | 21.20% | 23.20% | 22.30% | 21.70% |
13. Concentration of Risk (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Concentration Risk | 100.00% | 100.00% | 100.00% | 100.00% | |
FDIC insurance limit | $ 1,183,652 | $ 1,183,652 | $ 5,372,689 | ||
LEH [Member] | |||||
Concentration Risk | 32.00% | 27.00% | 34.00% | 19.00% | |
Concentration risk accounts receivable | $ 1,100,000 | $ 2,900,000 | $ 1,100,000 | $ 2,900,000 |
14. Leases (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Leases, Operating [Abstract] | ||||
Rent expense | $ 31,681 | $ 33,251 | $ 107,853 | $ 92,966 |
15. Income Taxes (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
|
Balance | $ 33,176,518 | $ 19,231,390 |
Net operating losses | 6,469,611 | 13,945,128 |
Balance at December 31 | 39,646,129 | 33,176,518 |
Pre-Ownership Change [Member] | ||
Balance | 9,614,449 | 9,614,449 |
Net operating losses | 0 | 0 |
Balance at December 31 | 9,614,449 | 9,614,449 |
Post-Ownership Change [Member] | ||
Balance | 23,562,069 | 9,616,941 |
Net operating losses | 6,469,611 | 13,945,128 |
Balance at December 31 | $ 30,031,680 | $ 23,562,069 |
15. Income Taxes (Details 1) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Deferred tax assets: | ||
Net operating loss and capital loss carryforwards | $ 15,750,006 | $ 13,550,338 |
Accrued arbitration award payable | 6,674,017 | 0 |
Start-up costs (Nixon Facility) | 1,270,361 | 1,373,363 |
Asset retirement obligations liability/deferred revenue | 780,249 | 717,751 |
AMT credit and other | 224,647 | 266,522 |
Total deferred tax assets | 24,699,280 | 15,907,974 |
Deferred tax liabilities: | ||
Basis differences in property and equipment | (6,762,850) | (5,895,943) |
Total deferred tax liabilities | (6,762,850) | (5,895,943) |
Deferred tax assets, net | 17,936,430 | 10,012,031 |
Valuation allowance | (17,936,430) | (10,012,031) |
Deferred tax assets, net | $ 0 | $ 0 |
15. Income Taxes (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Income Tax Disclosure [Abstract] | ||||
Income Tax Benefit | $ 0 | $ 1,034,798 | $ 0 | $ 3,735,040 |
16. Earnings per share (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Earnings Per Share [Abstract] | ||||
Net income (loss) | $ 3,945,519 | $ (1,938,551) | $ (23,297,713) | $ (7,250,371) |
Basic and diluted income per share | $ .36 | $ (.19) | $ (2.19) | $ (.69) |
Basic and diluted | ||||
Weighted average number of shares of common stock outstanding and potential dilutive shares of common stock | 10,818,371 | 10,464,715 | 10,644,654 | 10,460,849 |
17. Inventory Risk Management (Details 1) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Commodity Contracts [Member] | ||||
Cost of refined products sold | $ 0 | $ 770,838 | $ 0 | $ (2,588,734) |
18. Commitments and Contingencies (Details Narrative) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Commitments and Contingencies Disclosure [Abstract] | ||
Credit and cash backed rights of way bonds issued to the BOEM | $ 900,000 | $ 900,000 |
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