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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 þ
    
    Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2007
 o
    
    Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file Number: 0-15905
 BLUE DOLPHIN ENERGY COMPANY
  Delaware
    
    73-1268729(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)801 Travis Street, Suite 2100, Houston, Texas
    
    77002(Address of principal executive office)
    
    (Zip Code)
 (713) 227-7660
 common stock, par value $.01 per share
 none
 o
 þ o
 þ
 o þ
    Documents Incorporated By Reference
  o þ




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##### 



BLUE DOLPHIN ENERGY COMPANY
FORM 10-KSB REPORT INDEX
 PART IItem 1.
    
    Description of Business
    
    
    3Item 2.
    
    Description of Property
    
    
    22Item 3.
    
    Legal Proceedings
    
    
    22Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    22PART IIItem 5.
    
    Market for Common Equity, Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities
    
    
    23Item 6.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 7.
    
    Financial Statements
    
    
    32Item 8.
    
    Changes In and Disagreements with Accountants on Accounting and Financial
Disclosures
    
    
    60Item 8A(T).
    
    Controls and Procedures
    
    
    60Item 8B.
    
    Other Information
    
    
    61PART IIIItem 9.
    
    Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act
    
    
    62Item 10.
    
    Executive Compensation
    
    
    62Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    62Item 12.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    62Item 13.
    
    Exhibits
    
    
    63Item 14.
    
    Principal Accountant Fees and Services
    
    
    65SIGNATURES
    
    
    
    
    66List of Subsidiaries of the CompanyConsent of UHY LLPCertification of Ivar Siem Pursuant to Section 302Certification of Gregory W. Starks Pursuant to Section 302Certification of Ivar Siem Pursuant to Section 906Certification of Gregory W. Starks Pursuant to Section 906
  2




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PART I
 Forward Looking Statements . Certain of the statements included in this annual report on
Form 10-KSB, including those regarding future financial performance or results or that are not
historical facts, are forward-looking statements as that term is defined in Section 21E of the
Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. The words expect, plan, believe, anticipate, project, estimate, and similar
expressions are intended to identify forward-looking statements. Blue Dolphin Energy Company
(referred to herein, with its predecessors and subsidiaries, as Blue Dolphin, we, us and
our) cautions readers that these statements are not guarantees of future performance or events
and such statements involve risks and uncertainties that may cause actual results and outcomes to
differ materially from those indicated in forward-looking statements. Some of the important
factors, risks and uncertainties that could cause actual results to vary from forward-looking
statements include:
 
    
    the level of utilization of our pipelines;
    
    availability and cost of capital;
    
    actions or inactions of third party operators for properties where we have an interest;
    
    the risks associated with oil and gas exploration;
    
    the level of production from oil and gas properties that we have interests in;
    
    gas and oil price volatility;
    
    uncertainties in the estimation of proved reserves, in the projection of future rates of
production, the timing of development expenditures and the amount and timing of property
abandonment;
    
    regulatory developments; and
    
    general economic conditions.
 Additional factors that could cause actual results to differ materially from those indicated in the
forward-looking statements are discussed under the caption Risk Factors. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only as of the date
hereof. We undertake no duty to update these forward-looking statements. Readers are urged to
carefully review and consider the various disclosures made by us which attempt to advise interested
parties of the additional factors which may affect our business, including the disclosures made
under the caption Managements Discussion and Analysis of Financial Condition and Results of
Operations in this report.
 
 Item 1. Description of Business
 THE COMPANY
  
    
    Blue Dolphin Pipe Line Company, a Delaware corporation;
    
    Blue Dolphin Petroleum Company, a Delaware corporation;
    
    Blue Dolphin Exploration Company, a Delaware corporation; and
    
    Blue Dolphin Services Co., a Texas corporation.
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Recent Developments
      4




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Pipeline Operations and Activities
   Blue Dolphin Pipeline System
   5




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Galveston Area Block 350 Pipeline
 Other
 Oil and Gas Exploration and Production Activities
    High Island Block 37.
 High Island Block A-7.
 6




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High Island Block 115.
  Proved Oil and Gas Reserves
    7




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(1)(2)
 Present Valueof Future NetCash InflowsNet Oil
    
    
    Net Gas
    
    
    (Outflows)Reserves
    
    
    Reserves
    
    
    After Income(Mbbls)
    
    
    (MMcf)
    
    
    Taxes(1)Total Proved ReservesHigh Island Block A-7
    
    
    0.0
    
    
    
    0
    
    
    $
    (166
    )High Island Block 37
    
    
    0.0
    
    
    
    18
    
    
    
    6High Island Block 115
    
    
    0.8
    
    
    
    160
    
    
    
    6290.8
    
    
    
    178
    
    
    $
    469Total Proved DevelopedHigh Island Block A-7
    
    
    0.0
    
    
    
    0
    
    
    $
    (166
    )High Island Block 37
    
    
    0.0
    
    
    
    18
    
    
    
    6High Island Block 115
    
    
    0.8
    
    
    
    160
    
    
    
    6290.8
    
    
    
    178
    
    
    $
    469
 
 (1)
    
    The estimated present value of future net cash outflows after income taxes
from our proved reserves has been determined by using prices of $88.46 per barrel
of oil and $7.13 per Mcf of gas, representing the December 31, 2007 prices for oil
and gas and discounted at a 10% annual rate in accordance with requirements for
reporting oil and gas reserves pursuant to regulations promulgated by the United
States Securities and Exchange Commission (the SEC Method).(2)
    
    As of December 31, 2007, we reported no proved undeveloped reserves.  8




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Capital Expenditures for Proved Reserves
 
 Years Ending December 31,2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012High Island Block A-7
    
    
    265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    High Island Block 37
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    High Island Block 115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
  9




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Production, Price and Cost Data
  Years Ended December 31,2007
    
    
    2006
    
    
    2005Gas:Production (Mcf)
    
    
    72,788
    
    
    
    312,146
    
    
    
    378,791Revenue
    
    $
    476,224
    
    
    $
    2,131,415
    
    
    $
    3,071,811Average production per day (Mcf)(*)
    
    
    199.4
    
    
    
    772.3
    
    
    
    1,037.8Average sales price per Mcf
    
    $
    6.54
    
    
    $
    6.83
    
    
    $
    8.11Condensate:Production (Bbls)
    
    
    177
    
    
    
    1,823
    
    
    
    781Revenue
    
    $
    10,345
    
    
    $
    114,114
    
    
    $
    40,481Average production per day (Bbls)(*)
    
    
    0.5
    
    
    
    5.0
    
    
    
    2.1Average sales price per Bbl
    
    $
    58.45
    
    
    $
    62.60
    
    
    $
    51.83NGLs:Production (gallons)
    
    
    36,372
    
    
    
    137,139
    
    
    
    27,935Revenue
    
    $
    30,842
    
    
    $
    113,285
    
    
    $
    23,718Average production per day (gallons)(*)
    
    
    99.7
    
    
    
    375.7
    
    
    
    76.5Average sales price per gallon
    
    $
    0.85
    
    
    $
    0.83
    
    
    $
    0.85Production costs (**):Per Mcfe:
    
    $
    3.04
    
    
    $
    1.34
    
    
    $
    0.40
 
 (*)
    
    Average production is based on a 365 day year. However, 2005 average
production per day contains 549 days of production for High Island Block 37.(**)
    
    Production costs, exclusive of workover costs, are costs incurred to
operate and maintain wells and equipment and to pay production taxes. Drilling Activity
 Employees
  10




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Customers
  Oil and Gas
    
    
    PipelineSales
    
    
    Operations
    
    
    TotalYear Ended December 31, 2007:Apex Oil & Gas
    
    $
    
    
    
    $
    809,420
    
    
    $
    809,420W&T Offshore
    
    $
    
    
    
    $
    519,866
    
    
    $
    519,866Gryphon Exploration Co.
    
    $
    
    
    
    $
    341,406
    
    
    $
    341,406Year Ended December 31, 2006:Hydro Gulf of Mexico, LLC (formerly
Spinnaker Exploration Company)
    
    $
    1,469,132
    
    
    $
    
    
    
    $
    1,469,132Fidelity Exploration and Production Company
    
    $
    889,682
    
    
    $
    
    
    
    $
    889,682
 Competition
  Markets
  
    
    the level of domestic production;
    
    actions taken by foreign oil and gas producing nations;
    
    the availability of pipelines with adequate capacity;
    
    the availability of vessels for direct shipment;
    
    lightering, transshipment and other means of transportation;
    
    the availability and marketing of other competitive fuels;
    
    fluctuating and seasonal demand for oil, natural gas and refined products; and
 11




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
    
    the extent of governmental regulation and taxation (under both present and future
legislation) of the production, importation, refining, transportation, pricing, use and
allocation of oil, gas, refined products and alternative fuels.
  Governmental Regulation
  Federal Regulation of Natural Gas Transportation.
   Federal Regulation of Oil Pipelines
 12




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Safety and Operational Regulations
 Federal Oil and Gas Leases
  Environmental Regulation
 13




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14




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Legislation and Rulemaking
   15




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RISK FACTORS
 We are primarily dependent on revenues from our pipeline systems and our working interests in three
oil and gas producing properties.
   The geographic concentration of our assets may have a greater effect on us as compared to other
companies.
  If we are not able to generate sufficient funds from our operations and other financing sources, we
may not be able to finance our operations.
   16




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We face strong competition from larger companies that may negatively affect our ability to carry on
operations.
  
    
    most of our competitors have greater financial resources than we do, which gives them
better access to capital to acquire assets; and
    
    we sometimes establish a higher standard for the minimum projected rate of return on
invested capital than some of our competitors since we cannot afford to absorb certain
risks. We believe this puts us at a competitive disadvantage in acquiring pipelines and
oil and gas properties.
 Oil and gas prices are volatile and a substantial and extended decline in the price of oil and gas
would have a material adverse effect on us.
  
    
    weather conditions in the United States;
    
    the condition of the United States economy;
    
    the actions of the Organization of Petroleum Exporting Countries;
    
    governmental regulation;
    
    political stability in the Middle East, South America and elsewhere;
    
    the foreign supply of oil and natural gas;
    
    the price of foreign imports;
    
    the availability of alternate fuel sources; and
    
    the value of the U.S. dollar in relation to other currencies.
  
    
    reducing the exploration for and development of oil and gas reserves held by third party
companies around our pipeline systems;
    
    increasing our dependence on external sources of capital to meet our cash needs; and
    
    generally impairing our ability to obtain needed capital.
 Reserve estimates depend on many assumptions that may prove to be inaccurate. Any material
inaccuracies in our reserve estimates or underlying assumptions could cause the quantities and net
present value of our reserves to be overstated.
 17




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
    
    the quality and quantity of available data;
    
    the interpretation of that data;
    
    the accuracy of various mandated economic assumptions; and
    
    the judgment of the persons preparing the estimate.
    We cannot control the activities on properties we do not operate.
   18




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We have pursued, and intend to continue to pursue, acquisitions. Our business may be adversely
affected if we cannot effectively integrate acquired operations.
  
    
    inadvertently becoming subject to liabilities of the acquired company that were unknown
to us at the time of the acquisition, such as later asserted litigation matters or tax
liabilities;
    
    the difficulty of assimilating operations, systems and personnel of the acquired
businesses; and
    
    maintaining uniform standards, controls, procedures and policies.
  Operating hazards, including those specific to the marine environment, may adversely affect our
ability to conduct business.
  
    
    pipeline ruptures;
    
    sudden violent expulsions of oil, gas and mud while drilling a well, commonly referred
to as a blowout;
    
    a cave in and collapse of the earths structure surrounding a well, commonly referred to
as cratering;
    
    explosions;
    
    fires;
    
    pollution; and
    
    other environmental risks.
  Losses and liabilities from uninsured or underinsured drilling and operating activities could have
a material adverse effect on our financial condition and results of operations.
   Compliance with environmental and other government regulations could be costly and could negatively
impact our operations.
 19




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
    
    require the acquisition of a permit before operations can be commenced;
    
    restrict the types, quantities and concentration of various substances that can be
released into the environment from drilling and production activities;
    
    limit or prohibit drilling and pipeline activities on certain lands lying within
wilderness, wetlands and other protected areas;
    
    require remedial measures to mitigate pollution from former operations, such as plugging
abandoned wells and abandoning pipelines; and
    
    impose substantial liabilities for pollution resulting from our operations.
    GLOSSARY OF CERTAIN OIL AND GAS TERMS
  Back-in After Payout Interest.
 Bbl.
 Bcf.
 Btu or British Thermal Unit.
 Condensate.
 Development Well.
 20




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Exploratory Well.
 Field.
 Leasehold Interest.
 Mbbls.
 Mcf.
 Mcfe.
 MMbtu.
 MMcf.
 MMcfe.
 Net Revenue Interest.
 Nonoperating Working Interest.
 Overriding Royalty.
 Prospect.
 Proved Developed Reserves.
 Proved Developed Producing.
 21




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Proved Developed Non-producing.
 Proved Reserves.
 Proved Undeveloped Reserves.
 Reversionary Interest.
 Royalty Interest.
 Undivided Interest.
 Working interest.
 
 Item 2. Description of Property
   
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
   22




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PART II
 
 Item 5.
    
    Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases
of Equity Securities
 Market Price for Common Stock
  Quarter Ended
    
    High
    
    
    LowMarch 31, 2006
    
    $
    3.32
    
    
    $
    1.91June 30, 2006
    
    $
    8.00
    
    
    $
    3.45September 30, 2006
    
    $
    6.14
    
    
    $
    3.65December 31, 2006
    
    $
    4.34
    
    
    $
    2.91March 31, 2007
    
    $
    4.33
    
    
    $
    2.81June 30, 2007
    
    $
    4.01
    
    
    $
    2.97September 30, 2007
    
    $
    3.80
    
    
    $
    2.92December 31, 2007
    
    $
    3.15
    
    
    $
    1.21
 Dividend Policy
  
 Item 6.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Executive Summary
  23




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Liquidity and Capital Resources
  24




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Years Ended December 31,2007
    
    
    2006Amount
    
    
    %
    
    
    Amount
    
    
    %Working capital
    
    $
    5,598
    
    
    
    55
    %
    
    $
    6,652
    
    
    
    57Property and equipment, net
    
    
    4,504
    
    
    
    45
    %
    
    
    4,912
    
    
    
    43Other noncurrent assets
    
    
    11
    
    
    
    
    
    
    
    22
    
    
    
    Total
    
    $
    10,113
    
    
    
    100
    %
    
    $
    11,586
    
    
    
    100Long-term liabilities
    
    $
    1,883
    
    
    
    19
    %
    
    $
    2,014
    
    
    
    17Stockholders equity
    
    
    8,230
    
    
    
    81
    %
    
    
    9,572
    
    
    
    83Total
    
    $
    10,113
    
    
    
    100
    %
    
    $
    11,586
    
    
    
    100
     25




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Payments Due by Period1 Year
    
    
    
    
    
    
    
    
    
    
    5 YearsTotal
    
    
    or Less
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    or MoreOperating leases
    
    $
    383
    
    
    $
    103
    
    
    $
    280
    
    
    $
    
    
    
    $
    Employment agreement
    
    
    408
    
    
    
    175
    
    
    
    233
    
    
    
    
    
    
    
    Asset retirement obligations
    
    
    2,094
    
    
    
    262
    
    
    
    89
    
    
    
    35
    
    
    
    1,708Other long-term liabilities
    
    
    78
    
    
    
    26
    
    
    
    52
    
    
    
    
    
    
    
    Total contractual obligations
and other commercial commitments
    
    $
    2,963
    
    
    $
    566
    
    
    $
    654
    
    
    $
    35
    
    
    $
    1,708
 26




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Results of Operations
  2007 Compared to 2006
 Revenue from Pipeline Operations.
 Revenue from Oil and Gas Sales.
 Pipeline Operating Expenses .
 Lease Operating Expenses.
 Depletion, Depreciation and Amortization .
 General and Administrative Expenses.
 27




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Interest and Other Expense.
 Interest and Other Income.
 Gain on Extinguishment of Debt.
 Critical Accounting Policies
  Accounting for the Impairment or Disposal of Long-Lived Assets
  28




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Accounting for Uncertainty in Income Taxes-An Interpretation
of FASB Statement No. 109 Accounting for Income Taxes
    29




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Recently Issued Accounting Pronouncements and Accounting Developments
 The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment
of FASB Statement No. 115 Accounting for Certain Investments
in Debt and Equity Securities
  Fair Value Measurements
     30




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Business Combinations Business Combinations
 Non-controlling Interests in Consolidated
Financial Statements  An Amendment of ARB No. 51
 31




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Item 7. Financial Statements
 Index to Financial Statements:Report of Independent Registered Public Accounting Firm
    
    
    33Consolidated Balance Sheet at December 31, 2007
    
    
    34Consolidated Statements of Operations
Years Ended December 31, 2007 and 2006
    
    
    35Consolidated Statements of Stockholders Equity
Years Ended December 31, 2007 and 2006
    
    
    36Consolidated Statements of Cash Flows
Years Ended December 31, 2007 and 2006
    
    
    37Notes to Consolidated Financial Statements
    
    
    38
 32




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Report of Independent Registered Public Accounting Firm
 
    Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109.
 
 33




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
 
 Consolidated Balance Sheet
 December 31, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,226,779Accounts receivable
    
    
    693,977Prepaid expenses and other current assets
    
    
    508,517Total current assets
    
    
    6,429,273Property and equipmentOil and gas properties (full-cost method)
    
    
    751,175Pipelines
    
    
    4,659,686Onshore separation and handling facilities
    
    
    1,919,402Land
    
    
    860,275Other property and equipment
    
    
    279,4688,470,006Less:Accumulated depletion, depreciation and amortization
    
    
    3,966,087Net property and equipment
    
    
    4,503,919Other assets
    
    
    10,640TOTAL ASSETS
    
    $
    10,943,832LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    432,974Accrued expenses and other current liabilities
    
    
    109,628Current portion of asset retirement obligations
    
    
    262,187Current portion of other long-term liabilities
    
    
    25,996Total current liabilities
    
    
    830,785Long-term liabilities:Asset retirement obligations, net of current portion
    
    
    1,831,520Other long-term liabilities, net of current portion
    
    
    51,992Total long-term liabilities
    
    
    1,883,512TOTAL LIABILITIES
    
    
    2,714,297Commitments and contingenciesStockholders equity:Common stock, $.01 par value, 25,000,000 shares authorized,
11,610,363 shares issued and outstanding
    
    
    116,104Additional paid-in capital
    
    
    32,117,950Accumulated deficit
    
    
    (24,004,519
    )Total stockholders equity
    
    
    8,229,535TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    10,943,832
  34




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 Years Ended December 31,2007
    
    
    2006Revenue from operations:Pipeline operations
    
    $
    2,494,406
    
    
    $
    1,939,894Oil and gas sales
    
    
    517,411
    
    
    
    2,358,814Total revenue from operations
    
    
    3,011,817
    
    
    
    4,298,708Cost of operations:Pipeline operating expenses
    
    
    1,788,288
    
    
    
    1,126,539Lease operating expenses
    
    
    240,317
    
    
    
    457,312Depletion, depreciation and amortization
    
    
    554,704
    
    
    
    502,058General and administrative expenses
    
    
    2,178,276
    
    
    
    1,773,102Accretion expense
    
    
    120,384
    
    
    
    107,589Total cost of operations
    
    
    4,881,969
    
    
    
    3,966,600Income (loss) from operations
    
    
    (1,870,152
    )
    
    
    332,108Other income (expense):Interest and other expense
    
    
    
    
    
    
    (42,224
    )Interest and other income
    
    
    248,637
    
    
    
    137,659Gain on extinguishment of debt
    
    
    
    
    
    
    500,000Total other income (expense)
    
    
    248,637
    
    
    
    595,435Income (loss) before income taxes
    
    
    (1,621,515
    )
    
    
    927,543Income tax expense
    
    
    (4,057
    )
    
    
    (14,679
    )Net income (loss)
    
    $
    (1,625,572
    )
    
    $
    912,864Income (loss) per common share:Basic
    
    $
    (0.14
    )
    
    $
    0.08Diluted
    
    $
    (0.14
    )
    
    $
    0.08Weighted average number of common shares outstanding:Basic
    
    
    11,568,311
    
    
    
    11,202,951Diluted
    
    
    11,568,311
    
    
    
    11,306,662
  35




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
 
 Consolidated Statements of Stockholders Equity
 Common
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    TotalStock
    
    
    Common
    
    
    Paid-In
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance at December 31, 2005
    
    
    9,939,302
    
    
    $
    99,393
    
    
    $
    27,980,475
    
    
    $
    (23,291,811
    )
    
    $
    4,788,057Sale of common stock
    
    
    1,571,432
    
    
    
    15,714
    
    
    
    3,825,110
    
    
    
    
    
    
    
    3,840,824Common stock issued for services
    
    
    39,960
    
    
    
    400
    
    
    
    29,600
    
    
    
    
    
    
    
    30,000Exercise of warrants
    
    
    4,758
    
    
    
    48
    
    
    
    (48
    )
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    912,864
    
    
    
    912,864Balance at December 31, 2006
    
    
    11,555,452
    
    
    
    115,555
    
    
    
    31,835,137
    
    
    
    (22,378,947
    )
    
    
    9,571,745Issuance under stock plans
    
    
    27,938
    
    
    
    279
    
    
    
    22,071
    
    
    
    
    
    
    
    22,350Common stock issued for services
    
    
    26,973
    
    
    
    270
    
    
    
    78,890
    
    
    
    
    
    
    
    79,160Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    181,852
    
    
    
    
    
    
    
    181,852Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,625,572
    )
    
    
    (1,625,572
    )Balance at December 31, 2007
    
    
    11,610,363
    
    
    $
    116,104
    
    
    $
    32,117,950
    
    
    $
    (24,004,519
    )
    
    $
    8,229,535
  36




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Years Ended December 31,2007
    
    
    2006OPERATING ACTIVITIESNet income (loss)
    
    $
    (1,625,572
    )
    
    $
    912,864Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:Depletion, depreciation and amortization
    
    
    554,704
    
    
    
    502,058Accretion expense
    
    
    120,384
    
    
    
    107,589Gain on extinguishment of debt
    
    
    
    
    
    
    (500,000
    )Stock-based compensation
    
    
    181,852
    
    
    
    Common stock issued for services
    
    
    79,160
    
    
    
    30,000Changes in operating assets and liabilities:Accounts receivable
    
    
    480,342
    
    
    
    427,977Prepaid expenses and other current assets
    
    
    (159,991
    )
    
    
    (164,053
    )Abandonment costs incurred
    
    
    (76,290
    )
    
    
    Accounts payable, accrued expenses and other liabilities
    
    
    262,245
    
    
    
    (100,876
    )Net cash provided by (used in) operating activities
    
    
    (183,166
    )
    
    
    1,215,559INVESTING ACTIVITIESExploration and development costs
    
    
    
    
    
    
    (15,700
    )Capital expenditures
    
    
    (111,552
    )
    
    
    (267,447
    )Investment in unconsolidated affiliates
    
    
    
    
    
    
    (1,177
    )Net cash used in investing activities
    
    
    (111,552
    )
    
    
    (284,324
    )FINANCING ACTIVITIESProceeds from the sale of common stock, net of offering costs
    
    
    
    
    
    
    3,840,824Payments on borrowings
    
    
    
    
    
    
    (570,000
    )Proceeds from exercise of stock options
    
    
    22,350
    
    
    
    Net cash provided by financing activities
    
    
    22,350
    
    
    
    3,270,824Increase (decrease) in cash and cash equivalents
    
    
    (272,368
    )
    
    
    4,202,059CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    5,499,147
    
    
    
    1,297,088CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    5,226,779
    
    
    $
    5,499,147Supplementary cash flow information:Interest paid
    
    $
    
    
    
    $
    88,334Non-cash activities:Change in estimate for asset retirement obligations and related
fixed assets
    
    $
    35,205
    
    
    $
    
  37




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 (1)
    
    Organization and Significant Accounting PoliciesOrganizationBlue Dolphin Energy Company was incorporated in Delaware in January 1986 to engage in oil
and gas exploration, production and acquisition activities and oil and gas transportation
and marketing. We were formed pursuant to a reorganization effective June 9, 1986.Principles of ConsolidationOur consolidated financial statements include the accounts of our wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.Accounting EstimatesWe have made a number of estimates and assumptions relating to the reporting of consolidated
assets and liabilities and to the disclosure of contingent assets and liabilities to prepare
these consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America. This includes the estimated useful life of
pipeline assets, valuation of stock-based payments and reserve information, which affects
the depletion calculation as well as the full cost ceiling limitation. While we believe
current estimates are reasonable and appropriate, actual results could differ from those
estimated.Cash EquivalentsCash equivalents include liquid investments with an original maturity of three months or
less. Cash balances are maintained in depository and overnight investment accounts with
financial institutions which at times, exceed insured limits. We monitor the financial
condition of the financial institutions and have experienced no losses associated with these
accounts.Oil and Gas PropertiesOil and gas properties are accounted for using the full-cost method of accounting, whereby
all costs associated with acquisition, exploration, and development of oil and gas
properties, including directly related internal costs, are capitalized on a cost center
basis. We utilize one cost center for all of our properties. Amortization of such costs and
estimated future development costs is determined using the unit-of-production method. Costs
directly associated with the acquisition and evaluation of unproved properties are excluded
from the amortization computation until it is determined whether or not proved reserves can
be assigned to the properties or impairment has occurred.Estimated proved oil and gas reserves are based upon reports prepared internally by us. The
net carrying value of oil and gas properties, less related deferred income taxes, is limited
to the lower of unamortized cost or the cost center ceiling, defined as the sum of the
present value (10% discount rate applied) of estimated future net revenues from proved
reserves, after giving effect to income taxes, and the lower of cost or estimated fair value
of unproved properties. Disposition of oil and gas properties are recorded as adjustments
to capitalized costs, with no gain or loss recognized unless such adjustments would
significantly alter the relationship between capitalized costs and proved reserves.
 38




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
  Pipelines and Facilities
  Accounting
for the Impairment or Disposal of Long-lived Assets
 Other Property and Equipment
  Asset Retirement Obligations
 Accounting for Asset Retirement Obligations
   Years Ended December 31,2007
    
    
    2006Beginning asset retirement obligations
    
    $
    2,014
    
    
    $
    1,756Liabilities incurred
    
    
    36
    
    
    
    Liabilities settled
    
    
    (76
    )
    
    
    Accretion expense
    
    
    120
    
    
    
    108Revisions in estimated cash flows
    
    
    
    
    
    
    150Ending asset retirement obligations
    
    $
    2,094
    
    
    $
    2,014
 39




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 Stock-Based Compensation
 Share-Based Payments Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation
 Recognition of Oil and Gas Revenue
  Recognition of Pipeline Transportation Revenue
  Income Taxes
 Accounting for Income Taxes
 40




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 Earnings Per Share
 Earnings per
Share
   Weighted-Average Numberof Common SharesOutstandingand Potential
    
    
    PerDilutive
    
    
    ShareNet Income (Loss)
    
    
    Common Shares
    
    
    AmountYear ended December 31, 2007:Basic and diluted
    
    $
    (1,625,572
    )
    
    
    11,568,311
    
    
    $
    (0.14
    )Year ended December 31, 2006:Basic
    
    $
    912,864
    
    
    
    11,202,951
    
    
    $
    0.08Effect of dilutive stock options
    
    
    
    
    
    
    103,711
    
    
    
    Diluted
    
    $
    912,864
    
    
    
    11,306,662
    
    
    $
    0.08
 Environmental
  41




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 Recently Issued Accounting Pronouncements
 The Fair Value Option for Financial Assets and Financial Liabilities 
Including an Amendment of FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities
  Fair Value Measurements
    42




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 The provisions of SFAS 157 are effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including any financial statements for an interim period
within that fiscal year. We do not expect the adoption of SFAS 157 to have a material
effect on our financial statements.In December 2007, the FASB issued SFAS No. 141R, Business Combinations(SFAS 141R), which
replaces SFAS No. 141, Business Combinations. SFAS 141R establishes principles and
requirements for determining how an enterprise recognizes and measures the fair value of
certain assets and liabilities acquired in a business combination, including non-controlling
interests, contingent consideration, and certain acquired contingencies. SFAS 141R also
requires acquisition-related transaction expenses and restructuring costs be expensed as
incurred rather than capitalized as a component of the business combination. SFAS 141R will
be applicable prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15,
2008. SFAS 141R would have an impact on accounting for any businesses acquired after the
effective date of this pronouncement.In December 2007, the FASB also issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements  An Amendment of ARB No. 51(SFAS 160). SFAS 160
establishes accounting and reporting standards for the non-controlling interest in a
subsidiary (previously referred to as minority interests). SFAS 160 also requires that a
retained non-controlling interest upon the deconsolidation of a subsidiary be initially
measured at its fair value. Upon adoption of SFAS 160, we would be required to report any
non-controlling interests as a separate component of stockholders equity. We would also be
required to present any net income allocable to non-controlling interests and net income
attributable to the stockholders of the company separately in our consolidated statements of
income. SFAS 160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. SFAS 160 requires retroactive adoption of
the presentation and disclosure requirements for existing minority interests. All other
requirements of SFAS 160 shall be applied prospectively. SFAS 160 would have an impact on
the presentation and disclosure of the non-controlling interests of any non wholly-owned
businesses acquired in the future.(2)
    
    LiquidityDuring 2007, our working capital position decreased approximately $1.1 million to $5.6
million compared to $6.7 million at the end of 2006. Working capital at the end of 2007
reflects the impact of significantly reduced revenues from sales of oil and gas, partially
offset by increased revenues from our pipeline operations. Due to the low utilization of
our pipeline assets, without the revenues and resulting cash inflows we receive from oil and
gas sales, we may not be able to generate sufficient cash from operations to cover our
operating and general and administrative expenses.The Blue Dolphin System is currently transporting an aggregate of approximately 26 MMcf of
gas per day from ten shippers and the GA 350 Pipeline is currently transporting an aggregate
of approximately 29 MMcf of gas per day from six shippers. Throughput on the Blue Dolphin
System and the GA 350 Pipeline increased significantly during 2006 and 2007 as a result of
production from seven shippers commencing deliveries from eight wells. Four of these
shippers are delivering production into the Blue Dolphin System and three of the shippers
are delivering
production into the GA 350 Pipeline. In 2006, one shipper began deliveries into the Blue
Dolphin System in each of May, June and November, and in 2007, a shipper began deliveries
from two wells in July. On the GA 350 Pipeline, shippers began deliveries in December 2006,
and in June and September of 2007.
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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 In addition to the throughput gains from shippers added to the pipelines, the Blue Dolphin
System also benefited from the drilling activities of certain existing shippers. In July
2006, an existing shipper successfully recompleted a well, resulting in an increase of daily
production from that well, and in June 2007, another existing shipper drilled a new well,
also resulting in an increase in daily production. Annual revenues from pipeline
operations increased to $2,494,406 in 2007 as compared to $1,939,894 in 2006.The revenues from our working interest in High Island Block 37 have declined as the rate of
production declines as expected as reserves are depleted. High Island Block 37 averaged
approximately 5.4 MMcf of gas per day in 2007 as compared to approximately 15.6 MMcf of gas
per day in 2006. We recognized gross oil and gas sales revenues of approximately $276,000
and $890,000 for the twelve months ended December 31, 2007 and 2006, respectively,
associated with our approximate 2.8% working interest in High Island Block 37. The A-2 well
experienced production problems in April 2007 and was shut in for approximately eight
months. The well came back on production in December 2007. The B-1 well shut in during
January 2008, and production from that well has not yet been re-established. The A-2 well
is currently producing at a rate of approximately 3 MMcf of gas per day. We believe that
the A-2 well could continue to produce until mid-2008, however, the well could deplete
faster than currently anticipated or could develop production problems resulting in the
cessation of production. Further development of reserves in the block is currently being
evaluated.The High Island Block A-7 well also experienced production problems in the second quarter
2007. The well has produced only intermittently since. It is currently shut in and may
have reached the end of its productive life. The well averaged approximately 0.7 MMcf of
gas per day in 2007 as compared to approximately 5.6 MMcf of gas per day in 2006. We
recognized gross oil and gas sales revenues of approximately $211,000 and $1,469,000 for the
twelve months ended December 31, 2007 and 2006, respectively, associated with our
approximate 8.9% working interest in the High Island Block A-7 well.During the second quarter, a well in High Island Block 115 which we had previously earned a
2.5% working interest was re-entered and sidetracked successfully. The well commenced
production in late November 2007 and produced at an average rate of approximately 6.3 MMcf
of gas per day during the remainder of 2007. We recognized gross oil and gas sales revenues
of approximately $30,000 from this well in 2007. The well is currently producing at a rate
of approximately 9 MMcf of gas per day.(3)
    
    Fair Value of Financial InstrumentsThe carrying values of cash and cash equivalents, accounts receivable and accounts payable,
accrued liabilities and other current liabilities approximate fair value due to the
short-term maturities of these instruments.
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 (4)
    
    Income TaxesIncome tax expense consisted of $4,057 of state income tax for 2007, and $14,679 of federal
income tax expense for 2006.The income tax effects of temporary differences that give rise to significant portions of
deferred tax assets and deferred tax liabilities at December 31, 2007 are presented below:
 Deferred tax assets:Net operating loss and capital loss carryforwards
    
    $
    5,700,789AMT credit carryforward
    
    
    11,564Basis differences in property and equipment
    
    
    151,268Total deferred tax assets
    
    
    5,863,981Less: valuation allowance
    
    
    (5,863,981
    )Deferred tax assets, net
    
    $
    
   Years Ended December 31,2007
    
    2006Expected tax rate
    
    
    (34.00
    %)
    
    
    34.00
    %Change in valuation allowance recognized
in earnings
    
    
    34.25
    %
    
    
    (32.42
    %)0.25
    %
    
    
    1.58
    %
  Accounting for Uncertainty in Income Taxes-An
Interpretation of FASB Statement No. 109 Accounting for Income Taxes
  45




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 tax position will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the position. In
evaluating whether a tax position has met the more-likely-than-not recognition threshold,
the enterprise should presume that the position will be examined by the appropriate taxing
authority that has full knowledge of all relevant information. The second step is a
measurement process whereby a tax position that meets the more-likely-than-not recognition
threshold is calculated to determine the amount of benefit to recognize in the financial
statements. The tax position is measured at the largest amount of benefit that is greater
than 50% likely of being realized upon ultimate settlement.The provisions of FIN 48 have been applied to all of our material tax positions taken
through the date of adoption and through the fiscal year ended December 31, 2007. We have
determined that all of our material tax positions taken in our income tax returns and the
positions we expect to take in our future income tax filings meet the more likely-than-not
recognition threshold prescribed by FIN 48. In addition, we have determined that, based on
our judgment, none of these tax positions meet the definition of uncertain tax positions
that are subject to the non-recognition criteria set forth in the new pronouncement.In May 2006, the State of Texas enacted a new business tax that is imposed on gross revenues
to replace the States current franchise tax regime. The new legislations effective date
is January 1, 2008, which means that our first Texas margins tax (TMT) return will not
become due until May 15, 2008 and will be based on our 2007 operations. Although the TMT is
imposed on an entitys gross revenues rather than on its net income, certain aspects of the
tax make it similar to an income tax. In accordance with the guidance provided in SFAS 109,
we have properly determined the impact of the newly-enacted legislation in the determination
of our reported state current and deferred income tax liability.(5)
    
    Long-Term DebtUnder the terms of the original Purchase Agreement, we acquired MCNICs one-third interests
in both the Blue Dolphin System and the inactive Omega Pipeline. On February 28, 2005
(effective as of January 1, 2005), we entered into the Amendment to our Purchase Agreement
with MCNIC. Pursuant to the terms of the Amendment, the Original Promissory Note was
exchanged for the New Promissory Note. In addition to the New Promissory Note, MCNIC
could receive additional payments of up to $500,000 from 50% of the net profits, if any,
realized from the one-third interest in the Blue Dolphin System through December 31, 2006.
We made a principal payment on the New Promissory Note of $30,000 upon the execution of the
Amendment and under the terms of the New Promissory Note we made monthly principal payments
of $10,000 through its maturity date of December 31, 2006. The principal amount of the New
Promissory Note also could have been increased by up to $500,000 if 50% or more of our 83%
interest in the Blue Dolphin System was sold before December 31, 2006. We were not required
to make any contingent
payments on the New Promissory Note and extinguished the $500,000 contingent portion of the
New Promissory Note effective December 31, 2006.In April 2005, the holders of $450,000 of the $750,000 aggregate principal amount of
promissory notes sold in September 2004, agreed to extend the maturity date of their
promissory notes to June 30, 2006, and to defer the payment of all unpaid and future
interest on their promissory notes until maturity. The promissory notes were originally
sold on September 8, 2004 pursuant to the Note and Warrant Purchase Agreement we entered
into with certain accredited investors and certain of our directors. The $300,000 aggregate
principal amount of promissory notes was retired at maturity in 2005. The remaining
$450,000 aggregate principal amount of promissory notes was retired on June 30, 2006.Total interest expense was approximately $0 and $32,000 for 2007 and 2006, respectively.
 46




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 (6)
    
    Exercise of WarrantsOn December 21, 2006, 4,286 outstanding warrants were exercised by warrant holders. The
exercises were accomplished via a net exercise, whereby holders surrender their right to
receive a portion of the shares of common stock. The rights to receive 2,618 shares of
common stock were surrendered and we issued 1,668 shares of common stock upon exercise. The
Company did not receive any proceeds from the net exercise of these warrants.On August 8, 2006, 11,417 outstanding warrants were exercised by warrant holders. The
exercises were also accomplished via a net exercise, whereby holders surrender their right
to receive a portion of the shares of common stock. The rights to receive 8,622 shares of
common stock were surrendered and we issued 2,795 shares of common stock upon exercise. The
Company did not receive any proceeds from the net exercise of these warrants.On April 17, 2006, 429 outstanding warrants were exercised by warrant holders. The
exercises were again accomplished via a net exercise, whereby holders surrendered their
right to receive a portion of the shares of common stock. The rights to receive 134 shares
of common stock were surrendered and the Company issued 295 shares of common stock upon
exercise.These securities were issued in reliance upon the exemption from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended.A summary of warrant activity for 2007 and 2006 is as follows:
 Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    AverageNumber of
    
    Exercise
    
    Warrants
    
    ExerciseWarrants
    
    Price
    
    Exercisable
    
    PriceOutstanding, December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    32,572
    
    
    $
    4.48Exercised
    
    
    (16,132
    )
    
    $
    3.55Outstanding, December 31, 2006
    
    
    16,440
    
    
    $
    5.39
    
    
    
    16,440
    
    
    $
    5.39Granted
    
    
    
    
    
    $
    0.00Exercised
    
    
    
    
    
    $
    0.00Outstanding, December 31, 2007
    
    
    16,440
    
    
    $
    5.88
    
    
    
    16,440
    
    
    $
    5.88
  47




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
  Warrants Outstanding, Fully Vested and Exercisableat December 31, 2007WeightedAverageRemaining
    
    WeightedNumber
    
    Contractual Life
    
    AverageExercise Prices
    
    Outstanding
    
    in Years
    
    Exercise Price$5.50 to $6.00
    
    
    16,440
    
    
    
    1.2
    
    
    $
    5.88
 (7)
    
    Stockholders EquityIn March 2006, we entered into a stock purchase agreement with certain accredited investors
for the private placement of 1,171,432 shares of our common stock. Net proceeds from the
offering after payment of commissions and expenses were approximately $2.0 million. In
April 2006, we entered into a second stock purchase agreement with an accredited
institutional investor for the private placement of 400,000 shares of our common stock. Net
proceeds from the offering after payment of commissions and expenses were approximately $1.8
million. Warrants to purchase 32,572 shares of common stock were issued associated with
these offerings and 16,132 of the warrants were exercised in 2006 via net exercise resulting
in the issuance of 4,758 shares of common stock.In January 2006, we issued 30,000 shares of common stock into our Blue Dolphin Services Co.
401(k) Plan as a 2005 contribution.(8)
    
    Stock OptionsEffective April 14, 2000, after approval by our stockholders, we adopted the 2000 Stock
Incentive Plan (the 2000 Plan). Under the 2000 Plan, we are able to make awards of
stock-based compensation. The number of shares of common stock reserved for grants of
incentive stock options (ISOs) and other stock-based awards was increased from 650,000
shares to 1,200,000 shares after approval by our stockholders at the 2007 Annual Meeting of
Stockholders, which was held on May 30, 2007. As of December 31, 2007, we had 274,040
shares of common stock remaining available for future grants. Options granted under the
2000 Plan have contractual terms from six to ten years. The exercise price of ISOs cannot
be less than 100% of the fair market value of a share of our common stock determined on the
grant date. All ISO awards granted in previous years vested immediately, however, 200,000
ISOs granted in May 2007 have a three year vesting
period and 150,000 ISOs granted in October 2007 have a two year vesting period. An
additional 28,500 options were granted in October 2007 that vested immediately. Although
the 2000 Plan provides for the granting of other incentive awards, only ISOs and
non-statutory stock options have been issued under the 2000 Plan. The 2000 Plan is
administered by the Compensation Committee of our Board of Directors.SFAS 123(R) states that a tax deduction is permitted for stock options exercised during the
period, generally for the excess of the price at which stock issued from exercise of the
options are sold over the exercise price of the options. Tax benefits are to be shown on the
Statement of Cash Flows as financing cash inflows. Any tax deductions we receive from the
exercise of stock options
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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
  Transition Election Related to Accounting for the Tax Effects of
Share-Based Payment Awards
  Years Ended December 31,2007
    
    
    2006Stock options granted
    
    
    378,500
    
    
    
    0Risk-free interest rate
    
    
    4.31 to 4.80
    %
    
    
    N/AExpected term, in years
    
    
    3.75 to 5.97
    
    
    
    N/AExpected volatility
    
    
    81.67 to 92.4
    %
    
    
    N/ADividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    49




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
  Year Ended December 31, 2007WeightedWeighted
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    ValueOptions outstanding at
December 31, 2005
    
    
    143,997
    
    
    $
    1.56Options granted
    
    
    
    
    
    $
    0.00Options exercised
    
    
    
    
    
    $
    0.00Options expired or cancelled
    
    
    
    
    
    $
    0.00Options outstanding at
December 31, 2006
    
    
    143,997
    
    
    $
    1.56Options granted
    
    
    378,500
    
    
    $
    2.93Options exercised
    
    
    (27,938
    )
    
    $
    0.80Options expired or cancelled
    
    
    (3,000
    )
    
    $
    6.00Options outstanding at
December 31, 2007
    
    
    491,559
    
    
    $
    2.61
    
    
    
    7.2
    
    
    $
    79,674Options exercisable at
December 31, 2007
    
    
    141,559
    
    
    $
    1.86
    
    
    
    5.6
    
    
    $
    79,674
  50




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
  Options Outstanding
    
    Options ExercisableWeighted Average
    
    
    
    
    
    
    
    WeightedRemaining
    
    Weighted
    
    
    
    
    
    AverageRange of exercise
    
    Number
    
    
    Contractual Life
    
    Average
    
    Number
    
    
    ExercisePrices
    
    Outstanding
    
    
    (Years)
    
    Exercise Price
    
    Exercisable
    
    
    Price$0.35 to $0.80
    
    
    70,830
    
    
    5.3
    
    $0.44
    
    
    70,830
    
    
    $0.44$1.55 to $1.90
    
    
    23,429
    
    
    4.1
    
    $1.71
    
    
    23,429
    
    
    $1.71$2.81 to $2.99
    
    
    378,500
    
    
    8.0
    
    $2.91
    
    
    28,500
    
    
    $2.81$6.00
    
    
    18,800
    
    
    2.4
    
    $6.00
    
    
    18,800
    
    
    $6.00491,559
    
    
    
    
    
    
    
    141,559
  WeightedAverageGrant DateShares
    
    
    Fair ValueNon-vested at December 31, 2005
    
    
    
    
    
    $0.00Granted
    
    
    
    
    
    $0.00Canceled or expired
    
    
    
    
    
    $0.00Vested
    
    
    
    
    
    $0.00Non-vested at December 31, 2006
    
    
    
    
    
    $0.00Granted
    
    
    378,500
    
    
    $2.06Canceled or expired
    
    
    
    
    
    $0.00Vested
    
    
    (28,500
    )
    
    $1.96Non-vested at December 31, 2007
    
    
    350,000
    
    
    $2.07
  51




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 (9)       Related Party Transactions
       (10)     Leases
   52




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
  FutureMinimumYears Ending
    
    LeaseDecember 31,
    
    Payments2008
    
    $
    103,2662009
    
    
    107,0512010
    
    
    172,646$
    382,963
  Years EndedDecember 31,
    
    Rent Expense2007
    
    $
    102,9802006
    
    $
    78,815
 (11)     Commitments and Contingencies
    53




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 (12)     Business Segment Information
  Operating
    
    
    
    
    
    
    Depletion,Income
    
    
    Identifiable
    
    
    Depreciation andRevenues
    
    
    (Loss)(1)
    
    
    Assets(2)
    
    
    Amortization (3)Year Ended December 31, 2007:Pipeline transportation
    
    $
    2,494,406
    
    
    $
    (1,219,066
    )
    
    $
    5,769,899
    
    
    $
    413,342Oil and gas exploration
and production
    
    
    517,411
    
    
    
    (175,823
    )
    
    
    344,541
    
    
    
    135,650Other
    
    
    
    
    
    
    (475,263
    )
    
    
    4,829,392
    
    
    
    5,712Consolidated
    
    $
    3,011,817
    
    
    
    (1,870,152
    )
    
    $
    10,943,832
    
    
    $
    554,704Other income
    
    
    
    
    
    
    248,637Loss before income taxes
    
    
    
    
    
    $
    (1,621,515
    )Year Ended December 31, 2006:Pipeline transportation
    
    $
    1,939,894
    
    
    $
    (228,460
    )
    
    $
    6,360,814
    
    
    $
    353,472Oil and gas exploration
and production
    
    
    2,358,814
    
    
    
    1,032,681
    
    
    
    851,668
    
    
    
    139,643Other
    
    
    
    
    
    
    (472,113
    )
    
    
    4,732,016
    
    
    
    8,943Consolidated
    
    $
    4,298,708
    
    
    
    332,108
    
    
    $
    11,944,498
    
    
    $
    502,058Other income
    
    
    
    
    
    
    595,435Income before income taxes
    
    
    
    
    
    $
    927,543
 
 (1)
    
    Consolidated income (loss) from operations includes $469,551 and $463,170
in unallocated general and administrative expenses, and unallocated depletion,
depreciation, amortization and impairment of $5,712 and $8,943 for the years ended
December 31, 2007 and 2006, respectively. All unallocated amounts are included in
Other.(2)
    
    See the supplemental disclosures for oil and gas producing activities for
discussion of capitalized costs incurred for oil and gas production operations.
Capital expenditures of $111,552 and $262,684 were recorded for pipeline operations
for the years ended December 31, 2007 and 2006, respectively.(3)
    
    Pipeline depletion, depreciation and amortization include a provision for
pipeline abandonment of $48,595 for the years ended December 31, 2007 and 2006. Oil
and gas depletion, depreciation, amortization and impairment includes a provision
for abandonment costs of platforms and wells of $99,147 and $34,694 for the years
ended December 31, 2007 and 2006, respectively. 54




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
  Oil and Gas
    
    
    PipelineSales
    
    
    Operations
    
    
    TotalYear Ended December 31, 2007:Apex Oil & Gas
    
    $
    
    
    
    $
    809,420
    
    
    $
    809,420W&T Offshore
    
    $
    
    
    
    $
    519,866
    
    
    $
    519,866Gryphon Exploration Co.
    
    $
    
    
    
    $
    341,406
    
    
    $
    341,406Year Ended December 31, 2006:Hydro Gulf, LLC (formerly Spinnaker
Exploration Company)
    
    $
    1,469,132
    
    
    $
    
    
    
    $
    1,469,132Fidelity Exploration and Production Company
    
    $
    889,682
    
    
    $
    
    
    
    $
    889,682
 (13)     Supplemental Oil and Gas Information
 Disclosures about Oil and Gas Producing Activities
    55




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 Estimated Quantities of Proved Oil and Gas Reserves  Unaudited
   Oil
    
    
    GasQuantity of Oil and Gas Reserves
    
    (Bbls)
    
    
    (Mcf)Total proved reserves at December 31, 2005:
    
    
    887
    
    
    
    341,553Revisions to previous estimates
    
    
    1,089
    
    
    
    78,640Extensions, discoveries, improved recovery
and other additions
    
    
    
    
    
    
    Purchase of reserves in place
    
    
    
    
    
    
    Sales of reserves in place
    
    
    
    
    
    
    Production
    
    
    (1,823
    )
    
    
    (312,146
    )Total proved reserves at December 31, 2006
    
    
    153
    
    
    
    108,047Revisions to previous estimates
    
    
    64
    
    
    
    (22,045
    )Extensions, discoveries, improved recovery
and other additions
    
    
    806
    
    
    
    164,456Purchase of reserves in place
    
    
    
    
    
    
    Sales of reserves in place
    
    
    
    
    
    
    Production
    
    
    (177
    )
    
    
    (72,787
    )Total proved reserves at December 31, 2007
    
    
    846
    
    
    
    177,671Proved developed reserves:December 31, 2007
    
    
    846
    
    
    
    177,671December 31, 2006
    
    
    153
    
    
    
    108,047Total proved reserves:December 31, 2007
    
    
    846
    
    
    
    177,671December 31, 2006
    
    
    153
    
    
    
    108,047
 56




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 Capitalized Costs of Oil and Gas Producing Activities
  December 31,2007Unproved properties and prospect generation
costs not being amortized
    
    $
    Proved properties being amortized
    
    
    751,175Total capitalized costs
    
    
    751,175Accumulated depreciation, depletion and amortization
    
    
    (675,855
    )Net capitalized costs
    
    $
    75,320
 Costs Incurred in Oil and Gas Producing Activities
  Years Ended December 31,2007
    
    
    2006Costs incurred:Acquisition of proved properties
    
    $
    
    
    
    $
    Acquisition of unproved properties
    
    
    
    
    
    
    Exploration costs
    
    
    
    
    
    
    Development costs
    
    
    
    
    
    
    15,700Total costs incurred
    
    $
    
    
    
    $
    15,700
  57




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 Results of Operations for Oil and Gas Producing Activities
  Years Ended December 31,2007
    
    
    2006Revenues from oil and gas producing activities
    
    $
    517,411
    
    
    $
    2,358,814Production costs
    
    
    (240,317
    )
    
    
    (457,312
    )Depreciation, depletion, and amortization
    
    
    (135,650
    )
    
    
    (139,643
    )Pretax income from producing activities
    
    
    141,444
    
    
    
    1,761,859Income tax expense/estimated loss carryforward benefit
    
    
    (354
    )
    
    
    (27,883
    )Results of oil and gas producing activities (excluding
corporate overhead and interest costs)
    
    $
    141,090
    
    
    $
    1,733,976
 Standardized Measure of Discounted Future Net Cash Flows
  Years Ended December 31,2007
    
    
    2006Future cash inflows
    
    $
    1,342,000
    
    
    $
    605,000Future development and dismantlement costs
    
    
    (395,000
    )
    
    
    (432,000
    )Future production costs
    
    
    (129,000
    )
    
    
    (126,000
    )Future income taxes
    
    
    (278,120
    )
    
    
    (15,980
    )10% discount factor
    
    
    (70,620
    )
    
    
    27,720Standardized measure of discounted
future net cash inflows (outflows)
    
    $
    469,260
    
    
    $
    58,740
 
 Future net cash flows at each year end, as reported in the above schedule, were
determined by summing the estimated annual net cash flows computed by: (1)
multiplying estimated quantities of proved reserves to be produced during each year
by year-end prices and (2) deducting estimated expenditures to be incurred during
each year to develop and produce the proved reserves (based on year-end costs).  58




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 Standardized Measure of Discounted Future Net Cash Flows
 Years Ended December 31,2007
    
    
    2006Sales and transfers, net of production costs
    
    $
    (277,094
    )
    
    $
    (1,901,502
    )Net change in sales and transfer prices, net of
production costs
    
    
    16,380
    
    
    
    (959,002
    )Extension, discoveries and improved recovery,
net of future production and development costs
    
    
    987,094
    
    
    
    Development costs incurred during the period
that reduced future development costs
    
    
    76,290
    
    
    
    Changes in estimated future development cost
    
    
    (252
    )
    
    
    (310,553
    )Revisions of quantity estimates
    
    
    (132,353
    )
    
    
    (235,475
    )Accretion of discount
    
    
    8,900
    
    
    
    319,000Net change in income taxes
    
    
    (255,680
    )
    
    
    1,054,340Change in production rates (timing) and other
    
    
    (12,765
    )
    
    
    (13,468
    )Net change
    
    $
    410,520
    
    
    $
    (2,046,660
    )
  59




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##### Table of Contents



Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
  
 Item 8A(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
   Changes In Internal Controls over Financial Reporting
  60




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##### Table of Contents



Item 8B. Other Information
   61




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##### Table of Contents



PART III
 
 Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act
  
 Item 10. Executive Compensation
  
 Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
 Equity Compensation Plan Information
  Number ofSecuritiesNumber of
    
    
    
    
    
    
    RemainingSecurities to be
    
    
    
    
    
    
    Available forIssued upon
    
    
    Weighted-Average
    
    
    Future IssuanceExercise of
    
    
    Exercise Price of
    
    
    under EquityOutstanding
    
    
    Outstanding
    
    
    CompensationOptions
    
    
    Options
    
    
    PlansEquity compensation
plans approved by
security holders
    
    
    491,559
    
    
    $
    2.61
    
    
    
    274,040
  
 Item 12. Certain Relationships and Related Transactions, and Director Independence
  62




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##### Table of Contents



Item 13. Exhibits
  No.
    
    Description3.1
    (1)
    
    Amended and Restated Certificate of Incorporation of the Company.3.2
    (9)
    
    Amended and Restated Bylaws of the Company.4.1
    (2)
    
    Specimen Certificate of our Company common stock.4.2
    (11)
    
    Code of Ethics applicable to the Chairman, Chief Executive Officer and Senior
Financial Officer.4.3
    (7)
    
    Form of Promissory Note issued pursuant to the Note and Warrant Purchase
Agreement dated September 8, 2004.*
    
    
    10.1
    (3)
    
    Blue Dolphin Energy Company 2000 Stock Incentive Plan.*
    
    
    10.2
    (4)
    
    Amendment to the Blue Dolphin Energy Company 2000 Stock Incentive Plan.10.3
    (5)
    
    Second Amendment to the Blue Dolphin Energy Company 2000 Stock Incentive Plan.10.4
    (6)
    
    Purchase and Sale Agreement by and between Blue Dolphin Pipe Line Company and
MCNIC, dated February 1, 2002.10.5
    (7)
    
    Sale of American Resources Offshore, Inc. Common Stock Agreement between Blue
Dolphin Exploration Co. and Ivar Siem, dated September 8, 2004.10.6
    (8)
    
    Purchase and Sale Agreement by and between Blue Dolphin Energy Company, WBI
Pipeline & Storage Group, Inc. and SemGas LP, dated October 29, 2004.10.7
    (10)
    
    Amendment to the Asset Purchase Agreement by and among MCNIC Offshore Pipeline
and Processing Company and Blue Dolphin Pipe Line Company dated February 28, 2005.10.8
    (12)
    
    Placement Agency Agreement by and between Blue Dolphin Energy Company and
Starlight Investments, LLC dated May 27, 2005.10.9
    (13)
    
    Form of Stock Purchase Agreement between Blue Dolphin Energy Company and Osler
Holdings Limited, Gilbo Invest AS, Spencer Energy AS, Spencer Finance Corp., Hudson Bay
Fund, LP, Don Fogel and SIBEX Capital Fund, Inc. dated March 8, 2006.**
    
    
    21.1
    
    
    List of Subsidiaries of the Company.**
    
    
    23.1
    
    
    Consent of UHY LLP.**
    
    
    31.1
    
    
    Ivar Siem Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.**
    
    
    31.2
    
    
    Gregory W. Starks Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.**
    
    
    32.1
    
    
    Ivar Siem Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.**
    
    
    32.2
    
    
    Gregory W. Starks Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
 63




---



##### Table of Contents



(1)
    
    Incorporated herein by reference to Exhibits filed in connection with the definitive Proxy
Statement of Blue Dolphin Energy Company under the Securities and Exchange Act of 1934, dated
October 13, 2004 (Commission File No. 000-15905).(2)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 10-K of Blue
Dolphin Energy Company for the year ended December 31, 1989 under the Securities and Exchange
Act of 1934, dated March 30, 1990 (Commission File No. 000-15905).(3)
    
    Incorporated herein by reference to Exhibits filed in connection with the Proxy Statement of
Blue Dolphin Energy Company under the Securities and Exchange Act of 1934, dated May 18, 2000
(Commission File No. 000-15905).(4)
    
    Incorporated herein by reference to Exhibits filed in connection with the definitive Proxy
Statement of Blue Dolphin Energy Company under the Securities and Exchange Act of 1934, dated
April 16, 2003 (Commission File No. 000-15905).(5)
    
    Incorporated herein by reference to Exhibits filed in connection with the definitive Proxy
Statement of Blue
Dolphin Energy Company under the Securities and Exchange Act of 1934, dated April 27, 2007
(Commission File No. 000-15905).(6)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 10-KSB of Blue
Dolphin Energy Company under the Securities and Exchange Act of 1934, dated July 23, 2002
(Commission File No. 000-15905).(7)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 8-K of Blue
Dolphin Energy Company under the Securities and Exchange Act of 1934, dated September 14, 2004
(Commission File No. 000-15905).(8)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 8-K of Blue
Dolphin Energy Company under the Securities and Exchange Act of 1934, dated December 6, 2004
(Commission File No. 000-15905).(9)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 8-K of Blue
Dolphin Energy Company under the Securities and Exchange
Act of 1934, dated December 26, 2007 (Commission File No. 000-15905).(10)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 8-K of Blue
Dolphin Energy Company under the Securities and Exchange Act of 1934, dated March 2, 2005
(Commission File No. 000-15905).(11)
    
    Incorporated herein by reference to Exhibit 14.1 filed in connection with Form 10-KSB of Blue
Dolphin Energy Company for the year ended December 31, 2004 under the Securities Exchange Act
of 1934, dated March 25, 2005 (Commission File No. 000-15905).(12)
    
    Incorporated herein by reference to Exhibit 10.9 filed in connection with Form 10-KSB of Blue
Dolphin Energy Company for the year ended December 31, 2005 under the Securities Exchange Act
of 1934, dated March 30, 2006 (Commission File No. 000-15905).(13)
    
    Incorporated herein by reference to Exhibit 10.10 filed in connection with Form 10-KSB of
Blue Dolphin Energy Company for the year ended December 31, 2005 under the Securities Exchange
Act of 1934, dated March 30, 2006 (Commission File No. 000-15905). 64




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##### Table of Contents



Item 14. Principal Accountant Fees and Services
   65




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##### Table of Contents



SIGNATURES
  BLUE DOLPHIN ENERGY COMPANY
(Registrant)By:
    /s/ Ivar SiemIvar Siem(Chairman and CEO)Date: March 31, 2008  Signature
    
    Title
    
    Date/s/ Ivar Siem

Ivar Siem
    
    Chairman and CEO (Principal
Executive Officer)
    
    March 31, 2008/s/ Gregory W. Starks

Gregory W. Starks
    
    Vice President, Treasurer and Secretary (Principal
Accounting and Financial Officer)
    
    March 31, 2008/s/ Laurence N. Benz

Laurence N. Benz
    
    Director
    
    March 31, 2008/s/ John N. Goodpasture

John N. Goodpasture
    
    Director
    
    March 31, 2008/s/ Harris A. Kaffie

Harris A. Kaffie
    
    Director
    
    March 31, 2008/s/ Erik Ostbye

Erik Ostbye
    
    Director
    
    March 31, 2008
 66




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##### Table of Contents



No.
    
    Description3.1
    (1)
    
    Amended and Restated Certificate of Incorporation of the Company.3.2
    (9)
    
    Amended and Restated Bylaws of the Company.4.1
    (2)
    
    Specimen Certificate of our Company common stock.4.2
    (11)
    
    Code of Ethics applicable to the Chairman, Chief Executive Officer and Senior
Financial Officer.4.3
    (7)
    
    Form of Promissory Note issued pursuant to the Note and Warrant Purchase
Agreement dated September 8, 2004.*
    
    
    10.1
    (3)
    
    Blue Dolphin Energy Company 2000 Stock Incentive Plan.*
    
    
    10.2
    (4)
    
    Amendment to the Blue Dolphin Energy Company 2000 Stock Incentive Plan.10.3
    (5)
    
    Second Amendment to the Blue Dolphin Energy Company 2000 Stock Incentive Plan.10.4
    (6)
    
    Purchase and Sale Agreement by and between Blue Dolphin Pipe Line Company and
MCNIC, dated February 1, 2002.10.5
    (7)
    
    Sale of American Resources Offshore, Inc. Common Stock Agreement between Blue
Dolphin Exploration Co. and Ivar Siem, dated September 8, 2004.10.6
    (8)
    
    Purchase and Sale Agreement by and between Blue Dolphin Energy Company, WBI
Pipeline & Storage Group, Inc. and SemGas LP, dated October 29, 2004.10.7
    (10)
    
    Amendment to the Asset Purchase Agreement by and among MCNIC Offshore Pipeline
and Processing Company and Blue Dolphin Pipe Line Company dated February 28, 2005.10.8
    (12)
    
    Placement Agency Agreement by and between Blue Dolphin Energy Company and
Starlight Investments, LLC dated May 27, 2005.10.9
    (13)
    
    Form of Stock Purchase Agreement between Blue Dolphin Energy Company and Osler
Holdings Limited, Gilbo Invest AS, Spencer Energy AS, Spencer Finance Corp., Hudson Bay
Fund, LP, Don Fogel and SIBEX Capital Fund, Inc. dated March 8, 2006.**
    
    
    21.1
    
    
    List of Subsidiaries of the Company.**
    
    
    23.1
    
    
    Consent of UHY LLP.**
    
    
    31.1
    
    
    Ivar Siem Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.**
    
    
    31.2
    
    
    Gregory W. Starks Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.**
    
    
    32.1
    
    
    Ivar Siem Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.**
    
    
    32.2
    
    
    Gregory W. Starks Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.




---



##### Table of Contents



(1)
    
    Incorporated herein by reference to Exhibits filed in connection with the definitive Proxy
Statement of Blue Dolphin Energy Company under the Securities and Exchange Act of 1934, dated
October 13, 2004 (Commission File No. 000-15905).(2)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 10-K of Blue
Dolphin Energy Company for the year ended December 31, 1989 under the Securities and Exchange
Act of 1934, dated March 30, 1990 (Commission File No. 000-15905).(3)
    
    Incorporated herein by reference to Exhibits filed in connection with the Proxy Statement of
Blue Dolphin Energy Company under the Securities and Exchange Act of 1934, dated May 18, 2000
(Commission File No. 000-15905).(4)
    
    Incorporated herein by reference to Exhibits filed in connection with the definitive Proxy
Statement of Blue Dolphin Energy Company under the Securities and Exchange Act of 1934, dated
April 16, 2003 (Commission File No. 000-15905).(5)
    
    Incorporated herein by reference to Exhibits filed in connection with the definitive Proxy
Statement of Blue
Dolphin Energy Company under the Securities and Exchange Act of 1934, dated April 27, 2007
(Commission File No. 000-15905).(6)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 10-KSB of Blue
Dolphin Energy Company under the Securities and Exchange Act of 1934, dated July 23, 2002
(Commission File No. 000-15905).(7)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 8-K of Blue
Dolphin Energy Company under the Securities and Exchange Act of 1934, dated September 14, 2004
(Commission File No. 000-15905).(8)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 8-K of Blue
Dolphin Energy Company under the Securities and Exchange Act of 1934, dated December 6, 2004
(Commission File No. 000-15905).(9)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 8-K of Blue
Dolphin Energy Company under the Securities and Exchange
Act of 1934, dated December 26, 2007 (Commission File No. 000-15905).(10)
    
    Incorporated herein by reference to Exhibits filed in connection with Form 8-K of Blue
Dolphin Energy Company under the Securities and Exchange Act of 1934, dated March 2, 2005
(Commission File No. 000-15905).(11)
    
    Incorporated herein by reference to Exhibit 14.1 filed in connection with Form 10-KSB of Blue
Dolphin Energy Company for the year ended December 31, 2004 under the Securities Exchange Act
of 1934, dated March 25, 2005 (Commission File No. 000-15905).(12)
    
    Incorporated herein by reference to Exhibit 10.9 filed in connection with Form 10-KSB of Blue
Dolphin Energy Company for the year ended December 31, 2005 under the Securities Exchange Act
of 1934, dated March 30, 2006 (Commission File No. 000-15905).(13)
    
    Incorporated herein by reference to Exhibit 10.10 filed in connection with Form 10-KSB of
Blue Dolphin Energy Company for the year ended December 31, 2005 under the Securities Exchange
Act of 1934, dated March 30, 2006 (Commission File No. 000-15905).