# Blue Dolphin Energy Co: Form 10-Q for the period ended Mar 31, 2024

- Company: [Blue Dolphin Energy Co](/companies/bdco.md) (CIK 793306)
- Form: 10-Q
- Filed: 2024-05-15
- Accepted by EDGAR: May 15, 2024, 20:51 ET
- Period: 2024-03-31
- Accession: 0001437749-24-017113
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/793306/000143774924017113/bdco20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/793306/000143774924017113/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $91.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $79.2m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $11.8m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $9.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $1.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $1.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $6.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.44 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.44 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 14,921,968 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$6.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-03-31 | $11.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $52.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $108.5m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $52.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $60.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $48.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 65,464 characters.

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

### Overview and Outlook

### Company Overview

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

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

### Going Concern Assessment

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

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

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

### Business Operations Update

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

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

### General Trends and Outlook

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

### Liquidity and Access to Capital Markets

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

### Changes in Regulations

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

### Business Strategy and Accomplishments

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

|  |  |
| --- | --- |
| Optimize Existing Asset Base | ● Maintain safe operations and enhance health, safety, and environmental systems. |
|  | ● Plan and manage turnarounds and downtime. |
| Improve Operational Efficiencies | ● Reduce or streamline variable costs incurred in production. |
|  | ● Increase throughput capacity and optimize product slate. |
|  | ● Increase tolling and terminaling revenue. |
| Seize Market Opportunities | ● Leverage existing infrastructure to engage in renewable energy projects. |
|  | ● Take advantage of market opportunities as they arise. |

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

### Optimize Existing Asset Base

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

### Improve Operational Efficiencies

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

### Seize Market Opportunities

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

### Downstream Operations

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

|  |  |  |  |
| --- | --- | --- | --- |
| Property | Key Products Handled | Operating Subsidiary | Location |
| Nixon facility | Crude Oil | LE | Nixon, Texas |
| ● Crude distillation tower (15,000 bpd) | Refined Products |  |  |
| ● Petroleum storage tanks (operations support) |  |  |  |
| ● Loading and unloading facilities |  |  |  |
| ● Land (56 acres) |  |  |  |

### Crude Oil and Condensate Supply

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

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

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

### Products and Markets

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

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

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

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

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

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

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

### Midstream Operations

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

| Property | Key Products Handled | Operating Subsidiary | Location |
| --- | --- | --- | --- |
| Nixon facility | Crude Oil | LRM, NPS | Nixon, Texas |
| ● Petroleum storage tanks and terminal services | Refined Products |  |  |
| ● Loading and unloading facilities |  |  |  |

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

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

### Inactive Operations

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

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

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

Remainder of Page Intentionally Left Blank

### Results of Operations

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

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

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

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

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

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

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

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

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

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

### Consolidated Results

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

### Q1 2024 Versus Q1 2023

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

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

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

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

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

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

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

*(in thousands)*

|  | Three Months Ended March 31, 2024 Refinery Operations | 2023 | 2024 Tolling and Terminaling | 2023 | 2024 Corporate and Other | 2023 | 2024 Total | 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $89,915 | $114,640 | $1,107 | $2,021 | $- | $- | $91,022 | $116,661 |
| Intercompany processing fees | **(503)** | (576) | **503** | 576 | **-** | - | **-** | - |
| Cost of goods sold | **(78,782)** | (95,799) | **(410)** | (358) | **-** | - | **(79,192)** | (96,157) |
| Gross profit | **10,630** | 18,265 | **1,200** | 2,239 | **-** | - | **11,830** | 20,504 |
| Other operating and general and administrative expenses (1) | **(409)** | (478) | **(23)** | (470) | **(863)** | (530) | **(1,295)** | (1,478) |
| Depreciation and amortization | **(301)** | (304) | **(342)** | (342) | **(61)** | (52) | **(704)** | (698) |
| Interest and other non-operating expenses, net | **(734)** | (677) | **(496)** | (470) | **(136)** | (183) | **(1,366)** | (1,330) |
| Income (loss) before income taxes | **9,186** | 16,806 | **339** | 957 | **(1,060)** | (765) | **8,465** | 16,998 |
| Income tax expense | **-** | - | **-** | - | **(1,841)** | (246) | **(1,841)** | (246) |
| Net income (loss) | $9,186 | $16,806 | $339 | $957 | $(2,901) | $(1,011) | $6,624 | $16,752 |

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

### Downstream Operations

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

*(in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Refinery operations revenue | $89,915 | $114,640 |
| Less: intercompany processing fees (1) | **(503)** | (576) |
| Less: cost of goods sold | **(78,782)** | (95,799) |
| Refinery operations gross profit | $10,630 | $18,265 |
| Sales (bbls) | **949** | 1,148 |
| Refining gross profit per bbl | $11.20 | $15.91 |

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

### Q1 2024 Versus Q1 2023

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

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

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

Remainer of Page Intentionally Left Blank

### Midstream Operations

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

*(in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Tolling and terminaling revenue | $1,107 | $2,021 |
| Intercompany processing fees (1) | **503** | 576 |
| Less: cost of goods sold | **(410)** | (358) |
| Tolling and terminaling gross profit | $1,200 | $2,239 |

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

### Q1 2024 Versus Q1 2023

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

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

### Capital Resources and Liquidity

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

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

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

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

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

### Sources and Use of Cash

*Components of Cash Flow.*

*(in thousands)*

| Cash Flows Provided By (Used In): | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Operating activities | $(6,250) | $13,783 |
| Investing activities | **-** | - |
| Financing activities | **(345)** | (1,771) |
| Increase in Cash and Cash Equivalents | $(6,595) | $12,012 |

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

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

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

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

### Debt and Lease Obligations

*Debt Agreements.*

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

| Loan Description | Parties | Maturity Date | Interest Rate | Loan Purpose |
| --- | --- | --- | ---: | --- |
| BDPL-LEH Loan Agreement (in forbearance) | BDPL | Aug 2018 | 16.00% | Original principal amount of $4.0 million; Blue Dolphin working capital |
|  | LEH |  |  |  |

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

*(in millions)*

*(in millions)*

| Loan Description Veritex Loans | Parties | Principal | Origination / Maturity | Monthly Principal and Interest Payment | Interest Rate | Loan Purpose |
| --- | --- | ---: | --- | ---: | ---: | --- |
| LE Term Loan Due 2034 (in default) (1) | LE | $25.0 | June 2034 | $0.3 | WSJ Prime + 2.75% | Refinance loan; capital improvements |
|  | Veritex |  |  |  |  |  |
| LRM Term Loan Due 2034 (in default) (1) | LRM | $10.0 | December 2034 | $0.1 | WSJ Prime + 2.75% | Refinance bridge loan; capital improvements |
|  | Veritex |  |  |  |  |  |
| Kissick Debt (in forbearance) (2) | LE | $11.7 | January 2018 | $0.5 | 6.25% | Working capital |
|  | Kissick |  |  |  |  |  |
| GNCU Loan |  |  |  |  |  |  |
| NPS Term Loan Due 2031 (in default) (3) | NPS | $10.0 | October 2031 | $0.1 | 5.75% | Working capital |
|  | GNCU |  |  |  |  |  |
| SBA EIDLs |  |  |  |  |  |  |
| Blue Dolphin Term Loan Due 2051 (as modified) (4) | Blue Dolphin | $2.0 | June 2051 | $0.07 | 3.75% | Working capital |
|  | SBA |  |  |  |  |  |
| LE Term Loan Due 2050 (5) | LE | $0.15 | August 2050 | $0.0007 | 3.75% | Working capital |
|  | SBA |  |  | $0.0007 |  |  |
| NPS Term Loan Due 2050 (5) | NPS | $0.15 | August 2050 | $0.0007 | 3.75% | Working capital |
|  | SBA |  |  |  |  |  |
| Equipment Loan Due 2025 (6) | LE | $0.07 | October 2025 | $0.0013 | 4.50% | Equipment Lease Conversion |
|  | Texas First |  |  |  |  |  |

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

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

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

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

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

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

Blue Dolphin Energy Company

Guarantees and Security.

| Loan Description Veritex Loans LE Term Loan Due 2034 (in default) LRM Term Loan Due 2034 (in default) | Guarantees ● ● ● ● ● ● | USDA Jonathan Carroll(1) Affiliate cross-guarantees USDA Jonathan Carroll(1) Affiliate cross-guarantees | Security ● ● ● ● ● ● ● ● ● | 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 $5.0 million life insurance policy on Jonathan Carroll 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 Substantially all assets |
| --- | ---: | --- | --- | --- |
| Kissick Debt (in forbearance)(2) | - |  | ● | Subordinated deed of trust that encumbers the crude distillation tower and general assets of LE |
| GNCU Loan |  |  |  |  |
| NPS Term Loan Due 2031 (in default) | ● | USDA | ● | Deed of trust lien on approximately 56 acres of land and improvements owned by LE |
|  | ● | Jonathan Carroll(1) | ● | Leasehold deed of trust lien on certain property leased by NPS from LE |
|  | ● | Affiliate cross-guarantees | ● | Assignment of leases and rents and certain personal property |
| BDPL-LEH Loan Agreement (in forbearance) | ● | - | ● | Certain BDPL property |
| SBA EIDLs |  |  |  |  |
| Blue Dolphin Term Loan Due 2051 | - |  | ● | Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) |
| LE Term Loan Due 2050 | - |  | ● | Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) |
| NPS Term Loan Due 2050 | - |  | ● | Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) |
| Equipment Loan Due 2025 | - |  | ● | First priority security interest in the equipment (backhoe). |

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

(2) Subject to the Kissick Subordination Agreement.

Lease Agreements.

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

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

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

Remainder of Page Intentionally Left Blank

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

Outstanding Principal and Accrued Interest.

*(in thousands)*

| Veritex Loans | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| LE Term Loan Due 2034 (in default) | $19,607 | $19,858 |
| LRM Term Loan Due 2034 (in default) | **8,163** | 8,260 |
| Kissick Debt (in forbearance) | **5,751** | 7,147 |
| GNCU Loan |  |  |
| NPS Term Loan Due 2031 (in default) | **9,975** | 9,975 |
| LEH |  |  |
| BDPL-LEH Loan Agreement (in forbearance) | **5,308** | 5,308 |
| SBA EIDLs |  |  |
| BDEC Term Loan Due 2051 | **2,125** | 2,135 |
| LE Term Loan Due 2050 | **161** | 162 |
| NPS Term Loan Due 2050 | **161** | 162 |
| Equipment Loan Due 2025 | **25** | 29 |
|  | **51,276** | 53,036 |
| Less: Current portion of long-term debt, net | **(40,581)** | (39,440) |
| Less: Unamortized debt issue costs | **(1,896)** | (1,947) |
| Less: Accrued interest payable | **(1,182)** | (2,596) |
|  | $7,617 | $9,053 |

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

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

*(in thousands)*

| Veritex Loans | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| LE Term Loan Due 2034 (in default) | $1,674 | $1,674 |
| LRM Term Loan Due 2034 (in default) | **768** | 768 |
| GNCU Loan |  |  |
| NPS Term Loan Due 2031 (in default) | **730** | 730 |
| Less: Accumulated amortization | **(1,276)** | (1,225) |
|  | $1,896 | $1,947 |

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

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

*(in thousands)*

|  | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Kissick Debt (in forbearance) | $773 | $2,169 |
| LEH |  |  |
| BDPL-LEH Loan Agreement (in forbearance) | **1,308** | 1,308 |
| Veritex Loans |  |  |
| LE Term Loan Due 2034 (in default) | **176** | 181 |
| LRM Term Loan Due 2034 (in default) | **69** | 70 |
| SBA EIDLs |  |  |
| BDEC Term Loan Due 2051 | **125** | 135 |
| LE Term Loan Due 2050 | **11** | 12 |
| NPS Term Loan Due 2053 | **11** | 12 |
| GNCU Loan |  |  |
| NPS Term Loan Due 2031 (in default) | **17** | 17 |
|  | **2,490** | 3,904 |
| Less: Accrued interest payable | **(1,182)** | (2,596) |
| Long-term Interest Payable, Net of Current Portion | $1,308 | $1,308 |

*Forbearances and Defaults.*

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

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

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

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

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

### Concentration of Customers Risk

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

*(in millions)*

| Three Months Ended | Number Significant Customers | % Total Revenue from Operations | Portion of Accounts Receivable at March 31, |
| --- | ---: | ---: | ---: |
| **March 31, 2024** | **3** | **81.3%** | $11.7 |
| March 31, 2023 | 3 | 65.7% | $11.6 |

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

### Regulatory Activities

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

*BSEE. Offshore Pipelines and Platform Requirements .*

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

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

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

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

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

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

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

### Off-Balance Sheet Arrangements

None.

### Accounting Standards

*Critical Accounting Policies and Estimates.*

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

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

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

### New Accounting Standards and Disclosures

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

#### New Pronouncements Issued, Not Yet Effective.

- ASU 2023-09 — Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). In December 2023, the FASB issued ASU 2023-09, requiring us to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require us to disaggregate our income taxes paid disclosure by federal and state taxes, with further disaggregation required for significant individual jurisdictions. We will adopt ASU 2023-09 in the fourth quarter of 2025. ASU 2023-09 allows for adoption using either a prospective or retrospective transition method.
- ASU 2023-07 — Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). In November 2023, the FASB issued ASU No. 2023-07, requiring us to disclose significant segment expenses regularly provided to our chief operating decision maker (“CODM”). In addition, ASU 2023-07 will require us to disclose the title and position of our CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within physical years beginning after December 15, 2024. Early adoption is permitted. We will adopt ASU 2023-07 in our fourth quarter of 2024 using a retrospective transition method.

Remainder of Page Intentionally Left Blank

### Controls and Procedures

## Controls and procedures

As filed, 1,346 characters.

### Evaluation of Disclosure Controls and Procedures

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

### Changes in Internal Control over Financial Reporting

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

Remainder of Page Intentionally Left Blank

### Legal Proceedings

## Risk factors

As filed, 765 characters.

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

Filed May 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-017113. Last ingested by Listed: Oct 24, 2026, 14:57 ET. No prices; not investment advice.