0000793306 BLUE DOLPHIN ENERGY CO false --12-31 Q1 2024 0.01 0.01 20,000,000 20,000,000 14,921,968 14,921,968 0 0 0 0 1 1 1 12 1 0.01 0.3 0.1 January 31, 2018 0.5 October 31, 2031 0.1 June 30, 2051 0.01 August 31, 2050 0.0007 August 31, 2050 0.0007 October 31, 2025 0.0013 0.05 0 0 0.01 0 0 0 0 false false false false Restricted cash, noncurrent totaled $1.0 and $0.0 at March 31, 2024 and December 31, 2023, respectively. Restricted cash, noncurrent reflects amounts held by Veritex in a payment reserve account, which is required to have a balance of $1.0 million. Although the amount at December 31, 2023 was $0, the payment reserve account was fully replenished on January 2, 2024. Blue Dolphin has 2,500,000 shares of preferred stock, par value $0.10 per share, authorized. At March 31, 2024 and December 31, 2023, there were no shares of preferred stock issued and outstanding. Fees associated with an intercompany tolling agreement related to naphtha volumes. General and administrative expenses within refinery operations includes the LEH operating fee, related party, other operating expenses, and accretion of asset retirement obligations. Payments deferred for thirty (30) months; first payment made in February 2023; interest accrued during deferral period; loan not forgivable. Original principal amount was $8.0 million; pursuant to a 2017 sixth amendment, principal under the Kissick Debt increased by $3.7 million. Loan requires monthly interest-only payments for the first thirty-six (36) months. Afterwards, principal and interest payments are due monthly through loan maturity. First payment due in November 2024. Original principal amount was $0.5 million; the Blue Dolphin Term Loan Due 2051 was modified to increase the principal amount by $1.5 million. Payments deferred for thirty (30) months; first payment due and paid in November 2023; interest accrues during deferral period; loan not forgivable. In May 2019, LE entered into 12-month equipment rental agreement with an option to purchase backhoe at maturity; equipment rental agreement matured in May 2020; in October 2020, LE entered into the Equipment Loan Due 2025 to finance the backhoe purchase; backhoe used at the Nixon facility. 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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

or

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to______

 

Commission File No. 0-15905

pic01.jpg

 

Blue Dolphin Energy Company

(Exact name of registrant as specified in its charter)

 

 

 

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)

 

 

713-568-4725

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:  None 

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer 

☐

Accelerated filer

☐

Non-accelerated filer  

☐

Smaller reporting company

☒

 

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

 

Number of shares of common stock, par value $0.01 per share, outstanding as of May 15, 2024: 14,921,968

 

 

 
Table of Contents

   

 
 
 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

  
   

ITEM 1.

FINANCIAL STATEMENTS

13
     
 

Consolidated Balance Sheets (Unaudited)

13
 

Consolidated Statements of Income (Unaudited)

14
 

Consolidated Statements of Stockholders’ Equity (Unaudited)

15
 

Consolidated Statements of Cash Flows (Unaudited)

16
 

Notes to Consolidated Financial Statements

17
     

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

40
     

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

57
     

ITEM 4.

CONTROLS AND PROCEDURES

57
     

PART II - OTHER INFORMATION

  
   

ITEM 1.

LEGAL PROCEEDINGS

58
     

ITEM 1A.

RISK FACTORS

59
     

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

60
     

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

60
     

ITEM 4.

MINE SAFETY DISCLOSURES

60
     

ITEM 5.

OTHER INFORMATION

60
     

ITEM 6.

EXHIBITS

61
     

SIGNATURES

62

 

Blue Dolphin Energy Company
March 31, 2024 │Page 2
Table of Contents
 

Glossary of Terms

 

Throughout this Quarterly Report on Form 10-Q, we have used the following terms:

 

Affiliate. Refers, either individually or collectively, to certain related parties including Jonathan Carroll, Chairman and Chief Executive Officer of Blue Dolphin, and his affiliates (including Ingleside and Lazarus Capital) and/or LEH and its affiliates (including LMT and LTRI). Together, Jonathan Carroll and LEH owned 83% of the Common Stock as of the filing date of this report.

 

Affiliate Revolving Credit Agreement. A credit agreement between LEH and its affiliates and Blue Dolphin and its subsidiaries effective April 1, 2024; extends credit to Blue Dolphin and its subsidiaries, at LEH's sole discretion, for working capital purposes up to a maximum of $5.0 million in the aggregate; initial term expires on April 30, 2025; automatically renews for one year periods unless sooner terminated by the parties; interest accrues at the WSJ Prime rate plus 2.00%, compounded annually, and paid quarterly.

 

AMT. Alternative Minimum Tax.

 

Amended and Restated Jet Fuel Sales Agreement. Product agreement for the sale of jet fuel by LE to LEH; effective April 1, 2023; one-year automatic renewals; currently renewed through March 31, 2025; LEH purchases all jet fuel produced by LE; LEH sells the jet fuel to the DLA under preferential pricing terms due to its HUBZone certification.

 

ARO.  Asset retirement obligations.

 

ASU.  Accounting Standards Update.

 

AGO.  Atmospheric gas oil (also known as atmospheric tower bottoms) is the heaviest product boiled by a crude distillation tower operating at atmospheric pressure. This fraction ordinarily sells as distillate fuel oil, either in pure form or blended with cracked stocks. Certain ethylene plants, called heavy oil crackers, can take AGO as feedstock.

 

bbl. Barrel; a unit of volume equal to 42 U.S. gallons.

 

BDEX. Blue Dolphin Exploration Company, a wholly owned subsidiary of Blue Dolphin.

 

BDPC.  Blue Dolphin Petroleum Company, a wholly owned subsidiary of Blue Dolphin.

 

BDPL.  Blue Dolphin Pipe Line Company, a wholly owned subsidiary of Blue Dolphin.

 

BDPL-LEH Loan Agreement. Loan Agreement dated August 15, 2016, between BDPL and LEH in the original principal amount of $4.0 million; interest accrues at 16.00% annually; guaranteed by certain BDPL property; contains representations and warranties, affirmative and negative covenants, and events of default that are usual and customary for a credit facility of this type; matured August 2018; as of the filing date of this report, in forbearance related to past defaults pursuant to the LEH Payment Agreement.

 

BDSC.  Blue Dolphin Services Co., a wholly owned subsidiary of Blue Dolphin.

 

BDSC-LEH Amended Office Space Agreement.  Office sublease agreement in Houston, Texas between BDSC and LEH; extended term effective September 1, 2023 and expiring August 31, 2024; rent approximately $0.003 million per month; management is currently exploring leasing options.

 

Blue Dolphin.  Blue Dolphin Energy Company, one or more of its consolidated subsidiaries, or all of them taken as a whole.

 

bpd.  Barrel per day; a measure of the bbls of daily output produced in a refinery or transported through a pipeline.

 

Blue Dolphin Guaranty Fee Agreement. Guaranty Fee Agreement (as modified) effective January 1, 2023, between Blue Dolphin and Jonathan Carroll; related to payoff of Blue Dolphin Term Loan Due 2051; fee paid equal to 2.00% per annum of outstanding principal balance owed under Blue Dolphin Term Loan Due 2051; fees payable 100% in cash.

  

Blue Dolphin Term Loan Due 2051 (as modified).  An EIDL dated May 4, 2021 between Blue Dolphin and the SBA in the original principal amount of $0.5 million; the note was modified in February 2022 to increase the principal amount by $1.5 million to $2.0 million; additional principal used for working capital; interest accrues at 3.75%; maturity date May 2051; monthly principal and interest payment $0.01 million; payments deferred first thirty (30) months; interest accrues during deferral period; first payment due and paid in November 2023; loan not forgivable; security includes all tangible and intangible personal property, including, but not limited to inventory, equipment, instruments, chattel paper, documents, letter of credit rights, accounts, deposit accounts, commercial tort claims, general intangibles, and as-extracted collateral; contains representations and warranties, affirmative and negative covenants, and events of default that are usual and customary for a credit facility of this type.

 

Board. Board of Directors of Blue Dolphin.

 

BOEM.  Bureau of Ocean Energy Management.

 

BSEE.  Bureau of Safety and Environmental Enforcement.

 

CAA. Clean Air Act.

 

Capacity utilization rate. A percentage measure that indicates the amount of available capacity used in the Nixon refinery.  With respect to the crude distillation tower, the rate is calculated by dividing total refinery throughput or total refinery production on a bpd basis by the total capacity of the crude distillation tower (currently 15,000 bpd).

 

CARES Act.  Coronavirus Aid, Relief and Economic Security Act, which was passed by Congress in March 2020, to provide economic assistance related to the onset of the COVID-19 pandemic.

 

CDC.  Centers for Disease Control and Prevention.

 

CERLA.  Comprehensive Environmental Response, Compensation, and Liability Act of 1980.

 

CIP.  Construction in progress.

 

COVID-19.  An infectious disease caused by a coronavirus called SARS-CoV-2; first identified in 2019 in Wuhan, the capital of China's Hubei province; the disease spread globally, resulting in a pandemic.

 

Common Stock.  Blue Dolphin common stock, par value $0.01 per share.  Blue Dolphin has 20,000,000 shares of Common Stock authorized and 14,921,968 shares of Common Stock issued and outstanding as of the filing date of this report.

 

Complexity.  A numerical score that denotes, for a given refinery, the extent, capability, and capital intensity of the refining processes downstream of the crude distillation tower. Refinery complexities range from the relatively simple crude distillation tower (“topping unit”), which has a complexity of 1.0, to the more complex deep conversion (“coking”) refineries, which have a complexity of 12.0.

 

Condensate. Liquid hydrocarbons that are produced in conjunction with natural gas. Although condensate is sometimes like crude oil, it is usually lighter.

 

Cost of goods sold.  Reflects the cost of crude oil and condensate, fuel use, and chemicals.

 

Crude distillation tower. A tall column-like vessel in which crude oil and condensate is heated and its vaporized components are distilled by means of distillation trays. This process refines crude oil and other inputs into intermediate and finished petroleum products; commonly referred to as a crude distillation unit or an atmospheric distillation unit.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 3
Table of Contents

 

Glossary of Terms (Continued)

 

Crude oil. A mixture of thousands of chemicals and compounds, primarily hydrocarbons. Crude oil quality is measured in terms of density (light to heavy) and sulfur content (sweet to sour). Crude oil must be broken down into its various components by distillation before use as fuels or conversion to other products.

 

CWA.  Clean Water Act.

 

Depropanizer unit. A distillation column that isolates propane from a mixture containing butane and other heavy components.

 

Distillates.  The result of crude distillation and therefore any refined oil product.  Distillate is more commonly used as an abbreviated form of middle distillate.  There are mainly four (4) types of distillates: (i) very light oils or light distillates (such as naphtha), (ii) light oils or middle distillates (such as our jet fuel), (iii) medium oils, and (iv) heavy oils (such as our low-sulfur diesel and HOBM, reduced crude, and AGO).

 

Distillation. The first step in the refining process whereby crude oil and condensate are heated at atmospheric pressure in the base of a distillation tower. As the temperature increases, the various compounds vaporize in succession at their various boiling points and then rise to prescribed levels within the tower based on their densities (from lightest to heaviest). They then condense in distillation trays and are drawn off individually for further refining. Distillation is also used at other points in the refining process to remove impurities.

 

DLA.  Defense Logistics Agency.

 

Downtime. Scheduled and/or unscheduled periods in which the crude distillation tower is not operating. Downtime may occur for a variety of reasons, including severe weather, power failures, and preventive maintenance.

 

EIA.  Energy Information Administration.

 

EIDL.  Economic Injury Disaster Loan; provides economic relief to businesses that experienced a temporary loss of revenue due to COVID-19.

 

EPA.  Environmental Protection Agency.

 

Eagle Ford Shale. A hydrocarbon-producing geological formation extending across South Texas from the Mexican border into East Texas.

 

Equipment Loan Due 2025.  Installment sales contract dated October 13, 2020 between LE and Texas First in the original principal amount of $0.7 million; loan represents conversion of prior equipment rental agreement for a backhoe with an option to purchase at maturity; interest accrues at 4.50%; maturity date October 2025; monthly principal and interest payment $0.0013 million; security includes first priority lien in the equipment; contains representations and warranties, affirmative and negative covenants, and events of default that are usual and customary for a credit facility of this type.

 

Exchange Act.  Securities Exchange Act of 1934, as amended.

 

FASB.  Financial Accounting Standards Board.

 

FDIC. Federal Deposit Insurance Corporation.

 

Feedstocks. Crude oil and other hydrocarbons, such as condensate and/or intermediate products, used as basic input materials in a refining process.  Feedstocks are transformed into one or more finished products.

 

Finished petroleum products.  Materials or products which have received the final increments of value through processing operations, and which are being held in inventory for delivery, sale, or use.

  

Freeport facility.  Consists of processing units for: (i) crude oil and natural gas separation and dehydration, (ii) natural gas processing, treating, and redelivery, and (iii) vapor recovery; also includes two onshore pipelines and 162 acres of land in Freeport, Texas; facility is currently inactive.

 

GNCU.  Greater Nevada Credit Union.

 

Greenhouse gases.  Molecules in the Earth’s atmosphere, such as carbon dioxide, methane, and chlorofluorocarbons, that warm the atmosphere because they absorb some of the thermal radiation emitted from the Earth’s surface.

 

Gross profit (deficit).  Calculated as total revenue less cost of goods sold; reflected as a dollar ($) amount.

 

HOBM.  Heavy oil-based mud blendstock; see also “distillates.”

 

HUBZone.  Historically Underutilized Business Zones program established by the SBA to help small businesses in both urban and rural communities.

 

IBLA.  Interior Board of Land Appeals.

 

INC.  Incident of Noncompliance issued by BOEM and/or BSEE.

 

Ingleside.  Ingleside Crude, LLC, an affiliate of Jonathan Carroll.

 

Intercompany processing fees. Fees associated with an intercompany tolling agreement related to naphtha volumes.

 

Intermediate petroleum products.  A petroleum product that might require further processing before being saleable to the ultimate consumer; further processing might be done by the producer or by another processor. Thus, an intermediate petroleum product might be a final product for one company and an input for another company to process it further.

 

IRC Section 382.  Title 26, Internal Revenue Code, Subtitle A – Income Taxes, Subchapter C – Corporate Distributions and Adjustments, Part V Carryovers, § 382. Limits NOL carryforwards and certain built-in losses following ownership change.

 

IRS.  Internal Revenue Service.

 

Jet fuel. A high-quality kerosene product primarily used in aviation.  Kerosene-type jet fuel (including Jet A and Jet A-1) has a carbon number distribution between 8 and 16 carbon atoms per molecule; wide-cut or naphtha-type jet fuel (including Jet B) has between 5 and 15 carbon atoms per molecule.

 

Jet Fuel Purchase Agreements.  Product agreements for the purchase of jet fuel from LEH by LE; first transaction dated April 21, 2023 for approximately 1.9 million gallons of jet fuel; second transaction dated May 10, 2023 for approximately 2.0 million gallons of jet fuel; the jet fuel was priced at LEH’s product cost; LE sold the products back to LEH under a prior jet fuel sales agreement between the parties.

 

Kissick Debt.  Loan agreement originally entered into between LE and Notre Dame Investors, Inc. in the original principal amount of $8.0 million; debt held by John Kissick (the “Kissick Noteholder”) as of the date of this report; pursuant to a 2017 sixth amendment, the Kissick Debt was amended to increase the principal amount by $3.7 million; the additional principal was used to reduce LE’s prior obligation to GEL Tex Marketing, LLC, a Delaware limited liability company and an affiliate of Genesis Energy, LLC; subject to the Kissick Subordination Agreement;  security includes subordinated deed of trust that encumbers the crude distillation tower and general assets of LE; interest accrues at 16.00%; no covenants; matured January 2019; as of the filing date of this report, in forbearance related to past defaults pursuant to the Kissick Forbearance Agreement.

 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 4
Table of Contents

 

Glossary of Terms (Continued)

 

Kissick Forbearance Agreement.  Payment agreement between LE and Kissick Noteholder effective April 30, 2023; under the payment agreement, Kissick Noteholder and LE agreed to modify the payment terms of the Kissick Debt to satisfy in full LE’s $11.2 million obligation to Kissick Noteholder under the Kissick Debt by March 2025. Effective April 30, 2023, the interest rate for outstanding principal and accrued and unpaid interest under the Kissick Debt decreased from 16.00% to 6.25% per year.

 

Kissick Subordination Agreement. Subordination Agreement between the Kissick Noteholder and Sovereign Bank (predecessor to Veritex) dated June 22, 2015. Under the agreement, Kissick Noteholder agreed, and LE consented, to: (i) subordinate Kissick Noteholder’s right to payments in favor of Pilot and (ii) subordinate its rights to security interest and liens in favor of Sovereign (now Veritex) as holder of the LE Term Loan Due 2034.

 

Lazarus Capital.  Lazarus Capital, LLC, an affiliate of Jonathan Carroll.

 

Lazarus Entities. LEH, NPS, LE, LRM, Lazarus San Antonio Refinery LLC, and Blue Dolphin.

 

LE.  Lazarus Energy, LLC, a wholly owned subsidiary of Blue Dolphin.

 

LE Amended and Restated Guaranty Fee Agreement. Amended and Restated Guaranty Fee Agreement dated April 1, 2017, between LE and Jonathan Carroll; related to payoff of LE Term Loan Due 2034; fee paid equal to 2.00% per annum of outstanding principal balance owed under LE Term Loan Due 2034; pursuant to an amendment effective January 1, 2023, fees payable 100% in cash.

 

LE Amended and Restated Master Service Agreement.  Master Service Agreement between LE and Ingleside executed May 11, 2023 (effective March 1, 2023) for storage of product intended for customer receipt by barge; three-year term; tank rental $0.50 per bbl per month.

 

LE Term Loan Due 2034.  Loan Agreement dated June 22, 2015, between LE, Veritex, and guarantors in the original principal amount of $25.0 million; Jonathan Carroll required to provide personal guarantee; interest accrues at WSJ Prime rate plus 2.75%; maturity date June 2034; monthly principal and interest payment $0.2 million; purpose of loan was loan refinance and Nixon facility capital improvements; security includes first priority lien on Nixon facility’s business assets (excluding accounts receivable and inventory), assignment of all Nixon facility contracts, permits, and licenses, absolute assignment of Nixon facility rents and leases, including storage tank rental income, and a $0.5 million life insurance policy on Jonathan Carroll; contains representations and warranties, affirmative and negative covenants, and events of default that are usual and customary for a credit facility of this type; in forbearance at December 31, 2023 and through March 29, 2024; currently in default.

 

LE Term Loan Due 2050.  An EIDL dated August 29, 2020 between NPS and the SBA in the original principal amount of $0.15 million; principal used for working capital; interest accrues at 3.75%; maturity date August 2050; monthly principal and interest payment $0.0007 million; payments deferred first thirty (30) months; interest accrued during deferral period; first payment made February 2023; loan not forgivable; security includes business assets (e.g., machinery and equipment, furniture, fixtures, etc.) as more fully described in the security agreement; contains representations and warranties, affirmative and negative covenants, and events of default that are usual and customary for a credit facility of this type.

 

LEH.  Lazarus Energy Holdings, LLC, an affiliate of Jonathan Carroll and controlling shareholder of Blue Dolphin as of the date of this report.

  

LEH Payment Agreement.  Payment agreement between LEH and BDPL effective May 9, 2023; under the payment agreement, LEH and BDPL agreed to modify the payment terms of the BDPL-LEH Loan Agreement to satisfy in full BDPL’s $8.3 million obligation to LEH under the BDPL-LEH Loan Agreement by April 2027. Effective May 9, 2023, the interest rate for outstanding principal and accrued and unpaid interest under the BDPL-LEH Loan Agreement decreased from 16.00% to 8.00% per year.

 

LEH operating fee.  A management fee paid to LEH under the Third Amended and Restated Operating Agreement; calculated as 5.00% of all consolidated operating costs, excluding crude costs, depreciation, amortization, and interest, of Blue Dolphin and its subsidiaries; previously reflected within refinery operating expenses in our consolidated statements of operations.

 

Leasehold interest. The interest of a lessee under an oil and gas lease.

 

Light crude. A liquid petroleum that has a low density and flows freely at room temperature. It has a low viscosity, low specific gravity, and a high American Petroleum Institute gravity due to the presence of a high proportion of light hydrocarbon fractions.

 

LMT.  Lazarus Marine Terminal I, LLC, an affiliate of LEH.

 

LRM.  Lazarus Refining & Marketing, LLC, a wholly owned subsidiary of Blue Dolphin.

 

LRM Amended and Restated Guaranty Fee Agreement. Amended and Restated Guaranty Fee Agreement dated April 1, 2017, between LRM and Jonathan Carroll; related to payoff of LRM Term Loan Due 2034; fee paid equal to 2.00% per annum of outstanding principal balance owed under LRM Term Loan Due 2034; pursuant to an amendment effective January 1, 2023, fees payable 100% in cash.

 

LRM Term Loan Due 2034. Loan Agreement dated December 4, 2015, between LRM, Veritex, and guarantors in the original principal amount of $10.0 million; Jonathan Carroll required to provide personal guarantee; interest accrues at WSJ Prime rate plus 2.75%; maturity date December 2034; monthly principal and interest payment $0.1 million; purpose of loan to refinance bridge loan and Nixon facility capital improvements; security includes second priority lien on rights of LE in crude distillation tower and other collateral of LE, first priority lien on real property interests of LRM, first priority lien on all LRM fixtures, furniture, machinery, and equipment, first priority lien on all LRM contractual rights, general intangibles, and instruments, except with respect to LRM rights in its leases of certain specified storage tanks for which Veritex has a second priority lien, and all other collateral as described in the security agreements; contains representations and warranties, affirmative and negative covenants, and events of default that are usual and customary for a credit facility of this type; in forbearance at December 31, 2023 and through March 29, 2024; currently in default.

 

LTRI.  Lazarus Texas Refinery I, an affiliate of LEH.

 

MVP.  MV Purchasing, LLC. 

 

Naphtha. A refined or partly refined light distillate fraction of crude oil. Blended further or mixed with other materials, it can make high-grade motor gasoline or jet fuel. It is also a generic term for the lightest and most volatile petroleum fractions.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 5
Table of Contents

 

Glossary of Terms (Continued)

 

Natural gas. A naturally occurring hydrocarbon gas mixture consisting primarily of methane but commonly including varying amounts of other higher alkanes and sometimes a small percentage of carbon dioxide, nitrogen, hydrogen sulfide, or helium.

 

Nixon facility.  Encompasses the Nixon refinery, petroleum storage tanks, loading and unloading facilities, and 56 acres of land in Nixon, Texas.

 

Nixon refinery. The 15,000-bpd crude distillation tower and associated processing units in Nixon, Texas.

 

NOL.  Net operating losses.

 

NPS.  Nixon Product Storage, LLC, a wholly owned subsidiary of Blue Dolphin.

 

NPS Guaranty Fee Agreement. Guaranty Fee Agreement effective January 1, 2023, between NPS and Jonathan Carroll; related to payoff of NPS Term Loan Due 2031; fee paid equal to 2.00% per annum of outstanding principal balance owed under NPS Term Loan Due 2031; fees payable 100% in cash.

 

NPS-LEH Terminal Services Agreement. Terminal Services Agreement between NPS and LEH effective November 1, 2022; enables LEH to store its jet fuel, which LEH lifts as needed; one-year term with one-year automatic renewals; tank rental approximately $0.2 million per month.

 

NPS Term Loan Due 2031.  Loan Agreement dated September 20, 2021, between NPS, GNCU, and guarantors in the original principal amount of $10.0 million; Jonathan Carroll required to provide personal guarantee; interest accrues at 5.75%; maturity date October 2031; monthly principal and interest payment $0.1 million; interest-only payments first thirty-six (36) months; first principal payment due November 2024; purpose of loan working capital; security includes deed of trust lien on approximately 56 acres of land and improvements owned by LE, leasehold deed of trust lien on certain property leased by NPS from LE, and assignment of leases and rents and certain personal property; contains representations and warranties, affirmative and negative covenants, and events of default that are usual and customary for a credit facility of this type; currently in default.

 

NPS Term Loan Due 2050.  An EIDL dated August 29, 2020 between NPS and the SBA in the original principal amount of $0.15 million; principal used for working capital; interest accrues at 3.75%; maturity date August 2050; monthly principal and interest payment $0.0007 million; payments deferred first thirty (30) months; interest accrued during deferral period; first payment made February 2023; loan not forgivable; security includes business assets (e.g., related machinery and equipment, furniture, fixtures, etc.) as more fully described in the security agreement; contains representations and warranties, affirmative and negative covenants, and events of default that are usual and customary for a credit facility of this type.

 

Operating days. Represents the number of days in a period in which the crude distillation tower operated. Operating days are calculated by subtracting downtime in a period from calendar days in the same period.

 

OSHA.  Occupational Safety and Health Administration.

 

Other conversion costs.  Represents the combination of direct labor costs and manufacturing overhead costs.  These are the costs that are necessary to convert our raw materials into refined products.

 

Other operating expenses. Represents costs associated with our natural gas processing, treating, and redelivery facility, as well as our pipeline assets and leasehold interests in oil and gas properties.

  

PADD. Petroleum Administration for Defense Districts; PADD regions enable regional analysis of petroleum product supply and movements by the EIA.

 

Petroleum. A naturally occurring flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds. The name petroleum covers both the naturally occurring unprocessed crude oils and petroleum products that are made up of refined crude oil.

 

PHMSA.  Pipeline and Hazardous Materials Safety Administration of the U.S. Department of Transportation.

 

Pilot.  Pilot Travel Centers LLC, a Delaware limited liability company.

 

Pilot Entities.  Pilot, Starlight Relativity Holdings LLC, Starlight Relativity Acquisition Company LLC, Tartan, The San Antonio Refinery LLC, and Falls City Terminal, LP.

 

Pilot Forbearance and Accommodation Agreement. Forbearance and Accommodation Agreement dated January 12, 2023 between NPS and Pilot regarding the sale of in-tank jet fuel following Pilot’s termination of a terminal services agreement. Under the Pilot Forbearance and Accommodation Agreement, the parties agreed to explore a potential compromise to the dispute; the forbearance period terminated on February 28, 2023, but was followed by the Pilot Forbearance Agreement. Under the Pilot Forbearance and Accommodation Agreement, Pilot paid NPS approximately $1.5 million in January 2023.

 

Pilot Forbearance Amendment. An amendment to the Pilot Forbearance and Accommodation Agreement dated March 31, 2023; the amendment extended the forbearance period and all deadlines associated with unresolved legal claims to June 15, 2023. Under the Pilot Forbearance Amendment, Pilot paid NPS approximately $1.1 million and $0.2 million in April and June 2023, respectively. The parties also negotiated the sale of all stored jet fuel in April 2023. On June 16, 2023, following the expiration of the Pilot Forbearance and Accommodation Agreement, the parties extended the deadline for responses to outstanding discovery requests related to legal claims to August 31, 2023. On August 28, 2023 the parties filed a joint motion to stay this case. The parties attended mediation in December 2023 to settle all outstanding disputes.  See "Pilot Settlement Agreement."

 

Pilot Settlement Agreement.  A confidential Settlement Agreement by and among the Lazarus Entities and Pilot Entities executed on December 29, 2023. Among other matters addressed, NPS' and LRM’s contract-related disputes with Pilot and Tartan were fully resolved and the parties agreed to mutually release all claims against each other. Pursuant to the Settlement Agreement, the Texas litigation was dismissed with prejudice on January 3, 2024. 

 

Preferred Stock.  Blue Dolphin preferred stock, par value $0.10 per share.  Blue Dolphin has 2,500,000 shares of Preferred Stock authorized and no shares of Preferred Stock issued and outstanding as of the filing date of this report.

 

Product slate.  Represents type and quality of products produced.

 

Propane. A by-product of natural gas processing and petroleum refining. Propane is one of a group of liquified petroleum gases. Others include butane, propylene, butadiene, butylene, isobutylene, and mixtures thereof.

 

Refined products. Hydrocarbon compounds, such as jet fuel and residual fuel, produced by a refinery.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 6
Table of Contents

 

Glossary of Terms (Continued)

 

Refinery. Within the oil and gas industry, a refinery is an industrial processing plant where crude oil, condensate, and intermediate feeds are separated and transformed into petroleum products.

 

Refinery operations gross profit (deficit).  Calculated as refinery operations revenue less intercompany processing fees less cost of goods sold during the period; reflected as a dollar ($) amount.

 

Refining gross profit (deficit) per bbl.  Calculated as refinery operations gross profit (deficit) divided by the volume, in bbls, of refined products sold during the period; reflected as a dollar ($) amount per bbl.

 

ROU.  Right-of-use.

 

SBA.  Small Business Administration.

 

SEC. Securities and Exchange Commission.

 

Second Amended and Restated Operating Agreement.  Affiliate agreement between Blue Dolphin, LE, LRM, NPS, BDPL, BDPC, BDSC and LEH governing LEH’s operation and management of those companies’ assets; one-year term effective April 1, 2023 expiring April 1, 2024 or notice by either party at any time of material breach or 90 days Board notice; LEH receives management fee of 5.00% of all consolidated operating costs, excluding crude costs, depreciation, amortization, and interest, of Blue Dolphin, LE, LRM, NPS, BDPL, BDPC and BDSC.  See "Third Amended and Restated Operating Agreement."

 

Securities Act.  The Securities Act of 1933, as amended.

 

Segment contribution margin (deficit). For the refinery operations segment, represents refined product sales minus intercompany processing fees minus refinery operations costs and expenses. For the tolling and terminaling segment, represents storage tank rental and ancillary services fees plus intercompany processing fees minus tolling and terminaling costs and expenses. Intercompany processing fees are associated with an intercompany tolling agreement related to naphtha volumes.

 

Significant customer. A customer who represents more than 10% of our total revenue from operations.

 

Stabilizer unit. A distillation column intended to remove the lighter boiling compounds, such as butane or propane, from a product.

 

Sulfur. Present at various levels of concentration in many hydrocarbon deposits, such as petroleum, coal, or natural gas. Also, produced as a by-product of removing sulfur-containing contaminants from natural gas and petroleum. Some of the most commonly used hydrocarbon deposits are categorized based on their sulfur content, with lower sulfur fuels selling at a higher, premium price and higher sulfur fuels selling at a lower, discounted price.

 

Sweet crude. Crude oil containing sulfur content less than 0.5%.

 

Tartan.  Tartan Oil LLC, an affiliate of Pilot.

 

Tartan Crude Supply Agreement. Crude supply agreement between Pilot and LE dated May 7, 2019, as amended on November 11, 2019, which agreement was assigned by Pilot to Tartan pursuant to an Assignment of Contract dated March 20, 2020.  Terminated by Tartan effective December 31, 2023. There were no penalties associated with the termination.

 

TCEQ.  Texas Commission on Environmental Quality.

 

Texas First.  Texas First Rentals, LLC.

 

Third Amended and Restated Operating Agreement.  Affiliate agreement between Blue Dolphin and its subsidiaries and LEH governing LEH’s operation and management of those companies’ assets; one-year term effective April 1, 2024 expiring April 1, 2025 or notice by either party at any time of material breach or 90 days Board notice; LEH receives management fee of 5.00% of all consolidated operating costs, excluding crude costs, depreciation, amortization, and interest, of Blue Dolphin and its subsidiaries.

  

Throughput.  The volume processed through a unit or a refinery or transported through a pipeline.

 

Tolling and terminaling gross profit (deficit).  Calculated as tolling and terminaling revenue less intercompany processing fees less cost of goods sold during the period; reflected as a dollar ($) amount.

 

TMT.  Texas margins tax; a form of business tax imposed on an entity’s gross profit rather than on its net income.

 

Topping unit. A type of petroleum refinery that engages in only the first step of the refining process  crude distillation.  A topping unit uses atmospheric distillation to separate crude oil and condensate into constituent petroleum products. A topping unit has a refinery complexity range of 1.0 to 2.0.

 

Total refinery production. Refers to the volume processed as output through the crude distillation tower. Refinery production includes finished petroleum products, such as jet fuel, and intermediate petroleum products, such as naphtha, HOBM and AGO.

 

Turnaround. Scheduled large-scale maintenance activity wherein an entire process unit, and sometimes the entire plant, is taken offline for a week or more for comprehensive revamp and renewal.

 

USACOE.  U.S. Army Corps of Engineers.

 

USDA.  U.S. Department of Agriculture.

 

U.S. GAAP.  Accounting principles generally accepted in the United States of America.

 

Veritex. Veritex Community Bank, successor in interest to Sovereign Bank by merger.

 

Veritex Forbearance Agreement. Forbearance Agreement dated and effective November 18, 2022 between LE, LRM, Veritex, and guarantors (as defined therein.

 

Veritex First Amended Forbearance Agreement. Amendment to the Veritex Forbearance Agreement dated and effective September 30, 2023 between LE, LRM, Veritex, and guarantors (as defined therein); pursuant to the Veritex First Amended Forbearance Agreement, Veritex agreed to forbear existing defaults under the LE Term Loan Due 2034 and LRM Term Loan Due 2034 through and including December 29, 2023; additionally, Veritex agreed to forbear from testing borrower’s compliance with financial covenants under the loans.

 

Veritex Second Amended Forbearance Agreement. Amendment to the Veritex Forbearance Agreement dated and effective December 29, 2023 between LE, LRM, Veritex, and guarantors (as defined therein); pursuant to the Veritex Second Amended Forbearance Agreement, Veritex agreed to forbear existing defaults under the LE Term Loan Due 2034 and LRM Term Loan Due 2034 through and including March 29, 2024; additionally, Veritex agreed to forbear from testing borrower’s compliance with financial covenants under the loans; expired on March 29, 2024.

 

WHO.  World Health Organization.

 

WSJ Prime rate.  The base rate on corporate loans posted by at least 70% of the ten largest U.S. as published by the Wall Street Journal.  Effective July 27, 2023, the WSJ Prime rate increased to 8.50%.

 

XBRL.  eXtensible Business Reporting Language.

 

Yield.  The percentage of refined products that is produced from crude oil and other feedstocks.

 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 7
Table of Contents

 

Important Information Regarding Forward Looking Statements

 

This report (including information incorporated by reference) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, including, but not limited to, those under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact, including without limitation statements regarding expectations regarding revenue, cash flows, capital expenditures, and other financial items, our business strategy, goals, and expectations concerning our market position, future operations, and profitability, are forward-looking statements.  Forward-looking statements may be identified by use of the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar terms and phrases. Although we believe our assumptions concerning future events are reasonable, several risks, uncertainties, and other factors could cause actual results and trends to differ materially from those projected, including but not limited to:

 

Business and Industry

•  Substantial debt in current liabilities, all of which is currently in default. 

•  Continued inability to meet financial covenants under secured loan agreements. 

•  Restrictive covenants in our debt instruments that limit our ability to undertake certain types of transactions. 

•  Increased costs of capital or a reduction in the availability of credit. 

•  Public health threats, pandemics, and epidemics, such as COVID-19, and the adverse impacts on our business, financial condition, results of operations, and liquidity.

•  Affiliate Common Stock ownership and transactions that could cause conflicts of interest.

•  Operational hazards inherent in transporting, processing, and storing crude oil and condensate and refined products. 

•  Geographical concentration of our assets and customers in West Texas.

•  Competition from companies with more significant financial and other resources.

•  Market changes in insurance that impact premium costs and available coverages.

•  Industry technological developments that outpace our ability to keep up.

 

Downstream and Midstream Operations

•  Commodity price and refined product demand volatility, which can adversely affect our refining margins.

•  Crude oil, other feedstocks, and fuel and utility services price volatility.

•  Effects of geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, and any spread or expansion thereof, including with respect to impacts to commodity prices and other markets.

•  Availability and cost of crude oil and other feedstocks to operate the Nixon facility.

•  Equipment failure and maintenance, which lead to operational downtime.

•  Potential impairment in the carrying value of long-lived assets, which could negatively affect our operating results.

•  Adverse changes in operational cash flow and working capital, shortfalls for which Affiliates may not fund.

•  Critical personnel loss, labor actions, and workplace safety issues.

•  Market share loss, an unfavorable financial condition shift, or the bankruptcy or insolvency of a significant customer.

•  Increases in the cost or availability of third-party vessels, pipelines, trucks, and other means of delivering and transporting our crude oil and condensate, feedstocks, and refined products.

•  Sourcing of a substantial amount, if not all, of our crude oil and condensate from the Eagle Ford Shale.

•  Geographical concentration of our refining operations and customers within the Eagle Ford Shale.

  

•  Severe weather or other climate-related events that affect our facilities or those of our vendors, suppliers, or customers.

•  Failing to effectively execute new business strategies, such as renewable fuels.

•  Our ability to effect and integrate potential acquisitions.

 

Legal, Government, and Regulatory

 

•  Environmental laws and regulations that may require us to make substantial capital improvements to remain compliant or remediate current or future contamination that could lead to material liabilities.

•  Strict laws and regulations regarding personnel and process safety.

•  Uncertainty regarding the impact of current and future sanctions imposed by governments, including the U.S., and other authorities in response to military conflicts.

•  General economic, political, or regulatory developments, including recession, inflation, interest rates, or changes in governmental policies relating to refined petroleum products, crude oil, or taxation.

•  Assessment of penalties by regulatory agencies, such as BOEM, BSEE, OSHA and the TCEQ for violations.

•  Our ability to to resolve the bond dispute with RLI.

•  Our estimates of future AROs related to our pipeline and facilities assets, which may increase.

•  Regulatory changes and other measures related to greenhouse gas emissions, climate change, and an ongoing desire to transition to greater renewable energy solutions.

 

Security

•  A terrorist attack or armed conflict.

•  Increased activism against oil and gas companies

•  Actual or potential cybersecurity threats or loss of data privacy.

 

Common Stock

•  Fluctuations in our stock price that may result in a substantial investment loss.

•  Increasing attention to environmental, social, and governance (ESG) matters.

•  Declines in our stock price due to share sales.

•  Dilution of the equity of current stockholders and the potential decline of our stock price due to the issuance of new Common Stock or Preferred Stock from the large pool of authorized shares that we have available to issue.

•  The potential sale of shares in accordance with Rule 144, which may adversely affect the market.

•  The lack of dividend payments.

•  Failing to maintain adequate internal controls under Section 404(a) of the Sarbanes-Oxley Act.

 

See also the risk factors described in greater detail under “Item 1A.” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC and elsewhere in our subsequent quarterly and periodic reports, including this report.  All forward-looking statements included in this report are based on information available to us on the date of this report.  We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events, or otherwise.

 

Unless the context otherwise requires, references in this report to “Blue Dolphin,” “we,” “us,” “our,” or “ours” refer to Blue Dolphin Energy Company, one or more of its consolidated subsidiaries, or all of them taken as a whole.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 8
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PART I – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

Consolidated Balance Sheets (Unaudited)

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
         
  

(in thousands except share amounts)

 
         

ASSETS

        

CURRENT ASSETS

        

Cash and cash equivalents

 $11,123  $18,713 

Accounts receivable, net

  104   116 

Accounts receivable, related party

  11,722   4,184 

Prepaid expenses and other current assets

  1,122   1,591 

Deposits

  110   110 

Inventory

  28,657   24,576 

Total current assets

  52,838   49,290 
         

LONG-TERM ASSETS

        

Total property and equipment, net

  54,316   54,958 

Operating lease right-of-use assets, net

  100   158 

Restricted cash, noncurrent

  1,000   5 

Surety bonds

  230   230 

Deferred tax assets, net

  -   1,436 

Total long-term assets

  55,646   56,787 
         

TOTAL ASSETS

 $108,484  $106,077 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

CURRENT LIABILITIES

        

Long-term debt less unamortized debt issue costs, current portion (in default)

 $40,581  $39,440 

Interest payable

  1,182   2,596 

Accounts payable

  2,349   1,814 

Accounts payable, related party

  5   889 

Current portion of lease liabilities

  93   147 

Income taxes payable

  1,247   951 

Asset retirement obligations, current portion

  2,999   4,504 

Accrued expenses and other current liabilities

  4,079   5,084 

Total current liabilities

  52,535   55,425 
         

LONG-TERM LIABILITIES

        

Deferred tax liabilities, net

  109   - 

Long-term debt, net of current portion

  2,309   3,745 

Long-term debt, related party, net of current portion

  4,000   4,000 

Long-term interest payable, related party, net of current portion

  1,308   1,308 

Total long-term liabilities

  7,726   9,053 
         

TOTAL LIABILITIES

  60,261   64,478 
         

Commitments and contingencies (Note 15)

          
         

STOCKHOLDERS' EQUITY

        

Common stock ($0.01 par value, 20,000,000 shares authorized; 14,921,968 shares issued at March 31, 2024 and December 31, 2023) (1)

  149   149 

Additional paid-in capital

  39,758   39,758 

Retained earnings

  8,316   1,692 

TOTAL STOCKHOLDERS' EQUITY

  48,223   41,599 
         

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $108,484  $106,077 

 

(1)

Blue Dolphin has 2,500,000 shares of preferred stock, par value $0.10 per share, authorized. At March 31, 2024 and December 31, 2023, there were no shares of preferred stock issued and outstanding.

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 9
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Financial Statements (Continued)
 

Consolidated Statements of Income (Unaudited)

 

BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

  

Three Months Ended March 31,

 
         
  

2024

  

2023

 
  

(in thousands, except share and per-share amounts)

 

REVENUE FROM OPERATIONS

        

Refinery operations

 $89,915  $114,640 

Tolling and terminaling

  1,107   2,021 

Total revenue from operations

  91,022   116,661 
         

COST OF GOODS SOLD

        

Crude oil, fuel use, and chemicals

  76,911   93,987 

Other conversion costs

  2,281   2,170 

Total cost of goods sold

  79,192   96,157 
         

Gross profit

  11,830   20,504 
         

COST OF OPERATIONS

        

LEH operating fee, related party

  172   144 

Other operating expenses

  140   91 

General and administrative expenses

  983   1,207 

Depreciation and amortization

  704   698 

Accretion of asset retirement obligations

  -   35 
         

Total cost of operations

  1,999   2,175 
         

Income from operations

  9,831   18,329 
         

OTHER INCOME (EXPENSE)

        
         

Interest and other income

  148   2 

Interest and other expense

  (1,514)  (1,332)

Total other income (expense)

  (1,366)  (1,330)
         

Income before income taxes

  8,465   16,999 
         

Income tax expense

  (1,841)  (246)
         

Net Income

 $6,624  $16,753 
         

Income per common share:

        

Basic

 $0.44  $1.12 

Diluted

 $0.44  $1.12 
         

Weighted average number of common shares outstanding:

        

Basic

  14,921,968   14,921,968 

Diluted

  14,921,968   14,921,968 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 10
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Financial Statements (Continued)
 

Consolidated Statements of Stockholders’ Equity (Unaudited)

 

  

Common Stock

         
  Shares Issued     Additional     Total 
  and     Paid-In  Retained  Stockholders' 
  

Outstanding

  

Par Value

  

Capital

  

Earnings

  

Equity

 
      

(in thousands except share amounts)

 
                     

Balance at December 31, 2023

  14,921,968  $149  $39,758  $1,692  $41,599 
                     

Net income

  -   -   -   6,624   6,624 
                     

Balance at March 31, 2024

  14,921,968  $149  $39,758  $8,316  $48,223 

 

  

Common Stock

      

Total

 
          

Additional

      

Stockholders'

 
          

Paid-In

  

Accumulated

  

Equity

 
  

Shares Issued

  

Par Value

  

Capital

  

Deficit

  

(Deficit)

 
      

(in thousands except share amounts)

 
                     

Balance at December 31, 2022

  14,921,968  $149  $39,758  $(29,319) $10,588 
                     

Net income

  -   -   -   16,753   16,753 
                     

Balance at March 31, 2023

  14,921,968  $149  $39,758  $(12,566) $27,341 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 11
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Financial Statements (Continued)
 

Consolidated Statements of Cash Flows (Unaudited)

 

BLUE DOLPHIN ENERGY COMPANY & SUBSIDIARIES 

CONSOLIDATED CASH FLOW STATEMENT

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

OPERATING ACTIVITIES

        

Net income

 $6,624  $16,753 

Adjustments to reconcile net income to net cash used in operating activities:

        

Depreciation and amortization

  704   698 

Accretion of asset retirement obligations

  -   35 

Deferred income tax

  1,545   - 

Amortization of debt issue costs

  50   51 

Deferred revenues and expenses

  -   (102)

Changes in operating assets and liabilities

        

Accounts receivable

  12   424 

Accounts receivable, related party

  (7,538)  (11,555)

Prepaid expenses and other current assets

  469   (2,410)

Inventory

  (4,081)  11,204 

Asset retirement obligations

  (1,505)  - 

Accounts payable, accrued expenses and other liabilities

  (1,646)  (1,415)

Accounts payable, related party

  (884)  100 

Net cash provided by (used in) operating activities

  (6,250)  13,783 
         

FINANCING ACTIVITIES

        

Payments on debt principal

  (345)  (560)

Net activity on related-party debt

  -   (1,211)

Net cash used in financing activities

  (345)  (1,771)

Net change in cash, cash equivalents, and restricted cash

  (6,595)  12,012 
         

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD

  18,718   1,521 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD

 $12,123  $13,533 
         

Supplemental Information:

        

Non-cash investing and financing activities:

        

Interest paid

 $2,674  $678 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 12
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Notes to Consolidated Financial Statements 
 

(1) Organization

 

Company Overview

Blue Dolphin was formed in 1986 as a Delaware corporation.  The company is an independent downstream energy company operating in the Gulf Coast region of the United States.  Operations primarily consist of a light sweet-crude, 15,000-bpd crude distillation tower, and approximately 1.25 million bbls of petroleum storage tank capacity in Nixon, Texas.  Blue Dolphin trades on the OTCQX under the ticker symbol “BDCO.”

 

Assets are organized in two business segments: ‘refinery operations’ (owned by LE) and ‘tolling and terminaling services’ (owned by LRM and NPS). ‘Corporate and other’ includes Blue Dolphin subsidiaries BDPL (inactive pipeline and facilities assets), BDPC (inactive leasehold interests in oil and gas wells), and BDSC (administrative services).  See “Note (4)” to our consolidated financial statements for more information about our business segments.

 

Unless the context otherwise requires, references in this report to “we,” “us,” “our,” or “ours,” refer to Blue Dolphin, one or more of its consolidated subsidiaries or all of them taken as a whole.

 

Jonathan Carroll, our Chief Executive Officer, and an Affiliate together controlled 83% of the voting power of our Common Stock as of the filing date of this report.  An Affiliate also operates and manages all Blue Dolphin properties, funds working capital requirements during periods of working capital deficits, guarantees certain of our third-party secured debt, and is a significant customer of our refined products.  Blue Dolphin and certain of its subsidiaries are currently parties to a variety of agreements with Affiliates. See “Note (3)” to our consolidated financial statements for additional disclosures related to Affiliate agreements, arrangements, and risks associated with working capital deficits.

 

Going Concern Assessment

Certain conditions and events were noted that initially caused management to evaluate our ability to continue as a going concern.  These conditions and events include historical working capital deficits and significant current debt in default. We had positive working capital of $0.3 million at  March 31, 2024 compared to a working capital deficit of $6.1 million at  December 31, 2023, representing a $6.4 million improvement. Our significant current debt is primarily the result of bank debt to Veritex and GNCU being in default. Excluding accrued interest, the current portion of long-term debt on our consolidated balance sheets totaled $40.6 million and $39.4 million at at March 31, 2024 and  December 31, 2023, respectively.  The $1.1 million increase in current debt between the periods primarily related to the Kissick Debt falling within the current portion of long-term debt on our consolidated balance sheet at March 31, 2024. 

 

Our current assets totaled $52.8 million at March 31, 2024 compared to $49.3 million at  December 31, 2023, representing a $3.5 million increase.  Our current liabilities totaled $52.5 million at March 31, 2024 compared to $55.4 million at  December 31, 2023, representing a $2.9 million decrease.  Excluding the current portion of long-term debt, our current liabilities totaled $12.0 million at March 31, 2024 compared to $16.0 million at  December 31, 2023, representing a $4.0 million decrease. 

 

Management believes that we have sufficient liquidity to meet our obligations as they become due through the generation of cash flows from operations and liquidation of current working capital amounts for a reasonable period (defined as one year from the issuance of these financial statements).  To bolster working capital reserves, management continues efforts to restructure debt obligations and reduce cash requirements.  Management acknowledges that uncertainty remains related to future operating margins.  However, management has a reasonable expectation of Blue Dolphin's ability to generate adequate working capital for, amongst other requirements, purchasing crude oil and condensate and making payments on our long-term debt.  Our consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

 

Forbearance Agreements

Veritex Forbearance Agreements. Under the Veritex Forbearance Agreement, LE and LRM paid Veritex: (i) $4.3 million in past due principal and interest at the non-default rate (excluding late fees), (ii) $1.0 million into a payment reserve account, and (iii) $0.04 million in Veritex attorney fees. The Veritex Forbearance Agreement expired on September 30, 2023, and was superseded by the Veritex First Amended Forbearance Agreement. The First Amended Forbearance Agreement expired on December 29, 2023, and was superseded by the Veritex Second Amended Forbearance Agreement.  The Veritex Second Amended Forbearance Agreement expired on March 29, 2024.  During each of these forbearance periods, Veritex agreed to forbear from testing borrowers’ compliance with financial covenants as specified in the LE Term Loan Due 2034 and LRM Term Loan Due 2034 and forbear from exercising its rights or remedies with respect to non-compliance with the financial covenants. 

 

Kissick Forbearance Agreement. Pursuant to the Kissick Forbearance Agreement, Kissick Noteholder agreed to forbear from exercising any of its rights and remedies related to existing defaults pertaining to payment violations under the Kissick Debt.  Under the terms of the Kissick Forbearance Agreement, LE agreed to make monthly principal and interest payments totaling $0.5 million beginning in April 2023, continuing on the first of each month through February 2025, with a final payment of $0.4 million to Kissick Noteholder on March 1, 2025. LE paid Kissick Noteholder $1.5 million and $0 for the three months ended March 31, 2024 and 2023. As of the filing date of this report, the Kissick Debt was in forbearance related to past defaults prior to April 2023.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 13
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Notes to Consolidated Financial Statements (Continued)

 

LEH Payment Agreement.  Pursuant to the LEH Payment Agreement, LEH agreed to forbear from exercising any of its rights and remedies related to existing defaults pertaining to payment violations under the BDPL-LEH Loan Agreement.  Under the terms of the LEH Payment Agreement, BDPL agreed to make interest-only monthly payments approximating $0.05 million beginning in May 2023, continuing on the fifteenth of each month through April 2025. Beginning in May 2025, BDPL agreed to make principal and interest monthly payments approximating $0.4 million through April 2027. Interest will be incurred throughout the agreement term, including the interest-only payment period. BDPL paid LEH approximately $0.1 million and $0 for the three months ended March 31, 2024 and 2023. As of the filing date of this report, the BDPL-LEH Loan Agreement was in forbearance related to past defaults prior to May 2023.

 

Defaults. As of March 31, 2024 and through the filing date of this report, we were in default under the NPS Term Loan Due 2031 due to covenant violations.  The Veritex Second Amended Forbearance Agreement expired on March 29, 2024.  The LE Term Loan Due 2034 and LRM Term Loan Due 2034 were in default due to covenant violations for the period March 30, 2024 through the filing date of this report. Defaults may permit lenders to declare the amounts owed under the related loan agreements immediately due and payable, exercise their rights with respect to collateral securing obligors’ obligations, and/or exercise any other rights and remedies available. Any exercise by third parties of their rights and remedies under secured loan agreements that are in default could have a material adverse effect on our business operations, including crude oil and condensate procurement and our customer relationships; financial condition; and results of operations.  In such a case, the trading price of our Common Stock and the value of an investment in our Common Stock could significantly decrease, which could lead to holders of our Common Stock losing their investment in our Common Stock in its entirety.  If we are unable to manage this, we may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operating.

 

Refining Margins

Our results of operations and liquidity are highly dependent upon the margins we receive for our refined products. The dollar per bbl commodity price difference between crude oil and condensate (input) and refined products (output) is the most significant driver of refining margins, and they have historically been subject to wide fluctuations. The general outlook for the oil and natural gas industry for 2024 remains unclear given uncertainties surrounding general macroeconomic conditions related to inflation, interest rates, and capital and credit markets, geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, and COVID-19.

 

Net income for the three months ended March 31, 2024 totaled $6.6 million, or $0.44 per share, compared to net income of $16.8 million, or $1.12 per share, for the three months ended March 31, 2023. The $10.1 million, or $0.68 per share, decrease in net income between the periods resulted from less favorable refining margins on lower refinery throughput, production, and sales volumes. We cannot assure investors that refining margins will remain positive and demand will increase.

 

Working Capital Improvements

We had working capital of $0.3 million at  March 31, 2024 and a working capital deficit of $6.1 million at  December 31, 2023, representing a $6.4 million improvement.  Excluding the current portion of long-term debt, we had $40.9 million and $33.3 million in working capital at  March 31, 2024 and  December 31, 2023, respectively, representing a $7.6 million increase. The significant increase in working capital between the periods was primarily due to increases in accounts receivable - related party and inventory. We continue to actively explore additional funding to refinance and restructure debt and further improve working capital.

 

Operating Risks

Successful execution of our business strategy depends on several critical factors, including having adequate working capital, favorable refining margins, and maintaining operation of the Nixon refinery.

 

●

Working Capital. As noted above, we have historically had working capital deficits primarily due to having significant current debt. Sufficient working capital is necessary to meet contractual, operational, regulatory, and safety needs. Our short-term working capital needs are primarily related to (i) purchasing crude oil and condensate to operate the Nixon refinery, (ii) reimbursing LEH for direct operating expenses and paying the LEH operating fee under the Third Amended and Restated Operating Agreement, (iii) servicing debt, (iv) maintaining and improving the Nixon facility through capital expenditures, and (v) meeting regulatory compliance requirements. Our long-term working capital needs are primarily related to the repayment of long-term debt obligations. To avoid business disruptions and manage cash flow, we optimize receivables and payables by prioritizing payments, optimize inventory levels based on demand, monitor discretionary spending, and carefully manage capital expenditures.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 14
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

●

Refining Margins. Refining margins, which are affected by commodity prices and refined product demand, are volatile, and a reduction in refining margins will adversely affect the amount of cash we will have available for working capital. Crude oil refining is primarily a margin-based business. To improve margins, we must maximize yields of higher value finished petroleum products and minimize costs of feedstocks and operating expenses. When the spread between these commodity prices decreases, our margins are negatively affected. Although an increase or decrease in the commodity price for crude oil and other feedstocks generally results in a similar increase or decrease in commodity prices for finished petroleum products, typically there is a time lag between the two. The effect of crude oil commodity price changes on our finished petroleum product commodity prices therefore depends, in part, on how quickly and how fully the market adjusts to reflect these changes. Unfavorable margins may have a material adverse effect on our earnings, cash flows, and liquidity. To remain competitive in a volatile commodity price environment, we adjust throughput and production based on market conditions and adjust our product slate based on commodities pricing.

 

●

Nixon Refinery Operation. We maintain relationships with suppliers that source and repair key components of the Nixon refinery. We expect our suppliers to maintain an adequate supply of component products and, when components are sent out for repair, to timely deliver components. However, in some cases, increases in demand or supply chain disruptions have led to part and component constraints. We use several suppliers and monitor supplier financial viability to mitigate supply-based risks that could cause a business disruption.

 

General macroeconomic conditions related to inflation, interest rates, and capital and credit markets, geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, and COVID-19 continue to evolve, and the extent to which these factors impact our working capital, commodity prices, refined product demand, supply chain, financial condition, liquidity, results of operations, and future prospects will depend on future developments, which cannot be predicted with any degree of confidence. We can provide no guarantees that: our business strategy will be successful, Affiliates will continue to fund our working capital needs when we experience working capital deficits, we will meet regulatory requirements to provide additional financial assurance (supplemental pipeline bonds) and decommission offshore pipelines and platform assets, we can obtain additional financing on commercially reasonable terms or at all, or margins on our refined products will be favorable. Further, if third parties exercise their rights and remedies under secured loan agreements that are in default, our business, financial condition, and results of operations will be materially adversely affected.  If we are unable to manage this, we may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operating.

 
 

(2)   Principles of Consolidation and Significant Accounting Policies

 

Basis of Presentation

The accompanying unaudited consolidated financial statements, which include Blue Dolphin and its subsidiaries, have been prepared in accordance with GAAP for interim consolidated financial information pursuant to the rules and regulations of the SEC under Article 10 of Regulation S-X and the instructions to Form 10-Q. 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, 2023 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 on Form 10-K for the fiscal year ended  December 31, 2023 as filed with the SEC. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024, or for any other period.

 

Significant Accounting Policies

A summary of significant Blue Dolphin accounting policies 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.  The nature of our business requires that we make estimates and assumptions in accordance with U.S.GAAP.  These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Although commodity price volatility, recession and inflation, armed conflicts in the Middle East and Europe and associated sanctions on Russian crude products, and severe weather resulting from climate change have impacted these estimates and assumptions, we are continually working to mitigate future risks. However, the extent to which these factors may impact our business, financial condition, liquidity, results of operations, and prospects will depend on future developments, which cannot be predicted with any degree of certainty.

 

We assessed certain accounting matters that require consideration of forecasted financial information in context with information reasonably available to us as of March 31, 2024 and through the filing date of this report.  The accounting matters assessed included, but not limited to, our allowance for credit losses, inventory and related reserves, and the carrying value of long-lived assets, assessing Blue Dolphin's ability to continue as a going concern and evaluating the need for a valuation allowance on deferred tax assets.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 15
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Cash, Cash Equivalents, and Restricted Cash. 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. Although management historically deemed this a normal business risk, options to limit risk are being evaluated given current capital, credit, and commodity markets and financial institution health.  Restricted cash, non-current portion at March 31, 2024 and December 31, 2023 reflected amounts held in a payment reserve account by Veritex as security for payments under the LE Term Loan Due 2034. In the event that banks in which we maintain our cash balances (including restricted cash) fail, there can be no assurance that the federal government and the Federal Reserve would intervene.

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported in the consolidated statements of cash flows:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Cash and cash equivalents

 $11,123  $18,713 

Restricted cash, noncurrent

  1,000   5 
  $12,123  $18,718 

 

Accounts Receivable and Allowance for Credit Losses.  Accounts receivable are presented net of any necessary allowance(s) for credit losses.  Receivables are recorded at the invoiced amount and generally do not bear interest. An allowance for credit losses is established, when necessary, based on prior experience and other factors which, in management’s judgment, deserve consideration in estimating bad debts.  Management assesses collectability of the customer’s account based on current aging status, collection history, and financial condition.  Based on a review of these factors, management establishes or adjusts the allowance for specific customers and the entire accounts receivable portfolio.  We had an allowance for credit losses of $0 and $0.06 million at March 31, 2024 and December 31, 2023, respectively.

 

Financial Instruments.  Our financial instruments are comprised of cash and cash equivalents, accounts receivable, accounts payable, and long-term debt. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short maturities. The carrying value of long-term debt approximates fair value as it carries interest rates that fluctuate with the prime rate.

 

Inventory. Inventory primarily consists of refined products, crude oil and condensate, and chemicals.  Inventory is valued at the lower of cost or net realizable value with cost determined by the average cost method, and net realizable value determined based on estimated selling prices less associated delivery costs.  If the net realizable value of our refined 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 goods sold. See “Note (7)” to our consolidated financial statements for additional disclosures related to inventory.

 

Property and Equipment.

Refinery and Facilities. We typically make ongoing improvements to the Nixon facility based on operational needs, technological advances, and safety and regulatory requirements.  We capitalize additions to refinery and facilities assets, and we expense costs for repairs and maintenance as incurred.  We record refinery and facilities at cost less any adjustments for depreciation or impairment.  We adjust the asset and the related accumulated depreciation accounts 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, we compute refinery and facilities assets depreciation using the straight-line method with an estimated useful life of 25 years; we depreciate refinery and facilities assets when placed in service.  We did not record any impairment of our refinery and facilities assets for the periods presented.

 

Pipelines and Facilities. We record our pipelines and facilities at cost less any adjustments for depreciation or impairment.  We computed depreciation using the straight-line method over estimated useful lives ranging from 10 to 22 years. Per FASB ASC guidance, we performed impairment testing of our pipeline and facilities assets in 2016. Upon completion of testing, we fully impaired our pipeline assets at December 31, 2016.

 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 16
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Construction in Progress (CIP). CIP expenditures, including capitalized interest, relate to construction and refurbishment activities and equipment for the Nixon facility.  These expenditures are capitalized as incurred. Depreciation begins once the asset is placed in service.  See “Notes (8) and (11)” to our consolidated financial statements for additional disclosures related to refinery and facilities assets, oil and gas properties, pipelines and facilities assets, and CIP.

 

Leases.  We determine whether a contract or agreement is or contains a lease at inception. If the contract is or includes a lease and has a term greater than one year, we recognize a ROU asset and lease liability as of the commencement date based on the present value of the lease payments over the lease term. We determine the present value of the lease payments by using the implicit rate when readily determinable. If the implicit rate is not defined, we use the incremental borrowing rate to discount lease payments to present value. We adjust lease terms to include options to extend or terminate the lease when it is reasonably certain that we will exercise those options.

 

For operating leases, we record lease cost on a straight-line basis over the lease term; we record lease expenses in the appropriate line on the income statement based on the leased asset’s intended use.  For finance leases, we amortize lease payments for the ROU asset on a straight-line basis over the lesser of the leased asset’s useful life or the lease term; we record amortization expenses on the income statement in ‘depreciation and amortization expense;’ we record interest expense on the income statement in ‘interest and other expense.

’

 

Revenue Recognition. 

Refinery Operations Revenue. We recognize revenue from refined products sales when we meet our performance obligation to the customer.  We meet our performance obligation when the customer receives control of the product. The customer accepts control of the product when the product is lifted.  Under bill and hold arrangements, the customer takes control of the product when added to the customer’s bulk inventory as stored at the Nixon facility. We allocate a transaction price to each separately identifiable refined product load. 

 

We consider a variety of facts and circumstances in assessing the point of a control transfer, including but not limited to: whether the purchaser can direct the use of the refined product, the transfer of significant risks and rewards, our rights to payment, and transfer of legal title. In each case, the term between the sale and when payment is due is not significant.  We include incurred transportation, shipping, and handling costs in the cost of goods sold. We do not include excise and other taxes collected from customers and remitted to governmental authorities in revenue.

 

Tolling and Terminaling Revenue. Tolling and terminaling revenue represents fees under (i) terminal services agreements whereby a customer agrees to pay a certain fee per storage tank based on tank size over time for the storage of products and (ii) tolling agreements, whereby a customer agrees to pay a certain fee per gallon or barrel for throughput volumes moving through the naphtha stabilizer unit and a fixed monthly reservation fee for the use of the naphtha stabilizer unit.

 

We typically satisfy performance obligations for tolling and terminaling operations over time. We determine the transaction price at agreement inception based on the guaranteed minimum amount of revenue over the agreement term. We allocate the transaction price to the single performance obligation that exists under the agreement. We recognize revenue in the amount for which we have a right to invoice. Generally, payment terms do not exceed 30 days.

 

Revenue from storage tank customers may, from time to time, include fees for ancillary services, such as in-tank and tank-to-tank blending.  These services are considered optional to the customer.  The fixed cost under the customer’s storage tank agreement does not include ancillary services fees. We consider ancillary services as a separate performance obligation under the storage tank agreement. We satisfy the performance obligation and recognize the associated fee when we complete the requested service.

 

Deferred Revenue. Deferred revenue represents a liability related to a revenue-producing activity as of the balance sheet date.  We record unearned revenue, which usually consists of customer prepayments, when we receive the cash payment. Once we satisfy the performance obligation, we recognize revenue in conformity with GAAP.

 

Contract Balances. The timing of revenue recognition, billings, and cash collections results in billed accounts receivable and customer pre-payments and deposits (contract liabilities) on our consolidated balance sheet. Amounts are billed as products are lifted and sold or upon signing of bulk sales contracts. Generally, billing occurs subsequent to revenue recognition, resulting in a short-term liability. We sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities. These deposits are liquidated when revenue is recognized. 

 

Unearned Contract Renewal Income. We recognize deferred revenue from suppliers for upfront payments received but not yet earned as a reduction of cost of sales on a straight-line basis over the term of the supply contract.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 17
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Income Taxes. Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Our effective tax rate  may be different than expected if the federal and state statutory rates were applied to income from continuing operations due to certain items that are deductible or included in income for tax purposes that are not deductible or included for financial statement purpose.

 

The benefit of an uncertain tax position is recognized in the financial statements if it meets a minimum recognition threshold. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more-likely-than-not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At  December 31, 2023 and 2022, there were no uncertain tax positions for which a reserve or liability was necessary.

 

Deferred Taxes. Deferred income tax assets and liabilities are recorded for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax assets are reduced by a valuation allowance when we are unable to conclude that realization of the deferred income tax assets is more likely than not.

 

Impairment or Disposal of Long-Lived Assets. We periodically evaluate our long-lived assets for impairment. Additionally, we reassess 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 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.  Management uses significant judgment in forecasting future operating results and projected cash flows.  If conditions or assumptions change, material impairment charges could be necessary.

 

Commodity price market volatility associated with general macroeconomic conditions related to inflation, interest rates, and capital and credit markets, geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, and COVID-19 could affect the value of certain of our long-lived assets.   As of March 31, 2024 and December 31, 2023, we did not record any impairment of our long-lived assets. However, impairment may be required in the future if external events or circumstances change or if internal conditions shift materially.

 

Asset Retirement Obligations. We record a liability for the discounted fair value of an ARO in the period incurred. We also capitalize the corresponding cost by increasing the carrying amount of the related long-lived asset. The liability is accreted towards its future value each period, and we depreciate the capitalized cost over the useful life of the related asset. We recognize a gain or loss if we settle the liability for an amount other than the amount recorded.

 

Refinery and Facilities. We believe we have no legal or contractual obligation to dismantle or remove the refinery and facilities assets. Further, we believe that these assets have indeterminate lives because we cannot reasonably estimate the dates or ranges of dates upon which we would retire these assets.  Management will record an asset retirement obligation for these assets when a definitive obligation arises, and retirement dates are evident.

 

Pipeline and Facilities; Oil and Gas Properties. Management uses significant judgment to estimate future asset retirement costs for our pipelines, related facilities, and oil and gas properties. These costs relate to dismantling and disposing of certain physical assets, plugging and abandoning wells, and restoring land and sea beds. Factors considered include regulatory permitting requirements, asset structural integrity, water depth, third-party equipment availability, and mobilization/demobilization costs.  We review our assumptions and estimates of future abandonment costs on an annual basis.  See “Note (11)” to our consolidated financial statements for additional information related to AROs.

 

Computation of Earnings Per Share. We present basic and diluted EPS.  Basic EPS 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.  We calculate diluted EPS by dividing net income available to common stockholders by the diluted weighted average number of common shares outstanding.  Diluted EPS 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 entity’s earnings.  We do not currently have issued options, warrants, or similar instruments.  Convertible shares, if granted, are not included in the computation of earnings per share if anti-dilutive.  See “Note (14)” to our consolidated financial statements for additional information related to EPS.

 

New Pronouncements Adopted

During the three months ended March 31, 2024, we did not adopt any ASUs.

 

New Pronouncements Issued, Not Yet Effective

 

●

ASU 2023-09 — Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). In December 2023, the FASB issued ASU 2023-09, requiring us to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require us to disaggregate our income taxes paid disclosure by federal and state taxes, with further disaggregation required for significant individual jurisdictions. We will adopt ASU 2023-09 in the fourth quarter of 2025. ASU 2023-09 allows for adoption using either a prospective or retrospective transition method.

 

●

ASU 2023-07 — Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). In November 2023, the FASB issued ASU No. 2023-07, requiring us to disclose significant segment expenses regularly provided to our chief operating decision maker (“CODM”). In addition, ASU 2023-07 will require us to disclose the title and position of our CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within physical years beginning after December 15, 2024.  Early adoption is permitted.  We will adopt ASU 2023-07 in our fourth quarter of 2024 using a retrospective transition method.

   

 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 18
Table of Contents
    
Notes to Consolidated Financial Statements (Continued)
 

(3) Related-Party Transactions

 

Affiliate Agreements

Financial and Operational Agreements.  Blue Dolphin and certain of its subsidiaries are currently parties to several financial and operational agreements with Affiliates.

 

Agreement/Transaction

Parties

Effective Date

Key Terms

Blue Dolphin Guaranty Fee Agreement

Blue Dolphin

Jonathan Carroll

01/01/2023

Related to payoff of Blue Dolphin $2.0 million SBA loan; Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under Blue Dolphin Term Loan Due 2051 as consideration for providing his personal guarantee.

Jet Fuel Purchase Agreements

LE

LEH

04/21/2023

Product agreements for the purchase of jet fuel by LE from LEH; first transaction dated April 21, 2023 for approximately 1.9 million gallons of jet fuel; second transaction dated May 10, 2023 for approximately 2.0 million gallons of jet fuel; the jet fuel was priced at LEH’s product cost; LE sold the products back to LEH under a prior jet fuel sales agreement between the parties.

Amended and Restated Jet Fuel Sales Agreement

LE

LEH

04/01/2023

Jet fuel sales by LE to LEH; 1-year automatic renewals; LEH lifts the jet fuel from LE as needed and sells it to the DLA under preferential pricing terms due to LEH's HUBZone certification.
Affiliate Revolving Credit Agreement

Blue Dolphin and subsidiaries

LEH and affiliates

04/01/2024Credit agreement for working capital purposes up to a maximum of $5.0 million in the aggregate; advances are at LEH's sole discretion; initial term expires on  April 30, 2025; automatically renews for one year periods unless sooner terminated by the parties; interest accrues at the WSJ Prime rate plus 2.00%, compounded annually, and paid quarterly.

LE Amended and Restated Guaranty Fee Agreement

LE

Jonathan Carroll

01/01/2023

Related to payoff of LE $25.0 million Veritex loan; Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under LE Term Loan Due 2034 as consideration for providing his personal guarantee.

LE Amended and Restated Master Services Agreement

LE

Ingleside

03/01/2023

For storage of products intended for customer receipt by barge; tank rental fee $0.1 million per month.

LRM Amended and Restated Guaranty Fee Agreement

LRM

Jonathan Carroll

01/01/2023

Related to payoff of LRM $10.0 million Veritex loan; Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under LRM Term Loan Due 2034 as consideration for providing his personal guarantee.

NPS Guaranty Fee Agreement

NPS

Jonathan Carroll

01/01/2023

Related to payoff of NPS $10.0 million GNCU loan; Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under NPS Term Loan Due 2031 as consideration for providing his personal guarantee.

NPS Terminal Services Agreement

NPS

LEH

11/01/2022

For LEH storage of jet fuel at the Nixon facility; tank rental fee $0.2 million per month; 1-year term on an evergreen basis; either party may cancel upon 60 days’ prior written notice.

Office Sub-Lease Agreement

BDSC

LEH

05/31/23

12-month extension of prior office sublease; term expires 08/31/2024; office lease Houston, Texas; rent approximately $0.003 million per month; management is currently exploring leasing options.

Third Amended and Restated Operating Agreement

Blue Dolphin

LE         LRM

NPS      BDPL

BDPC   BDSC

LEH

04/01/2024

1-year term; expires 04/01/2025 or notice by either party at any time of material breach or 90 days Board notice; LEH receives management fee of 5% of all consolidated operating costs, excluding crude costs, depreciation, amortization, and interest, of Blue Dolphin, LE, LRM, NPS, BDPL, BDPC and BDSC

 

Debt Agreements.  BDPL was a party to the BDPL-LEH Loan Agreement with LEH at March 31, 2024 and December 31, 2023.  Summaries of the debt agreements follow:

 

Loan Description

 

Parties

 

Maturity Date

 

Interest Rate

 

Loan Purpose

         

BDPL-LEH Loan Agreement (in forbearance)

 

BDPL

 

Aug 2018

 

16.00%

 

Original principal amount of $4.0 million; Blue Dolphin working capital

  

LEH

      

 

 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 19
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Forbearance and Defaults.

LEH Payment Agreement.  Pursuant to the LEH Payment Agreement, LEH agreed to forbear from exercising any of its rights and remedies related to existing defaults pertaining to payment violations under the BDPL-LEH Loan Agreement.  Under the terms of the LEH Payment Agreement, BDPL agreed to make interest-only monthly payments approximating $0.05 million beginning in May 2023, continuing on the fifteenth of each month through April 2025. Beginning in May 2025, BDPL agreed to make principal and interest monthly payments approximating $0.4 million through April 2027. Interest will be incurred throughout the agreement term, including the interest-only payment period. BDPL paid LEH approximately $0.1 million and $0 for the three months ended March 31, 2024 and 2023. As of the filing date of this report, the BDPL-LEH Loan Agreement was in forbearance related to past defaults.

 

Covenants, Guarantees and Security.

The BDPL-LEH Loan Agreement contains representations and warranties, affirmative and negative covenants, and events of default that we consider usual and customary for a credit facility of this type.  Certain BDPL property serves as collateral under the BDPL-LEH Loan Agreement.

 

See “Notes (1) and (10)” to our consolidated financial statements for additional information regarding defaults under our secured loan agreements and their potential effects on our business, financial condition, and results of operations.

 

Related-Party Financial Impact

Consolidated Balance Sheets.

Accounts receivable, related party.  Accounts receivable—related party for the sale of jet fuel to LEH totaled $11.7 million and $4.2 at March 31, 2024 and December 31, 2023, respectively. Amounts Blue Dolphin owed to LEH under the Third Amended and Restated Operating Agreement were net settled against amounts LEH owed to LE under the Amended and Restated Jet Fuel Sales Agreement. Excess amounts owed by LEH to LE were reflected in accounts receivable—related party on our consolidated balance sheet.

 

Accounts payable, related party.  Accounts payable, related party totaled approximately $0.0 million and $0.9 million at March 31, 2024 and December 31, 2023.  Accounts payable, related party at December 31, 2023 reflected tank rental fees owed by LE to Ingleside under the LE Amended and Restated Master Services Agreement plus amounts owed to LTRI for previously purchased refinery equipment.

 

Long-term debt, related party, net of current portion and accrued interest payable, related party, net of current portion.

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

LEH

        

BDPL-LEH Loan Agreement (in forbearance)

 $5,308  $5,308 

LEH Total

  5,308   5,308 
         

Less: Long-term debt, related party, current portion

  -   - 

Less: Accrued interest payable, related party, current portion

  -   - 
  $5,308  $5,308 

 

Consolidated Statements of Operations.

Total revenue from operations.

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 
  

(in thousands, except percent amounts)

 

Refinery operations

                

LEH

 $27,394   30.1% $35,345   30.3%

Third-Parties

  62,521   68.7%  79,295   68.0%

Tolling and terminaling

                

LEH

  540   0.6%  540   0.5%

Third-Parties

  567   0.6%  1,481   1.3%
                 
  $91,022   100.0% $116,661   100.0%

 

Blue Dolphin Energy Company
March 31, 2024 │Page 20
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Interest expense.

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Jonathan Carroll

        

Guaranty Fee Agreements

        

Tied to First Term Loan Due 2034

 $98  $102 

Tied to NPS Term Loan Due 2031

  50   50 

Tied to Second Term Loan Due 2034

  41   43 

Tied to Blue Dolphin Term Loan Due 2051

  10   10 

LEH

        

BDPL-LEH Loan Agreement (in forbearance)

  106   160 
  $305  $365 

 

Other.  BDSC received sublease income from LEH totaling $0.01 million for both three-month periods ended March 31, 2024 and 2023.

 

The LEH operating fee, related party totaled $0.2 million for the three-month period ended March 31, 2024 compared to approximately $0.1 million for the three-month period ended March 31, 2023. The increase between the periods related to higher manufacturing overhead costs including insurance.

 

Lease expense associated with the LE Amended and Restated Master Services Agreement totaled $0.3 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively.
 

(4) Revenue and Segment Information

 

We have two reportable business segments: (i) refinery operations, which derives revenue from refined product sales, and (ii) tolling and terminaling, which derives revenue from storage tank rental fees, ancillary services fees (such as for in-tank blending) and tolling and reservation fees for use of the naphtha stabilizer at the Nixon refinery. ‘Corporate and other’ as presented in the segment information includes BDSC, BDPL, and BDPC.

 

Revenue from Contracts with Customers

Disaggregation of Revenue.  We present revenue in the table below under ‘Segment Information’ separated by business segment because management believes this presentation is beneficial to users of our financial information.

 

Receivables from Contracts with Customers.  We present accounts receivable from contracts with customers as accounts receivable, net on our consolidated balance sheets.

 

Contract Liabilities.  Our contract liabilities consist of unearned revenue from customers in the form of prepayments.  We include unearned revenue in accrued expenses and other current liabilities on our consolidated balance sheets.  See “Note (9)” to our consolidated financial statements for more information related to unearned revenue.

 

Remaining Performance Obligations.  Most of our customer contracts are settled immediately and therefore have no remaining performance obligations.

 

Contract Balances

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Accounts receivable (including related-party), beginning of period

 $4,300  $1,148 

Accounts receivable (including related-party), end of period

  11,826   4,300 
         

Unearned revenue, beginning of period

 $3,243  $3,888 

Unearned revenue, end of period

  2,805   3,243 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 21
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Segment Information

Business segment information for the periods indicated (and as of the dates indicated) was as follows:

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Refinery operations

 $89,915  $114,640 

Tolling and terminaling

  1,107   2,021 

Total revenue from operations

  91,022   116,661 
         

Intercompany processing fees(1)

        

Refinery operations

  (503)  (576)

Tolling and terminaling

  503   576 

Total intercompany processing fees

  -   - 
         

Costs of good sold(2)

        

Refinery operations

  (78,782)  (95,799)

Tolling and terminaling

  (410)  (358)

Total costs of goods sold

  (79,192)  (96,157)
         

Gross profit

        

Refinery operations

  10,630   18,265 

Tolling and terminaling

  1,200   2,239 

Total gross profit

  11,830   20,504 
         

Other operating and general and administrative expenses(3)

        

Refinery operations

  (409)  (478)

Tolling and terminaling

  (23)  (470)

Corporate and other

  (863)  (530)

Total other operating and general and administrative expenses

  (1,295)  (1,478)
         

Depreciation and amortization

        

Refinery operations

  (301)  (304)

Tolling and terminaling

  (342)  (342)

Corporate and other

  (61)  (52)

Total depreciation and amortization

  (704)  (698)
         

Interest and other non-operating expenses, net

        

Refinery operations

  (734)  (677)

Tolling and terminaling

  (496)  (470)

Corporate and other

  (136)  (183)

Total interest and other non-operating expenses, net

  (1,366)  (1,330)
         

Income before income taxes

        

Refinery operations

  9,186   16,806 

Tolling and terminaling

  339   957 

Corporate and other

  (1,060)  (764)

Total income before income taxes

  8,465   16,999 
         

Income tax expense

  (1,841)  (246)
         

Net income

 $6,624  $16,753 

 

(1)

Fees associated with an intercompany tolling agreement related to naphtha volumes.

(2)

Cost of goods sold within tolling and terminaling includes terminal operating expenses and an allocation of other costs (e.g., insurance and maintenance).

(3)

General and administrative expenses within refinery operations includes the LEH operating fee, related party, other operating expenses, and accretion of asset retirement obligations.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 22
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Capital expenditures

        

Refinery operations

 $-  $- 

Tolling and terminaling

  -   - 

Corporate and other

  -   - 

Total capital expenditures

 $-  $- 

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Identifiable assets

        

Refinery operations

 $88,959  $86,565 

Tolling and terminaling

  17,948   16,464 

Corporate and other

  1,577   3,048 

Total identifiable assets

 $108,484  $106,077 

     
 

(5) 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 cash balances at financial institutions in Houston, Texas. The FDIC insures certain financial products up to a maximum of $250,000 per depositor.  At March 31, 2024 and December 31, 2023, our cash balances (including restricted cash) exceeded the FDIC insurance limit per depositor by $11.4 million and $18.2 million, respectively. Instability and volatility in the capital, credit, and commodity markets, as well as with financial institutions, could adversely affect our cash balances (including restricted cash) in excess of FDIC insurance limits per depositor. In the event that banks in which we maintain our cash balances (including restricted cash) fail, there can be no assurance that the federal government and the Federal Reserve would intervene.

 

Key Supplier

Operation of the Nixon refinery depends on our ability to purchase adequate amounts of crude oil and condensate. On  December 29, 2023, we entered a new crude supply agreement with MVP, effective  January 1, 2024. This agreement provides a firm source of light-sweet Eagle Ford crude oil to the Nixon facility under improved credit terms, and management believes that MVP can provide us with adequate amounts of crude oil and condensate for the foreseeable future.  Related to the crude supply agreement, MVP stores crude oil at the Nixon facility under a terminal services agreement. At March 31, 2024, accounts payable for crude oil and condensate was $1.3 million.

 

During 2023, we operated under a crude supply agreement with Tartan.  Tartan also stored crude oil at the Nixon facility under a terminal services agreement.  In a letter dated October 31, 2023, Tartan provided LE and NPS the required 60 days’ notice of its intention to terminate the crude supply agreement and terminal services agreement. The effective date of the termination was December 31, 2023.  During Q1 2023, the vast majority of our crude was sourced from Tartan under the crude supply agreement.  At March 31, 2023, accounts payable for crude oil and condensate was $0.

 

Our financial health has been materially and adversely affected by significant current debt, certain of which is in default, historical net losses, working capital deficits, and margin volatility. If we are required to obtain our crude oil and condensate without the benefit of a long-term crude supply agreement, our exposure to the risks associated with volatile crude oil prices  may increase, crude oil transportation costs could increase, and our liquidity  may be reduced. Similarly, if producers experience crude supply constraints and increased transportation costs, our crude acquisition costs  may rise, or we  may not receive sufficient amounts to meet our needs, which could result in refinery downtime and could materially affect our business, financial condition, and results of operations.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 23
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Customers

Significant Customers. We routinely assess the financial strength of our customers.  To date, we have not experienced significant write-downs in accounts receivable balances.  We believe that our accounts receivable credit risk exposure is limited.

 

          

Portion of

 
          

Accounts

 
  

Number

  

% Total

  

Receivable at

 
  

Significant

  

Revenue from

  

March 31,

 

Three Months Ended

 

Customers

  

Operations

  

(in millions)

 
             

March 31, 2024

  3   81.3% $11.7 

March 31, 2023

  3   65.7% $11.6 

 

One of our significant customers is LEH, an Affiliate. The Affiliate purchases our jet fuel under the Amended and Restated Jet Fuel Sales Agreement and sells the jet fuel to the DLA under preferential pricing terms due to its HUBZone certification.  The jet fuel, which is stored at the Nixon Facility, is lifted by the Affiliate as needed.  For the three months ended March 31, 2024 and 2023, the Affiliate accounted for 30.7% and 30.3% of total revenue from operations, respectively.

 

Customer Concentration.  Our customer base consists of refined petroleum product wholesalers.  Economic changes similarly affect our customers positively or negatively, which impacts our overall exposure to credit risk. Economic changes include uncertainties related to commodity price volatility, recession and inflation, and armed conflicts in the Middle East and Europe and associated sanctions on Russian crude products.  Historically, we have had no significant problems collecting our accounts receivable.

 

Refined Product Sales

We sell our products primarily in the U.S. within PADD 3.  Occasionally we sell refined products to customers that export to other countries, such as naphtha and distillate to Mexico.  Total refined product sales by distillation (from light to heavy) for the periods indicated consisted of the following:

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 
  

(in thousands, except percent amounts)

 
                 

LPG mix

 $61   0.1% $55   0.0%

Naphtha

  18,113   20.1%  20,729   20.7%

Jet fuel

  27,394   30.5%  35,345   35.9%

HOBM

  20,535   22.8%  33,488   18.3%

AGO

  23,812   26.5%  25,023   25.1%
  $89,915   100.0% $114,640   100.0%

 

An Affiliate, LEH, purchases all our jet fuel.  See “Note (3)” to our consolidated financial statements for additional disclosures related to Affiliate agreements and arrangements.
 

(6) Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Prepaid insurance

 $623  $1,168 

Other prepaids

  473   230 

Prepaid easement renewal fees

  26   32 

Prepaid crude oil and condensate

  -   161 
  $1,122  $1,591 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 24
Table of Contents
  
Notes to Consolidated Financial Statements (Continued)
  
 

(7) Inventory

 

Inventory as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Naphtha

 $12,680  $8,782 

Jet fuel

  9,409   8,570 

HOBM

  4,316   5,144 

Crude oil and condensate

  1,889   1,494 

Chemicals

  196   160 

AGO

  125   392 

Propane

  29   24 

LPG mix

  13   10 
  $28,657  $24,576 

 
 

(8) Property, Plant and Equipment, Net

 

Property, plant and equipment, net, as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Refinery and facilities

 $72,675  $72,675 

Land

  566   566 

Other property and equipment

  913   913 
   74,154   74,154 
         

Less: Accumulated depreciation and amortiation

  (23,608)  (22,966)
   50,546   51,188 
         

Construction in progress

  3,770   3,770 
  $54,316  $54,958 

 
 

(9) Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Unearned revenue from contracts with customers

 $2,805  $3,243 

Accrued fines and penalties

  522   522 

Insurance

  264   467 

Other payable

  165   297 

Customer deposits

  163   163 

Taxes payable

  160   142 

Board of director fees payable

  -   250 
  $4,079  $5,084 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 25
Table of Contents
  
Notes to Consolidated Financial Statements (Continued)
  
 

(10) Third-Party Long-Term Debt

 

Loan Agreements

 

          

Monthly Principal

       
    

Principal

    

and Interest Payment

       

Loan Description

 

Parties

 

(in millions)

  

Maturity

 

(in millions)

  

Interest Rate

  

Loan Purpose

Veritex Loans

                 

LE Term Loan Due 2034 (in default) (1)

 

LE

 $25.0  

June 2034

 $0.3  

WSJ Prime + 2.75%

  

Refinance loan; capital improvements

  

Veritex

               

LRM Term Loan Due 2034 (in default) (1)

 

LRM

 $10.0  

December 2034

 $0.1  

WSJ Prime + 2.75%

  

Refinance bridge loan; capital improvements

  

Veritex

               

Kissick Debt (in forbearance)(2)

 

LE

 $11.7  

January 2018

 $0.5   6.25% 

Working capital

  

Kissick

               

GNCU Loan

                 

NPS Term Loan Due 2031(in default) (3)

 

NPS

 $10.0  

October 2031

 $0.1   5.75% 

Working capital

  

GNCU

               

SBA EIDLs

                 

Blue Dolphin Term Loan Due 2051 (as modified) (4)

 

Blue Dolphin

 $2.0  

June 2051

 $0.01   3.75% 

Working capital

  

SBA

               

LE Term Loan Due 2050 (5)

 

LE

 $0.15  

August 2050

 $0.0007   3.75% 

Working capital

  

SBA

               

NPS Term Loan Due 2050 (5)

 

NPS

 $0.15  

August 2050

 $0.0007   3.75% 

Working capital

  

SBA

               

Equipment Loan Due 2025 (6)

 

LE

 $0.07  

October 2025

 $0.0013   4.50% 

Equipment Lease Conversion

  

Texas First

               

 

(1)

Restricted cash, noncurrent totaled $1.0 million and $0.0 at March 31, 2024 and December 31, 2023, respectively. Restricted cash, noncurrent reflects amounts held by Veritex in a payment reserve account, which is required to have a balance of $1.0 million.  Although the amount at December 31, 2023 was $0, the payment reserve account was fully replenished on January 2, 2024.

(2)

Original principal amount was $8.0 million; pursuant to a 2017 sixth amendment, principal under the Kissick Debt increased by $3.7 million.

(3)

Loan requires monthly interest-only payments for the first thirty-six (36) months. Afterwards, principal and interest payments are due monthly through loan maturity. First payment due in  November 2024.

(4)

Original principal amount was $0.5 million; the Blue Dolphin Term Loan Due 2051 was modified to increase the principal amount by $1.5 million. Payments deferred for thirty (30) months; first payment due and paid in  November 2023; interest accrues during deferral period; loan not forgivable.

(5)

Payments deferred for thirty (30) months; first payment made in  February 2023; interest accrued during deferral period; loan not forgivable.

(6)

In  May 2019, LE entered into 12-month equipment rental agreement with an option to purchase backhoe at maturity; equipment rental agreement matured in  May 2020; in  October 2020, LE entered into the Equipment Loan Due 2025 to finance the backhoe purchase; backhoe used at the Nixon facility.

 

Outstanding Principal, Debt Issue Costs, and Accrued Interest

Third-party long-term debt, including outstanding principal and accrued interest, as of the dates indicated was as follows:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Veritex Loans

        

LE Term Loan Due 2034 (in default)

 $19,607  $19,858 

LRM Term Loan Due 2034 (in default)

  8,163   8,260 

Kissick Debt (in forbearance)

  5,751   7,147 

GNCU Loan

        

NPS Term Loan Due 2031 (in default)

  9,975   9,975 

SBA EIDLs

        

BDEC Term Loan Due 2051

  2,125   2,135 

LE Term Loan Due 2050

  161   162 

NPS Term Loan Due 2050

  161   162 

Equipment Loan Due 2025

  25   29 
   45,968   47,728 
         

Less: Current portion of long-term debt, net

  (40,581)  (39,440)

Less: Unamortized debt issue costs

  (1,896)  (1,947)

Less: Accrued interest payable

  (1,182)  (2,596)
  $2,309  $3,745 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 26
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Unamortized debt issue costs associated with the Veritex and GNCU loans as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Veritex Loans

        

LE Term Loan Due 2034 (in default)

 $1,674  $1,674 

LRM Term Loan Due 2034 (in default)

  768   768 

GNCU Loan

        

NPS Term Loan Due 2031 (in default)

  730   730 
         

Less: Accumulated amortization

  (1,276)  (1,225)
  $1,896  $1,947 

 

Amortization expense was $0.05 million for both three-month periods ended March 31, 2024 and 2023.

 

Accrued interest related to third-party long-term debt, reflected as accrued interest payable in our consolidated balance sheets, as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Kissick Debt (in forbearance)

 $773  $2,169 

Veritex Loans

        

LE Term Loan Due 2034 (in default)

  176   181 

LRM Term Loan Due 2034 (in default)

  69   70 

GNCU Loan

        

NPS Term Loan Due 2031 (in default)

  17   17 

SBA EIDLs

        

BDEC Term Loan Due 2051

  125   135 

LE Term Loan Due 2050

  11   12 

NPS Term Loan Due 2053

  11   12 
   1,182   2,596 

Less: Accrued interest payable

  (1,182)  (2,596)

Long-term Interest Payable, Net of Current Portion

 $-  $- 

 

The debt associated with the LE Term Loan Due 2034, LRM Term Loan Due 2034, and NPS Term Loan Due 2031 was classified within long-term debt, current portion on our consolidated balance sheets at March 31, 2024 and December 31, 2023 due to being in default.  The Kissick Debt fell within long-term debt, current portion on our consolidated balance sheet at March 31, 2024 compared to long-term debt, net of current portion at  December 31, 2023 due to principal payments being due within the next twelve months.

 

Forbearance and Defaults

Veritex First Amended Forbearance Agreement.  Under the Veritex Forbearance Agreement, LE and LRM paid Veritex: (i) $4.3 million in past due principal and interest at the non-default rate (excluding late fees), (ii) $1.0 million into a payment reserve account, and (iii) $0.04 million in Veritex attorney fees. The Veritex Forbearance Agreement expired on September 30, 2023, and was superseded by the Veritex First Amended Forbearance Agreement. The First Amended Forbearance Agreement expired on December 29, 2023, and was superseded by the Veritex Second Amended Forbearance Agreement.  The Veritex Second Amended Forbearance Agreement expired on March 29, 2024.  During each of these forbearance periods, Veritex agreed to forbear from testing borrowers’ compliance with financial covenants as specified in the LE Term Loan Due 2034 and LRM Term Loan Due 2034 and forbear from exercising its rights or remedies with respect to non-compliance with the financial covenants. 

 

Kissick Forbearance Agreement. Pursuant to the Kissick Forbearance Agreement, Kissick Noteholder agreed to forbear from exercising any of its rights and remedies related to existing defaults pertaining to payment violations under the Kissick Debt.  Under the terms of the Kissick Forbearance Agreement, LE agreed to make monthly principal and interest payments totaling $0.5 million beginning in April 2023, continuing on the first of each month through February 2025, with a final payment of $0.4 million to Kissick Noteholder on March 1, 2025. LE paid Kissick Noteholder $1.5 million and $0 for the three months ended March 31, 2024 and 2023. As of the filing date of this report, the Kissick Debt was in forbearance related to past defaults.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 27
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Defaults. As of March 31, 2024 and through the filing date of this report, we were in default under the NPS Term Loan Due 2031 due to covenant violations.  We were also in default under the LE Term Loan Due 2034 and LRM Term Loan Due 2034; the Veritex Second Amended Forbearance Agreement expired on March 29, 2024. Defaults may permit lenders to declare the amounts owed under the related loan agreements immediately due and payable, exercise their rights with respect to collateral securing obligors’ obligations, and/or exercise any other rights and remedies available. Any exercise by third parties of their rights and remedies under secured loan agreements that are in default could have a material adverse effect on our business operations, including crude oil and condensate procurement and our customer relationships; financial condition; and results of operations.  In such a case, the trading price of our Common Stock and the value of an investment in our Common Stock could significantly decrease, which could lead to holders of our Common Stock losing their investment in our Common Stock in its entirety.

 

We can provide no assurance that: (i) our assets or cash flow will be sufficient to fully repay borrowings under secured loan agreements that are in default, either upon maturity or if accelerated, (ii) LE, LRM, NPS, or BDPL will be able to refinance or restructure the debt, and/or (iii) third parties will provide future forbearances or default waivers, particularly if the banks with whom we have relationships fail. If one or more banks fail, we could be exposed to additional events of default (if not cured or waived) under existing secured loan agreements. Defaults under our secured loan agreements and any exercise by third parties of their rights and remedies related to such defaults may have a material adverse effect on our business, the trading price of our Common Stock, and on the value of an investment in our Common Stock, and holders of our Common Stock could lose their investment in our Common Stock in its entirety. If the debt associated with secured loan agreements is accelerated and we are unable to refinance or restructure the debt or obtain default waivers, we may have to consider other options, including selling assets, raising additional debt or equity capital, cutting costs, reducing cash requirements, filing bankruptcy, or ceasing operating. See “Notes (1) and (3)” to our consolidated financial statements for additional information regarding defaults under our secured loan agreements and their potential effects on our business, financial condition, and results of operations.

 

Guarantees and Security

 

Loan Description

Guarantees

Security

Veritex Loans

  

LE Term Loan Due 2034 (in default)

•    USDA

•    First priority lien on Nixon facility’s business assets (excluding accounts receivable and inventory)
 •    Jonathan Carroll(1)•    Assignment of all Nixon facility contracts, permits, and licenses
 •    Affiliate cross-guarantees•    Absolute assignment of Nixon facility rents and leases, including tank rental income
  •    $5.0 million life insurance policy on Jonathan Carroll

LRM Term Loan Due 2034 (in default)

•    USDA

•    Second priority lien on rights of LE in crude distillation tower and other collateral of LE

 •    Jonathan Carroll(1)•    First priority lien on real property interests of LRM
 •    Affiliate cross-guarantees•    First priority lien on all LRM fixtures, furniture, machinery, and equipment
  •    First priority lien on all LRM contractual rights, general intangibles, and instruments, except with respect to LRM rights in its leases of certain specified tanks for  which Veritex has second priority lien
  •    Substantially all assets

Kissick Debt (in forbearance)(2)

-•    Subordinated deed of trust that encumbers the crude distillation tower and general assets of LE

GNCU Loan

  

NPS Term Loan Due 2031 (in default)

•    USDA•    Deed of trust lien on approximately 56 acres of land and improvements owned by LE
 •    Jonathan Carroll(1)•    Leasehold deed of trust lien on certain property leased by NPS from LE
 •    Affiliate cross-guarantees•    Assignment of leases and rents and certain personal property

SBA EIDLs

  

Blue Dolphin Term Loan Due 2051

-•    Business assets (e.g., machinery and equipment, furniture, fixtures, etc.)

LE Term Loan Due 2050

-•    Business assets (e.g., machinery and equipment, furniture, fixtures, etc.)

NPS Term Loan Due 2050

-•    Business assets (e.g., machinery and equipment, furniture, fixtures, etc.)

Equipment Loan Due 2025

-•    First priority security interest in the equipment (backhoe).

 

 

(1)

Jonathan Carroll was required to personally guarantee repayment of borrowed funds and accrued interest.

 

(2)

Subject to the Kissick Subordination Agreement.

  

Representations, Warranties, and Covenants

The First Term Loan Due 2034, Second Term Loan Due 2034, NPS Term Loan Due 2031, BDEC Term Loan Due 2051, LE Term Loan Due 2050, and NPS Term Loan Due 2050 contain representations and warranties, affirmative and negative covenants, and events of default that we consider usual and customary for bank facilities of these types.  Specifically, the First Term Loan Due 2034 contains quarterly debt service coverage and total combined current assets ratios and annual current and debt to net worth ratios; in addition, LE must maintain quarterly total combined debt and total combined tangible net worth ratios. The First Term Loan Due 2034 also requires that a $1.0 million payment reserve account be maintained.  The Second Term Loan Due 2034 contains quarterly total combined current assets, total combined current liabilities, and total combined debt ratios and annual current and debt to net worth ratios. The NPS Term Loan Due 2031 requires annual maintenance of debt service coverage and current ratios. There are no covenants associated with the Kissick Debt, BDEC Term Loan Due 2051, LE Term Loan Due 2050, NPS Term Loan Due 2050, and the Equipment Loan Due 2025.

 

 

(11) AROs

 

Refinery and Facilities

Management has concluded that there is no legal or contractual obligation to dismantle or remove refinery and facilities assets. Management believes that 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 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.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 28
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Pipelines and Facilities and Oil and Gas Properties

We have AROs associated with decommissioning our pipelines and facilities assets, as well as plugging and abandoning 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, and we depreciated the amount added to property and equipment. From time to time we record an increase in liability or an impairment due to changes in estimates or the timing of decommissioning the assets. During the three months ended March 31, 2024 and 2023 we did not record an increase in liability or an impairment related to our pipeline and facilities assets.

 

Because our pipelines and facilities assets have been inactive for an extended period, BOEM mandated that they be decommissioned. In October 2023, management met with BSEE to discuss BDPL’s path forward for meeting decommissioning requirements.  Management worked with a consultant to develop a decommissioning plan, and BDPL is following the plan. Separately, management is exploring alternatives to reactivate the assets under a potential alternate Rights-of-Use and Easement (RUE).  Based on updated estimates for pipeline decommissioning, platform removal, and associated costs, as well as resource availability and projected weather conditions, we believe decommissioning and remediation of all associated INCs will be completed by the end of the third quarter of 2024.  However, BDPL’s work plan does not relieve BDPL of its obligations to comply with BSEE’s mandate or of BSEE’s authority to impose financial penalties. Further, there can be no assurance that BDPL will be able to complete the anticipated work or predict the outcome of BSEE INCs. Accordingly, we did not record a liability related to potential penalties on our consolidated balance sheets as of March 31, 2024 and December 31, 2023.  At March 31, 2024 and December 31, 2023, BDPL maintained $3.0 million and $4.5 million, respectively, in AROs related to abandonment of these assets, which amount does not include potential penalties.

 

Due to BDPL’s failure to complete decommissioning of the offshore pipeline and platform assets and remedy associated INCs within the timeframe mandated by BSEE, BDPL could be subject to regulatory oversight and enforcement, including but not limited to failing to correct an INC, civil penalties, and revocation of BDPL’s operator designation, which could have a material adverse effect on our earnings, cash flows, and liquidity.  On January 26, 2024, BSEE assessed a civil penalty of $0.2 million against BDPL for failure to complete annual platform inspections in a timely manner.  We recorded a liability for the maximum proposed amount of $0.2 million on our consolidated balance sheets within accrued expenses and other current liabilities as of  March 31, 2024.  Although BDPL filed an appeal to the civil penalty on  March 25, 2024, BDPL filed a motion to withdraw the appeal on April 17, 2024.  BDPL paid the civil penalty related to platform inspections on April 19, 2024.

 

ARO liability as of the dates indicated was as follows:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

AROs, at the beginning of the period

 $4,504  $3,710 

Changes in estimates of existing obligations

  -   1,558 

Liabilities settled

  (1,505)  (823)

Accretion expense

  -   59 
         

Less: AROs, current portion

  (2,999)  (4,504)

Long-term AROs, at the end of the period

 $-  $- 

 

See “Note (15)” to our consolidated financial statements for disclosures related to decommissioning of our offshore pipelines and platform assets and related risks.
 

(12) Lease Obligations

 

Lease Obligations

Office Lease.  We maintain our corporate headquarters in Houston, Texas.  In May 2023, BDSC signed a 12-month extension to its existing operating lease. The extended term commenced on September 1, 2023 and expires on August 31, 2024. Under the amended agreement, the annual rent was reduced from $31.00 per square foot to $30.00 per square foot, resulting in a monthly base rental amount of $0.02 million.  Management is currently exploring leasing options.

 

An Affiliate, LEH, subleases a portion of the Houston office space. BDSC received sublease income from LEH totaling $0.01 million for both three-month periods ended March 31, 2024 and 2023. See “Note (3)” to our consolidated financial statements for additional disclosures related to the Affiliate sub-lease.

 

Tank Lease. LE leases tanks from Ingleside under the LE Amended and Restated Master Services Agreement. Lease expense associated with the LE Amended and Restated Master Services Agreement totaled $0.3 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. Due to its one-year term, the lease is being treated as short term.  As a result, the lease was not recorded on our balance sheet. See “Note (3)” to our consolidated financial statements for additional disclosures related to the LE Amended and Restated Master Services Agreement.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 29
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

The following table presents the lease-related assets and liabilities recorded on the consolidated balance sheet:

 

   

March 31,

  

December 31,

 
 

Balance Sheet Location

 

2024

  

2023

 
   

(in thousands)

 

Assets

         

Operating lease ROU assets

Operating lease ROU assets

 $994  $787 

Less: Accumulated amortization on operating lease assets

Operating lease ROU assets

  (894)  (629)
          

Total lease assets

  100   158 
          

Liabilities

         

Current

         

Operating lease

Current portion of lease liabilities

  93   147 
          

Noncurrent

         

Operating lease

Long-term lease liabilities, net of current

  -   - 

Total lease liabilities

 $93  $147 

 

Weighted average remaining lease term in years

    

Operating lease

  0.42 

Weighted average discount rate

    

Operating lease

  8.25%

 

The following table presents information related to lease costs incurred for operating and finance leases:

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Operating lease costs

 $62  $51 

Short-term lease expense, related party

  300   100 

Total lease cost

 $362  $151 

 

The table below presents supplemental cash flow information related to leases as follows:

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Cash paid for amounts included in the measurement of lease liabilities:

        
         

Operating cash flows for operating lease

 $54  $57 

 

As of March 31, 2024, maturities of lease liabilities for the periods indicated were as follows:

 

  

Operating

 

March 31,

 

Lease

 
  

(in thousands)

 
     

2025

 $93 
  $93 

 

Future minimum annual lease commitments that are non-cancelable:

 

  

Operating

 

March 31,

 

Lease

 
  

(in thousands)

 

2025

 $96 
  $96 

 

Blue Dolphin Energy Company
March 31, 2024 │Page 30
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)
  
 

(13) Income Taxes

 

The Inflation Reduction Act ("IRA") was enacted into law in August 2022.  The IRA imposes a 15% alternative minimum tax on corporations whose average annual adjusted financial statement income during the most recently completed three-year period exceeds $1.0 billion. We do not fall within the category of “applicable corporations” and are therefore exempt from payment of an alternative minimum tax.

 

Tax Provision

The provision for income tax benefit (expense) for the periods indicated was as follows:

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Current

        

Federal

 $(215) $(115)

State

  (81)  (131)

Deferred

        

Federal

  (1,545)  (3,427)

Change in valuation allowance

  -   3,427 
         

Total provision for income taxes

 $(1,841) $(246)

 

GAAP treats Texas margins tax, a form of business tax imposed on an entity’s gross profit rather than its net income, like an income tax for financial reporting purposes.

 

Deferred income taxes as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Deferred tax assets:

        

NOL and capital loss carryforwards

 $5,019  $6,014 

Business interest expense

  2,333   2,534 

Start-up costs (crude oil and condensate processing facility)

  233   254 

ARO liability/deferred revenue

  630   946 

Other

  59   54 

Total deferred tax assets

  8,274   9,802 
         

Deferred tax liabilities:

        

Basis differences in property and equipment

  (8,383)  (8,366)

Total deferred tax liabilities

  (8,383)  (8,366)
   (109)  1,436 
         

Deferred tax assets (liabilities), net

 $(109) $1,436 

 

Deferred Income Taxes

Balances for deferred income tax represent the effects of temporary differences between carrying amounts and the actual income tax basis of our assets and liabilities; the balances also reflect NOL carryforwards. We record the balances based on tax rates we expect to be in effect when paid. NOL carryforwards and deferred tax assets represent amounts available to reduce future taxable income.

 

Valuation Allowance.  As of each reporting date, management considers new evidence, both positive and negative, to determine the realizability of deferred tax assets.  This assessment (of whether there is more than a 50% probability that our deferred tax asset is realizable) depends on the generation of future taxable income before the expiration of any NOL carryforwards. During the year ended  December 31, 2023, the valuation allowance was reduced to zero based upon the expected utilization of the net deferred tax asset as a result of positive evidence that was evaluated, including recent earnings history and expectations for future taxable income.

 

At   March 31, 2024, there were no uncertain tax positions for which a reserve or liability was necessary. 

 

NOL Carryforwards

Under IRC Section 382, a corporation that undergoes an “ownership change” is subject to limitations on using 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 stockholders who own more than 5% (after applying certain look-through rules) increases by more than fifty percent [50% over such stockholders’ lowest percentage ownership during the testing period (generally three years)]. Based on the tax rule, ownership changes occurred in 2005 and 2012. The 2005 ownership change related to a series of private placements; the 2012 ownership change related to a reverse acquisition.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 31
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

The 2005 and 2012 ownership changes limit the use of pre-change NOL carryforwards to offset future taxable income. The annual use limitation generally equals the value of the common stock, on an aggregate basis, when the ownership change occurred multiplied by a specified tax-exempt interest rate. The 2012 ownership change will subject approximately $16.3 million in NOL carryforwards generated before the ownership change to an annual use limitation of approximately $0.6 million per year. We  may use any unused portions of the limitation in subsequent years. Because of the yearly restriction, approximately $6.7 million in NOL carryforwards generated before the 2012 ownership change will expire unused and are excluded in the NOL carryforward presented below. NOL carryforwards generated after the 2012 ownership change but before 2018 are not subject to an annual use limitation; we can use these NOL carryforwards for 20 years in addition to NOL carryforward amounts generated before the ownership change. NOL carryforwards generated beginning in 2018  may only be used to offset 80% of taxable income and are carried forward indefinitely.

 

NOL Carryforwards Available for Use. 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):

 

  

Net Operating Loss Carryforward

     
  

Pre-

  

Post-

     
  

Ownership

  

Ownership

     
  

Change

  

Change

  

Total

 
  

(in thousands)

 
             

Balance at December 31, 2022

 $5,147  $45,624  $50,771 
             

Net operating losses used and expired

  (638)  (21,493)  (22,131)
             

Balance at December 31, 2023

 $4,509  $24,131  $28,640 
             

Net operating losses used and expired

  (638)  (4,101)  (4,739)
             

Balance at March 31, 2024

 $3,871  $20,030  $23,901 

    
 

(14) Earnings and Dividends Per Share

 

A reconciliation between basic and diluted income per share for the periods indicated was as follows:

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands,

 
  

except share and per share amounts)

 
         

Net income

 $6,624  $16,753 
         

Earnings per share

        

Basic and diluted income per share

 $0.44  $1.12 

Basic and diluted shares used in computing earnings per share

  14,921,968   14,921,968 

 

Diluted EPS for the three months ended March 31, 2024 and 2023 was the same as basic EPS as there were no stock options or other dilutive instruments outstanding.  Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding.

 

Shareholders are entitled to receive such dividends as  may be declared by our Board out of funds legally available for such purpose. However, no dividend  may be declared or paid unless after-tax profit was made in the preceding fiscal year, we comply with covenants in our secured loan agreements, we are current on all required debt payments, and we have received prior written concurrence from certain lenders.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 32
Table of Contents
     
Notes to Consolidated Financial Statements (Continued)
  
 

(15) Commitments and Contingencies

 

Third Amended and Restated Operating Agreement

See “Note (3)” to our consolidated financial statements for additional disclosures related to operation and management of all Blue Dolphin assets by an Affiliate under the Third Amended and Restated Operating Agreement.

 

Offshore Pipelines and Platform Requirements

BDPL has pipelines and platform assets subject to BSEE’s idle iron regulations.  Idle iron regulations require lessees and rights-of-way holders to permanently abandon and/or remove platforms and other structures when they are no longer useful for operations.  Until such structures are abandoned or removed, lessees and rights-of-way holders are required to inspect and maintain the assets in accordance with regulatory requirements.

 

Platform Inspections.  We are required by BSEE to perform annual structural inspections of our offshore platform, as well as to perform monthly platform checks of navigational aids, fog horns, and lifesaving equipment. In  March 2023, BSEE issued BDPL an INC for failing to perform the required 2021 and 2022 structural surveys for the GA-288C platform and for failing to provide BSEE with such survey results. In  April 2023, BSEE granted BDPL an extension for completing the required platform inspection until  May 30, 2023.  Although BDPL requested a second extension, BSEE denied BDPL’s request. BDPL completed the platform inspection on  August 26, 2023 and submitted the survey report to BSEE on  September 6, 2023. Because BDPL failed to comply with the INC within the allotted timeframe, BSEE proposed an administrative civil penalty of approximately $0.2 million on  October 24, 2023.  The proposed administrative civil penalty was finalized on  January 26, 2024, for $0.2 million.  We recorded a liability for the maximum proposed amount of $0.2 million on our consolidated balance sheets within accrued expenses and other current liabilities as of  March 31, 2024.  Although BDPL filed an appeal to the civil penalty on  March 25, 2024, BDPL filed a motion to withdraw the appeal on April 17, 2024.  BDPL paid the civil penalty related to platform inspections on April 19, 2024.

 

Decommissioning Obligations.  Because our pipelines and facilities assets have been inactive for an extended period, BOEM mandated that they be decommissioned. In  October 2023, management met BSEE to discuss BDPL’s path forward for meeting decommissioning requirements. Management worked with a consultant to develop a decommissioning plan, and BDPL submitted its decommissioning plan to the agency in  November 2023. Although the decommissioning of these assets was delayed due to cash constraints associated with historical net losses and the impact of COVID-19, a significant portion of the decommissioning project was completed from late  December 2023 to mid-  February 2024. Based on updated estimates for pipeline decommissioning, platform removal, and associated costs, as well as resource availability and projected weather conditions, we believe decommissioning and remediation of all associated INCs will be completed by the end of the third quarter of 2024.  However, BDPL’s work plan does not relieve BDPL of its obligations to comply with BSEE’s mandate or BSEE’s authority to impose financial penalties. Further, there can be no assurance that BDPL can complete anticipated work or predict the outcome of BSEE INCs.  Accordingly, we did not record a liability related to potential penalties on our consolidated balance sheets as of  March 31, 2024 and December 31, 2023. Due to BDPL’s failure to comply with BSEE requirements, BDPL could still be subject to regulatory oversight and enforcement, including but not limited to failing to correct an INC, civil penalties, and revocation of BDPL’s operator designation, which could have a material adverse effect on our earnings, cash flows, and liquidity.  At March 31, 2024 and December 31, 2023, BDPL maintained $3.0 million and $4.5 million, respectively, in AROs related to abandonment of these assets, which amount does not include potential penalties.

 

Defaults Under Secured Loan Agreements with Third Parties and Related Parties

See “Notes (1), (3), and (10)” to our consolidated financial statements for additional disclosures related to defaults under our secured and unsecured debt agreements.

 

Financing Agreements and Guarantees

Indebtedness.  See “Notes (1), (3), and (10)” to our consolidated financial statements for disclosures related to Affiliate and third-party indebtedness and defaults thereto.

 

Guarantees.  Affiliates provided guarantees on certain debt of Blue Dolphin and its subsidiaries.  The maximum amount of any guarantee is equal to the principal amount and accrued interest, which amounts are reduced as payments are made.  See “Notes (1), (3), and (10)” to our consolidated financial statements for additional disclosures related to Affiliate and third-party guarantees associated with indebtedness and defaults thereto.

 

Health, Safety and Environmental Matters

The operations of certain Blue Dolphin subsidiaries 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 products 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 air emissions. These operations also require numerous permits and authorizations under various environmental, health, and safety laws and regulations. Failing to obtain and comply with these permits or environmental, health, or safety laws could result in fines, penalties or other sanctions, or a revocation of our permits.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 33
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Legal Matters

In the ordinary course of business, we are involved in legal matters incidental to the routine operation of our business, such as mechanic’s liens and contract-related disputes. We  may also become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. Large, sometimes unspecified, damages or penalties  may be sought from us in some matters, which  may require years to resolve. Although we cannot provide assurance, we believe that an adverse resolution of the matters described below would not have a material impact on our liquidity, consolidated financial position, or consolidated results of operations.

 

Resolved Matters.

Pilot Dispute Related to Terminal Services Agreement. Effective  May 9, 2019, NPS and Pilot entered into a Terminal Services Agreement, pursuant to which NPS agreed to store jet fuel purchased by Pilot at the Nixon facility. On  August 25, 2022, Pilot provided the 60-day notice of its intent to terminate the Terminal Services Agreement, which became effective on  October 24, 2022. As of the Terminal Services Agreement termination date, approximately 185,000 bbls of Pilot’s jet fuel remained at the Nixon facility.

 

On  October 28, 2022, Pilot commenced an action and application for a temporary restraining order (“TRO”) against NPS in Harris County District Court (the “Texas Action”). After a hearing on the application on  October 28, 2022, Pilot’s application for the TRO was denied the same day.  On  December 2, 2022, NPS filed its answer in the Texas Action. On  December 6, 2022, NPS provided notice under Section 7.206(a) of the Texas Business and Commerce Code ("TBCC") of its intent to sell the remaining inventory of Pilot’s jet fuel at the Nixon facility by  January 7, 2023. After negotiations, NPS agreed to forbear from exercising its remedies under the TBCC while the parties explored a potential dispute compromise pursuant to the Pilot Forbearance and Accommodation Agreement, with a forbearance period terminating on  February 28, 2023. As part of the Pilot Forbearance and Accommodation Agreement, Pilot paid NPS approximately $1.5 million in  January 2023. 

 

On  March 31, 2023, NPS and Pilot executed the Pilot Forbearance Amendment, extending the forbearance period and all deadlines in the unresolved Texas Action to  June 15, 2023.  As part of the Pilot Forbearance Amendment, Pilot paid NPS approximately $1.1 million and $0.2 million in  April and  June 2023, respectively. The parties also negotiated the sale of all 185,000 bbls of stored jet fuel in  April 2023. On  June 16, 2023, following the expiration of the Pilot Forbearance and Accommodation Agreement, the parties agreed to extend the deadline for responses to outstanding discovery requests in the Texas Action to  August 31, 2023. On  August 28, 2023, the parties filed a joint motion to stay this case in anticipation of planned mediation in  December 2023 to settle all outstanding disputes.

 

Pilot Settlement Agreement.  A confidential Settlement Agreement by and among LEH, NPS, LE, LRM, Lazarus San Antonio Refinery, LLC, and Blue Dolphin (together the "Lazarus Entities"), on the one hand, and Pilot, Starlight Relatively Holdings LLC, Starlight Relativity Acquisition Company LLC, Tartan, The San Antonio Refinery LLC, and Falls City Terminal LP (together, the "Pilot Entities"), on the other hand, was executed on  December 29, 2023.  Among other matters addressed, NPS's contract-related dispute related to set-off payments and LRM’s contracted-related dispute involving a revenue-sharing arrangement for storing and selling crude oil with Pilot and Tartan, respectively, were fully resolved, and the parties agreed to mutually release all claims against each other.  Further, Pilot and NPS agreed to take such actions as necessary to dismiss the Texas Action.  For the avoidance of doubt, all contractual agreements between the Lazarus Entities and Pilot Entities were terminated.

 

OSHA Settlement Agreement. In  September 2022, we entered into an Informal Settlement Agreement with OSHA related to process safety management violations at the Nixon refinery. Under the agreement, we paid penalties totaling $0.05 million in  November 2022. We remediated a significant portion of identified violations before  December 31, 2022. We remediated the remaining violations on a progressive schedule by  April 2023.

 

Unresolved Matters.

BOEM Supplemental Pipeline Bonds. To cover the various obligations of lessees and rights-of-way holders operating in federal waters of the Gulf of Mexico, BOEM evaluates an operator’s financial ability to carry out present and future obligations to determine whether the operator must provide additional security beyond the statutory bonding requirements. Such obligations include the cost of plugging and abandoning wells and decommissioning pipelines and platforms at the end of production or service activities. Once plugging and abandonment work has been completed, the collateral backing the financial assurance is released by BOEM.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 34
Table of Contents
 
Notes to Consolidated Financial Statements (Continued)

 

Historically, BDPL maintained $0.9 million in pipeline bonds with BOEM to decommission its trunk pipeline offshore in federal waters.  In  March 2018, BOEM ordered BDPL to provide additional financial assurance totaling approximately $4.8 million for five (5) existing pipeline rights-of-way, an increase of approximately $3.9 million.  In  June 2018, BOEM issued BDPL INCs for each right-of-way that failed to comply. BDPL appealed the INCs to the IBLA.  Although the IBLA granted multiple extension requests, the Office of the Solicitor of the U.S. Department of the Interior indicated that BOEM would not consent to further extensions. The solicitor’s office signaled that BDPL’s adherence to decommissioning its offshore pipelines and platform would likely help in future discussions with BOEM related to the INCs. Fulfilling abandonment obligations related to the subject assets will significantly reduce or eliminate the amount of supplemental pipeline bonds required by BOEM, which  may serve to partially or fully resolve the INCs.

 

BDPL’s pending appeal of the BOEM INCs does not relieve BDPL of its obligations to provide additional financial assurance or of BOEM’s authority to impose financial penalties. There can be no assurance that we will be able to meet additional supplemental pipeline bond requirements. If BDPL is required by BOEM to provide significant additional supplemental pipeline bonds or is assessed significant penalties under the INCs, we will experience a significant and material adverse effect on our operations, liquidity, and financial condition. We cannot predict the outcome of the supplemental pipeline bond INCs.  Accordingly, we did not record a liability on our consolidated balance sheets as of  March 31, 2024 and  December 31, 2023.  At both  March 31, 2024 and  December 31, 2023, BDPL maintained approximately $0.9 million in pipeline rights-of-way surety bonds issued to BOEM through RLI. However, as noted below, RLI desires to reduce its risk profile related to BDPL's bonds.  Of the pipeline rights-of-way bonds, $0.7 million was credit-backed and $0.2 million was cash-backed.

 

RLI Surety Bonds.   Blue Dolphin currently has several surety bonds through RLI as required by different regulatory agencies, including BOEM and the Railroad Commission of Texas. The bonds total approximately $1.25 million in the aggregate, of which $0.2 million is collateralized in cash. In  June,  July, and  December 2023, RLI demanded Blue Dolphin provide additional cash collateral or a letter of credit totaling approximately $1.0 million or provide bond exonerations and replacement bonds.  Although Blue Dolphin received a proposal from another surety to replace the RLI bonds at a 50% collateral requirement, management was hopeful Blue Dolphin and RLI could reach an understanding whereby the existing bonds could be maintained until BDPL completed decommissioning of the subject assets. Abandonment of BDPL’s offshore pipeline and platform assets will eliminate the need for all BOEM supplemental pipeline bonds, reducing the amount of surety bonds held by RLI from $1.25 million to $0.25 million.  On  February 19, 2024, RLI filed suit against Blue Dolphin, BDPL, and BDEX seeking an injunction for the payment of approximately $1.0 million of additional collateral for the bonds. BDPL filed its answer to RLI's lawsuit on April 23, 2024 denying RLI's claims.

 

TCEQ Proposed Agreed Order. In  October 2021, LRM received a proposed agreed order from the TCEQ for alleged solid and hazardous waste violations discovered during an investigation from  January to  March 2020.  The proposed agreed order assessed an administrative penalty of $0.4 million and identified actions needed to correct the alleged violations. In  September 2023, TCEQ presented its final penalty offer of $0.35 million, which LRM accepted. Although LRM believes the penalty matter is resolved, LRM expects to continue working with TCEQ to remediate certain open items fully. At   March 31, 2024, we accrued $0.4 million on our balance sheet within accrued expenses and other current liabilities related to this matter.

 

BSEE Civil Penalties. We are required by BSEE to perform annual structural inspections of our offshore platform, as well as to perform monthly platform checks of navigational aids, fog horns, and lifesaving equipment. In  March 2023, BSEE issued BDPL an INC for failing to perform the required 2021 and 2022 structural surveys for the GA- 288C platform and for failing to provide BSEE with such survey results. In  April 2023, BSEE granted BDPL an extension for completing the required platform inspection until  May 30, 2023.  Although BDPL requested a second extension, BSEE denied BDPL’s request.  BDPL completed the platform inspection on  August 26, 2023 and submitted the survey report to BSEE on  September 6, 2023. Because BDPL failed to comply with the INC within the allotted timeframe, BSEE proposed an administrative civil penalty of approximately $0.2 million on  October 24, 2023.  The proposed administrative civil penalty was finalized on  January 26, 2024, for $0.2 million.  We recorded a liability for the maximum proposed amount of $0.2 million on our consolidated balance sheets within accrued expenses and other current liabilities as of  March 31, 2024.  Although BDPL filed an appeal to the civil penalty on  March 25, 2024, BDPL filed a motion to withdraw the appeal on April 17, 2024.  BDPL paid the civil penalty related to platform inspections on April 19, 2024.

 

On April 26, 2024, BDPL received a civil penalty advisory letter from BSEE of the same date related to INCs issued by the agency in September 2023.  The letter indicates that the agency is reviewing the INCS, which relate to BDPL's offshore assets in federal waters.  BSEE will provide BDPL information related to its review within 90 days from the date of its letter.

 

Defaults under Secured Loan Agreements. We are currently in default under certain secured loan agreements with third parties and related parties. See “Notes (1), (3), and (10)” for additional disclosures related to third-party and related-party debt, default on such debt, and the potential effects of such defaults on our business, financial condition, and results of operations. If third parties exercise their rights and remedies due to defaults under our secured loan agreements, our business, financial condition, and results of operations will be materially adversely affected.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 35
Table of Contents
   
 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis is management’s perspective of our current financial condition and results of operations, as well as significant trends that may affect future performance.  All statements in this section, other than statements of historical fact, are forward-looking statements that are inherently uncertain.  See “Important Information Regarding Forward-Looking Statements” for a discussion of the factors that could cause actual results to differ materially from those projected in these statements.  You should read the following discussion together with the financial statements and the related notes included elsewhere in this report, as well as with the business strategy, risk factors, and financial statements and related notes included thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

 

Overview and Outlook

 

Company Overview

Blue Dolphin is an independent downstream energy company operating in the Gulf Coast region of the United States.  Our subsidiaries operate a light sweet-crude, 15,000-bpd crude distillation tower with more than 1.25 million bbls of petroleum storage tank capacity in Nixon, Texas.  Our assets are primarily organized in two segments: refinery operations (owned by LE) and tolling and terminaling services (owned by LRM and NPS).  Subsidiaries that are reflected in corporate and other include BDPL (inactive pipeline assets), BDPC (inactive leasehold interests in oil and gas wells), and BDSC (administrative services). Blue Dolphin was formed in 1986 as a Delaware corporation and is traded on the OTCQX under the ticker symbol “BDCO”.

 

Jonathan Carroll, our Chief Executive Officer, and an Affiliate together controlled 83% of the voting power of our Common Stock as of the filing date of this report.  An Affiliate also operates and manages all Blue Dolphin properties, funds working capital requirements during periods of working capital deficits, guarantees certain of our third-party secured debt, and is a significant customer of our refined products.  Blue Dolphin and certain of its subsidiaries are currently parties to a variety of agreements with Affiliates.  See “Part I, Item 1. Financial Statements– Note (3)” for additional disclosures related to Affiliate agreements, arrangements, and risks associated with working capital deficits.

 

Going Concern Assessment

Certain conditions and events were noted that initially caused management to evaluate our ability to continue as a going concern.  These conditions and events include historical working capital deficits and significant current debt in default. We had positive working capital of $0.3 million at March 31, 2024 compared to a working capital deficit of $6.1 million at December 31, 2023, representing a $6.4 million improvement. Our significant current debt is primarily the result of bank debt to Veritex and GNCU being in default. Excluding accrued interest, the current portion of long-term debt on our consolidated balance sheets totaled $40.6 million and $39.4 million at at March 31, 2024 and December 31, 2023, respectively.  The $1.1 million increase in current debt between the periods primarily related to the Kissick Debt falling within the current portion of long-term debt on our consolidated balance sheet at March 31, 2024. 

 

Our current assets totaled $52.8 million at March 31, 2024 compared to $49.3 million at December 31, 2023, representing a $3.5 million increase.  Our current liabilities totaled $52.5 million at March 31, 2024 compared to $55.4 million at December 31, 2023, representing a $2.9 million decrease.  Excluding the current portion of long-term debt, our current liabilities totaled $12.0 million at March 31, 2024 compared to $16.0 million at December 31, 2023, representing a $4.0 million decrease. 

 

Management believes that we have sufficient liquidity to meet our obligations as they become due through the generation of cash flows from operations and liquidation of current working capital amounts for a reasonable period (defined as one year from the issuance of these financial statements).  To bolster working capital reserves, management continues efforts to restructure debt obligations and reduce cash requirements.  Management acknowledges that uncertainty remains related to future operating margins.  However, management has a reasonable expectation of Blue Dolphin's ability to generate adequate working capital for, amongst other requirements, purchasing crude oil and condensate and making payments on our long-term debt.  Our consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

 

Business Operations Update

During the first quarter of 2024, oil and gas commodity prices trended downward compared to the first quarter of 2023. Less favorable refining margins on lower refinery throughput, production, and sales volumes contributed to Blue Dolphin reporting net income of $6.6 million, or $0.44 per share, for the three months ended March 31, 2024 (“Q1 2024”) compared to the same period a year earlier. We reported net income of $16.8 million, or $1.12 per share, for the three months ended March 31, 2023 (“Q12023”). Our full operating results for the three months ended March 31, 2024 and March 31, 2023 including operating results by segment, can be found within ‘—Results of Operations.’

 

We used cash flow from operations of $6.3 million for Q1 2024. The use in cash flow from operations was primarily due to a build in inventory in preparation for an upcoming turnaround.  At March 31, 2024, we had approximately $11.1 million in cash and cash equivalents. The components of our liquidity and descriptions of our cash flows, capital investments, and other matters impacting our liquidity and capital resources can be found within ‘—Liquidity and Capital Resources.’

 

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Management’s Discussion and Analysis (Continued)

 

General Trends and Outlook

Uncertainties remain surrounding general macroeconomic conditions related to inflation, interest rates, and capital and credit markets, geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, COVID-19, and the extent to which these factors may impact working capital, commodity prices, refined product demand, our supply chain, financial condition, liquidity, results of operations, and future prospects will depend on future developments, which cannot be predicted with any degree of confidence. We can provide no guarantees that: our business strategy will be successful, Affiliates will continue to fund our working capital needs when we experience working capital deficits, we will meet regulatory requirements to provide additional financial assurance (supplemental pipeline bonds) and decommission offshore pipelines and platform assets, we can obtain additional financing on commercially reasonable terms or at all, or margins on our refined products will be favorable. Further, if third parties exercise their rights and remedies under secured loan agreements that are in default, our business, financial condition, and results of operations will be materially adversely affected.

 

Liquidity and Access to Capital Markets

We continue to actively explore additional funding to refinance and restructure debt and further improve working capital. During 2023, we entered into the Veritex First Amended Forbearance Agreement, Veritex Second Amended Forbearance Agreement (which has expired), Kissick Forbearance Agreement, and LEH Payment Agreement.  There can be no assurance that we will be able to raise additional capital on acceptable terms, if at all, or refinance existing debt. If we are unable to refinance or restructure debt, certain of which is currently in default, or forbear or waive defaults and lenders exercise their rights with respect to the debt, we may not, in the short term, be able to purchase crude oil and condensate or meet debt payment obligations. In the long term, we may not be able to manage business disruptions, such as those experienced during the height of the COVID-19 pandemic, or execute our business strategy. We may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operating.

 

Changes in Regulations

Our operations and the operations of our customers have been, and will continue to be, affected by political developments and federal, state, tribal, local, and other laws and regulations that are increasing in number and becoming more stringent and complex. These laws and regulations include, among other things, permitting requirements, environmental protection measures such as limitations on methane and other greenhouse gas emissions, and renewable fuels standards. The number and scope of the regulations with which we and our customers must comply has a meaningful impact on our and their businesses, and new or revised regulations, reinterpretations of existing regulations, and permitting delays or denials could adversely affect the profitability of our assets.

 

Business Strategy and Accomplishments

Our primary business objectives are to improve our financial profile and refining margins by executing the below strategies, modified as necessary, to reflect changing economic conditions and other circumstances:

 

     

Optimize Existing Asset Base

  

●   Maintain safe operations and enhance health, safety, and environmental systems. 
    ●   Plan and manage turnarounds and downtime.
     
     

Improve Operational Efficiencies

  

●   Reduce or streamline variable costs incurred in production. 
    ●   Increase throughput capacity and optimize product slate. 
    ●   Increase tolling and terminaling revenue.
     
     

Seize Market Opportunities

  

●   Leverage existing infrastructure to engage in renewable energy projects. 
    ●   Take advantage of market opportunities as they arise.
     

 

Successful execution of our business strategy depends on multiple factors.  These factors include (i) having adequate working capital to meet operational needs and regulatory requirements, (ii) maintaining safe and reliable operations at the Nixon facility, (iii) meeting contractual obligations, (iv) having favorable margins on refined products, and (v) collaborating with new partners to develop and finance clean energy projects.  Our business strategy involves risks.  Accordingly, we cannot assure investors that our plans will be successful.  If we are unsuccessful, we would likely have to consider other options, such as selling assets, raising additional debt or equity capital, cutting costs, or otherwise reducing our cash requirements, negotiating with our creditors to restructure our applicable obligations, filing bankruptcy, or ceasing operating. In such a case, the trading price of our common stock and the value of an investment in our common stock could significantly decrease, which could lead to holders of our common stock losing their investment in our common stock in its entirety.

 

Optimize Existing Asset Base

In January 2024 the Nixon facility was down for 3 days due to frigid temperatures. Following this event, management completed the installation of additional anti-icing chemical storage at the plant and is working on further improvements to protect the facility from severe cold weather. In anticipation of the shift to warm weather conditions, management is also making improvements to the facility to reduce heat-related injuries, including the planned installation of a 'cool down room' for personnel, contractors, and drivers.  Throughout 2024 we will continue to focus on improvements in day-to-day plant operations and identifying safety and mechanical process improvements to optimize plant operations, particularly considering extreme heat in Texas.

 

Improve Operational Efficiencies

During Q1 2024, management progressed with upgrading the Nixon facility's terminal management software.  Once complete, key elements of the plant's terminal loading functions will be automated, improving order management, bills of lading delivery, and reporting.

 

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March 31, 2024 │Page 37
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Management’s Discussion and Analysis (Continued)

 

Seize Market Opportunities

In 2021, we announced plans to leverage our existing infrastructure to establish adjacent lines of business, capture growing market opportunities, and capitalize on renewable energy growth. Rising demand for renewable energy is attributable to various factors, including growing public support, U.S. governmental actions to increase energy independence, and environmental concerns related to climate change. Throughout 2023, management had meaningful discussions with potential commercial partners and these efforts continue in 2024. Reductions or modifications to, or the elimination of, governmental incentives or policies that support renewable energy or the imposition of additional taxes, tariffs, duties, or other assessments on renewable energy projects, could result in, among other things, the lack of a satisfactory market for the development and/or financing of new renewable energy projects and us abandoning the development of renewable energy projects.

 

Downstream Operations

Our refinery operations segment consists of the following assets and operations:

 

Property

Key Products

Handled

Operating Subsidiary

Location
         

Nixon facility

Crude Oil

LE

Nixon, Texas
● Crude distillation tower (15,000 bpd) Refined Products    
● Petroleum storage tanks (operations support)      
● Loading and unloading facilities      
● Land (56 acres)       

 

Crude Oil and Condensate Supply

Operation of the Nixon refinery depends on our ability to purchase adequate amounts of crude oil and condensate. On December 29, 2023, we entered a new crude supply agreement with MVP, effective January 1, 2024. This agreement provides a firm source of light-sweet Eagle Ford crude oil to the Nixon facility under improved credit terms, and management believes that MVP can provide us with adequate amounts of crude oil and condensate for the foreseeable future.  Related to the crude supply agreement, MVP stores crude oil at the Nixon facility under a terminal services agreement. At March 31, 2024, accounts payable for crude oil and condensate was $1.3 million.

 

During 2023, we operated under a crude supply agreement with Tartan.  Tartan also stored crude oil at the Nixon facility under a terminal services agreement.  In a letter dated October 31, 2023, Tartan provided LE and NPS the required 60 days’ notice of its intention to terminate the crude supply agreement and terminal services agreement. The effective date of the termination was December 31, 2023.  During Q1 2023, the vast majority of our crude was sourced from Tartan under the crude supply agreement.  At March 31, 2023, accounts payable for crude oil and condensate was $0.

 

Our financial health has been materially and adversely affected by significant current debt, certain of which is in default, historical net losses, working capital deficits, and margin volatility. If we are required to obtain our crude oil and condensate without the benefit of a long-term crude supply agreement, our exposure to the risks associated with volatile crude oil prices may increase, crude oil transportation costs could increase, and our liquidity may be reduced. Similarly, if producers experience crude supply constraints and increased transportation costs, our crude acquisition costs may rise, or we may not receive sufficient amounts to meet our needs, which could result in refinery downtime and could materially affect our business, financial condition, and results of operations.  If we are unable to manage this, we may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operating.

 

Products and Markets
Our market is the Gulf Coast region of the U.S., which is represented by the EIA as Petroleum Administration for PADD 3.  We sell our products primarily in the U.S. within PADD 3.  Occasionally, we sell refined products to customers that export to other countries, such as naphtha and distillate to Mexico.  

 

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Management’s Discussion and Analysis (Continued)

 

The Nixon refinery’s product slate is adjusted based on market demand. We currently produce a single finished product – jet fuel – and several intermediate products, including naphtha, HOBM, and AGO.  An Affiliate purchases our jet fuel under the Amended and Restated Jet Fuel Sales Agreement and sells the jet fuel to the DLA under preferential pricing terms due to the Affiliate's HUBZone certification.  The product sales agreement with the Affiliate has a one-year term with automatic renewals.  Our intermediate products are primarily sold in nearby markets to wholesalers and refiners as a feedstock for further blending and processing.

 

Customers. Customers for our refined products include distributors, wholesalers, and refineries primarily in the lower portion of the Texas Triangle (the Houston – San Antonio – Dallas/Fort Worth area). We have bulk term contracts in place with most of our customers, including month-to-month, six months, and up to one-year terms. Certain of our contracts require our customers to prepay and us to sell fixed quantities and/or minimum quantities of finished and intermediate petroleum products. Many of these arrangements are subject to periodic renegotiation on a forward-looking basis, which could result in higher or lower relative prices on future sales of our refined products.

 

Competition. Most of our competitors are larger than us and are engaged on a national or international level in many segments of the oil and gas industry, including exploration and production, gathering and transportation, and marketing. These competitors may have greater flexibility in responding to or absorbing market changes occurring in one or more of these business segments. We compete primarily based on cost. Due to the low complexity of our simple “topping unit” refinery, we can be relatively nimble in adjusting our refined products slate because of changing commodity prices, market demand, and refinery operating costs.

 

Safety and Downtime. We operate the refinery in a manner that is materially consistent with industry safety practices and standards. EPA, OSHA, and comparable state and local regulatory agencies provide oversight for personnel safety, process safety management, and risk management to prevent or minimize the accidental release of toxic, reactive, flammable, or explosive chemicals.  Our storage tanks are equipped with leak detection devices. We also have response and control plans in place for spill prevention and emergencies.

 

The Nixon refinery periodically undergoes planned and unplanned temporary shutdowns. We typically complete a planned turnaround annually to repair, restore, refurbish, or replace refinery equipment. However, the timing of planned turnarounds is adjusted to capitalize on favorable market conditions. Occasionally, unplanned shutdowns occur. Unplanned downtime can occur for a variety of reasons; however, common reasons for unplanned downtime include repair/replacement of disabled equipment, crude deficiencies associated with cash constraints, high temperatures, and power outages.

 

We are particularly vulnerable to operation disruptions because all our refining operations occur at a single facility. Any scheduled or unscheduled downtime results in lost margin opportunity, reduced refined products inventory, and potential increased maintenance expense, all of which could reduce our ability to meet our payment obligations.

 

Midstream Operations

Our tolling and terminaling segment consists of the following assets and operations:

 

Property

Key Products

Handled

Operating Subsidiary

Location
         

Nixon facility

Crude Oil

LRM, NPS

Nixon, Texas
● Petroleum storage tanks and terminal services Refined Products    
● Loading and unloading facilities      

 

Products and Customers. The Nixon facility’s petroleum storage tanks and infrastructure are primarily suited for crude oil and condensate and refined products, such as naphtha, jet fuel, diesel, and fuel oil.  Our storage customers are typically from the lower portion of the Texas Triangle (the Houston – San Antonio – Dallas/Fort Worth area).  Shipments are received and redelivered from the Nixon facility via third party trucks.  Contract terms range from month-to-month to three years.

 

Operations Safety. Our midstream operations are operated in a manner materially consistent with industry safe practices and standards.  These operations are subject to OSHA regulations and comparable state and local regulators. Storage tanks used for terminal operations are designed for crude oil and condensate and refined products, and most are equipped with appropriate controls that minimize emissions and promote safety. Our terminal operations have response and control plans, spill prevention and other programs to respond to emergencies.

 

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Management’s Discussion and Analysis (Continued)

 

Inactive Operations

We own other pipeline and facilities assets and have leasehold interests in oil and gas properties.  These assets are inactive.  We account for these inactive operations in ‘corporate and other.’  Our pipeline assets have been fully impaired since 2016 and our oil and gas leasehold interests have been fully impaired since 2011. Our pipeline assets and oil and gas leasehold interests had no revenue during the three months ended March 31, 2024 and 2023.  See “Part I, Item 1. Financial Statements – Note (15)” related to pipelines and platform decommissioning requirements and related risks.

 

Property

  

Operating Subsidiary

  

Location
           

Freeport facility

  

BDPL

  

Freeport, Texas
● Crude oil and natural gas separation and dehydration        
● Natural gas processing, treating, and redelivery        
● Vapor recovery unit        
●

Two onshore pipelines 

        
● Land (162 acres)        
           

Offshore Pipelines (Trunk Line and Lateral Lines)

  

BDPL

  

Gulf of Mexico

Oil and Gas Leasehold Interests

  

BDPC

  

Gulf of Mexico

 

Pipeline and Facilities Safety. Although our pipeline and facility assets are inactive, they require upkeep and maintenance and are subject to safety regulations under OSHA, PHMSA, BOEM, BSEE, and comparable state and local regulators. We have response and control plans, spill prevention and other programs to respond to emergencies related to these assets.

 

Remainder of Page Intentionally Left Blank

 

Blue Dolphin Energy Company
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Management’s Discussion and Analysis (Continued)

 

Results of Operations

A discussion and analysis of the factors contributing to our consolidated financial results of operations is presented below and should be read in conjunction with our financial statements in “Part I, Item 1. Financial Statements.” The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but they should not serve as the only criteria for predicting future performance.

 

Major Influences on Results of Operations. Our results of operations and liquidity are highly dependent upon the margins that we receive for our refined products. The dollar per bbl commodity price difference between crude oil and condensate (input) and refined products (output) is the most significant driver of refining margins, and they have historically been subject to wide fluctuations.  When the spread between these commodity prices decreases, our margins are negatively affected. To improve margins, we must maximize yields of higher-value finished petroleum products and minimize costs of feedstocks and operating expenses. Although an increase or decrease in the commodity price for crude oil and other feedstocks generally result in a similar increase or decrease in commodity prices for finished petroleum products, typically there is a time lag between the two. The effect of crude oil commodity price changes on our finished petroleum product commodity prices therefore depends, in part, on how quickly and how fully the market adjusts to reflect these changes.  Unfavorable margins may have a material adverse effect on our earnings, cash flows, and liquidity.

 

The general outlook for the oil and natural gas industry for the remainder of  2024 remains unclear given uncertainties surrounding general macroeconomic conditions related to inflation, interest rates, and capital and credit markets, geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, and COVID-19. We can provide no assurances that refining margins and demand will remain at current levels.

 

How We Evaluate Our Operations. Management uses certain financial and operating measures to analyze segment performance. These measures are significant factors in assessing our operating results and profitability and include: refinery operations gross profit (deficit), refining gross profit (deficit) per bbl, tolling and terminaling gross profit (deficit), intercompany processing fees, refinery throughput, production and sales data, and refinery downtime.

 

Refining Gross Profit (Deficit) per Bbl. We use refining gross profit (deficit) per bbl as a downstream benchmark. This non-GAAP measure supplements presented GAAP financial information. Management uses refining gross profit (deficit) per bbl to analyze our core refining results of operations, assess internal performance against budgeted and forecasted amounts, and evaluate impacts on our financial performance considering potential capital investments. As this non-GAAP measure has important limitations as an analytical tool, it should not be considered a substitute for GAAP financial measures. We believe this measure may help investors, analysts, lenders, and rating agencies analyze our results of operations and liquidity in conjunction with presented GAAP financial results.

 

Storage Tank Rental Revenue and Ancillary Services Fees. Tolling and terminaling revenue primarily represents storage tank rental fees and ancillary services fees (such as for in-tank blending) associated with customer tank rental agreements. As a result, tank rental revenue and ancillary services fees combined are one of the measures management uses to evaluate the performance of our tolling and terminaling business segment.

 

Operating Costs and Expenses. We manage operating costs and expenses in tandem with meeting environmental, safety, and regulatory requirements while maintaining the mechanical integrity of our assets. Operating costs and expenses are comprised primarily of labor, repair, other maintenance, and utility costs. Refinery operating expenses generally remain stable across broad ranges of throughput volumes, but they can fluctuate from period to period depending on the mix of activities performed and the timing of those expenses within the reporting period. Tolling and terminaling operating costs and expenses are relatively fixed.

 

Intercompany processing fees. We have an intercompany tolling agreement in place between LE and LRM related to naphtha throughput volumes moving through the naphtha stabilizer unit at the Nixon facility. Although intercompany transactions are eliminated during consolidation, evaluation of intercompany processing fees provides investors with helpful information related to our tolling and terminaling business segment.

 

Refinery Throughput, Production, and Sales Data. The revenue generated from the refinery operations business segment primarily depends on the crude oil volumes processed into refined products and the refined products volumes sold to customers. These volumes are affected by the supply and demand of, and demand for, crude oil and refined products in the direct and indirect markets served by our assets, as well as refinery downtime.

 

Refinery Downtime. The Nixon refinery periodically experiences planned and unplanned temporary shutdowns. Any scheduled or unscheduled downtime results in lost margin opportunity, potential increased maintenance expense, and reduced refined products inventory, which could adversely impact our ability to meet our payment obligations.

 

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Management’s Discussion and Analysis (Continued)

 

Consolidated Results

Our consolidated results of operations include certain other unallocated corporate activities and the elimination of intercompany transactions and therefore do not equal the sum of the operating results of our refinery operations and tolling and terminaling business segments.

 

Q1 2024 Versus Q1 2023

Overview.  Net income for Q1 2024 totaled $6.6 million, or $0.44 per share, compared to net income of $16.8 million, or $1.12 per share, in Q1 2023. The $10.1 million, or $0.68 per share, decrease in net income between the periods was the result of less favorable refining margins on lower refinery throughput, production, and sales volumes.

 

Total Revenue from Operations.  Total revenue from operations was $91.0 million for Q1 2024 compared to $116.7 million for Q1 2023, representing a decrease of 22.0%.  The decrease related to declines in both refinery operations and tolling and terminaling revenue. Compared to Q1 2023, refinery operations revenue declined 21.6% in Q1 2024 primarily due to lower sales volume (17.3%). Tolling and terminaling revenue declined 45.2% as tank rental fees associated with temporary terminal service fees from Pilot in Q1 2023 did not recur in Q1 2024. 

 

Total Cost of Goods Sold.  Total cost of goods sold was $79.2 million for Q1 2024 compared to $96.2 million for Q1 2023, representing a decrease of 17.6%.  The decrease was related to lower sales volume.  On a per bbl basis, direct operating expenses between the periods remained relatively flat at less than $1.00.

 

Total Gross Profit.  Gross profit totaled $11.8 million for Q1 2024 compared to gross profit of $20.5 million for Q1 2023. The 42.3% decrease in gross profit between the periods was the result of less favorable refining margins and lower refinery production and sales volume in Q1 2024.

 

Total General and Administrative Expenses. General and administrative expenses totaled $1.0 million in Q1 2024 compared to $1.2 million in Q1 2023, representing a decrease of 18.6%. The decrease was primarily related to a decrease in professional service fees, including legal expenses.

 

Total Depreciation and Amortization. Depreciation and amortization expenses remained flat at $0.7 million for both Q1 2024 and Q1 2023.

 

Total Other Income (Expense).  Total other expense in Q1 2024 totaled $1.4 million compared to total other expense of $1.3 million in Q1 2023, representing a decrease of 2.7%. The decrease was due to lower related party interest expenses in Q1 2024 compared to Q1 2023.  Total other expense primarily relates to interest expense associated with third-party and related party secured loan agreements.

 

   

Three Months Ended March 31,

  
   

2024

    

2023

    

2024

    

2023

    

2024

    

2023

    

2024

    

2023

  
   

Refinery Operations

    

Tolling and Terminaling

    

Corporate and Other

    

Total

  
   

(in thousands)

  

Revenue

   $ 89,915     $ 114,640     $ 1,107     $ 2,021     $ -     $ -     $ 91,022     $ 116,661  

Intercompany processing fees

     (503 )     (576 )     503       576       -       -       -       -  

Cost of goods sold

     (78,782 )     (95,799 )     (410 )     (358 )     -       -       (79,192 )     (96,157 )

Gross profit

     10,630       18,265       1,200       2,239       -       -       11,830       20,504  

Other operating and general and administrative expenses (1)

     (409 )     (478 )     (23 )     (470 )     (863 )     (530 )     (1,295 )     (1,478 )

Depreciation and amortization

     (301 )     (304 )     (342 )     (342 )     (61 )     (52 )     (704 )     (698 )

Interest and other non-operating expenses, net

     (734 )     (677 )     (496 )     (470 )     (136 )     (183 )     (1,366 )     (1,330 )

Income (loss) before income taxes

     9,186       16,806       339       957       (1,060 )     (765 )     8,465       16,998  

Income tax expense

     -       -       -       -       (1,841 )     (246 )     (1,841 )     (246 )

Net income (loss)

   $ 9,186     $ 16,806     $ 339     $ 957     $ (2,901 )   $ (1,011 )   $ 6,624     $ 16,752  

 

 

(1)

General and administrative expenses within refinery operations include the LEH operating fee, related party, other operating expenses, and accretion of asset retirement obligations.

 

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Management’s Discussion and Analysis (Continued)

 

Downstream Operations

 

Our refinery operations business segment is owned by LE.  Assets within this segment consist of a light sweet-crude, 15,000-bpd crude distillation tower, petroleum storage tanks, loading and unloading facilities, and approximately 56 acres of land.  Refinery operations revenue is derived from refined product sales.

 

   

Three Months Ended

  
   

March 31,

  
   

2024

    

2023

  
   

(in thousands)

  

Refinery operations revenue

   $ 89,915     $ 114,640  

Less: intercompany processing fees (1)

     (503 )     (576 )

Less: cost of goods sold

     (78,782 )     (95,799 )

Refinery operations gross profit

   $ 10,630     $ 18,265  
                 

Sales (bbls)

     949       1,148  
                 

Refining gross profit per bbl

   $ 11.20     $ 15.91  

 

(1)

Fees associated with an intercompany tolling agreement related to naphtha volumes.

 

Q1 2024 Versus Q1 2023

Refinery Downtime. Refinery downtime increased from 3 days in Q1 2023 to 5 days in Q1 2024. Refinery downtime in Q1 2024 related to weather (3 days of freezing temperatures in January 2024) and 2 days related to maintenance and repairs.  All refinery downtime in Q1 2023 related to maintenance and repairs.

 

Refinery Operations Gross Profit.  Refining gross profit totaled $10.6 million for Q1 2024 compared to refining gross profit of $18.3 million in Q1 2023, representing a decrease of $7.6 million. The decrease in Q1 2024 was related to less favorable refining margins and lower refinery production and sales volume in Q1 2024.

 

Refining Gross Profit per Bbl. On a per bbl basis, refining gross profit was $11.20 for Q1 2024 compared to gross profit of $15.91 for Q1 2023, representing a decrease of $4.71 per bbl. The decrease related to less favorable refining margins and and lower refinery production and sales volume in Q1 2024 compared to the same period a year earlier.

 

Remainer of Page Intentionally Left Blank

 

Blue Dolphin Energy Company
March 31, 2024 │Page 43
Table of Contents

 

Management’s Discussion and Analysis (Continued)

 

Midstream Operations

 

Our tolling and terminaling business segment is owned by LRM and NPS.  Assets within this segment include petroleum storage tanks and loading and unloading facilities. Tolling and terminaling revenue is derived from storage tank rental fees, ancillary services fees (such as for in-tank blending), and tolling and reservation fees for use of the naphtha stabilizer.

 

   

Three Months Ended

  
   

March 31,

  
   

2024

    

2023

  
   

(in thousands)

  

Tolling and terminaling revenue

   $ 1,107     $ 2,021  

Intercompany processing fees (1)

     503       576  

Less: cost of goods sold

     (410 )     (358 )

Tolling and terminaling gross profit

   $ 1,200     $ 2,239  

 

(1)

Fees associated with an intercompany tolling agreement related to naphtha volumes.

 

Q1 2024 Versus Q1 2023

Tolling and Terminaling Revenue. Tolling and terminaling revenue, which consists of storage tank rental and ancillary services fees, totaled $1.1 million in Q1 2024 compared to $2.0 million in Q1 2023, representing a decrease of $0.9 million.  The decrease in Q1 2024 related to lower tank rental fees. Tank rental fees in Q1 2023 included temporary terminal service fees associated with Pilot. 

 

Tolling and Terminaling Gross Profit. Tolling and terminaling gross profit was $1.2 million in Q1 2024 compared to $2.2 million in Q1 2023. The $1.0 million decrease was primarily related to lower tank rental fees.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 44
Table of Contents

 

Management’s Discussion and Analysis (Continued)

 

Capital Resources and Liquidity

We had working capital of $0.3 million at March 31, 2024 and a working capital deficit of $6.1 million at December 31, 2023, representing a $6.4 million improvement.  Excluding the current portion of long-term debt, we had $40.9 million and $33.3 million in working capital at March 31, 2024 and December 31, 2023, respectively, representing a $7.6 million increase. The significant increase in working capital between the periods was due to increases in accounts receivable - related party and inventory.

 

Cash and cash equivalents totaled $11.1 million and $18.7 million at March 31, 2024 and December 31, 2023, respectively, representing a decrease of $7.6 million.  Restricted cash, noncurrent totaled $1.0 million and $0.0 at March 31, 2024 and December 31, 2023, respectively, and related to a Veritex payment reserve account. Accounts receivable—related party, which was associated with the sale of jet fuel to LEH, totaled $11.7 million and $4.2 million at March 31, 2024 and December 31, 2023, respectively.

 

We generally rely on revenue from operations, including sales of refined products and rental of petroleum storage tanks, Affiliates, and financing to meet our liquidity needs. Our short-term working capital needs are primarily related to: (i) purchasing crude oil and condensate to operate the Nixon refinery, (ii) reimbursing LEH for direct operating expenses and paying the LEH operating fee under the Third Amended and Restated Operating Agreement, (iii) servicing debt, (iv) maintaining and improving the Nixon facility through capital expenditures, and (v) meeting regulatory compliance requirements. Our long-term working capital needs are primarily related to repayment of long-term debt obligations.

 

During 2023, we entered into the Veritex First Amended Forbearance Agreement, Veritex Second Amended Forbearance Agreement (which has expired), Kissick Forbearance Agreement, and LEH Payment Agreement. We continue to actively explore additional funding to refinance and restructure debt and further improve working capital. However, there can be no assurance that we will be able to raise additional capital on acceptable terms, or at all.

 

Refining margins, which are affected by commodity prices and refined product demand, are volatile, and a reduction in refining margins will adversely affect the amount of cash we will have available for working capital. Similarly, capital, credit, and commodity markets, as well as armed conflicts in the Middle East and Europe continue to evolve, and the extent to which these factors may impact our working capital, commodity prices, refined product demand, supply chain, financial condition, liquidity, results of operations, and prospects will depend on future developments, which cannot be predicted with any degree of confidence.  In the long term, we may not be able to manage business disruptions or execute our business strategy. We may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operating.

 

Sources and Use of Cash

Components of Cash Flow.

 

   

Three Months Ended

  
   

March 31,

  
   

2024

    

2023

  
   

(in thousands)

  

Cash Flows Provided By (Used In):

                

Operating activities

   $ (6,250 )   $ 13,783  

Investing activities

     -       -  

Financing activities

     (345 )     (1,771 )

Increase in Cash and Cash Equivalents

   $ (6,595 )   $ 12,012  

 

Cash Flow from Operations.  We used cash flow from operations of $6.3 million for Q1 2024 compared to cash flow from operations of $13.8 million for Q1 2023. The $20.0 million decrease in cash flow from operations between the periods was primarily due to a build in inventory in preparation for an upcoming turnaround, an increase in accounts receivable—related party resulting from a change in payment terms from net 15 to net 30 under the Amended and Restated Jet Fuel Sales Agreement, decommissioning costs associated with our pipelines and facilities assets, and quicker payment turnarounds related to accounts payable.

 

Capital Expenditures. Capital expenditures totaled $0 for both Q1 2024 and Q1 2023. Due to continued uncertainties surrounding general macroeconomic conditions related to inflation, interest rates, and capital and credit markets, geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, and COVID-19, we anticipate continuing to limit capital expenditures throughout 2024. However, to the extent we can capitalize on green energy growth opportunities, we may finance capital expenditures through project-based government loans.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 45
Table of Contents

 

Management’s Discussion and Analysis (Continued)

 

We account for our capital expenditures in accordance with GAAP. We also classify capital expenditures as ‘maintenance’ if the expenditure maintains capacity or throughput or as ‘expansion’ if the expenditure increases capacity or throughput capabilities. Although classification is generally a straightforward process, in certain circumstances the determination is a matter of management judgment and discretion.  We budget for maintenance capital expenditures throughout the year on a project-by-project basis. Projects are determined based on maintaining safe and efficient operations, meeting customer needs, complying with operating policies and applicable law, and producing economic benefits, such as increasing efficiency and/or lowering future expenses.

 

Financing Activities.  During Q1 2024, Blue Dolphin made payments debt principal totaling $0.3 million.  During Q1 2023, Blue Dolphin made payments on debt principal totaling $0.6 million and paid off amounts owed to LEH totaling $1.2 million related to a June 2017 promissory note, as amended, for Blue Dolphin working capital.  

 

Debt and Lease Obligations

Debt Agreements.

Related-Party Agreements Summary.  BDPL was a party to the BDPL-LEH Loan Agreement with LEH at March 31, 2024 and December 31, 2023.  Summaries of the debt agreements follow:

 

Loan Description

  

Parties

  

Maturity Date

  

Interest Rate

  

Loan Purpose
                 

BDPL-LEH Loan Agreement (in forbearance)

  

BDPL

  

Aug 2018

  

16.00%

  

Original principal amount of $4.0 million; Blue Dolphin working capital
   

LEH

            

 

Third-Party Agreements Summary.  Blue Dolphin and certain of its subsidiaries are parties to the following debt agreements with third parties:

 

             

Monthly Principal

          
     

Principal

  

Origination /

and Interest Payment

          

Loan Description

Parties

  

(in millions)

  

Maturity

(in millions)

  

Interest Rate

  

Loan Purpose

Veritex Loans

                        

LE Term Loan Due 2034 (in default) (1)

LE

   $ 25.0  

June 2034

$0.3

  

WSJ Prime + 2.75%

  

Refinance loan; capital improvements
 

Veritex

                      

LRM Term Loan Due 2034 (in default) (1)

LRM

   $ 10.0  

December 2034

$0.1

  

WSJ Prime + 2.75%

  

Refinance bridge loan; capital improvements
 

Veritex

                      

Kissick Debt (in forbearance) (2)

LE

   $ 11.7  

January 2018

$0.5

     6.25 %

Working capital
 

Kissick

                      

GNCU Loan

                        

NPS Term Loan Due 2031 (in default) (3)

NPS

   $ 10.0  

October 2031

$0.1

     5.75 %

Working capital
 

GNCU

                      

SBA EIDLs

                        

Blue Dolphin Term Loan Due 2051 (as modified) (4)

Blue Dolphin

   $ 2.0  

June 2051

$0.07

     3.75 %

Working capital
 

SBA

                      

LE Term Loan Due 2050 (5)

LE

   $ 0.15  

August 2050

$0.0007

     3.75 %

Working capital
 

SBA

          

$0.0007

        

NPS Term Loan Due 2050 (5)

NPS

   $ 0.15  

August 2050

$0.0007

     3.75 %

Working capital
 

SBA

                      

Equipment Loan Due 2025 (6)

LE

   $ 0.07  

October 2025

$0.0013

     4.50 %

Equipment Lease Conversion
 

Texas First

                      

 

 

(1)

At both March 31, 2024 and December 31, 2023, restricted cash, noncurrent, represented amounts held by Veritex in a payment reserve account, which is required to have a balance of $1.0 million.  Although the amount at December 31, 2023 was $0, the payment reserve account was fully replenished on January 2, 2024.
 

(2)

Original principal amount was $8.0 million; pursuant to a 2017 sixth amendment, principal under the Kissick Debt increased by $3.7 million.
 

(3)

Loan requires monthly interest-only payments for the first thirty-six (36) months. Afterwards, principal and interest payments due monthly through loan maturity. First payment due in November 2024.
 

(4)

Original principal amount was $0.5 million; the Blue Dolphin Term Loan Due 2051 was modified to increase the principal amount by $1.5 million. Payments deferred for thirty (30) months; first payment due and paid in November 2023; interest accrues during deferral period; loan not forgivable.
 

(5)

Payments deferred for thirty (30) months; first payment made February 2023; interest accrued during deferral period; loan not forgivable.
 

(6)

In May 2019, LE entered into 12-month equipment rental agreement with option to purchase a backhoe at maturity; equipment rental agreement matured in May 2020; in October 2020, LE entered into the Equipment Loan Due 2025 to finance the backhoe purchase; backhoe used at the Nixon facility.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 46
Table of Contents

 

Management’s Discussion and Analysis (Continued)

 

Guarantees and Security.

 

Loan Description

Guarantees

Security

Veritex Loans

        

LE Term Loan Due 2034 (in default)

●

 USDA

●

 First priority lien on Nixon facility’s business assets (excluding accounts receivable and inventory)
  ● Jonathan Carroll(1) ● Assignment of all Nixon facility contracts, permits, and licenses
  ● Affiliate cross-guarantees ● Absolute assignment of Nixon facility rents and leases, including tank rental income 
      ● $5.0 million life insurance policy on Jonathan Carroll
         

LRM Term Loan Due 2034 (in default)

●

 USDA

●

 Second priority lien on rights of LE in crude distillation tower and other collateral of LE
  ● Jonathan Carroll(1) ● First priority lien on real property interests of LRM
  ● Affiliate cross-guarantees ● First priority lien on all LRM fixtures, furniture, machinery, and equipment
      ● First priority lien on all LRM contractual rights, general intangibles, and instruments, except with respect to LRM rights in its leases of certain specified tanks for which Veritex has second priority lien
      ● Substantially all assets

Kissick Debt (in forbearance)(2)

-

  

●

 Subordinated deed of trust that encumbers the crude distillation tower and general assets of LE
         

GNCU Loan

        

NPS Term Loan Due 2031 (in default)

●

 USDA

●

 Deed of trust lien on approximately 56 acres of land and improvements owned by LE
  ● Jonathan Carroll(1) ● Leasehold deed of trust lien on certain property leased by NPS from LE
  ● Affiliate cross-guarantees ● Assignment of leases and rents and certain personal property

BDPL-LEH Loan Agreement (in forbearance)

●

 -

● 

 Certain BDPL property

SBA EIDLs

        

Blue Dolphin Term Loan Due 2051

-

  

●

 Business assets (e.g., machinery and equipment, furniture, fixtures, etc.)

LE Term Loan Due 2050

-

  

●

 Business assets (e.g., machinery and equipment, furniture, fixtures, etc.)

NPS Term Loan Due 2050

-

  

●

 Business assets (e.g., machinery and equipment, furniture, fixtures, etc.)

Equipment Loan Due 2025

-

  

●

 First priority security interest in the equipment (backhoe). 

 

 

(1)

Jonathan Carroll was required to personally guarantee repayment of borrowed funds and accrued interest.
 

(2)

Subject to the Kissick Subordination Agreement.

 

Lease Agreements.

Office Lease.  We maintain our corporate headquarters in Houston, Texas.  In May 2023, BDSC signed a 12-month extension to its existing operating lease.  The extended term commences on September 1, 2023 and expires on August 31, 2024.  Under the amended agreement, the annual rent was reduced from $31.00 per square foot to $30.00 per square foot, resulting in a monthly base rental amount of $0.02 million.  Management is currently exploring leasing options.

 

An Affiliate, LEH, subleases a portion of the Houston office space. BDSC received sublease income from LEH totaling $0.01 million for both the three-month periods ended March 31, 2024 and 2023. 

 

Tank Lease. LE leases tanks from Ingleside under the LE Amended and Restated Master Services Agreement.  Lease expense associated with the LE Amended and Restated Master Services Agreement totaled $0.3 million and $0.1 million for the three-month periods ended March 31, 2024 and 2023, respectively.

 

 

 

Remainder of Page Intentionally Left Blank

 

Blue Dolphin Energy Company
March 31, 2024 │Page 47
Table of Contents

 

Management’s Discussion and Analysis (Continued)

 

Outstanding Principal, Debt Issue Costs, and Accrued Interest.  Related and third-party long-term debt, including outstanding principal and accrued interest, as of the dates indicated was as follows:

Outstanding Principal and Accrued Interest.

 

   

March 31,

    

December 31,

  
   

2024

    

2023

  
   

(in thousands)

  

Veritex Loans

                

LE Term Loan Due 2034 (in default)

   $ 19,607     $ 19,858  

LRM Term Loan Due 2034 (in default)

     8,163       8,260  

Kissick Debt (in forbearance)

     5,751       7,147  

GNCU Loan

                

NPS Term Loan Due 2031 (in default)

     9,975       9,975  

LEH

                

BDPL-LEH Loan Agreement (in forbearance)

     5,308       5,308  

SBA EIDLs

                

BDEC Term Loan Due 2051

     2,125       2,135  

LE Term Loan Due 2050

     161       162  

NPS Term Loan Due 2050

     161       162  

Equipment Loan Due 2025

     25       29  
      51,276       53,036  
                 

Less: Current portion of long-term debt, net

     (40,581 )     (39,440 )

Less: Unamortized debt issue costs

     (1,896 )     (1,947 )

Less: Accrued interest payable

     (1,182 )     (2,596 )
    $ 7,617     $ 9,053  

 

The debt associated with the LE Term Loan Due 2034, LRM Term Loan Due 2034, and NPS Term Loan Due 2031 was classified within long-term debt, current portion on our consolidated balance sheets at March 31, 2024 and December 31, 2023 due to being in default.  The Kissick Debt fell within long-term debt, current portion on our consolidated balance sheet at March 31, 2024 compared to long-term debt, net of current portion at December 31, 2023 due to principal payments becoming due within the next twelve months.

 

Debt Issue Costs. Unamortized debt issue costs associated with the Veritex and GNCU loans as of the dates indicated consisted of the following:

 

   

March 31,

    

December 31,

  
   

2024

    

2023

  
   

(in thousands)

  

Veritex Loans

                

LE Term Loan Due 2034 (in default)

   $ 1,674     $ 1,674  

LRM Term Loan Due 2034 (in default)

     768       768  

GNCU Loan

                

NPS Term Loan Due 2031 (in default)

     730       730  
                 

Less: Accumulated amortization

     (1,276 )     (1,225 )
    $ 1,896     $ 1,947  

 

Amortization expense was $0.05 million for both three-month periods ended March 31, 2024 and 2023.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 48
Table of Contents

 

Management’s Discussion and Analysis (Continued)

 

Accrued Interest. Related-party and third-party accrued interest payable associated with long-term debt in our consolidated balance sheets, as of the dates indicated consisted of the following:

 

   

March 31,

    

December 31,

  
   

2024

    

2023

  
   

(in thousands)

  

Kissick Debt (in forbearance)

   $ 773     $ 2,169  

LEH

                

BDPL-LEH Loan Agreement (in forbearance)

     1,308       1,308  

Veritex Loans

                

LE Term Loan Due 2034 (in default)

     176       181  

LRM Term Loan Due 2034 (in default)

     69       70  

SBA EIDLs

                

BDEC Term Loan Due 2051

     125       135  

LE Term Loan Due 2050

     11       12  

NPS Term Loan Due 2053

     11       12  

GNCU Loan

                

NPS Term Loan Due 2031 (in default)

     17       17  
      2,490       3,904  

Less: Accrued interest payable

     (1,182 )     (2,596 )

Long-term Interest Payable, Net of Current Portion

   $ 1,308     $ 1,308  

 

Forbearances and Defaults.

Veritex Forbearance Agreements. Under the Veritex Forbearance Agreement, LE and LRM paid Veritex: (i) $4.3 million in past due principal and interest at the non-default rate (excluding late fees), (ii) $1.0 million into a payment reserve account, and (iii) $0.04 million in Veritex attorney fees. The Veritex Forbearance Agreement expired on September 30, 2023, and was superseded by the Veritex First Amended Forbearance Agreement. The First Amended Forbearance Agreement expired on December 29, 2023, and was superseded by the Veritex Second Amended Forbearance Agreement.  The Veritex Second Amended Forbearance Agreement expired on March 29, 2024.  During each of these forbearance periods, Veritex agreed to forbear from testing borrowers’ compliance with financial covenants as specified in the LE Term Loan Due 2034 and LRM Term Loan Due 2034 and forbear from exercising its rights or remedies with respect to non-compliance with the financial covenants. 

 

Kissick Forbearance Agreement. Pursuant to the Kissick Forbearance Agreement, Kissick Noteholder agreed to forbear from exercising any of its rights and remedies related to existing defaults pertaining to payment violations under the Kissick Debt.  Under the terms of the Kissick Forbearance Agreement, LE agreed to make monthly principal and interest payments totaling $0.5 million beginning in April 2023, continuing on the first of each month through February 2025, with a final payment of $0.4 million to Kissick Noteholder on March 1, 2025. LE paid Kissick Noteholder $1.5 million and $0 for the three months ended March 31, 2024 and 2023. As of the filing date of this report, the Kissick Debt was in forbearance related to past defaults prior to April 2023.

 

LEH Payment Agreement.  Pursuant to the LEH Payment Agreement, LEH agreed to forbear from exercising any of its rights and remedies related to existing defaults pertaining to payment violations under the BDPL-LEH Loan Agreement.  Under the terms of the LEH Payment Agreement, BDPL agreed to make interest-only monthly payments approximating $0.05 million beginning in May 2023, continuing on the fifteenth of each month through April 2025. Beginning in May 2025, BDPL agreed to make principal and interest monthly payments approximating $0.4 million through April 2027. Interest will be incurred throughout the agreement term, including the interest-only payment period. BDPL paid LEH approximately $0.1 million and $0 for the three months ended March 31, 2024 and 2023. As of the filing date of this report, the BDPL-LEH Loan Agreement was in forbearance related to past defaults prior to May 2023.

 

Defaults. As of March 31, 2024 and through the filing date of this report, we were in default under the NPS Term Loan Due 2031 due to covenant violations.  We were also in default under the LE Term Loan Due 2034 and LRM Term Loan Due 2034; the Veritex Second Amended Forbearance Agreement expired on March 29 2024. Defaults may permit lenders to declare the amounts owed under the related loan agreements immediately due and payable, exercise their rights with respect to collateral securing obligors’ obligations, and/or exercise any other rights and remedies available. Any exercise by third parties of their rights and remedies under secured loan agreements that are in default could have a material adverse effect on our business operations, including crude oil and condensate procurement and our customer relationships; financial condition; and results of operations.  In such a case, the trading price of our Common Stock and the value of an investment in our Common Stock could significantly decrease, which could lead to holders of our Common Stock losing their investment in our Common Stock in its entirety.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 49
Table of Contents

 

Management’s Discussion and Analysis (Continued)

 

We can provide no assurance that: (i) our assets or cash flow will be sufficient to fully repay borrowings under secured loan agreements that are in default, either upon maturity or if accelerated, (ii) LE, LRM, NPS, or BDPL will be able to refinance or restructure the debt, and/or (iii) third parties will provide future forbearances or default waivers, particularly if the banks with whom we have relationships fail. If one or more banks fail, we could be exposed to additional events of default (if not cured or waived) under existing secured loan agreements. Defaults under our secured loan agreements and any exercise by third parties of their rights and remedies related to such defaults may have a material adverse effect on our business, the trading price of our Common Stock, and on the value of an investment in our Common Stock, and holders of our Common Stock could lose their investment in our Common Stock in its entirety. If the debt associated with secured loan agreements is accelerated and we are unable to refinance or restructure the debt or obtain default waivers, we may have to consider other options, including selling assets, raising additional debt or equity capital, cutting costs, reducing cash requirements, filing bankruptcy, or ceasing operating.

 

Concentration of Customers Risk

We routinely assess the financial strength of our customers.  To date, we have not experienced significant write-downs in accounts receivable balances.  We believe that our accounts receivable credit risk exposure is limited.

 

                   

Portion of

  
                   

Accounts

  
   

Number

    

% Total

    

Receivable at

  
   

Significant

    

Revenue from

    

March 31,

  

Three Months Ended

  

Customers

    

Operations

    

(in millions)

  
                         

March 31, 2024

     3       81.3 %   $ 11.7  

March 31, 2023

     3       65.7 %   $ 11.6  

 

One of our significant customers is LEH, an Affiliate. The Affiliate purchases our jet fuel under the Amended and Restated Jet Fuel Sales Agreement and sells the jet fuel to the DLA under preferential pricing terms due to its HUBZone certification.  The jet fuel, which is stored at the Nixon Facility, is lifted by the Affiliate as needed.  For the three months ended March 31, 2024 and 2023, the Affiliate accounted for 30.7% and 30.3% of total revenue from operations, respectively. Accounts receivable by the Affiliate represented $11.7 million at March 31, 2024.

 

Regulatory Activities

BOEM. See "Part II, Item 1. Legal Proceedings —Unresolved Matters—BOEM Supplemental Pipeline Bonds." 

 

BSEE. Offshore Pipelines and Platform Requirements .  
BDPL has pipelines and platform assets subject to BSEE’s idle iron regulations.  Idle iron regulations require lessees and rights-of-way holders to permanently abandon and/or remove platforms and other structures when they are  no longer useful for operations.  Until such structures are abandoned or removed, lessees and rights-of-way holders are required to inspect and maintain the assets in accordance with regulatory requirements.

 

Platform Inspections.  We are required by BSEE to perform annual structural inspections of our offshore platform, as well as to perform monthly platform checks of navigational aids, fog horns, and lifesaving equipment. In March 2023, BSEE issued BDPL an INC for failing to perform the required 2021 and 2022 structural surveys for the GA-288C platform and for failing to provide BSEE with such survey results. In April 2023, BSEE granted BDPL an extension for completing the required platform inspection until May 30, 2023.  Although BDPL requested a second extension, BSEE denied BDPL’s request. BDPL completed the platform inspection on August 26, 2023 and submitted the survey report to BSEE on September 6, 2023. Because BDPL failed to comply with the INC within the allotted timeframe, BSEE proposed an administrative civil penalty of approximately $0.2 million on October 24, 2023.  The proposed administrative civil penalty was finalized on January 26, 2024, for $0.2 million.  We recorded a liability for the maximum proposed amount of $0.2 million on our consolidated balance sheets within accrued expenses and other current liabilities as of  March 31, 2024.  Although BDPL filed an appeal to the civil penalty on March 25, 2024, BDPL filed a motion to withdraw the appeal on April 17, 2024.  BDPL paid the civil penalty related to platform inspections on April 19, 2024.

 

Decommissioning Obligations.  Because our pipelines and facilities assets have been inactive for an extended period, BOEM mandated that they be decommissioned. In October 2023, management met BSEE to discuss BDPL’s path forward for meeting decommissioning requirements. Management worked with a consultant to develop a decommissioning plan, and BDPL submitted its decommissioning plan to the agency in November 2023. Although the decommissioning of these assets was delayed due to cash constraints associated with historical net losses and the impact of COVID-19, a significant portion of the decommissioning project was completed from late December 2023 to mid- February 2024. Based on updated estimates for pipeline decommissioning, platform removal, and associated costs, as well as resource availability and projected weather conditions, we believe decommissioning and remediation of all associated INCs will be completed by the end of the third quarter of 2024.  However, BDPL’s work plan does not relieve BDPL of its obligations to comply with BSEE’s mandate or BSEE’s authority to impose financial penalties. Further, there can be no assurance that BDPL can complete anticipated work or predict the outcome of BSEE INCs.  Accordingly, we did not record a liability related to potential penalties on our consolidated balance sheets as of  March 31, 2024 and December 31, 2023. Due to BDPL’s failure to comply with BSEE requirements, BDPL could still be subject to regulatory oversight and enforcement, including but not limited to failing to correct an INC, civil penalties, and revocation of BDPL’s operator designation, which could have a material adverse effect on our earnings, cash flows, and liquidity.  At March 31, 2024 and December 31, 2023, BDPL maintained $3.0 million and $4.5 million, respectively, in AROs related to abandonment of these assets, which amount does not include potential penalties.

 

RLI. See "Part II, Item 1. Legal Proceedings—Unresolved Matters—RLI Surety Bonds."

 

Civil Penalties. See "Part II, Item 1. Legal Proceedings—Unresolved Matters—BSEE Civil Penalties."

 

OSHA. See "Part II, Item 1. Legal Proceedings—Resolved Matters—OSHA Settlement Agreement."

 

TCEQ.  See "Part II, Item 1. Legal Proceedings—Unresolved Matters—TCEQ Proposed Order."

 

Blue Dolphin Energy Company
March 31, 2024 │Page 50
Table of Contents

 

Management’s Discussion and Analysis (Continued)

 

Off-Balance Sheet Arrangements

None.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 51
Table of Contents

 

Management’s Discussion and Analysis (Continued)

 

Accounting Standards

Critical Accounting Policies and Estimates.

Significant Accounting Policies.  Our significant accounting policies relate to use of estimates, cash and cash equivalents, restricted cash, accounts receivable and allowance for credit losses, inventory, property and equipment, leases, revenue recognition, income taxes, impairment or disposal of long-lived assets, asset retirement obligations, and computation of earnings per share.

 

Estimates. The nature of our business requires that we make estimates and assumptions in accordance with U.S. GAAP.  These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Although commodity price volatility, recession and inflation, armed conflicts in the Middle East and Europe and associated sanctions on Russian crude products, and severe weather resulting from climate change have impacted these estimates and assumptions, we are continually working to mitigate future risks. However, the extent to which these factors may impact our business, financial condition, liquidity, results of operations, and prospects will depend on future developments, which cannot be predicted with any degree of certainty.

 

We assessed certain accounting matters that require consideration of forecasted financial information in context with information reasonably available to us as of March 31, 2024 and through the filing date of this report.  The accounting matters assessed included, but not limited to, our allowance for credit losses, inventory, and related reserves, and the carrying value of long-lived assets.

 

New Accounting Standards and Disclosures

New Pronouncements Adopted.  During the three months ended March 31, 2024, we did not adopt any ASUs.

 

New Pronouncements Issued, Not Yet Effective. 

 

●

ASU 2023-09 — Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). In December 2023, the FASB issued ASU 2023-09, requiring us to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require us to disaggregate our income taxes paid disclosure by federal and state taxes, with further disaggregation required for significant individual jurisdictions. We will adopt ASU 2023-09 in the fourth quarter of 2025. ASU 2023-09 allows for adoption using either a prospective or retrospective transition method.

 

●

ASU 2023-07 — Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). In November 2023, the FASB issued ASU No. 2023-07, requiring us to disclose significant segment expenses regularly provided to our chief operating decision maker (“CODM”). In addition, ASU 2023-07 will require us to disclose the title and position of our CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within physical years beginning after December 15, 2024.  Early adoption is permitted.  We will adopt ASU 2023-07 in our fourth quarter of 2024 using a retrospective transition method.

 

 

Remainder of Page Intentionally Left Blank

 

Blue Dolphin Energy Company
March 31, 2024 │Page 52
Table of Contents

 

Controls and Procedures

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

Under the supervision of, and with the participation of our management, including our Chief Executive Officer (principal executive officer and principal financial officer), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on our evaluation, our Chief Executive Officer (principal executive officer and principal financial officer) concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

 

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Remainder of Page Intentionally Left Blank

 

Blue Dolphin Energy Company
March 31, 2024 │Page 53
Table of Contents

 

Legal Proceedings

 

 

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

 

In the ordinary course of business, we are involved in legal matters incidental to the routine operation of our business, such as mechanic’s liens and contract-related disputes.  We may also become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters and certain matters may require years to resolve. Although we cannot provide assurance, we believe that an adverse resolution of the matters described below would not have a material impact on our liquidity, consolidated financial position, or consolidated results of operations.

 

Resolved Matters

Pilot Dispute Related to Terminal Services Agreement. Effective May 9, 2019, NPS and Pilot entered into a Terminal Services Agreement, pursuant to which NPS agreed to store jet fuel purchased by Pilot at the Nixon facility. On August 25, 2022, Pilot provided the 60-day notice of its intent to terminate the Terminal Services Agreement, which became effective on October 24, 2022. As of the Terminal Services Agreement termination date, approximately 185,000 bbls of Pilot’s jet fuel remained at the Nixon facility.

 

On October 28, 2022, Pilot commenced an action and application for a temporary restraining order (“TRO”) against NPS in Harris County District Court (the “Texas Action”). After a hearing on the application on October 28, 2022, Pilot’s application for the TRO was denied the same day.  On December 2, 2022, NPS filed its answer in the Texas Action. On December 6, 2022, NPS provided notice under Section 7.206(a) of the Texas Business and Commerce Code ("TBCC") of its intent to sell the remaining inventory of Pilot’s jet fuel at the Nixon facility by January 7, 2023. After negotiations, NPS agreed to forbear from exercising its remedies under the TBCC while the parties explored a potential dispute compromise pursuant to the Pilot Forbearance and Accommodation Agreement, with a forbearance period terminating on February 28, 2023. As part of the Pilot Forbearance and Accommodation Agreement, Pilot paid NPS approximately $1.5 million in January 2023. 

 

On March 31, 2023, NPS and Pilot executed the Pilot Forbearance Amendment, extending the forbearance period and all deadlines in the unresolved Texas Action to June 15, 2023.  As part of the Pilot Forbearance Amendment, Pilot paid NPS approximately $1.1 million and $0.2 million in April and June 2023, respectively. The parties also negotiated the sale of all 185,000 bbls of stored jet fuel in April 2023. On June 16, 2023, following the expiration of the Pilot Forbearance and Accommodation Agreement, the parties agreed to extend the deadline for responses to outstanding discovery requests in the Texas Action to August 31, 2023. On August 28, 2023, the parties filed a joint motion to stay this case in anticipation of planned mediation in December 2023 to settle all outstanding disputes.

 

Pilot Settlement Agreement.  A confidential Settlement Agreement by and among LEH, NPS, LE, LRM, Lazarus San Antonio Refinery, LLC, and Blue Dolphin (together the "Lazarus Entities"), on the one hand, and Pilot, Starlight Relatively Holdings LLC, Starlight Relativity Acquisition Company LLC, Tartan, The San Antonio Refinery LLC, and Falls City Terminal LP (together, the "Pilot Entities"), on the other hand, was executed on December 29, 2023.  Among other matters addressed, NPS's contract-related dispute related to set-off payments and LRM’s contracted-related dispute involving a revenue-sharing arrangement for storing and selling crude oil with Pilot and Tartan, respectively, were fully resolved, and the parties agreed to mutually release all claims against each other.  Further, Pilot and NPS agreed to take such actions as necessary to dismiss the Texas Action.  For the avoidance of doubt, all contractual agreements between the Lazarus Entities and Pilot Entities were terminated.

 

OSHA Settlement Agreement. In September 2022, we entered into an Informal Settlement Agreement with OSHA related to process safety management violations at the Nixon refinery. Under the agreement, we paid penalties totaling $0.05 million in November 2022. We remediated a significant portion of identified violations before December 31, 2022. We remediated the remaining violations on a progressive schedule by April 2023.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 54
Table of Contents

 

Legal Proceedings & Risk Factors

 

Unresolved Matters

BOEM Supplemental Pipeline Bonds. To cover the various obligations of lessees and rights-of-way holders operating in federal waters of the Gulf of Mexico, BOEM evaluates an operator’s financial ability to carry out present and future obligations to determine whether the operator must provide additional security beyond the statutory bonding requirements. Such obligations include the cost of plugging and abandoning wells and decommissioning pipelines and platforms at the end of production or service activities. Once plugging and abandonment work has been completed, the collateral backing the financial assurance is released by BOEM.

 

Historically, BDPL maintained $0.9 million in pipeline bonds with BOEM to decommission its trunk pipeline offshore in federal waters.  In March 2018, BOEM ordered BDPL to provide additional financial assurance totaling approximately $4.8 million for five (5) existing pipeline rights-of-way, an increase of approximately $3.9 million.  In June 2018, BOEM issued BDPL INCs for each right-of-way that failed to comply. BDPL appealed the INCs to the IBLA.  Although the IBLA granted multiple extension requests, the Office of the Solicitor of the U.S. Department of the Interior indicated that BOEM would not consent to further extensions. The solicitor’s office signaled that BDPL’s adherence to decommissioning its offshore pipelines and platform would likely help in future discussions with BOEM related to the INCs. Fulfilling abandonment obligations related to the subject assets will significantly reduce or eliminate the amount of supplemental pipeline bonds required by BOEM, which may serve to partially or fully resolve the INCs.

 

BDPL’s pending appeal of the BOEM INCs does not relieve BDPL of its obligations to provide additional financial assurance or of BOEM’s authority to impose financial penalties. There can be no assurance that we will be able to meet additional supplemental pipeline bond requirements. If BDPL is required by BOEM to provide significant additional supplemental pipeline bonds or is assessed significant penalties under the INCs, we will experience a significant and material adverse effect on our operations, liquidity, and financial condition. We cannot predict the outcome of the supplemental pipeline bond INCs.  Accordingly, we did not record a liability on our consolidated balance sheets as of March 31, 2024 and December 31, 2023.  At both March 31, 2024 and December 31, 2023, BDPL maintained approximately $0.9 million in pipeline rights-of-way surety bonds issued to BOEM through RLI. However, as noted below, RLI desires to reduce its risk profile related to BDPL's bonds.  Of the pipeline rights-of-way bonds, $0.7 million was credit-backed and $0.2 million was cash-backed.

 

RLI Surety Bonds. Blue Dolphin currently has several surety bonds through RLI as required by different regulatory agencies, including BOEM and the Railroad Commission of Texas. The bonds total approximately $1.25 million in the aggregate, of which $0.2 million is collateralized in cash. In June, July, and December 2023, RLI demanded Blue Dolphin provide additional cash collateral or a letter of credit totaling approximately $1.0 million or provide bond exonerations and replacement bonds.  Although Blue Dolphin received a proposal from another surety to replace the RLI bonds at a 50% collateral requirement, management was hopeful Blue Dolphin and RLI could reach an understanding whereby the existing bonds could be maintained until BDPL completed decommissioning of the subject assets. Abandonment of BDPL’s offshore pipeline and platform assets will eliminate the need for all BOEM supplemental pipeline bonds, reducing the amount of surety bonds held by RLI from $1.25 million to $0.25 million.  On February 19, 2024, RLI filed suit against Blue Dolphin, BDPL, and BDEX seeking an injunction for the payment of approximately $1.0 million of additional collateral for the bonds. BDPL filed its answer to RLI's lawsuit on April 23, 2024 denying RLI's claims.

 

TCEQ Proposed Agreed Order. In October 2021, LRM received a proposed agreed order from the TCEQ for alleged solid and hazardous waste violations discovered during an investigation from January to March 2020.  The proposed agreed order assessed an administrative penalty of $0.4 million and identified actions needed to correct the alleged violations. In September 2023, TCEQ presented its final penalty offer of $0.35 million, which LRM accepted. Although LRM believes the penalty matter is resolved, LRM expects to continue working with TCEQ to remediate certain open items fully. At   March 31, 2024, we accrued $0.4 million on our balance sheet within accrued expenses and other current liabilities related to this matter.

 

BSEE Civil Penalties. We are required by BSEE to perform annual structural inspections of our offshore platform, as well as to perform monthly platform checks of navigational aids, fog horns, and lifesaving equipment. In March 2023, BSEE issued BDPL an INC for failing to perform the required 2021 and 2022 structural surveys for the GA- 288C platform and for failing to provide BSEE with such survey results. In April 2023, BSEE granted BDPL an extension for completing the required platform inspection until May 30, 2023.  Although BDPL requested a second extension, BSEE denied BDPL’s request.  BDPL completed the platform inspection on August 26, 2023 and submitted the survey report to BSEE on September 6, 2023. Because BDPL failed to comply with the INC within the allotted timeframe, BSEE proposed an administrative civil penalty of approximately $0.2 million on October 24, 2023.  The proposed administrative civil penalty was finalized on January 26, 2024, for $0.2 million.  We recorded a liability for the maximum proposed amount of $0.2 million on our consolidated balance sheets within accrued expenses and other current liabilities as of March 31, 2024.  Although BDPL filed an appeal to the civil penalty on March 25, 2024, BDPL filed a motion to withdraw the appeal on April 17, 2024.  BDPL paid the civil penalty related to platform inspections on April 19, 2024.

 

On April 26, 2024, BDPL received a civil penalty advisory letter from BSEE of the same date related to INCs issued by the agency in September 2023.  The letter indicates that the agency is reviewing the INCS, which relate to BDPL's offshore assets in federal waters.  BSEE will provide BDPL information related to its review within 90 days from the date of its letter.

 

Defaults under Secured Loan Agreements. We are currently in default under certain secured loan agreements with third parties and related parties. See “Notes (1), (3), and (10)” for additional disclosures related to third-party and related-party debt, default on such debt, and the potential effects of such defaults on our business, financial condition, and results of operations. If third parties exercise their rights and remedies due to defaults under our secured loan agreements, our business, financial condition, and results of operations will be materially adversely affected.

 

ITEM 1A.  RISK FACTORS

 

In addition to the other information set forth in this Quarterly Report, careful consideration should be given to the risk factors discussed under “Part I, Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC. These risks and uncertainties could materially and adversely affect our business, financial condition, and results of operations. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.  There have been no material changes in our assessment of our risk factors from those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 55
Table of Contents

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

See “Part I, Item. 1. Financial Statements – Notes (3) and (10)” for disclosures related to defaults on our debt.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

Blue Dolphin Energy Company
March 31, 2024 │Page 56
Table of Contents
   
 

Exhibits

 

ITEM 6.  EXHIBITS

 

Exhibits Index

 

No. 

  

Description 
     

31.1*

  

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.
     

32.1*

  

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.
     

101.INS*

  

Inline XBRL Instance Document.
     

101.SCH*

  

Inline XBRL Taxonomy Schema Document.
     

101.CAL*

  

Inline XBRL Calculation Linkbase Document.
     

101.LAB*

  

Inline XBRL Label Linkbase Document.
     

101.PRE*

  

Inline XBRL Presentation Linkbase Document.
     

101.DEF*

  

Inline XBRL Definition Linkbase Document.
     
104   Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

 

* Filed herewith

 

Blue Dolphin Energy Company
March 31, 2024 │Page 57
Table of Contents

 

Signature Page

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

BLUE DOLPHIN ENERGY COMPANY

  
 

(Registrant)

  
       
       

May 15, 2024

By:

/s/ JONATHAN P. CARROLL

  
   

Jonathan P. Carroll

Chief Executive Officer, President, Treasurer, and Secretary

(Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)

  

 

Blue Dolphin Energy Company
March 31, 2024 │Page 58

Exhibit 31.1

 

I, Jonathan P. Carroll, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Blue Dolphin Energy Company (the “Registrant”).

 

2.

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 periods covered by this quarterly report;

 

3.

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;

 

4.

I am 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 I have:

 

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared;
     
 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my 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 quarterly report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
     
 

d)

Disclosed in this quarterly report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s first fiscal quarter in the case of this quarterly report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5.

I have disclosed, based on my 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:

 

 

(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: May 15, 2024

 

/s/ JONATHAN P. CARROLL

  

Jonathan P. Carroll

  

Chief Executive Officer, President,

Treasurer and Secretary

(Principal Executive Officer and

Principal Financial Officer)

 

 

Exhibit 32.1

 

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER AND

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Blue Dolphin Energy Company (the “Blue Dolphin”) on Form 10-Q for the period ended March 31, 2024 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Jonathan P. Carroll, Chief Executive Officer, President, Assistant Treasurer and Secretary (Principal Executive Officer and Principal Financial Officer) of Blue Dolphin, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

 

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
     
 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Blue Dolphin.

 

/s/ JONATHAN P. CARROLL

  

Jonathan P. Carroll

  

Chief Executive Officer, President, Treasurer and Secretary

(Principal Executive Officer and Principal Financial Officer)

May 15, 2024

  

 

 
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 3 Months Ended
Mar. 31, 2024
May 15, 2024
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Entity Registrant Name BLUE DOLPHIN ENERGY CO  
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Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
CURRENT ASSETS    
Cash and cash equivalents $ 11,123 $ 18,713
Prepaid expenses and other current assets 1,122 1,591
Deposits 110 110
Inventory 28,657 24,576
Total current assets 52,838 49,290
LONG-TERM ASSETS    
Total property and equipment, net 54,316 54,958
Operating lease right-of-use assets, net 100 158
Restricted cash, noncurrent 1,000 5
Surety bonds 230 230
Deferred tax assets, net 0 1,436
Total long-term assets 55,646 56,787
TOTAL ASSETS 108,484 106,077
CURRENT LIABILITIES    
Current portion of lease liabilities 93 147
Income taxes payable 1,247 951
Asset retirement obligations, current portion 2,999 4,504
Accrued expenses and other current liabilities 4,079 5,084
Total current liabilities 52,535 55,425
LONG-TERM LIABILITIES    
Deferred tax liabilities, net 109 0
Total long-term liabilities 7,726 9,053
TOTAL LIABILITIES 60,261 64,478
Commitments and contingencies (Note 15)
STOCKHOLDERS' EQUITY    
Common stock ($0.01 par value, 20,000,000 shares authorized; 14,921,968 shares issued at March 31, 2024 and December 31, 2023) (1) [1] 149 149
Additional paid-in capital 39,758 39,758
Retained earnings 8,316 1,692
TOTAL STOCKHOLDERS' EQUITY 48,223 41,599
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 108,484 106,077
Nonrelated Party [Member]    
CURRENT ASSETS    
Accounts receivable 104 116
CURRENT LIABILITIES    
Long-term debt less unamortized debt issue costs, current portion (in default) 40,581 39,440
Interest payable 1,182 2,596
Accounts payable 2,349 1,814
LONG-TERM LIABILITIES    
Long-term debt, net of current portion 2,309 3,745
Long-term Interest Payable, Net of Current Portion 0 0
Related Party [Member]    
CURRENT ASSETS    
Accounts receivable 11,722 4,184
CURRENT LIABILITIES    
Long-term debt less unamortized debt issue costs, current portion (in default) (0) (0)
Accounts payable 5 889
LONG-TERM LIABILITIES    
Long-term debt, net of current portion 4,000 4,000
Long-term Interest Payable, Net of Current Portion $ 1,308 $ 1,308
[1] Blue Dolphin has 2,500,000 shares of preferred stock, par value $0.10 per share, authorized. At March 31, 2024 and December 31, 2023, there were no shares of preferred stock issued and outstanding.
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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares
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Dec. 31, 2023
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Common stock, shares issued (in shares) 14,921,968 14,921,968
v3.24.1.1.u2
Consolidated Statements of Income (Unaudited) - USD ($)
$ in Thousands
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
REVENUE FROM OPERATIONS    
Revenues from operations $ 91,022 $ 116,661
COST OF GOODS SOLD    
Crude oil, fuel use, and chemicals 76,911 93,987
Other conversion costs 2,281 2,170
Total cost of goods sold 79,192 96,157
Gross profit 11,830 20,504
COST OF OPERATIONS    
LEH operating fee, related party 172 144
Other operating expenses 140 91
General and administrative expenses 983 1,207
Depreciation and amortization 704 698
Accretion of asset retirement obligations 0 35
Total cost of operations 1,999 2,175
Income from operations 9,831 18,329
OTHER INCOME (EXPENSE)    
Interest and other income 148 2
Interest and other expense (1,514) (1,332)
Total other income (expense) (1,366) (1,330)
Income before income taxes 8,465 16,999
Income tax expense (1,841) (246)
Net Income $ 6,624 $ 16,753
Income per common share:    
Basic (in dollars per share) $ 0.44 $ 1.12
Diluted (in dollars per share) $ 0.44 $ 1.12
Weighted average number of common shares outstanding:    
Basic (in shares) 14,921,968 14,921,968
Diluted (in shares) 14,921,968 14,921,968
Refinery Operations [Member]    
REVENUE FROM OPERATIONS    
Revenues from operations $ 89,915 $ 114,640
Tolling and Terminaling [Member]    
REVENUE FROM OPERATIONS    
Revenues from operations $ 1,107 $ 2,021
v3.24.1.1.u2
Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)
$ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Total
Balance (in shares) at Dec. 31, 2022 14,921,968      
Balance at Dec. 31, 2022 $ 149 $ 39,758 $ (29,319) $ 10,588
Net income $ 0 0 16,753 16,753
Balance (in shares) at Mar. 31, 2023 14,921,968      
Balance at Mar. 31, 2023 $ 149 39,758 (12,566) 27,341
Balance (in shares) at Dec. 31, 2023 14,921,968      
Balance at Dec. 31, 2023 $ 149 39,758 1,692 41,599
Net income $ 0 0 6,624 6,624
Balance (in shares) at Mar. 31, 2024 14,921,968      
Balance at Mar. 31, 2024 $ 149 $ 39,758 $ 8,316 $ 48,223
v3.24.1.1.u2
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
 3 Months Ended 12 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Dec. 31, 2023
OPERATING ACTIVITIES      
Net income $ 6,624 $ 16,753  
Adjustments to reconcile net income to net cash used in operating activities:      
Depreciation and amortization 704 698  
Accretion of asset retirement obligations 0 35 $ 59
Deferred income tax 1,545 0  
Amortization of debt issue costs 50 51  
Deferred revenues and expenses 0 (102)  
Changes in operating assets and liabilities      
Accounts receivable 12 424  
Accounts receivable, related party (7,538) (11,555)  
Prepaid expenses and other current assets 469 (2,410)  
Inventory (4,081) 11,204  
Asset retirement obligations (1,505) 0  
Accounts payable, accrued expenses and other liabilities (1,646) (1,415)  
Accounts payable, related party (884) 100  
Net cash provided by (used in) operating activities (6,250) 13,783  
FINANCING ACTIVITIES      
Payments on debt principal (345) (560)  
Net activity on related-party debt 0 (1,211)  
Net cash used in financing activities (345) (1,771)  
Net change in cash, cash equivalents, and restricted cash (6,595) 12,012  
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD 18,718 1,521 1,521
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD 12,123 13,533 $ 18,718
Supplemental Information:      
Interest paid $ 2,674 $ 678  
v3.24.1.1.u2
Note 1 - Organization
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

(1) Organization

 

Company Overview

Blue Dolphin was formed in 1986 as a Delaware corporation.  The company is an independent downstream energy company operating in the Gulf Coast region of the United States.  Operations primarily consist of a light sweet-crude, 15,000-bpd crude distillation tower, and approximately 1.25 million bbls of petroleum storage tank capacity in Nixon, Texas.  Blue Dolphin trades on the OTCQX under the ticker symbol “BDCO.”

 

Assets are organized in two business segments: ‘refinery operations’ (owned by LE) and ‘tolling and terminaling services’ (owned by LRM and NPS). ‘Corporate and other’ includes Blue Dolphin subsidiaries BDPL (inactive pipeline and facilities assets), BDPC (inactive leasehold interests in oil and gas wells), and BDSC (administrative services).  See “Note (4)” to our consolidated financial statements for more information about our business segments.

 

Unless the context otherwise requires, references in this report to “we,” “us,” “our,” or “ours,” refer to Blue Dolphin, one or more of its consolidated subsidiaries or all of them taken as a whole.

 

Jonathan Carroll, our Chief Executive Officer, and an Affiliate together controlled 83% of the voting power of our Common Stock as of the filing date of this report.  An Affiliate also operates and manages all Blue Dolphin properties, funds working capital requirements during periods of working capital deficits, guarantees certain of our third-party secured debt, and is a significant customer of our refined products.  Blue Dolphin and certain of its subsidiaries are currently parties to a variety of agreements with Affiliates. See “Note (3)” to our consolidated financial statements for additional disclosures related to Affiliate agreements, arrangements, and risks associated with working capital deficits.

 

Going Concern Assessment

Certain conditions and events were noted that initially caused management to evaluate our ability to continue as a going concern.  These conditions and events include historical working capital deficits and significant current debt in default. We had positive working capital of $0.3 million at  March 31, 2024 compared to a working capital deficit of $6.1 million at  December 31, 2023, representing a $6.4 million improvement. Our significant current debt is primarily the result of bank debt to Veritex and GNCU being in default. Excluding accrued interest, the current portion of long-term debt on our consolidated balance sheets totaled $40.6 million and $39.4 million at at March 31, 2024 and  December 31, 2023, respectively.  The $1.1 million increase in current debt between the periods primarily related to the Kissick Debt falling within the current portion of long-term debt on our consolidated balance sheet at March 31, 2024. 

 

Our current assets totaled $52.8 million at March 31, 2024 compared to $49.3 million at  December 31, 2023, representing a $3.5 million increase.  Our current liabilities totaled $52.5 million at March 31, 2024 compared to $55.4 million at  December 31, 2023, representing a $2.9 million decrease.  Excluding the current portion of long-term debt, our current liabilities totaled $12.0 million at March 31, 2024 compared to $16.0 million at  December 31, 2023, representing a $4.0 million decrease. 

 

Management believes that we have sufficient liquidity to meet our obligations as they become due through the generation of cash flows from operations and liquidation of current working capital amounts for a reasonable period (defined as one year from the issuance of these financial statements).  To bolster working capital reserves, management continues efforts to restructure debt obligations and reduce cash requirements.  Management acknowledges that uncertainty remains related to future operating margins.  However, management has a reasonable expectation of Blue Dolphin's ability to generate adequate working capital for, amongst other requirements, purchasing crude oil and condensate and making payments on our long-term debt.  Our consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

 

Forbearance Agreements

Veritex Forbearance Agreements. Under the Veritex Forbearance Agreement, LE and LRM paid Veritex: (i) $4.3 million in past due principal and interest at the non-default rate (excluding late fees), (ii) $1.0 million into a payment reserve account, and (iii) $0.04 million in Veritex attorney fees. The Veritex Forbearance Agreement expired on September 30, 2023, and was superseded by the Veritex First Amended Forbearance Agreement. The First Amended Forbearance Agreement expired on December 29, 2023, and was superseded by the Veritex Second Amended Forbearance Agreement.  The Veritex Second Amended Forbearance Agreement expired on March 29, 2024.  During each of these forbearance periods, Veritex agreed to forbear from testing borrowers’ compliance with financial covenants as specified in the LE Term Loan Due 2034 and LRM Term Loan Due 2034 and forbear from exercising its rights or remedies with respect to non-compliance with the financial covenants. 

 

Kissick Forbearance Agreement. Pursuant to the Kissick Forbearance Agreement, Kissick Noteholder agreed to forbear from exercising any of its rights and remedies related to existing defaults pertaining to payment violations under the Kissick Debt.  Under the terms of the Kissick Forbearance Agreement, LE agreed to make monthly principal and interest payments totaling $0.5 million beginning in April 2023, continuing on the first of each month through February 2025, with a final payment of $0.4 million to Kissick Noteholder on March 1, 2025. LE paid Kissick Noteholder $1.5 million and $0 for the three months ended March 31, 2024 and 2023. As of the filing date of this report, the Kissick Debt was in forbearance related to past defaults prior to April 2023.

 

 

LEH Payment Agreement.  Pursuant to the LEH Payment Agreement, LEH agreed to forbear from exercising any of its rights and remedies related to existing defaults pertaining to payment violations under the BDPL-LEH Loan Agreement.  Under the terms of the LEH Payment Agreement, BDPL agreed to make interest-only monthly payments approximating $0.05 million beginning in May 2023, continuing on the fifteenth of each month through April 2025. Beginning in May 2025, BDPL agreed to make principal and interest monthly payments approximating $0.4 million through April 2027. Interest will be incurred throughout the agreement term, including the interest-only payment period. BDPL paid LEH approximately $0.1 million and $0 for the three months ended March 31, 2024 and 2023. As of the filing date of this report, the BDPL-LEH Loan Agreement was in forbearance related to past defaults prior to May 2023.

 

Defaults. As of March 31, 2024 and through the filing date of this report, we were in default under the NPS Term Loan Due 2031 due to covenant violations.  The Veritex Second Amended Forbearance Agreement expired on March 29, 2024.  The LE Term Loan Due 2034 and LRM Term Loan Due 2034 were in default due to covenant violations for the period March 30, 2024 through the filing date of this report. Defaults may permit lenders to declare the amounts owed under the related loan agreements immediately due and payable, exercise their rights with respect to collateral securing obligors’ obligations, and/or exercise any other rights and remedies available. Any exercise by third parties of their rights and remedies under secured loan agreements that are in default could have a material adverse effect on our business operations, including crude oil and condensate procurement and our customer relationships; financial condition; and results of operations.  In such a case, the trading price of our Common Stock and the value of an investment in our Common Stock could significantly decrease, which could lead to holders of our Common Stock losing their investment in our Common Stock in its entirety.  If we are unable to manage this, we may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operating.

 

Refining Margins

Our results of operations and liquidity are highly dependent upon the margins we receive for our refined products. The dollar per bbl commodity price difference between crude oil and condensate (input) and refined products (output) is the most significant driver of refining margins, and they have historically been subject to wide fluctuations. The general outlook for the oil and natural gas industry for 2024 remains unclear given uncertainties surrounding general macroeconomic conditions related to inflation, interest rates, and capital and credit markets, geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, and COVID-19.

 

Net income for the three months ended March 31, 2024 totaled $6.6 million, or $0.44 per share, compared to net income of $16.8 million, or $1.12 per share, for the three months ended March 31, 2023. The $10.1 million, or $0.68 per share, decrease in net income between the periods resulted from less favorable refining margins on lower refinery throughput, production, and sales volumes. We cannot assure investors that refining margins will remain positive and demand will increase.

 

Working Capital Improvements

We had working capital of $0.3 million at  March 31, 2024 and a working capital deficit of $6.1 million at  December 31, 2023, representing a $6.4 million improvement.  Excluding the current portion of long-term debt, we had $40.9 million and $33.3 million in working capital at  March 31, 2024 and  December 31, 2023, respectively, representing a $7.6 million increase. The significant increase in working capital between the periods was primarily due to increases in accounts receivable - related party and inventory. We continue to actively explore additional funding to refinance and restructure debt and further improve working capital.

 

Operating Risks

Successful execution of our business strategy depends on several critical factors, including having adequate working capital, favorable refining margins, and maintaining operation of the Nixon refinery.

 

●

Working Capital. As noted above, we have historically had working capital deficits primarily due to having significant current debt. Sufficient working capital is necessary to meet contractual, operational, regulatory, and safety needs. Our short-term working capital needs are primarily related to (i) purchasing crude oil and condensate to operate the Nixon refinery, (ii) reimbursing LEH for direct operating expenses and paying the LEH operating fee under the Third Amended and Restated Operating Agreement, (iii) servicing debt, (iv) maintaining and improving the Nixon facility through capital expenditures, and (v) meeting regulatory compliance requirements. Our long-term working capital needs are primarily related to the repayment of long-term debt obligations. To avoid business disruptions and manage cash flow, we optimize receivables and payables by prioritizing payments, optimize inventory levels based on demand, monitor discretionary spending, and carefully manage capital expenditures.

 

 

●

Refining Margins. Refining margins, which are affected by commodity prices and refined product demand, are volatile, and a reduction in refining margins will adversely affect the amount of cash we will have available for working capital. Crude oil refining is primarily a margin-based business. To improve margins, we must maximize yields of higher value finished petroleum products and minimize costs of feedstocks and operating expenses. When the spread between these commodity prices decreases, our margins are negatively affected. Although an increase or decrease in the commodity price for crude oil and other feedstocks generally results in a similar increase or decrease in commodity prices for finished petroleum products, typically there is a time lag between the two. The effect of crude oil commodity price changes on our finished petroleum product commodity prices therefore depends, in part, on how quickly and how fully the market adjusts to reflect these changes. Unfavorable margins may have a material adverse effect on our earnings, cash flows, and liquidity. To remain competitive in a volatile commodity price environment, we adjust throughput and production based on market conditions and adjust our product slate based on commodities pricing.

 

●

Nixon Refinery Operation. We maintain relationships with suppliers that source and repair key components of the Nixon refinery. We expect our suppliers to maintain an adequate supply of component products and, when components are sent out for repair, to timely deliver components. However, in some cases, increases in demand or supply chain disruptions have led to part and component constraints. We use several suppliers and monitor supplier financial viability to mitigate supply-based risks that could cause a business disruption.

 

General macroeconomic conditions related to inflation, interest rates, and capital and credit markets, geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, and COVID-19 continue to evolve, and the extent to which these factors impact our working capital, commodity prices, refined product demand, supply chain, financial condition, liquidity, results of operations, and future prospects will depend on future developments, which cannot be predicted with any degree of confidence. We can provide no guarantees that: our business strategy will be successful, Affiliates will continue to fund our working capital needs when we experience working capital deficits, we will meet regulatory requirements to provide additional financial assurance (supplemental pipeline bonds) and decommission offshore pipelines and platform assets, we can obtain additional financing on commercially reasonable terms or at all, or margins on our refined products will be favorable. Further, if third parties exercise their rights and remedies under secured loan agreements that are in default, our business, financial condition, and results of operations will be materially adversely affected.  If we are unable to manage this, we may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operating.

 
v3.24.1.1.u2
Note 2 - Principles of Consolidation and Significant Accounting Policies
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Basis of Presentation and Significant Accounting Policies [Text Block]

(2)   Principles of Consolidation and Significant Accounting Policies

 

Basis of Presentation

The accompanying unaudited consolidated financial statements, which include Blue Dolphin and its subsidiaries, have been prepared in accordance with GAAP for interim consolidated financial information pursuant to the rules and regulations of the SEC under Article 10 of Regulation S-X and the instructions to Form 10-Q. 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, 2023 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 on Form 10-K for the fiscal year ended  December 31, 2023 as filed with the SEC. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024, or for any other period.

 

Significant Accounting Policies

A summary of significant Blue Dolphin accounting policies 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.  The nature of our business requires that we make estimates and assumptions in accordance with U.S.GAAP.  These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Although commodity price volatility, recession and inflation, armed conflicts in the Middle East and Europe and associated sanctions on Russian crude products, and severe weather resulting from climate change have impacted these estimates and assumptions, we are continually working to mitigate future risks. However, the extent to which these factors may impact our business, financial condition, liquidity, results of operations, and prospects will depend on future developments, which cannot be predicted with any degree of certainty.

 

We assessed certain accounting matters that require consideration of forecasted financial information in context with information reasonably available to us as of March 31, 2024 and through the filing date of this report.  The accounting matters assessed included, but not limited to, our allowance for credit losses, inventory and related reserves, and the carrying value of long-lived assets, assessing Blue Dolphin's ability to continue as a going concern and evaluating the need for a valuation allowance on deferred tax assets.

 

 

Cash, Cash Equivalents, and Restricted Cash. 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. Although management historically deemed this a normal business risk, options to limit risk are being evaluated given current capital, credit, and commodity markets and financial institution health.  Restricted cash, non-current portion at March 31, 2024 and December 31, 2023 reflected amounts held in a payment reserve account by Veritex as security for payments under the LE Term Loan Due 2034. In the event that banks in which we maintain our cash balances (including restricted cash) fail, there can be no assurance that the federal government and the Federal Reserve would intervene.

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported in the consolidated statements of cash flows:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Cash and cash equivalents

 $11,123  $18,713 

Restricted cash, noncurrent

  1,000   5 
  $12,123  $18,718 

 

Accounts Receivable and Allowance for Credit Losses.  Accounts receivable are presented net of any necessary allowance(s) for credit losses.  Receivables are recorded at the invoiced amount and generally do not bear interest. An allowance for credit losses is established, when necessary, based on prior experience and other factors which, in management’s judgment, deserve consideration in estimating bad debts.  Management assesses collectability of the customer’s account based on current aging status, collection history, and financial condition.  Based on a review of these factors, management establishes or adjusts the allowance for specific customers and the entire accounts receivable portfolio.  We had an allowance for credit losses of $0 and $0.06 million at March 31, 2024 and December 31, 2023, respectively.

 

Financial Instruments.  Our financial instruments are comprised of cash and cash equivalents, accounts receivable, accounts payable, and long-term debt. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short maturities. The carrying value of long-term debt approximates fair value as it carries interest rates that fluctuate with the prime rate.

 

Inventory. Inventory primarily consists of refined products, crude oil and condensate, and chemicals.  Inventory is valued at the lower of cost or net realizable value with cost determined by the average cost method, and net realizable value determined based on estimated selling prices less associated delivery costs.  If the net realizable value of our refined 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 goods sold. See “Note (7)” to our consolidated financial statements for additional disclosures related to inventory.

 

Property and Equipment.

Refinery and Facilities. We typically make ongoing improvements to the Nixon facility based on operational needs, technological advances, and safety and regulatory requirements.  We capitalize additions to refinery and facilities assets, and we expense costs for repairs and maintenance as incurred.  We record refinery and facilities at cost less any adjustments for depreciation or impairment.  We adjust the asset and the related accumulated depreciation accounts 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, we compute refinery and facilities assets depreciation using the straight-line method with an estimated useful life of 25 years; we depreciate refinery and facilities assets when placed in service.  We did not record any impairment of our refinery and facilities assets for the periods presented.

 

Pipelines and Facilities. We record our pipelines and facilities at cost less any adjustments for depreciation or impairment.  We computed depreciation using the straight-line method over estimated useful lives ranging from 10 to 22 years. Per FASB ASC guidance, we performed impairment testing of our pipeline and facilities assets in 2016. Upon completion of testing, we fully impaired our pipeline assets at December 31, 2016.

 

 

 

Construction in Progress (CIP). CIP expenditures, including capitalized interest, relate to construction and refurbishment activities and equipment for the Nixon facility.  These expenditures are capitalized as incurred. Depreciation begins once the asset is placed in service.  See “Notes (8) and (11)” to our consolidated financial statements for additional disclosures related to refinery and facilities assets, oil and gas properties, pipelines and facilities assets, and CIP.

 

Leases.  We determine whether a contract or agreement is or contains a lease at inception. If the contract is or includes a lease and has a term greater than one year, we recognize a ROU asset and lease liability as of the commencement date based on the present value of the lease payments over the lease term. We determine the present value of the lease payments by using the implicit rate when readily determinable. If the implicit rate is not defined, we use the incremental borrowing rate to discount lease payments to present value. We adjust lease terms to include options to extend or terminate the lease when it is reasonably certain that we will exercise those options.

 

For operating leases, we record lease cost on a straight-line basis over the lease term; we record lease expenses in the appropriate line on the income statement based on the leased asset’s intended use.  For finance leases, we amortize lease payments for the ROU asset on a straight-line basis over the lesser of the leased asset’s useful life or the lease term; we record amortization expenses on the income statement in ‘depreciation and amortization expense;’ we record interest expense on the income statement in ‘interest and other expense.

’

 

Revenue Recognition. 

Refinery Operations Revenue. We recognize revenue from refined products sales when we meet our performance obligation to the customer.  We meet our performance obligation when the customer receives control of the product. The customer accepts control of the product when the product is lifted.  Under bill and hold arrangements, the customer takes control of the product when added to the customer’s bulk inventory as stored at the Nixon facility. We allocate a transaction price to each separately identifiable refined product load. 

 

We consider a variety of facts and circumstances in assessing the point of a control transfer, including but not limited to: whether the purchaser can direct the use of the refined product, the transfer of significant risks and rewards, our rights to payment, and transfer of legal title. In each case, the term between the sale and when payment is due is not significant.  We include incurred transportation, shipping, and handling costs in the cost of goods sold. We do not include excise and other taxes collected from customers and remitted to governmental authorities in revenue.

 

Tolling and Terminaling Revenue. Tolling and terminaling revenue represents fees under (i) terminal services agreements whereby a customer agrees to pay a certain fee per storage tank based on tank size over time for the storage of products and (ii) tolling agreements, whereby a customer agrees to pay a certain fee per gallon or barrel for throughput volumes moving through the naphtha stabilizer unit and a fixed monthly reservation fee for the use of the naphtha stabilizer unit.

 

We typically satisfy performance obligations for tolling and terminaling operations over time. We determine the transaction price at agreement inception based on the guaranteed minimum amount of revenue over the agreement term. We allocate the transaction price to the single performance obligation that exists under the agreement. We recognize revenue in the amount for which we have a right to invoice. Generally, payment terms do not exceed 30 days.

 

Revenue from storage tank customers may, from time to time, include fees for ancillary services, such as in-tank and tank-to-tank blending.  These services are considered optional to the customer.  The fixed cost under the customer’s storage tank agreement does not include ancillary services fees. We consider ancillary services as a separate performance obligation under the storage tank agreement. We satisfy the performance obligation and recognize the associated fee when we complete the requested service.

 

Deferred Revenue. Deferred revenue represents a liability related to a revenue-producing activity as of the balance sheet date.  We record unearned revenue, which usually consists of customer prepayments, when we receive the cash payment. Once we satisfy the performance obligation, we recognize revenue in conformity with GAAP.

 

Contract Balances. The timing of revenue recognition, billings, and cash collections results in billed accounts receivable and customer pre-payments and deposits (contract liabilities) on our consolidated balance sheet. Amounts are billed as products are lifted and sold or upon signing of bulk sales contracts. Generally, billing occurs subsequent to revenue recognition, resulting in a short-term liability. We sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities. These deposits are liquidated when revenue is recognized. 

 

Unearned Contract Renewal Income. We recognize deferred revenue from suppliers for upfront payments received but not yet earned as a reduction of cost of sales on a straight-line basis over the term of the supply contract.

 

 

Income Taxes. Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Our effective tax rate  may be different than expected if the federal and state statutory rates were applied to income from continuing operations due to certain items that are deductible or included in income for tax purposes that are not deductible or included for financial statement purpose.

 

The benefit of an uncertain tax position is recognized in the financial statements if it meets a minimum recognition threshold. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more-likely-than-not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At  December 31, 2023 and 2022, there were no uncertain tax positions for which a reserve or liability was necessary.

 

Deferred Taxes. Deferred income tax assets and liabilities are recorded for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax assets are reduced by a valuation allowance when we are unable to conclude that realization of the deferred income tax assets is more likely than not.

 

Impairment or Disposal of Long-Lived Assets. We periodically evaluate our long-lived assets for impairment. Additionally, we reassess 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 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.  Management uses significant judgment in forecasting future operating results and projected cash flows.  If conditions or assumptions change, material impairment charges could be necessary.

 

Commodity price market volatility associated with general macroeconomic conditions related to inflation, interest rates, and capital and credit markets, geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, and COVID-19 could affect the value of certain of our long-lived assets.   As of March 31, 2024 and December 31, 2023, we did not record any impairment of our long-lived assets. However, impairment may be required in the future if external events or circumstances change or if internal conditions shift materially.

 

Asset Retirement Obligations. We record a liability for the discounted fair value of an ARO in the period incurred. We also capitalize the corresponding cost by increasing the carrying amount of the related long-lived asset. The liability is accreted towards its future value each period, and we depreciate the capitalized cost over the useful life of the related asset. We recognize a gain or loss if we settle the liability for an amount other than the amount recorded.

 

Refinery and Facilities. We believe we have no legal or contractual obligation to dismantle or remove the refinery and facilities assets. Further, we believe that these assets have indeterminate lives because we cannot reasonably estimate the dates or ranges of dates upon which we would retire these assets.  Management will record an asset retirement obligation for these assets when a definitive obligation arises, and retirement dates are evident.

 

Pipeline and Facilities; Oil and Gas Properties. Management uses significant judgment to estimate future asset retirement costs for our pipelines, related facilities, and oil and gas properties. These costs relate to dismantling and disposing of certain physical assets, plugging and abandoning wells, and restoring land and sea beds. Factors considered include regulatory permitting requirements, asset structural integrity, water depth, third-party equipment availability, and mobilization/demobilization costs.  We review our assumptions and estimates of future abandonment costs on an annual basis.  See “Note (11)” to our consolidated financial statements for additional information related to AROs.

 

Computation of Earnings Per Share. We present basic and diluted EPS.  Basic EPS 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.  We calculate diluted EPS by dividing net income available to common stockholders by the diluted weighted average number of common shares outstanding.  Diluted EPS 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 entity’s earnings.  We do not currently have issued options, warrants, or similar instruments.  Convertible shares, if granted, are not included in the computation of earnings per share if anti-dilutive.  See “Note (14)” to our consolidated financial statements for additional information related to EPS.

 

New Pronouncements Adopted

During the three months ended March 31, 2024, we did not adopt any ASUs.

 

New Pronouncements Issued, Not Yet Effective

 

●

ASU 2023-09 — Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). In December 2023, the FASB issued ASU 2023-09, requiring us to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require us to disaggregate our income taxes paid disclosure by federal and state taxes, with further disaggregation required for significant individual jurisdictions. We will adopt ASU 2023-09 in the fourth quarter of 2025. ASU 2023-09 allows for adoption using either a prospective or retrospective transition method.

 

●

ASU 2023-07 — Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). In November 2023, the FASB issued ASU No. 2023-07, requiring us to disclose significant segment expenses regularly provided to our chief operating decision maker (“CODM”). In addition, ASU 2023-07 will require us to disclose the title and position of our CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within physical years beginning after December 15, 2024.  Early adoption is permitted.  We will adopt ASU 2023-07 in our fourth quarter of 2024 using a retrospective transition method.

   

 

 
v3.24.1.1.u2
Note 3 - Related-party Transactions
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Related Party Transactions Disclosure [Text Block]

(3) Related-Party Transactions

 

Affiliate Agreements

Financial and Operational Agreements.  Blue Dolphin and certain of its subsidiaries are currently parties to several financial and operational agreements with Affiliates.

 

Agreement/Transaction

Parties

Effective Date

Key Terms

Blue Dolphin Guaranty Fee Agreement

Blue Dolphin

Jonathan Carroll

01/01/2023

Related to payoff of Blue Dolphin $2.0 million SBA loan; Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under Blue Dolphin Term Loan Due 2051 as consideration for providing his personal guarantee.

Jet Fuel Purchase Agreements

LE

LEH

04/21/2023

Product agreements for the purchase of jet fuel by LE from LEH; first transaction dated April 21, 2023 for approximately 1.9 million gallons of jet fuel; second transaction dated May 10, 2023 for approximately 2.0 million gallons of jet fuel; the jet fuel was priced at LEH’s product cost; LE sold the products back to LEH under a prior jet fuel sales agreement between the parties.

Amended and Restated Jet Fuel Sales Agreement

LE

LEH

04/01/2023

Jet fuel sales by LE to LEH; 1-year automatic renewals; LEH lifts the jet fuel from LE as needed and sells it to the DLA under preferential pricing terms due to LEH's HUBZone certification.
Affiliate Revolving Credit Agreement

Blue Dolphin and subsidiaries

LEH and affiliates

04/01/2024Credit agreement for working capital purposes up to a maximum of $5.0 million in the aggregate; advances are at LEH's sole discretion; initial term expires on  April 30, 2025; automatically renews for one year periods unless sooner terminated by the parties; interest accrues at the WSJ Prime rate plus 2.00%, compounded annually, and paid quarterly.

LE Amended and Restated Guaranty Fee Agreement

LE

Jonathan Carroll

01/01/2023

Related to payoff of LE $25.0 million Veritex loan; Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under LE Term Loan Due 2034 as consideration for providing his personal guarantee.

LE Amended and Restated Master Services Agreement

LE

Ingleside

03/01/2023

For storage of products intended for customer receipt by barge; tank rental fee $0.1 million per month.

LRM Amended and Restated Guaranty Fee Agreement

LRM

Jonathan Carroll

01/01/2023

Related to payoff of LRM $10.0 million Veritex loan; Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under LRM Term Loan Due 2034 as consideration for providing his personal guarantee.

NPS Guaranty Fee Agreement

NPS

Jonathan Carroll

01/01/2023

Related to payoff of NPS $10.0 million GNCU loan; Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under NPS Term Loan Due 2031 as consideration for providing his personal guarantee.

NPS Terminal Services Agreement

NPS

LEH

11/01/2022

For LEH storage of jet fuel at the Nixon facility; tank rental fee $0.2 million per month; 1-year term on an evergreen basis; either party may cancel upon 60 days’ prior written notice.

Office Sub-Lease Agreement

BDSC

LEH

05/31/23

12-month extension of prior office sublease; term expires 08/31/2024; office lease Houston, Texas; rent approximately $0.003 million per month; management is currently exploring leasing options.

Third Amended and Restated Operating Agreement

Blue Dolphin

LE         LRM

NPS      BDPL

BDPC   BDSC

LEH

04/01/2024

1-year term; expires 04/01/2025 or notice by either party at any time of material breach or 90 days Board notice; LEH receives management fee of 5% of all consolidated operating costs, excluding crude costs, depreciation, amortization, and interest, of Blue Dolphin, LE, LRM, NPS, BDPL, BDPC and BDSC

 

Debt Agreements.  BDPL was a party to the BDPL-LEH Loan Agreement with LEH at March 31, 2024 and December 31, 2023.  Summaries of the debt agreements follow:

 

Loan Description

 

Parties

 

Maturity Date

 

Interest Rate

 

Loan Purpose

         

BDPL-LEH Loan Agreement (in forbearance)

 

BDPL

 

Aug 2018

 

16.00%

 

Original principal amount of $4.0 million; Blue Dolphin working capital

  

LEH

      

 

 

 

 

Forbearance and Defaults.

LEH Payment Agreement.  Pursuant to the LEH Payment Agreement, LEH agreed to forbear from exercising any of its rights and remedies related to existing defaults pertaining to payment violations under the BDPL-LEH Loan Agreement.  Under the terms of the LEH Payment Agreement, BDPL agreed to make interest-only monthly payments approximating $0.05 million beginning in May 2023, continuing on the fifteenth of each month through April 2025. Beginning in May 2025, BDPL agreed to make principal and interest monthly payments approximating $0.4 million through April 2027. Interest will be incurred throughout the agreement term, including the interest-only payment period. BDPL paid LEH approximately $0.1 million and $0 for the three months ended March 31, 2024 and 2023. As of the filing date of this report, the BDPL-LEH Loan Agreement was in forbearance related to past defaults.

 

Covenants, Guarantees and Security.

The BDPL-LEH Loan Agreement contains representations and warranties, affirmative and negative covenants, and events of default that we consider usual and customary for a credit facility of this type.  Certain BDPL property serves as collateral under the BDPL-LEH Loan Agreement.

 

See “Notes (1) and (10)” to our consolidated financial statements for additional information regarding defaults under our secured loan agreements and their potential effects on our business, financial condition, and results of operations.

 

Related-Party Financial Impact

Consolidated Balance Sheets.

Accounts receivable, related party.  Accounts receivable—related party for the sale of jet fuel to LEH totaled $11.7 million and $4.2 at March 31, 2024 and December 31, 2023, respectively. Amounts Blue Dolphin owed to LEH under the Third Amended and Restated Operating Agreement were net settled against amounts LEH owed to LE under the Amended and Restated Jet Fuel Sales Agreement. Excess amounts owed by LEH to LE were reflected in accounts receivable—related party on our consolidated balance sheet.

 

Accounts payable, related party.  Accounts payable, related party totaled approximately $0.0 million and $0.9 million at March 31, 2024 and December 31, 2023.  Accounts payable, related party at December 31, 2023 reflected tank rental fees owed by LE to Ingleside under the LE Amended and Restated Master Services Agreement plus amounts owed to LTRI for previously purchased refinery equipment.

 

Long-term debt, related party, net of current portion and accrued interest payable, related party, net of current portion.

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

LEH

        

BDPL-LEH Loan Agreement (in forbearance)

 $5,308  $5,308 

LEH Total

  5,308   5,308 
         

Less: Long-term debt, related party, current portion

  -   - 

Less: Accrued interest payable, related party, current portion

  -   - 
  $5,308  $5,308 

 

Consolidated Statements of Operations.

Total revenue from operations.

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 
  

(in thousands, except percent amounts)

 

Refinery operations

                

LEH

 $27,394   30.1% $35,345   30.3%

Third-Parties

  62,521   68.7%  79,295   68.0%

Tolling and terminaling

                

LEH

  540   0.6%  540   0.5%

Third-Parties

  567   0.6%  1,481   1.3%
                 
  $91,022   100.0% $116,661   100.0%

 

 

Interest expense.

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Jonathan Carroll

        

Guaranty Fee Agreements

        

Tied to First Term Loan Due 2034

 $98  $102 

Tied to NPS Term Loan Due 2031

  50   50 

Tied to Second Term Loan Due 2034

  41   43 

Tied to Blue Dolphin Term Loan Due 2051

  10   10 

LEH

        

BDPL-LEH Loan Agreement (in forbearance)

  106   160 
  $305  $365 

 

Other.  BDSC received sublease income from LEH totaling $0.01 million for both three-month periods ended March 31, 2024 and 2023.

 

The LEH operating fee, related party totaled $0.2 million for the three-month period ended March 31, 2024 compared to approximately $0.1 million for the three-month period ended March 31, 2023. The increase between the periods related to higher manufacturing overhead costs including insurance.

 

Lease expense associated with the LE Amended and Restated Master Services Agreement totaled $0.3 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively.
v3.24.1.1.u2
Note 4 - Revenue and Segment Information
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Revenues and Segment Reporting Disclosure [Text Block]

(4) Revenue and Segment Information

 

We have two reportable business segments: (i) refinery operations, which derives revenue from refined product sales, and (ii) tolling and terminaling, which derives revenue from storage tank rental fees, ancillary services fees (such as for in-tank blending) and tolling and reservation fees for use of the naphtha stabilizer at the Nixon refinery. ‘Corporate and other’ as presented in the segment information includes BDSC, BDPL, and BDPC.

 

Revenue from Contracts with Customers

Disaggregation of Revenue.  We present revenue in the table below under ‘Segment Information’ separated by business segment because management believes this presentation is beneficial to users of our financial information.

 

Receivables from Contracts with Customers.  We present accounts receivable from contracts with customers as accounts receivable, net on our consolidated balance sheets.

 

Contract Liabilities.  Our contract liabilities consist of unearned revenue from customers in the form of prepayments.  We include unearned revenue in accrued expenses and other current liabilities on our consolidated balance sheets.  See “Note (9)” to our consolidated financial statements for more information related to unearned revenue.

 

Remaining Performance Obligations.  Most of our customer contracts are settled immediately and therefore have no remaining performance obligations.

 

Contract Balances

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Accounts receivable (including related-party), beginning of period

 $4,300  $1,148 

Accounts receivable (including related-party), end of period

  11,826   4,300 
         

Unearned revenue, beginning of period

 $3,243  $3,888 

Unearned revenue, end of period

  2,805   3,243 

 

 

Segment Information

Business segment information for the periods indicated (and as of the dates indicated) was as follows:

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Refinery operations

 $89,915  $114,640 

Tolling and terminaling

  1,107   2,021 

Total revenue from operations

  91,022   116,661 
         

Intercompany processing fees(1)

        

Refinery operations

  (503)  (576)

Tolling and terminaling

  503   576 

Total intercompany processing fees

  -   - 
         

Costs of good sold(2)

        

Refinery operations

  (78,782)  (95,799)

Tolling and terminaling

  (410)  (358)

Total costs of goods sold

  (79,192)  (96,157)
         

Gross profit

        

Refinery operations

  10,630   18,265 

Tolling and terminaling

  1,200   2,239 

Total gross profit

  11,830   20,504 
         

Other operating and general and administrative expenses(3)

        

Refinery operations

  (409)  (478)

Tolling and terminaling

  (23)  (470)

Corporate and other

  (863)  (530)

Total other operating and general and administrative expenses

  (1,295)  (1,478)
         

Depreciation and amortization

        

Refinery operations

  (301)  (304)

Tolling and terminaling

  (342)  (342)

Corporate and other

  (61)  (52)

Total depreciation and amortization

  (704)  (698)
         

Interest and other non-operating expenses, net

        

Refinery operations

  (734)  (677)

Tolling and terminaling

  (496)  (470)

Corporate and other

  (136)  (183)

Total interest and other non-operating expenses, net

  (1,366)  (1,330)
         

Income before income taxes

        

Refinery operations

  9,186   16,806 

Tolling and terminaling

  339   957 

Corporate and other

  (1,060)  (764)

Total income before income taxes

  8,465   16,999 
         

Income tax expense

  (1,841)  (246)
         

Net income

 $6,624  $16,753 

 

(1)

Fees associated with an intercompany tolling agreement related to naphtha volumes.

(2)

Cost of goods sold within tolling and terminaling includes terminal operating expenses and an allocation of other costs (e.g., insurance and maintenance).

(3)

General and administrative expenses within refinery operations includes the LEH operating fee, related party, other operating expenses, and accretion of asset retirement obligations.

 

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Capital expenditures

        

Refinery operations

 $-  $- 

Tolling and terminaling

  -   - 

Corporate and other

  -   - 

Total capital expenditures

 $-  $- 

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Identifiable assets

        

Refinery operations

 $88,959  $86,565 

Tolling and terminaling

  17,948   16,464 

Corporate and other

  1,577   3,048 

Total identifiable assets

 $108,484  $106,077 

     
v3.24.1.1.u2
Note 5 - Concentration of Risk
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Concentration Risk Disclosure [Text Block]

(5) 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 cash balances at financial institutions in Houston, Texas. The FDIC insures certain financial products up to a maximum of $250,000 per depositor.  At March 31, 2024 and December 31, 2023, our cash balances (including restricted cash) exceeded the FDIC insurance limit per depositor by $11.4 million and $18.2 million, respectively. Instability and volatility in the capital, credit, and commodity markets, as well as with financial institutions, could adversely affect our cash balances (including restricted cash) in excess of FDIC insurance limits per depositor. In the event that banks in which we maintain our cash balances (including restricted cash) fail, there can be no assurance that the federal government and the Federal Reserve would intervene.

 

Key Supplier

Operation of the Nixon refinery depends on our ability to purchase adequate amounts of crude oil and condensate. On  December 29, 2023, we entered a new crude supply agreement with MVP, effective  January 1, 2024. This agreement provides a firm source of light-sweet Eagle Ford crude oil to the Nixon facility under improved credit terms, and management believes that MVP can provide us with adequate amounts of crude oil and condensate for the foreseeable future.  Related to the crude supply agreement, MVP stores crude oil at the Nixon facility under a terminal services agreement. At March 31, 2024, accounts payable for crude oil and condensate was $1.3 million.

 

During 2023, we operated under a crude supply agreement with Tartan.  Tartan also stored crude oil at the Nixon facility under a terminal services agreement.  In a letter dated October 31, 2023, Tartan provided LE and NPS the required 60 days’ notice of its intention to terminate the crude supply agreement and terminal services agreement. The effective date of the termination was December 31, 2023.  During Q1 2023, the vast majority of our crude was sourced from Tartan under the crude supply agreement.  At March 31, 2023, accounts payable for crude oil and condensate was $0.

 

Our financial health has been materially and adversely affected by significant current debt, certain of which is in default, historical net losses, working capital deficits, and margin volatility. If we are required to obtain our crude oil and condensate without the benefit of a long-term crude supply agreement, our exposure to the risks associated with volatile crude oil prices  may increase, crude oil transportation costs could increase, and our liquidity  may be reduced. Similarly, if producers experience crude supply constraints and increased transportation costs, our crude acquisition costs  may rise, or we  may not receive sufficient amounts to meet our needs, which could result in refinery downtime and could materially affect our business, financial condition, and results of operations.

 

 

Customers

Significant Customers. We routinely assess the financial strength of our customers.  To date, we have not experienced significant write-downs in accounts receivable balances.  We believe that our accounts receivable credit risk exposure is limited.

 

          

Portion of

 
          

Accounts

 
  

Number

  

% Total

  

Receivable at

 
  

Significant

  

Revenue from

  

March 31,

 

Three Months Ended

 

Customers

  

Operations

  

(in millions)

 
             

March 31, 2024

  3   81.3% $11.7 

March 31, 2023

  3   65.7% $11.6 

 

One of our significant customers is LEH, an Affiliate. The Affiliate purchases our jet fuel under the Amended and Restated Jet Fuel Sales Agreement and sells the jet fuel to the DLA under preferential pricing terms due to its HUBZone certification.  The jet fuel, which is stored at the Nixon Facility, is lifted by the Affiliate as needed.  For the three months ended March 31, 2024 and 2023, the Affiliate accounted for 30.7% and 30.3% of total revenue from operations, respectively.

 

Customer Concentration.  Our customer base consists of refined petroleum product wholesalers.  Economic changes similarly affect our customers positively or negatively, which impacts our overall exposure to credit risk. Economic changes include uncertainties related to commodity price volatility, recession and inflation, and armed conflicts in the Middle East and Europe and associated sanctions on Russian crude products.  Historically, we have had no significant problems collecting our accounts receivable.

 

Refined Product Sales

We sell our products primarily in the U.S. within PADD 3.  Occasionally we sell refined products to customers that export to other countries, such as naphtha and distillate to Mexico.  Total refined product sales by distillation (from light to heavy) for the periods indicated consisted of the following:

 

  

Three Months Ended March 31,

 
  

2024

  

2023

 
  

(in thousands, except percent amounts)

 
                 

LPG mix

 $61   0.1% $55   0.0%

Naphtha

  18,113   20.1%  20,729   20.7%

Jet fuel

  27,394   30.5%  35,345   35.9%

HOBM

  20,535   22.8%  33,488   18.3%

AGO

  23,812   26.5%  25,023   25.1%
  $89,915   100.0% $114,640   100.0%

 

An Affiliate, LEH, purchases all our jet fuel.  See “Note (3)” to our consolidated financial statements for additional disclosures related to Affiliate agreements and arrangements.
v3.24.1.1.u2
Note 6 - Prepaid Expenses and Other Current Assets
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Prepaid Expenses and Other Current Assets [Text Block]

(6) Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Prepaid insurance

 $623  $1,168 

Other prepaids

  473   230 

Prepaid easement renewal fees

  26   32 

Prepaid crude oil and condensate

  -   161 
  $1,122  $1,591 

 

  
v3.24.1.1.u2
Note 7 - Inventory
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Inventory Disclosure [Text Block]

(7) Inventory

 

Inventory as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Naphtha

 $12,680  $8,782 

Jet fuel

  9,409   8,570 

HOBM

  4,316   5,144 

Crude oil and condensate

  1,889   1,494 

Chemicals

  196   160 

AGO

  125   392 

Propane

  29   24 

LPG mix

  13   10 
  $28,657  $24,576 

 
v3.24.1.1.u2
Note 8 - Property, Plant and Equipment, Net
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Property, Plant and Equipment Disclosure [Text Block]

(8) Property, Plant and Equipment, Net

 

Property, plant and equipment, net, as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Refinery and facilities

 $72,675  $72,675 

Land

  566   566 

Other property and equipment

  913   913 
   74,154   74,154 
         

Less: Accumulated depreciation and amortiation

  (23,608)  (22,966)
   50,546   51,188 
         

Construction in progress

  3,770   3,770 
  $54,316  $54,958 

 
v3.24.1.1.u2
Note 9 - Accrued Expenses and Other Current Liabilities
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block]

(9) Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Unearned revenue from contracts with customers

 $2,805  $3,243 

Accrued fines and penalties

  522   522 

Insurance

  264   467 

Other payable

  165   297 

Customer deposits

  163   163 

Taxes payable

  160   142 

Board of director fees payable

  -   250 
  $4,079  $5,084 

 

  
v3.24.1.1.u2
Note 10 - Third-party Long-term Debt
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Long-Term Debt [Text Block]

(10) Third-Party Long-Term Debt

 

Loan Agreements

 

          

Monthly Principal

       
    

Principal

    

and Interest Payment

       

Loan Description

 

Parties

 

(in millions)

  

Maturity

 

(in millions)

  

Interest Rate

  

Loan Purpose

Veritex Loans

                 

LE Term Loan Due 2034 (in default) (1)

 

LE

 $25.0  

June 2034

 $0.3  

WSJ Prime + 2.75%

  

Refinance loan; capital improvements

  

Veritex

               

LRM Term Loan Due 2034 (in default) (1)

 

LRM

 $10.0  

December 2034

 $0.1  

WSJ Prime + 2.75%

  

Refinance bridge loan; capital improvements

  

Veritex

               

Kissick Debt (in forbearance)(2)

 

LE

 $11.7  

January 2018

 $0.5   6.25% 

Working capital

  

Kissick

               

GNCU Loan

                 

NPS Term Loan Due 2031(in default) (3)

 

NPS

 $10.0  

October 2031

 $0.1   5.75% 

Working capital

  

GNCU

               

SBA EIDLs

                 

Blue Dolphin Term Loan Due 2051 (as modified) (4)

 

Blue Dolphin

 $2.0  

June 2051

 $0.01   3.75% 

Working capital

  

SBA

               

LE Term Loan Due 2050 (5)

 

LE

 $0.15  

August 2050

 $0.0007   3.75% 

Working capital

  

SBA

               

NPS Term Loan Due 2050 (5)

 

NPS

 $0.15  

August 2050

 $0.0007   3.75% 

Working capital

  

SBA

               

Equipment Loan Due 2025 (6)

 

LE

 $0.07  

October 2025

 $0.0013   4.50% 

Equipment Lease Conversion

  

Texas First

               

 

(1)

Restricted cash, noncurrent totaled $1.0 million and $0.0 at March 31, 2024 and December 31, 2023, respectively. Restricted cash, noncurrent reflects amounts held by Veritex in a payment reserve account, which is required to have a balance of $1.0 million.  Although the amount at December 31, 2023 was $0, the payment reserve account was fully replenished on January 2, 2024.

(2)

Original principal amount was $8.0 million; pursuant to a 2017 sixth amendment, principal under the Kissick Debt increased by $3.7 million.

(3)

Loan requires monthly interest-only payments for the first thirty-six (36) months. Afterwards, principal and interest payments are due monthly through loan maturity. First payment due in  November 2024.

(4)

Original principal amount was $0.5 million; the Blue Dolphin Term Loan Due 2051 was modified to increase the principal amount by $1.5 million. Payments deferred for thirty (30) months; first payment due and paid in  November 2023; interest accrues during deferral period; loan not forgivable.

(5)

Payments deferred for thirty (30) months; first payment made in  February 2023; interest accrued during deferral period; loan not forgivable.

(6)

In  May 2019, LE entered into 12-month equipment rental agreement with an option to purchase backhoe at maturity; equipment rental agreement matured in  May 2020; in  October 2020, LE entered into the Equipment Loan Due 2025 to finance the backhoe purchase; backhoe used at the Nixon facility.

 

Outstanding Principal, Debt Issue Costs, and Accrued Interest

Third-party long-term debt, including outstanding principal and accrued interest, as of the dates indicated was as follows:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Veritex Loans

        

LE Term Loan Due 2034 (in default)

 $19,607  $19,858 

LRM Term Loan Due 2034 (in default)

  8,163   8,260 

Kissick Debt (in forbearance)

  5,751   7,147 

GNCU Loan

        

NPS Term Loan Due 2031 (in default)

  9,975   9,975 

SBA EIDLs

        

BDEC Term Loan Due 2051

  2,125   2,135 

LE Term Loan Due 2050

  161   162 

NPS Term Loan Due 2050

  161   162 

Equipment Loan Due 2025

  25   29 
   45,968   47,728 
         

Less: Current portion of long-term debt, net

  (40,581)  (39,440)

Less: Unamortized debt issue costs

  (1,896)  (1,947)

Less: Accrued interest payable

  (1,182)  (2,596)
  $2,309  $3,745 

 

 

Unamortized debt issue costs associated with the Veritex and GNCU loans as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Veritex Loans

        

LE Term Loan Due 2034 (in default)

 $1,674  $1,674 

LRM Term Loan Due 2034 (in default)

  768   768 

GNCU Loan

        

NPS Term Loan Due 2031 (in default)

  730   730 
         

Less: Accumulated amortization

  (1,276)  (1,225)
  $1,896  $1,947 

 

Amortization expense was $0.05 million for both three-month periods ended March 31, 2024 and 2023.

 

Accrued interest related to third-party long-term debt, reflected as accrued interest payable in our consolidated balance sheets, as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Kissick Debt (in forbearance)

 $773  $2,169 

Veritex Loans

        

LE Term Loan Due 2034 (in default)

  176   181 

LRM Term Loan Due 2034 (in default)

  69   70 

GNCU Loan

        

NPS Term Loan Due 2031 (in default)

  17   17 

SBA EIDLs

        

BDEC Term Loan Due 2051

  125   135 

LE Term Loan Due 2050

  11   12 

NPS Term Loan Due 2053

  11   12 
   1,182   2,596 

Less: Accrued interest payable

  (1,182)  (2,596)

Long-term Interest Payable, Net of Current Portion

 $-  $- 

 

The debt associated with the LE Term Loan Due 2034, LRM Term Loan Due 2034, and NPS Term Loan Due 2031 was classified within long-term debt, current portion on our consolidated balance sheets at March 31, 2024 and December 31, 2023 due to being in default.  The Kissick Debt fell within long-term debt, current portion on our consolidated balance sheet at March 31, 2024 compared to long-term debt, net of current portion at  December 31, 2023 due to principal payments being due within the next twelve months.

 

Forbearance and Defaults

Veritex First Amended Forbearance Agreement.  Under the Veritex Forbearance Agreement, LE and LRM paid Veritex: (i) $4.3 million in past due principal and interest at the non-default rate (excluding late fees), (ii) $1.0 million into a payment reserve account, and (iii) $0.04 million in Veritex attorney fees. The Veritex Forbearance Agreement expired on September 30, 2023, and was superseded by the Veritex First Amended Forbearance Agreement. The First Amended Forbearance Agreement expired on December 29, 2023, and was superseded by the Veritex Second Amended Forbearance Agreement.  The Veritex Second Amended Forbearance Agreement expired on March 29, 2024.  During each of these forbearance periods, Veritex agreed to forbear from testing borrowers’ compliance with financial covenants as specified in the LE Term Loan Due 2034 and LRM Term Loan Due 2034 and forbear from exercising its rights or remedies with respect to non-compliance with the financial covenants. 

 

Kissick Forbearance Agreement. Pursuant to the Kissick Forbearance Agreement, Kissick Noteholder agreed to forbear from exercising any of its rights and remedies related to existing defaults pertaining to payment violations under the Kissick Debt.  Under the terms of the Kissick Forbearance Agreement, LE agreed to make monthly principal and interest payments totaling $0.5 million beginning in April 2023, continuing on the first of each month through February 2025, with a final payment of $0.4 million to Kissick Noteholder on March 1, 2025. LE paid Kissick Noteholder $1.5 million and $0 for the three months ended March 31, 2024 and 2023. As of the filing date of this report, the Kissick Debt was in forbearance related to past defaults.

 

 

Defaults. As of March 31, 2024 and through the filing date of this report, we were in default under the NPS Term Loan Due 2031 due to covenant violations.  We were also in default under the LE Term Loan Due 2034 and LRM Term Loan Due 2034; the Veritex Second Amended Forbearance Agreement expired on March 29, 2024. Defaults may permit lenders to declare the amounts owed under the related loan agreements immediately due and payable, exercise their rights with respect to collateral securing obligors’ obligations, and/or exercise any other rights and remedies available. Any exercise by third parties of their rights and remedies under secured loan agreements that are in default could have a material adverse effect on our business operations, including crude oil and condensate procurement and our customer relationships; financial condition; and results of operations.  In such a case, the trading price of our Common Stock and the value of an investment in our Common Stock could significantly decrease, which could lead to holders of our Common Stock losing their investment in our Common Stock in its entirety.

 

We can provide no assurance that: (i) our assets or cash flow will be sufficient to fully repay borrowings under secured loan agreements that are in default, either upon maturity or if accelerated, (ii) LE, LRM, NPS, or BDPL will be able to refinance or restructure the debt, and/or (iii) third parties will provide future forbearances or default waivers, particularly if the banks with whom we have relationships fail. If one or more banks fail, we could be exposed to additional events of default (if not cured or waived) under existing secured loan agreements. Defaults under our secured loan agreements and any exercise by third parties of their rights and remedies related to such defaults may have a material adverse effect on our business, the trading price of our Common Stock, and on the value of an investment in our Common Stock, and holders of our Common Stock could lose their investment in our Common Stock in its entirety. If the debt associated with secured loan agreements is accelerated and we are unable to refinance or restructure the debt or obtain default waivers, we may have to consider other options, including selling assets, raising additional debt or equity capital, cutting costs, reducing cash requirements, filing bankruptcy, or ceasing operating. See “Notes (1) and (3)” to our consolidated financial statements for additional information regarding defaults under our secured loan agreements and their potential effects on our business, financial condition, and results of operations.

 

Guarantees and Security

 

Loan Description

Guarantees

Security

Veritex Loans

  

LE Term Loan Due 2034 (in default)

•    USDA

•    First priority lien on Nixon facility’s business assets (excluding accounts receivable and inventory)
 •    Jonathan Carroll(1)•    Assignment of all Nixon facility contracts, permits, and licenses
 •    Affiliate cross-guarantees•    Absolute assignment of Nixon facility rents and leases, including tank rental income
  •    $5.0 million life insurance policy on Jonathan Carroll

LRM Term Loan Due 2034 (in default)

•    USDA

•    Second priority lien on rights of LE in crude distillation tower and other collateral of LE

 •    Jonathan Carroll(1)•    First priority lien on real property interests of LRM
 •    Affiliate cross-guarantees•    First priority lien on all LRM fixtures, furniture, machinery, and equipment
  •    First priority lien on all LRM contractual rights, general intangibles, and instruments, except with respect to LRM rights in its leases of certain specified tanks for  which Veritex has second priority lien
  •    Substantially all assets

Kissick Debt (in forbearance)(2)

-•    Subordinated deed of trust that encumbers the crude distillation tower and general assets of LE

GNCU Loan

  

NPS Term Loan Due 2031 (in default)

•    USDA•    Deed of trust lien on approximately 56 acres of land and improvements owned by LE
 •    Jonathan Carroll(1)•    Leasehold deed of trust lien on certain property leased by NPS from LE
 •    Affiliate cross-guarantees•    Assignment of leases and rents and certain personal property

SBA EIDLs

  

Blue Dolphin Term Loan Due 2051

-•    Business assets (e.g., machinery and equipment, furniture, fixtures, etc.)

LE Term Loan Due 2050

-•    Business assets (e.g., machinery and equipment, furniture, fixtures, etc.)

NPS Term Loan Due 2050

-•    Business assets (e.g., machinery and equipment, furniture, fixtures, etc.)

Equipment Loan Due 2025

-•    First priority security interest in the equipment (backhoe).

 

 

(1)

Jonathan Carroll was required to personally guarantee repayment of borrowed funds and accrued interest.

 

(2)

Subject to the Kissick Subordination Agreement.

  

Representations, Warranties, and Covenants

The First Term Loan Due 2034, Second Term Loan Due 2034, NPS Term Loan Due 2031, BDEC Term Loan Due 2051, LE Term Loan Due 2050, and NPS Term Loan Due 2050 contain representations and warranties, affirmative and negative covenants, and events of default that we consider usual and customary for bank facilities of these types.  Specifically, the First Term Loan Due 2034 contains quarterly debt service coverage and total combined current assets ratios and annual current and debt to net worth ratios; in addition, LE must maintain quarterly total combined debt and total combined tangible net worth ratios. The First Term Loan Due 2034 also requires that a $1.0 million payment reserve account be maintained.  The Second Term Loan Due 2034 contains quarterly total combined current assets, total combined current liabilities, and total combined debt ratios and annual current and debt to net worth ratios. The NPS Term Loan Due 2031 requires annual maintenance of debt service coverage and current ratios. There are no covenants associated with the Kissick Debt, BDEC Term Loan Due 2051, LE Term Loan Due 2050, NPS Term Loan Due 2050, and the Equipment Loan Due 2025.
v3.24.1.1.u2
Note 11 - AROs
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Asset Retirement Obligation Disclosure [Text Block]

(11) AROs

 

Refinery and Facilities

Management has concluded that there is no legal or contractual obligation to dismantle or remove refinery and facilities assets. Management believes that 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 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 decommissioning our pipelines and facilities assets, as well as plugging and abandoning 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, and we depreciated the amount added to property and equipment. From time to time we record an increase in liability or an impairment due to changes in estimates or the timing of decommissioning the assets. During the three months ended March 31, 2024 and 2023 we did not record an increase in liability or an impairment related to our pipeline and facilities assets.

 

Because our pipelines and facilities assets have been inactive for an extended period, BOEM mandated that they be decommissioned. In October 2023, management met with BSEE to discuss BDPL’s path forward for meeting decommissioning requirements.  Management worked with a consultant to develop a decommissioning plan, and BDPL is following the plan. Separately, management is exploring alternatives to reactivate the assets under a potential alternate Rights-of-Use and Easement (RUE).  Based on updated estimates for pipeline decommissioning, platform removal, and associated costs, as well as resource availability and projected weather conditions, we believe decommissioning and remediation of all associated INCs will be completed by the end of the third quarter of 2024.  However, BDPL’s work plan does not relieve BDPL of its obligations to comply with BSEE’s mandate or of BSEE’s authority to impose financial penalties. Further, there can be no assurance that BDPL will be able to complete the anticipated work or predict the outcome of BSEE INCs. Accordingly, we did not record a liability related to potential penalties on our consolidated balance sheets as of March 31, 2024 and December 31, 2023.  At March 31, 2024 and December 31, 2023, BDPL maintained $3.0 million and $4.5 million, respectively, in AROs related to abandonment of these assets, which amount does not include potential penalties.

 

Due to BDPL’s failure to complete decommissioning of the offshore pipeline and platform assets and remedy associated INCs within the timeframe mandated by BSEE, BDPL could be subject to regulatory oversight and enforcement, including but not limited to failing to correct an INC, civil penalties, and revocation of BDPL’s operator designation, which could have a material adverse effect on our earnings, cash flows, and liquidity.  On January 26, 2024, BSEE assessed a civil penalty of $0.2 million against BDPL for failure to complete annual platform inspections in a timely manner.  We recorded a liability for the maximum proposed amount of $0.2 million on our consolidated balance sheets within accrued expenses and other current liabilities as of  March 31, 2024.  Although BDPL filed an appeal to the civil penalty on  March 25, 2024, BDPL filed a motion to withdraw the appeal on April 17, 2024.  BDPL paid the civil penalty related to platform inspections on April 19, 2024.

 

ARO liability as of the dates indicated was as follows:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

AROs, at the beginning of the period

 $4,504  $3,710 

Changes in estimates of existing obligations

  -   1,558 

Liabilities settled

  (1,505)  (823)

Accretion expense

  -   59 
         

Less: AROs, current portion

  (2,999)  (4,504)

Long-term AROs, at the end of the period

 $-  $- 

 

See “Note (15)” to our consolidated financial statements for disclosures related to decommissioning of our offshore pipelines and platform assets and related risks.
v3.24.1.1.u2
Note 12 - Lease Obligations
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Lessee, Operating Leases [Text Block]

(12) Lease Obligations

 

Lease Obligations

Office Lease.  We maintain our corporate headquarters in Houston, Texas.  In May 2023, BDSC signed a 12-month extension to its existing operating lease. The extended term commenced on September 1, 2023 and expires on August 31, 2024. Under the amended agreement, the annual rent was reduced from $31.00 per square foot to $30.00 per square foot, resulting in a monthly base rental amount of $0.02 million.  Management is currently exploring leasing options.

 

An Affiliate, LEH, subleases a portion of the Houston office space. BDSC received sublease income from LEH totaling $0.01 million for both three-month periods ended March 31, 2024 and 2023. See “Note (3)” to our consolidated financial statements for additional disclosures related to the Affiliate sub-lease.

 

Tank Lease. LE leases tanks from Ingleside under the LE Amended and Restated Master Services Agreement. Lease expense associated with the LE Amended and Restated Master Services Agreement totaled $0.3 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. Due to its one-year term, the lease is being treated as short term.  As a result, the lease was not recorded on our balance sheet. See “Note (3)” to our consolidated financial statements for additional disclosures related to the LE Amended and Restated Master Services Agreement.

 

 

The following table presents the lease-related assets and liabilities recorded on the consolidated balance sheet:

 

   

March 31,

  

December 31,

 
 

Balance Sheet Location

 

2024

  

2023

 
   

(in thousands)

 

Assets

         

Operating lease ROU assets

Operating lease ROU assets

 $994  $787 

Less: Accumulated amortization on operating lease assets

Operating lease ROU assets

  (894)  (629)
          

Total lease assets

  100   158 
          

Liabilities

         

Current

         

Operating lease

Current portion of lease liabilities

  93   147 
          

Noncurrent

         

Operating lease

Long-term lease liabilities, net of current

  -   - 

Total lease liabilities

 $93  $147 

 

Weighted average remaining lease term in years

    

Operating lease

  0.42 

Weighted average discount rate

    

Operating lease

  8.25%

 

The following table presents information related to lease costs incurred for operating and finance leases:

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Operating lease costs

 $62  $51 

Short-term lease expense, related party

  300   100 

Total lease cost

 $362  $151 

 

The table below presents supplemental cash flow information related to leases as follows:

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Cash paid for amounts included in the measurement of lease liabilities:

        
         

Operating cash flows for operating lease

 $54  $57 

 

As of March 31, 2024, maturities of lease liabilities for the periods indicated were as follows:

 

  

Operating

 

March 31,

 

Lease

 
  

(in thousands)

 
     

2025

 $93 
  $93 

 

Future minimum annual lease commitments that are non-cancelable:

 

  

Operating

 

March 31,

 

Lease

 
  

(in thousands)

 

2025

 $96 
  $96 

 

  
v3.24.1.1.u2
Note 13 - Income Taxes
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

(13) Income Taxes

 

The Inflation Reduction Act ("IRA") was enacted into law in August 2022.  The IRA imposes a 15% alternative minimum tax on corporations whose average annual adjusted financial statement income during the most recently completed three-year period exceeds $1.0 billion. We do not fall within the category of “applicable corporations” and are therefore exempt from payment of an alternative minimum tax.

 

Tax Provision

The provision for income tax benefit (expense) for the periods indicated was as follows:

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Current

        

Federal

 $(215) $(115)

State

  (81)  (131)

Deferred

        

Federal

  (1,545)  (3,427)

Change in valuation allowance

  -   3,427 
         

Total provision for income taxes

 $(1,841) $(246)

 

GAAP treats Texas margins tax, a form of business tax imposed on an entity’s gross profit rather than its net income, like an income tax for financial reporting purposes.

 

Deferred income taxes as of the dates indicated consisted of the following:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Deferred tax assets:

        

NOL and capital loss carryforwards

 $5,019  $6,014 

Business interest expense

  2,333   2,534 

Start-up costs (crude oil and condensate processing facility)

  233   254 

ARO liability/deferred revenue

  630   946 

Other

  59   54 

Total deferred tax assets

  8,274   9,802 
         

Deferred tax liabilities:

        

Basis differences in property and equipment

  (8,383)  (8,366)

Total deferred tax liabilities

  (8,383)  (8,366)
   (109)  1,436 
         

Deferred tax assets (liabilities), net

 $(109) $1,436 

 

Deferred Income Taxes

Balances for deferred income tax represent the effects of temporary differences between carrying amounts and the actual income tax basis of our assets and liabilities; the balances also reflect NOL carryforwards. We record the balances based on tax rates we expect to be in effect when paid. NOL carryforwards and deferred tax assets represent amounts available to reduce future taxable income.

 

Valuation Allowance.  As of each reporting date, management considers new evidence, both positive and negative, to determine the realizability of deferred tax assets.  This assessment (of whether there is more than a 50% probability that our deferred tax asset is realizable) depends on the generation of future taxable income before the expiration of any NOL carryforwards. During the year ended  December 31, 2023, the valuation allowance was reduced to zero based upon the expected utilization of the net deferred tax asset as a result of positive evidence that was evaluated, including recent earnings history and expectations for future taxable income.

 

At   March 31, 2024, there were no uncertain tax positions for which a reserve or liability was necessary. 

 

NOL Carryforwards

Under IRC Section 382, a corporation that undergoes an “ownership change” is subject to limitations on using 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 stockholders who own more than 5% (after applying certain look-through rules) increases by more than fifty percent [50% over such stockholders’ lowest percentage ownership during the testing period (generally three years)]. Based on the tax rule, ownership changes occurred in 2005 and 2012. The 2005 ownership change related to a series of private placements; the 2012 ownership change related to a reverse acquisition.

 

 

The 2005 and 2012 ownership changes limit the use of pre-change NOL carryforwards to offset future taxable income. The annual use limitation generally equals the value of the common stock, on an aggregate basis, when the ownership change occurred multiplied by a specified tax-exempt interest rate. The 2012 ownership change will subject approximately $16.3 million in NOL carryforwards generated before the ownership change to an annual use limitation of approximately $0.6 million per year. We  may use any unused portions of the limitation in subsequent years. Because of the yearly restriction, approximately $6.7 million in NOL carryforwards generated before the 2012 ownership change will expire unused and are excluded in the NOL carryforward presented below. NOL carryforwards generated after the 2012 ownership change but before 2018 are not subject to an annual use limitation; we can use these NOL carryforwards for 20 years in addition to NOL carryforward amounts generated before the ownership change. NOL carryforwards generated beginning in 2018  may only be used to offset 80% of taxable income and are carried forward indefinitely.

 

NOL Carryforwards Available for Use. 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):

 

  

Net Operating Loss Carryforward

     
  

Pre-

  

Post-

     
  

Ownership

  

Ownership

     
  

Change

  

Change

  

Total

 
  

(in thousands)

 
             

Balance at December 31, 2022

 $5,147  $45,624  $50,771 
             

Net operating losses used and expired

  (638)  (21,493)  (22,131)
             

Balance at December 31, 2023

 $4,509  $24,131  $28,640 
             

Net operating losses used and expired

  (638)  (4,101)  (4,739)
             

Balance at March 31, 2024

 $3,871  $20,030  $23,901 

    
v3.24.1.1.u2
Note 14 - Earnings and Dividends Per Share
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Earnings Per Share [Text Block]

(14) Earnings and Dividends Per Share

 

A reconciliation between basic and diluted income per share for the periods indicated was as follows:

 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands,

 
  

except share and per share amounts)

 
         

Net income

 $6,624  $16,753 
         

Earnings per share

        

Basic and diluted income per share

 $0.44  $1.12 

Basic and diluted shares used in computing earnings per share

  14,921,968   14,921,968 

 

Diluted EPS for the three months ended March 31, 2024 and 2023 was the same as basic EPS as there were no stock options or other dilutive instruments outstanding.  Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding.

 

Shareholders are entitled to receive such dividends as  may be declared by our Board out of funds legally available for such purpose. However, no dividend  may be declared or paid unless after-tax profit was made in the preceding fiscal year, we comply with covenants in our secured loan agreements, we are current on all required debt payments, and we have received prior written concurrence from certain lenders.

 
v3.24.1.1.u2
Note 15 - Commitments and Contingencies
 3 Months Ended
Mar. 31, 2024
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]

(15) Commitments and Contingencies

 

Third Amended and Restated Operating Agreement

See “Note (3)” to our consolidated financial statements for additional disclosures related to operation and management of all Blue Dolphin assets by an Affiliate under the Third Amended and Restated Operating Agreement.

 

Offshore Pipelines and Platform Requirements

BDPL has pipelines and platform assets subject to BSEE’s idle iron regulations.  Idle iron regulations require lessees and rights-of-way holders to permanently abandon and/or remove platforms and other structures when they are no longer useful for operations.  Until such structures are abandoned or removed, lessees and rights-of-way holders are required to inspect and maintain the assets in accordance with regulatory requirements.

 

Platform Inspections.  We are required by BSEE to perform annual structural inspections of our offshore platform, as well as to perform monthly platform checks of navigational aids, fog horns, and lifesaving equipment. In  March 2023, BSEE issued BDPL an INC for failing to perform the required 2021 and 2022 structural surveys for the GA-288C platform and for failing to provide BSEE with such survey results. In  April 2023, BSEE granted BDPL an extension for completing the required platform inspection until  May 30, 2023.  Although BDPL requested a second extension, BSEE denied BDPL’s request. BDPL completed the platform inspection on  August 26, 2023 and submitted the survey report to BSEE on  September 6, 2023. Because BDPL failed to comply with the INC within the allotted timeframe, BSEE proposed an administrative civil penalty of approximately $0.2 million on  October 24, 2023.  The proposed administrative civil penalty was finalized on  January 26, 2024, for $0.2 million.  We recorded a liability for the maximum proposed amount of $0.2 million on our consolidated balance sheets within accrued expenses and other current liabilities as of  March 31, 2024.  Although BDPL filed an appeal to the civil penalty on  March 25, 2024, BDPL filed a motion to withdraw the appeal on April 17, 2024.  BDPL paid the civil penalty related to platform inspections on April 19, 2024.

 

Decommissioning Obligations.  Because our pipelines and facilities assets have been inactive for an extended period, BOEM mandated that they be decommissioned. In  October 2023, management met BSEE to discuss BDPL’s path forward for meeting decommissioning requirements. Management worked with a consultant to develop a decommissioning plan, and BDPL submitted its decommissioning plan to the agency in  November 2023. Although the decommissioning of these assets was delayed due to cash constraints associated with historical net losses and the impact of COVID-19, a significant portion of the decommissioning project was completed from late  December 2023 to mid-  February 2024. Based on updated estimates for pipeline decommissioning, platform removal, and associated costs, as well as resource availability and projected weather conditions, we believe decommissioning and remediation of all associated INCs will be completed by the end of the third quarter of 2024.  However, BDPL’s work plan does not relieve BDPL of its obligations to comply with BSEE’s mandate or BSEE’s authority to impose financial penalties. Further, there can be no assurance that BDPL can complete anticipated work or predict the outcome of BSEE INCs.  Accordingly, we did not record a liability related to potential penalties on our consolidated balance sheets as of  March 31, 2024 and December 31, 2023. Due to BDPL’s failure to comply with BSEE requirements, BDPL could still be subject to regulatory oversight and enforcement, including but not limited to failing to correct an INC, civil penalties, and revocation of BDPL’s operator designation, which could have a material adverse effect on our earnings, cash flows, and liquidity.  At March 31, 2024 and December 31, 2023, BDPL maintained $3.0 million and $4.5 million, respectively, in AROs related to abandonment of these assets, which amount does not include potential penalties.

 

Defaults Under Secured Loan Agreements with Third Parties and Related Parties

See “Notes (1), (3), and (10)” to our consolidated financial statements for additional disclosures related to defaults under our secured and unsecured debt agreements.

 

Financing Agreements and Guarantees

Indebtedness.  See “Notes (1), (3), and (10)” to our consolidated financial statements for disclosures related to Affiliate and third-party indebtedness and defaults thereto.

 

Guarantees.  Affiliates provided guarantees on certain debt of Blue Dolphin and its subsidiaries.  The maximum amount of any guarantee is equal to the principal amount and accrued interest, which amounts are reduced as payments are made.  See “Notes (1), (3), and (10)” to our consolidated financial statements for additional disclosures related to Affiliate and third-party guarantees associated with indebtedness and defaults thereto.

 

Health, Safety and Environmental Matters

The operations of certain Blue Dolphin subsidiaries 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 products 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 air emissions. These operations also require numerous permits and authorizations under various environmental, health, and safety laws and regulations. Failing to obtain and comply with these permits or environmental, health, or safety laws could result in fines, penalties or other sanctions, or a revocation of our permits.

 

 

Legal Matters

In the ordinary course of business, we are involved in legal matters incidental to the routine operation of our business, such as mechanic’s liens and contract-related disputes. We  may also become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. Large, sometimes unspecified, damages or penalties  may be sought from us in some matters, which  may require years to resolve. Although we cannot provide assurance, we believe that an adverse resolution of the matters described below would not have a material impact on our liquidity, consolidated financial position, or consolidated results of operations.

 

Resolved Matters.

Pilot Dispute Related to Terminal Services Agreement. Effective  May 9, 2019, NPS and Pilot entered into a Terminal Services Agreement, pursuant to which NPS agreed to store jet fuel purchased by Pilot at the Nixon facility. On  August 25, 2022, Pilot provided the 60-day notice of its intent to terminate the Terminal Services Agreement, which became effective on  October 24, 2022. As of the Terminal Services Agreement termination date, approximately 185,000 bbls of Pilot’s jet fuel remained at the Nixon facility.

 

On  October 28, 2022, Pilot commenced an action and application for a temporary restraining order (“TRO”) against NPS in Harris County District Court (the “Texas Action”). After a hearing on the application on  October 28, 2022, Pilot’s application for the TRO was denied the same day.  On  December 2, 2022, NPS filed its answer in the Texas Action. On  December 6, 2022, NPS provided notice under Section 7.206(a) of the Texas Business and Commerce Code ("TBCC") of its intent to sell the remaining inventory of Pilot’s jet fuel at the Nixon facility by  January 7, 2023. After negotiations, NPS agreed to forbear from exercising its remedies under the TBCC while the parties explored a potential dispute compromise pursuant to the Pilot Forbearance and Accommodation Agreement, with a forbearance period terminating on  February 28, 2023. As part of the Pilot Forbearance and Accommodation Agreement, Pilot paid NPS approximately $1.5 million in  January 2023. 

 

On  March 31, 2023, NPS and Pilot executed the Pilot Forbearance Amendment, extending the forbearance period and all deadlines in the unresolved Texas Action to  June 15, 2023.  As part of the Pilot Forbearance Amendment, Pilot paid NPS approximately $1.1 million and $0.2 million in  April and  June 2023, respectively. The parties also negotiated the sale of all 185,000 bbls of stored jet fuel in  April 2023. On  June 16, 2023, following the expiration of the Pilot Forbearance and Accommodation Agreement, the parties agreed to extend the deadline for responses to outstanding discovery requests in the Texas Action to  August 31, 2023. On  August 28, 2023, the parties filed a joint motion to stay this case in anticipation of planned mediation in  December 2023 to settle all outstanding disputes.

 

Pilot Settlement Agreement.  A confidential Settlement Agreement by and among LEH, NPS, LE, LRM, Lazarus San Antonio Refinery, LLC, and Blue Dolphin (together the "Lazarus Entities"), on the one hand, and Pilot, Starlight Relatively Holdings LLC, Starlight Relativity Acquisition Company LLC, Tartan, The San Antonio Refinery LLC, and Falls City Terminal LP (together, the "Pilot Entities"), on the other hand, was executed on  December 29, 2023.  Among other matters addressed, NPS's contract-related dispute related to set-off payments and LRM’s contracted-related dispute involving a revenue-sharing arrangement for storing and selling crude oil with Pilot and Tartan, respectively, were fully resolved, and the parties agreed to mutually release all claims against each other.  Further, Pilot and NPS agreed to take such actions as necessary to dismiss the Texas Action.  For the avoidance of doubt, all contractual agreements between the Lazarus Entities and Pilot Entities were terminated.

 

OSHA Settlement Agreement. In  September 2022, we entered into an Informal Settlement Agreement with OSHA related to process safety management violations at the Nixon refinery. Under the agreement, we paid penalties totaling $0.05 million in  November 2022. We remediated a significant portion of identified violations before  December 31, 2022. We remediated the remaining violations on a progressive schedule by  April 2023.

 

Unresolved Matters.

BOEM Supplemental Pipeline Bonds. To cover the various obligations of lessees and rights-of-way holders operating in federal waters of the Gulf of Mexico, BOEM evaluates an operator’s financial ability to carry out present and future obligations to determine whether the operator must provide additional security beyond the statutory bonding requirements. Such obligations include the cost of plugging and abandoning wells and decommissioning pipelines and platforms at the end of production or service activities. Once plugging and abandonment work has been completed, the collateral backing the financial assurance is released by BOEM.

 

 

Historically, BDPL maintained $0.9 million in pipeline bonds with BOEM to decommission its trunk pipeline offshore in federal waters.  In  March 2018, BOEM ordered BDPL to provide additional financial assurance totaling approximately $4.8 million for five (5) existing pipeline rights-of-way, an increase of approximately $3.9 million.  In  June 2018, BOEM issued BDPL INCs for each right-of-way that failed to comply. BDPL appealed the INCs to the IBLA.  Although the IBLA granted multiple extension requests, the Office of the Solicitor of the U.S. Department of the Interior indicated that BOEM would not consent to further extensions. The solicitor’s office signaled that BDPL’s adherence to decommissioning its offshore pipelines and platform would likely help in future discussions with BOEM related to the INCs. Fulfilling abandonment obligations related to the subject assets will significantly reduce or eliminate the amount of supplemental pipeline bonds required by BOEM, which  may serve to partially or fully resolve the INCs.

 

BDPL’s pending appeal of the BOEM INCs does not relieve BDPL of its obligations to provide additional financial assurance or of BOEM’s authority to impose financial penalties. There can be no assurance that we will be able to meet additional supplemental pipeline bond requirements. If BDPL is required by BOEM to provide significant additional supplemental pipeline bonds or is assessed significant penalties under the INCs, we will experience a significant and material adverse effect on our operations, liquidity, and financial condition. We cannot predict the outcome of the supplemental pipeline bond INCs.  Accordingly, we did not record a liability on our consolidated balance sheets as of  March 31, 2024 and  December 31, 2023.  At both  March 31, 2024 and  December 31, 2023, BDPL maintained approximately $0.9 million in pipeline rights-of-way surety bonds issued to BOEM through RLI. However, as noted below, RLI desires to reduce its risk profile related to BDPL's bonds.  Of the pipeline rights-of-way bonds, $0.7 million was credit-backed and $0.2 million was cash-backed.

 

RLI Surety Bonds.   Blue Dolphin currently has several surety bonds through RLI as required by different regulatory agencies, including BOEM and the Railroad Commission of Texas. The bonds total approximately $1.25 million in the aggregate, of which $0.2 million is collateralized in cash. In  June,  July, and  December 2023, RLI demanded Blue Dolphin provide additional cash collateral or a letter of credit totaling approximately $1.0 million or provide bond exonerations and replacement bonds.  Although Blue Dolphin received a proposal from another surety to replace the RLI bonds at a 50% collateral requirement, management was hopeful Blue Dolphin and RLI could reach an understanding whereby the existing bonds could be maintained until BDPL completed decommissioning of the subject assets. Abandonment of BDPL’s offshore pipeline and platform assets will eliminate the need for all BOEM supplemental pipeline bonds, reducing the amount of surety bonds held by RLI from $1.25 million to $0.25 million.  On  February 19, 2024, RLI filed suit against Blue Dolphin, BDPL, and BDEX seeking an injunction for the payment of approximately $1.0 million of additional collateral for the bonds. BDPL filed its answer to RLI's lawsuit on April 23, 2024 denying RLI's claims.

 

TCEQ Proposed Agreed Order. In  October 2021, LRM received a proposed agreed order from the TCEQ for alleged solid and hazardous waste violations discovered during an investigation from  January to  March 2020.  The proposed agreed order assessed an administrative penalty of $0.4 million and identified actions needed to correct the alleged violations. In  September 2023, TCEQ presented its final penalty offer of $0.35 million, which LRM accepted. Although LRM believes the penalty matter is resolved, LRM expects to continue working with TCEQ to remediate certain open items fully. At   March 31, 2024, we accrued $0.4 million on our balance sheet within accrued expenses and other current liabilities related to this matter.

 

BSEE Civil Penalties. We are required by BSEE to perform annual structural inspections of our offshore platform, as well as to perform monthly platform checks of navigational aids, fog horns, and lifesaving equipment. In  March 2023, BSEE issued BDPL an INC for failing to perform the required 2021 and 2022 structural surveys for the GA- 288C platform and for failing to provide BSEE with such survey results. In  April 2023, BSEE granted BDPL an extension for completing the required platform inspection until  May 30, 2023.  Although BDPL requested a second extension, BSEE denied BDPL’s request.  BDPL completed the platform inspection on  August 26, 2023 and submitted the survey report to BSEE on  September 6, 2023. Because BDPL failed to comply with the INC within the allotted timeframe, BSEE proposed an administrative civil penalty of approximately $0.2 million on  October 24, 2023.  The proposed administrative civil penalty was finalized on  January 26, 2024, for $0.2 million.  We recorded a liability for the maximum proposed amount of $0.2 million on our consolidated balance sheets within accrued expenses and other current liabilities as of  March 31, 2024.  Although BDPL filed an appeal to the civil penalty on  March 25, 2024, BDPL filed a motion to withdraw the appeal on April 17, 2024.  BDPL paid the civil penalty related to platform inspections on April 19, 2024.

 

On April 26, 2024, BDPL received a civil penalty advisory letter from BSEE of the same date related to INCs issued by the agency in September 2023.  The letter indicates that the agency is reviewing the INCS, which relate to BDPL's offshore assets in federal waters.  BSEE will provide BDPL information related to its review within 90 days from the date of its letter.

 

Defaults under Secured Loan Agreements. We are currently in default under certain secured loan agreements with third parties and related parties. See “Notes (1), (3), and (10)” for additional disclosures related to third-party and related-party debt, default on such debt, and the potential effects of such defaults on our business, financial condition, and results of operations. If third parties exercise their rights and remedies due to defaults under our secured loan agreements, our business, financial condition, and results of operations will be materially adversely affected.

 
v3.24.1.1.u2
Insider Trading Arrangements
 3 Months Ended
Mar. 31, 2024
Insider Trading Arr Line Items  
Material Terms of Trading Arrangement [Text Block]

ITEM 5. OTHER INFORMATION

 

None.

 
Rule 10b5-1 Arrangement Terminated [Flag] false
Rule 10b5-1 Arrangement Adopted [Flag] false
Non-Rule 10b5-1 Arrangement Terminated [Flag] false
Non-Rule 10b5-1 Arrangement Adopted [Flag] false
v3.24.1.1.u2
Significant Accounting Policies (Policies)
 3 Months Ended
Mar. 31, 2024
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The accompanying unaudited consolidated financial statements, which include Blue Dolphin and its subsidiaries, have been prepared in accordance with GAAP for interim consolidated financial information pursuant to the rules and regulations of the SEC under Article 10 of Regulation S-X and the instructions to Form 10-Q. 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, 2023 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 on Form 10-K for the fiscal year ended  December 31, 2023 as filed with the SEC. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024, or for any other period.
Use of Estimates, Policy [Policy Text Block]

Use of Estimates.  The nature of our business requires that we make estimates and assumptions in accordance with U.S.GAAP.  These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Although commodity price volatility, recession and inflation, armed conflicts in the Middle East and Europe and associated sanctions on Russian crude products, and severe weather resulting from climate change have impacted these estimates and assumptions, we are continually working to mitigate future risks. However, the extent to which these factors may impact our business, financial condition, liquidity, results of operations, and prospects will depend on future developments, which cannot be predicted with any degree of certainty.

 

We assessed certain accounting matters that require consideration of forecasted financial information in context with information reasonably available to us as of March 31, 2024 and through the filing date of this report.  The accounting matters assessed included, but not limited to, our allowance for credit losses, inventory and related reserves, and the carrying value of long-lived assets, assessing Blue Dolphin's ability to continue as a going concern and evaluating the need for a valuation allowance on deferred tax assets.
Cash and Cash Equivalents, Policy [Policy Text Block]

Cash, Cash Equivalents, and Restricted Cash. 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. Although management historically deemed this a normal business risk, options to limit risk are being evaluated given current capital, credit, and commodity markets and financial institution health.  Restricted cash, non-current portion at March 31, 2024 and December 31, 2023 reflected amounts held in a payment reserve account by Veritex as security for payments under the LE Term Loan Due 2034. In the event that banks in which we maintain our cash balances (including restricted cash) fail, there can be no assurance that the federal government and the Federal Reserve would intervene.

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported in the consolidated statements of cash flows:

 

  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Cash and cash equivalents

 $11,123  $18,713 

Restricted cash, noncurrent

  1,000   5 
  $12,123  $18,718 
Accounts Receivable [Policy Text Block] Accounts Receivable and Allowance for Credit Losses.  Accounts receivable are presented net of any necessary allowance(s) for credit losses.  Receivables are recorded at the invoiced amount and generally do not bear interest. An allowance for credit losses is established, when necessary, based on prior experience and other factors which, in management’s judgment, deserve consideration in estimating bad debts.  Management assesses collectability of the customer’s account based on current aging status, collection history, and financial condition.  Based on a review of these factors, management establishes or adjusts the allowance for specific customers and the entire accounts receivable portfolio.  We had an allowance for credit losses of $0 and $0.06 million at March 31, 2024 and December 31, 2023, respectively.
Fair Value of Financial Instruments, Policy [Policy Text Block] Financial Instruments.  Our financial instruments are comprised of cash and cash equivalents, accounts receivable, accounts payable, and long-term debt. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short maturities. The carrying value of long-term debt approximates fair value as it carries interest rates that fluctuate with the prime rate.
Inventory, Policy [Policy Text Block] Inventory. Inventory primarily consists of refined products, crude oil and condensate, and chemicals.  Inventory is valued at the lower of cost or net realizable value with cost determined by the average cost method, and net realizable value determined based on estimated selling prices less associated delivery costs.  If the net realizable value of our refined 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 goods sold. See “Note (7)” to our consolidated financial statements for additional disclosures related to inventory.
Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment.

Refinery and Facilities. We typically make ongoing improvements to the Nixon facility based on operational needs, technological advances, and safety and regulatory requirements.  We capitalize additions to refinery and facilities assets, and we expense costs for repairs and maintenance as incurred.  We record refinery and facilities at cost less any adjustments for depreciation or impairment.  We adjust the asset and the related accumulated depreciation accounts 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, we compute refinery and facilities assets depreciation using the straight-line method with an estimated useful life of 25 years; we depreciate refinery and facilities assets when placed in service.  We did not record any impairment of our refinery and facilities assets for the periods presented.

 

Pipelines and Facilities. We record our pipelines and facilities at cost less any adjustments for depreciation or impairment.  We computed depreciation using the straight-line method over estimated useful lives ranging from 10 to 22 years. Per FASB ASC guidance, we performed impairment testing of our pipeline and facilities assets in 2016. Upon completion of testing, we fully impaired our pipeline assets at December 31, 2016.

 

 

 

Construction in Progress (CIP). CIP expenditures, including capitalized interest, relate to construction and refurbishment activities and equipment for the Nixon facility.  These expenditures are capitalized as incurred. Depreciation begins once the asset is placed in service.  See “Notes (8) and (11)” to our consolidated financial statements for additional disclosures related to refinery and facilities assets, oil and gas properties, pipelines and facilities assets, and CIP.
Lessee, Leases [Policy Text Block]

Leases.  We determine whether a contract or agreement is or contains a lease at inception. If the contract is or includes a lease and has a term greater than one year, we recognize a ROU asset and lease liability as of the commencement date based on the present value of the lease payments over the lease term. We determine the present value of the lease payments by using the implicit rate when readily determinable. If the implicit rate is not defined, we use the incremental borrowing rate to discount lease payments to present value. We adjust lease terms to include options to extend or terminate the lease when it is reasonably certain that we will exercise those options.

 

For operating leases, we record lease cost on a straight-line basis over the lease term; we record lease expenses in the appropriate line on the income statement based on the leased asset’s intended use.  For finance leases, we amortize lease payments for the ROU asset on a straight-line basis over the lesser of the leased asset’s useful life or the lease term; we record amortization expenses on the income statement in ‘depreciation and amortization expense;’ we record interest expense on the income statement in ‘interest and other expense.
Revenue from Contract with Customer [Policy Text Block]

Revenue Recognition. 

Refinery Operations Revenue. We recognize revenue from refined products sales when we meet our performance obligation to the customer.  We meet our performance obligation when the customer receives control of the product. The customer accepts control of the product when the product is lifted.  Under bill and hold arrangements, the customer takes control of the product when added to the customer’s bulk inventory as stored at the Nixon facility. We allocate a transaction price to each separately identifiable refined product load. 

 

We consider a variety of facts and circumstances in assessing the point of a control transfer, including but not limited to: whether the purchaser can direct the use of the refined product, the transfer of significant risks and rewards, our rights to payment, and transfer of legal title. In each case, the term between the sale and when payment is due is not significant.  We include incurred transportation, shipping, and handling costs in the cost of goods sold. We do not include excise and other taxes collected from customers and remitted to governmental authorities in revenue.

 

Tolling and Terminaling Revenue. Tolling and terminaling revenue represents fees under (i) terminal services agreements whereby a customer agrees to pay a certain fee per storage tank based on tank size over time for the storage of products and (ii) tolling agreements, whereby a customer agrees to pay a certain fee per gallon or barrel for throughput volumes moving through the naphtha stabilizer unit and a fixed monthly reservation fee for the use of the naphtha stabilizer unit.

 

We typically satisfy performance obligations for tolling and terminaling operations over time. We determine the transaction price at agreement inception based on the guaranteed minimum amount of revenue over the agreement term. We allocate the transaction price to the single performance obligation that exists under the agreement. We recognize revenue in the amount for which we have a right to invoice. Generally, payment terms do not exceed 30 days.

 

Revenue from storage tank customers may, from time to time, include fees for ancillary services, such as in-tank and tank-to-tank blending.  These services are considered optional to the customer.  The fixed cost under the customer’s storage tank agreement does not include ancillary services fees. We consider ancillary services as a separate performance obligation under the storage tank agreement. We satisfy the performance obligation and recognize the associated fee when we complete the requested service.

 

Deferred Revenue. Deferred revenue represents a liability related to a revenue-producing activity as of the balance sheet date.  We record unearned revenue, which usually consists of customer prepayments, when we receive the cash payment. Once we satisfy the performance obligation, we recognize revenue in conformity with GAAP.

 

Contract Balances. The timing of revenue recognition, billings, and cash collections results in billed accounts receivable and customer pre-payments and deposits (contract liabilities) on our consolidated balance sheet. Amounts are billed as products are lifted and sold or upon signing of bulk sales contracts. Generally, billing occurs subsequent to revenue recognition, resulting in a short-term liability. We sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities. These deposits are liquidated when revenue is recognized. 

 

Unearned Contract Renewal Income. We recognize deferred revenue from suppliers for upfront payments received but not yet earned as a reduction of cost of sales on a straight-line basis over the term of the supply contract.
Income Tax, Policy [Policy Text Block]

Income Taxes. Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Our effective tax rate  may be different than expected if the federal and state statutory rates were applied to income from continuing operations due to certain items that are deductible or included in income for tax purposes that are not deductible or included for financial statement purpose.

 

The benefit of an uncertain tax position is recognized in the financial statements if it meets a minimum recognition threshold. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more-likely-than-not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At  December 31, 2023 and 2022, there were no uncertain tax positions for which a reserve or liability was necessary.

 

Deferred Taxes. Deferred income tax assets and liabilities are recorded for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax assets are reduced by a valuation allowance when we are unable to conclude that realization of the deferred income tax assets is more likely than not.
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment or Disposal of Long-Lived Assets. We periodically evaluate our long-lived assets for impairment. Additionally, we reassess 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 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.  Management uses significant judgment in forecasting future operating results and projected cash flows.  If conditions or assumptions change, material impairment charges could be necessary.

 

Commodity price market volatility associated with general macroeconomic conditions related to inflation, interest rates, and capital and credit markets, geopolitical tensions, including military conflicts in Ukraine and Israel and escalations in the Middle East, and COVID-19 could affect the value of certain of our long-lived assets.   As of March 31, 2024 and December 31, 2023, we did not record any impairment of our long-lived assets. However, impairment may be required in the future if external events or circumstances change or if internal conditions shift materially.
Asset Retirement Obligation [Policy Text Block]

Asset Retirement Obligations. We record a liability for the discounted fair value of an ARO in the period incurred. We also capitalize the corresponding cost by increasing the carrying amount of the related long-lived asset. The liability is accreted towards its future value each period, and we depreciate the capitalized cost over the useful life of the related asset. We recognize a gain or loss if we settle the liability for an amount other than the amount recorded.

 

Refinery and Facilities. We believe we have no legal or contractual obligation to dismantle or remove the refinery and facilities assets. Further, we believe that these assets have indeterminate lives because we cannot reasonably estimate the dates or ranges of dates upon which we would retire these assets.  Management will record an asset retirement obligation for these assets when a definitive obligation arises, and retirement dates are evident.

 

Pipeline and Facilities; Oil and Gas Properties. Management uses significant judgment to estimate future asset retirement costs for our pipelines, related facilities, and oil and gas properties. These costs relate to dismantling and disposing of certain physical assets, plugging and abandoning wells, and restoring land and sea beds. Factors considered include regulatory permitting requirements, asset structural integrity, water depth, third-party equipment availability, and mobilization/demobilization costs.  We review our assumptions and estimates of future abandonment costs on an annual basis.  See “Note (11)” to our consolidated financial statements for additional information related to AROs.
Earnings Per Share, Policy [Policy Text Block] Computation of Earnings Per Share. We present basic and diluted EPS.  Basic EPS 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.  We calculate diluted EPS by dividing net income available to common stockholders by the diluted weighted average number of common shares outstanding.  Diluted EPS 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 entity’s earnings.  We do not currently have issued options, warrants, or similar instruments.  Convertible shares, if granted, are not included in the computation of earnings per share if anti-dilutive.  See “Note (14)” to our consolidated financial statements for additional information related to EPS.
New Accounting Pronouncements, Policy [Policy Text Block]

New Pronouncements Adopted

During the three months ended March 31, 2024, we did not adopt any ASUs.

 

New Pronouncements Issued, Not Yet Effective

 

●

ASU 2023-09 — Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). In December 2023, the FASB issued ASU 2023-09, requiring us to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require us to disaggregate our income taxes paid disclosure by federal and state taxes, with further disaggregation required for significant individual jurisdictions. We will adopt ASU 2023-09 in the fourth quarter of 2025. ASU 2023-09 allows for adoption using either a prospective or retrospective transition method.

 

●

ASU 2023-07 — Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). In November 2023, the FASB issued ASU No. 2023-07, requiring us to disclose significant segment expenses regularly provided to our chief operating decision maker (“CODM”). In addition, ASU 2023-07 will require us to disclose the title and position of our CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within physical years beginning after December 15, 2024.  Early adoption is permitted.  We will adopt ASU 2023-07 in our fourth quarter of 2024 using a retrospective transition method.
v3.24.1.1.u2
Note 2 - Principles of Consolidation and Significant Accounting Policies (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Schedule of Cash and Cash Equivalents [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Cash and cash equivalents

 $11,123  $18,713 

Restricted cash, noncurrent

  1,000   5 
  $12,123  $18,718 
v3.24.1.1.u2
Note 3 - Related-party Transactions (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Schedule of Outstanding Long-term Debt to Related Parties [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

LEH

        

BDPL-LEH Loan Agreement (in forbearance)

 $5,308  $5,308 

LEH Total

  5,308   5,308 
         

Less: Long-term debt, related party, current portion

  -   - 

Less: Accrued interest payable, related party, current portion

  -   - 
  $5,308  $5,308 
Schedule of Related Party Transactions, Consolidated Statements of Operations [Table Text Block]
  

Three Months Ended March 31,

 
  

2024

  

2023

 
  

(in thousands, except percent amounts)

 

Refinery operations

                

LEH

 $27,394   30.1% $35,345   30.3%

Third-Parties

  62,521   68.7%  79,295   68.0%

Tolling and terminaling

                

LEH

  540   0.6%  540   0.5%

Third-Parties

  567   0.6%  1,481   1.3%
                 
  $91,022   100.0% $116,661   100.0%
  

Three Months Ended March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Jonathan Carroll

        

Guaranty Fee Agreements

        

Tied to First Term Loan Due 2034

 $98  $102 

Tied to NPS Term Loan Due 2031

  50   50 

Tied to Second Term Loan Due 2034

  41   43 

Tied to Blue Dolphin Term Loan Due 2051

  10   10 

LEH

        

BDPL-LEH Loan Agreement (in forbearance)

  106   160 
  $305  $365 
v3.24.1.1.u2
Note 4 - Revenue and Segment Information (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 

Accounts receivable (including related-party), beginning of period

 $4,300  $1,148 

Accounts receivable (including related-party), end of period

  11,826   4,300 
         

Unearned revenue, beginning of period

 $3,243  $3,888 

Unearned revenue, end of period

  2,805   3,243 
Schedule of Segment Reporting Information, by Segment [Table Text Block]
  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Refinery operations

 $89,915  $114,640 

Tolling and terminaling

  1,107   2,021 

Total revenue from operations

  91,022   116,661 
         

Intercompany processing fees(1)

        

Refinery operations

  (503)  (576)

Tolling and terminaling

  503   576 

Total intercompany processing fees

  -   - 
         

Costs of good sold(2)

        

Refinery operations

  (78,782)  (95,799)

Tolling and terminaling

  (410)  (358)

Total costs of goods sold

  (79,192)  (96,157)
         

Gross profit

        

Refinery operations

  10,630   18,265 

Tolling and terminaling

  1,200   2,239 

Total gross profit

  11,830   20,504 
         

Other operating and general and administrative expenses(3)

        

Refinery operations

  (409)  (478)

Tolling and terminaling

  (23)  (470)

Corporate and other

  (863)  (530)

Total other operating and general and administrative expenses

  (1,295)  (1,478)
         

Depreciation and amortization

        

Refinery operations

  (301)  (304)

Tolling and terminaling

  (342)  (342)

Corporate and other

  (61)  (52)

Total depreciation and amortization

  (704)  (698)
         

Interest and other non-operating expenses, net

        

Refinery operations

  (734)  (677)

Tolling and terminaling

  (496)  (470)

Corporate and other

  (136)  (183)

Total interest and other non-operating expenses, net

  (1,366)  (1,330)
         

Income before income taxes

        

Refinery operations

  9,186   16,806 

Tolling and terminaling

  339   957 

Corporate and other

  (1,060)  (764)

Total income before income taxes

  8,465   16,999 
         

Income tax expense

  (1,841)  (246)
         

Net income

 $6,624  $16,753 
Segment, Reconciliation of Capital Expenditures from Segments to Consolidated [Table Text Block]
  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Capital expenditures

        

Refinery operations

 $-  $- 

Tolling and terminaling

  -   - 

Corporate and other

  -   - 

Total capital expenditures

 $-  $- 
Reconciliation of Assets from Segment to Consolidated [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Identifiable assets

        

Refinery operations

 $88,959  $86,565 

Tolling and terminaling

  17,948   16,464 

Corporate and other

  1,577   3,048 

Total identifiable assets

 $108,484  $106,077 
v3.24.1.1.u2
Note 5 - Concentration of Risk (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Schedules of Concentration of Risk, by Risk Factor [Table Text Block]
          

Portion of

 
          

Accounts

 
  

Number

  

% Total

  

Receivable at

 
  

Significant

  

Revenue from

  

March 31,

 

Three Months Ended

 

Customers

  

Operations

  

(in millions)

 
             

March 31, 2024

  3   81.3% $11.7 

March 31, 2023

  3   65.7% $11.6 
Disaggregation of Revenue [Table Text Block]
  

Three Months Ended March 31,

 
  

2024

  

2023

 
  

(in thousands, except percent amounts)

 
                 

LPG mix

 $61   0.1% $55   0.0%

Naphtha

  18,113   20.1%  20,729   20.7%

Jet fuel

  27,394   30.5%  35,345   35.9%

HOBM

  20,535   22.8%  33,488   18.3%

AGO

  23,812   26.5%  25,023   25.1%
  $89,915   100.0% $114,640   100.0%
v3.24.1.1.u2
Note 6 - Prepaid Expenses and Other Current Assets (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Prepaid insurance

 $623  $1,168 

Other prepaids

  473   230 

Prepaid easement renewal fees

  26   32 

Prepaid crude oil and condensate

  -   161 
  $1,122  $1,591 
v3.24.1.1.u2
Note 7 - Inventory (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Schedule of Inventory, Current [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Naphtha

 $12,680  $8,782 

Jet fuel

  9,409   8,570 

HOBM

  4,316   5,144 

Crude oil and condensate

  1,889   1,494 

Chemicals

  196   160 

AGO

  125   392 

Propane

  29   24 

LPG mix

  13   10 
  $28,657  $24,576 
v3.24.1.1.u2
Note 8 - Property, Plant and Equipment, Net (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Property, Plant and Equipment [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Refinery and facilities

 $72,675  $72,675 

Land

  566   566 

Other property and equipment

  913   913 
   74,154   74,154 
         

Less: Accumulated depreciation and amortiation

  (23,608)  (22,966)
   50,546   51,188 
         

Construction in progress

  3,770   3,770 
  $54,316  $54,958 
v3.24.1.1.u2
Note 9 - Accrued Expenses and Other Current Liabilities (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Schedule of Accounts Payable and Accrued Liabilities [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Unearned revenue from contracts with customers

 $2,805  $3,243 

Accrued fines and penalties

  522   522 

Insurance

  264   467 

Other payable

  165   297 

Customer deposits

  163   163 

Taxes payable

  160   142 

Board of director fees payable

  -   250 
  $4,079  $5,084 
v3.24.1.1.u2
Note 10 - Third-party Long-term Debt (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Schedule of Long-Term Debt Instruments [Table Text Block]
          

Monthly Principal

       
    

Principal

    

and Interest Payment

       

Loan Description

 

Parties

 

(in millions)

  

Maturity

 

(in millions)

  

Interest Rate

  

Loan Purpose

Veritex Loans

                 

LE Term Loan Due 2034 (in default) (1)

 

LE

 $25.0  

June 2034

 $0.3  

WSJ Prime + 2.75%

  

Refinance loan; capital improvements

  

Veritex

               

LRM Term Loan Due 2034 (in default) (1)

 

LRM

 $10.0  

December 2034

 $0.1  

WSJ Prime + 2.75%

  

Refinance bridge loan; capital improvements

  

Veritex

               

Kissick Debt (in forbearance)(2)

 

LE

 $11.7  

January 2018

 $0.5   6.25% 

Working capital

  

Kissick

               

GNCU Loan

                 

NPS Term Loan Due 2031(in default) (3)

 

NPS

 $10.0  

October 2031

 $0.1   5.75% 

Working capital

  

GNCU

               

SBA EIDLs

                 

Blue Dolphin Term Loan Due 2051 (as modified) (4)

 

Blue Dolphin

 $2.0  

June 2051

 $0.01   3.75% 

Working capital

  

SBA

               

LE Term Loan Due 2050 (5)

 

LE

 $0.15  

August 2050

 $0.0007   3.75% 

Working capital

  

SBA

               

NPS Term Loan Due 2050 (5)

 

NPS

 $0.15  

August 2050

 $0.0007   3.75% 

Working capital

  

SBA

               

Equipment Loan Due 2025 (6)

 

LE

 $0.07  

October 2025

 $0.0013   4.50% 

Equipment Lease Conversion

  

Texas First

               
Schedule of Debt [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Veritex Loans

        

LE Term Loan Due 2034 (in default)

 $19,607  $19,858 

LRM Term Loan Due 2034 (in default)

  8,163   8,260 

Kissick Debt (in forbearance)

  5,751   7,147 

GNCU Loan

        

NPS Term Loan Due 2031 (in default)

  9,975   9,975 

SBA EIDLs

        

BDEC Term Loan Due 2051

  2,125   2,135 

LE Term Loan Due 2050

  161   162 

NPS Term Loan Due 2050

  161   162 

Equipment Loan Due 2025

  25   29 
   45,968   47,728 
         

Less: Current portion of long-term debt, net

  (40,581)  (39,440)

Less: Unamortized debt issue costs

  (1,896)  (1,947)

Less: Accrued interest payable

  (1,182)  (2,596)
  $2,309  $3,745 
Schedule of Unamortized Debt Issuance Costs [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Veritex Loans

        

LE Term Loan Due 2034 (in default)

 $1,674  $1,674 

LRM Term Loan Due 2034 (in default)

  768   768 

GNCU Loan

        

NPS Term Loan Due 2031 (in default)

  730   730 
         

Less: Accumulated amortization

  (1,276)  (1,225)
  $1,896  $1,947 
Schedule of Accrued Interest on Long-term Debt [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Kissick Debt (in forbearance)

 $773  $2,169 

Veritex Loans

        

LE Term Loan Due 2034 (in default)

  176   181 

LRM Term Loan Due 2034 (in default)

  69   70 

GNCU Loan

        

NPS Term Loan Due 2031 (in default)

  17   17 

SBA EIDLs

        

BDEC Term Loan Due 2051

  125   135 

LE Term Loan Due 2050

  11   12 

NPS Term Loan Due 2053

  11   12 
   1,182   2,596 

Less: Accrued interest payable

  (1,182)  (2,596)

Long-term Interest Payable, Net of Current Portion

 $-  $- 
v3.24.1.1.u2
Note 11 - AROs (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Schedule of Asset Retirement Obligations [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

AROs, at the beginning of the period

 $4,504  $3,710 

Changes in estimates of existing obligations

  -   1,558 

Liabilities settled

  (1,505)  (823)

Accretion expense

  -   59 
         

Less: AROs, current portion

  (2,999)  (4,504)

Long-term AROs, at the end of the period

 $-  $- 
v3.24.1.1.u2
Note 12 - Lease Obligations (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Lessee, Operating Lease, Assets and Liabilities [Table Text Block]
   

March 31,

  

December 31,

 
 

Balance Sheet Location

 

2024

  

2023

 
   

(in thousands)

 

Assets

         

Operating lease ROU assets

Operating lease ROU assets

 $994  $787 

Less: Accumulated amortization on operating lease assets

Operating lease ROU assets

  (894)  (629)
          

Total lease assets

  100   158 
          

Liabilities

         

Current

         

Operating lease

Current portion of lease liabilities

  93   147 
          

Noncurrent

         

Operating lease

Long-term lease liabilities, net of current

  -   - 

Total lease liabilities

 $93  $147 
Lessee, Operating Lease, Weighted average Remaining Lease Term and Discount Rate [Table Text Block]

Weighted average remaining lease term in years

    

Operating lease

  0.42 

Weighted average discount rate

    

Operating lease

  8.25%
Lease, Cost [Table Text Block]
  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 
         

Operating lease costs

 $62  $51 

Short-term lease expense, related party

  300   100 

Total lease cost

 $362  $151 
Supplemental Cash Flow Information Related to Leases [Table Text Block]
  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Cash paid for amounts included in the measurement of lease liabilities:

        
         

Operating cash flows for operating lease

 $54  $57 
Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block]
  

Operating

 

March 31,

 

Lease

 
  

(in thousands)

 
     

2025

 $93 
  $93 
Schedule of Future Minimum Annual Lease Commitments [Table Text Block]
  

Operating

 

March 31,

 

Lease

 
  

(in thousands)

 

2025

 $96 
  $96 
v3.24.1.1.u2
Note 13 - Income Taxes (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]
  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Current

        

Federal

 $(215) $(115)

State

  (81)  (131)

Deferred

        

Federal

  (1,545)  (3,427)

Change in valuation allowance

  -   3,427 
         

Total provision for income taxes

 $(1,841) $(246)
Schedule of Deferred Tax Assets and Liabilities [Table Text Block]
  

March 31,

  

December 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Deferred tax assets:

        

NOL and capital loss carryforwards

 $5,019  $6,014 

Business interest expense

  2,333   2,534 

Start-up costs (crude oil and condensate processing facility)

  233   254 

ARO liability/deferred revenue

  630   946 

Other

  59   54 

Total deferred tax assets

  8,274   9,802 
         

Deferred tax liabilities:

        

Basis differences in property and equipment

  (8,383)  (8,366)

Total deferred tax liabilities

  (8,383)  (8,366)
   (109)  1,436 
         

Deferred tax assets (liabilities), net

 $(109) $1,436 
Summary of Operating Loss Carryforwards [Table Text Block]
  

Net Operating Loss Carryforward

     
  

Pre-

  

Post-

     
  

Ownership

  

Ownership

     
  

Change

  

Change

  

Total

 
  

(in thousands)

 
             

Balance at December 31, 2022

 $5,147  $45,624  $50,771 
             

Net operating losses used and expired

  (638)  (21,493)  (22,131)
             

Balance at December 31, 2023

 $4,509  $24,131  $28,640 
             

Net operating losses used and expired

  (638)  (4,101)  (4,739)
             

Balance at March 31, 2024

 $3,871  $20,030  $23,901 
v3.24.1.1.u2
Note 14 - Earnings and Dividends Per Share (Tables)
 3 Months Ended
Mar. 31, 2024
Notes Tables  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 
  

(in thousands,

 
  

except share and per share amounts)

 
         

Net income

 $6,624  $16,753 
         

Earnings per share

        

Basic and diluted income per share

 $0.44  $1.12 

Basic and diluted shares used in computing earnings per share

  14,921,968   14,921,968 
v3.24.1.1.u2
Note 1 - Organization (Details Textual)
$ / shares in Units, $ in Thousands
 1 Months Ended 3 Months Ended 12 Months Ended 15 Months Ended 24 Months Ended
May 31, 2023
USD ($)
Apr. 30, 2023
USD ($)
Mar. 31, 2024
USD ($)
$ / shares
bbl
Mar. 31, 2023
USD ($)
$ / shares
Dec. 31, 2023
USD ($)
Mar. 31, 2024
USD ($)
bbl
Apr. 30, 2027
USD ($)
Distillation Tower, Volume Per Day (Barrel of Oil) | bbl     15,000     15,000  
Volume of Storage Tank Capacity (Barrel of Oil) | bbl     1,250,000     1,250,000  
Number of Operating Segments           2  
Working Capital (Deficit)     $ 300   $ (6,100) $ 300  
Working Capital (Deficit), Change From Previous Reporting Period     6,400        
Secured Debt, Current     40,600   39,400 40,600  
Secured Debt, Current, Change From Previous Reporting Period     1,100        
Assets, Current     52,838   49,290 52,838  
Assets, Current, Change From Previous Reporting Period     3,500        
Liabilities, Current     52,535   55,425 52,535  
Liabilities, Current, Change From Previous Reporting Period     2,900        
Liabilities, Other than Current Portion of Long-Term Debt, Current     12,000   16,000 12,000  
Liabilities, Other than Current Portion of Long-Term Debt, Current, Change From Previous Reporting Period     4,000        
Repayments of Long-Term Debt     345 $ 560      
Net Income (Loss) Attributable to Parent     $ 6,624 $ 16,753      
Earnings Per Share, Basic (in dollars per share) | $ / shares     $ 0.44 $ 1.12      
Net Income (Loss), Change From Previous Reporting Period     $ 10,100        
Earnings Per Share Basic, Change From Previous Reporting Period (in dollars per share) | $ / shares     $ 0.68        
Working Capital (Deficit), Excluding Long-term Debt, Current     $ 40,900   33,300 $ 40,900  
Working Capital (Deficit), Excluding Current Portion of Long-term Debt, Change From Previous Reporting Period     $ 7,600        
An Affiliate Combined with Jonathan Carroll [Member]              
Ownership Percentage     83.00%     83.00%  
Nonrelated Party [Member]              
Debt Instrument, Periodic Payment [1]     $ 10        
Nonrelated Party [Member] | Veritex Community Bank [Member]              
Repayments of Long-Term Debt     4,300        
Escrow Deposit     1,000     $ 1,000  
Legal Fees     40        
Nonrelated Party [Member] | Kissick Forbearance Agreement [Member]              
Debt Instrument, Periodic Payment   $ 500 500        
Debt Instrument, Periodic Payment Terms, Balloon Payment to be Paid     400   400 $ 400  
Repayments of Notes Payable     1,500 $ 0      
Nonrelated Party [Member] | LEH Forbearance Agreement [Member]              
Debt Instrument, Periodic Payment $ 50       $ 50    
Repayments of Notes Payable     $ 100 $ 0      
Nonrelated Party [Member] | LEH Forbearance Agreement [Member] | Forecast [Member]              
Debt Instrument, Periodic Payment             $ 400
[1] Original principal amount was $0.5 million; the Blue Dolphin Term Loan Due 2051 was modified to increase the principal amount by $1.5 million. Payments deferred for thirty (30) months; first payment due and paid in November 2023; interest accrues during deferral period; loan not forgivable.
v3.24.1.1.u2
Note 2 - Principles of Consolidation and Significant Accounting Policies (Details Textual) - USD ($)
$ in Thousands
 3 Months Ended 12 Months Ended
Mar. 31, 2024
Dec. 31, 2023
Dec. 31, 2022
Accounts Receivable, Allowance for Credit Loss $ 0 $ 60  
Unrecognized Tax Benefits   0 $ 0
Impairment of Long-Lived Assets to be Disposed of $ 0 $ 0  
Building and Building Improvements [Member]      
Property, Plant and Equipment, Useful Life (Year) 25 years    
Tangible Asset Impairment Charges $ 0    
Pipelines [Member] | Minimum [Member]      
Property, Plant and Equipment, Useful Life (Year) 10 years    
Pipelines [Member] | Maximum [Member]      
Property, Plant and Equipment, Useful Life (Year) 22 years    
v3.24.1.1.u2
Note 2 - Principles of Consolidation and Significant Accounting Policies - Cash, Cash Equivalents, and Restricted Cash (Details) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Cash and cash equivalents $ 11,123 $ 18,713
Restricted Cash, Noncurrent 1,000 5
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents $ 12,123 $ 18,718
v3.24.1.1.u2
Note 3 - Related-party Transactions (Details Textual) - USD ($)
$ in Thousands
 3 Months Ended 12 Months Ended 24 Months Ended
Apr. 01, 2024
Jan. 01, 2024
May 31, 2023
Mar. 31, 2024
Mar. 31, 2023
Dec. 31, 2023
Apr. 30, 2027
May 31, 2021
Management Fee Expense       $ 172 $ 144      
Operating Lease, Expense       300 100      
Lazarus Energy Holdings (LEH) [Member]                
Sublease Income       10 10      
Management Fee Expense       200 100      
Lazarus Energy Holdings (LEH) [Member] | Office Lease of Corporate Headquarters in Houston, Texas [Member]                
Agreement Term (Year)           12 months    
Sublease, Monthly Rent           $ 3    
Sublease Income       10 10      
Third Amended and Restated Operating Agreement [Member]                
Agreement Term (Year)   1 year            
Related Party Transaction, Written Notice Period (Year)   90 years            
Management Fee Percentage   5.00%            
Nonrelated Party [Member]                
Debt Instrument, Face Amount [1]       2,000        
Debt Instrument, Periodic Payment [1]       10        
Accounts Receivable, after Allowance for Credit Loss, Current       104   116    
Nonrelated Party [Member] | LEH Forbearance Agreement [Member]                
Debt Instrument, Periodic Payment     $ 50     50    
Repayments of Notes Payable       100 $ 0      
Nonrelated Party [Member] | LEH Forbearance Agreement [Member] | Forecast [Member]                
Debt Instrument, Periodic Payment             $ 400  
Related Party [Member]                
Accounts Receivable, after Allowance for Credit Loss, Current       11,722   4,184    
Accounts Payable       0   $ 900    
BDEC Guaranty Fee Agreement [Member] | Jonathan Carroll [Member]                
Cash Fee, Percentage of Outstanding Principal Balance           2.00%    
Jet Fuel Sales Agreement [Member] | Lazarus Energy Holdings (LEH) [Member] | Subsequent Event [Member]                
Agreement Term (Year) 1 year              
LE Amended and Restated Guaranty Fee Agreement [Member] | Jonathan Carroll [Member]                
Cash Fee, Percentage of Outstanding Principal Balance           2.00%    
Master Services Agreement [Member] | Ingleside Crude, LLC [Member]                
Monthly Tank Rental Fee           $ 100    
LRM Amended and Restated Guaranty Fee Agreement [Member] | Jonathan Carroll [Member]                
Cash Fee, Percentage of Outstanding Principal Balance           2.00%    
NPS Guaranty Fee Agreement [Member] | Jonathan Carroll [Member]                
Cash Fee, Percentage of Outstanding Principal Balance           2.00%    
Terminal Services Agreement [Member] | Lazarus Energy Holdings (LEH) [Member]                
Agreement, Renewal Period (Year)           1 year    
Monthly Tank Rental Fee           $ 200    
BDEC Term Loan Due 2051 [Member] | Small Business Administration SBA [Member]                
Debt Instrument, Face Amount           2,000    
BDEC Term Loan Due 2051 [Member] | Small Business Administration SBA [Member] | Nonrelated Party [Member]                
Debt Instrument, Face Amount               $ 500
Affiliate Revolving Credit Agreement [Member] | LEH and Affiliates [Member] | Subsequent Event [Member]                
Debt Instrument, Face Amount $ 5,000              
Agreement, Renewal Period (Year) 1 year              
Debt Instrument, Basis Spread on Variable Rate 2.00%              
LE Term Loan Due 2034 [Member] | Veritex Community Bank [Member]                
Debt Instrument, Face Amount           25,000    
LE Term Loan Due 2034 [Member] | Veritex Community Bank [Member] | Nonrelated Party [Member]                
Debt Instrument, Face Amount [2]       25,000        
Debt Instrument, Periodic Payment [2]       300        
LRM Term Loan Due 2034 [Member] | Veritex Community Bank [Member]                
Debt Instrument, Face Amount           10,000    
LRM Term Loan Due 2034 [Member] | Veritex Community Bank [Member] | Nonrelated Party [Member]                
Debt Instrument, Face Amount [2]       10,000        
Debt Instrument, Periodic Payment [2]       100        
NPS Term Loan Due 2031 [Member] | Greater Nevada Credit Union (GNCU) [Member] | Jonathan Carroll [Member]                
Debt Instrument, Face Amount           $ 10,000    
NPS Term Loan Due 2031 [Member] | Greater Nevada Credit Union (GNCU) [Member] | Nonrelated Party [Member]                
Debt Instrument, Face Amount [3]       10,000        
Debt Instrument, Periodic Payment [3]       $ 100        
[1] Original principal amount was $0.5 million; the Blue Dolphin Term Loan Due 2051 was modified to increase the principal amount by $1.5 million. Payments deferred for thirty (30) months; first payment due and paid in November 2023; interest accrues during deferral period; loan not forgivable.
[2] Restricted cash, noncurrent totaled $1.0 and $0.0 at March 31, 2024 and December 31, 2023, respectively. Restricted cash, noncurrent reflects amounts held by Veritex in a payment reserve account, which is required to have a balance of $1.0 million. Although the amount at December 31, 2023 was $0, the payment reserve account was fully replenished on January 2, 2024.
[3] Loan requires monthly interest-only payments for the first thirty-six (36) months. Afterwards, principal and interest payments are due monthly through loan maturity. First payment due in November 2024.
v3.24.1.1.u2
Note 3 - Related-party Transactions - Related Party Long-term Debt Outstanding (Details) - Related Party [Member] - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Less: Long-term debt, related party, current portion $ 0 $ 0
Less: Accrued interest payable, related party, current portion 0 0
Long-Term Debt 5,308 5,308
Lazarus Energy Holdings (LEH) [Member]    
Long-term debt, carrying amount 5,308 5,308
Lazarus Energy Holdings (LEH) [Member] | BDPL-LEH Loan Agreement [Member]    
Long-term debt, carrying amount $ 5,308 $ 5,308
v3.24.1.1.u2
Note 3 - Related-party Transactions - Consolidated Statements of Operations (Details) - USD ($)
$ in Thousands
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Revenue from operations $ 91,022 $ 116,661
Interest expense, related party 1,514 1,332
Tolling and Terminaling [Member]    
Revenue from operations $ 91,022 $ 116,661
Percentage of revenues from operations 100.00% 100.00%
Lazarus Energy Holdings (LEH) [Member] | Refinery Operations [Member]    
Revenue from operations $ 27,394 $ 35,345
Percentage of revenues from operations 30.10% 30.30%
Lazarus Energy Holdings (LEH) [Member] | Tolling and Terminaling [Member]    
Revenue from operations $ 540 $ 540
Percentage of revenues from operations 0.60% 0.50%
Related Party [Member]    
Interest expense, related party $ 305 $ 365
Related Party [Member] | Jonathan Carroll [Member] | LE Term Loan Due 2034 [Member]    
Interest expense, related party 98 102
Related Party [Member] | Jonathan Carroll [Member] | NPS Term Loan Due 2031 [Member]    
Interest expense, related party 50 50
Related Party [Member] | Jonathan Carroll [Member] | LRM Term Loan Due 2034 [Member]    
Interest expense, related party 41 43
Related Party [Member] | Jonathan Carroll [Member] | BDEC Term Loan Due 2051 [Member]    
Interest expense, related party 10 10
Related Party [Member] | Lazarus Energy Holdings (LEH) [Member] | BDPL-LEH Loan Agreement [Member]    
Interest expense, related party 106 160
Nonrelated Party [Member] | Refinery Operations [Member]    
Revenue from operations $ 62,521 $ 79,295
Percentage of revenues from operations 68.70% 68.00%
Nonrelated Party [Member] | Tolling and Terminaling [Member]    
Revenue from operations $ 567 $ 1,481
Percentage of revenues from operations 0.60% 1.30%
v3.24.1.1.u2
Note 4 - Revenue and Segment Information (Details Textual)
$ in Thousands
 3 Months Ended
Mar. 31, 2024
USD ($)
Number of Reportable Segments 2
Revenue, Remaining Performance Obligation, Amount $ 0
v3.24.1.1.u2
Note 4 - Revenue and Segment Information - Contract Balances (Details) - USD ($)
$ in Thousands
Mar. 31, 2024
Mar. 31, 2023
Accounts receivable (including related-party), beginning of period $ 4,300 $ 1,148
Accounts receivable (including related-party), end of period 11,826  
Unearned revenue, beginning of period 3,243 $ 3,888
Unearned revenue, end of period $ 2,805  
v3.24.1.1.u2
Note 4 - Revenue and Segment Information - Segment Information (Details) - USD ($)
$ in Thousands
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Revenues from operations $ 91,022 $ 116,661
Gross profit 11,830 20,504
Other operating and general and administrative expenses [1] (1,295) (1,478)
Depreciation and amortization (704) (698)
Interest and other non-operating expenses, net (1,366) (1,330)
Income (loss) before income taxes 8,465 16,999
Income tax expense (1,841) (246)
Net income 6,624 16,753
Operating Segments [Member]    
Revenues from operations 91,022 116,661
Operation costs and expenses [2] (79,192) (96,157)
Gross profit 11,830 20,504
Consolidation, Eliminations [Member]    
Revenues from operations [3] 0 0
Segment Reporting, Reconciling Item, Corporate Nonsegment [Member]    
Other operating and general and administrative expenses [1] (863) (530)
Depreciation and amortization (61) (52)
Interest and other non-operating expenses, net (136) (183)
Income (loss) before income taxes (1,060) (764)
Refinery Operations [Member]    
Revenues from operations 89,915 114,640
Refinery Operations [Member] | Operating Segments [Member]    
Revenues from operations 89,915 114,640
Operation costs and expenses [2] (78,782) (95,799)
Gross profit 10,630 18,265
Other operating and general and administrative expenses [1] (409) (478)
Depreciation and amortization (301) (304)
Interest and other non-operating expenses, net (734) (677)
Income (loss) before income taxes 9,186 16,806
Refinery Operations [Member] | Consolidation, Eliminations [Member]    
Revenues from operations [3] (503) (576)
Tolling and Terminaling [Member]    
Revenues from operations 1,107 2,021
Tolling and Terminaling [Member] | Operating Segments [Member]    
Revenues from operations 1,107 2,021
Operation costs and expenses [2] (410) (358)
Gross profit 1,200 2,239
Other operating and general and administrative expenses [1] (23) (470)
Depreciation and amortization (342) (342)
Interest and other non-operating expenses, net (496) (470)
Income (loss) before income taxes 339 957
Tolling and Terminaling [Member] | Consolidation, Eliminations [Member]    
Revenues from operations [3] $ 503 $ 576
[1] General and administrative expenses within refinery operations includes the LEH operating fee, related party, other operating expenses, and accretion of asset retirement obligations.
[2] Cost of goods sold within tolling and terminaling includes terminal operating expenses and an allocation of other costs (e.g., insurance and maintenance).
[3] Fees associated with an intercompany tolling agreement related to naphtha volumes.
v3.24.1.1.u2
Note 4 - Revenue and Segment Information - Capital Expenditures (Details) - USD ($)
$ in Thousands
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Capital expenditures $ 0 $ 0
Segment Reporting, Reconciling Item, Corporate Nonsegment [Member]    
Capital expenditures 0 0
Refinery Operations [Member] | Operating Segments [Member]    
Capital expenditures 0 0
Tolling and Terminaling [Member] | Operating Segments [Member]    
Capital expenditures $ 0 $ 0
v3.24.1.1.u2
Note 4 - Revenue and Segment Information - Identifiable Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Identifiable assets $ 108,484 $ 106,077
Segment Reporting, Reconciling Item, Corporate Nonsegment [Member]    
Identifiable assets 1,577 3,048
Refinery Operations [Member] | Operating Segments [Member]    
Identifiable assets 88,959 86,565
Tolling and Terminaling [Member] | Operating Segments [Member]    
Identifiable assets $ 17,948 $ 16,464
v3.24.1.1.u2
Note 5 - Concentration of Risk (Details Textual) - USD ($)
$ in Thousands
 3 Months Ended
Jun. 01, 2019
Mar. 31, 2024
Mar. 31, 2023
Dec. 31, 2023
Cash, Uninsured Amount   $ 11,400   $ 18,200
Lazarus Energy Holdings (LEH) [Member] | Customer Concentration Risk [Member] | Revenue from Contract with Customer Benchmark [Member]        
Concentration Risk, Percentage   30.70% 30.30%  
Crude Supply Agreement With Tartan [Member] | Crude Oil [Member]        
Accounts Payable   $ 1,300 $ 0  
Long-Term Purchase Commitment, Non-renewal Period (Day) 60 days      
v3.24.1.1.u2
Note 5 - Concentration of Risk - Risk Exposure (Details)
 3 Months Ended
Mar. 31, 2024
USD ($)
Mar. 31, 2023
USD ($)
Dec. 31, 2023
USD ($)
Dec. 31, 2022
USD ($)
Portion of Accounts Receivable $ 11,826,000   $ 4,300,000 $ 1,148,000
Accounts Receivable [Member] | Customer Concentration Risk [Member]        
Number of Significant Customers 3 3    
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Three Customers [Member]        
% Total Revenue from Operations 81.30% 65.70%    
Portion of Accounts Receivable $ 11,700 $ 11,600    
v3.24.1.1.u2
Note 5 - Concentration of Risk - Product Sales (Details) - USD ($)
$ in Thousands
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Revenue from operations $ 91,022 $ 116,661
Refinery Operations [Member]    
Revenue from operations $ 89,915 $ 114,640
% of revenue 100.00% 100.00%
LPG Mix [Member] | Refinery Operations [Member]    
Revenue from operations $ 61 $ 55
% of revenue 0.10% 0.00%
Naphtha [Member] | Refinery Operations [Member]    
Revenue from operations $ 18,113 $ 20,729
% of revenue 20.10% 20.70%
Jet Fuel [Member] | Refinery Operations [Member]    
Revenue from operations $ 27,394 $ 35,345
% of revenue 30.50% 35.90%
HOBM [Member] | Refinery Operations [Member]    
Revenue from operations $ 20,535 $ 33,488
% of revenue 22.80% 18.30%
AGO [Member] | Refinery Operations [Member]    
Revenue from operations $ 23,812 $ 25,023
% of revenue 26.50% 25.10%
v3.24.1.1.u2
Note 6 - Prepaid Expenses and Other Current Assets - Schedule of Prepaid Expenses and Other Current Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Prepaid insurance $ 623 $ 1,168
Other prepaids 473 230
Prepaid easement renewal fees 26 32
Prepaid crude oil and condensate 0 161
Prepaid Expense and Other Assets, Current $ 1,122 $ 1,591
v3.24.1.1.u2
Note 7 - Inventory - Schedule of Inventory (Details) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Inventory $ 28,657 $ 24,576
Naphtha [Member]    
Inventory 12,680 8,782
Jet Fuel [Member]    
Inventory 9,409 8,570
HOBM [Member]    
Inventory 4,316 5,144
Crude Oil and Condensate [Member]    
Inventory 1,889 1,494
Chemicals [Member]    
Inventory 196 160
AGO [Member]    
Inventory 125 392
Propane [Member]    
Inventory 29 24
LPG Mix [Member]    
Inventory $ 13 $ 10
v3.24.1.1.u2
Note 8 - Property, Plant and Equipment, Net - Property, Plant and Equipment, Net (Details) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Refinery and facilities $ 72,675 $ 72,675
Land 566 566
Other property and equipment 913 913
Property, Plant and Equipment, Gross, Excluding Construction in Progress 74,154 74,154
Less: Accumulated depreciation and amortiation (23,608) (22,966)
Property, Plant and Equipment, Net, Excluding Construction in Progress 50,546 51,188
Construction in progress 3,770 3,770
Property, Plant and Equipment, Net $ 54,316 $ 54,958
v3.24.1.1.u2
Note 9 - Accrued Expenses and Other Current Liabilities - Schedule of Accrued Expenses and Other Current Liabilities (Details) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Accrued fines and penalties $ 522 $ 522
Insurance 264 467
Other payable 165 297
Taxes payable 160 142
Board of director fees payable 0 250
Accrued Liabilities and Other Liabilities, Current 4,079 5,084
Contracts With Customers [Member]    
Unearned revenue from contracts 2,805 3,243
Customer Deposits [Member]    
Unearned revenue from contracts $ 163 $ 163
v3.24.1.1.u2
Note 10 - Third-party Long-term Debt (Details Textual)
 1 Months Ended 3 Months Ended 12 Months Ended
Mar. 31, 2024
USD ($)
a
Apr. 30, 2023
USD ($)
Oct. 31, 2021
May 31, 2021
USD ($)
Aug. 31, 2020
May 31, 2019
Mar. 31, 2024
USD ($)
a
Mar. 31, 2023
USD ($)
Dec. 31, 2022
USD ($)
Dec. 31, 2017
USD ($)
Dec. 31, 2023
USD ($)
Jun. 30, 2006
USD ($)
Restricted Cash, Noncurrent $ 1,000,000           $ 1,000,000       $ 5,000  
Amortization of Debt Issuance Costs             50,000 $ 51,000        
Repayments of Long-Term Debt             345,000 560,000        
Small Business Administration SBA [Member] | BDEC Term Loan Due 2051 [Member]                        
Debt Instrument, Face Amount                     2,000,000  
Veritex Community Bank [Member] | LE Term Loan Due 2034 [Member]                        
Debt Instrument, Face Amount                     25,000,000  
Nonrelated Party [Member]                        
Debt Instrument, Face Amount [1] 2,000,000           2,000,000          
Amortization of Debt Issuance Costs             50,000.00 50,000.00        
Debt Instrument, Periodic Payment [1]             10,000.00          
Nonrelated Party [Member] | Kissick Forbearance Agreement [Member]                        
Debt Instrument, Periodic Payment   $ 500,000         500,000          
Debt Instrument, Periodic Payment Terms, Balloon Payment to be Paid 400,000           400,000       400,000  
Repayments of Notes Payable             1,500,000 $ 0        
Nonrelated Party [Member] | John Kissick [Member] | Kissick Debt [Member]                        
Debt Instrument, Face Amount 11,700,000 [2]           11,700,000 [2]         $ 8,000,000
Proceeds from Issuance of Debt                   $ 3,700,000    
Debt Instrument, Periodic Payment [2]             500,000          
Nonrelated Party [Member] | Greater Nevada Credit Union (GNCU) [Member] | NPS Term Loan Due 2031 [Member]                        
Debt Instrument, Face Amount [3] $ 10,000,000           10,000,000          
Debt Instrument, Period of Interest Only Payments (Month)     36 months                  
Debt Instrument, Periodic Payment [3]             $ 100,000          
Area of Land (Acre) | a 56           56          
Nonrelated Party [Member] | Small Business Administration SBA [Member]                        
Debt Instrument, Payment Deferral Period (Month)         30 months              
Nonrelated Party [Member] | Small Business Administration SBA [Member] | BDEC Term Loan Due 2051 [Member]                        
Debt Instrument, Face Amount       $ 500,000                
Proceeds from Issuance of Debt                 $ 1,500,000      
Debt Instrument, Payment Deferral Period (Month)       30 months                
Nonrelated Party [Member] | Texas First Rentals, LLC [Member] | Equipment Loan Due 2025 [Member]                        
Debt Instrument, Face Amount [4] $ 70,000.00           $ 70,000.00          
Debt Instrument, Term (Month)           12 months            
Debt Instrument, Periodic Payment [4]             1,300.0000          
Nonrelated Party [Member] | Veritex Community Bank [Member]                        
Repayments of Long-Term Debt 4,300,000                      
Escrow Deposit 1,000,000           1,000,000          
Legal Fees 40,000.00                      
Nonrelated Party [Member] | Veritex Community Bank [Member] | LE Term Loan Due 2034 [Member]                        
Debt Instrument, Face Amount [5] 25,000,000           25,000,000          
Escrow Deposit 1,000,000           1,000,000          
Debt Instrument, Periodic Payment [5]             300,000          
Debt Instrument, Collateral Amount 5,000,000           5,000,000          
Nonrelated Party [Member] | Veritex Community Bank [Member]                        
Restricted Cash, Noncurrent 1,000,000           1,000,000       $ 0  
Restricted Cash Noncurrent, Minimum Required Amount $ 1,000,000           $ 1,000,000          
[1] Original principal amount was $0.5 million; the Blue Dolphin Term Loan Due 2051 was modified to increase the principal amount by $1.5 million. Payments deferred for thirty (30) months; first payment due and paid in November 2023; interest accrues during deferral period; loan not forgivable.
[2] Original principal amount was $8.0 million; pursuant to a 2017 sixth amendment, principal under the Kissick Debt increased by $3.7 million.
[3] Loan requires monthly interest-only payments for the first thirty-six (36) months. Afterwards, principal and interest payments are due monthly through loan maturity. First payment due in November 2024.
[4] In May 2019, LE entered into 12-month equipment rental agreement with an option to purchase backhoe at maturity; equipment rental agreement matured in May 2020; in October 2020, LE entered into the Equipment Loan Due 2025 to finance the backhoe purchase; backhoe used at the Nixon facility.
[5] Restricted cash, noncurrent totaled $1.0 and $0.0 at March 31, 2024 and December 31, 2023, respectively. Restricted cash, noncurrent reflects amounts held by Veritex in a payment reserve account, which is required to have a balance of $1.0 million. Although the amount at December 31, 2023 was $0, the payment reserve account was fully replenished on January 2, 2024.
v3.24.1.1.u2
Note 10 - Third-party Long-term Debt - Loan Agreements Summary (Details) - USD ($)
 3 Months Ended
Mar. 31, 2024
Dec. 31, 2023
May 31, 2021
Jun. 30, 2006
Nonrelated Party [Member]        
Original principal amount [1] $ 2,000,000      
Monthly principal and interest payment [1] 10,000.00      
LE Term Loan Due 2034 [Member] | Veritex Community Bank [Member]        
Original principal amount   $ 25,000,000    
LE Term Loan Due 2034 [Member] | Veritex Community Bank [Member] | Nonrelated Party [Member]        
Original principal amount [2] 25,000,000      
Monthly principal and interest payment [2] 300,000      
LRM Term Loan Due 2034 [Member] | Veritex Community Bank [Member]        
Original principal amount   10,000,000    
LRM Term Loan Due 2034 [Member] | Veritex Community Bank [Member] | Nonrelated Party [Member]        
Original principal amount [2] 10,000,000      
Monthly principal and interest payment [2] 100,000      
Kissick Debt [Member] | John Kissick [Member] | Nonrelated Party [Member]        
Original principal amount 11,700,000 [3]     $ 8,000,000
Monthly principal and interest payment [3] $ 500,000      
Maturity date [3] Jan. 31, 2018      
Interest rate [3] 6.25%      
NPS Term Loan Due 2031 [Member] | Greater Nevada Credit Union (GNCU) [Member] | Nonrelated Party [Member]        
Original principal amount [4] $ 10,000,000      
Monthly principal and interest payment [4] $ 100,000      
Maturity date [4] Oct. 31, 2031      
Interest rate [4] 5.75%      
Blue Dolphin Term Loan Due 2051 [Member] | Small Business Administration SBA [Member] | Nonrelated Party [Member]        
Maturity date [1] Jun. 30, 2051      
BDEC Term Loan Due 2051 [Member] | Small Business Administration SBA [Member]        
Original principal amount   $ 2,000,000    
BDEC Term Loan Due 2051 [Member] | Small Business Administration SBA [Member] | Nonrelated Party [Member]        
Original principal amount     $ 500,000  
Interest rate [1] 3.75%      
LE Term Loan Due 2050 [Member] | Small Business Administration SBA [Member] | Nonrelated Party [Member]        
Original principal amount [5] $ 150,000      
Monthly principal and interest payment [5] $ 700.0000      
Maturity date [5] Aug. 31, 2050      
Interest rate [5] 3.75%      
NPS Term Loan Due 2050 [Member] | Small Business Administration SBA [Member] | Nonrelated Party [Member]        
Original principal amount [5] $ 150,000      
Monthly principal and interest payment [5] $ 700.0000      
Maturity date [5] Aug. 31, 2050      
Interest rate [5] 3.75%      
Equipment Loan Due 2025 [Member] | Texas First Rentals, LLC [Member] | Nonrelated Party [Member]        
Original principal amount [6] $ 70,000.00      
Monthly principal and interest payment [6] $ 1,300.0000      
Maturity date [6] Oct. 31, 2025      
Interest rate [6] 4.50%      
[1] Original principal amount was $0.5 million; the Blue Dolphin Term Loan Due 2051 was modified to increase the principal amount by $1.5 million. Payments deferred for thirty (30) months; first payment due and paid in November 2023; interest accrues during deferral period; loan not forgivable.
[2] Restricted cash, noncurrent totaled $1.0 and $0.0 at March 31, 2024 and December 31, 2023, respectively. Restricted cash, noncurrent reflects amounts held by Veritex in a payment reserve account, which is required to have a balance of $1.0 million. Although the amount at December 31, 2023 was $0, the payment reserve account was fully replenished on January 2, 2024.
[3] Original principal amount was $8.0 million; pursuant to a 2017 sixth amendment, principal under the Kissick Debt increased by $3.7 million.
[4] Loan requires monthly interest-only payments for the first thirty-six (36) months. Afterwards, principal and interest payments are due monthly through loan maturity. First payment due in November 2024.
[5] Payments deferred for thirty (30) months; first payment made in February 2023; interest accrued during deferral period; loan not forgivable.
[6] In May 2019, LE entered into 12-month equipment rental agreement with an option to purchase backhoe at maturity; equipment rental agreement matured in May 2020; in October 2020, LE entered into the Equipment Loan Due 2025 to finance the backhoe purchase; backhoe used at the Nixon facility.
v3.24.1.1.u2
Note 10 - Third-party Long-term Debt - Outstanding Debt (Details) - Nonrelated Party [Member] - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Long-term debt $ 45,968 $ 47,728
Less: Long-term debt, related party, current portion (40,581) (39,440)
Less: Unamortized debt issue costs (1,896) (1,947)
Less: Accrued interest payable (1,182) (2,596)
Long-Term Debt, Excluding Current Maturities 2,309 3,745
Veritex Community Bank [Member] | LE Term Loan Due 2034 [Member]    
Long-term debt 19,607 19,858
Less: Accrued interest payable (176) (181)
Veritex Community Bank [Member] | LRM Term Loan Due 2034 [Member]    
Long-term debt 8,163 8,260
Less: Accrued interest payable (69) (70)
John Kissick [Member] | Kissick Debt [Member]    
Long-term debt 5,751 7,147
Less: Accrued interest payable (773) (2,169)
Greater Nevada Credit Union (GNCU) [Member] | NPS Term Loan Due 2031 [Member]    
Long-term debt 9,975 9,975
Less: Accrued interest payable (17) (17)
Small Business Administration SBA [Member] | BDEC Term Loan Due 2051 [Member]    
Long-term debt 2,125 2,135
Less: Accrued interest payable (125) (135)
Small Business Administration SBA [Member] | LE Term Loan Due 2050 [Member]    
Long-term debt 161 162
Less: Accrued interest payable (11) (12)
Small Business Administration SBA [Member] | NPS Term Loan Due 2050 [Member]    
Long-term debt 161 162
Texas First Rentals, LLC [Member] | Equipment Loan Due 2025 [Member]    
Long-term debt $ 25 $ 29
v3.24.1.1.u2
Note 10 - Third-party Long-term Debt - Unamortized Debt Issuance Costs (Details) - Nonrelated Party [Member] - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Less: Accumulated amortization $ (1,276) $ (1,225)
Debt Issuance Costs, Net 1,896 1,947
Veritex Community Bank [Member] | LE Term Loan Due 2034 [Member]    
Unamortized debt issue costs, gross 1,674 1,674
Veritex Community Bank [Member] | LRM Term Loan Due 2034 [Member]    
Unamortized debt issue costs, gross 768 768
Greater Nevada Credit Union (GNCU) [Member] | NPS Term Loan Due 2031 [Member]    
Unamortized debt issue costs, gross $ 730 $ 730
v3.24.1.1.u2
Note 10 - Third-party Long-term Debt - Accrued Interest (Details) - Nonrelated Party [Member] - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Accrued interest $ 1,182 $ 2,596
Less: Accrued interest payable (1,182) (2,596)
Long-term Interest Payable, Net of Current Portion 0 0
Kissick Debt [Member] | John Kissick [Member]    
Accrued interest 773 2,169
LE Term Loan Due 2034 [Member] | Veritex Community Bank [Member]    
Accrued interest 176 181
LRM Term Loan Due 2034 [Member] | Veritex Community Bank [Member]    
Accrued interest 69 70
NPS Term Loan Due 2031 [Member] | Greater Nevada Credit Union (GNCU) [Member]    
Accrued interest 17 17
BDEC Term Loan Due 2051 [Member] | Small Business Administration SBA [Member]    
Accrued interest 125 135
LE Term Loan Due 2050 [Member] | Small Business Administration SBA [Member]    
Accrued interest 11 12
NPS Term Loan Due 2053 [Member] | Small Business Administration SBA [Member]    
Accrued interest $ 11 $ 12
v3.24.1.1.u2
Note 11 - AROs (Details Textual) - USD ($)
$ in Thousands
Mar. 31, 2024
Jan. 26, 2024
Dec. 31, 2023
Oct. 24, 2023
Dec. 31, 2022
Asset Retirement Obligation     $ 4,504   $ 3,710
Loss Contingency, Estimate of Possible Loss $ 1,505   823    
Blue Dolphin Pipe Line Company (BDPL) [Member]          
Asset Retirement Obligation 3,000   4,500    
Blue Dolphin Pipe Line Company (BDPL) [Member] | Bureau of Safety and Environmental Enforcement (BSEE) [Member]          
Estimated Litigation Liability 0   0    
Asset Retirement Obligation 3,000   $ 4,500    
Blue Dolphin Pipe Line Company (BDPL) [Member] | Bureau of Safety and Environmental Enforcement (BSEE) [Member] | Civil Penalty [Member]          
Loss Contingency, Estimate of Possible Loss 200 $ 200   $ 200  
Loss Contingency Accrual $ 200        
v3.24.1.1.u2
Note 11 - AROs - ARO Liability (Details) - USD ($)
$ in Thousands
 3 Months Ended 12 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Dec. 31, 2023
AROs, at the beginning of the period $ 4,504 $ 3,710 $ 3,710
Changes in estimates of existing obligations 0   1,558
Liabilities settled (1,505)   (823)
Accretion of asset retirement obligations 0 $ 35 59
Less: AROs, current portion (2,999)   (4,504)
Long-term AROs, at the end of the period $ 0   $ 0
v3.24.1.1.u2
Note 12 - Lease Obligations (Details Textual) - USD ($)
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Sep. 01, 2023
Aug. 31, 2023
Operating Lease, Expense $ 300,000 $ 100,000    
Lazarus Energy Holdings (LEH) [Member]        
Sublease Income 10,000.00 10,000.00    
Office Lease of Corporate Headquarters in Houston, Texas [Member]        
Rent per Square Foot     $ 30 $ 31
Lessee, Operating Lease, Monthly Rent Expense     $ 20,000.00  
Office Lease of Corporate Headquarters in Houston, Texas [Member] | Lazarus Energy Holdings (LEH) [Member]        
Sublease Income $ 10,000.00 $ 10,000.00    
v3.24.1.1.u2
Note 12 - Lease Obligations - Lease-related Assets and Liabilities (Details) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Operating lease ROU assets $ 994 $ 787
Less: Accumulated amortization on operating lease assets (894) (629)
Total lease assets 100 158
Operating lease, current 93 147
Operating lease, noncurrent 0 0
Total lease liabilities $ 93 $ 147
v3.24.1.1.u2
Note 12 - Lease Obligations - Weighted Average Remaining Lease Term and Discount Rate (Details)
Mar. 31, 2024
Operating lease, Weighted average remaining lease term in years (Year) 5 months 1 day
Operating lease, Weighted average discount rate 8.25%
v3.24.1.1.u2
Note 12 - Lease Obligations - Lease Costs (Details) - USD ($)
$ in Thousands
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Operating lease costs $ 62 $ 51
Total lease cost 362 151
Short-Term Lease Expense [Member]    
Short-term lease expense, related party $ 300 $ 100
v3.24.1.1.u2
Note 12 - Lease Obligations - Supplemental Cash Flow Information (Details) - USD ($)
$ in Thousands
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Operating cash flows for operating lease $ 54 $ 57
v3.24.1.1.u2
Note 12 - Lease Obligations - Maturities of Lease Liabilities (Details)
$ in Thousands
Mar. 31, 2024
USD ($)
2025 $ 93
Lessee, Operating Lease, Liability, to be Paid $ 93
v3.24.1.1.u2
Note 12 - Lease Obligations - Future Minimum Annual Lease Commitments (Details)
$ in Thousands
Mar. 31, 2024
USD ($)
2025 $ 96
Lessee, Operating Lease, Minimum Lease Commitments, to be Paid $ 96
v3.24.1.1.u2
Note 13 - Income Taxes (Details Textual) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
Dec. 31, 2022
Dec. 31, 2012
Operating Loss Carryforwards $ 23,901 $ 28,640 $ 50,771 $ 16,300
Operating Loss Carryforwards, Estimate of Annual Use Limitation       600
Operating Loss Carryforwards, Estimate of Expiring Unused       $ 6,700
v3.24.1.1.u2
Note 13 - Income Taxes - Provision for Income Tax Benefit (Expense) (Details) - USD ($)
$ in Thousands
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Federal $ (215) $ (115)
State (81) (131)
Federal (1,545) (3,427)
Change in valuation allowance 0 3,427
Total provision for income taxes $ (1,841) $ (246)
v3.24.1.1.u2
Note 13 - Income Taxes - Deferred Income Taxes (Details) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023
NOL and capital loss carryforwards $ 5,019 $ 6,014
Business interest expense 2,333 2,534
Start-up costs (crude oil and condensate processing facility) 233 254
ARO liability/deferred revenue 630 946
Other 59 54
Total deferred tax assets 8,274 9,802
Basis differences in property and equipment (8,383) (8,366)
Total deferred tax liabilities (8,383) (8,366)
Deferred Tax Assets (Liabilities), Gross (109) 1,436
Deferred liabilities, net $ (109)  
Deferred tax assets, net   $ 1,436
v3.24.1.1.u2
Note 13 - Income Taxes - NOL Carryforwards (Details) - USD ($)
$ in Thousands
 3 Months Ended 12 Months Ended
Mar. 31, 2024
Dec. 31, 2023
Balance at December 31, 2022 $ 28,640 $ 50,771
Net operating losses used and expired (4,739) (22,131)
Balance at December 31, 2023 23,901 28,640
Pre-Ownership Change [Member]    
Balance at December 31, 2022 4,509 5,147
Net operating losses used and expired (638) (638)
Balance at December 31, 2023 3,871 4,509
Post-ownership change [Member]    
Balance at December 31, 2022 24,131 45,624
Net operating losses used and expired (4,101) (21,493)
Balance at December 31, 2023 $ 20,030 $ 24,131
v3.24.1.1.u2
Note 14 - Earnings and Dividends Per Share (Details Textual) - shares
shares in Thousands
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Weighted Average Number of Shares Outstanding, Diluted, Adjustment (in shares) 0 0
v3.24.1.1.u2
Note 14 - Earnings and Dividends Per Share - Reconciliation Between Basic and Diluted Income Per Share (Details) - USD ($)
$ / shares in Units, $ in Thousands
 3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Net income $ 6,624 $ 16,753
Basic and diluted income per share (in dollars per share) $ 0.44 $ 1.12
Basic and diluted shares used in computing earnings per share (in shares) 14,921,968 14,921,968
v3.24.1.1.u2
Note 15 - Commitments and Contingencies (Details Textual)
 1 Months Ended 11 Months Ended 15 Months Ended
Feb. 19, 2024
USD ($)
May 09, 2019
Sep. 30, 2023
USD ($)
Jun. 30, 2023
USD ($)
Apr. 30, 2023
USD ($)
Jan. 31, 2023
USD ($)
Oct. 31, 2021
USD ($)
Nov. 30, 2022
USD ($)
Mar. 31, 2024
USD ($)
Jan. 26, 2024
USD ($)
Dec. 31, 2023
USD ($)
Oct. 24, 2023
USD ($)
Dec. 31, 2022
USD ($)
Oct. 24, 2022
bbl
Mar. 31, 2018
USD ($)
Feb. 28, 2018
USD ($)
Loss Contingency, Estimate of Possible Loss                 $ 1,505,000   $ 823,000          
Asset Retirement Obligation                     4,504,000   $ 3,710,000      
Payments for Loans       $ 200,000 $ 1,100,000 $ 1,500,000                    
Proceeds from Sale of Oil and Gas Property and Equipment         $ 185,000                      
Surety Bonds                 230,000   230,000          
Civil Penalty                 200,000 $ 200,000   $ 200,000        
Rli Surety Bonds [Member]                                
Customer Funds                 1,250,000              
Collateralized Financings                 200,000              
Letters of Credit Outstanding, Amount                 $ 1,000,000              
Guarantor Obligations, Liquidation Proceeds, Percentage                 50.00%              
Rli Surety Bonds [Member] | Minimum [Member]                                
Customer Funds                 $ 1,250,000              
Rli Surety Bonds [Member] | Maximum [Member]                                
Customer Funds                 250,000              
Informal Settlement Agreement With OSHA [Member]                                
Litigation Settlement, Fee Expense               $ 50,000.00                
RLI Filing for Injunction of Payment [Member] | Pending Litigation [Member]                                
Loss Contingency, Damages Sought, Value $ 1,000,000                              
TCEQ Proposed Agreed Order [Member] | Pending Litigation [Member]                                
Estimated Litigation Liability                 400,000              
Loss Contingency, Damages Sought, Value     $ 350,000       $ 400,000                  
Blue Dolphin Pipe Line Company (BDPL) [Member]                                
Asset Retirement Obligation                 3,000,000   4,500,000          
Blue Dolphin Pipe Line Company (BDPL) [Member] | Bureau of Safety and Environmental Enforcement (BSEE) [Member]                                
Estimated Litigation Liability                 0   0          
Asset Retirement Obligation                 3,000,000   $ 4,500,000          
Blue Dolphin Pipe Line Company (BDPL) [Member] | Bureau of Safety and Environmental Enforcement (BSEE) [Member] | Civil Penalty [Member]                                
Loss Contingency, Estimate of Possible Loss                 200,000 $ 200,000   $ 200,000        
Blue Dolphin Pipe Line Company (BDPL) [Member] | Bureau of Ocean Energy Management (BOEM) [Member]                                
Estimated Litigation Liability                 0              
Financial Assurance for Decommissioning of Pipeline in Federal Waters                               $ 900,000
Additional Financial Assurance for Pipeline Rights-of-way                             $ 4,800,000  
Number of Pipeline Rights-of-way                             5  
Financial Assurance Increase (decrease) For Pipeline                             $ 3,900,000  
Surety Bonds                 900,000              
Credit-baked Surety Bonds                 700,000              
Cash-backed Surety Bonds                 $ 200,000              
Pilot Travel Centers LLC [Member] | Terminal Services Agreement With Nixon [Member]                                
Long-Term Purchase Commitment, Non-renewal Period (Day)   60 days                            
Oil and Gas Properties, Volume Sold (Barrel of Oil) | bbl                           185,000    
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