4. LE Acquisition

12 Months Ended

Dec. 31, 2012

Business Combinations [Abstract]

4. LE Acquisition

Effective February 15, 2012, Blue Dolphin acquired 100% of the issued and outstanding membership interests of LE from LEH. The LE Acquisition was considered a business combination. As consideration for LE, Blue Dolphin issued, in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), 8,393,560 shares of common stock, par value $0.01 per share (the “Common Stock”), subject to anti-dilution adjustments, to LEH (the “Original BDEC Shares”). Additionally, on February 21, 2012, pursuant to anti-dilution provisions, Blue Dolphin issued, in reliance on the exemption provided by Section 4(2) of the Securities Act, 32,896 shares of Common Stock to LEH (the “Anti-Dilution Shares” and together with the Original BDEC Shares, the “BDEC Shares”). As a result of Blue Dolphin’s issuance of the BDEC Shares, LEH owns approximately 80% of Blue Dolphin’s issued and outstanding Common Stock. The issuance of the BDEC Shares to LEH resulted in a change in control of Blue Dolphin.

LE owns a petroleum refinery located in Nixon, Wilson County, Texas (the “Nixon Facility”). The processing plant at the Nixon Facility is currently in a recommissioning phase and has not yet reached its full operational capacity. The tank farm has 120,000 barrels of crude oil storage capacity and 180,000 barrels of refined product storage capacity. The Nixon Facility has the capability to produce products such as Non-Road, Locomotive, and Marine Diesel Fuel (“NRLM”), kerosene, jet fuel and intermediate products such as liquefied petroleum gas, naphtha and atmospheric gas oil.

The LE Acquisition was accounted for as a reverse merger using accounting principles applicable to reverse acquisitions whereby the financial statements subsequent to the date of the transaction are presented as a continuation of LE. Under reverse acquisition accounting, LE (the legal subsidiary) was treated as the accounting parent (acquirer) and Blue Dolphin (the legal parent) was treated as the accounting subsidiary (acquiree). Accordingly, the financial statements subsequent to the date of the transaction are presented herein as the continuation of LE.

The value assigned to the purchase price was allocated to Blue Dolphin’s tangible and intangible assets and liabilities based on their fair values on the transaction closing date. LE’s purchase price to acquire Blue Dolphin was based on the fair value of Blue Dolphin’s issued and outstanding common stock at February 15, 2012, which was 2,098,390 shares, multiplied by Blue Dolphin’s closing stock price of $8.60 on February 15, 2012, the transaction closing date. This resulted in a fair value assessment of Blue Dolphin of $18,046,154.

In connection with the LE Acquisition, we engaged an independent third-party to determine the fair value of the net assets of Blue Dolphin. Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The below table summarizes the purchase price allocation of the net assets acquired and measurement period adjustments as of the acquisition date (as adjusted). The estimated fair values of the assets acquired and liabilities assumed were based on information that was available as of the acquisition date. Measurement period adjustments for Blue Dolphin were completed during 2012.

	February 15, 2012		Measurement			Purchase Price Allocation
	As Intially		Period			(As Adjusted)
	Reported		Adjustments			February 15, 2012
Current assets	$	2,466,901	$	-		$	2,466,901
Oil and gas properties		1,503,596		3,639,279			5,142,875
Pipelines		4,466,273		4,757,563			9,223,836
Onshore separation and handling facilities		325,435		-			325,435
Land		473,225		-			473,225
Other property and equipment		282,972		-			282,972
Other long term assets		9,463		-			9,463
Trade name		184,368		118,978			303,346
Goodwill		8,667,401		(7,221,681	)		1,445,720
Total assets acquired		18,379,634		1,294,139			19,673,773
Current liabilities		333,480		-			333,480
Asset retirement obligations		-		1,294,139			1,294,139
Total liabilities assumed		333,480		1,294,139			1,627,619
Net assets acquired	$	18,046,154	$	-		$	18,046,154

Goodwill recognized in the transaction is related to the value expected to be received from the combination of LE’s crude oil and condensate processing facility and Blue Dolphin’s pipeline and facilities and operational expertise.

From the date of the LE Acquisition (February 15, 2012) through December 31, 2012, Blue Dolphin’s revenue and net loss from continuing operations included in the consolidated statements of operations for the twelve month period ended December 31, 2012, was $429,480 and $13,078,963, respectively.

Remainder of Page Intentionally Left Blank

Supplemental Pro Forma Information

The following pro forma condensed consolidated statements of operations for the twelve months ended December 31, 2012 and 2011 consolidate the historical consolidated statements of operations of Blue Dolphin and LE giving effect to the LE Acquisition as if it had occurred on January 1, 2011. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only:

	Twelve Months Ended December 31, 2012
	Historical						Proforma
	Blue Dolphin			LE			Consolidated
REVENUE FROM OPERATIONS
Refined product sales	$	-		$	351,665,234		$	351,665,234
Pipeline operations		446,236			-			446,236
Oil and gas sales		28,957			-			28,957
Total revenue from operations		475,193			351,665,234			352,140,427
COST OF OPERATIONS
Cost of refined products sold		-			342,035,755			342,035,755
Refinery operating expenses		-			8,603,155			8,603,155
Pipeline operating expenses		450,634			-			450,634
Lease operating expenses		66,122			-			66,122
Abandonment expense		1,184,549			-			1,184,549
Depletion, depreciation and amortization		571,164			1,082,124			1,653,288
Impairment of oil and gas properties		9,435,745			-			9,435,745
Bad debt expense		9,508			-			9,508
General and administrative expenses		1,954,196			295,694			2,249,890
Accretion expense		115,812			-			115,812
Gain on sale of property and equipment		-			5,665			5,665
Total cost of operations		13,787,730			352,022,393			365,810,123
Loss from operations		(13,312,537	)		(357,159	)		(13,669,696	)
OTHER INCOME (EXPENSE)
Net tank rental revenue		-			534,047			534,047
Interest and other income		9,720			13,059			22,779
Interest expense		(2,529	)		(952,050	)		(954,579	)
Total other income (expense)		7,191			(404,944	)		(397,753	)
Loss before income taxes		(13,305,346	)		(762,103	)		(14,067,449	)
Income tax expense		(9,678	)		-			(9,678	)
Loss from continuing operations, net of tax		(13,315,024	)		(762,103	)		(14,077,127	)
Loss from discontinued operations, net of tax		(4,445,433	)		-			(4,445,433	)
Net loss	$	(17,760,457	)	$	(762,103	)	$	(18,522,560	)

No columns for adjustments are reflected as there were no adjustments for the periods indicated.

	Twelve Months Ended December 31, 2011
	Historical						Proforma
	Blue Dolphin			LE			Consolidated
REVENUE FROM OPERATIONS
Pipeline operations	$	931,500		$	-		$	931,500
Oil and gas sales		1,342,718			-			1,342,718
Total revenue from operations		2,274,218			-			2,274,218
COST OF OPERATIONS
Pipeline operating expenses		1,008,859			-			1,008,859
Lease operating expenses		1,174,252			-			1,174,252
Depletion, depreciation and amortization		591,927			17,684			609,611
General and administrative expenses		1,574,364			645,444			2,219,808
Accretion expense		131,690			-			131,690
Total cost of operations		4,733,798			663,128			5,396,926
Gain on sale of property and equipment		3,081,053			-			3,081,053
Income (loss) from operations		621,473			(663,128	)		(41,655	)
OTHER INCOME (EXPENSE)
Net tank rental revenue		-			874,421			874,421
Interest and other income		17,383			23,901			41,284
Interest expense		-			(51,340	)		(51,340	)
Total other income		17,383			846,982			864,365
Income before income taxes		638,856			183,854			822,710
Income tax expense		(20,921	)		-			(20,921	)
Net income	$	617,935		$	183,854		$	801,789

No columns for adjustments are reflected as there were no adjustments for the periods indicated.