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, ~~2019~~2020

☐

[ ]	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

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:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	BDCO	OTCQX

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 ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 ~~16, 2019: 10,975,514~~15, 2020: 12,693,514

~~Securities Registered Pursuant to Section 12(b) of the Act:~~

~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~

~~Common Stock, $0.01 par value~~	~~BDCO~~	~~OTCQX~~

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

TABLE OF CONTENTS

~~GLOSSARY OF SELECTED ENERGY, FINANCIAL, AND OTHER TERMS~~PART I.	4	6

~~PART I. FINANCIAL INFORMATION~~	6

ITEM 1.	FINANCIAL STATEMENTS	6

Consolidated Balance Sheets (Unaudited)	6

Consolidated Statements of Operations (Unaudited)	7

Consolidated Statements of Cash Flows (Unaudited)	8

Notes to Consolidated Financial Statements	9

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	48
	49
ITEM 4.	CONTROLS AND PROCEDURES	4849

PART II. ~~OTHER INFORMATION~~	49	50

ITEM 1.	LEGAL PROCEEDINGS	49
	50
ITEM 1A.	RISK FACTORS	49
	50
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4950
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	50
ITEM 4.	MINE SAFETY DISCLOSURES	51
ITEM 5.	OTHER INFORMATION	51
ITEM 6.	EXHIBITS	51

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~	49

~~ITEM 4. MINE SAFETY DISCLOSURES~~ SIGNATURES		50

~~ITEM 5. OTHER INFORMATION~~	50

~~ITEM 6. EXHIBITS~~	50

~~SIGNATURES~~	5152

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

~~INTRODUCTION~~

This Quarterly Report for the period ended March 31, 2019 (this “Quarterly Report”) is a document that U.S. public companies file with the Securities and Exchange Commission (“SEC”) every year. Part I, Item 1. of the Quarterly Report contains financial information, including consolidated financial statements and related notes. Part I, Item 2. of this Quarterly Report provides management’s discussion and analysis of our financial condition and results of operations. We hope investors will find it useful to have this information in a single document.

In this Quarterly Report, “Blue Dolphin,” “we,” “our,” and “us” are used interchangeably to refer to Blue Dolphin Energy Company individually or to Blue Dolphin Energy Company and its subsidiaries collectively, as appropriate to the context. Information in this Quarterly Report is current as of the filing date, unless otherwise specified.

~~CAUTION REGARDING FORWARD-LOOKING STATEMENTS~~

In this Quarterly Report, and from time to time throughout the year, we share our expectations for our future performance. These forward-looking statements include statements about our business plans; our expected financial performance, including the anticipated effect of strategic actions; previously reported material weakness in our internal control over financial reporting; economic, political and market conditions; and other factors that could affect our future results of operations or financial condition, including, without limitation, statements under the section entitled “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Part II, Item 1. Legal Proceedings,” and “Part II, Item 1A. Risk Factors.” Any statements we make that are not matters of current reportage or historical fact should be considered forward-looking. Such statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “will,” and similar expressions. By their nature, these types of statements are uncertain and are not guarantees of our future performance. Our forward-looking statements represent our estimates and expectations at the time of disclosure. However, circumstances change constantly, often unpredictably, and investors should not place undue reliance on these statements. Many events beyond our control will determine whether our expectations will be realized. We disclaim any current intention or obligation to revise or update any forward-looking statements, or the factors that may affect their realization, whether considering new information, future events or otherwise, and investors should not rely on us to do so.

In accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “Annual Report”), and “Part II, Item 1A. Risk Factors” in this Quarterly Report explain some of the important factors that may cause actual results to be materially different from those that we anticipate.

~~Remainder of Page Intentionally Left Blank~~

~~BLUE DOLPHIN ENERGY COMPANY~~

~~FORM 10-Q 3/31/19~~

Glossary of Terms

~~GLOSSARY OF SELECTED ENERGY, FINANCIAL, AND OTHER TERMS~~

~~Below are abbreviations and definitions of certain commonly used oil and gas industry terms, as well as key financial performance measures used by management, that are used in~~Throughout this Quarterly ~~Report.~~

~~Regarding financial terms, management uses U.S. generally accepted accounting principles (“GAAP”) and certain non-GAAP performance measures to assess our results of operations. Certain performance measures~~Report on Form 10-Q, we have used ~~by management to assess our operating results and~~ the effectiveness of our business segment are considered non-GAAP performance measures. These performance measures may differ from similar calculations used by other companies within the petroleum industry, thereby limiting their usefulness as a comparative measure. We refer to certain refinery throughput and production data in the explanation of our period-over-period changes in results of operations. For our consolidated results, we refer to our consolidated statements of operations in the explanation of our period-over-period changes in results of operations.

~~Energy Terms~~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 C&C, Ingleside, and Lazarus Capital) and/or LEH and its affiliates (including Lazarus Midstream, LMT, and LTRI). Together, Jonathan Carroll and LEH own approximately 82% of Blue Dolphin’s Common Stock.

AMT. Alternative Minimum Tax.

Amended Pilot Line of Credit. Line of Credit Agreement dated May 3, 2019, between Pilot and NPS and subsequently amended on May 9, 2019 and May 10, 2019 and September 3, 2019, the last amendment being Amendment No. 1; line of credit amount is $13.0 million.

Amended and Restated Operating Agreement. Affiliate agreement dated April 1, 2020 between Blue Dolphin, LE, LRM, NPS, BDPL, BDPC, BDSC and LEH governing LEH’s operation and management of the companies’ assets.

ARO. Asset retirement obligations.

ASU. Accounting Standards Update.

AGO. Atmospheric gas oil, ~~(“AGO”). The~~which 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.

~~Barrel (“bbl”)~~bbl. ABarrel; a unit of volume equal to 42 U.S. gallons.

~~Barrels~~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.

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

bpd. Barrel per ~~Day (“bpd”). A~~day; a measure of the bbls of daily output produced in a refinery or transported through a pipeline.

Board. Board of Directors of Blue Dolphin Energy Company.

BOEM. Bureau of Ocean Energy Management.

BSEE. Bureau of Safety and Environmental Enforcement.

C&C. Carroll & Company Financial Holdings, L.P., an affiliate of Jonathan Carroll.

Capacity Utilization Rate. A percentage measure that indicates the amount of available capacity that is being used in a refinery or transported through a pipeline. 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).

CAA. Clean Air Act.

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 first identified in 2019 in Wuhan, the capital of China's Hubei province; the disease has since spread globally, resulting in the ongoing 2019–2020 coronavirus pandemic.

CWA. Clean Water Act.

Common Stock. Blue Dolphin common stock, par value $0.01 per share. Blue Dolphin has 20,000,000 shares of Common Stock authorized.

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 turns crude oil and other inputs into intermediate and finished petroleum products. (Commonly referred to as a crude distillation unit or an atmospheric distillation unit.)

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 these chemicals and compounds can be used as fuels or converted to more valuable products.

Depropanizer unit. A distillation column that is used to isolate 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 ~~heavy oil-based mud blendstock (“HOBM”),~~HOBM, reduced crude, and AGO).

Distillation. The first step in the refining process whereby crude oil and condensate is 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 per 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.

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

EIA. Energy Information Administration.

EPA. Environmental Protection Agency.

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

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, that are 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.

GEL. GEL Tex Marketing, LLC, a Delaware limited liability company and an affiliate of Genesis Energy, LLC.

GEL Final Arbitration Award. Damages and attorney fees and related expenses awarded to GEL by an arbitrator on August 11, 2017.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

GEL Interim Payments. Cash payments of $0.5 million at the end of each calendar month by the Lazarus Parties to GEL until the GEL Settlement Payment was made.

GEL Settlement. When all conditions of the GEL Settlement Agreement were met by the Lazarus Parties under the GEL Settlement Agreement, and whereby GEL and the Lazarus Parties agreed to mutually release all claims against each other and to file a stipulation of dismissal with prejudice in connection with arbitration proceedings between LE and GEL related to a contractual dispute involving a crude oil supply and throughput services agreement, each between LE and GEL dated August 12, 2011.

GEL Settlement Agreement. Settlement Agreement dated July 20, 2018, between the Lazarus Parties and GEL outlining the terms and conditions for a settlement, including: (i) the GEL Settlement Payment by the GEL Settlement Date and (ii) GEL Interim Payments.

GEL Settlement Date. The effective date of the GEL Settlement.

GEL Settlement Payment. A lump sum cash payment of $10.0 million as paid by the Lazarus Parties to GEL under the GEL Settlement Agreement.

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.

Intermediate petroleum products. A petroleum product that might require further processing before it is saleable to the ultimate consumer. This 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 that will 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 ~~about~~ 8 and 16 carbon atoms per molecule; wide-cut or naphtha-type jet fuel (including Jet B) has between ~~about~~ 5 and 15 carbon atoms per molecule.

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

Lazarus Midstream. Lazarus Midstream Partners, L.P., an affiliate of LEH.

Lazarus Parties. Blue Dolphin, C&C, NPS, LE, LEH, and Jonathan Carroll.

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

LEH. Lazarus Energy Holdings, LLC, an affiliate of Jonathan Carroll and controlling shareholder of Blue Dolphin.

LEH Operating Fee. A management fee paid to LEH under the Amended and Restated Operating Agreement; calculated as 5% of all consolidated operating costs, excluding crude costs, depreciation, amortization and interest of Blue Dolphin, LE, LRM, NPS, BDPL, BDPC and BDSC; 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.

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

NAAQS. National Ambient Air Quality Standards.

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 applied to the lightest and most volatile petroleum fractions.

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.

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

NOL. Net operating losses.

NSR/PSD. New Source Review/Prevention of Significant Deterioration.

OPA 90. Oil Pollution Act of 1990.

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

OPEC. Organization of Petroleum Exporting Countries.

OSHA. Occupational Safety and Health Administration.

OSRO. Oil Spill Response Organization.

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.

PCAOB. Public Company Accounting Oversight Board.

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.

~~BLUE DOLPHIN ENERGY COMPANY~~

~~FORM 10-Q 3/31/19~~

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

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

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.

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 ~~petroleum products~~Products. ~~Refined petroleum products are derived from crude oil and condensate that have been processed through various refining methods. The resulting products include gasoline, home heating oil,~~Hydrocarbon compounds, such as jet fuel ~~diesel, lubricants~~ and ~~the raw materials for fertilizer, chemicals, and pharmaceuticals.~~residual fuel, that are produced by a refinery.

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

Refining Gross Profit (Deficit) per Bbl. Calculated as refinery operations revenue less total cost of goods sold divided by the volume, in bbls, of refined products sold during the period; reflected as a dollar ($) amount per bbl.

RCRA. Federal Resource Conservation and Recovery Act.

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RFS2. Second Renewable Fuels Standard.

ROU. Right-of-use.

SEC. Securities and Exchange Commission.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Segment Margin (Deficit). For our refinery operations and tolling and terminaling business segments, represents net revenues (excluding intercompany fees and sales) attributable to the respective business segment less associated intercompany fees and sales less associated operation costs and expenses.

SEMS. Safety and Environmental Management System.

Sour crude. Crude oil containing sulfur content of more than 0.5%.

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

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

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 per their sulfur content, with lower sulfur fuels usually selling at a higher, or premium, price and higher sulfur fuels selling at a lower, or discounted, price.

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.

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

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

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

~~Financial and Performance Measures~~

~~Capacity Utilization Rate~~. A percentage measure that indicates the amount of available capacity that is being used in a refinery or transported through a pipeline. 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).

~~Cost of Goods Sold. Reflects the cost of crude oil and condensate, fuel use, and chemicals.~~

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

~~Gross Margin. Calculated as gross profit divided by total revenue; reflected as a percentage (%).~~

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

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

~~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 petroleum products.~~

~~Other Operating Expenses. Represents costs associated with our pipeline assets and leasehold interests in oil and gas properties.~~

~~Refining Gross Profit per Bbl~~. ~~Calculated as refinery operations revenue less total cost of goods sold divided by the volume, in bbls, of refined petroleum products sold during the period; reflected as a dollar ($) amount per bbl.~~

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.

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

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

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.

WHO. World Health Organization.

WSJ Prime Rate. A measure of the ~~volume processed~~U.S. prime rate as ~~input through~~defined by the ~~crude distillation tower. Refinery throughput includes~~Wall Street Journal.

XBRL. eXtensible Business Reporting Language.

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

~~Other Defined Terms~~

~~Final Arbitration Award~~. Damages and attorney fees and related expenses awarded to GEL Tex Marketing, LLC (“GEL”), an affiliate of Genesis Energy, L.P. (“Genesis”) by an arbitrator on August 11, 2017 (the “Final Arbitration Award”), in arbitration proceedings between LE and GEL (the “GEL Arbitration”) related to a contractual dispute involving a Crude Oil Supply and Throughput Services Agreement (the “Crude Supply Agreement”) and a Joint Marketing Agreement (the “Joint Marketing Agreement”), each between LE and GEL and dated August 12, 2011.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

Important Information Regarding Forward Looking Statements

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

Refinery and Tolling and Terminaling Operations

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Our going concern status.

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Inadequate liquidity to sustain operations due to defaults under our secured loan agreements, margin deterioration, and historic net losses and working capital deficits.

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Substantial debt in current liabilities, which is currently in default.

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Ability to regain compliance with the terms of our outstanding indebtedness.

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

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Affiliate common stock ownership and transactions that could cause conflicts of interest.

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Operational hazards inherent in refining and natural gas processing operations and in transporting and storing crude oil and condensate and refined products.

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Geographic concentration of our assets and customers, creating significant exposure to regional economy risks and other conditions.

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Competition from companies having greater financial and other resources.

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Federal, state, and local environmental, economic, health and safety, energy and other policies and regulations, including those related to climate change, and any changes therein, and any legal and regulatory investigations, delays in obtaining necessary approvals and permits, compliance costs or other factors beyond our control.

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Environmental laws and regulations that could require us to make substantial capital expenditures to remain in compliance or remediate current or future contamination that could give rise to material liabilities.

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Changes in insurance markets impacting costs and the level and types of coverage available.

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NOL carryforwards to offset future taxable income for U.S. federal income tax purposes that are subject to limitation.

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Direct or indirect effects on our business resulting from actual or threatened terrorist or activist incidents, cyber-security breaches, or acts of war.

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The effects of public health threats, pandemics and epidemics, such as the recent outbreak of COVID-19, and the adverse impacts thereof on our business, financial condition, results of operations, and liquidity, including, but not limited to, our growth, operating costs, supply chain, labor availability, logistical capabilities, customer demand for our products, industry demand generally, crude oil supply, margins, production and throughput capacity, utilization, inventory value, cash position, taxes, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally.

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Timing and extent of changes in commodity prices and demand for refined products.

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Availability and costs of crude oil and other feedstocks.

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Price volatility of fuel and utility services to operate the Nixon facility.

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Disruptions due to equipment interruption or failure at the Nixon facility.

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Changes in our cash flow from operations and working capital requirements, shortfalls of which Affiliates may not fund.

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Ability to regain compliance with the terms of our outstanding indebtedness.

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Key personnel loss, labor relations, and workplace safety.

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Loss of market share by and a material change in profitability of our key customers.

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Contract cancellation, non-renewal, or failure to perform by those in our supply and distribution chains, and the ability to replace such contracts and/or customers.

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

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

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

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Weather conditions, hurricanes or other natural disasters affecting operations by us or our key customers or the areas in which our customers operate.

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The effect, impact, potential duration or other implications of the recent outbreak of COVID-19 and global crude oil production levels, and any expectations we may have with respect thereto.

Pipeline and Facilities and Oil and Gas Assets

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Assessment of civil penalties by BOEM for failure to satisfy orders to provide additional financial assurance (supplemental pipeline bonds) within the time period prescribed.

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Assessment of civil penalties by BSEE for failure to decommission pipeline and platform assets, as well as complete structural platform surveys, within the time periods prescribed.

Common Stock

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Decline in stock price due to share sales by Affiliates.

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Issuance of additional shares of Common Stock and Preferred Stock, which significantly dilute the equity ownership of current holders.

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, 2019 as filed with the SEC. 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

FORM 10-Q 3/31/20

Financial Statements

PART ~~I. FINANCIAL INFORMATION~~I

ITEM 1. FINANCIAL STATEMENTS

Consolidated Balance Sheets (Unaudited)

March 31,

December 31,

2019

2018

(in thousands except share amounts)

ASSETS

CURRENT ASSETS

Cash and cash equivalents
$29
$14
Restricted cash
  49
  49
Accounts receivable, net
  1,118
  379
Accounts receivable, related party
  482

  -

Prepaid expenses and other current assets
  876
  1,786
Deposits
  194
  194
Inventory
  1,843
  1,510
Refundable federal income tax
  166
  108
   Total current assets
  4,757
  4,040



LONG-TERM ASSETS


Total property and equipment, net
  64,256
  64,697
Operating lease right-of-use assets
  754
  -
Restricted cash, noncurrent
  1,602
  1,602
Surety bonds
  230
  230
Deferred tax assets, net
  50
  108
   Total long-term assets
  66,892
  66,637



TOTAL ASSETS
$71,649

$70,677



LIABILITIES AND STOCKHOLDERS' DEFICIT


CURRENT LIABILITIES


Long-term debt less unamortized debt issue costs, current portion, in default
$34,645
$34,863
Long-term debt, related party, current portion, in default
  7,459
  7,041
Interest payable, in default
  3,324
  2,939
Interest payable, related party, in default
  1,694
  1,534
Accounts payable
  2,309
  2,719
Accounts payable, related party
  1,680
  1,529
Current portion of long-term operating leases
  164
  -
Asset retirement obligations, current portion
  2,580
  2,580
Accrued expenses and other current liabilities
  1,948

  1,571
Accrued arbitration award payable
  19,628
  21,128
   Total current liabilities
  75,431

  75,904



LONG-TERM LIABILITIES


Long-term operating leases, net of current portion
  698
  -
   Total long-term liabilities
  698
  -



TOTAL LIABILITIES
  76,129
  75,904



Commitments and contingencies (Note 17)





STOCKHOLDERS' DEFICIT


Common stock ($0.01 par value, 20,000,000 shares authorized; 10,975,514


shares issued at both March 31, 2019 and December 31, 2018)
  110
  110
Additional paid-in capital
  36,936
  36,936
Accumulated deficit
  (41,526)
  (42,273)
TOTAL STOCKHOLDERS' DEFICIT
  (4,480)
  (5,227)



TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
$71,649

$70,677

	March 31,	December 31,
	2020	2019

	(in thousands except share amounts)

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$269	$72
Restricted cash	49	49
Accounts receivable, net	1,325	446
Accounts receivable, related party (Note 3)	-	1,364
Prepaid expenses and other current assets (Note 6)	780	2,276
Deposits	174	158
Inventory (Note 7)	813	1,645
Refundable federal income tax (Note 14)	100	65
Total current assets	3,510	6,075

LONG-TERM ASSETS
Total property and equipment, net (Note 8)	63,509	63,893
Operating lease ROU assets (Note 13)	613	649
Restricted cash, noncurrent	547	547
Surety bonds (Note 16)	230	230
Deferred tax assets, net (Note 14)	-	50
Total long-term assets	64,899	65,369

TOTAL ASSETS	68,409	71,444

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Long-term debt less unamortized debt issue costs, current portion, in default (Note 10)	33,580	33,836
Line of credit payable, less umamortized debt issue costs (Note 11)	11,243	11,464
Long-term debt, related party, current portion, in default (Note 3)	7,572	6,001
Current portion of lease liabilities (Note 13)	250	251
Interest payable (in default) (Note 10)	4,033	3,814
Interest payable, related party (in default) (Note 3)	2,334	2,174
Accounts payable	1,425	1,877
Accounts payable, related party (Note 3)	149	149
Asset retirement obligations (Note 12)	2,550	2,565
Accrued expenses and other current liabilities (Note 9)	2,801	3,333
Total current liabilities	65,937	65,464

LONG-TERM LIABILITIES
Long-term lease liabilities, net of current portion (Note 13)	518	564
Deferred revenue	1,808	1,930
Total long-term liabilities	2,326	2,494

TOTAL LIABILITIES	68,263	67,958

Commitments and contingencies (Note 16)

STOCKHOLDERS' EQUITY
Common Stock shares issued and outstanding (12,327,365 at both March 31, 2020 and December 31, 2019)	123	123
Additional paid-in capital	38,275	38,275
Accumulated deficit	(38,252)	(34,912)
TOTAL STOCKHOLDERS' EQUITY	146	3,486

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$68,409	$71,444

~~See~~The accompanying notes toare an integral part of these consolidated financial statements.

~~BLUE DOLPHIN ENERGY COMPANY~~

~~FORM 10-Q 3/31/19~~

~~Consolidated Statements of Operations (Unaudited)~~

   Three Months Ended March 31,

2019

2018

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

REVENUE FROM OPERATIONS

Refinery operations
$67,858
$71,512
Tolling and terminaling
  1,069
  734
Total revenue from operations
  68,927
  72,246



COST OF GOODS SOLD


    Crude oil, fuel use, and chemicals
  63,187
  68,086
    Other conversion costs
  2,329
  2,406
        Total cost of goods sold
  65,516
  70,492



Gross Profit
  3,411
  1,754



COST OF OPERATIONS


Management fee
  150
  154
Other operating expenses
  57
  44
General and administrative expenses
  670
  660
Depreciation and amortization
  590
  455
Accretion of asset retirement obligations
  -
  66
Total cost of operations
  1,467
  1,379



Income from operations
  1,944
  375



OTHER INCOME (EXPENSE)


Easement, interest and other income
  -
  1
Interest and other expense
  (1,197)
  (744)
Total other income (expense)
  (1,197)
  (743)



Income (loss) before income taxes
  747
  (368)



Income tax benefit
  -
  217



Net income (loss)
$747
$(151)






Income (loss) per common share:


Basic
$0.07
$(0.01)
Diluted
$0.07
$(0.01)



Weighted average number of common shares outstanding:


Basic
  10,975,514
  10,925,513
Diluted
  10,975,514
  10,925,513

~~See accompanying notes to consolidated financial statements.~~

~~BLUE DOLPHIN ENERGY COMPANY~~

~~FORM 10-Q 3/31/19~~

~~Consolidated Statements of Cash Flows (Unaudited)~~

Three Months Ended March 31,

2019

2018

(in thousands)

OPERATING ACTIVITIES

   Net income (loss)
$747
$(151)
   Adjustments to reconcile net income (loss) to net cash


provided by (used in) operating activities:


Depreciation and amortization
  590
  455
Deferred income tax
  -
  (217)
Amortization of debt issue costs
  32
  32
Accretion of asset retirement obligations
  -
  66
Changes in operating assets and liabilities


Accounts receivable
  (739)
  818
Accounts receivable, related party
  (482)
  307
Prepaid expenses and other current assets
  910
  (223)
Deposits and other assets
  -
  (16)
Inventory
  (333)
  766
Accrued arbitration award
  (1,500)
  (1,500)
Accounts payable, accrued expenses and other liabilities
  593
  312
Accounts payable, related party
  151
  152
Net cash provided by (used in) operating activities
  (31)
  801



INVESTING ACTIVITIES


Capital expenditures
  (123)
  (540)
Net cash used in investing activities
  (123)
  (540)



FINANCING ACTIVITIES


Payments on debt
  (250)
  (240)
Net activity on related-party debt
  419
  217
Net cash provided by (used in) financing activities
  169
  (23)



Net change in cash, cash equivalents, and restricted cash
  15
  238



CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD
  1,665
  2,146
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD
$1,680
$2,384



Supplemental Information:


Non-cash investing and financing activities:


Financing of capital expenditures via accounts payable and capital leases
$-
$82
Financing of guaranty fees via long-term debt, related party
$158
$163
Interest paid
$361
$558
Income taxes paid
$-
$-

~~See accompanying notes to consolidated financial statements.~~

BLUE DOLPHIN ENERGY COMPANY		FORM 10-Q 3/31/19
20

~~Notes to Consolidated~~ Financial Statements

~~(1)~~	~~Organization~~

●

~~Item 1. Financial Statements:~~

–

~~Note (9) Related-Party Transactions~~

–

~~Note (11) Long-Term Debt, Net~~

–

~~Note (17) Commitments and Contingencies – Legal Matters~~

–

~~Note (18) Subsequent Events~~

BLUE DOLPHIN ENERGY COMPANY		FORM 10-Q 3/31/19
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~ 20

Notes to Consolidated Financial Statements

●

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations:~~

–
(2)

~~Final Arbitration Award~~Principles of Consolidation and ~~Settlement Agreement~~

–

~~Results of Operations~~

–

~~Liquidity and Capital Resources~~Significant Accounting Policies

~~Refer to the following sections in our Annual Report on Form 10-K for the period ended December 31, 2018 (the “Annual Report”):~~

●

~~Part I, Item 1. Business – Business Strategy~~

●

~~Part I, Item 1A. Risk Factors~~

●

~~Part I, Item 3. Legal Proceedings~~

~~(2)~~

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, ~~2018~~2019 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.~~Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the SEC. Operating results for the three months ended March 31, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2019,~~2020, or for any other period. As discussed further below within this “Note (2)” under ‘use of estimates,’ the recent outbreak of COVID-19 and its development into a pandemic in March 2020 has resulted in significant economic disruption globally. This disruption became more acute in the latter half of March 2020; therefore, our operating results for the three months ended March 31, 2020 do not fully reflect the impact this disruption has had, and will likely continue to have, on us.

~~(3)~~

Significant Accounting Policies

The summary of significant accounting policies of Blue Dolphin is presented to assist in understanding our consolidated financial statements. Our consolidated financial statements and accompanying notes are representations of management, who is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of our consolidated financial statements.

Use of Estimates. The outbreak of COVID-19 and its development into a pandemic in March 2020 and certain developments in the global oil markets have impacted and continue to impact our business. Our business was designated as an essential business and, as such, has remained open. We have ~~made several~~instituted various initiatives throughout the company as part of our business continuity programs, and we are working to mitigate risk when disruptions occur. Many uncertainties remain with respect to COVID-19, including its resulting economic effects, and we are unable to predict the ultimate economic impacts from COVID-19 on our business and how quickly national economies can recover once the pandemic subsidies. However, the adverse impacts of the economic effects from COVID-19 and uncertainty in the global oil markets on our business have been and will likely continue to be significant.

The nature of our business requires that we make estimates and assumptions ~~related to~~in accordance with U.S. GAAP. These estimates and assumptions affect the ~~reporting~~reported amounts of ~~our consolidated~~ assets and liabilities and to 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. The COVID-19 outbreak has impacted these estimates and assumptions and will continue to ~~prepare these~~do so. Our estimates at the end of the first quarter assumed no material impact from the disruptions caused by COVID-19.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 as of March 31, 2020 and through the filing date of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, inventory and related reserves and the carrying value of long-lived assets. While there was not a material impact to our consolidated financial statements as of and for the three months ended March 31, 2020, our future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in ~~conformity with GAAP. We believe our current estimates are reasonable and appropriate; however, actual results could differ from those estimated.~~future reporting periods.

Cash and Cash Equivalents. Cash and cash equivalents represent liquid investments with an original maturity of three months or less. Cash balances are maintained in depository and overnight investment accounts with financial institutions that, at times, may exceed insured deposit limits. We monitor the financial condition of the financial institutions and have experienced no losses associated with these accounts.

Restricted Cash. Restricted cash, current portion primarily represents a payment reserve account held by Veritex as security for payments under a loan agreement. Restricted cash, noncurrent represents funds held in the Veritex disbursement account for payment of construction related expenses to ~~build~~complete building new petroleum storage tanks.

~~BLUE DOLPHIN ENERGY COMPANY~~		~~FORM 10-Q 3/31/19~~
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~

Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable are presented net of any necessary allowance(s) for doubtful accounts. Receivables are recorded at the invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, when necessary, based on ~~past~~prior experience and other factors which, in management's judgment, deserve consideration in estimating bad debts. Management assesses collectability ~~primarily~~of the customer’s account based on ~~the~~ current aging status, ~~of the customer's account, our historical~~ collection ~~experience with the customer,~~history, and ~~the customer's~~ financial condition. Based on a review of these factors, management establishes or adjusts the allowance for specific customers and the entire accounts receivable ~~portfolio as a whole.~~portfolio. We had an allowance for doubtful accounts of $0.1 million ~~and $0.1 million~~ at both March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

Inventory. ~~Our inventory~~Inventory primarily consists of refined ~~petroleum~~ products, crude oil and condensate, and chemicals. Inventory is valued at lower of cost or net realizable value with cost ~~being~~ determined by the average cost method, and net realizable value ~~being~~ determined based on estimated selling prices less ~~any~~ associated delivery costs. If the net realizable value of our refined ~~petroleum~~ products inventory declines to an amount less than our average cost, we record a write-down of inventory and an associated adjustment to cost of goods sold. ~~(See~~See “Note (7) ~~Inventory”~~” to our consolidated financial statements for additional disclosures related to ~~our~~ inventory.)

Property and Equipment.

Refinery and Facilities. ~~Management expects~~We plan to continue making improvements to the crude distillation tower based on operational needs and technological advances. Additions to refinery and facilities assets are ~~capitalized. Expenditures~~capitalized, and expenditures for repairs and maintenance are expensed as incurred.

We record refinery and facilities at cost less any adjustments for depreciation or impairment. Adjustment of the asset and the related accumulated depreciation accounts are made for the refinery and facilities asset’s retirement and disposal, with the resulting gain or loss included in the consolidated statements of operations. For financial reporting purposes, depreciation of refinery and facilities assets is computed using the straight-line method using an estimated useful life of 25 years beginning when the refinery and facilities assets are placed in service. We did not record any impairment of our refinery and facilities assets for the periods presented.

Pipelines and Facilities. Our pipelines and facilities are recorded at cost less any adjustments for depreciation or impairment. Depreciation is computed using the straight-line method over estimated useful lives ranging from 10 to 22 years. In accordance with ~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)~~FASB ASC guidance ~~on accounting for the impairment or disposal of long-lived assets, management~~we performed periodic impairment testing of our pipeline and facilities assets in ~~the fourth quarter of~~ 2016. Upon completion of that testing, our pipeline assets were fully ~~impaired.~~impaired at December 31, 2016. All pipeline transportation services to third parties have ceased, existing third-party wells along our pipeline corridor have been permanently abandoned, and no new third-party wells are being drilled near our pipelines. We plan to decommission the offshore pipelines and platform assets in the third quarter of 2020.

Oil and Gas Properties. Our oil and gas properties are accounted for using the full-cost method of accounting, whereby all costs associated with acquisition, exploration and development of oil and gas properties, including directly related internal costs, are capitalized on a cost center basis. Amortization of such costs and estimated future development costs are determined using the unit-of-production method. All leases associated with our oil and gas properties have expired, and our oil and gas properties were fully impaired in 2011.

~~Construction in Progress~~CIP. ~~Construction in progress~~CIP expenditures, including capitalized interest, relate to construction and refurbishment activities atand equipment for the Nixon Facility. These expenditures are capitalized as incurred. Depreciation begins once the asset is placed in service.

(See “Note (8) ~~Property, Plant and Equipment, Net”~~” to our consolidated financial statements for additional disclosures related to our refinery and facilities assets, oil and gas properties, pipelines and facilities assets, and ~~construction in progress.)~~CIP.

Leases. We evaluate if a contract is or contains a lease at inception of the contract. If we determine that a contract is or contains a lease, we recognize ROU asset and lease liability at the commencement date of the lease based on the present value of lease payments over the lease term. The present value of the lease payments is determined by using the implicit rate when readily determinable. If not determinable, we use the incremental borrowing rate to discount lease payments to present value. Lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise those options.

~~BLUE DOLPHIN ENERGY COMPANY~~		~~FORM 10-Q 3/31/19~~
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~

We recognize ROU assets and lease liabilities for leasing arrangements with terms greater than one year. We account for lease and non-lease components in a contract as a single lease component for all classes of underlying assets. We allocate the consideration in these contracts based on pricing information contained in the lease.

Expense for an operating lease is recognized as a single lease cost on a straight-line basis over the lease term and is reflected in the appropriate income statement line item based on the leased asset’s function. Amortization expense of a finance lease ROU asset is recognized on a straight-line basis over the lesser of the useful life of the leased asset or the lease term. However, if the lease transfers ownership of the finance lease ROU asset to us at the end of the lease term, the finance lease ROU asset is amortized over the useful life of the leased asset. Amortization expense is reflected in ‘depreciation and amortization expense.’ Interest expense is incurred based on the carrying value of the lease liability and is reflected in ‘interest and other expense.’

Revenue Recognition.

~~We adopted the provisions of FASB ASU (defined below) 2014-09,~~ ~~Revenue from Contracts with Customers (ASC 606), on January 1, 2018, as described below in “New Pronouncements Adopted.” Accordingly, our revenue recognition accounting policy has been revised to reflect the adoption of this standard.~~

Refinery Operations Revenue. Revenue from the sale of refined ~~petroleum~~ products is recognized when the product is sold to the customer in fulfillment of performance obligations. Each load of refined ~~petroleum~~ product is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are met when control is transferred to the customer. Control is transferred to the customer when the product has been lifted or, in cases where the product is not lifted immediately (bill and hold arrangements), when the product is added to the customer’s bulk inventory as stored at the Nixon ~~Facility.~~facility.

We consider a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the refined ~~petroleum~~ 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. Transportation, shipping, and handling costs incurred are included in cost of goods sold. Excise and other taxes that are collected from customers and remitted to governmental authorities are not included in revenue.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

Tolling and Terminaling Revenue. Tolling and terminaling revenue represents fees pursuant to: (i) tank storage agreements, whereby a customer agrees to pay a certain fee per tank based on tank size over a period of 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 use of the naphtha stabilizer ~~unit and (ii) tank storage agreements, whereby a customer agrees to pay a certain fee per tank based on tank size over a period of time for the storage of products.~~unit.

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

Revenue from tank storage 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, and the price we charge for such services is not included in the fixed cost under the customer’s tank storage agreement. Ancillary services are considered a separate performance obligation by us under the tank storage agreement. The performance obligation is satisfied when the requested service has been performed in the applicable period.

~~Income Taxes~~Deferred Revenue. We record deferred revenue when cash payments are received or due in advance of our performance. An increase in the deferred revenue balance reflects cash payments received or due in advance of satisfying our performance obligations, offset by recognized revenue that was included in the deferred revenue balance at the beginning of the period. Deferred revenue represents a liability as of the balance sheet date related to a revenue producing activity for which revenue has not yet been recognized. We record deferred revenue when we receive consideration under a contract before achieving certain criteria that must be met for revenue to be recognized in conformity with GAAP.

~~We account for~~Income Taxes. Deferred income taxes under FASB ASC guidance related to income taxes, which requires recognition of income taxes based on amounts payable with respect to the current reporting period and the effects of deferred taxes for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial ~~accounting~~reporting and tax basis of assets and liabilities, as well as ~~for~~ operating losses and tax credit carryforwards using currently enacted tax rates and laws in effect for the year in which the differences are expected to reverse. We record a valuation allowance against deferred income tax assets if it is more likely than not that those assets will not be realized. The provision for income taxes comprises our current tax liability and change in deferred income tax assets and liabilities.

Significant judgment is required in evaluating uncertain tax positions and determining its provision for income taxes. As of each reporting date, ~~management considers~~we consider new evidence, both positive and negative, to determine the realizability of deferred tax assets. ~~Management considers~~We consider whether it is more likely than not that a portion or all of the deferred tax assets will be realized, which is dependent upon the generation of future taxable income prior to the expiration of any ~~net operating loss (“NOL”)~~NOL carryforwards. When ~~management determines~~we determine that it is more likely than not that a tax benefit will not be realized, a valuation allowance is recorded to reduce deferred tax assets. A significant piece of objective negative evidence evaluated was cumulative losses incurred over the three-year period ended ~~December~~March 31, ~~2018.~~2020. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. Based on this evaluation, we recorded a valuation allowance against the deferred tax assets for which realization was not deemed more likely than not as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. We expect to recover deferred tax assets related to ~~the Alternative Minimum Tax (“AMT”)~~AMT credit carryforwards. In addition, we have NOL carryforwards that remain available for future use.

~~BLUE DOLPHIN ENERGY COMPANY~~		~~FORM 10-Q 3/31/19~~
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~

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 March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, there were no uncertain tax positions for which a reserve or liability was necessary. ~~(See~~See “Note ~~(15) Income Taxes”~~(14)” to our consolidated financial statements for ~~further~~more information related to income taxes.)

Impairment or Disposal of Long-Lived Assets. ~~In accordance with FASB ASC guidance on accounting for the impairment or disposal of long-lived assets, we~~We periodically evaluate our long-lived assets for impairment. Additionally, we evaluate our long-lived assets when events or circumstances indicate that the carrying value of these assets may not be recoverable. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or group of assets. If the carrying value exceeds the sum of the undiscounted cash flows, an impairment loss equal to the amount by which the carrying value exceeds the fair value of the asset or group of assets is recognized. Significant management judgment is required in the forecasting of future operating results that are used in the preparation of projected cash flows and, should different conditions prevail or judgments be made, material impairment charges could be necessary. ~~As a result of the~~The GEL Final Arbitration Award ~~which represents~~represented a significant adverse change that could ~~affect~~have affected the value of acertain of our long-lived ~~asset,~~assets, and management performed potential impairment testing of our refinery and facilities assets in ~~the fourth quarter of~~2019 and 2018. Upon completion of that testing, ~~we determined that~~ no impairment was deemed necessary ~~at December 31, 2018. We~~and we did not record any impairment of our refinery and facilities assets for the periods presented.

Asset Retirement Obligations. ~~FASB ASC guidance related to asset retirement obligations (“AROs”) requires that~~We record a liability for the discounted fair value of an ARO ~~be recorded~~ in the period ~~in which~~ incurred, and we also capitalize the corresponding cost ~~capitalized~~ by increasing the carrying amount of the related long-lived asset. The liability is accreted towards its future value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.

~~Management has~~

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

We have concluded that there is no legal or contractual obligation to dismantle or remove the refinery and facilities assets. Further, ~~management believes~~we believe that these assets have indeterminate lives ~~under FASB ASC guidance for estimating AROs~~ because dates or ranges of dates upon which we would retire these assets cannot reasonably be estimated at this time. When a legal or contractual obligation to dismantle or remove the refinery and facilities assets arises and a date or range of dates can reasonably be estimated for the retirement of these assets, we will estimate the cost of performing the retirement activities and record a liability for the fair value of that cost using present value techniques.

We recorded an ARO liability related to future asset retirement costs associated with dismantling, relocating, or disposing of our offshore platform, pipeline systems, and related onshore facilities, as well as for plugging and abandoning wells and restoring land and ~~sea beds. We developed these cost~~sea-beds. Cost estimates for each of our assets were developed based upon regulatory requirements, structural makeup, water depth, reservoir characteristics, reservoir depth, equipment demand, current retirement procedures, and construction and engineering consultations. ~~Because these costs typically extend many years into the future, estimating~~Estimating future costs are difficult and require management to make judgments that are subject to future revisions based upon numerous factors, including changing technology, political, and regulatory environments. We review our assumptions and estimates of future abandonment costs on an annual basis. ~~(See~~See “Note (12) ~~Asset Retirement Obligations”~~” to our consolidated financial statements for additional information related to ~~our~~ AROs.)

Computation of Earnings Per Share. We ~~apply the provisions of FASB ASC guidance for computing earnings per share (“EPS”). The guidance requires the presentation of~~present basic and diluted EPS. Basic EPS ~~which~~ excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The guidance requires dual presentation of basic EPS and diluted EPS on the face of our consolidated statements of operations and requires a reconciliation of the denominator of basic EPS and diluted EPS. Diluted EPS is computed by dividing net income available to common stockholders by the diluted weighted average number of common shares outstanding, which includes the potential dilution that could occur if securities or other contracts to issue shares of common stock were converted to common stock that then shared in the earnings of the entity.

~~BLUE DOLPHIN ENERGY COMPANY~~		~~FORM 10-Q 3/31/19~~
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~

The number of shares related to ~~options, warrants,~~ restricted stock ~~and similar instruments~~ included in diluted EPS is based on the “Treasury Stock Method” prescribed in FASB ASC guidance for computation of EPS. This method assumes theoretical repurchase of shares using proceeds of the respective stock option or warrant exercised, and, for restricted stock, the amount of compensation cost attributed to future services that hasMethod.” We do not yet been recognized and the amount of any current and deferred tax benefit that would be credited to additional paid-in-capital upon the vesting of the restricted stock, at a price equal to the issuer’s average stock price during the related earnings period. Accordingly, the number of shares includable in the calculation of EPS in respect of the stockhave issued options, warrants, ~~restricted stock, and~~or similar ~~instruments is dependent on this average stock price and will increase as the average stock price increases. (See~~instruments. See “Note ~~(16) Earnings Per Share”~~(15)” to our consolidated financial statements for additional information related to EPS.)

New Pronouncements Adopted. The FASB issues an ~~Accounting Standards Update (“ASU”)~~ASU to communicate changes to the FASB ASC, including changes to non-authoritative SEC content. Recently adopted ASUs include:

~~ASUs 2019-01, 2018-20, 2018-11, 2018-10, and 2016-02, Leases (Topic 842)~~Codification Updates to SEC Sections. In ~~February 2016, FASB amended its accounting guidance for leases. Subsequently,~~July 2019, FASB issued ~~several clarifications and updates.~~ASU 2019-07, Codification Updates to SEC Sections, which amended certain SEC sections or paragraphs within the FASB ASC. The ~~guidance requires a lessee to recognize assets and liabilities on the balance sheet arising from leases with terms greater than 12 months. While lessor guidance is relatively unchanged, certain~~ amendments were made pursuant to ~~confirm with changes made to lessee accounting~~SEC Final Rule Releases No. 33-10532, Disclosure Update and ~~the amended revenue recognition guidance.~~Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates (SEC Update). The new guidance continues to classify leases as either finance or operating, with classification affecting the presentation and pattern of expense and income recognition, in the statement of operations. It also requires additional quantitative and qualitative disclosures about leasing arrangements. We adopted the new guidance on January 1, 2019 using the modified retrospective approach,SEC Final Rule Releases, which was applied beginning on the adoption date. Comparative information has not been restated and continues to be reported under the accounting guidance in effect for those periods. The adoption did not have a material effect on our consolidated statements of operations or cash flows. On the adoption date we recognized operating lease right-of-use assets, net of pre-existing deferred rent, and operating lease liabilities on our consolidated balance sheet of approximately $0.8 million and $0.9 million, respectively.

~~ASU 2018-09, Codification Improvements. In July 2018, FASB issued ASU 2018-09. This guidance affects a wide variety of topics in the codification and represents changes to clarify, correct errors in, or make minor~~required improvements to the ~~codification. The amendments make the codification easier~~XBRL taxonomy, were made to ~~understand~~improve, update, and ~~easier to apply by eliminating inconsistencies~~simplify SEC regulations on financial reporting and ~~providing clarifications. The amendments apply to all reporting entities within the scope of the affected accounting guidance. Some of~~disclosure. For public companies, the amendments in ASU ~~2018-09 do not require transition guidance and will be~~2019-07 were effective upon issuance. ~~However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities.~~ Adoption of this guidance did not have a significant impact on our consolidated financial statements.

~~ASU 2014-09, Revenue from Contracts with Customers (ASC 606)~~. We adopted this accounting pronouncement effective January 1, 2018, using a modified retrospective approach, which required us to apply the new revenue standard to: (i) all new revenue contracts entered into after January 1, 2018 and (ii) all existing revenue contracts as of January 1, 2018. In accordance with this approach, our consolidated revenues for the periods prior to January 1, 2018 will not be revised. In November 2018, FASB issued ASU 2018-18, ~~Collaborative Arrangements (Topic 808)~~. ASU 2018-18 clarifies the interaction between ASC 808 and ASC 606. Our implementation activities related to ASC 606 are complete, and we did not have any material differences in the amount or timing of revenues as a result of the adoption of ASC 606. Our largest revenue streams consist of orders received from our customers for crude-oil derived specialty products based on market prices. These revenues are recognized at a point in time upon transfer of control of the product in accordance with contractual terms. With respect to ASC 808, we are not party to a collaborative agreement with a third party.

~~BLUE DOLPHIN ENERGY COMPANY~~		~~FORM 10-Q 3/31/19~~
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~

~~New Pronouncements Issued, Not Yet Effective. The following are recently issued, but not yet effective, ASU’s that may influence our consolidated financial position, results of operations, or cash flows:~~

~~ASU 2018-17,~~ Consolidation ~~(Topic 810)~~. In October 2018, FASB issued ASU ~~2018-17.~~2018-17, Consolidation (Topic 810). This ASU ~~provides~~provided targeted improvements to related-party guidance for variable interest entities. ~~In particular, indirect~~Indirect interests held through related parties in common control arrangements ~~should be~~are considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. For entities other than private companies, the amendments in ASU 2018-17 ~~are~~were effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. ~~We do not expect adoption~~Adoption of this guidance todid not have a significant impact on our consolidated financial statements.

~~ASU 2018-05,~~ New Pronouncements Issued, Not Yet Effective.

Income Taxes ~~(Topic 740)~~. In March 2018, FASB issued ASU ~~2018-05.~~2018-05, Income Taxes (Topic 740). This guidance amends SEC paragraphs in ASC 740, Income Taxes, to reflect ~~SAB~~Staff Accounting Bulletin No. 118, which provides guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Cuts and Jobs Act in the period of enactment. This guidance also includes amendments to the XBRL ~~Taxonomy.~~taxonomy. For public business entities, the amendments in ASU 2018-05 are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. We do not expect adoption of this guidance to have a significant impact on our consolidated financial statements.

Other new pronouncements issued but not yet effective are not expected to have a material impact on our financial position, results of operations, or liquidity.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

(3)

Related-Party Transactions

Working Capital

Currently, we depend on Affiliates for financing when revenue from operations and borrowings under bank facilities are insufficient to meet our liquidity and working capital needs. Such borrowings are reflected in our consolidated balance sheets in accounts payable, related party, and/or long-term debt, related party.

Affiliate Agreements/Transactions

~~Remainder~~Blue Dolphin and certain of ~~Page Intentionally Left Blank~~its subsidiaries are party to several agreements with Affiliates. Management believes that these related-party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions. Related-party transactions consist of the following:

Agreement/Transaction	Parties	Type	Effective Date	Interest Rate	Key Terms
Amended and Restated Guaranty Fee Agreement(1)	Jonathan Carroll - LE	Debt	04/01/2017	2.00%	Tied to payoff of LE $25 million Veritex loan; payments 50% cash, 50% Common Stock
Amended and Restated Guaranty Fee Agreement(1)	Jonathan Carroll - LRM	Debt	04/01/2017	2.00%	Tied to payoff of LRM $10 million Veritex loan; payments 50% cash, 50% Common Stock
Refinery Equipment Purchase	LTRI - LE	Operations	07/01/2019	---	LE purchase of two (2) refurbished heat exchangers for $0.08 million each
Dock Tolling Agreement	LMT - LE	Operations	05/24/2016	---	5-year term cancellable by either party any time; LE paid flat reservation fee for tolling volumes up to 84,000 gallons per day; excess tolling volumes subject to increased per gallon rate; terminated 07/01/2019
Jet Fuel Sales Agreement	LEH - LE	Operations	04/01/2020	---	1-year term expiring earliest to occur of 03/31/2021 plus 30-day carryover or delivery of maximum jet fuel quantity; LEH bids on jet fuel contracts under preferential pricing terms due to a HUBZone certification
March Carroll Note (in default)	Jonathan Carroll – Blue Dolphin	Debt	03/31/2017	8.00%	Blue Dolphin working capital; matured 01/01/2019; interest still accruing
March Ingleside Note (in default)	Ingleside – Blue Dolphin	Debt	03/31/2017	8.00%	Blue Dolphin working capital; reflects amounts owed to Ingleside under previous Amended and Restated Tank Lease Agreement; matured 01/01/2019; interest still accruing
June LEH Note (in default)	LEH – Blue Dolphin	Debt	03/312017	8.00%	Blue Dolphin working capital; reflects amounts owed to LEH under the Amended and Restated Operating Agreement; reflects amounts owed to Jonathan Carroll under guaranty fee agreements; matured 01/01/2019; interest still accruing
Office Sub-Lease Agreement	LEH - BDSC	Operations	01/01/2018	---	68-month term expiring 08/31/2023; office lease Houston, Texas; includes 6-month rent abatement period; rent approximately $0.02 million per month
Amended and Restated Operating Agreement	LEH – Blue Dolphin, LE, LRM, NPS, BDPL, BDPC and BDSC	Debt	04/01/2020	---	3-year term; expires 04/01/2023 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
Loan and Security Agreement (in default)	LEH - BDPL	Debt	08/15/2016	16.00%	2-year term; $4.0 million principal amount; $0.5 million annual payment; proceeds used for working capital; no financial maintenance covenants; secured by certain BDPL property

(1)

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

Related-Party Financial Impact

Consolidated Balance Sheets.

Accounts receivable, related party. Accounts receivable, related party totaled $0 and $1.4 million at March 31, 2020 and December 31, 2019, respectively. At December 31, 2019, accounts receivable, related party represented amounts owed from LEH for the sale of jet fuel under the Jet Fuel Sales Agreement. Amounts are paid under normal business terms. Amounts outstanding relating to the Jet Fuel Sales Agreement can vary significantly period to period based on the timing of the related sales and payments received. See below for the total amount owed to LEH under the June LEH Note and the BDPL Loan Agreement.

Accounts payable, related party. Accounts payable, related party to LTRI related to the purchase of refinery equipment totaled $0.2 million at both March 31, 20020 and December 31, 2019.

Long-term debt, related party, current portion (in default) and accrued interest payable, related party.

	March 31,	December 31,
	2020	2019
	(in thousands)
LEH
June LEH Note (in default)	$1,375	$-
BDPL Loan Agreement	6,334	6,174
LEH Total	7,709	6,174
Ingleside
March Ingleside Note (in default)	1,024	1,004
Jonathan Carroll
March Carroll Note (in default)	1,173	997
	9,906	8,175

Less: Long-term debt, related party, current portion, in default	(7,572)	(6,001)
Less: Accrued interest payable, related party (in default)	(2,334)	(2,174)
	$-	$-

BLUE DOLPHIN ENERGY COMPANY		FORM 10-Q 3/31/19
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~ 20

Notes to Consolidated Financial Statements

Consolidated Statements of Operations.

Total revenue from operations.

	Three Months Ended March 31,
	2020		2019
	(in thousands, except percent amounts)
Refinery operations
LEH	$17,715	28.6%	$20,809	30.2%
Third-Parties	43,182	69.6%	47,049	68.3%
Tolling and terminaling
Third-Parties	1,103	1.8%	1,069	1.5%
	$62,000	100.0%	$68,927	100.0%

Interest expense.

	Three Months Ended March 31,
	2020	2019
	(in thousands)
Jonathan Carroll
Guaranty Fee Agreements
First Term Loan Due 2034	$108	$112
Second Term Loan Due 2034	45	46
March Carroll Note (in default)	23	25
LEH
BDPL Loan Agreement (in default)	160	160
June LEH Note (in default)	25	6
Ingleside
March Ingleside Note (in default)	20	26
	$381	$375

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

~~(4)~~

~~Revenue and Segment Information~~Notes to Consolidated Financial Statements

Other. Fees associated with the Dock Tolling Agreement with LMT totaled $0 and $0.2 million for the three months ended March 31, 2020 and 2019, respectively. Lease payments received under the office sub-lease agreement with LEH totaled approximately $0.01 million for both three-month periods ended March 31, 2020 and 2019. The LEH operating fee was flat, totaling approximately $0.2 million for both three-month periods ended March 31, 2020 and 2019.

(4)

Revenue and Segment Information

We have two reportable business segments: (i) ~~Refinery Operations~~refinery operations and (ii) ~~Tolling~~tolling and ~~Terminaling.~~terminaling. Refinery operations relate to the refining and marketing of petroleum products at our 15,000-bpd crude distillation tower. Tolling and terminaling operations relate to tolling and storage terminaling services under ~~related-party and~~ third-party lease agreements. Both operations are conducted at the Nixon ~~Facility.~~facility. Corporate and other includes BDSC, BDPL and BDPC.

Revenue from Contracts with Customers.

●

Disaggregation of Revenue -. Revenue is presented in the table below under “Segment Information” disaggregated by business segment because this is the level of disaggregation that management has determined to be beneficial to users of our financial statements.

●

Receivables from Contracts with Customers -. Our receivables from contracts with customers are ~~reflected~~presented as receivables, net ~~as presented~~ on our consolidated balance sheets.

Contract Liabilities. Our contract liabilities from contracts with customers are included in accrued expenses and presented in “Note (9)” to our consolidated financial statements.

●

Remaining Performance Obligations ~~- The majority~~. Most of our contracts with customers are spot contracts and therefore have no remaining performance obligations.

Remainder of Page Intentionally Left Blank

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

Segment Information.

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

Three Months Ended March 31,

2019

2018

(in thousands)

Segments

Segment

Refinery

Tolling and

Corporate

Refinery

Tolling and

Corporate

Operations

Terminaling

& Other

Total

Operations

Terminaling

& Other

Total

Net revenues (excluding intercompany fees and sales)
$67,858
$1,069
$-
$68,927
$71,512
$734
$-
$72,246
Intercompany fees and sales
  (606)
  606
  -
  -
  (671)
  671
  -
  -
Operation costs and expenses(1)
  (65,152)
  (364)
  (57)
  (65,573)
  (70,151)
  (341)
  (110)
  (70,602)
Segment contribution margin
$2,100
$1,311
$(57)
$3,354
$690
$1,064
$(110)
$1,644
General and administrative expenses
  (332)
  (43)
  (445)
  (820)
  (394)
  (42)
  (378)
  (814)
Depreciation and amortization
  (465)
  (99)
  (26)
  (590)
  (409)
  (46)
  -
  (455)
Interest and other non-operating expenses, net



  (1,197)



  (743)









Income (loss) before income taxes



  747



  (368)









Income tax benefit



  -



  217









Net income (loss)



$747



$(151)









Capital expenditures
$40
$83
$-
$123
$336
$204
$-
$540









Identifiable assets
$50,340

$18,880

$2,429
$71,649

$52,460
$18,912
$1,006
$72,378

~~(1)~~

Operation costs within Refinery Operations includes the arbitration award and associated fees. Operation cost within Tolling and Terminaling includes terminal operating expenses, an allocation of other costs (e.g. insurance and maintenance), and associated refinery fuel use costs. Operation cost within Corporate and Other includes expenses associated with our pipeline assets and oil and gas leasehold interests (such as accretion).

	Three Months Ended March 31,
	2020	2019
	(in thousands)
Net revenue (excluding intercompany fees and sales)
Refinery operations	$60,897	$67,858
Tolling and terminaling	1,103	1,069
Total net revenue	62,000	68,927

Intercompany fees and sales
Refinery operations	(617)	(606)
Tolling and terminaling	617	606
Total intercompany fees	-	-

Operation costs and expenses(1)
Refinery operations	(61,833)	(65,152)
Tolling and terminaling	(255)	(364)
Corporate and other	(59)	(57)
Total operation costs and expenses	(62,147)	(65,573)

Segment contribution margin (deficit)
Refinery operations	(1,553)	2,100
Tolling and terminaling	1,465	1,311
Corporate and other	(59)	(57)
Total segment contribution margin (deficit)	(147)	3,354

General and administrative expenses(2)
Refinery operations	(304)	(332)
Tolling and terminaling	(68)	(43)
Corporate and other	(419)	(445)
Total general and administrative expenses	(791)	(820)

Depreciation and amortization
Refinery operations	(288)	(465)
Tolling and terminaling	(294)	(99)
Corporate and other	(51)	(26)
Total depreciation and amortization	(633)	(590)

Interest and other non-operating expenses, net
Refinery operations	(741)	(783)
Tolling and terminaling	(770)	(196)
Corporate and other	(243)	(218)
Total interest and other non-operating expenses, net	(1,754)	(1,197)

Income (loss) before income taxes
Refinery operations	(2,886)	520
Tolling and terminaling	333	973
Corporate and other	(772)	(746)
Total income (loss) before income taxes	(3,325)	747

Income tax expense	(15)	-

Net income (loss)	$(3,340)	$747

(1)

19Operation costs include cost of goods sold. Also, operation costs within: (a) tolling and terminaling includes terminal operating expenses and an allocation of other costs (e.g. insurance and maintenance) and (b) corporate and other includes expenses related to BDSC, BDPC and BDPL.

(2)

General and administrative expenses within refinery operations include the LEH operating fee.

BLUE DOLPHIN ENERGY COMPANY		FORM 10-Q 3/31/19
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~ 20

~~(5)~~

~~NPS Assignment~~Notes to Consolidated Financial Statements

~~In June 2018, Blue Dolphin obtained 100%~~

	March 31,
	2020	2019
	(in thousands)
Capital expenditures
Refinery operations	$6	$40
Tolling and terminaling	192	83
Corporate and other	-	-
Total capital expenditures	198	123

Identifiable assets
Refinery operations	48,418	50,340
Tolling and terminaling	18,407	18,880
Corporate and other	1,584	2,429
Total identifiable assets	$68,409	$71,649

(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 both March 31, 2020 and December 31, 2019, we had cash balances (including restricted cash) that exceeded the FDIC insurance limit per depositor of approximately $0.3 million.

Key Supplier

Operation of the ~~issued~~Nixon refinery depends on our ability to purchase adequate amounts of crude oil and ~~outstanding membership interest~~condensate. We have a long-term crude supply agreement in place with Pilot. Under the initial term of ~~NPS,~~the crude supply agreement, Pilot will sell us approximately 24.8 million net bbls of crude oil. Thereafter, the crude supply agreement will continue on a ~~Delaware limited liability company, from Lazarus Midstream Partners, L.P. (“Lazarus Midstream”), an affiliate~~one-year evergreen basis. Pilot may terminate the crude supply agreement by providing the other party 60 days prior written notice. We may terminate the agreement upon the expiration of ~~LEH, pursuant to an Assignment Agreement. The transaction represents transfer of~~the initial term or at any time during a ~~vacant shell entity owned~~renewal term by ~~Lazarus Midstream to Blue Dolphin for the nominal fee of $10.00. The assignment of interest facilitates the Lazarus Parties~~ ~~exploring the possibility of obtaining the Settlement Financing under the Settlement Agreement.~~giving Pilot 60 days prior written notice.

Pilot also stores crude oil at the Nixon facility under a terminal services agreement. Under the terminal services agreement, Pilot stores crude oil at the Nixon facility at a specified rate per bbl of the storage tank’s shell capacity. Although the initial term of the terminal services agreement expired April 30, 2020, the agreement renewed on a one-year evergreen basis. Either party may terminate the terminal services agreement by providing the other party 60 days prior written notice. However, the terminal services agreement will automatically terminate upon expiration or termination of the crude supply agreement.

Our financial health could be materially and adversely affected by defaults in our secured loan agreements, margin deterioration and volatility, historic net losses and working capital deficits, as well as termination of the crude supply agreement or terminal services agreement with Pilot, which could impact our ability to acquire crude oil and condensate. In addition, a sustained period of low crude oil prices due to market volatility associated with the COVID-19 pandemic may also result in significant financial constraints on producers, which could result in long term crude oil supply constraints and increased transportation costs. A failure to acquire crude oil and condensate when needed will have a material effect on our business results and operations.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

Significant Customers

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

	Number Significant Customers	% Total Revenue from Operations	Portion of Accounts Receivable March 31

Three Months March 31, 2020	4	94%	$0.6 million

Three Months March 31, 2019	4	96%	$0.8 million

One of our significant customers is an Affiliate. The ~~assignment was~~Affiliate, LEH, purchases our jet fuel under a Jet Fuel Sales Agreement and bids on jet fuel contracts under preferential pricing terms due to a HUBZone certification. LEH accounted for ~~as a combination~~nearly 29% and 30% of entities under common control. Accordingly, the recognized assets and liabilities of NPS were transferred at their carrying amounts at the date of transfer and the results of operations are included for the three months ended March 31, 2019. NPS did not have significant assets, liabilities or results ofour total revenue from operations for the three months ended March 31, ~~2018. NPS holds a leasehold interest~~2020 and 2019, respectively. LEH represented $0 in ~~petroleum storage tanks~~accounts receivable at ~~the Nixon Facility. NPS’ revenues~~both March 31, 2020 and ~~expenses are included in our Tolling and Terminaling business segment.~~March 31, 2019.

Amounts outstanding relating to the Jet Fuel Sales Agreement can vary significantly period to period based on the timing of the related sales and payments received. The amounts are paid under normal business terms. The total amount owed to LEH under the June LEH Note and the BDPL Loan Agreement totaled $7.6 million and $6.2 million at March 31, 2020 and December 31, 2019, respectively. See “Note (3)” and “Note (16)” to our consolidated financial statements for additional disclosures related to transactions with Affiliates.

Concentration of Customers. Our operations have a concentration of customers who are refined petroleum product wholesalers. These concentrations of customers may impact our overall exposure to credit risk, either positively or negatively, in that these customers may be similarly affected by changes in economic or other conditions including the uncertainties concerning COVID-19 and volatility in the global oil markets. Historically, we have not had any significant problems collecting our accounts receivable.

~~(6)~~BLUE DOLPHIN ENERGY COMPANY

~~Prepaid Expenses and Other Current Assets~~

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

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 Mexico. Total refined product sales by distillation (from light to heavy) for the periods indicated consisted of the following:

	Year Ended March 31,
	2020		2019
	(in thousands, except percent amounts)

LPG mix	$-	0.0%	$8	0%
Naphtha	11,515	18.9%	13,795	20.3%
Jet fuel	17,715	29.1%	20,809	30.7%
HOBM	15,191	24.9%	16,160	23.8%
AGO	16,476	27.1%	17,086	25.2%
	$60,897	100.0%	$67,858	100.0%

An Affiliate, LEH, purchases our jet fuel. See “Note (3)” and “Note (16)” to our consolidated financial statements for additional disclosures related to Affiliate transactions.

(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,	March 31,	December 31,
	2019	2018	2020	2019
	(in thousands)		(in thousands)
Prepaid crude oil and condensate			$379	$1,651
Other prepaids			191	87
Prepaid easement renewal fees			115	121
Prepaid insurance			95	417
			$780	$2,276
Prepaid insurance	$791	$437
Other prepaids	85	183
Prepaid crude oil and condensate	-	1,166

	$876	$1,786

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

~~(7)~~

~~Inventory~~Notes to Consolidated Financial Statements

(7)

Inventory

Inventory as of the dates indicated consisted of the following:

	March 31,	December 31,
	2019	2018	March 31,	December 31,
	(in thousands)		2020	2019
			(in thousands)
Crude oil and condensate	$1,365	$861	$554	$959
Chemicals			157	120
AGO	206	276	56	440
Chemicals	107	106
Naphtha	138	143	29	95
Propane	20	17	15	26
LPG mix	7	5	2	5
HOBM	-	102
			$813	$1,645
	$1,843	$1,510

At March 31, 2020 and December 31, 2019, we recorded a write-down of inventory to its net realizable value of approximately $0.2 million and $0.1 million, respectively.

2025

BLUE DOLPHIN ENERGY COMPANY		FORM 10-Q 3/31/19
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~ 20

~~(8)~~

~~Property, Plant and Equipment, Net~~Notes to Consolidated Financial Statements

(8)

Property, Plant and Equipment, Net

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

	March 31,	December 31,
	2019	2018	March 31,	December 31,
	(in thousands)		2020	2019
			(in thousands)
Refinery and facilities	$66,308	$63,058	$66,317	$66,317
Land	566		566	566
Other property and equipment	747		833	833
	67,621	64,371	67,716	67,716

Less: Accumulated depletion, depreciation, and amortization	(10,993)	(10,429)
Less: Accumulated depletion, depreciation, and amortiation			(13,321)	(12,739)
	56,628	53,942	54,395	54,977

Construction in progress	7,628	10,755
CIP			9,114	8,916
			$63,509	$63,893
	$64,256	$64,697

Pursuant to a Sixth Amendment to the Notre Dame Debt, entered on November 14, 2017 and made effective September 18, 2017, the Notre Dame Debt was amended to increase the principal amount by $3.7 million (the “Additional Principal”). The Additional Principal was used to make payments to GEL to reduce the balance of the Final Arbitration Award in the amount of $3.6 million in accordance with the GEL Letter Agreement. Pursuant to a Subordination Agreement dated June 2015, the holder of the Notre Dame Debt agreed to subordinate its right to payments, as well as any security interest and liens on the Nixon Facility’s business assets, in favor of Veritex as holder of the First Term Loan Due 2034. To date, no payments have been made to Notre Dame Investors, Inc. under the Notre Dame Debt.

The Notre Dame Debt is secured by a Deed of Trust, Security Agreement and Financing Statements (the “Subordinated Deed of Trust”), which encumbers the crude distillation tower and general assets of LE. There are no financial maintenance covenants associated with the Notre Dame Debt.

~~Capital Leases. In January 2018, LE entered a 24-month capital lease for the purchase of a 20-ton crane for use at the Nixon Facility. The lease requires a negligible monthly payment and matures in January 2020.~~

BLUE DOLPHIN ENERGY COMPANY		FORM 10-Q 3/31/19
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~ 20

Notes to Consolidated Financial Statements

~~A summary of equipment held under~~Outstanding Principal, Debt Issue Costs, and Accrued Interest

Third-party long-term ~~capital leases~~debt (outstanding principal and accrued interest), as of the dates indicated was as follows:

March 31,

December 31,

2019

2018

(in thousands)

Crane
$94
$94
Less: accumulated depreciation
  (17)
  (14)




$77
$80

	March 31,	December 31,
	2020	2019
	(in thousands)
USDA-Guaranteed Loans
First Term Loan Due 2034 (in default)	$21,586	$21,776
Second Term Loan Due 2034 (in default)	8,953	9,031
Notre Dame Debt (in default)	8,816	8,617
	39,355	39,424

Less: Current portion of long-term debt, net	(33,580)	(33,836)
Less: Unamortized debt issue costs	(1,845)	(1,877)
Less: Accrued interest payable (in default)	(3,930)	(3,711)
	$-	$-

Unamortized debt issue costs associated with USDA-guaranteed loans as of the dates indicated consisted of the following:

	March 31,	December 31,
	2020	2019
	(in thousands)
USDA-Guaranteed Loans
First Term Loan Due 2034 (in default)	$1,674	$1,674
Second Term Loan Due 2034 (in default)	768	768

Less: Accumulated amortization	(597)	(565)
	$1,845	$1,877

Amortization expense was $0.03 million for both three-month periods ended March 31, 2020 and 2019.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

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,
	2020	2019
	(in thousands)
Notre Dame Debt (in default)	$3,838	$3,639
USDA-Guaranteed Loans
First Term Loan Due 2034 (in default)	41	25
Second Term Loan Due 2034 (in default)	51	47
	3,930	3,711
Less: Accrued interest payable (in default)	(3,930)	(3,711)
Long-term Interest Payable, Net of Current Portion	$-	$-

As a result of new ASU guidance related to leases, capital leases are now reported in “Note (13)” as finance leases. See “Note (1),” “Note (3),” and “Note (11”) to our consolidated financial statements for information related to third-party debt, related-party debt and debt obligations associated with Pilot.

(11)

Line of Credit Payable

Line of Credit Agreement

Line of Credit Description	Principal Amount (in millions)	Maturity Date	Monthly Principal and Interest Payment	Interest Rate	Loan Purpose

Amended Pilot Line of Credit (in default)	$13.0	May 2020	----	14.00%	GEL Settlement Payment, NPS purchase of crude oil from Pilot, and working capital

Under the Amended Pilot Line of Credit, NPS was required to make monthly interest only payments to Pilot in each of September and October 2019 in the amount of $0.1 million. The required payments were made.

On May 4, 2020, Pilot sent NPS, as borrower, and LRM, LEH, LE and Blue Dolphin, each a guarantor and collectively guarantors, a notice demanding the immediate payment of the unpaid principal amount and all interest accrued and unpaid, and all other amounts owing or payable under the Amended Pilot Line of Credit. Pursuant to the Amended Pilot Line of Credit, commencing on May 4, 2020, all amounts outstanding under the Amended Pilot Line of Credit began to accrue interest at a rate of fourteen percent (14%) per annum. Failure of the borrower or any guarantor of paying the past due obligations constituted an event of default. Pilot expressly retained and reserved all its rights and remedies available to it at any time, including without limitation, the right to exercise all rights and remedies available to Pilot under the Amended Pilot Line of Credit or applicable law or equity. Any exercise by Pilot of its rights and remedies under the Amended Pilot Line of Credit would 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.

The borrower and guarantors are attempting to reach a negotiated settlement with Pilot, and Pilot hopes to continue to work with the borrower to settle its obligations under the Amended Pilot Line of Credit. Additionally, the borrower and guarantors are working with a lender on the possible refinance of amounts owing and payable under the Amended Pilot Line of Credit. Our ability to repay, refinance, replace or otherwise extend this credit facility is dependent on, among other things, business conditions, our financial performance and the general condition of the financial markets. Given the current financial markets, we could be forced to undertake alternate financings, including a sale of additional common stock, negotiate for an extension of the maturity, or sell assets and delay capital expenditures in order to generate proceeds that could be used to repay such indebtedness. We can provide no assurance that we will be able to consummate any such transaction on terms that are commercially reasonable, on terms acceptable to us or at all. In the event we were unsuccessful in such endeavors, we may be unable to pay the amounts outstanding under the Amended Pilot Line of Credit, which may require us to seek protection under bankruptcy laws. 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

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

Guarantees and Security

~~(12)~~ Loan Description	~~Asset Retirement Obligations~~ Guarantees	Security
Amended Pilot Line of Credit (in default)	● Blue Dolphin pledged its equity interests in NPS to Pilot to secure NPS’ obligations; ● Blue Dolphin, LE, LRM, and LEH have each guaranteed NPS’ obligations.	● NPS receivables; ● NPS assets, including a tank lease (the “Tank Lease”); ● LRM receivables.

Representations, Warranties, and Covenants

The Amended Pilot Line of Credit contains customary affirmative and negative covenants and events of default. In a April 30, 2019, Agreement Regarding Attornment of Tank Leases between Veritex, LE, NPS, and Pilot, Veritex in its capacity as a secured lender of LE and LRM, agreed to permit the continued performance of obligations under a certain tank lease agreement if it were to foreclose on LE property that NPS was leasing from LE so long as certain conditions were met. The effectiveness of the Agreement Regarding Attornment of Tank Leases was subject to certain conditions, including the agreement and concurrence of the USDA.

Line of credit payable, which represents outstanding principal and accrued interest, as of the dates indicated was as follows:

	March 31,	December 31,
	2020	2019
	(in thousands)

Amended Pilot Line of Credit (in default)	$11,378	$11,786

Less: Unamortized debt issue costs	(32)	(219)
Less: Interest payable, short-term	(103)	(103)
	$11,243	$11,464

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

(12)

AROs

Refinery and Facilities.

Management has concluded that there is no legal or contractual obligation to dismantle or remove the refinery and facilities assets. Management believes that the refinery and facilities assets have indeterminate lives under FASB ASC guidance for estimating AROs because dates or ranges of dates upon which we would retire these assets cannot reasonably be estimated at this time. When a legal or contractual obligation to dismantle or remove the refinery and facilities assets arises and a date or range of dates can reasonably be estimated for the retirement of these assets, we will estimate the cost of performing the retirement activities and record a liability for the fair value of that cost using present value techniques.

Pipelines and Facilities and Oil and Gas Properties.

We have AROs associated with the dismantlement and abandonment in place of our pipelines and facilities assets, as well as the plugging and abandonment of our oil and gas properties. We recorded a discounted liability for the fair value of an ARO with a corresponding increase to the carrying value of the related long-lived asset at the time the asset was installed or placed in service, and we depreciated the amount added to property and equipment and recognized accretion expense relating to the discounted liability over the remaining life of the asset. At March 31, 2020 and December 31, ~~2018,~~2019, the liability was fully accreted. See “Note (16)” to our consolidated financial statements for disclosures related to decommissioning of our offshore pipelines and platform assets and related risks.

Due to the length of inactivity of our pipelines and facilities assets, BDPL is required by the Bureau of Ocean Energy Management (“BOEM”) to abandon-in-place certain pipelines and remove an anchor platform in federal waters. BDPL has been in communications with BOEM and the Bureau of Safety and Environmental Enforcement (“BSEE”) related to abandonment operations and associated pipeline financial assurance requirements. Management anticipates performing abandonment operations during 2019, however, timing depends several factors, including resource availability and weather. AsARO liability as of the ~~date of this Quarterly Report, decommissioning work has not yet commenced.~~dates indicated was as follows:

~~Plugging and abandonment costs are recorded during the period incurred or as information becomes available to substantiate actual and/or probable costs.~~

	March 31,	December 31,
	2020	2019
	(in thousands)

AROs, at the beginning of the period	$2,565	$2,565
Libilities settled	(15)	-
	2,550	2,565
Less: AROs, current portion	(2,550)	(2,565)
Long-term AROs, at the end of the period	$-	$-

2932

BLUE DOLPHIN ENERGY COMPANY		FORM 10-Q 3/31/19
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~ 20

~~Changes to our ARO liability for the periods indicated were as follows:~~

March 31,

December 31,

2019

2018

(in thousands)

Asset retirement obligations, at the beginning of the period
$2,580
$2,315
Accretion expense
  -
  265

  2,580
  2,580
Less: asset retirement obligations, current portion
  (2,580)
  (2,580)



Long-term asset retirement obligations, at the end of the period
$-
$-

~~(13)~~

~~Concentration of Risk~~

~~Bank Accounts~~. Financial instruments that potentially subject us to concentrations of risk consist primarily of cash, trade receivables and payables. We maintain our cash balances at financial institutions located in Houston, Texas. In the U.S., the Federal Deposit Insurance Corporation (the “FDIC”) insures certain financial products up to a maximum of $250,000 per depositor. At March 31, 2019 and December 31, 2018, we had cash balances (including restricted cash) of more than the FDIC insurance limit per depositor in the amount of $1.2 million.

~~Key Supplier~~.

Operation of the Nixon refinery depends on our ability to purchase adequate amounts of crude oil and condensate, which is primarily dependent on our liquidity and access to capital. We currently have in place a month-to-month evergreen crude supply contract with a major integrated oil and gas company. This supplier currently provides us with adequate amounts of crude oil and condensate on favorable terms, and we expect the supplier to continue to do so for the foreseeable future. Our ability to purchase adequate amounts of crude oil and condensate could be adversely affected if the Settlement Agreement is terminated and GEL seeks to confirm and enforce the Final Arbitration Award, as well as other factors, including as ~~net losses, working capital deficits, and financial covenant defaults in secured loan agreements.~~

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

For the three months ended March 31, 2019, we had 4 customers that accounted for approximately 97% of our refined petroleum product sales. LEH was 1 of these 4 significant customers and accounted for approximately 31% of our refined petroleum product sales. At March 31, 2019, these 4 customers represented approximately $0.8 million in accounts receivable. LEH represented approximately $0 in accounts receivable. LEH purchases our jet fuel and resells the jet fuel to a government agency. LEH bids for jet fuel contracts are evaluated under preferential pricing terms due to its HUBZone certification. (See “Note (9) Related-Party Transactions,” “Note (11) Long-Term Debt, Net,” and “Note (17) Commitments and Contingencies – Financing Agreements” for additional disclosures related to LEH.)

For the three months ended March 31, 2018, we had 3 customers that accounted for approximately 77% of our refined petroleum product sales. LEH was 1 of these 3 significant customers and accounted for approximately 29% of our refined petroleum product sales. At March 31, 2018, these 3 customers represented approximately $0.3 million in accounts receivable. LEH represented approximately $0.3 million in accounts receivable.

~~BLUE DOLPHIN ENERGY COMPANY~~		~~FORM 10-Q 3/31/19~~
Notes to Consolidated Financial Statements~~(Continued)~~

(13)

Lease Obligations

Operating Lease

~~Refined Petroleum Product Sales~~Office Lease. Our refined petroleum products are primarily sold in the U.S. However, with the opening of the Mexican diesel market to private companies, we occasionally sell low-sulfur diesel to customers that export to Mexico. Total refined petroleum product sales by distillation (from light to heavy) for the periods indicated consisted of the following:

Three Months Ended March 31,

2019

2018

LPG mix
$8
  0.0%
$3
  0.0%
Naphtha
  13,795
  20.3%
  16,318
  22.8%
Jet fuel
  20,809
  30.7%
  20,567
  28.8%
HOBM
  16,160
  23.8%
  16,429
  23.0%
AGO
  17,086
  25.2%
  18,195
  25.4%






$67,858
  100.0%
$71,512
  100.0%

~~(14)~~

~~Leases~~

We adopted the new lease accounting guidance using the modified retrospective method and applied it to all leases based on the contract terms in effect as of January 1, 2019. For existing contracts, we carried forward our historical assessment of: (i) whether contracts are or contain leases, (ii) lease classification, and (iii) initial direct costs.

~~As of March 31, 2019,~~ BDSC ~~had a single operating~~has an office lease related to our ~~principal~~headquarters office ~~space~~ in Houston, Texas. The 68-month operating lease expires in 2023. ~~We have~~BDSC has the option to extend the lease term for one additional five (5) year period if notice of intent to extend is provided to the lessor at least twelve (12) months before the end of the current term. An Affiliate, LEH, subleases a portion of ~~our leased~~this office ~~space (see “Note (9) Related-Party Transactions” related to the LEH office sub-lease agreement).~~space. Sublease income received from LEH totaled approximately $0.01 million for both ~~three-month periods~~the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. See “Note (3)” to our consolidated financial statements for additional disclosures related to the Affiliate sub-lease.

~~We recorded~~Finance Lease

Crane. In January 2018, LE entered a 24-month lease for the ~~related right-of-use asset~~purchase of a 20-ton crane for use at the Nixon facility. The lease required a negligible monthly payment and ~~lease liability as~~matured in January 2020.

Backhoe Rent-to-Own Agreement. In May 2019, LE entered into a 12-month equipment rental agreement with the ~~present value of~~option to purchase the ~~fixed lease payments over~~backhoe at maturity. The backhoe is being used at the ~~lease term. Since the operating lease does not provide a readily-determinable discount rate, we use our incremental borrowing rate to discount lease payments to present value.~~ Nixon facility.

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

	~~Classification on~~	~~Three Months Ended~~
~~Operating Lease~~	~~Consolidated Balance Sheet~~	~~March 31, 2019~~
		~~(in thousands)~~
~~Assets~~
~~Right-of-use assets~~	~~Operating lease right-of-use assets~~	$~~754~~
~~Total lease assets~~		~~754~~

~~Liabilities~~
~~Current~~	~~Current portion of long-term operating leases~~	~~164~~
~~Noncurrent~~	~~Long-term operating leases, net of current portion~~	~~698~~
~~Total lease liabilities~~		$~~862~~

		March 31,	December 31,
	Balance Sheet Location	2020	2019
		(in thousands)
Assets
Operating lease ROU assets	Operating lease ROU assets	$787	$787
Less: Accumulated amortization on operating lease assets	Operating lease ROU assets	(174)	(138)
		613	649

Finance lease assets	Property and equipment, net	180	180
Less: Accumulated amortization on finance lease assets	Property and equipment, net	(40)	(34)
		140	146

Total lease assets		753	795

Liabilities
Current
Operating lease	Current portion of lease liabilities	180	175
Finance leases	Current portion of lease liabilities	70	76
		250	251
Noncurrent
Operating lease	Long-term lease liabilities, net of current	518	564
Total lease liabilities		$768	$815

~~Operating Lease~~

~~Weighted average remaining lease term in years~~	~~4.42~~
~~Weighted average discount rate~~	~~8.25~~%

3133

BLUE DOLPHIN ENERGY COMPANY		FORM 10-Q 3/31/19
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~ 20

Notes to Consolidated Financial Statements

~~Lease~~

Weighted average remaining lease term in years
Operating lease	3.42
Finance leases	0.17
Weighted average discount rate
Operating lease	8.25%
Finance leases	8.25%

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

The following table presents information related to lease costs for operating ~~leases, which is recognized as part of depreciation~~ and amortization expense, totaled $0.05 million for the three months ended March 31, 2019. Cash paid for amounts included in the measurement of operating lease liabilities totaled $0.05 million for the three months ended March 31, 2019.finance leases:

	Three Months Ended
	March 31,
	2020	2019


Operating lease costs	$51	$51
Finance lease costs:
Depreciation of leased assets	6	4
Interest on lease liabilities	2	1
Total lease cost	$59	$56

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

	Three Months Ended
	March 31,
	2020	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating lease	$88	$57
Operating cash flows for finance leases	$2	$1
Financing cash flows for finance leases	$6	$9

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

As of March 31, ~~2019,~~2020, maturities of ~~operating~~ lease liabilities for the periods indicated were as follows:

March 31,		Operating Lease	Financing Leases	Total
	Operating Leases	(in thousands)
	(in thousands)

2019	$171
2020	230	$180	$70	$250
2021	234	199	-	199
2022	237	220	-	220
2023	161	99	-	99

Total minimum rental payments	1,032
Less: imputed interest	(171)
	$862	$698	$70	$768

Future minimum annual lease commitments that are non-cancelable:

	Operating
March 31,	Lease
	(in thousands)
2020	$231
2021	234
2022	238
2023	101
	$804

~~(15)~~BLUE DOLPHIN ENERGY COMPANY

~~Income Taxes~~

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

(14)

Income Taxes

Tax Provision

The provision for income tax benefit (expense) for the periods indicated was as ~~of the dates indicated consisted of the following:~~follows:

	March 31,	December 31,
	2019	2018
	(in thousands)
			Year Ended March 31,
Current
Federal	$-	$108	$(15)	$-
State	-	43	-	-
Deferred
Impact of change in enacted tax rates	-
Federal			698	(157)
State			-
Change in valuation allowance	-	109	(698 )	157
Total provision for income taxes	$-	$260	$(15)	$-

The state of Texas, has a Texas margins tax (“TMT”), which is a form of business tax imposed on gross margin. Although TMT is imposed on an entity’s gross profit rather than on its net income, certain aspects of TMT make it like an income tax. Accordingly, TMT is treated as an income tax for financial reporting purposes.

~~Effective Tax Rate~~. Beginning in 2018, our effective tax rate differed from the U.S. federal statutory rate primarily due to AMT credits made refundable by the Tax Cuts and Jobs Act. At the date of enactment of the Tax Cuts and Jobs Act, we re-measured our deferred tax assets and liabilities using a rate of 21%, which is the rate expected to be in place when such deferred assets and liabilities are expected to reverse in the future. The re-measurement was offset by a change in our valuation allowance, resulting in there being no impact on our net deferred tax assets.

~~BLUE DOLPHIN ENERGY COMPANY~~		~~FORM 10-Q 3/31/19~~
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~

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

	March 31,	December 31,
	2019	2018	March 31,	December 31,
	(in thousands)		2020	2019
			(in thousands)
Deferred tax assets:
Net operating loss and capital loss carryforwards	$11,479	$11,260
Accrued arbitration award payable	2,586	2,850
NOL and capital loss carryforwards			$13,057	$12,463
Business interest expense	833	704	2,295	1,923
Start-up costs (crude oil and condensate processing facility)	657	678	573	594
Asset retirement obligations liability/deferred revenue	541	542
AMT credit and other	50	108
ARO liability/deferred revenue			535	539
AMT credit			-	50
Other			5	11
Total deferred tax assets	16,146	16,142	16,465	15,580

Deferred tax liabilities:
Basis differences in property and equipment	(5,409)	(5,153)	(6,422)	(6,183)
Total deferred tax liabilities	(5,409)	(5,153)	(6,422)	(6,183)
			10,043	9,397
	10,737	10,989

Valuation allowance	(10,687)	(10,881)	(10,043)	(9,347)

Deferred tax assets, net	$50	$108	$-	$50

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Notes to Consolidated Financial Statements

Deferred Income Taxes.

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis, as well as from NOL carryforwards. We state those balances at the enacted tax rates we expect will be in effect when taxes are paid. NOL carryforwards and deferred tax assets represent amounts available to reduce future taxable income.

NOL Carryforwards. Under IRC Section 382, a corporation that undergoes an “ownership change” is subject to limitations on its use of pre-change NOL carryforwards to offset future taxable income. Within the meaning of IRC Section 382, an “ownership change” occurs when the aggregate stock ownership of certain stockholders (generally 5% shareholders, applying certain look-through rules) increases by more than fifty (50) percentage points over such stockholders' lowest percentage ownership during the testing period (generally three years). For income tax purposes, we experienced ownership changes in 2005, relating to a series of private placements, and in 2012, because of a reverse acquisition, that limit the use of pre-change NOL carryforwards to offset future taxable income. In general, the annual use limitation equals the aggregate value of common stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. The 2012 ownership change will subject approximately $16.3 million in NOL carryforwards that were generated prior to the ownership change to an annual use limitation of approximately $0.6 million per year. Unused portions of the annual use limitation amount may be used in subsequent years. Because of the annual use limitation, approximately $6.7 million in NOL carryforwards that were generated prior to the 2012 ownership change will expire unused. NOL carryforwards that were generated after the 2012 ownership change and prior to 2018 are not subject to an annual use limitation under IRC Section 382 and may be used for a period of 20 years in addition to available amounts of NOL carryforwards generated prior to the ownership change. ~~NOL carryforwards that were generated after 2017 may only be used to offset 80% of taxable income and are carried forward indefinitely.~~

~~BLUE DOLPHIN ENERGY COMPANY~~		~~FORM 10-Q 3/31/19~~
~~Notes to Consolidated Financial Statements~~ ~~(Continued)~~

NOL Carryforwards. 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			Net Operating Loss Carryforward
	Pre-Ownership Change	Post-Ownership Change	Total	Pre-Ownership Change	Post-Ownership Change	Total
	(in thousands)			(in thousands)

Balance at December 31, 2017	$9,614	$30,219	$39,833

Net operating losses	-	7,106

Balance at December 31, 2018	$9,614	$37,325	$46,939	9,614	37,335	46,949

Net operating losses	-	1,036		-	5,723	5,723

Balance at March 31, 2019	$9,614	$38,361	$47,975
Balance at December 31, 2019				$9,614	$43,058	$52,672

Net operating losses				-	2,829	2,829

Balance at March 31, 2020				$9,614	$45,887	$55,501

~~Line~~We are currently unable to predict the outcome of ~~Credit Agreement~~the BOEM INCs. Accordingly, we have not recorded a liability on our consolidated balance sheet as of March 31, 2020. At March 31, 2020 and December 31, 2019, BDPL maintained approximately $0.9 million in credit and cash-backed pipeline rights-of-way bonds issued to BOEM.

~~On May 3, 2019, NPS~~Other Legal Matters. We are involved in lawsuits, claims, and Pilot Travel Centers LLC (“Pilot”) entered into a Line of Credit, Guarantee and Security Agreement (the “Line of Credit”), whereby Pilot agreed to extend a line of credit to NPS in an aggregate principal amount of up to $12.8 million. The Line of Credit will primarily be used to finance NPS' purchase of crude oil from Pilot pursuant to certain purchase and supply agreements (the "Pilot Supply Agreements") and to provide working capital. The Line of Credit is secured by (i) NPS receivables, (ii) NPS assets, including a tank lease (the “Tank Lease”), and (iii) LRM receivables. On May 3, 2019, as an inducement to Pilot’s entry into the Line of Credit, Blue Dolphin and Pilot entered into a Pledge Agreement (the “Pledge Agreement”) whereby Blue Dolphin pledged its equity interests in NPS to Pilot to secure NPS’ obligations under the Line of Credit.

On May 10, 2019, LE, NPS, Pilot and Veritex entered into a Subordination and Attornment Agreement (the “Subordination Agreement”), providing that, if Veritex in its capacity as a secured lender of LE and LRM were to foreclose on LE property that NPS was leasing from LE pursuantproceedings incidental to the ~~Tank Lease, Veritex would permit the continued performance~~conduct of ~~obligations under the Tank Lease so long as certain conditions are met. The effectiveness of the Subordination Agreement~~our business, including mechanic’s liens, contract-related disputes, and administrative proceedings. Management is ~~subject to certain conditions, including the agreement~~in discussion with all concerned parties and ~~concurrence of the USDA.~~

~~Veritex Consent~~

In a notice to obligors dated April 30, 2019 (the "Veritex Consent'), Veritex agreed, subject to the agreement and concurrence of the USDA and the replenishment of a payment reserve account required by the loan agreements on or before August 31, 2019, to waive certain covenant defaults and forbear from enforcing its remedies under the secured loan agreements. Any exercise by Veritex of its rights and remedies underdoes not believe that such ~~secured loan agreements would~~matters will have a material adverse effect on our financial position, earnings, or cash flows. However, there can be no assurance that such discussions will result in a manageable outcome. If Veritex and/or Pilot exercise their rights and remedies due to defaults under our secured loan agreements, our business, financial condition, and results of operations and would likely require Blue Dolphin to seek protection under bankruptcy laws. See “Note (1) Organization – Going Concern” and “–Operating Risks” and “Note (11) Long-Term Debt, Net” for additional disclosures related to the First Term Loan Due 2034 and Second Term Loan Due 2034 and financial covenant violations.will be materially adversely affected.

~~Fifth Amendment to Settlement Agreement~~

As previously reported, pursuant to the Settlement Agreement, GEL and the Lazarus Parties agreed to mutually release all claims against each other and to file a stipulation of dismissal with prejudice in connection with the Final Arbitration Award, subject to the terms and conditions set forth in the Settlement Agreement, including payment by the Lazarus Parties to GEL of the Settlement Payment. On May 6, 2019, the Lazarus Parties and GEL entered into a Fifth Amendment to the Settlement Agreement (the “Fifth Amendment”). The Fifth Amendment provides for, among other things, GEL’s consent to the Lazarus Parties entering into the Line of Credit and an extension to October 31, 2019 of the date on which the Settlement Agreement will terminate if the Settlement Payment and a $0.5 million deferred interim installment payment (the "Deferred Interim Installment Payment") are not made on or before such date. As of the filing date of this Quarterly Report, the Lazarus Parties had paid GEL the Settlement Payment. The Deferred Interim Installment Payment must therefore be paid no later than October 31, 2019. Under the Fifth Amendment, GEL has the right to terminate the Settlement Agreement earlier following the occurence of an event of default. See “Note (1) Organization–Going Concern–Final Arbitration Award and Settlement Agreement” for further information regarding the Settlement Agreement.

The foregoing description of the Line of Credit, the Pilot Supply Agreements, the Pledge Agreement, the Subordination Agreement, the Veritex Consent and the Fifth Amendment does not purport to be complete. As promptly as reasonably practicable after the filing of this Quarterly Report, Blue Dolphin intends to file a Current Report on Form 8-K providing additional information regarding the material terms of these documents, and the foregoing description is qualified in its entirety by reference to that Current Report on Form 8-K.

3640

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

Notes to Consolidated Financial Statements

Nixon Facility Expansion

We have made and will continue to make capital and efficiency improvements at the Nixon facility. Therefore, we incurred and will continue to incur capital expenditures related to these improvements, which include, among other things, facility and land improvements, installation of new and/or refurbished refinery process equipment, and completion of a petroleum storage tank.

BSEE Offshore Pipelines and Platform Decommissioning

BDPL has pipelines and platform assets that are subject to BSEE’s idle iron regulations. Idle iron regulations mandate 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.

In December 2018, BSEE issued an INC to BDPL for failure to flush and fill Pipeline Segment No. 13101. Management met with BOEM and BSEE on August 15, 2019 to address BDPL’s plans with respect to decommissioning its offshore pipelines and platform assets. BSEE proposed that BDPL re-submit permit applications for pipeline and platform decommissioning, along with a safe boarding plan for the platform, within six (6) months (no later than February 15, 2020), and develop and implement a safe boarding plan for submission with such permit applications. Further, BSEE proposed that BDPL complete approved, permitted work within 12 months (no later than August 15, 2020). BDPL timely submitted permit applications for decommissioning of the subject offshore pipelines and platform assets to BSEE on February 11, 2020 and the USACOE on March 25, 2020. In April 2020, BSEE issued an INC to BDPL for failure to perform the required structural surveys for the GA-288C Platform. BDPL requested an extension to the INC related to the structural platform surveys, and BSEE approved BDPL’s extension request. Completion of the platform surveys are required by May 30, 2020 with associated reports due to BSEE by June 8, 2020. BDPL expects to complete approved, permitted decommissioning work by the BSEE August 2020 deadline.

BSEE’s deadline to complete decommissioning of BDPL’s offshore pipelines and platform assets, as well as to complete the structural platform surveys, does not relieve BDPL of its obligations to remedy the BSEE INCs or of BSEE’s authority to impose financial penalties. There can be no assurance that we will be able to meet BSEE’s time tables. If BDPL fails to complete decommissioning of the offshore pipelines and platform assets and/or structural surveys of the platform are not completed by the allowable time frames, BDPL will be subject to vigorous regulatory oversight and enforcement, including but not limited to failure to correct an INC, civil penalties, and revocation of BDPL’s operator designation, which may have a material adverse effect on our earnings, cash flows and liquidity.

We are currently unable to predict the outcome of the BSEE INCs. Accordingly, we have not recorded a liability on our consolidated balance sheet as of March 31, 2020. As of March 31, 2020, we maintained $2.6 million in AROs related to abandonment of these assets.

(17)

Subsequent Events

Sales of Unregistered Securities

Set forth below is information regarding the sale or issuance of shares of Common Stock by us that were not registered under the Securities Act of 1933 and subsequent to the three months ended March 31, 2020:

On April 30, 2020, we also issued an aggregate of 135,084 restricted shares of Common Stock to certain of our non-employee, independent directors, which represents payment for services rendered to the Board for the three month periods ended September 30, 2018, March 31, 2019, September 30, 2019, and March 31, 2020. The average cost basis was $0.97, the low was $0.57, and the high was $1.18.

The sale and issuance of the securities were exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act.

Amended and Restated Operating Agreement

The Amended and Restated Operating Agreement was set to expire on April 1, 2020. However, the Amended and Restated Operating Agreement was renewed and approved by the Board on May 14, 2020 with an effective date of April 1, 2020. Key terms of the Amended and Restated Operating Agreement follow:

Term. The term begins on the effective date and expires upon the earliest to occur of the following: (a) upon the third anniversary of the effective date, which termination date shall be April 1, 2023, (b) upon written notice of either party upon the material breach of the agreement by the other party, or (c) upon 90 days’ notice by the Board if the Board determines that the Amended and Restated Operating Agreement is not in the best interest of Blue Dolphin, LE, LRM, NPS, BDPL, BDPC and/or BDSC.

Compensation. For services rendered: (a) Blue Dolphin, LE, LRM, NPS, BDPL, BDPC and BDSC shall reimburse LEH at cost for all direct expenses, either paid directly by LEH or financed with LEH’s credit card. Amounts payable to LEH shall be invoiced by LEH weekly, but may be reimbursed sooner and (b) Blue Dolphin shall also pay to LEH a management fee equal to 5% of all consolidated operating costs, excluding crude costs, depreciation, amortization and interest.

The foregoing summarizes the material terms of the Amended and Restated Operating Agreement. This summary does not purport to be complete and is qualified in its entirety by reference to the full text of the agreement, which is filed as Exhibit 10.1 to this report.

Together, Jonathan Carroll and LEH own approximately 82% of Blue Dolphin’s Common Stock.

See “Note (3)” of our consolidated financial statements and “Part II, Item 5. Other Information” for additional disclosures related to Affiliate transactions, including the Amended and Restated Operating Agreement.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Management’s Discussion and Analysis

ITEM 2.

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

InManagement’s Discussion and Analysis is our analysis of our financial performance, financial condition, and significant trends that may affect future performance. All statements in this ~~Quarterly Report on Form 10-Q~~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 ~~quarterly period ended March 31, 2019 (the Quarterly Report”), references~~factors that could cause actual results to ~~“Blue Dolphin,” “we,” “us” and “our” are to Blue Dolphin Energy Company and its subsidiaries, unless otherwise indicated or the context otherwise requires.~~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 Quarterly 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, ~~2018 (the “Annual Report”).~~2019.

~~Forward Looking Statements~~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 approximately 1.2 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). Active 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). See “Note (4)” to our consolidated financial statements for more information related to our business segments and properties. Blue Dolphin was formed in 1986 as a Delaware corporation and is traded on the OTCQX under the ticker symbol “BDCO”.

~~Certain~~Affiliates

Affiliates control approximately 82% of the voting power of our Common Stock. An Affiliate operates and manages all Blue Dolphin properties and funds working capital requirements during periods of working capital deficits, and an Affiliate 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 ~~included~~for additional disclosures related to Affiliate agreements and arrangements and risks associated with working capital deficits.

Business Operations Update

The recent outbreak of COVID-19 and its development into a pandemic in ~~this Quarterly Report,~~March 2020 has resulted in significant economic disruption globally, including in ~~this “Management’s Discussion~~the United States. Governmental authorities around the world have taken actions, such as stay-at-home orders and ~~Analysis~~other social distancing measures, to prevent the spread of ~~Financial Condition~~COVID-19 that has restricted travel, public gatherings, and ~~Results~~the overall level of ~~Operations” are forward-looking statements within~~individual movement and in-person interaction across the ~~meaning~~globe. This has, in turn, significantly reduced global economic activity and negatively impacted many businesses. Airlines have dramatically reduced flights and motor vehicle usage has significantly declined at a time when seasonal driving patterns typically result in an increase of consumer demand for certain refined petroleum products.

As a result of the ~~Private Securities Litigation Reform Act of 1935. Forward-looking statements represent management’s beliefs~~COVID-19 pandemic, there has also been a decline in the demand for, and ~~assumptions based on currently available information. Forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our~~thus also the market ~~position, future operations, margins, profitability, capital expenditures, liquidity and capital resources, access to supplies~~prices of, crude oil, and ~~condensate, commitments~~most of our refined products. In addition, global crude oil production levels have not declined despite lower demand and ~~contingencies,~~storage capacity constraints for crude oil and ~~other financial~~refined products, which has intensified the decline in crude oil prices and has contributed to an increase in crude oil price volatility. The decrease in demand for refined petroleum products coupled with the decline in the price of crude oil has resulted in a significant decrease in the price of refined petroleum products. The purchase price of crude oil and the selling price of refined products impact our revenue, cost of goods sold, operating ~~information. We have used~~income, and liquidity. In addition, declines in the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “will,” “future,”market prices of crude oil and ~~similar terms~~refined products below their inventory carrying values results in a write down in the value of our inventories and ~~phrases~~an adjustment to ~~identify forward-looking statements.~~cost of goods sold.

Forward-looking statements reflect our current expectations regarding future events, results, or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that proveMany uncertainties remain with respect to ~~be incorrect. In addition,~~COVID-19, including its resulting economic effects, and we are unable to predict the ultimate economic impacts from COVID-19 on our business and ~~operations involve numerous risks~~how quickly national economies can recover once the pandemic subsides. However, the adverse impact of the economic effects on us have been and ~~uncertainties,~~will likely continue to be significant. We believe we have proactively addressed many of ~~which are beyond our control, which could result in our expectations not being realized,~~the known impacts of COVID-19 to the extent possible and we will strive to continue to do so, but there can be no assurance that these or materially affect our financial condition, results of operations and cash flows. Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all these factors, they include, among others, the following and other ~~factors described under the heading “Risk Factors” in the Annual Report and this Quarterly Report:~~measures will be fully effective.

~~Risks Related~~Going Concern

Management has determined that certain factors raise substantial doubt about our ability to ~~Our Business and Industry~~continue as a going concern. These factors include the following:

●

Failure to meet the terms and conditions set forth in the Settlement Agreement, including but not limited to securing the Settlement Financing, could have a material adverse effect on our business, financial condition, and results of operations and could materially adversely affect the value of an investment in our common stock. (See “Part I, Item 1. Financial Statements – Note (1) Organization – Going Concern – Final Arbitration Award and Settlement Agreement” for disclosures related to the Settlement Agreement).

●

~~Inadequate liquidity to sustain operations due to the unfavorable outcome in the arbitration of the contract-related dispute~~Defaults Under Secured Loan Agreements with ~~GEL, net losses, working capital deficits, and other factors, including defaults under secured loan agreements, any of which could have a material adverse effect on us.~~

●

Third Parties. Defaults under our secured loan agreements ~~could have a material adverse effect on our business, financial condition, and results of operations and materially adversely affect the value of an investment in our common stock.~~

●

~~Our substantial debt~~with third parties include loans with Veritex in the ~~current portion~~original aggregate principal amount of ~~long-term debt,~~$35.0 million, which ~~is currently in default, could adversely affect our financial health~~are guaranteed 100% by the USDA, and ~~make us more vulnerable to adverse economic conditions.~~

●

~~Our business, financial condition and operating results may be adversely affected by increased costs~~a line of ~~capital or a reduction~~credit agreement with Pilot in the ~~availability~~principal amount of ~~credit.~~

●

~~LEH holds a significant interest in us, and related-party transactions with LEH and its affiliates may cause conflicts of interest that may adversely affect us.~~

●

~~The dangers inherent in oil and gas operations could expose us to potentially significant losses, costs or liabilities and reduce our liquidity.~~

●

~~The geographic concentration~~$13.0 million. Certain of our ~~assets creates a significant exposure~~related-party debt is also in default. See “Note (3)” of our consolidated financial statements for disclosures related to ~~the risks of the regional economy and other regional adverse conditions.~~

related-party debt.

●

~~Competition from companies having greater financial and other resources could materially and adversely affect our business and results of operations.~~

3742

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

Management’s Discussion and Analysis

●Veritex Loan Agreements

~~Environmental laws~~In September 2017, LE, Jonathan Carroll, Blue Dolphin, LRM, and ~~regulations could require us~~LE received notification from Veritex regarding events of default under our secured loan agreements, including, but not limited to, ~~make substantial capital expenditures~~the occurrence of the GEL Final Arbitration Award, associated material adverse effect conditions, failure by LE to ~~remain~~replenish a $1.0 million payment reserve account, and the occurrence of events of default under our other secured loan agreements with Veritex. Further, Veritex informed obligors that it would consider a final confirmation of the GEL Final Arbitration Award to be a material event of default under the loan agreements. Veritex did not accelerate or call due our secured loan agreements considering then ongoing settlement discussions between GEL and the Lazarus Parties. Instead, Veritex expressly reserved all its rights, privileges and remedies related to events of default.

In April 2019, LE, Jonathan Carroll, Blue Dolphin, LRM, and LE received notification from Veritex that the bank agreed to waive certain covenant defaults and forbear from enforcing its remedies under our secured loan agreements subject to: (i) the agreement and concurrence of the USDA and (ii) the replenishment of the payment reserve account on or before August 31, 2019. Following the GEL Settlement, the associated mutual releases became effective and GEL filed a stipulation of dismissal of claims against LE. As of the date of this report, LE had not replenished the payment reserve account and obligors were still in ~~compliance or~~default under our other secured loan agreements with Veritex.

At March 31, 2020, LE and LRM were in violation of the debt service coverage ratio, current ratio, and debt to ~~remediate~~net worth ratio financial covenants under our secured loan agreements with Veritex. As a result, the debt associated with these loans was classified within the current ~~or future contamination that could give rise to material liabilities.~~

portion of long-term debt on our consolidated balance sheets at March 31, 2020 and December 31, 2019. We were current on required monthly payments under our secured loan agreements with Veritex as of the filing date of this report.

●

We ~~are subject~~can provide no assurance that: (i) our assets or cash flow will be sufficient to ~~strict laws~~fully repay borrowings under our secured loan agreements with Veritex, either upon maturity or if accelerated, (ii) LE and ~~regulations regarding personnel~~LRM will be able to refinance or restructure the payments of the debt, and/or (iii) Veritex, as first lien holder, will provide future default waivers. Defaults under our secured loan agreements with Veritex permit Veritex to declare the amounts owed under these loan agreements immediately due and ~~process safety,~~payable, exercise its rights with respect to collateral securing obligors’ obligations under these loan agreements, and/or exercise any other rights and ~~failure to comply with these laws~~remedies available. Any exercise by Veritex of its rights and ~~regulations could~~remedies under our secured loan agreements would 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, financial condition~~operations. Further, the trading price of our common stock and ~~profitability.~~

●

~~Our insurance policies may be inadequate or expensive.~~

●

~~Our ability~~the value of an investment in our common stock could significantly decrease, which could lead to ~~use net operating loss (“NOL”) carryforwards to offset future taxable income for U.S. federal income tax purposes is subject to limitation.~~

●

~~Terrorist attacks, cyber-attacks, threats~~holders of ~~war, or actual war may negatively affect~~ our ~~operations, financial condition, results of operations, and cash flows.~~

common stock losing their investment in our common stock in its entirety.

~~Risks Related~~Amended Pilot Line of Credit

●

~~Management has determined that there is,~~the Amended Pilot Line of Credit, commencing on May 4, 2020, all amounts outstanding under the Amended Pilot Line of Credit began to accrue interest at a rate of fourteen percent (14%) per annum. Failure of the borrower or any guarantor of paying the past due obligations constituted an event of default. Pilot expressly retained and reserved all its rights and remedies available to it at any time, including without limitation, the ~~report~~right to exercise all rights and remedies available to Pilot under the Amended Pilot Line of ~~our independent registered public accounting firm expresses, substantial doubt about our ability to continue as a going concern.~~

●

~~Refining margins are volatile,~~Credit or applicable law or equity. Any exercise by Pilot of its rights and ~~a reduction in refining margins will adversely affect~~remedies under the ~~amount~~Amended Pilot Line of ~~cash we will have available for working capital.~~

●

~~The price volatility of crude oil, other feedstocks, refined petroleum products, and fuel and utility services may~~Credit would have a material adverse effect on our ~~earnings, cash flows and liquidity.~~

●

~~Our future success depends on our ability to acquire sufficient levels of crude oil on favorable terms to operate the Nixon refinery.~~

●

~~Downtime at the Nixon refinery could result in lost margin opportunity, increased maintenance expense, increased inventory, and a reduction in cash available for payment of our obligations.~~

●

We may have capital needs for which our internally generated cash flows and other sources of liquidity may not be adequate. Further, LEH and its affiliates (including Jonathan Carroll) may, but are not required to, fund our working capital requirements in the event our internally generated cash flows and other sources of liquidity are inadequate.

●

~~Our~~ business may suffer if any of the executive officers or other key personnel discontinue employment with us. Furthermore, a shortage of skilled labor or disruptions in our labor force may make it difficult for us to maintain productivity.

●

~~Loss of market share by a key customer, one of which is LEH, or consolidation among our customer base could harm our operating results.~~

●

The sale of refined petroleum products to the wholesale market is our primary business, and if we fail to maintain and grow the market share of our refined petroleum products, our operating results could suffer.

●

~~We are dependent on third parties for the transportation of~~operations, including crude oil and condensate ~~into~~procurement and ~~refined petroleum products out~~our customer relationships; financial condition; and results of operations.

The borrower and guarantors are attempting to reach a negotiated settlement with Pilot, and Pilot hopes to continue to work with the borrower to settle its obligations under the Amended Pilot Line of Credit. Additionally, the borrower and guarantors are working with a lender on the possible refinance of amounts owing and payable under the Amended Pilot Line of Credit. Our ability to repay, refinance, replace or otherwise extend this credit facility is dependent on, among other things, business conditions, our financial performance and the general condition of the financial markets. Given the current financial markets, we could be forced to undertake alternate financings, including a sale of additional common stock, negotiate for an extension of the maturity, or sell assets and delay capital expenditures in order to generate proceeds that could be used to repay such indebtedness. We can provide no assurance that we will be able to consummate any such transaction on terms that are commercially reasonable, on terms acceptable to us or at all. In the event we were unsuccessful in such endeavors, we may be unable to pay the amounts outstanding under the Amended Pilot Line of Credit, which may require us to seek protection under bankruptcy laws. In such a case, the trading price of our ~~Nixon Facility,~~common stock and ~~if these third parties become unavailable~~the value of an investment in our common stock could significantly decrease, which could lead to ~~us, our ability to process crude oil and condensate and sell refined petroleum products to wholesale markets could be materially and adversely affected.~~

●

~~Our suppliers source a substantial amount, if not all,~~holders of our ~~crude oil and condensate from the Eagle Ford Shale and may experience interruptions of supply from that region.~~

●

~~Our refining operations and customers are primarily located within the Eagle Ford Shale and changes~~common stock losing their investment in ~~the supply/demand balance~~our common stock in ~~this region could result in lower refining margins.~~

●

~~Regulation of GHG emissions could increase our operational costs and reduce demand for our products.~~

its entirety.

~~Risks Related~~See “Note (10)” and “Note (11)” to ~~Our Pipelines~~our consolidated financial statements for additional information related to defaults under our secured loan agreements with Veritex and ~~Oil~~Pilot and ~~Gas Properties~~their potential effects on our business, financial condition, and results of operations.

●

Orders by BOEM to increase bonds or other sureties to maintain compliance with BOEM’s regulations, or the assessment of penalties for failure to do so, could significantly impact our operations, liquidity, and financial condition.

●

~~More stringent requirements imposed by BOEM and BSEE related to the decommissioning, plugging, and abandonment of wells, platforms, and pipelines could materially increase our estimate of future AROs.~~

Any one of these factors or a combination of these factors could materially affect our future results of operations and could influence whether any forward-looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we are required to do so.

3843

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

Management’s Discussion and Analysis

~~Going Concern~~Margin Deterioration and Volatility. Steps taken to address the COVID-19 pandemic globally and nationally and the actions of members of the OPEC and other producer countries with respect to oil production and pricing significantly impacted supply and demand in global oil and gas markets, causing oil prices to decline sharply, as well as other changes to the economic outlook in the near term. Such developments included, but are not limited to, government-imposed temporary business closures and voluntary shelter-at-home directives as well as developments in production discussions between global oil producers, and the effect thereof. Oil prices as well as demand are expected to continue to be volatile as a result of the near-term over-supply and the ongoing COVID-19 pandemic as changes in oil inventories, industry demand and global and national economic performance are reported, and we cannot predict when prices and demand will improve and stabilize. We are currently unable to estimate the impact these events will have on our future financial position and results of operations. However, we expect margins will likely remain weak during the second quarter 2020 until global demand begins to recover. Accordingly, we can provide no assurances that these events will not have a material adverse effect on our financial position or results of operations.

~~See “Part I, Item 1. Financial Statements – Note (1) Organization – Going Concern”~~Net Losses and ~~"Note (18) Subsequent Events" regarding factors m~~Working Capital Deficits~~anagement has determined raise substantial doubt about our ability~~. Net loss for the three months ended March 31, 2020 was $3.3 million, or a loss of $0.27 per share, compared to ~~continue as~~net income of $0.7 million, or income of $0.07 per share, for the three months ended March 31, 2019. The significant decrease was the result of less favorable margins per bbl.

We had a ~~going concern.~~working capital deficit of $62.4 million and $59.4 million at March 31, 2020 and December 31, 2019, respectively. Excluding the current portion of long-term debt, we had a working capital deficit of $21.3 million and $19.6 million at March 31, 2020 and December 31, 2019, respectively. We had cash and cash equivalents and restricted cash (current portion) of $0.3 million and $0.05 million, respectively, at March 31, 2020. Comparatively, we had cash and cash equivalents and restricted cash (current portion) of $0.07 million and $0.05 million, respectively, at December 31, 2019.

Operating Risks

~~See “Part I, Item 1. Financial Statements – Note (1) Organization – Operating Risks”~~ ~~and "Note (18) Subsequent Events"~~ ~~regarding factors that have negatively impacted~~Successful execution of our business ~~plan.~~strategy depends on several key factors, including, having adequate working capital to meet operational needs and regulatory requirements, maintaining safe and reliable operations at the Nixon facility, meeting contractual obligations, and having favorable margins on refined products. As discussed under ‘going concern’ above and throughout this report, we are currently unable to estimate the impact the COVID-19 pandemic will have on our future financial position and results of operations. Our business was deemed as an essential business and, as such, has remained open. We have instituted various initiatives throughout the company as part of our business continuity programs, and we are working to mitigate risk when disruptions occur. Management believes that it is taking all prudent steps, however, there can be no assurance that our business strategy will be successful, that Affiliates will continue to fund our working capital needs when we experience working capital deficits, that we will meet regulatory requirements to provide additional financial assurance (supplemental pipeline bonds) and decommission offshore pipelines and platform assets, that we will be able to obtain additional financing on commercially reasonable terms or at all, or that margins on our refined products will be favorable. Further, if Veritex and/or Pilot exercise their rights and remedies under our secured loan agreements, our business, financial condition, and results of operations will be materially adversely affected.

~~Company Overview~~Business Strategy

Our primary business objective is to improve our financial profile. However, as discussed above under ‘going concern’ and ‘operating risks,’ many uncertainties remain with respect to COVID-19 and the global oil markets, and it is difficult to accurately forecast and plan future business activities. We are executing the following strategies, modified as necessary, to reflect current economic and market conditions and other circumstances:

Blue Dolphin is a publicly-traded Delaware corporation primarily engaged in the refining and marketing of petroleum products. We also provide tolling and storage terminaling services. Our assets, which are located in Nixon, Texas, primarily include a 15,000-bpd crude distillation tower and approximately 1.1 million bbls of petroleum storage tanks (collectively the “Nixon Facility”). Pipeline transportation and oil and gas operations are no longer active. Blue Dolphin maintains a website at ~~http://www.blue-dolphin-energy.com. Information on or accessible through Blue Dolphin’s website is not incorporated by reference in or otherwise made a part of this Quarterly Report.~~


Optimizing Existing Asset Base		●Operating safely and enhancing health, safety and environmental systems. ●Planning and managing turnarounds and downtime.


Improving Operational Efficiencies		●Reducing or streamlining variable costs incurred in production. ●Increasing throughput capacity and optimizing product slate. ●Increasing tolling and terminaling revenue.


Seizing Market Opportunities		●Taking advantage of market opportunities as they arise.

~~Major Influences~~There can be no assurance that our business strategy will be successful, that Affiliates will continue to fund our working capital needs when we experience working capital deficits, that we will meet regulatory requirements to provide additional financial assurance (supplemental pipeline bonds) and decommission offshore pipelines and platform assets, that we will be able to obtain additional financing on ~~Results of Operations~~

~~Refinery Operations~~

~~As a margin-based business, our refinery operations are primarily affected by gross profit per bbl, product slate, and refinery downtime.~~

~~Price Differentials per Bbl~~

~~Gross profit per bbl, which reflects the dollar per bbl price difference between crude oil and condensate (input) and refined petroleum products (output), is the most significant driver of refining~~commercially reasonable terms or at all, or that margins ~~and they have historically been subject to wide fluctuations. Our per bbl cost to acquire crude oil and condensate and the dollar per bbl price for which~~on our refined ~~petroleum~~ products ~~are ultimately sold depend on the economics~~will be favorable. If Veritex and/or Pilot exercise their rights and remedies under our secured loan agreements, our business, financial condition, and results of ~~supply and demand. Supply and demand are affected by numerous factors, most, if not all, of which are beyond our control, including:~~operations will be materially adversely affected.

●

~~Domestic and foreign market conditions, political affairs, and economic developments;~~

●

~~Import supply levels and export opportunities;~~

●

~~Existing domestic inventory levels;~~

●

~~Operating and production levels of competing refineries;~~

●

~~Expansion and/or upgrades of competitors’ facilities;~~

●

~~Governmental regulations (e.g., mandated renewable fuels standards, proposed climate change laws and regulations, and increased mileage standards for vehicles);~~

●

~~Weather conditions;~~

●

~~Availability of and access to transportation infrastructure;~~

●

~~Availability of competing fuels (e.g., renewables); and~~

●

~~Seasonal fluctuations.~~

~~Product Slate~~

Management periodically determines whether to change the refinery’s product mix, as well as maintain, increase, or decrease inventory levels based on various factors. These factors include the crude oil pricing market in the U.S. Gulf Coast region, the refined petroleum products market in the same region, the relationship between these two markets, fulfilling contract demands, and other factors that may impact our operations, financial condition, and cash flows.

3944

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

Management’s Discussion and Analysis

We regularly engage in discussions with third parties regarding the possible purchase of assets and operations that are strategic and complementary to our existing operations. However, we do not anticipate any material acquisition activity in the foreseeable future. As noted above, management has determined that conditions exist that raise substantial doubt about our ability to continue as a going concern due to defaults under our secured loan agreements with third parties, margin deterioration and volatility, and historic net losses and working capital deficits. A ‘going concern’ opinion could impair our ability to finance our operations through the sale of equity, incurring debt, or other financing alternatives. Our ability to continue as a going concern will depend on sustained positive operating margins and working capital to sustain operations, including the purchase of crude oil and condensate and payments on our secured debt agreements with third parties. If we are unable to achieve these goals, our business would be jeopardized, and we may not be able to continue.

Refinery Operations

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

Capital Improvement Expansion Project. Since 2015, the Nixon facility has been undergoing a capital improvement expansion project. Refinery ~~Downtime~~operations capital improvements have primarily related to construction of new petroleum storage tanks. However, smaller efficiency improvements have been made as well. In the short-term, increased petroleum storage capacity has helped with de-bottlenecking the refinery. In the long-term, additional petroleum storage capacity will allow for increased refinery throughput of up to approximately 30,000 bpd.

Crude Oil and Condensate Supply. Operation of the Nixon refinery depends on our ability to purchase adequate amounts of crude oil and condensate. We have a long-term crude supply agreement in place with Pilot. Under the initial term of the crude supply agreement, Pilot will sell us approximately 24.8 million net bbls of crude oil. Thereafter, the crude supply agreement will continue on a one-year evergreen basis. Pilot may terminate the crude supply agreement at any time by providing us 60 days prior written notice. We may terminate the agreement upon the expiration of the initial term or at any time during a renewal term by giving Pilot 60 days prior written notice.

Our financial health could be materially and adversely affected by defaults under our secured loan agreements, margin deterioration and volatility, historic net losses and working capital deficits, as well as termination of the crude supply agreement or terminal services agreement with Pilot, which could impact our ability to acquire crude oil and condensate. In addition, a sustained period of low crude oil prices due to market volatility associated with the COVID-19 pandemic may also result in significant financial constraints on producers, which could result in long term crude oil supply constraints and increased transportation costs. A failure to acquire crude oil and condensate when needed will have a material effect on our business results and operations.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Management’s Discussion and Analysis

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 Mexico.

The ~~safe~~Nixon refinery’s product slate is moderately adjusted based on market demand. We currently produce a single finished product – jet fuel – and ~~reliable operation~~several intermediate products, including naphtha, HOBM, and AGO. Our jet fuel is sold to an Affiliate, which is HUBZone certified. Our intermediate products are primarily sold in nearby markets to wholesalers and refiners as a feedstock for further blending and processing. See “Note (3)” and “Note (16)” to our consolidated financial statements for additional disclosures related to Affiliates arrangements and transactions.

Customers. Customers for our refined products include distributors, wholesalers and refineries primarily in the lower portion of the ~~refinery is key~~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. See “Note (5)” to our consolidated financial ~~performance~~statements for disclosures related to concentration of risk associated with significant customers.

Competition. Many of our competitors are substantially larger than us and ~~results~~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. Our refinery operations are operated in a manner materially consistent with industry safe practices and westandards. These operations are subject to regulations under OSHA, the EPA, and comparable state and local requirements. Together, these regulations are designed for personnel safety, process safety management, and risk management, as well as to prevent or minimize the probability and consequences of an accidental release of toxic, reactive, flammable, or explosive chemicals. Storage tanks used for refinery 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 refinery operations have response and control plans, spill prevention and other programs to respond to emergencies.

The Nixon refinery periodically experiences planned and unplanned temporary shutdowns. Unplanned shutdowns can occur for a variety of reasons, including voluntary regulatory compliance measures, cessation or suspension by regulatory authorities, or disabled equipment. However, in Texas the most typical reason is excessive heat or power outages from high winds and thunderstorms. Planned turnarounds are used to repair, restore, refurbish, or replace refinery equipment. Refineries typically undergo a major turnaround every three to five years. Since the Nixon refinery was placed back in service in 2012 (commonly referred to as “recommissioning”), turnarounds are needed more frequently for unanticipated maintenance or repairs.

We are particularly vulnerable to disruptions in our operations because all our refining operations are conducted at a single facility. Although operating at anticipated levels, the refinery is still in a recommissioning phase and may require unscheduled downtime for unanticipated reasons, including maintenance and repairs, voluntary regulatory compliance measures, or cessation or suspension by regulatory authorities.

Occasionally, the Nixon refinery experiences a temporary shutdown due to power outages from high winds and thunderstorms. In such cases, we must initiate a standard refinery start-up process, which can last several days. We are typically able to resume normal operations the next day. Any scheduled or unscheduled downtime will result in lost margin opportunity, potential increased maintenance expense, and a reduction of refined ~~petroleum~~ products inventory, which could reduce our ability to meet our payment obligations.

Tolling and Terminaling Operations

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

Capital Improvement Expansion Project. As previously noted, the Nixon facility has been undergoing a capital improvement expansion project since 2015. Tolling and terminaling capital improvements have primarily related to construction of new petroleum storage tanks to significantly increase petroleum storage capacity. Increased petroleum storage capacity will provide an opportunity to generate additional tolling and terminaling revenue.

Products and Customers. The Nixon ~~Facility’s~~facility’s petroleum storage tanks and infrastructure are primarily suited for crude oil and condensate and refined ~~petroleum~~ products, such as naphtha, jet fuel, diesel and fuel oil. ~~Our storage terminaling operations~~Storage customers are ~~primarily affected by:~~

●

~~price (in terms of storage fees) and available capacity;~~

●

~~industry factors including changes~~typically refiners in the ~~prices~~lower portion of ~~petroleum products that affect demand for storage services;~~the Texas Triangle (the Houston - San Antonio - Dallas/Fort Worth area). Shipments are received and

●

~~utilization rates of our competitors (local demand).~~

~~Key Relationships~~

~~Relationship with LEH~~

~~Blue Dolphin and certain of its subsidiaries are currently~~ redelivered from within the Nixon facility via pipeline or from third parties via truck. Contract terms range from month-to-month to a variety of agreements with LEH and its affiliates and a counter-party. Related-party agreements with LEH include: (i) an Amended and Restated Operating Agreement with Blue Dolphin and LE, (ii) a Jet Fuel Sales Agreement with LE, (iii) a Loan Agreement with BDPL, (iv) an Amended and Restated Promissory Note with Blue Dolphin, and (v) an office sub-lease agreement with BDSC. In addition, we currently rely on advances from LEH and its affiliates (including Jonathan Carroll) to fund our working capital requirements. There can be no assurances that LEH and its affiliates will continue to fund our working capital requirements. (See “Part I, Item 1. Financial Statements – Note (9) Related-Party Transactions” for additional disclosures related to agreements that we have in place with LEH and its affiliates.)

~~Relationship with Crude Supplier~~three years.

~~Operation of the Nixon refinery depends on our ability~~Operations Safety. Our tolling and terminal operations are operated in a manner materially consistent with industry safe practices and standards. These operations are subject to ~~purchase adequate amounts of~~regulations under OSHA and comparable state and local regulations. Storage tanks used for terminal operations are designed for crude oil and condensate ~~which is primarily dependent on our liquidity~~ and ~~access~~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 capital. We currently have in place a month-to-month evergreen crude supply contract with a major integrated oil and gas company. This supplier currently provides us with adequate amounts of crude oil and condensate on favorable terms, and we expect the supplierrespond to continue to do so for the foreseeable future. Our ability to purchase adequate amounts of crude oil and condensate could be adversely affected if the Settlement Agreement is terminated and GEL seeks to confirm and enforce the Final Arbitration Award, ~~as well as other factors, including as~~ ~~net losses, working capital deficits, and financial covenant defaults in secured loan agreements.~~emergencies.

Management believes that it is taking the appropriate steps to improve our operations and financial stability. If our business strategy is unsuccessful, it could affect our ability to acquire adequate supplies of crude oil and condensate under the existing contract or otherwise. Further, because our existing crude supply contract is a month-to-month arrangement, there can be no assurance that crude oil and condensate supplies will continue to be available under this contract in the future.

4046

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

Management’s Discussion and Analysis

~~Results of~~Inactive Operations

We own certain other pipeline and facilities assets and have leasehold interests in oil and gas properties. These assets, which are shown below and included in corporate and other, are not operational and are fully impaired.

Certain Prior Quarter amounts as defined herein have been reclassified in order to conform to the Current Quarter presentation. Specifically, certain changes to the presentation of prior period statements of operations have been made to conform to the current period presentation, primarily relating to: (i) a retitling from ‘cost of sales’ to ‘cost of goods sold,’ which includes all costs directly attributable to the generation of the related revenue, as defined by GAAP

Property	Operating Subsidiary	Location

Freeport facility ●Crude oil and natural gas separation and dehydration ●Natural gas processing, treating, and redelivery ●Vapor recovery unit ●Two onshore pipelines ●Land (162 acres)	BDPL	Freeport, Texas
Offshore Pipelines (Trunk Line and Lateral Lines)	BDPL	Gulf of Mexico
Oil and Gas Leasehold Interests	BDPC	Gulf of Mexico

We fully impaired our pipeline assets at December 31, 2016 and ~~(ii) a breakout of the ‘management fee’ under the Amended~~our oil and ~~Restated Operating Agreement, which was previously reported within ‘refinery operating expenses’. These changes~~gas properties at December 31, 2011. Our pipeline and oil and gas properties had no ~~effect on~~revenue during the ~~reported results of operations.~~three months ended March 31, 2020 and 2019. See “Note (16)” to our consolidated financial statements related to pipelines and platform decommissioning requirements and related risks.

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 regulations. We have response and control plans, spill prevention and other programs to respond to emergencies related to these assets.

~~Consolidated Results~~

~~Three Months Ended March 31, 2019 (the “Current Quarter”) Compared to March 31, 2018 (the “Prior Quarter”)~~.

~~Total Revenue from Operations~~. For the Current Quarter, we had total revenue from operations of $68.9 million compared to total revenue from operations of $72.2 million for the Prior Quarter, a decrease of nearly 5%. Approximately 99% of our revenue is derived from refinery operations while 1% is derived from tolling and terminaling. Refinery operations revenue decreased approximately $3.7 million in the Current Quarter compared to the Prior Quarter. The decrease in refinery operations revenue was due to lower commodity pricing per bbl on refined petroleum products sold, which was partially decreased by higher sales volume in the Current Quarter compared to the Prior Quarter. For the same period, tolling and terminaling revenue increased approximately $0.3 million, or approximately 46%, as a result of increased storage fees under new and renewed customer agreements.

~~Total Cost of Goods Sold~~. Total cost of goods sold was $65.5 million for the Current Quarter compared to $70.5 million for the Prior Quarter. The 7% decrease in total cost of goods sold in the Current Quarter compared to the Prior Quarter related to lower commodity prices per bbl for crude oil and chemicals, which was partially offset by increased throughput volume.

~~Gross Profit / Gross Margin~~. For the Current Quarter, gross profit totaled $3.4 million, or approximately 5%, compared to gross profit of $1.8 million, or approximately 2%, for the Prior Quarter. The increase in gross profit between the periods primarily related to more favorable margins per bbl and increased tank rental revenue in the Current Quarter compared to the Prior Quarter.

~~Management Fee~~. The management fee under the Amended and Restated Operating Agreement was flat, totaling approximately $0.2 million in both the Current Quarter and the Prior Quarter. (See “Part I, Item 1. Financial Statements – Note (9) Related-Party Transactions” for additional disclosures related to the Amended and Restated Operating Agreement.)

~~General and Administrative Expenses. General and administrative expenses were flat in the Current Quarter compared to the Prior Quarter at $0.7 million.~~

~~Depreciation and Amortization. We recorded depreciation and amortization expenses~~Remainder of $0.6 million in the Current Quarter compared to $0.5 million in the Prior Quarter, an increase of approximately 30%. The increase related to placement in service of a new boiler and new petroleum storage tanks.

~~Other Expense.~~Total other expense was $1.0 million in the Current Quarter compared to $0.7 million in the Prior Quarter. Nearly all of other expense related to interest expense associated with the secured loan agreements with Veritex and related-party debt.

~~Income Tax Benefit~~. We recognized an income tax benefit of $0 in the Current Quarter compared to $0.2 million in the Prior Quarter. Income tax benefit in the Prior Quarter related to a refundable Alternative Minimum Tax that was paid in prior periods. (See “Part I, Item 1. Financial Statements – Note (15) Income Taxes” for additional disclosures related to income taxes.)Page Intentionally Left Blank

4147

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

Management’s Discussion and Analysis

Results of Operations

A discussion and analysis of the factors contributing to our consolidated financial results of operations is presented below. 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.

~~Net Income (Loss)~~Major Influences on Results of Operations. For the Current Quarter, we reported net income of $0.7 million, or income of $0.07 per share, compared to a net loss of $0.2 million, or loss of $0.01 per share, for the Prior Quarter. The increase in net income between the periods was primarily attributable to more favorable margins per bbl, increased sales throughput volume, and increased tank rental revenue in the Current Quarter compared to the Prior Quarter.

~~Non-GAAP Financial Measures~~

To supplement our consolidated results, management uses refining gross profit per bbl, a non-GAAP financial measure, to help investors evaluate our core operating results and allow for greater transparency in reviewing our overall financial, operational and economic performance. Refining gross profit per bbl is reconciled to GAAP-based results below. Refining gross profit per bbl should not be considered an alternative for GAAP results. Refining gross profit per bbl is provided to enhance an overall understanding of our core financial performance for the applicable periods and is an indicator that management believes is relevant and useful. Refining gross profit per bbl may differ from similar calculations used by other companies within the petroleum industry, thereby limiting its usefulness as a comparative measure. (See “Part I, Item 1. Financial Statements” for comparative GAAP results.)

~~Refining Gross Profit per Bbl –~~ For the Current Quarter, refining gross profit per bbl was $2.28 compared to $1.03 per bbl for the Prior Quarter, reflecting an increase of $1.25 per bbl. The increase between the periods primarily related to more favorable refining margins per bbl and increased sales throughput volume in the Current Quarter compared to the Prior Quarter. (See “Glossary of Selected Energy and Financial Terms” in this Quarterly Report for the definition of gross margin per bbl.)

Three Months Ended March 31,

2019

2018

(in thousands except per bbl amounts)

Refinery operations revenue
$67,858
$71,512
Less: Total cost of goods sold
  (65,516)
  (70,492)

  2,342
  1,020



Sales (Bbls)
  1,029
  993



Gross Margin per Bbl
$2.28
$1.03

~~Remainder of Page Intentionally Left Blank~~

~~BLUE DOLPHIN ENERGY COMPANY~~

~~FORM 10-Q 3/31/19~~

~~Refinery Operations Throughput and Production Data~~

~~Operational metrics for the refinery for the periods indicated were as follow:~~

Three Months Ended March 31,

2019

2018

Calendar Days
  90
  90
Refinery downtime
  (11)
  (16)
Operating Days
  79
  74



Total refinery throughput (bbls)
  1,047,059
  1,008,443
Operating days:


bpd
  13,254
  13,628
Capacity utilization rate
  88.4%
  90.9%
Calendar days:


bpd
  11,634
  11,205
Capacity utilization rate
  77.6%
  74.7%



Total refinery production (bbls)
  1,022,829
  978,552
Operating days:


bpd
  12,947
  13,224
Capacity utilization rate
  86.3%
  88.2%
Calendar days:


bpd
  11,365
  10,873
Capacity utilization rate
  75.8%
  72.5%

~~Note:~~

The small difference between total refinery throughput (volume processed as input) and total refinery production (volume processed as output) represents a combination of multiple factors including refinery fuel use, elimination of some impurities originally present in the crude oil, loss, and other factors.

During the Current Quarter, the refinery experienced 11 days of downtime primarily related to a maintenance turnaround and equipment repairs. During the Prior Quarter, the refinery experienced 16 days of downtime related to repair and maintenance of the naphtha stabilizer unit and short maintenance turnarounds.

~~For the Current Quarter compared to the Prior Quarter, total refinery throughput bbls and total refinery production bbls increased primarily as a result of less downtime.~~

~~Refined Petroleum Product Sales Summary~~.

~~See “Part I, Item 1. Financial Statements – Note (13) Concentration of Risk” for a discussion of refined petroleum product sales.~~

~~BLUE DOLPHIN ENERGY COMPANY~~

~~FORM 10-Q 3/31/19~~

~~Liquidity and Capital Resources~~

~~Overview~~.

We currently rely on revenue from operations, LEH and its affiliates (including Jonathan Carroll), and borrowings under bank facilities to meet our liquidity needs. Primary uses of cash include: (i) payment to LEH for our direct operating expenses under the Amended and Restated Operating Agreement, (ii) payments on long-term debt and the Final Arbitration Award, (iii) purchase of crude oil and condensate, and (iv) construction in progress.

As discussed elsewhere within this “Liquidity and Capital Resources” section, management has determined that there is substantial doubt about our ability to continue as a going concern due to consecutive quarterly net losses, inadequate working capital, the Final Arbitration Award, and defaults under secured loan agreements. See “Part I, Item 1. Financial Statements – Note (1) Organization – Going Concern” ~~and "Note (18) Subsequent Events"~~ ~~for additional disclosures related to the Final Arbitration Award, the Settlement Agreement with GEL, defaults under secured loan agreements, and the going concern.~~

Management believes that it is taking the appropriate steps to improve our operations and financial stability. If our business strategy is unsuccessful, it could affect our ability to acquire adequate supplies of crude oil and condensate under our existing contract or otherwise. Further, because our existing crude supply contract is an evergreen arrangement, there can be no assurance that crude oil and condensate supplies will continue to be available under our crude supply contract in the future.

Our results of operations and liquidity are highly dependent upon the margins that we receive for our refined ~~petroleum~~ products. TheThe dollar per bbl price difference between crude oil and condensate (input) and refined ~~petroleum~~ products (output), is the most significant driver of refining margins, and they have historically been subject to wide fluctuations. ~~There can be no assurance that margins for refined petroleum products will be favorable, LEH~~Steps taken to address the COVID-19 pandemic globally and ~~its affiliates will~~nationally and the actions of members of the OPEC and other producer countries with respect to oil production and pricing significantly impacted supply and demand in global oil and gas markets, causing oil prices to decline sharply, as well as other changes to the economic outlook in the near term. Such developments included, but are not limited to, government-imposed temporary business closures and voluntary shelter-at-home directives as well as developments in production discussions between global oil producers, and the effect thereof. Oil prices as well as demand are expected to continue to ~~fund~~be volatile as a result of the near-term over-supply and the ongoing COVID-19 pandemic as changes in oil inventories, industry demand and global and national economic performance are reported, and we cannot predict when prices and demand will improve and stabilize. We are currently unable to estimate the impact these events will have on our working capital needs in periods of working capital deficits, or we will be able to obtain additional financing on commercially reasonable terms or at all. Further, if Veritex Community Bank (“Veritex”) does not approve the Settlement or the Settlement Agreement with GEL is terminated and GEL seeks to confirm and enforce the Final Arbitration Award, our business,future financial ~~condition,~~position and results of ~~operations~~operations. Accordingly, we can provide no assurances that these events will ~~be materially adversely affected, and Blue Dolphin would likely be required to seek protection under bankruptcy laws.~~not have a material adverse effect on our financial position or results of operations.

~~Crude Oil~~How We Evaluate Our Operations. Management uses certain financial and ~~Condensate Supply~~operating measures to analyze segment performance. These measures are significant factors in assessing our operating results and profitability and include: segment contribution margin (deficit), and refining gross profit (deficit) per bbl, tank rental revenue, operation costs and expenses, refinery throughput and production data, and refinery downtime. Segment contribution margin (deficit) and refining gross profit (deficit) per bbl are non-GAAP measures..

Segment Contribution Margin (Deficit) and Refining Gross Profit (Deficit) per Bbl

Segment contribution margin (deficit) is used to evaluate both refinery operations and tolling and terminaling while refining gross profit (deficit) per bbl is a refinery operations benchmark. Both measures supplement our financial information presented in accordance with U.S. GAAP. Management uses these non-GAAP measures to analyze our results of operations, assess internal performance against budgeted and forecasted amounts, and evaluate future impacts to our financial performance as a result of capital investments. Non-GAAP measures have important limitations as analytical tools. These non-GAAP measures, which are defined in our glossary of terms, should not be considered a substitute for GAAP financial measures. We believe these measures may help investors, analysts, lenders, and ratings agencies analyze our results of operations and liquidity in conjunction with our U.S. GAAP results. See “Non-GAAP Reconciliations” within this “Item 2.” and the financial statements within “Item 1.” for a reconciliation of Non-GAAP measures to U.S. GAAP.

Tank Rental Revenue

Tolling and terminaling revenue primarily represents tank rental storage fees associated with customer tank rental agreements. As a result, tank rental revenue is one of the measures management uses to evaluate the performance of our tolling and terminaling business segment.

Operation Costs and Expenses

We manage operating expenses in tandem with meeting environmental and safety requirements and objectives and maintaining the integrity of our assets. Operating expenses are comprised primarily of labor expenses, repairs and other maintenance costs, and utility costs. Expenses for refinery operations generally remain stable across broad ranges of throughput volumes, but they can fluctuate from period to period depending on the ~~Nixon~~mix of activities performed during that period and the timing of those expenses. Operation costs for tolling and terminaling operations are relatively fixed.

Refinery Throughput and Production Data

The amount of revenue we generate from our refinery operations business segment primarily depends on ~~our ability to purchase adequate amounts~~the volumes of crude oil and ~~condensate, which is primarily dependent on~~refined products that we handle through our ~~liquidity~~processing assets and ~~access~~the volume sold to ~~capital. We currently have in place a month-to-month evergreen crude~~customers. These volumes are affected by the supply ~~contract with a major integrated oil~~ and ~~gas company. This supplier currently provides us with adequate amounts~~demand of, and demand for, crude oil and ~~condensate on favorable terms, and we expect~~refined products in the supplier to continue to do so for the foreseeable future. Our ability to purchase adequate amounts of crude oil and condensate could be adversely affected if the Settlement Agreement is terminated and GEL seeks to confirm and enforce the Final Arbitration Award,markets served directly or indirectly by our assets, as well as ~~other factors, including net losses, working capital deficits,~~refinery downtime.

Refinery Downtime

The Nixon refinery periodically experiences planned and ~~financial covenant defaults~~unplanned temporary shutdowns. Any scheduled or unscheduled downtime will result in ~~secured loan agreements.~~lost margin opportunity, potential increased maintenance expense, and a reduction of refined products inventory, which could reduce our ability to meet our payment obligations.

4448

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

Management’s Discussion and Analysis

Consolidated Results.

Highlights (in millions)

Three Months Ended March 31, 2020 (“Q1 2020”) Versus March 31, 2019 (“Q1 2019”)

~~Cash Flow~~Overview. Net loss for Q1 2020 was $3.3 million, or a loss of $0.27 per share, compared to net income of $0.7 million, or income of $0.07 per share, Q1 2019. The significant decrease was the result of less favorable margins per bbl.

Total Revenue from Operations. Total revenue from operations for Q1 2020 decreased $6.9 million, or approximately 10%, to $62.0 million compared to $68.9 million for Q1 2019. The decrease in refinery operations revenue was the result of lower commodity pricing per bbl on refined products sold due to market fluctuations associated with the COVID-19 pandemic in Q1 2020. Tolling and terminaling revenue increased approximately 3% as a result of increased tank rental storage fees and fees collected for ancillary services.

Total Cost of Goods Sold. Total cost of goods sold was $62.1 million for Q1 2020 compared to $65.5 million for Q1 2019. The $3.4 million, or 5%, decrease related to lower commodity prices per bbl for crude oil and chemicals due to market fluctuations associated with the COVID-19 pandemic in Q1 2020.

Gross Profit (Deficit). We had a gross deficit of $0.1 million for Q1 2020 compared to gross profit of $3.4 million for Q1 2019. The significant decrease in gross profit between the periods primarily related to lower margins per bbl due to market fluctuations associated with the COVID-19 pandemic in Q1 2020.

General and Administrative Expenses. General and administrative expenses for Q1 2020 compared to Q1 2019 were relatively flat at nearly $0.7 million and primarily consisted of insurance, taxes, and professional fees.

Depletion, Depreciation and Amortization. Depletion, depreciation and amortization expenses remained stable in Q1 2020 compared to Q1 2019 at approximately $0.6 million in both periods.

Total Other Income (Expense). Total other expense was $1.8 million in Q1 2020 compared to an expense of $1.2 million in Q1 2019. Other expense primarily related to interest expense associated with our secured loan agreements with Veritex, related-party debt, and the line of credit with Pilot. Interest expense increased in Q1 2020 compared to Q1 2019 as a result of completion of certain CIP for which interest was no longer being capitalized and the addition of the line of credit with Pilot.

Remainder of Page Intentionally Left Blank

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Management’s Discussion and Analysis

Refinery 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.

Highlights (in millions, except per bbl and throughput amounts)

	Three Months Ended March 31,
	2020	2019
	(in thousands)
Refined product sales	$60,897	$67,858
Less: Total cost of goods sold	(62,088)	(65,516)
Gross profit (deficit)	(1,191)	2,342

Sales (Bbls)	1,141	1,029

Gross Profit (Deficit) per Bbl	$(1.04)	$2.28

	Three Months Ended March 31,
	2020	2019
	(in thousands)
Net revenue (2)	$60,897	$67,858
Intercompany fees and sales	(617)	(606)
Operation costs and expenses	(61,833)	(65,302)
Segment Contribution Margin (Deficit)	$(1,553)	$1,950

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Management’s Discussion and Analysis

	Three Months Ended March 31,
	2020	2019

Calendar	91	90
Operating	(88)	(79)
Refinery Downtime (Days)	3	11


Refinery Throughput
bpd	13,452	13,254
bbls	1,183,746	1,047,059
Capacity utilization rate	89.7%	88.4%

Refinery Production
bpd	13,183	12,947
bbls	1,160,091	1,022,829
Capacity utilization rate	87.9%	86.3%

(1)See “How We Evaluate Our Operations” and “Non-GAAP Reconciliations” within “Item 2.” for further information regarding this non-GAAP measure.

(2)Net revenue excludes intercompany crude sales.

Q1 2020 Versus Q1 2019

●

Refining gross deficit per bbl was $1.04 for Q1 2020 compared to a refining gross profit per bbl of $2.28 in Q1 2019, representing a decrease of $3.32 per bbl. The significant decrease related to lower margins due to market fluctuations including ones associated with the COVID-19 pandemic in Q1 2020.

●

Segment contribution margin decreased approximately $3.6 million to a loss of $1.6 million in Q1 2020 compared to a profit of $2.0 million in Q1 2019. The significant decrease related to lower margins per bbl due to market fluctuations associated with the COVID-19 pandemic in Q1 2020.

●

Refinery downtime in Q1 2020 improved by 8 days compared to Q1 2019; refinery downtime in 2020 related to a boiler repair while refinery downtime in Q1 2019 related to a maintenance turnaround and equipment repairs.

●

On a bpd basis, both refinery throughput and refinery production increased nearly 2% in Q1 2020 compared to Q1 2019. On a total bbls basis, refinery throughput and refinery production improved approximately 13% in Q1 2020 compared to Q1 2019. The improvement primarily related to less refinery downtime.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Management’s Discussion and Analysis

Tolling and Terminaling. 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 tank storage rental fees, tolling and reservation fees for use of the naphtha stabilizer, and fees collected for ancillary services, such as in-tank blending.

Highlights (in millions)

	Three Months Ended March 31,
	2020	2019
	(in thousands)

Net revenue (2)	$1,103	$1,069
Intercompany fees and sales	617	606
Operation costs and expenses	(255)	(364)
Segment contribution margin &#xD; &#xD; &amp;#xD;&#xD; &amp;#xD;&#xD; &amp;amp;#xD;&amp;#xD;&#xD; &amp;amp;#xD;&amp;#xD;&#xD; &amp;amp;lt;!--&amp;amp;#xD;&amp;#xD;&#xD; /* Font Definitions /&amp;amp;#xD;&amp;#xD;&#xD; @font-face&amp;amp;#xD;&amp;#xD;&#xD; {font-family:"Cambria Math";&amp;amp;#xD;&amp;#xD;&#xD; panose-1:2 4 5 3 5 4 6 3 2 4;&amp;amp;#xD;&amp;#xD;&#xD; mso-font-charset:0;&amp;amp;#xD;&amp;#xD;&#xD; mso-generic-font-family:roman;&amp;amp;#xD;&amp;#xD;&#xD; mso-font-pitch:variable;&amp;amp;#xD;&amp;#xD;&#xD; mso-font-signature:3 0 0 0 1 0;}&amp;amp;#xD;&amp;#xD;&#xD; @font-face&amp;amp;#xD;&amp;#xD;&#xD; {font-family:Calibri;&amp;amp;#xD;&amp;#xD;&#xD; panose-1:2 15 5 2 2 2 4 3 2 4;&amp;amp;#xD;&amp;#xD;&#xD; mso-font-charset:0;&amp;amp;#xD;&amp;#xD;&#xD; mso-generic-font-family:swiss;&amp;amp;#xD;&amp;#xD;&#xD; mso-font-pitch:variable;&amp;amp;#xD;&amp;#xD;&#xD; mso-font-signature:-469750017 -1073732485 9 0 511 0;}&amp;amp;#xD;&amp;#xD;&#xD; / Style Definitions */&amp;amp;#xD;&amp;#xD;&#xD; p.MsoNormal, li.MsoNormal, div.MsoNormal&amp;amp;#xD;&amp;#xD;&#xD; {mso-style-unhide:no;&amp;amp;#xD;&amp;#xD;&#xD; mso-style-qformat:yes;&amp;amp;#xD;&amp;#xD;&#xD; mso-style-parent:"";&amp;amp;#xD;&amp;#xD;&#xD; margin-top:0in;&amp;amp;#xD;&amp;#xD;&#xD; margin-right:0in;&amp;amp;#xD;&amp;#xD;&#xD; margin-bottom:8.0pt;&amp;amp;#xD;&amp;#xD;&#xD; margin-left:0in;&amp;amp;#xD;&amp;#xD;&#xD; line-height:107%;&amp;amp;#xD;&amp;#xD;&#xD; mso-pagination:widow-orphan;&amp;amp;#xD;&amp;#xD;&#xD; font-size:11.0pt;&amp;amp;#xD;&amp;#xD;&#xD; font-family:"Calibri",sans-serif;&amp;amp;#xD;&amp;#xD;&#xD; mso-ascii-font-family:Calibri;&amp;amp;#xD;&amp;#xD;&#xD; mso-ascii-theme-font:minor-latin;&amp;amp;#xD;&amp;#xD;&#xD; mso-fareast-font-family:Calibri;&amp;amp;#xD;&amp;#xD;&#xD; mso-fareast-theme-font:minor-latin;&amp;amp;#xD;&amp;#xD;&#xD; mso-hansi-font-family:Calibri;&amp;amp;#xD;&amp;#xD;&#xD; mso-hansi-theme-font:minor-latin;&amp;amp;#xD;&amp;#xD;&#xD; mso-bidi-font-family:"Times New Roman";&amp;amp;#xD;&amp;#xD;&#xD; mso-bidi-theme-font:minor-bidi;}&amp;amp;#xD;&amp;#xD;&#xD; ..MsoChpDefault&amp;amp;#xD;&amp;#xD;&#xD; {mso-style-type:export-only;&amp;amp;#xD;&amp;#xD;&#xD; mso-default-props:yes;&amp;amp;#xD;&amp;#xD;&#xD; font-family:"Calibri",sans-serif;&amp;amp;#xD;&amp;#xD;&#xD; mso-ascii-font-family:Calibri;&amp;amp;#xD;&amp;#xD;&#xD; mso-ascii-theme-font:minor-latin;&amp;amp;#xD;&amp;#xD;&#xD; mso-fareast-font-family:Calibri;&amp;amp;#xD;&amp;#xD;&#xD; mso-fareast-theme-font:minor-latin;&amp;amp;#xD;&amp;#xD;&#xD; mso-hansi-font-family:Calibri;&amp;amp;#xD;&amp;#xD;&#xD; mso-hansi-theme-font:minor-latin;&amp;amp;#xD;&amp;#xD;&#xD; mso-bidi-font-family:"Times New Roman";&amp;amp;#xD;&amp;#xD;&#xD; mso-bidi-theme-font:minor-bidi;}&amp;amp;#xD;&amp;#xD;&#xD; ..MsoPapDefault&amp;amp;#xD;&amp;#xD;&#xD; {mso-style-type:export-only;&amp;amp;#xD;&amp;#xD;&#xD; margin-bottom:8.0pt;&amp;amp;#xD;&amp;#xD;&#xD; line-height:107%;}size:8.5in 11.0in;&amp;amp;#xD;&amp;#xD;&#xD; margin:1.0in 1.0in 1.0in 1.0in;&amp;amp;#xD;&amp;#xD;&#xD; mso-header-margin:.5in;&amp;amp;#xD;&amp;#xD;&#xD; mso-footer-margin:.5in;&amp;amp;#xD;&amp;#xD;&#xD; mso-paper-source:0;}&amp;amp;#xD;&amp;#xD;&#xD; div.WordSection1&amp;amp;#xD;&amp;#xD;&#xD; {page:WordSection1;}&amp;amp;#xD;&amp;#xD;&#xD; &amp;amp;#xD;&amp;#xD;&#xD; &amp;#xD;&#xD; &#xD;	$1,465	$1,311

(1)See “How We Evaluate Our Operations” and “Non-GAAP Reconciliations” within “Item 2.” for further information regarding this non-GAAP measure.

(2)Net revenue excludes intercompany crude sales.

Q1 2020 Versus Q1 2019

●

Tolling and terminaling net revenue increased approximately 3% in Q1 2020 compared to Q1 2019 primarily as a result of increased tank storage rental fees and fees collected for ancillary services.

●

Intercompany fees and sales, which reflect fees associated with an intercompany tolling agreement tied to naphtha volumes, increased slightly in Q1 2020 compared to Q1 2019. Although naphtha sales volumes decreased, naphtha production volumes increased slightly in Q1 2020 compared to Q1 2019.

●

Segment contribution margin increased nearly $0.2 million, or nearly 12%, to approximately $1.5 million in Q1 2020 compared to approximately $1.3 million Q1 2019. The improvement in segment contribution margin related to increased tank storage rental fees and fees collected for ancillary services and lower operation costs and expenses.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Management’s Discussion and Analysis

Non-GAAP Reconciliations.

Reconciliation of Segment Contribution Margin (Deficit)

	Three Months Ended March 31,
	2020	2019	2020	2019	2020	2019
	Refinery Operations		Tolling and Terminaling		Corporate and Other
	(in thousands)

Segment contribution margin	$(1,553)	$1,950	$1,465	$1,311	$(59)	$(57)
General and administrative expenses(1)	(304)	(332)	(68)	(43)	(419)	(295)
Depreciation and amortization	(288)	(465)	(294)	(99)	(51)	(26)
Interest and other non-operating income (expenses), net	(741)	(783)	(770)	(196)	(243)	(218)
Income (loss) before income taxes	(2,886)	370	333	973	(772)	(596)
Income tax benefit	-	-	-	-	(15)	-
Income (loss) before income taxes	$(2,886)	$370	$333	$973	$(787)	$(596)

(1)

General and administrative expenses within refinery operations include the LEH operating fee.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Management’s Discussion and Analysis

Capital Resources and Liquidity

Our primary cash ~~flow~~requirements relate to: (i) purchasing crude oil and condensate for the operation of the Nixon refinery, (ii) reimbursing LEH for direct operating expenses and paying the LEH operating fee under the Amended and Restated Operating Agreement, (iii) servicing debt, and (iv) completing construction in progress. In instances where we experience a working capital deficit, we have historically relied on Affiliates to meet our liquidity needs. While we believe that we can fund our operations through revenue from operations ~~for~~and Affiliate financing, we may not be able to, among other things, (i) maintain our current general and administrative spending levels; (ii) fund certain obligations as they become due; and (iii) respond to competitive pressures or unanticipated capital requirements. We cannot provide any assurance that financing will be available to us in the ~~periods indicated was as follows:~~

Three Months Ended March 31,

2019

2018

(in thousands)

Beginning cash, cash equivalents, and restricted cash
$1,665
$2,146



Cash flow from operations


Adjusted profit from operations
  1,369
  185
Change in assets and current liabilities
  (1,400)
  616



Total cash flow from operations
  (31)
  801



Cash inflows (outflows)


Payments on debt
  (250)
  (240)
Net activity on related-party debt
  419
  217
Capital expenditures
  (123)
  (540)



Total cash inflows (outflows)
  46
  (563)



Total change in cash flows
  15
  238



Ending cash, cash equivalents, and restricted cash
$1,680
$2,384

For the Current Quarter, we experienced a cash flow deficit of $0.03 million compared to cash flow from operations of $0.8 million for the Prior Quarter. The $0.8 million decrease in cash flow from operations between the periods was primarily the result of an increase in inventory and accounts receivable.

~~Working Capital~~.future on acceptable terms.

We had a working capital deficit of ~~$70.7~~$62.5 million and $59.4 million at March 31, ~~2019, compared to a working capital deficit of $71.9 million at~~2020 and December 31, ~~2018.~~2019, respectively. Excluding the current portion of long-term debt, we had a working capital deficit of ~~$28.6~~$21.3 million and ~~$30.0~~$19.6 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~As discussed elsewhere within this “Liquidity and Capital Resources” section,~~ During Q1 2020, we did not receive funding under any federal or other governmental programs to support our operations as a result of the ~~Final Arbitration Award has affected our ability to obtain working capital through financing.~~ ~~If the Settlement Agreement with GEL is terminated and GEL seeks to confirm and enforce the Final Arbitration Award: (i)~~COVID-19 pandemic. The future impact that COVID-19 will have on our business, ~~operations, including crude oil and condensate procurement and our customer relationships;~~cash flows, liquidity, financial ~~condition;~~condition and results of operations will ~~be materially affected,~~depend on future developments, including, among other things, volatility in the global capital markets, the ultimate geographic spread and ~~(ii) Blue Dolphin~~severity of the virus, the consequences of governmental and ~~its affiliates would likely be required~~other measures designed to ~~seek protection under bankruptcy laws.~~prevent the spread of the virus, the development of effective treatments, the duration of the outbreak, actions taken by governmental authorities, customers, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

Debt Overview.

We currently rely on LEH and its affiliates (including Jonathan Carroll) to fund our working capital requirements. There can be no assurance that LEH and its affiliates (including Jonathan Carroll) will continue to fund our working capital requirements.

Total Debt

	March 31,	December 31,
	2020	2019
	(in thousands)
USDA-Guaranteed Loans
First Term Loan Due 2034 (in default)	$21,586	$21,776
Second Term Loan Due 2034 (in default)	8,953	9,031
Amended Pilot Line of Credit (in default)	11,378	11,786
Notre Dame Debt (in default)	8,816	8,617
Related-Party Debt
BDPL Loan Agreement (in default)	6,334	6,174
March Ingleside Note (in default)	1,024	1,004
March Carroll Note (in default)	1,173	997
June LEH Note (in default)	1,375	-
Total Debt	60,639	59,385

Less: Current portion of long-term debt, net	(52,395)	(51,301)
Less: Unamortized debt issue costs	(1,877)	(2,096)
Less: Accrued interest payable (in default)	(6,367)	(5,988)
	$-	$-

4554

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

Management’s Discussion and Analysis

~~Capital Spending~~.

~~Since 2015,~~Principal payments on long-term debt totaled $0.7 million in Q1 2020 compared to $0.3 million in Q1 2019. As of the ~~Nixon Facility has been undergoing a capital improvement expansion project. Capital improvements have primarily related to construction~~filing date of ~~new petroleum storage tanks to significantly increase petroleum storage capacity. However, smaller efficiency improvements~~this report, we were current on required monthly payments under our secured loan agreements with Veritex. No payments have been made as well. Increased petroleum storage capacity: (i) assists with de-bottlenecking the facility, (ii) supports increased refinery throughput up to approximately 30,000 bpd, and (iii) provides an opportunity to generate additional tolling and terminaling revenue. When the expansion project is complete, petroleum storage capacity at the Nixon Facility will exceed 1.2 million bbls, an increase of more than 0.9 million bbls.under subordinated loan agreements.

On April 30, 2020, we issued an aggregate of 231,065 restricted shares of Common Stock to Jonathan Carroll, which represents payment of the common stock component of guaranty fees for the period November 2019 through March 2020. The average cost basis was $0.69, the low was $0.52, and the high was $1.07. For the ~~next 12~~foreseeable future, management does not intend on paying Mr. Carroll the cash portion of guaranty fees due to ~~18 months, we expect to~~ Blue Dolphin’s working capital deficits. The cash portion will continue to ~~incur capital expenditures related~~be accrued and added to ~~facility and land improvements and completion of an unfinished petroleum storage tank.~~ ~~Capital spending at~~ the Nixon Facility is being funded by working capital derived from revenue from operations and LEH and its affiliates (including Jonathan Carroll), as well as from long-term debt from Veritex that was secured in 2015 for expansionprincipal balance of the ~~Nixon Facility. Unused amounts under the Veritex loans are reflected in restricted cash (current and non-current portions) on~~March Carroll Note. See “Note (3)” to our consolidated ~~balance sheets and will be available for use once events of default associated with the Final Arbitration Award are remedied.~~ ~~See “Part I, Item 1. Financial Statements – Note (11) Long-Term Debt, Net”~~financial statements for additional disclosures related to ~~borrowings~~Affiliates and working capital deficits, as well as for ~~capital spending.~~information related to the guaranty fee agreements.

Debt Defaults. All of our debt is in default. Defaults under our secured loan agreements with third parties include Veritex events of default and financial covenant violations and a Pilot event of default and debt acceleration. See ‘going concern’ withing this Management’s Discussion and Analysis section, as well as “Note (1),” “Note (3),” “Note (10),” and “Note (11)” to our consolidated financial statements for additional disclosures related to Affiliate and third-party debt agreements, including debt guarantees, and defaults in our debt obligations.

Contractual Obligations.

Related-Party

Agreement/Transaction	Parties	Type	Effective Date	Interest Rate	Key Terms
Amended and Restated Guaranty Fee Agreement	Jonathan Carroll - LE	Debt	04/01/2017	2.00%	Tied to payoff of LE $25 million Veritex loan; payments 50% cash, 50% Common Stock
Amended and Restated Guaranty Fee Agreement	Jonathan Carroll - LRM	Debt	04/01/2017	2.00%	Tied to payoff of LRM $10 million Veritex loan; payments 50% cash, 50% Common Stock
March Carroll Note (in default)	Jonathan Carroll – Blue Dolphin	Debt	03/31/2017	8.00%	Blue Dolphin working capital; matured 01/01/2019; interest still accruing
March Ingleside Note (in default)	Ingleside – Blue Dolphin	Debt	03/31/2017	8.00%	Blue Dolphin working capital; reflects amounts owed to Ingleside under previous Amended and Restated Tank Lease Agreement; matured 01/01/2019; interest still accruing
June LEH Note (in default)	LEH – Blue Dolphin	Debt	03/312017	8.00%	Blue Dolphin working capital; reflects amounts owed to LEH under the Amended and Restated Operating Agreement; reflects amounts owed to Jonathan Carroll under guaranty fee agreements; matured 01/01/2019; interest still accruing
Loan and Security Agreement (in default)	LEH - BDPL	Debt	08/15/2016	16.00%	2-year term; $4.0 million principal amount; $0.5 million annual payment; proceeds used for working capital; no financial maintenance covenants; secured by certain BDPL property

Third-Party Debt

Loan Description	Original Principal Amount (in millions)	Maturity Date	Monthly Principal and Interest Payment	Interest Rate	Loan Purpose
USDA-Guaranteed Loans
First Term Loan Due 2034 (in default)	$25.0	Jun 2034	$0.2 million	WSJ Prime + 2.75%	Refinance loan; capital improvements
Second Term Loan Due 2034 (in default)	$10.0	Dec 2034	$0.1 million	WSJ Prime + 2.75%	Refinance bridge loan; capital improvements
Notre Dame Debt (in default)	$11.7(1)	Jan 2018	No payments to date; payment rights subordinated(2)	16.00%	Working capital; reduce balance of GEL Final Arbitration Award
Amended Pilot Line of Credit (in default)	$13.0	May 2020	----	14.00%	GEL Settlement Payment, NPS purchase of crude oil from Pilot, and working capital

(1)

Original principal amount was $8.0 million; pursuant to a 2017 sixth amendment, the Notre Dame Debt was amended to increase the principal amount by $3.7 million; the additional principal was used to reduce the GEL Final Arbitration Award by $3.6 million.

(2)

Pursuant to a 2015 subordination agreement, the holder of the Notre Dame Debt agreed to subordinate their right to payments, as well as any security interest and liens on the Nixon facility’s business assets, in favor of Veritex as holder of the First Term Loan Due 2034.

Remainder of Page Intentionally Left Blank

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Management’s Discussion and Analysis

BOEM Additional Financial Assurance (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 and 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.

BDPL has historically maintained $0.9 million in financial assurance to BOEM for the decommissioning of its trunk pipeline offshore in federal waters. Following an agency restructuring of the financial assurance program, in March 2018 BOEM ordered BDPL to provide additional financial assurance totaling approximately $4.8 million for five (5) existing pipeline rights-of-way within sixty (60) calendar days. In June 2018, BOEM issued BDPL INCs for each right-of-way that failed to comply. BDPL appealed the INCs to the IBLA, and the IBLA granted multiple extension requests that extended BDPL’s deadline for filing a statement of reasons for the appeal with the IBLA. On August 9, 2019, BDPL timely filed its statement of reasons for the appeal with the IBLA. Considering BDPL’s August 2019 meeting with BOEM and BSEE, BDPL requested a stay in the IBLA matter until August 2020. The Office of the Solicitor of the U.S. Department of the Interior was agreeable to a 10-day extension while it conferred with BOEM on BDPL’s stay request. In late October 2019, BDPL filed a motion to request the 10-day extension, which motion was subsequently granted by the IBLA. The solicitor’s office consented to an additional 14-day extension for BDPL to file its reply, and BDPL filed a motion to request the 14-day extension in November 2019. The solicitor’s office indicated that BOEM would not consent to further extensions. However, the solicitor’s office signaled that BDPL’s adherence to the milestones identified in the August 15, 2019 meeting may help in future discussions with BOEM related to the INCs. BDPL reasonably expects that successful completion of its decommissioning obligations (discussed within this “Note (16)” under ‘BSEE Offshore Pipelines and Platform Decommissioning’) prior to BSEE’s August 2020 deadline will significantly reduce or eliminate the amount of financial assurance 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 financial assurance (supplemental pipeline bond) requirements. If BDPL is required by BOEM to provide significant additional financial assurance (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 are currently unable to predict the outcome of the BOEM INCs. Accordingly, we have not recorded a liability on our consolidated balance sheet as of March 31, 2020. At March 31, 2020 and December 31, 2019, BDPL maintained approximately $0.9 million in credit and cash-backed pipeline rights-of-way bonds issued to BOEM.

BSEE Offshore Pipelines and Platform Decommissioning

BSEE’s deadline to complete decommissioning of BDPL’s offshore pipelines and platform assets, as well as to complete the structural platform surveys, does not relieve BDPL of its obligations to remedy the BSEE INCs or of BSEE’s authority to impose financial penalties. There can be no assurance that we will be able to meet BSEE’s time tables. If BDPL fails to complete decommissioning of the assets and/or structural surveys of the platform by the allowable deadlines, BDPL will be subject to vigorous regulatory oversight and enforcement, including but not limited to failure to correct an INC, civil penalties, and revocation of BDPL’s operator designation, which may have a material adverse effect on our earnings, cash flows and liquidity.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Management’s Discussion and Analysis

Sources and Use of Cash.

Components of Cash Flows

	Three Months Ended March 31,
	2020	2019
	(in thousands)
Cash Flows Provided By (Used In):
Operating activities	$(327)	$(31)
Investing activities	(198)	(123)
Financing activities	722	169
Increase (Decrease) in Cash and Cash Equivalents	$197	$15

Q1 2020 Versus Q1 2019

We had a cash flow deficit from operations of $0.3 million for Q1 2020 compared to cash flow deficit from operations of approximately $0.03 million for Q1 2019. The decrease in cash flow from operations primarily related to loss from operations.

Capital Spending

We account for our capital expenditures in accordance with GAAP. We also distinguish between capital expenditures that are for maintenance and those that are for expansion. We classify a capital expenditure as maintenance if it maintains capacity or throughput. A classification of expansion is used if the capital expenditure is expected to increase capacity or throughput. The distinction between maintenance and expansion is made consistent with our accounting policies and is generally a straightforward process. However, in certain circumstances the distinction can be a matter of management judgment and discretion.

Budgeting and approval of maintenance capital expenditures is done throughout the year on a project-by-project basis. We budget for and make maintenance capital expenditures that are necessary to maintain safe and efficient operations, meet customer needs and comply with operating policies and applicable law. We may budget for and make additional maintenance capital expenditures that we expect to produce economic benefits such as increasing efficiency and/or lowering future expenses. Budgeting and approval of expansion capital expenditures are generally made periodically on a project-by-project basis in response to specific investment opportunities identified by our business segments.

~~Contractual Obligations~~Capital Improvement Expansion Project

Since 2015, the Nixon facility has been undergoing a capital improvement expansion project. Capital improvements have primarily related to construction of new petroleum storage tanks. However, smaller efficiency improvements have been made as well. In the short-term, increased petroleum storage capacity has helped with de-bottlenecking the refinery. In the long-term, additional petroleum storage capacity will allow for increased refinery throughput of up to approximately 30,000 bpd. Increased petroleum storage capacity for tolling and ~~Debt Agreements~~.terminaling operations provides an opportunity to generate additional tolling and terminaling revenue.

Q1 2020 Capital Expenditures

During Q1 2020, capital expenditures totaled $0.7 million compared to $0.3 million during Q1 2019. Expenditures during Q1 2020 primarily related to work on a petroleum storage tank. Work on the remaining petroleum storage tank under the Nixon capital improvement expansion project is nearly complete.

Future Expected Capital Expenditures

For the next 12 to 18 months, we expect to continue to incur capital expenditures related to facility and land improvements, installation of new and/or refurbished refinery process equipment, and completion of an unfinished petroleum storage tank. Capital spending is being funded by cash flow from operations, Affiliates, and available funding under a loan from Veritex that was secured in 2015. Unused amounts under the Veritex loans are reflected in restricted cash (current and non-current portions) on our consolidated balance sheets. See ~~the following notes under “Part I, Item 1. Financial Statements” regarding:~~“Note (10)” to our consolidated financial statements for additional disclosures related to borrowings for capital spending.

Off-Balance Sheet Arrangements. None.

●

~~GEL. “Note (1) Organization – Going Concern – Final Arbitration Award and Settlement Agreement” for disclosures related to the Final Arbitration Award to GEL and Settlement Agreement with GEL.~~

●

~~Related-Party. “Note (9) Related-Party Transactions” for a summary of the agreements we have in place with related parties.~~

●

~~Long-Term Debt. “Note (11) Long-Term Debt, Net” for a summary of our long-term debt.~~

●

~~Operating Lease. “Note (14) Leases” for disclosures related to our operating lease.~~

●

~~Supplemental Pipeline Bonds. “Note (17) Commitments and Contingencies – Supplemental Pipeline Bonds” for a discussion of supplemental pipeline bonding requirements.~~

4657

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

~~Indebtedness~~.

~~The principal balances outstanding plus accrued interest on our long-term debt, net (including related-party) for the periods indicated were as follow:~~

March 31,

December 31,

2019

2018

(in thousands)

First Term Loan Due 2034 (in default)
$22,551

$22,593

Second Term Loan Due 2034 (in default)
  9,342

  9,353

Notre Dame Debt (in default)
  8,019

7,821

BDPL Loan Agreement (in default)
  5,694

  5,534

March Ingleside Note (in default)
  1,308
  1,283
March Carroll Note (in default)
  1,330
  1,147
June LEH Note (in default)
  340
  611
Capital Leases
  31
  41

$49,096

$48,383



Less: Current portion of long-term debt, net
  (42,104)
  (41,904)
Less: Unamortized debt issue costs
  (1,974)
  (2,006)
Less: Interest payable and interest payable, related party
  (5,018)
  (4,473)




$-

$-

Principal payments on long-term debt totaled $0.3 million in the Current Quarter compared to $0.2 million in the Prior Quarter. As of the date of this Quarterly Report, LE and LRM were current on monthly payments under the First Term Loan Due 2034 and Second Term Loan Due 2034. There have been no payments under the Notre Dame Debt to date and no payments to Jonathan Carroll under the March Carroll Note since May 2017.

As described elsewhere in this Quarterly Report, Veritex notified obligors that the Final Arbitration Award constitutes an event of default under the First Term Loan Due 2034 and Second Term Loan Due 2034. In addition to existing events of default related to the Final Arbitration Award, March 31, 2019, LE and LRM were in violation of the debt service coverage ratio, the current ratio, and debt to net worth ratio financial covenants related to the secured loan agreements. LE also failed to replenish a payment reserve account as required. The occurrence of events of default under the secured loan agreements permits Veritex to declare the amounts owed under the secured loan agreements immediately due and payable, exercise its rights with respect to collateral securing obligors’ obligations under the loan agreements, and/or exercise any other rights and remedies available.

~~Veritex has not accelerated or called due the secured loan agreements considering the Settlement Agreement, which Veritex must ultimately approve. Instead, Veritex has expressly reserved~~ all its rights, privileges and remedies related to events of default under the secured loan agreements and informed obligors that it would consider a final confirmation of the Final Arbitration Award to be a material event of default under the loan agreements. ~~Veritex has been working with LE and LRM and continues to be aware and party to all discussions and arrangements with GEL surrounding the Settlement.~~ ~~Veritex must ultimately approve the Settlement.~~ However, if Veritex does not approve the Settlement or exercises its rights and remedies under the secured loan agreements or the Settlement Agreement with GEL is terminated and GEL seeks to confirm and enforce the Final Arbitration Award, our business, financial condition, and results of operations will be materially adversely affected, and Blue Dolphin would likely be required to seek protection under bankruptcy laws.

See “Part I, Item 1. Financial Statements – Note (1) Organization – Going Concern” and “– Operating Risks”, as well as “Note (11) Long-Term Debt, Net” for additional disclosures related to long-term debt financial covenant violations and events of default.

~~See “Contractual Obligations – Related-Party” within the Liquidity and Capital Resources section for additional disclosures with respect to related-party indebtedness.~~

~~BLUE DOLPHIN ENERGY COMPANY~~

~~FORM 10-Q 3/31/19~~Management’s Discussion and Analysis and Internal Controls

~~Off-Balance Sheet Arrangements~~

~~None.~~Accounting Standards.

Critical Accounting Policies and Estimates

~~Long-Lived Assets. See “Part I, Item 1. Financial Statements – Note (3) Significant Accounting Policies – Property~~Our significant accounting policies, recent accounting developments are described in “Note (2)” to our consolidated financial statements. The nature of our business requires that we make estimates and ~~Equipment”.~~

~~Revenue Recognition. See “Part I, Item 1. Financial Statements – Note (3) Significant Accounting Policies – Revenue Recognition”.~~

~~Inventory. See “Part I, Item 1. Financial Statements – Note (3) Significant Accounting Policies – Inventory”.~~

~~Asset Retirement Obligations. See “Part I, Item 1. Financial Statements – Note (3) Significant Accounting Policies – Asset Retirement Obligations”~~assumptions in accordance with U.S. GAAP. These estimates and ~~“— Note (12) Asset Retirement Obligations”.~~

~~Income Taxes. See “Part I, Item 1. Financial Statements – Note (3) Significant Accounting Policies – Income Taxes”~~assumptions affect the reported amounts of assets and ~~“– Note (15) Income Taxes”.~~

~~Recently Adopted Accounting Guidance~~

~~See “Part I, Item 1. Financial Statements – Note (3) Significant Accounting Policies – New Pronouncements Adopted”.~~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. The COVID-19 outbreak has impacted these estimates and assumptions and will continue to do so. Our estimates at the end of the first quarter assumed no material impact from the disruptions caused by COVID-19. While there was not a material impact to our consolidated financial statements as of and for the three months ended March 31, 2020, our future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.

New ~~Pronouncements Issued, Not Yet Effective~~Accounting Standards and Disclosures

New accounting standards and disclosures are discussed in “Note (2)” to our consolidated financial statements.

~~See “Part I, Item 1. Financial Statements – Note (3) Significant Accounting Policies – New Pronouncements Issued, Note Yet Effective”.~~

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”),. As previously reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, based on our evaluation, our Chief Executive Officer (principal executive officer, principal financial officer, and principal accounting officer) concluded that our disclosure controls and procedures were ineffective due to certain material weaknesses and/or significant deficiencies as described below:

●	Significant deficiency – There is currently not a process in place for formal review of manual journal entries.
●	Material weakness – The company currently lacks resources to handle complex accounting transactions. This can result in errors related to the recording, disclosure and presentation of consolidated financial information in quarterly, annual, and other filings.

These disclosure controls and procedures remained ineffective as of the end of the period covered by this Quarterly Report. ~~Based on~~Management is currently evaluating internal processes in order to take corrective actions. Corrective actions may include implementing formal policies, improving processes, documenting procedures, and better defining segregation of duties to improve financial reporting. These actions will be subject to ongoing senior management review, as well as Audit Committee oversight. Although we plan to complete remediation efforts as quickly as possible, we cannot at this time estimate how long it will take, and 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 requiredinitiatives may not prove to be ~~disclosed by us~~successful in ~~reports that we file or submit under~~fully remediating the ~~Exchange Act, are recorded, processed, summarized,~~identified weakness and ~~reported within the time periods specified in the SEC’s rules and forms.~~

~~BLUE DOLPHIN ENERGY COMPANY~~

~~FORM 10-Q 3/31/19~~

deficiency.

Changes in Internal Control over Financial Reporting

Management concluded that our internal control over financial reporting was effective as of December 31, 2018. In connection with the adoption on January 1, 2019 of new accounting guidance for leases, we implemented new processes and internal controls related to our leases.

~~Except as described above, there has~~There have 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, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. (See ~~“Part I, Item 4. Controls and Procedures – Evaluation~~the above section “Evaluation of Disclosure Controls and Procedures” ~~of this Quarterly Report~~ for a discussion related to current ineffective disclosure controls and procedures.)

Remainder of Page Intentionally Left Blank

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Legal Proceedings

PART ~~II. OTHER INFORMATION~~II

ITEM 1. LEGAL PROCEEDINGS

~~Final Arbitration Award~~Resolved - GEL Settlement

~~See “Part I, Item 1. Financial Statements – Note (1) Organization – Going Concern –~~As previously disclosed, GEL was awarded the GEL Final Arbitration Award ~~and Settlement Agreement”~~in the aggregate amount of ~~this Quarterly Report for disclosures related to the Final Arbitration Award to GEL and the Settlement Agreement between~~$31.3 million. In July 2018, the Lazarus Parties and ~~GEL.~~GEL entered into the GEL Settlement Agreement. The GEL Settlement Agreement was subsequently amended five (5) times to extend the GEL Settlement Payment Date and/or modify certain terms related to the GEL Interim Payments or the GEL Settlement Payment. During the period September 2017 to August 2019, GEL received the following amounts from the Lazarus Parties to reduce the outstanding balance of the GEL Final Arbitration Award:

	(in millions)

Initial payment (September 2017)	$3.7
GEL Interim Payments (July 2018 to April 2019)	8.0
Settlement Payment (Multiple Payments May 7 to 10, 2019)	10.0
Deferred Interim Installment Payments (June 2019 to August 2019)	0.5

	$22.2

The GEL Settlement Effective Date occurred on August 23, 2019. As a result of the GEL Settlement: (i) the mutual releases became effective, (ii) GEL filed a stipulation of dismissal of claims against LE, and (iii) Blue Dolphin recognized a $9.1 million gain on the extinguishment of debt on its consolidated statements of operations in the third quarter of 2019. Until the GEL Settlement occurred, the debt was reflected on Blue Dolphin’s consolidated balance sheets as accrued arbitration award payable. At both March 31, 2020 and December 31, 2019, accrued arbitration award payable was $0.

BOEM Additional Financial Assurance (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

FORM 10-Q 3/31/20

Legal Proceedings and Risk Factors

Other Legal Matters

We are involved in lawsuits, claims, and proceedings incidental to the conduct of our business, including mechanic’s liens, contract-related disputes, and administrative ~~proceedings, and financial assurance (bonding) requirements with regulatory bodies.~~proceedings. Management is in discussion with all concerned parties and does not believe that such matters will have a material adverse effect on our financial position, earnings, or cash flows. However, there can be no assurance that such discussions will result in a manageable ~~outcome or that we will be able to meet financial assurance (bonding) requirements.~~outcome. If Veritex ~~does not approve the Settlement~~ and/or ~~exercises its~~Pilot exercise their rights and remedies due to defaults under ~~the~~our secured loan agreements, ~~or if the Settlement Agreement with GEL is terminated and GEL seeks to confirm and enforce the Final Arbitration Award,~~ our business, financial condition, and results of operations will be materially adversely ~~affected, and Blue Dolphin and its affiliates would likely be required to seek protection under bankruptcy laws.~~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.~~Report for the fiscal year ended December 31, 2019 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~~Except as noted below, there have been no material changes in our assessment of our risk factors from those set forth in our Annual ~~Report.~~Report for the fiscal year ended December 31, 2019.

The recent outbreak of COVID-19 and certain developments in the global oil markets have had, and may continue to have, material adverse consequences for general economic, financial and business conditions, and could materially and adversely affect our business, financial condition, results of operations and cash flows and those of our customers and suppliers.

The recent outbreak of COVID-19 and the responses of governmental authorities and companies and the self-imposed restrictions by many individuals across the world to stem the spread of the virus have significantly reduced global economic activity, as there has been a dramatic decrease in the number of businesses open for operation and substantially fewer people across the world traveling to work or leaving their home to purchase goods and services. This has also resulted in, for example, a dramatic reduction in airline flights and has reduced the number of automobiles on the road. As a result, there has been a decline in the demand for the refined products that we produce and sell.

Concerns over the negative effects of COVID-19 on economic and business prospects across the world have contributed to increased market and oil price volatility and have diminished expectations for the global economy. These factors, coupled with the emergence of decreasing business and consumer confidence and increasing unemployment resulting from the COVID-19 outbreak and the recent abrupt oil price decline, may precipitate a prolonged economic slowdown and recession. Our refinery utilization and operating margins and other aspects of our business have been adversely impacted by these developments. Any such prolonged period of economic slowdown or recession, or a protracted period of depressed prices for crude oil and our refined products or reduced margins for the refined products we produce and sell could have significant adverse consequences for our financial condition and the financial condition of our customers and suppliers, and could diminish our liquidity and negatively affect our ability to obtain adequate crude oil volumes and to market certain of our products at favorable prices, or at all.

Due to declines in the market prices of products held in our inventories, in future periods we may record an inventory write-down to cost of goods sold to value certain of our inventories at the lower of cost or market, which charge may be material. This expected inventory valuation write-down will have a negative effect on our earnings. Depending on future movements of refined product prices, future inventory valuation adjustments could have a negative or positive effect on our financial performance. In addition, a sustained period of low crude oil prices may also result in significant financial constraints on our crude oil supplier, which could result in long term crude oil supply constraints and higher transportation costs for our business. Such conditions could also result in an increased risk that our customers may be unable to fully fulfill their obligations in a timely manner, or at all. Any of the foregoing events or conditions, or other unforeseen consequences of COVID-19, could significantly adversely affect our business and financial condition and the business and financial condition of our customers.

The future impact that COVID-19 will have on our business, results of operations, financial condition, cash flows, and stock price will depend on future developments, including, among others, volatility in the global capital markets, the ultimate geographic spread and severity of the virus, the consequences of governmental and other measures designed to prevent the spread of the virus, the development of effective treatments, the duration of the outbreak, actions taken by governmental authorities, customers, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Unregistered Sales of Equity Securities, Defaults upon Senior Securities and Other Information

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

~~None.~~Set forth below is information regarding the sale or issuance of shares of Common Stock by us that were not registered under the Securities Act of 1933 and subsequent to the three months ended March 31, 2020:

The sale and issuance of the securities were exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

See “Part I, Item. 1. Financial Statements – Note (10) and Note (11) ~~Long-Term Debt, Net”~~” for disclosures related to defaults on our debt.

~~BLUE DOLPHIN ENERGY COMPANY~~

~~FORM 10-Q 3/31/19~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Amended and Restated Operating Agreement

~~None.~~Term. The term begins on the effective date and expires upon the earliest to occur of the following: (a) upon the third anniversary of the effective date, which termination date shall be April 1, 2023, (b) upon written notice of either party upon the material breach of the agreement by the other party, or (c) upon 90 days’ notice by the Board if the Board determines that the Amended and Restated Operating Agreement is not in the best interest of Blue Dolphin, LE, LRM, NPS, BDPL, BDPC and/or BDSC.

Together, Jonathan Carroll and LEH own approximately 82% of Blue Dolphin’s Common Stock.

See “Note (3)” and “Note 17”) of our consolidated financial statements for additional disclosures related to the Amended and Restated Operating Agreement.

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/20

Exhibits

ITEM 6. EXHIBITS

Exhibits Index

No.	Description

10.1	~~Fourth Amendment to the Settlement~~Amended and Restated Operating Agreement ~~dated~~effective as of ~~March 19, 2019, by and among~~April 1, 2020, between Lazarus Energy Holdings, LLC, Blue Dolphin Energy Company, Lazarus Energy, ~~Holdings,~~LLC, Lazarus Refining & Marketing, LLC, Nixon Product Storage, LLC, ~~Carroll &~~Blue Dolphin Pipe Line Company, ~~Financial Holdings, L.P., Jonathan Carroll~~Blue Dolphin Petroleum Company, and ~~GEL Tex Marketing, LLC, incorporated by reference to the Current Report on Form 8-K filed by the Company on March 21, 2019 (file no. 000-15905).~~Blue Dolphin Services Co.
~~31.1~~* 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~~* 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*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Schema Document.
101.CAL*	XBRL Calculation Linkbase Document.
101.LAB*	XBRL Label Linkbase Document.
101.PRE*	XBRL Presentation Linkbase Document.
101.DEF*	XBRL Definition Linkbase Document.

Filed ~~herewith.~~herewith

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5062

BLUE DOLPHIN ENERGY COMPANY

FORM 10-Q 3/31/1920

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 ~~16, 2019~~15, 2020	By:	/s/ JONATHAN P. CARROLL
		Jonathan P. Carroll Chief Executive Officer, President, Assistant Treasurer and Secretary (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)

~~Principal Amount:~~	~~$4.0 million~~
~~Maturity Date:~~	~~August 2018~~
~~Principal and Interest Payment:~~	~~$500,000 annually~~
~~Interest Rate:~~	~~16.00%~~

~~Principal Amount:~~	~~$25.0 million~~
~~Maturity Date:~~	~~June 2034~~
~~Principal and Interest Payment:~~	~~$0.2 million monthly~~
~~Interest Rate:~~	~~Wall Street Journal Prime Rate plus 2.75%~~

~~Principal Amount:~~	~~$10.0 million~~
~~Maturity Date:~~	~~December 2034~~
~~Principal and Interest Payment:~~	~~$0.1 million monthly~~
~~Interest Rate:~~	~~Wall Street Journal Prime Rate plus 2.75%~~

~~Original Principal Amount:~~	~~$8.0 million~~
~~Additional Principal:~~	~~$3.7 million~~
~~Maturity Date:~~	~~January 2018~~
~~Principal and Interest Payment:~~	~~None; payment rights subordinated to senior lender~~
~~Default Interest Rate:~~	~~16.00%~~

	March 31, 2019	December 31, 2018
	(in thousands)

LEH:
June LEH Note	$821	$611
BDPL Loan Agreement	5,694	5,534
LEH total	6,515	6,145

Ingleside
March Ingleside Note	1,308	1,283
Jonathan Carroll
March Carroll Note	1,330	1,147
	9,153	8,575

Less: Long-term debt, related party, current portion, in default	(7,459)	(7,041)
Less: Interest payable, related party, in default	(1,694)	(1,534)
	$-	$-

~~(11)~~ Loan Description	~~Long-Term~~ Original Principal Amount (in millions)	Maturity Date	Monthly Principal and Interest Payment	Interest Rate	Loan Purpose
USDA-Guaranteed Loans
First Term Loan Due 2034 (in default)	$25.0	Jun 2034	$0.2 million	WSJ Prime + 2.75%	Refinance loan; capital improvements
Second Term Loan Due 2034 (in default)	$10.0	Dec 2034	$0.1 million	WSJ Prime + 2.75%	Refinance bridge loan; capital improvements
Notre Dame Debt ~~Net~~(in default)	$11.7(1)	Jan 2018	No payments to date; payment rights subordinated(2)	16.00%	Working capital; reduce balance of GEL Final Arbitration Award

Loan Description	Guarantees	Security
USDA-Guaranteed Loans
First Term Loan Due 2034 (in default)	● 100% USDA-guarantee; ● Jonathan Carroll personal guarantee(1); ● LEH, LRM and Blue Dolphin cross-guarantee	● 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 tank rental income; ● $1.0 million payment reserve account held by Veritex; and ● $5.0 million life insurance policy on Jonathan Carroll.
Second Term Loan Due 2034 (in default)	● 100% USDA-guarantee; ● Jonathan Carroll personal guarantee(1); ● LEH, LE and Blue Dolphin cross-guarantee	● 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 tanks for which Veritex has second priority lien; and ● all other collateral as described in the security documents.
Notre Dame Debt (in default)	---	● Subordinated deed of trust that encumbers the crude distillation tower and general assets of LE(2).

Key Products
Handled

Operating Subsidiary

Nixon facility
●Crude distillation tower (15,000 bpd)
●Petroleum storage tanks
●Loading and unloading facilities
●Land (56 acres)

Crude Oil
Refined Products

Nixon, Texas