UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: September 30, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ..................to ...................
Commission File Number: 0-15905
BLUE DOLPHIN ENERGY COMPANY
(Exact name of small business issuer as specified in its charter)
Delaware 73-1268729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 Travis, Suite 2100, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 227-7660
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
6,389,988 shares of the registrants' common stock, par value $.01 per
share, were outstanding at November 5, 2002.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of Blue Dolphin Energy Company
and subsidiaries (the "Company" or "Blue Dolphin") included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and, in the opinion of
management, reflect all adjustments necessary to present a fair statement of
operations, financial position and cash flows. The Company follows the full-cost
method of accounting for oil and gas properties, wherein costs incurred in the
acquisition, exploration and development of oil and gas reserves are
capitalized. The Company believes that the disclosures are adequate and the
information presented is not misleading, although certain information and
footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
The accompanying condensed consolidated financial statements of the Company
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2001.
2
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET -UNAUDITED
September 30, 2002
ASSETS
Current assets:
Cash and cash equivalents $ 2,325,601
Accounts receivable, net of allowance of $197,500 821,053
Prepaid expenses and other assets 372,300
------------
TOTAL CURRENT ASSETS 3,518,954
Property and Equipment at cost:
Oil and Gas properties, including $150,344
of unproved leasehold cost (full-cost method) 25,928,409
Pipelines 3,688,990
Onshore separation and handling facilities 1,664,128
Land 860,275
Other property and equipment 272,508
------------
32,414,310
Accumulated depletion, depreciation and amortization (26,737,608)
------------
5,676,702
Deferred federal income tax 244,444
Other assets 583,021
------------
TOTAL ASSETS $ 10,023,121
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 593,897
Accrued expenses and other liabilities 3,421,515
------------
TOTAL CURRENT LIABILITIES 4,015,412
Note payable 750,000
Contingencies --
Common Stock, ($.01 par value, 10,000,000 shares authorized,
6,389,988 shares issued and outstanding) 63,900
Additional Paid-in Capital 26,103,708
Accumulated Deficit (20,909,899)
------------
5,257,709
TOTAL LIABILITES AND
STOCKHOLDERS' EQUITY $ 10,023,121
============
See accompanying notes to the condensed consolidated financial statements.
3
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months
Ended September 30,
2002 2001
----------- -----------
Revenue from operations:
Oil and gas sales $ 481,128 $ 846,739
Pipeline operations 273,373 229,927
----------- -----------
754,501 1,076,666
----------- -----------
Cost of operations:
Lease operating expenses 206,389 261,413
Pipeline operating expenses 210,935 156,904
Depletion, depreciation, amortization and abandonment 185,255 376,594
General and administrative 415,582 708,965
----------- -----------
1,018,161 1,503,876
----------- -----------
LOSS FROM OPERATIONS (263,660) (427,210)
Other income (expense):
Interest and other expense (5,041) (27,225)
Interest and other income 181,516 27,540
Gain on sale of assets 1,438,518 --
----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST
AND INCOME TAXES 1,351,333 (426,895)
Minority interest -- 7,595
Income taxes -- --
----------- -----------
Net income (loss) $ 1,351,333 $ (419,300)
=========== ===========
Earnings (loss) per common share-basic $ 0.21 $ (0.07)
=========== ===========
Earnings (loss) per common share-diluted $ 0.21 $ (0.07)
=========== ===========
Weighted average number of common shares outstanding:
Basic 6,381,285 6,021,463
=========== ===========
Diluted 6,381,285 6,021,463
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
4
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Nine months
Ended September 30,
2002 2001
----------- -----------
Revenue from operations:
Oil and gas sales $ 1,748,880 $ 4,099,606
Pipeline operations 960,126 784,003
----------- -----------
2,709,006 4,883,609
----------- -----------
Cost of operations:
Lease operating expenses 599,249 888,805
Pipeline operating expenses 498,370 425,852
Depletion, depreciation, amortization and abandonment 738,012 2,379,402
Impairment of assets 339,984 --
General and administrative 1,791,737 2,138,475
----------- -----------
3,967,352 5,832,534
----------- -----------
LOSS FROM OPERATIONS (1,258,346) (948,925)
Other income (expense):
Interest and other expense (50,607) (356,868)
Interest and other income 235,641 125,013
Bad debt expense (197,500) --
Gain on sale of assets 1,438,518 1,417,626
----------- -----------
INCOME BEFORE MINORITY INTEREST
AND INCOME TAXES 167,706 236,846
Minority interest (55,746) (172,641)
Income taxes -- --
----------- -----------
Net income $ 111,960 $ 64,205
=========== ===========
Earnings per common share-basic $ 0.02 $ 0.01
=========== ===========
Earnings per common share-diluted $ 0.02 $ 0.01
=========== ===========
Weighted average number of common shares outstanding:
Basic 6,322,646 6,019,463
=========== ===========
Diluted 6,322,646 6,035,216
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
5
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Nine Months
Ended September 30,
2002 2001
----------- -----------
OPERATING ACTIVITIES
Net income $ 111,960 $ 64,205
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation, amortization, abandonment 738,012 2,379,402
Minority interest 55,746 172,641
Gain on sale of assets (1,438,518) (1,417,626)
Impairment of assets 339,984 --
Increase in equity of affiliate (61,886) --
Bad debt expense 197,500 --
Common stock issued for services 21,002 --
Other (111,492) --
Changes in operating assets and liabilities:
Accounts receivable 239,686 1,107,090
Prepaid expenses and other assets (208,475) (134,053)
Abandonment costs incurred -- (2,061,525)
Trade accounts payable, accrued expenses, and other
liabilities (1,947,493) 183,876
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (2,063,974) 294,010
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (142,641) (1,737,331)
Exploration and development costs (693,268) (503,459)
Net proceeds from sale of assets 2,300,000 4,625,000
Purchase of minority interest from subsidiary (355,828) --
Funds escrowed for abandonment costs -- (31,358)
Release of escrowed funds for abandonment -- 1,447,482
Development costs - Petroport -- (53,688)
Development costs - New Avoca (62,248) (119,414)
Acquisition of additional interest in Drillmar, net of cash acquired -- (373,885)
Other assets -- (2,500)
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,046,015 3,250,847
----------- -----------
FINANCING ACTIVITIES
Net proceeds from the sale of stock -- (25,806)
Payments on borrowings -- (2,218,412)
Dividends paid by subsidiary -- (235,486)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES -- (2,479,704)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,017,959) 1,065,153
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,343,560 2,071,682
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,325,601 $ 3,136,835
=========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ -- $ 98,500
=========== ===========
Taxes paid $ -- $ 6,530
=========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES:
Purchases of property and equipment financed with debt $ 750,000 $ --
=========== ===========
See accompanying notes to the condensed consolidated financial statements.
6
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. Related Party Transactions
In May 2002, the Company terminated its agreement with Drillmar Inc.
("Drillmar"), effective as of May 1, 2002, whereby it provided office space and
certain management and administrative services to Drillmar for approximately
$40,000 per month. Ivar Siem, Chairman of the Company, and Harris A. Kaffie, a
Director of the Company, are owners of 30.3% and 30.6%, respectively, of
Drillmar's common stock.
Also in May 2002, the Company and Drillmar entered into a new agreement
effective as of May 1, 2002, whereby the Company will provide office space and
minimal accounting and administrative services to Drillmar for $2,000 per month.
If Drillmar is able to secure financing to implement its business plan, the fee
will increase to $20,000 per month retroactive to May 1, 2002. The agreement can
be terminated upon 30 days notice or by the mutual agreement of the parties.
Due to Drillmar's working capital deficiency and delays in securing capital
funding, at March 31, 2002 the Company elected to record a full impairment of
its investment in Drillmar of approximately $340,000 and a full reserve for the
accounts receivable amount owed from Drillmar of $197,500.
2. Contingencies
As a result of the decision to cease operating activities in the Buccaneer
Field, the Company's leases comprising the Buccaneer Field terminated in January
2001. The Company must plug and abandon all remaining wells and remove platform
facilities within one year from the termination of the leases. In 2001, the
Company plugged its remaining wells at a cost of approximately $1.4 million.
During 2001 the Company also commenced operations to remove the Buccaneer Field
platform complexes at a cost of approximately $0.4 million. After the Company
commenced removal operations, discussions were initiated with the Texas Parks
and Wildlife Department ("TP&W") in an effort to leave certain of the underwater
portions of the platform complexes in place as artificial reefs. In December
2001, operations to remove the platform complexes were suspended while the
Company continues its discussions with and awaits a decision from the TP&W.
The Company currently expects that the TP&W will make a decision whether the
Company can leave portions of the Buccaneer Field platform complexes in place as
artificial reefs in the fourth quarter of 2002. If one or both of the platform
complexes are left in place as an artificial reef, certain site clearance costs
would be eliminated. The Company requested and has received an extension from
the MMS until April 1, 2003 to complete the removal and site clearance of the
platform complexes. The Company still believes that its provision for
abandonment costs of $4.6 million is adequate.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the Company's
financial position, results of operations or cash flows.
On May 8, 2000, American Resources Offshore, Inc., a subsidiary of the Company
("American Resources"), and its former chief financial officer, were named in a
lawsuit in the United States District Court for the Southern District of Texas,
Houston Division, styled H&N Gas, Limited Partnership, et al. v. Richard Hale,
et al. (Case No. H-00-1371).
7
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - CONTINUED
In May 2002, the Company, American Resources and members of prior management of
American Resources, including its former chief financial officer, entered into a
settlement agreement with H&N Gas. American Resources paid approximately $0.3
million in settlement of this litigation and additionally released funds of
approximately $0.7 million it was holding that were due to H&N. The settlement
agreement and the payments made thereunder were made in compromise of disputed
claims and are not an admission of wrongdoing or of liability of any kind.
3. Acquisition and Disposition of Assets
In February 2002, the Company acquired a 1/3 interest in the Blue Dolphin
Pipeline System and the inactive Omega Pipeline from MCNIC Pipeline and
Processing Company ("MCNIC"). Pursuant to the terms of the purchase and sale
agreement, Blue Dolphin issued MCNIC a $750,000 promissory note due December 31,
2006, with required monthly payments to be made out of 90% of the net revenues
of the interest acquired. The note bears interest at the rate of 6% per annum
and is secured by the interest acquired. As of September 30, 2002, net revenues
were insufficient to provide any principal payments, however the note continues
to accrue interest a 6% per annum. Additionally, an aggregate contingent payment
of up to $750,000 will be made, if the promissory note is retired before its
maturity date. The contingent payments will be payable annually after the
promissory note is retired until December 31, 2006 out of 50% of the net
revenues from the interest acquired. The termination date, December 31, 2006,
will be extended by one additional year, up to a maximum of two years, for years
in which non-recurring, extraordinary expenditures attributable to the interest
acquired exceeds $200,000, in the aggregate, during any year.
On December 2, 1999, the Company, through Blue Dolphin Exploration, acquired a
75% ownership interest in American Resources by purchasing approximately 39.5
million shares of American Resources common stock. On February 19, 2002, the
Company completed its acquisition of American Resources, pursuant to the Amended
and Restated Agreement and Plan of Merger dated as of December 19, 2001 (the
"Merger Agreement"). Pursuant to the Merger Agreement, American Resources became
a wholly owned subsidiary of the Company and each outstanding share of (i)
American Resources common stock, par value $.00001 per share, was converted into
the right to receive, at the option of the holder, either $.06 per share in cash
or .0362 of a share of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), and (ii) American Resources Series 1993 Preferred Stock, par
value $12.00 per share, was converted into the right to receive, at the option
of the holder, either $.07 in cash or .0301 of a share of Common Stock.
As a result of elections made by American Resources' stockholders, the Company
issued 273,336 shares of Common Stock and paid approximately $255,000 in cash.
In July 2002, American Resources sold its working interest in the South
Timbalier Block 148 property for $2.3 million. As of December 31, 2001, the
Company reported 1,354 Mmcfe of proved reserves attributable to the South
Timbalier Block 148 property accounting for approximately 36% of the Company's
total net proved reserves on an Mmcfe basis and 37% of the discounted present
value of estimated future net revenues from proved reserves. Production from
this field accounted for 14% and 19% of the Company's oil and gas sales revenues
for the nine months ended September 30, 2002 and 2001, respectively, and 9% and
16% of the Company's total revenues for these periods.
8
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - CONTINUED
4. Earnings Per Share
The Company applies the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share". SFAS 128 requires the
presentation of basic earnings per share ("EPS") which excludes dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted-average number of shares of common stock outstanding for the period.
SFAS 128 requires dual presentation of basic EPS and diluted EPS on the face of
the income statement and requires a reconciliation of the numerators and
denominators of basic EPS and diluted EPS.
The following table provides a reconciliation between basic and diluted earnings
per share:
Weighted-
Average Number
of Common Shares
Outstanding
and Potential Per
Net Income Dilutive Share
(Loss) Common Shares Amount
------------- ------------- -------------
Nine Months ended September 30, 2002
Basic and diluted earnings per share $ 111,960 6,322,646 $ 0.02
============= ============= =============
Nine Months ended September 30, 2001
Basic earnings per share $ 64,205 6,019,463 $ 0.01
Effect of dilutive stock options 15,753
------------- ------------- -------------
Diluted earnings per share $ 64,205 6,035,216 $ 0.01
============= ============= =============
Quarter ended September 30, 2002
Basic and diluted earnings per share $ 1,351,333 6,381,285 $ 0.21
============= ============= =============
Quarter ended September 30, 2001
Basic and diluted loss per share $ (419,300) 6,021,463 $ (0.07)
============= ============= =============
5. Business Segment Information
The Company's income producing operations are conducted in two principal
business segments: oil and gas exploration and production; and pipeline
operations. There were no intersegment revenues during the periods presented.
Information concerning these segments for the nine months and quarters ended
September 30, 2002 and 2001, and at September 30, 2002 are as follows:
9
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - CONTINUED
Depletion,
Depreciation,
Operating Amortization,
Income Abandonment, and
Revenues (3) (Loss)(1) (3) Impairment (2)
-------------- -------------- --------------
Nine months ended September 30, 2002:
Oil and gas exploration and production $ 1,748,880 (451,676) 594,974
Pipeline operations 960,126 (31,122) 127,055
Other -- (775,548) 355,967
-------------- -------------- --------------
Consolidated 2,709,006 (1,258,346) 1,077,996
-------------- --------------
Other income, net 1,426,052
--------------
Income before minority interest and income taxes 167,706
Nine months ended September 30, 2001:
Oil and gas exploration and production $ 4,099,606 257,813 2,231,354
Pipeline operations 784,003 92,971 127,175
Other -- (1,299,709) 20,873
-------------- -------------- --------------
Consolidated 4,883,609 (948,925) 2,379,402
-------------- --------------
Other income, net 1,185,771
--------------
Income before minority interest and income taxes 236,846
Quarter ended September 30, 2002:
Oil and gas exploration and production $ 481,128 (47,189) 137,439
Pipeline operations 273,373 (84,933) 42,544
Other -- (131,538) 5,272
-------------- -------------- --------------
Consolidated 754,501 (263,660) 185,255
-------------- --------------
Other income, net 1,614,993
--------------
Income before minority interest and income taxes 1,351,333
Quarter ended September 30, 2001:
Oil and gas exploration and production $ 846,739 163,887 334,359
Pipeline operations 229,927 12,693 36,684
Other -- (603,790) 5,551
-------------- -------------- --------------
Consolidated 1,076,666 (427,210) 376,594
-------------- --------------
Other income, net 315
--------------
Loss before minority interest and income taxes (426,895)
September 30,
-------------
2002
-------------
Identifiable assets:
Oil and Gas exploration and
production $ 2,526,206
Pipeline operations 6,511,135
Other 985,780
-------------
Consolidated $ 10,023,121
=============
10
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - CONTINUED
1. Consolidated income (loss) from operations includes $759,566
and $1,050,752 in unallocated general and administrative
expenses, and unallocated depletion, depreciation and
amortization of $355,967 and $20,873 for the nine months ended
September 30, 2002 and 2001, respectively.
Consolidated income (loss) from operations includes $126,266
and $169,021 in unallocated general and administrative
expenses, and unallocated depletion, depreciation and
amortization of $5,272 and $5,551 for the quarters ended
September 30, 2002 and 2001, respectively.
2. Pipeline depreciation and amortization includes a provision
for pipeline abandonment of $14,805 and $14,805 for the nine
months ended September 30, 2002 and 2001, respectively. In
addition, the Company recorded an impairment expense of
$339,984 for the nine months ended September 30, 2002, of its
investment in Drillmar, and an expense of approximately $1.1
million for the nine months ended September 30, 2001, as a
result of a change in the estimated abandonment costs
associated with the Buccaneer Field.
Pipeline depreciation and amortization includes a provision
for pipeline abandonment of $4,935 and $4,935 for the quarters
ended September 30, 2002 and 2001, respectively.
3. Pipeline revenues include $49,640 for the nine months ended
September 30, 2001 from the Black Marlin Pipeline System.
Pipeline operations include $50,107 of operating expenses and
depreciation for the nine months ended September 30, 2001 from
the Black Marlin Pipeline System.
6. Recently Issued Accounting Pronouncements
In August 2001, the FASB issued Statement No. 143 ("SFAS 143"), "Accounting for
Asset Retirement Obligations," which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The standard applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or normal use of the asset.
SFAS 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The fair value of the liability is added to
the carrying amount of the associated asset and this additional carrying amount
is depreciated over the life of the asset. If the obligation is settled for
other than the carrying amount of the liability, the Company will recognize a
gain or loss on settlement.
The Company is required and plans to adopt the provisions of SFAS 143 for the
quarter ending March 31, 2003. To accomplish this, the Company must identify all
legal obligations for asset retirement obligations and determine the fair value
of these obligations on the date of adoption. The determination of fair value is
11
complex and will require the Company to gather market information and develop
cash flow models. Additionally, the Company will be required to develop
processes to track and monitor these obligations. Because of the effort
necessary to comply with the adoption of SFAS 143, it is not practicable for
management to estimate the impact of adopting SFAS 143 at the date of this
report.
In May 2002, the FASB issued Statement of Financial Accounting Standards No. 145
("SFAS 145"), "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". This Statement rescinds FASB
Statements No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an
amendment of Statement No. 4 and FASB Statement No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB
Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS 145 is effective
for fiscal years beginning after May 15, 2002. The Company's management does not
expect the adoption of SFAS 145 to have a material effect on the Company's
financial condition and results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities". This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". SFAS 146 is effective for exit or disposal
activities initiated after December 31, 2002. The Company's management does not
expect the adoption of SFAS 146 to have a material effect on the Company's
financial condition and results of operations.
7. Subsequent Event
In October 2002, American Resources sold its working interest in all of its
remaining proved oil and gas properties for $2.7 million. Production from the
properties accounted for 99% and 84% of the Company's oil and gas sales revenues
for the quarters ended September 30, 2002 and 2001, respectively, and 64% and
66% of the Company's total revenues for these periods. Production from these
fields accounted for 86% and 81% of the Company's oil and gas sales revenues for
the nine months ended September 30, 2002 and 2001, respectively, and 56% and 68%
of the Company's total revenues for these periods.
12
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Forward Looking Statements. Certain of the statements included in this quarterly
report on Form 10-QSB, including those regarding future financial performance or
results or that are not historical facts, are "forward-looking" statements as
that term is defined in Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. The words
"expect", "plan", "believe", "anticipate", "project", "estimate", and similar
expressions are intended to identify forward-looking statements. The Company
cautions readers that any such statements are not guarantees of future
performance or events and such statements involve risks and uncertainties that
may cause actual results and outcomes to differ materially from those indicated
in the forward-looking statements. Some of the important factors, risks and
uncertainties that could cause actual results to vary from the forward-looking
statements include:
o the risks associated with exploration;
o the level of production from oil and gas properties;
o gas and oil price volatility;
o the level of utilization of the Company's pipelines;
o availability and cost of capital;
o actions or inactions of third party operators for properties
where the Company has an interest; o regulatory developments;
and
o general economic conditions.
Additional factors that could cause actual results to differ materially from
those indicated in the forward-looking statements are discussed under the
caption "Risk Factors" in the Company's Form 10-KSB for the fiscal year ended
December 31, 2001. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no duty to update these forward-looking statements. Readers are urged
to carefully review and consider the various disclosures made by the Company
which attempt to advise interested parties of the additional factors which may
affect the Company's business, including the disclosures made under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this report.
RECENT DEVELOPMENTS
In October 2002, American Resources sold its working interest in all of its
remaining proved oil and gas properties for $2.7 million to Fidelity Exploration
& Production Company. Production from the properties accounted for 99% and 84%
of the Company's oil and gas sales revenues for the quarters ended September 30,
2002 and 2001, respectively, and 64% and 66% of the Company's total revenues for
these periods. Production from these fields accounted for 86% and 81% of the
Company's oil and gas sales revenues for the nine months ended September 30,
2002 and 2001, respectively, and 56% and 68% of the Company's total revenues for
these periods. Unless an acquisition of producing properties is made, the
Company's pipeline operations will account for substantially all of the
Company's revenues.
13
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
As a result of the sale of the Company's remaining proved oil and gas
properties, the amount of future oil and gas sales revenues, lease operating
expenses, depletion and capital expenditures associated with oil and gas
production activities will be dependent upon the success of the Company's
exploratory properties, reversionary working interests and future acquisitions
of proved reserves. The Company expects to use the sales proceeds to satisfy its
working capital needs and to finance future asset acquisitions, which may
include other oil and gas properties. However, there can be no assurance that
the Company will be able to acquire and develop additional oil and gas reserves
that are economically recoverable.
On July 15, 2002, the Company received a notice from the Nasdaq Stock Market,
Inc., where the Company's common stock is traded on the Nasdaq Small Cap Market
("NASDAQ"), that the Company's common stock traded below the minimum bid
requirement of $1.00 for 30 consecutive trading days. If the bid price of the
Company's common stock does not close above $1.00 for 10 consecutive trading
days before January 13, 2003, it will be delisted from NASDAQ. As of November
13, 2002, the bid price for the Company's common stock had not closed above
$1.00. If the Company's common stock is delisted from NASDAQ it would then trade
on the OTC Bulletin Board or pink sheets. This could materially decrease the
liquidity of the Company's common stock and further limit the Company's ability
to raise capital.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At September 30, 2002 the Company's working capital deficit was approximately
$0.5 million. The Company's audit report as of and for the year ended December
31, 2001 contained a qualification as to the Company's ability to continue as a
going concern due to its financing needs. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. During the third and fourth quarters of 2002, the Company received
approximately $5.0 million from the sale of proved oil and gas properties from
two separate transactions. As a result the Company believes that it has
sufficient cash to meet its working capital and capital expenditure
requirements. Historically, the Company has relied on the proceeds from the sale
of assets and capital raised from the issuance of debt and equity securities to
individual investors and related parties to sustain its operations.
The following table summarizes certain of the Company's contractual cash
obligations and other commercial cash commitments at September 30, 2002 (amounts
in thousands):
14
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Payments Due by Period
----------------------
Contractual Less than After
Obligations Total 1 year 1-3 years 4-5 years 5 years
----------- --------- --------- --------- --------- ---------
Long-Term Debt $ 750 -- -- 750 --
Other Contractual
Obligations 3,510 1,486 1,877 147 --
--------- --------- --------- --------- ---------
Total Contractual
Cash Obligations $ 4,260 1,486 1,877 897 --
========= ========= ========= ========= =========
Amount of Commitment Expiration Per Period
------------------------------------------
Other Commercial Less than After
Commitments Total 1 year 1-3 years 4-5 years 5 years
----------- --------- --------- --------- --------- ---------
Other Commercial
Obligations - abandonment 2,000 2,000 -- -- --
--------- --------- --------- --------- ---------
Total Commercial
Cash Obligations $ 2,000 2,000 -- -- --
========= ========= ========= ========= =========
The following table summarizes the Company's financial position at September 30,
2002 and December 31, 2001 (amounts in thousands):
September 30, December 31,
2002 2001
--------------- ---------------
Amount % Amount %
------ ------ ------ ------
Property and equipment, net $5,677 87 $5,980 85
Other noncurrent assets 827 13 1,043 15
------ ------ ------ ------
Total $6,504 100 $7,023 100
====== ====== ====== ======
Working capital deficit $ 496 7 $1,197 17
Minority interest 1,065 15
------ ------
Long term debt 750 12
------ ------
Stockholders' equity 5,258 81 4,761 68
------ ------ ------ ------
Total $6,504 100 $7,023 100
====== ====== ====== ======
The change in the Company's financial position from December 31, 2001 to
September 30, 2002, is primarily due to the sale of its South Timbalier Block
148 oil and gas property.
15
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Historically, the Company has relied on the proceeds from financing activities
and the sale of assets to supplement its capital requirements. During the nine
months ended September 30, 2002 ("current period"), the Company financed its
activities from working capital, debt financing and the sale of assets.
The Company's future cash flows are subject to a number of variables, primarily
utilization of its pipeline systems and future asset acquisitions.
The net cash provided by or used in the Company's operating, investing and
financing activities is summarized below (amounts in thousands):
Nine Months Ended
September 30,
------------------------
2002 2001
---------- ----------
Net cash provided by (used in):
Operating activities $ (2,064) $ 294
Investing activities 1,046 3,251
Financing activities -- (2,480)
---------- ----------
Net increase (decrease) in cash $ (1,018) $ 1,065
========== ==========
The Company's cash flow from operating activities decreased by approximately
$2.4 million in the current period compared to the nine months ended September
30, 2001 ("previous period"), due primarily to a decrease in oil and gas
revenues.
Cash flow provided by investing activities during the current period decreased
by approximately $2.2 million compared to the previous period. Cash flow from
investing activities in the previous period includes proceeds received from the
sale of the Black Marlin Pipeline System of approximately $4.6 million. Cash
flow from investing activities in the current period includes proceeds received
from the sale of the South Timbalier Block 148 property of $2.3 million.
Cash flow provided by financing activities during the current period increased
by approximately $2.5 million compared to the previous period. The increase is
due to the use of approximately $2.2 million to retire debt and approximately
$0.2 million of dividends paid by American Resources to minority shareholders in
the previous period.
In July 2002, American Resources sold its working interest in the South
Timbalier Block 148 property for $2.3 million. As of December 31, 2001, the
Company reported 1,354 Mmcfe of proved reserves attributable to the South
Timbalier Block 148 property accounting for approximately 36% of the Company's
total net proved reserves on an Mmcfe basis and 37% of the discounted present
value of estimated future net revenues from proved reserves. For the nine months
ended September 30, 2002 production from this property accounted for 14% of the
Company's oil and gas sales revenues and 9% of the Company's total revenues.
16
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In November 2000, the Company elected to abandon the Buccaneer Field due to
adverse developments in the field. The Company reached an agreement with Tetra
Applied Technologies, Inc. ("Tetra"), to plug and abandon the wells located in
the Buccaneer Field. The work was completed in the first quarter of 2001 for
approximately $1.4 million. In addition, Maritech Resources, Inc. ("Maritech")
an affiliate of Tetra purchased an adjacent lease from Apache Corporation for
which the Company provided production operating services. In December 2000, as a
result of the Company's plans to abandon the Buccaneer Field platform
facilities, the Company and Maritech terminated the operating agreement. The
Company installed a new platform in 2001 at a cost of $1.7 million net to its
interest, to operate and maintain the Blue Dolphin Pipeline System as well as
handle the production from Maritech's lease. The Blue Dolphin System was
previously tied into and operated from the Buccaneer Field platforms.
In August 2001, the Company reached an agreement with Tetra to remove the
Buccaneer Field platforms for a cost of approximately $2.6 million. Pursuant to
the agreement, Tetra and the Company agreed to extended payment terms, whereby
the Company will pay 20% upon completion and 5% per month for twelve months,
with the remaining balance due in the thirteenth month. To provide security for
the extended payment terms, the Company provided Tetra with a first lien on the
50% interest it then owned in the Blue Dolphin Pipeline System. Operations to
remove the platforms commenced in August 2001 and were suspended in December
2001, while the Company continued discussions with and was awaiting a decision
from the Texas Parks and Wildlife Department ("TP&W") to leave the underwater
portion of the platforms in place as artificial reefs. The Company expects that
the TP&W will render its decision in the fourth quarter of 2002. The Company
requested and has received an extension from the Minerals Management Service
until April 1, 2003, to complete the removal and site clearance of the platform
complexes. Following the decision by the TP&W, Tetra will resume its removal
operations. If a platform complex is left in place as an artificial reef certain
costs associated with the site clearance operations would be eliminated. The
Company believes that its provision for abandonment costs of $4.6 million at
September 30, 2002 is adequate. The Company expects to finance the remaining
abandonment costs from working capital, the private placement of debt or equity
securities, or the sale of assets.
The Company previously announced a gas discovery in High Island Area Block A-7,
in the Gulf of Mexico. The Company owns an 8.9% reversionary working interest in
this field and it will begin to receive revenues from its reversionary interest
after "payout" occurs. Payout occurs after all of the other working interest
owners have recovered their costs and expenses associated with developing the
field from sales of gas and oil production from the field. Recently, two wells
from this field were recompleted and the current combined rate of production is
approximately 45 Mmcf of gas per day. Before these wells were recompleted, the
Company had expected to begin to receive revenues from its reversionary working
interest in this field in 2005. However, based on the current rate of production
and the expected rate of production decline from the wells, the Company does not
believe that it will receive revenues from this field.
In January 2001, the Company and its partners sold the Black Marlin Pipeline
System for $7.3 million and the High Island Block A-5 pipeline for $2.0 million
to Williams Field Services; $3.6 million and $1.0 million, respectively, net to
the Company's interest.
17
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
During the nine months ended September 30, 2002, the Company incurred capital
expenditures of approximately $597,000 for development of its proved reserves.
As a result of the sales of its proved reserves during 2002, future capital
expenditures associated with the Company's oil and gas properties will be
dependent upon the success of the Company's exploratory properties, reversionary
working interests and future acquisitions of proved oil and gas reserves.
In February 2002, the Company acquired a 1/3 interest in the Blue Dolphin
Pipeline System and the inactive Omega Pipeline from MCNIC. Pursuant to the
terms of the purchase and sales agreement, Blue Dolphin issued MCNIC a $750,000
promissory note due December 31, 2006, with required monthly payments to be made
out of 90% of the net revenues of the interest acquired. As of September 30,
2002, net revenues attributable to the acquired interest were insufficient to
provide any principal payments, however the note continues to accrue interest at
6% per annum. Additionally, an aggregate contingent payment of up to $750,000
will be made, if the promissory note is retired before its maturity date. The
contingent payments will be payable annually after the promissory note is
retired until December 31, 2006 out of 50% of the net revenues from the interest
acquired. Currently the Company does not believe that the promissory note will
be retired before its maturity date.
On December 2, 1999, the Company, through Blue Dolphin Exploration, acquired a
75% ownership interest in American Resources by purchasing approximately 39.5
million shares of American Resources common stock. On February 19, 2002, the
Company completed its acquisition of American Resources, pursuant to the Amended
and Restated Agreement and Plan of Merger dated as of December 19, 2001 (the
"Merger Agreement"). Pursuant to the Merger Agreement, American Resources became
a wholly owned subsidiary of the Company. As a result of elections made by
American Resources' stockholders, the Company issued 273,336 shares of Common
Stock and paid approximately $255,000 in cash. See Note 3. Acquisition and
Disposition of Assets, in Part 1., Item 1.
In December 1999, American Resources received approximately $4.5 million from
Blue Dolphin Exploration for American Resources common stock representing a 75%
ownership interest and $24.2 million from Fidelity Oil for an 80% interest in
its Gulf of Mexico assets. American Resources senior secured debt was held by
Den norske Bank ("Den norske"). Den norske sold the senior debt to the Company
for the right to receive a possible future payment. The payment due to Den
norske was determined to be approximately $0.8 million net to American
Resources; however, in June 2002, Den norske agreed to accept $0.6 million as
full payment, which American Resources paid in July 2002.
In May 2002, the Company, American Resources and members of prior management of
American Resources, including its former chief financial officer, entered into a
litigation settlement agreement with H&N. American Resources paid approximately
$0.3 million in settlement of the litigation and additionally released funds of
approximately $0.7 million it was holding that were due to H&N. The settlement
agreement and the payments made thereunder were made in compromise of disputed
claims and are not an admission of wrongdoing or of liability of any kind. See
Note 2. Contingencies, in Part 1, Item 1.
18
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS
---------------------
The Company reported net income for the nine months ended September 30, 2002,
("current period") of $111,960, compared to net income of $64,205 reported for
the nine months ended September 30, 2001 ("previous period"). A current period
decrease in operating costs and other expenses of approximately $2.2 million was
offset by a reduction of revenues of approximately $2.2 million. A gain on sale
of assets of approximately $1.4 million was recorded in both the current and
previous periods.
For the quarter ended September 30, 2002 ("current quarter") the Company
reported net income of $1,351,333 compared to a net loss of $419,300 for the
quarter ended September 30, 2001 ("previous quarter"). The increase in net
income is primarily due to the gain on the sale of the South Timbalier Block 148
field of approximately $1.4 million in the current period.
The Company expects that its revenue from oil and gas sales, lease operating
expenses and depletion, depreciation and amortization will continue to decrease,
and will decrease materially, in the future as a result of the recent sale of
its proved oil and gas properties.
Revenues:
Nine Months 2002 vs. Nine Months 2001. Current period revenues from oil and gas
sales decreased by $2,350,726, from those of the previous period due to a 38%
decrease in oil and gas prices and a decrease in production volumes of 31%.
Current period revenues from pipeline operations increased by $176,123 or 22%
from the previous period. The increase is attributable to the Company's
acquisition of an additional 1/3 interest in the Blue Dolphin Pipeline System in
January 2002, resulting in increased revenues of approximately $0.3 million,
offset in part by a 36% decrease in transportation volumes resulting in
decreased revenues of approximately $0.2 million.
Third Quarter 2002 vs. Third Quarter 2001. Current quarter revenues from oil and
gas sales decreased by $365,611, from those of the previous quarter. The
decrease was due to a 49% decrease in oil and gas production volumes resulting
in decreased revenues of $0.4 million.
Current quarter revenues from pipeline operations increased by $43,446 or 19%
from the previous quarter. The increase is attributable to the Company's
acquisition of an additional 1/3 interest in the Blue Dolphin Pipeline System in
January, 2002 resulting in increased revenues of approximately $0.1 million,
offset in part by lower throughput volumes resulting in decreased revenues of
approximately $0.05 million.
Costs and Expenses:
Nine Months 2002 vs. Nine Months 2001. Current period lease operating expense
decreased by $289,556 or 33% from the previous period. The decline was primarily
due to the elimination of lease operating expense associated with the
disposition of properties in late 2001.
19
Current period pipeline operating expense increased by $72,518 or 17% from the
previous period. The increase was primarily due to the purchase of an additional
1/3 interest in the Blue Dolphin Pipeline System effective January 2002.
Current period depletion, depreciation, amortization and abandonment decreased
$1,641,390 from the previous period. In the previous period the Company recorded
an increase in the estimated costs associated with the Buccaneer Field
abandonment of approximately $1.1 million. In addition, depletion expense
decreased in the current period due to a 31% decrease in production volumes
resulting in decreased depletion of $0.3 million and a lower depletion rate used
in 2002 compared to 2001 resulting in decreased depletion of approximately $0.2
million.
Impairment of assets included an impairment of the Company's investment in
Drillmar of $339,984 in the current period. In addition, the Company recorded
bad debt expense of $0.2 million in the current period for accounts receivable
owed by Drillmar. See Note 1. Related Party Transactions, in Part I., Item 1.
General and administrative expenses for the current period decreased $346,738
from the previous period.
The decrease is primarily due to the Company's cost reduction plan that resulted
in a reduction in staff costs of approximately $0.4 million, and a reduction in
accounting fees of approximately $0.1 million offset by a decrease in management
fees received of approximately $0.2.
Interest and other income increased in the current period by $110,628 from the
previous period. The increase is primarily due to a non-cash adjustment to the
Company's purchase of the minority interest in American resources recorded in
the current quarter of approximately $0.1 million.
Interest and other expense in the current period decreased $306,261 from the
previous period. In the current period the Company recorded an expense
associated with the settlement of litigation with H&N of approximately $0.3
million offset in part by a reduction of the payment to Den norske Bank of
approximately $0.2 million. Previous period expense included a $0.3 million
increase in the provision for the contingent payment to Den noske Bank.
The Company recorded a gain on the sale of the South Timbalier Block 148 field
in the current period of $1.4 million and a gain on the sale of the Black Marlin
Pipeline System in the previous period of $1.4 million.
Third Quarter 2002 vs. Third Quarter 2001. Current quarter lease operating
expense decreased by $55,024 or 21% from the previous quarter. The decline was
primarily due to the elimination of lease operating expense associated with the
disposition of properties in late 2001 and the sale of South Timbalier Block 148
field in July 2002.
20
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Current quarter pipeline operating expense increased by $54,031 or 34% from the
previous quarter. The increase was primarily due to the purchase of an
additional 1/3 interest in the Blue Dolphin Pipeline System effective January
2002.
Current quarter depletion, depreciation and amortization decreased $191,339 from
the previous quarter. The decrease was primarily due to a 49% decrease in
production volumes resulting in decreased depletion of approximately $0.1
million and a lower depletion rate used in 2002 compared to 2001 resulting in
decreased depletion of approximately $0.1 million.
General and administrative expenses for the current quarter decreased $293,383
from the previous quarter. The decrease is primarily due to the Company's cost
reduction plan that resulted in a reduction in staff costs of approximately $0.3
million.
Interest and other income increased in the current quarter by $153,976 from the
previous quarter. The increase is primarily due to a non-cash adjustment to the
Company's purchase of the minority interest in American resources recorded in
the current quarter of approximately $0.1 million.
The Company recorded a gain on the sale of the South Timbalier Block 148 field
in the current quarter of $1.4 million.
21
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET PRICE
The Company is exposed to market risk, including adverse changes in commodity
prices and interest rates as discussed below.
Commodity Price Risk- The Company produces and sells natural gas, crude oil, and
natural gas liquids. As a result, the Company's financial results can be
significantly affected if these commodity prices fluctuate widely in response to
changing market forces. The Company does not use derivative products to manage
commodity price risk.
Interest Rate Risk- The Company currently has no short-term or long-term debt
with floating interest rates, and thus currently is not subject to risk of
interest rate changes.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this Quarterly Report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Primary Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures (as defined in Rules 13a -
14(c) and 15d - 14 (c) under Securities Exchange Act of 1934). Based upon the
evaluation, the Chief Executive Officer and Primary Financial Officer concluded
that the Company's disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
22
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Part II, Item 1. Legal Proceedings in the Company's Form 10-QSB for the period
ended June 30, 2002 is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
A) Exhibits
99.1 Michael J. Jacobson Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 G. Brian Lloyd Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002.
B) Reports on Form 8-K
On October 1, 2002 the Company filed a current report on Form
8-K dated September 23, 2002, reporting a non-binding letter
of intent for the sale of its remaining working interests to
Fidelity Exploration & Production Company. The item in such
current report was Item 5 (Other Events).
On November 4, 2002, the Company filed a current report on
Form 8-K dated November 1, 2002, reporting it completed the
sale of its remaining working interests to Fidelity
Exploration & Production Company. The item in such current
report was Item 2 (Acquisition or Disposition of Assets).
23
BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: BLUE DOLPHIN ENERGY COMPANY
Date: November 14, 2002 /s/ Michael J. Jacobson
-------------------------------------
Michael J. Jacobson
President and Chief Executive Officer
/s/ G. Brian Lloyd
-------------------------------------
G. Brian Lloyd
Vice President, Treasurer
(Principal Accounting Officer)
24
CERTIFICATION BY MICHAEL J. JACOBSON PURSUANT TO SECURITIES EXCHANGE ACT RULE
13a-14
I, Michael J. Jacobson, certify that:
I have reviewed this quarterly report on Form 10-QSB of Blue Dolphin Energy
Company (the "Registrant").
1. Based on my knowledge, this quarterly 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 quarterly
report;
2. Based on my knowledge, the financial statements and other financial
information included in this quarterly 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 quarterly report;
3. The Registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report
is being prepared;
b) evaluated the effectiveness of the Registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the Registrants auditors and the audit committee of
Registrants board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and
6. The Registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weakness.
Date: November 14, 2002
/s/ Michael J. Jacobson
--------------------------------------
Michael J. Jacobson
President and Chief Executive Officer
25
CERTIFICATION BY G. BRIAN LLOYD PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14
I, G. Brian Lloyd, certify that:
I have reviewed this quarterly report on Form 10-QSB of Blue Dolphin Energy
Company (the "Registrant").
1. Based on my knowledge, this quarterly 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 quarterly
report;
2. Based on my knowledge, the financial statements and other financial
information included in this quarterly 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 quarterly report;
3. The Registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report
is being prepared;
b) evaluated the effectiveness of the Registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the Registrants auditors and the audit committee of
Registrants board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and
6. The Registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weakness.
Date: November 14, 2002
/s/ G. Brian Lloyd
------------------------------
G. Brian Lloyd
Vice President, Treasurer
(Principal Accounting Officer)
26