1. Organization

9 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Nature of Operations

Blue Dolphin Energy Company (referred to herein, with its predecessors and subsidiaries, as “Blue Dolphin,” “we,” “us” and “our”) is a Delaware corporation that was formed in 1986 as a holding company.  We are primarily an independent refiner and marketer of petroleum products.  Our primary operating asset is a 56-acre crude oil and condensate processing facility, which is located in Nixon, Wilson County, Texas (the “Nixon Facility”).  Operations at the Nixon Facility also involve the storage and terminaling of petroleum under third-party lease agreements. We also own and operate pipeline assets and have leasehold interests in oil and gas properties, which are considered non-core to our business. See “Note (4) Business Segment Information” of this report for further discussion of our business segments.

We conduct substantially all of our operations through our wholly-owned subsidiaries. Our operating subsidiaries include:

●   Lazarus Energy, LLC, a Delaware limited liability company (petroleum processing assets) (“LE”);

●   Lazarus Refining & Marketing, LLC, a Delaware limited liability company (petroleum storage and terminaling) (“LRM”);

●   Blue Dolphin Pipe Line Company, a Delaware corporation (pipeline operations) (“BDPL”);

●   Blue Dolphin Petroleum Company, a Delaware corporation (exploration and production activities);

●   Blue Dolphin Services Co., a Texas corporation (administrative services);

●   Blue Dolphin Exploration Company, a Delaware corporation (exploration and production investments)(“BDEX”); and

●   Petroport, Inc., a Delaware corporation (inactive).

Operating Risks

We had cash and cash equivalents of $1,182,475 and $434,717 at September 30, 2014 and December 31, 2013, respectively.  On September 29, 2008, LE entered into a certain Loan Agreement (the “Loan Agreement”) with First International Bank (“FIB”) as evidenced by that certain promissory note, of even date with the Loan Agreement, in the original principal amount of $10,000,000 (the “Refinery Note”).  In October 2011, the Loan Agreement was acquired by American First National Bank (“AFNB”).  We are currently making our scheduled payments in accordance with the terms and conditions of the Loan Agreement.  As of December 31, 2013, we were in violation of the current ratio covenant in the Loan Agreement. Effective December 31, 2013, AFNB agreed to waive certain financial maintenance covenants (the “Waiver Agreement”) relating to debt-to-worth and current ratio (the “Financial Maintenance Covenants”) under the Loan Agreement.  As of September 30, 2014 and the date of filing of this report, we were in compliance with the Financial Maintenance Covenants.  See “Note (13) Long-Term Debt” of this report for additional disclosures related to the Refinery Note.

We currently rely on our profit share under the Joint Marketing Agreement dated August 12, 2011 (the “Joint Marketing Agreement”) by and between LE and GEL TEX Marketing, LLC (“GEL”), an affiliate of Genesis Energy, LLC (“Genesis”) and Lazarus Energy Holdings, LLC (“LEH”), our controlling shareholder, to fund our working capital requirements.  GEL is also the exclusive supplier of our crude oil for the Nixon Facility under the Crude Oil and Supply Throughput Services Agreement by and between LE and GEL dated August 12, 2011 (the “Crude Supply Agreement”).  During months in which we receive no profit share under the Joint Marketing Agreement, GEL and/or LEH may, but are not required to, fund our working capital requirements. There can be no assurances that either GEL or LEH will continue to fund our working capital requirements.  In the event our working capital requirements are not funded by either our profit share, GEL or LEH, then we may experience a significant and material adverse effect on our operating results.  See “Note (22) Commitments and Contingencies” of this report for additional disclosures related to the end of term for the Joint Marketing Agreement and Crude Supply Agreement.

We believe that our operational strategy, including: (i) increased production of and expansion of our customer base for jet fuel, and (ii) continued refurbishment of key components of the Nixon Facility, including the naphtha stabilizer and depropanizer units will be sufficient to support our operations over the next twelve months.  However, our efforts depend on several factors, including our future performance, levels of accounts receivable, inventories, accounts payable, capital expenditures, adequate access to credit, and financial flexibility to attract long-term capital on satisfactory terms. These factors may be impacted by general economic, political, financial, competitive and other factors that are beyond our control.  There can be no assurance that our operational strategy will achieve its anticipated outcomes.  In the event our operational strategy is not successful, or our working capital requirements are not funded by our profit share, GEL, or LEH, then we may experience a significant and material adverse effect on our operating results, liquidity, and financial condition.