Blue Dolphin Energy Co: Form 10-Q for the period ended Mar 31, 2026

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, 2025.

Company Overview

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

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

Jonathan Carroll, our Chief Executive Officer, and an Affiliate together controlled 84.9% 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. Blue Dolphin and certain subsidiaries are currently parties to various 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.

Business Operations Update

During the first quarter of 2026, gross profits were $14.4 million more favorable as compared to to the first quarter of 2025. Blue Dolphin's net income increased to $14.7 million, or $0.99 per share, for the three months ended March 31, 2026 compared to net income of $2.2 million, or $0.15 per share, for the three months ended March 31, 2025.

Our full operating results for the three months ended March 31, 2026 and March 31, 2025, including results by segment, can be found within ‘Results of Operations.’

General Trends and Outlook

Uncertainties remain surrounding general macroeconomic conditions related to inflation, tariffs, interest rates, capital and credit markets, and geopolitical tensions (including military conflicts in Ukraine and continued escalations in the Middle East). In addition, global crude oil and refined product markets have experienced significant volatility in 2026 due to the geopolitical instability in the Middle East, including the ongoing conflict involving Iran and resulting disruptions to maritime transit through the Strait of Hormuz. We do not operate or own assets in Russia, Ukraine, or the Middle East. However, the extent to which these factors impact our working capital, commodity prices, refined product demand, supply chain, financial condition, liquidity, results of operations, and future prospects will depend on future developments, which cannot be predicted with any degree of confidence. While it is difficult to predict the ultimate economic impacts of these factors on our operations, below are key factors that impacted our results of operations so far in 2026 and will likely impact our results of operations for the rest of 2026:

• Light crude oil commodity pricing and demand.
• Jet fuel commodity pricing and demand.
• Naphtha commodity pricing and demand.

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 surety 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 lenders 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 efforts to improve our balance sheet and continue to engage with potential lenders to obtain additional funding to refinance and restructure our debt. 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 our debt, certain of which is currently in default 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 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 operations.

Regulation Changes

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 GHG 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

We have outlined the below strategic business objectives to improve our financial profile. These objectives are modified, as necessary, to reflect changing economic conditions and other circumstances.

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. During the three months ended March 31, 2026, the Nixon facility experienced 6 days of downtime, which relates to 4 days of maintenance and repairs 1 day of inventory management and 1 day of utility failure. Comparatively, the Nixon facility experienced 1 day of downtime for the three months ended March 31, 2025, which related to maintenance and repairs.

Improve Operational Efficiencies. During the three months ended March 31, 2026 we optimized the efficiency of the Nixon refinery's flare gas monitoring system. Improvements to the flare gas system will reduce greenhouse gas emissions, optimize combustion efficiency, and enhance safety.

Seize Market Opportunities. Management continues to review renewable energy growth opportunities with potential commercial partners. Although the One Big Beautiful Bill Act under the Trump Administration dismantled Biden-era renewable energy incentives, cancelled loan guarantees, froze grants, and repealed tax credits, the evolving policy environment is creating new opportunities. Management will continue to seek ways to leverage our existing assets through strategic investments in new technologies where economically feasible.

Our Operations

Our assets are organized into two business segments:

• refinery operations (also referred to herein as downstream operations), which is owned by LE; and
• tolling and terminaling services (also referred to herein as midstream operations), which is owned by LRM and NPS

Downstream Operations. The refinery operations business segment consists of the following assets and operations:

Crude Oil and Condensate Supply. On December 29, 2023, we entered a 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 the crude supply agreement renews on a quarterly evergreen basis. Related to the crude supply agreement, MVP stores crude oil at the Nixon facility under a terminal services agreement. Management believes that MVP can provide us with adequate amounts of crude oil and condensate for the foreseeable future. Because we 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 operations.

Products and Markets. Our market is the Gulf Coast region of the U.S., which is represented by the EIA as 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 HOBM 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, LEH, purchases most of our jet fuel under the Amended and Restated Jet Fuel Sales Agreement; LEH then sells the jet fuel to the DLA under preferential pricing terms due to the Affiliate's HUBZone certification. The agreement with LEH 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). An Affiliate, LEH, is a significant customer. Most of our contracts require our customers to prepay, with us selling them fixed quantities or minimum quantities of finished and intermediate petroleum products. Many of these prepay 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. From time to time, we sell bulk product from point of shipment. We extend credit terms to allow the time required for transport from shipment point to destination and for the destination-date pricing to finalize.

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 periodically complete a planned turnaround to repair, restore, refurbish, or replace refinery equipment. 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. Common reasons for unplanned downtime include repair/replacement of disabled equipment, crude deficiencies associated with cash constraints, extreme temperatures (high or low), and power outages.

We are particularly vulnerable to operational disruptions because all our refining operations occur at a single facility. Shutdowns for maintenance may result in lost margin opportunity, potential increased maintenance expense, and reduced refined products inventory, which could adversely impact our ability to meet our payment obligations.

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

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.

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 pipeline and facilities assets and have working interests in offshore oil and gas assets. These assets are inactive. Our pipeline assets were fully impaired in 2016 and our working interests in offshore oil and gas wells were fully impaired in 2011. Our pipeline assets and oil and gas working interests had no revenue during each of the three months ended March 31, 2026 and 2025.

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.

Results of Operations

Below is a discussion and analysis of the factors contributing to our consolidated financial results of operations. This information should be read in conjunction with our financial statements in “Part I, Item 1. Financial Statements.” While management intends for the financial statements, together with the following information, to provide investors with a reasonable basis for assessing our historical operations, 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 barrel commodity price difference between crude oil and condensate (input) and refined products (output) is the most significant driver of gross profit, 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. For example, if the price per barrel of crude oil increases, the price of jet fuel per barrel will also generally increase, as jet fuel is a refined product derived from crude oil. Therefore, the effect of crude oil commodity price changes on our finished petroleum product commodity prices 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 2026 remains unclear given uncertainties surrounding general macroeconomic conditions related to inflation, tariffs, interest rates, capital and credit markets, and geopolitical tensions (including military conflicts in Ukraine and escalations in the Middle East). We can provide no assurances that gross profit will be positive and demand will increase.

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: Earnings before interest, income taxes, and depreciation and amortization ("EBITDA") on a consolidated and segment basis, refinery throughput, production and sales data, refinery downtime, tolling and terminaling revenue, and intercompany processing fees.

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 2026 Versus Q1 2025.

Overview. Net income for 2026 was $14.7 million or $ 0.99 per share, compared to net income of $2.2 million, or $ 0.15 per share, in 2025. The $12.5 million, or $0.84 per share, increase in net income between the periods was the result of more favorable gross margins.

Total Revenue from Operations. Total revenue from operations was $81.5 million for 2026 compared to total revenue from operations of $83.7 million for 2025, representing a decrease of $2.2 million. The decrease in 2026 related to declines in both refinery operations and tolling and terminaling revenue. Refinery operations revenue in 2026 decreased primarily due to an 18.0% decrease in sales volume partially offset by higher market pricing. Tolling and terminaling revenue in 2026 declined primarily due to lower tank rental fees.

Total Cost of Goods Sold. Total cost of goods sold was $60.9 million for 2026 compared to total cost of goods sold of $77.6 million for 2025, representing a decrease of 21.5%. The decrease in 2026 related to product sales mix and an 18.0% decrease in sales volumes.

Gross Profit. Gross profit totaled $20.6 million for 2026 compared to gross profit of $6.1 million for 2025. More favorable gross margins offset by a decrease in sales volume positively impacted refinery operations gross profit in 2026 compared to 2025.

LEH Operating Fee, Related Party. For 2026 the LEH operating fee, related party totaled $0.2 million compared to $0.2 million for 2025.

General and Administrative Expenses. General and administrative expenses totaled $1.2 million in 2026 compared to general and administrative expenses of $1.4 million in 2025. The $0.2 million, or 14.3%, decrease in 2026 primarily related to a reduction in regulatory penalties.

Gain on regulatory settlement. BDPL has outstanding INCs issued from BSEE related to its GA-288C platform, PSN 8437, PSN 13101, and PSN 15635. In addition, BDPL has two open civil penalties with the agency (Civil Penalty G-2024-054 and Civil Penalty G-2024-056). In April 2026, BSEE and BDPL reached a settlement agreement regarding the outstanding BSEE INCs and the two BSEE civil penalties (the "BSEE Settlement Agreement"). The confidential BSEE Settlement Agreement requires specific payment and performance obligations on the part of BDPL. In April 2026, BSEE and BDPL reached a settlement agreement regarding the outstanding BSEE INCs and the two BSEE civil penalties (the "BSEE Settlement Agreement"). The confidential BSEE Settlement Agreement requires specific payment and performance obligation on the part of BDPL. During the three months ended March 31, 2026, we reversed a portion of the previous accrual for penalties associated with these matters in Gain on regulatory settlement.

Interest and Other Non-Operating Expenses, Net. Total other expense in 2026 was $1.4 million compared to $1.5 million in 2025.

Consolidated EBITDA. Consolidated EBITDA in 2026 totaled $20.7 million compared to $5.1 million in 2025 representing an increase of $15.6 million. The increase in 2026 was related to more favorable gross margins partially offset by lower sales volumes. See Non-GAAP Measures, below, for a reconciliation to GAAP.

(in thousands)

(in thousands)

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.

Q1 2026 Versus Q1 2025

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

(in thousands, except percent amounts)

Refinery Downtime. Refinery downtime increased to 6 days in Q1 2026 from 1 day in Q1 2025. Refinery downtime in Q1 2026 related to maintenance and repairs (1 day), utility failure (1 day) and inventory management (1 days). Refinery downtime in Q1 2025 related to maintenance and repairs.

Refinery Operations Revenue. Refinery operations revenue was $80.7 million for Q1 2026 compared to $83.0 million for Q1 2025, representing a decrease of 2.7%. The decrease in Q1 2026 related to lower sales volume partially offset by more favorable market pricing.

Cost of Goods Sold. Cost of goods sold for refinery operations was $61.2 million for Q1 2026 compared to $77.7 million for Q1 2025, representing a decrease of 21.2%. The decrease in Q1 2026 was related to the product sales mix and lower crude pricing.

LEH Operating Fee, Related Party. LEH operating fee for Q1 2026 was $0.2 million compared to $0.2 million for Q1 2025.

Refining EBITDA. Refining EBITDA was $18.6 million in Q1 2026 compared to $4.9 million in Q1 2025, representing an increase of 277.6%. The significant increase in Q1 2026 was related to more favorable gross margins. See Non-GAAP Measures, below, for a reconciliation to GAAP.

Refining Operations EBITDA per Bbl. On a per barrel basis, refining EBITDA was $23.24 for 2026 compared to $5.04 for 2025, representing an increase of $18.20 per barrel. The increase in 2026 related to more favorable gross margins.

(in thousands)

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 in-tank blending), and tolling and reservation fees for use of the naphtha stabilizer.

Q1 2026 Versus Q1 2025

Tolling and Terminaling Total Revenue. Tolling and terminaling total revenue was $1.3 million in Q1 2026 compared to $1.4 million in Q1 2025, representing a decrease of 7.1%. The decrease in Q1 2026 related to lower tank rental fees and a decrease in the number of tanks rented.

Tolling and Terminaling EBITDA. We had tolling and terminaling EBITDA of $1.2 million in Q1 2026 compared to $1.2 million in Q1 2025.

(in thousands)

Blue Dolphin Energy Company

Non-U.S. GAAP Measures.

The following are non-U.S. GAAP measures we present for the periods ended three months ended March 31, 2026 and 2025:

Consolidated EBITDA. Income before interest, taxes, and depreciation and amortization on a consolidated basis.

Refining EBITDA. Income before interest, taxes, and depreciation and amortization for our refinery operations business segment.

Refining operations EBITDA per bbl. Refining EBITDA divided by sales (Mbbls) for the reporting period.

Tolling and terminaling EBITDA. Income before interest, taxes, and depreciation and amortization for our tolling and terminaling business segment.

We present these measures because they provide management and investors with (i) important supplemental indicators of the operational performance of our business, (ii) additional criteria for evaluation of our performance relative to our peers, and (iii) supplemental information to investors about certain material non-cash and other items that may not continue at the same level in the future. EBITDA has limitations as an analytical tool and should not be considered in isolation or as substitutes for analysis of our results as reported under U.S. GAAP or as alternatives to net income, operating income, gross margin, or any other measure of financial performance presented in accordance with U.S. GAAP.

(in thousands)

Capital Resources and Liquidity

Working Capital.

As of March 31, 2026 and the filing date of this report, certain conditions and events existed, in the aggregate, that caused management to evaluate Blue Dolphin's ability to continue as a going concern. Those conditions and events included historical and current working capital deficits and significant debt in default. 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). 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.

Liquidity. Cash and cash equivalents totaled $0.4 million and $1.0 million at March 31, 2026 and December 31, 2025, respectively, representing a decrease of $0.6 million. A significant portion of our liquidity at March 31, 2026 was invested in inventory and accounts receivable. Restricted cash, current totaled $1.0 million at both March 31, 2026 and December 31, 2025. Restricted cash, current is related to a Huntington payment reserve account. Accounts receivable—related party, which was associated with the sale of jet fuel to LEH, totaled $20.8 million and $8.1 million at March 31, 2026 and December 31, 2025, 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 Fifth Amended and Restated Operating Agreement, (iii) servicing debt, (iv) maintaining and improving the Nixon facility through capital expenditures, and (v) meeting regulatory compliance requirements and associated civil penalties. Our long-term working capital needs are primarily related to repayment of long-term debt obligations.

We continue efforts to improve our balance sheet and continue to engage with potential lenders to obtain additional funding to refinance and restructure debt. However, there can be no assurance that we will be able to raise additional capital on acceptable terms, or at all.

Gross margins, which are affected by commodity prices and refined product demand, are volatile, and a reduction in gross margins will adversely affect the amount of cash we will have available for working capital. Similarly, capital, credit, and commodity markets, tariffs, as well as military 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 operations.

Sources and Use of Cash.

Components of Cash Flows.

(in thousands)

Cash Flow from Operations. We generated $0.8 million in cash flow from operations during the three months ended March 31, 2026 compared to using $1.7 million in cash flow from operations during the three months ended March 31, 2025. The $2.6 million increase in cash flow provided by operations between the periods was primarily do to more favorable gross margins from the refining segment in 2026.

Capital Expenditures. We spent $0.0 million in capital expenditures for both the three months ended March 31, 2026 and 2025, however, we incurred $0.1 million in vendor financed capital expenditures during the three months ended March 31, 2025. Due to continued uncertainties surrounding general macroeconomic conditions related to inflation, tariffs, interest rates, capital and credit markets, and geopolitical tensions (including military conflicts in Ukraine and escalations in the Middle East), we anticipate continuing to limit capital expenditures for the remainder of 2026. However, to the extent we can capitalize on growth opportunities, we may finance capital expenditures through project-based government loans.

We account for capital expenditures in accordance with U.S. 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. Management determines projects 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 or lowering future expenses.

Financing Activities. During the three months ended March 31, 2026, Blue Dolphin made payments on debt principal totaling $1.4 million compared to payments on debt principal totaling $2.1 million for the three months ended March 31, 2025. Proceeds from debt totaled $0.0 million for the three months ended March 31, 2026 compared to proceeds from debt totaling $5.1 for the three months ended March 31, 2025. In 2025, proceeds from debt related to the Second Amended and Restated Affiliate Revolving Credit Agreement.

Debt and Lease Obligations.

Debt Agreements.

Related-Party Agreements Summary. Blue Dolphin and certain subsidiaries are parties to the following debt agreements with related parties:

(in millions)

(in millions)

Blue Dolphin Energy Company

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

(in millions)

(in millions)

(1) Our secured loan agreements with Huntington are subject to certain financial and non-financial covenants. As of March 31, 2026, LE and LRM were in default related to financial covenants under the LE Term Loan Due 2034 and LRM Term Loan Due 2034. With respect to non-financial covenants, we are required to have a balance of $1.0 million in a payment reserve account held by Huntington. At both March 31, 2026 and December 31, 2025 restricted cash totaled $1.0 million.

(2) As of March 31, 2026 and the filing date of this report, the NPS Term Loan Due 2031 was in default due to non-financial covenant violations.

(3) Original principal amount was $0.5 million; the loan was modified to increase the principal amount by $1.5 million; loan not forgivable.

(4) Loan not forgivable.

(5) In March 2025, LE entered into the Equipment Loan Due 2031 to purchase mobile offices; the mobile offices are used at the Nixon facility.

Guarantees and Security.

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

Lease Agreements.

Office Lease. We maintain our corporate headquarters in Houston, Texas. In October 2024, BDSC signed a new 24-month extension, the sixth amendment, to its operating lease. The sixth amendment was deemed to be a separate contract and not a lease modification. The first two months of the lease cover the holdover period of September and October 2024 wherein management negotiated the lease with the landlord; BDSC was not subject to a holdover rate during the holdover period. During months 3 through 12, which began on November 1, 2024, the landlord reduced the annual base rent to $29.00 per square foot. During months 13 through 24 the annual base rent increased to $30.00 per square foot. As additional rent, BDSC pays a proportionate share of basic building costs (e.g., utilities) up to a maximum of $1,500 per month. The total rental area under the sixth amendment is 9,961 square feet. See "Part I, Item 1. Financial Statements —Note (11)" to our consolidated financial statements for additional disclosures related to the BDSC office lease.

An Affiliate, LEH, sub-leases a portion of the Houston office space. BDSC received sub-lease income from LEH totaling $0.02 million and $0.01 million for the three months ended March 31, 2026 and 2025. NPS received ground lease income from LEH totaling $0.1 million and $0.0 million for the three months ended March 31, 2026 and 2025.

Tank Lease. LE leases tanks from Ingleside under the Third Amended and Restated Master Services Agreement. Lease expense associated with the Third Amended and Restated Master Services Agreement totaled $0.3 million for both the three months ended March 31, 2026 and 2025, respectively. See "Part I, Item 1. Financial Statements —Note (3)" to our consolidated financial statements for additional disclosures related to the Third Amended and Restated Master Services Agreement.

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

Outstanding Principal.

(in thousands)

We classified the debt associated with the LE Term Loan Due 2034, LRM Term Loan Due 2034, and NPS Term Loan Due 2031 within long-term debt, current portion on our consolidated balance sheets at March 31, 2026 and December 31, 2025 due to being in default.

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

(in thousands)

Amortization expense was less than $0.1 million for the three months ended March 31, 2026 and 2025.

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)

Defaults. As of March 31, 2026 and through the filing date of this report, LE and LRM were in default related to financial covenants under the LE Term Loan Due 2034 and LRM Term Loan Due 2034. NPS was in default related to non-financial covenants under the NPS Term Loan Due 2031. 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 exercise any other rights and remedies available. We can provide no assurance that: (i) our assets or cash flow will be sufficient to fully repay borrowings under the secured loan agreements that are in default, either upon maturity or if accelerated, (ii) LE or NPS will be able to refinance or restructure the debt, or (iii) the third party will provide a future forbearance or default waiver. Any exercise by lenders of their rights and remedies under secured loan agreements that are in default could have a material adverse effect on our business operations, including crude oil and condensate procurement and our customer relationships; financial condition; and results of operations. In such a case, the trading price of our Common Stock and the value of an investment in our Common Stock could significantly decrease, which could lead to holders of our Common Stock losing their investment in our Common Stock in its entirety. If we are unable to manage this, we may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operations.

Proceeds from Debt. Proceeds from debt totaled $0.0 million for the three months ended March 31, 2026 compared to proceeds from debt totaling $5.1 million for the three months ended March 31, 2025. In 2025, proceeds from debt related to the Second Amended and Restated Affiliate Revolving Credit Agreement.

Concentration of Customer 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)

One of our significant customers is LEH, an Affiliate. LEH purchases most of 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 Affiliate lifts the jet fuel, which is stored at the Nixon Facility, as needed. LEH accounted for 43.2% and 30.8% of our total revenue from operations for the three months ended March 31, 2026 and 2025 respectively. The Affiliate represented $20.8 million and $8.3 million in accounts receivable, related party at March 31, 2026 and December 31, 2025, respectively.

Bank Accounts. Financial instruments that potentially subject us to concentrations of risk consist primarily of cash, trade receivables and payables. We maintain cash balances at financial institutions in Houston, Texas. The FDIC insures certain financial products up to a maximum of $250,000 per depositor. At March 31, 2026 and December 31, 2025, our cash balances (including restricted cash) exceeded the FDIC insurance limit per depositor by $1.1 million and $1.5 million, respectively. Instability and volatility in the capital, credit, and commodity markets, as well as with financial institutions, could adversely affect our cash balances (including restricted cash) in excess of FDIC insurance limits per depositor. In the event that banks in which we maintain our cash balances (including restricted cash) fail, there can be no assurance that the federal government and the Federal Reserve would intervene.

Regulatory Activities.

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

BSEE. See “Part I, Item 1. Financial Statements –Notes (11) and (14)” and “Part II, Item 1. Legal Proceedings—Unresolved Matters—Offshore Platform Inspections, Decommissioning Obligations, INCs, and Civil Penalties.”

TCEQ. See "Part II, Item 1. Legal Proceedings—Resolved Matters—TCEQ Final Agreed Order."

Off-Balance Sheet Arrangements. None.

Accounting Standards.

Critical Accounting Policies and Estimates

Critical Accounting Policies. Our critical accounting policies relate to revenue recognition; inventory; property and equipment; income taxes; asset retirement obligations. See "Part I, Item 1. Financial Statements and Supplementary Data - Note (1) and “Part II, Item 8. Note (2)” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the SEC, which summarized our significant accounting policies.

The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expense, and the disclosures of contingent assets and liabilities. We consider our critical accounting estimates to be those estimates that require complex or subjective judgment in the application of the accounting policy and that could significantly impact our financial results based on changes in those judgments. Changes in facts and circumstances may result in revised estimates and actual results may differ materially from those estimates. In preparing our financial statements, the most difficult, subjective and complex estimates and the assumptions that present the greatest amount of uncertainty relates to impairment of long-lived assets, asset retirement obligations, and valuation allowance for deferred tax assets, as described in Item 7 of our Annual Report on Form 10-k for the year ended December 31, 2025.

New Accounting Standards and Disclosures

New Pronouncements Adopted. During the three months ended March 31, 2026 we did not adopt any ASUs.

New Pronouncements Issued, Not Yet Effective. We expect to adopt the following ASUs in future periods:

• ASU 2024-03 — Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"). In November 2024, the FASB issued ASU 2024-03, requiring additional disclosure of certain costs and expenses within the notes to the consolidated financial statements. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. We are evaluating the provisions of ASU 2024-03 and the incremental disclosures that will be required in our consolidated financial statements.
• ASU 2025-11 — Interim Reporting (Topic 270): Narrow-Scope Improvements. In December 2025, the FASB issued ASU 2025-11 which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have had a material impact on the company. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2025-11.

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 Treasurer (principal financial officer and principal accounting 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 Treasurer (principal financial officer and principal accounting 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

No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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, 2025 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, 2025.