ASSET PURCHASE AGREEMENT






                                  by and among

                  MCNIC OFFSHORE PIPELINE & PROCESSING COMPANY,
                                    as Seller




                                       and



                         BLUE DOLPHIN PIPE LINE COMPANY,
                                    as Buyer















                          Dated as of February 1, 2002


<PAGE>

                                                 TABLE OF CONTENTS

ARTICLE I     SALE AND PURCHASE OF ASSETS......................................1
   1.01     Agreement to Purchase and Sell.....................................1
   1.02     Purchase Price.....................................................2
   1.03     Conditional Consideration..........................................2
   1.04     Customer Contracts.................................................3
   1.05     Effective Time.....................................................3
ARTICLE II    CLOSING..........................................................3
ARTICLE III   ACTIONS TAKEN AT THE CLOSING.....................................4
   3.01     Actions Taken by Seller............................................4
   3.02     Actions Taken by Buyer.............................................4
ARTICLE IV    REPRESENTATIONS AND WARRANTIES OF THE SELLER.....................5
   4.01     By Seller..........................................................5
     (a)    Organization and Powers............................................5
     (b)    Agreements and Consents............................................5
     (c)    No Litigation......................................................5
     (d)    Validity and Enforceability........................................5
     (e)    Ownership of Assets................................................6
     (f)    No Brokers.........................................................6
     (g)    Not a Retailer.....................................................6
     (h)    Validity and Enforceability........................................6
   4.02     No Other Warranties................................................6
ARTICLE V     REPRESENTATIONS AND WARRANTIES OF BUYER..........................7
   5.01     By Buyer...........................................................7
     (a)    Organization and Powers............................................7
     (b)    Agreements and Consents............................................7
     (c)    Litigation; Orders.................................................7
     (d)    Validity and Enforceability........................................7
     (e)    No Brokers.........................................................8
ARTICLE VI    ADDITIONAL COVENANTS.............................................8
   6.01     Public Announcements...............................................8
   6.02     Tax Matters........................................................8
   6.03     Further Assurances.................................................9
   6.04     Third Party Consents...............................................9
   6.05     Operating Agreement................................................9
   6.06     Access.............................................................9
   6.07     Audit.............................................................10
ARTICLE VII   ASSUMPTION AND INDEMNIFICATION..................................10
   7.01     Assumption of Liabilities Relating to the Purchased Interests.....10
   7.02     Indemnification by Seller.........................................10
   7.03     Indemnification by Buyer..........................................10
   7.04     Notice of Asserted Liability......................................11
   7.05     Opportunity to Defend.............................................11
   7.06     Negligence and Strict Liability Waiver............................11
   7.07     Exclusive Remedy..................................................11



                                       i


<PAGE>

ARTICLE VIII  MISCELLANEOUS...................................................12
   8.01     Survival..........................................................12
   8.02     Counterparts......................................................12
   8.03     Governing Law.....................................................12
   8.04     Entire Agreement..................................................12
   8.05     Expenses..........................................................12
   8.06     Notices...........................................................12
   8.07     Successors and Assigns............................................13
   8.08     Headings..........................................................13
   8.09     Severability......................................................13
   8.10     No Third Party Beneficiaries......................................13
   8.11     Cross-references..................................................13
   8.12     Gender............................................................13
   8.13     Modification and Waiver...........................................13
   8.14     DTPA Waiver.......................................................14
   8.15     Agreement Duly Negotiated.........................................14


















                                       ii

<PAGE>

                            ASSET PURCHASE AGREEMENT
                            ------------------------

     This  Agreement  is dated  February  1, 2002 but is made and  entered  into
effective  as of the  Effective  Time (as  defined  below),  by and among  MCNIC
Offshore Pipeline & Processing Company, a Michigan corporation  ("Seller"),  and
Blue Dolphin Pipe Line Company, a Delaware corporation ("Buyer").

                                   WITNESSETH:

     WHEREAS,  Seller owns undivided 1/3 interests in the Blue Dolphin Pipeline,
the Land, the Shore  Facilities,  the Buccaneer  Pipeline and the Omega Pipeline
(all as hereinafter defined);

     WHEREAS, Buyer desires to purchase from Seller such undivided 1/3 of 8/8ths
interests;

     WHEREAS,  Seller  purchased  from Buyer and its  affiliates  its  ownership
interests in certain of the assets  subject to this Agreement on August 31, 1995
(the "Original Purchase")

     WHEREAS,  Seller,  Buyer and WBI  Southern,  Inc.  have  entered  into that
certain Amended and Restated Operating Agreement (the "Operating Agreement");

     NOW,  THEREFORE,  in  consideration  of the premises and  covenants  herein
contained,  and the benefits to be derived herefrom, the parties hereby agree as
follows:

                                    ARTICLE I
                                    ---------

                           SALE AND PURCHASE OF ASSETS

     1.01  Agreement  to  Purchase  and  Sell.  Subject  to the  terms  and  the
conditions set forth in this Agreement,  as of the Effective Time (as defined in
Section 1.05),  Seller will sell to Buyer,  and Buyer will purchase from Seller,
an undivided 1/3 of 8/8ths interest in and to:

     (a) that certain  pipeline system located both onshore in Brazoria  County,
Texas, and offshore of the coast of Texas, which is referred to and described in
Exhibit  1.01(a),  including all  pipelines  and related  equipment and fixtures
related thereto (the "Blue Dolphin Pipeline") and any easements,  right-of-ways,
and permits  necessary to conduct the business of the Blue Dolphin Pipeline (the
"Blue Dolphin Pipeline Business");

     (b) that certain pipeline system located onshore in Brazoria County, Texas,
which is referred to and described in Exhibit  1.01(b),  including all pipelines
and related  equipment and fixtures  related thereto (the "Buccaneer  Pipeline")
and any easements,  right-of-ways, and permits necessary to conduct the business
of the Buccaneer Pipeline (the "Buccaneer Pipeline Business");

<PAGE>

     (c) all of those  certain  tracts or parcels of real  estate  described  in
Exhibit 1.01(c) (the "Land");

     (d) the onshore  separation,  vapor recovery,  and dehydration  facilities,
related equipment, storage tanks, and fixtures owned by Seller which are located
on the Land on the  date of this  Agreement  (the  "Shore  Facilities")  and any
easements,  right-of-ways,  and permits necessary to conduct the business of the
Shore Facilities (the "Shore Facilities Business");

     (e) the  pipeline  described  on Exhibit  1.01(e),  including  all  related
equipment and fixtures (the "Omega Pipeline") and any easements,  right-of-ways,
and permits  relating to the  business of the Omega  Pipeline  ("Omega  Pipeline
Business"); and

     (f) any other assets owned by Seller which relate to any of the  Businesses
(as hereinafter defined).

     The assets which are subject to the sale and assignment of an undivided 1/3
of 8/8ths  interest  pursuant to this Section are  sometimes  referred to herein
collectively  as the  "Assets".  The  undivided  1/3 of 8/8ths  interests in the
Assets to be acquired by Buyer  pursuant to this Section are sometimes  referred
to  herein  collectively  as  the  "Purchased  Interests"  or  singularly  as  a
"Purchased Interest". The Blue Dolphin Pipeline Business, the Buccaneer Pipeline
Business,  the Shore Facilities  Business,  and the Omega Pipeline  Business are
sometimes collectively referred to herein as the "Businesses" or separately as a
"Business."

     1.02 Purchase Price.  The purchase price for the Purchased  Interests shall
be a maximum amount of $1,500,000 (the "Purchase Price") payable as follows: (i)
$750,000  shall be payable  pursuant to the terms of a secured  promissory  note
which shall be  identical to Exhibit  1.02 (the  "Note"),  and (ii) a maximum of
$750,000  shall be payable as provided in Section 1.03. The Purchase Price shall
be   allocated   to  Class  V  assets  as   defined   in   Treasury   Regulation
ss.338-6(b)(2)(v)  and among the Purchased  Interests in the manner set forth in
Section 6.02(d).

     1.03 Conditional Consideration.  Within 90 days of the end of each calendar
year that  includes any period which is  subsequent  to the Note Payment  Month,
Buyer shall pay Seller an annual  amount equal to 50% of the Net Revenue for the
portion of such calendar  year which is  subsequent  to the Note Payment  Month.
Payments  pursuant to this  Section  shall  continue  until  Seller has received
payments equal to $750,000, plus the amount which would have accrued on $750,000
if  interest  had accrued  thereon  from the  Effective  Time at the rate of 6%.
Notwithstanding the foregoing,  however, no amounts shall be payable pursuant to
this  Section with  respect to the Net Revenue of any period  subsequent  to the
Termination Date. For purposes of this Section 1.03 only:

     (a) The term "Net Revenue" shall mean the gross revenue attributable to the
Purchased Interests as determined on a cash basis,  consistently applied,  minus
(i)  the  reasonable  operating  expenditures   attributable  to  the  Purchased
Interests  (including  the  Operator's  Fee, not to exceed $12,800 per month) as
determined by Buyer in a manner  consistent with past  practices,  including but
not  limited  to legal  fees with  respect  to  litigation  that  relates to the
Purchased Interests,  and (ii) any negative amount of Net Revenue for any period
subsequent  to the Note Payment  Month which has not been offset by positive Net
Revenue  generated  subsequent to the period in which such  negative  amount was
realized.


                                       2
<PAGE>

     (b) The term "Note  Payment  Month"  means the month in which for the first
time the amount of the Net Revenue for the periods  subsequent  to the Effective
Time is  sufficient  to entitle the Seller  pursuant to the terms of the Note to
receive payment in full of the Note.

     (c) The term "Termination Date" means December 31, 2006; provided,  however
that the Termination Date shall automatically  extend by one additional calendar
year (up to a maximum  of two  calendar  years) for each  instance  in which the
non-recurring,   extraordinary   expenditures   attributable  to  the  Purchased
Interests exceed $200,000, in the aggregate, during any calendar year subsequent
to the Closing.

     1.04 Customer  Contracts.  The sale and purchase of the Purchased Interests
shall include an assignment of undivided 1/3 of 8/8ths interest in and to all of
the agreements  pursuant to which certain  persons have entered into  agreements
with Seller with respect to (a) the transportation,  separation, dehydration, or
storage of natural gas,  crude oil,  and/or  condensate  through,  by, and/or on
certain of the Assets, or (b) the vapor recovery  processes  performed by Seller
by means of the Assets to the extent such  agreements  were in  existence at the
time of the Original  Purchase,  or have been entered into by Buyer on behalf of
Seller in its capacity as operator under the Operating  Agreement (the "Customer
Contracts").

     1.05  Effective  Time.  The  transfer  of the  ownership  of the  Purchased
Interests shall be effective as of 12:01 a.m., Central Standard Time, on January
1, 2002 (the  "Effective  Time").  All sums owing on  account of the  ownership,
operation,  or use of the Purchased  Interests prior to the Effective Time shall
be for the account of and  charged to the Seller,  and all sums owing on account
of the ownership,  operation,  or use of the Purchased Interests on or after the
Effective  Time  shall be charged  to and for the  account of Buyer.  The Seller
shall be entitled to any and all revenues, refunds, sums or amounts attributable
to the  ownership,  operation,  or use of the Purchased  Interests  prior to the
Effective Time. Buyer shall be entitled to any and all revenues,  refunds,  sums
or amounts  attributable  to the ownership,  operation,  or use of the Purchased
Interests  on and after the  Effective  Time.  Nothing set forth in this Section
1.05 shall be construed,  however,  to supersede any agreements made pursuant to
the Applicable Agreements with respect to the operation of the Assets subsequent
to the Effective  Time,  which shall be controlling  for all such purposes.  For
purposes of this Section  1.05,  (a) revenues  shall be treated as realized with
respect to the storage of crude oil,  condensate,  and natural gas liquids prior
to the  Effective  Time to the extent such  liquids were in storage in or on the
Assets at the Effective Time and (b) such liquids shall be deemed delivered from
storage on a "FIFO" basis.

                                   ARTICLE II
                                   ----------

                                     CLOSING

     The closing of the transactions  contemplated by this Agreement ("Closing")
is taking place simultaneously with the execution of this Agreement.


                                       3
<PAGE>

                                   ARTICLE III
                                   -----------

                          ACTIONS TAKEN AT THE CLOSING


     3.01 Actions Taken by Seller. Seller has executed and delivered on the date
hereof the following:

     (a) an  Assignment  and  Bill  of Sale  (the  "Assignment")  and any  other
instruments reasonably necessary to transfer an undivided 1/3 of 8/8ths interest
in the Blue Dolphin Pipeline, the Buccaneer Pipeline, the Shore Facilities,  and
the Omega Pipeline to Buyer,  free and clear of all Liens created by, through or
under Seller, other than Permitted Encumbrances;

     (b) a  Special  Warranty  Deed  (the  "Deed"),  and any  other  instruments
reasonably  necessary to transfer an undivided 1/3 of 8/8ths  interest in all of
the Land to Buyer  free and  clear of all Liens  created  by,  through  or under
Seller, other than Permitted Encumbrances; and

     (c) an  affidavit  or other  certification  that  Seller is not a  "foreign
person"  within the  meaning  of Section  1445 (or  similar  provisions)  of the
Internal  Revenue Code of 1986, as amended  (i.e.,  Seller is not a non-resident
alien, foreign corporation, foreign partnership, foreign trust or foreign estate
as  those  terms  are  defined  in such  code  and the  regulations  promulgated
thereunder).

As used in this  Agreement:  (a) the term "Liens"  shall mean any lien,  pledge,
claim,  charge,  security  interest  or  other  encumbrance,  and (b)  the  term
"Permitted Encumbrances" shall mean: (i) Liens for taxes not yet due and payable
or which are being  contested in good faith and disclosed in Schedule 3.01; (ii)
materialmen's, mechanics', workers', repairmen's, or other similar Liens arising
in the  ordinary  course of the  operation of the Assets for amounts not due and
payable or which are being  contested  in good faith and  disclosed  on Schedule
3.01;  (iii) all rights to, consents by,  required  notices to, filings with, or
other  actions by  governmental  entities if the same are  customarily  obtained
subsequent  to sale or  conveyance;  (iv)  rights  reserved  to or vested in any
local,  state,  and federal  governmental  bodies,  authorities,  or agencies to
control  or  regulate  any of the real  property  occupied  by the Assets in any
manner,  and all laws, rules,  regulations,  ordinances,  and orders of any such
bodies,  authorities,  or  agencies;  (v) Liens to be  released at or before the
Effective  Time;  (vi)  any  other  Liens  that do not,  individually  or in the
aggregate, have a material adverse effect on the ownership,  operation, or value
of the Purchased Interests; (vii) the encumbrances and restrictions with respect
to the Land  described  in Exhibit  "B" to the Deed and  (viii)  the  Applicable
Agreements (as defined in Section 7.01).

     3.02 Actions Taken by Buyer.  Buyer has executed and delivered to Seller on
the date  hereof:  (a) the Note,  and (b) a  Security  Agreement  in the form of
Exhibit 3.02.



                                       4
<PAGE>

                                   ARTICLE IV
                                   ----------

                  REPRESENTATIONS AND WARRANTIES OF THE SELLER

     4.01 By Seller. Seller represents and warrants to Buyer as set forth below:

     (a)  Organization  and  Powers.  Seller is a  corporation  duly  organized,
validly  existing,  and in good standing under the laws of the State of Michigan
and is duly  qualified to do business in, and is in good standing under the laws
of the State of Texas. Seller has all corporate power and authority necessary to
conduct its business as presently  conducted,  and to own, lease, or operate all
properties now owned, leased, or operated by Seller.

     (b)  Agreements  and  Consents.   Neither  the  execution,   delivery,  nor
performance of this Agreement,  the Assignment,  the Deed or any other documents
or instruments executed and delivered at the Closing (the "Closing  Agreements")
by Seller will (i) conflict  with or result in any breach of any  provisions  of
the charter or bylaws of Seller;  (ii) to the  knowledge of Seller,  require the
consent,  approval,  authorization  or permit of, or filing with or notification
to, any  governmental or regulatory  authority,  except as set forth in Schedule
4.01(b) or Section 6.07,  or any  regulatory  approvals or routine  governmental
consents   normally   acquired  after   consummation  of  transactions  such  as
transactions of the nature  contemplated by this Agreement,  (iii) except as set
forth in Schedule  4.01(b),  violate,  effect  acceleration  of or result in the
termination, cancellation, or modification of any material agreement, indenture,
instrument,  lease, contract, or other undertaking to which Seller is a party or
is bound,  except as provided in Section 6.07 or for such defaults (or rights of
termination,  cancellation,  or acceleration)  as to which requisite  waivers or
consents  have been obtained or will be obtained  prior to the  Effective  Time;
(iv) violate any order, writ, injunction,  or decree to which Seller is bound or
may be bound,  (v) to the  knowledge of Seller,  violate any statute,  rule,  or
regulation  to which  Seller  is bound or may be  bound;  or (vi)  result in the
imposition or creation of any Lien upon any of the Assets other than a Permitted
Encumbrance.

     (c) No Litigation.  No Proceeding with respect to which the Buyer or any of
its affiliates is not a party, or does not have actual knowledge,  is pending or
threatened  against  Seller  before  any  Governmental  Entity  (i)  seeking  to
restrain, prohibit, or obtain damages in connection with the consummation of the
transactions contemplated by this Agreement, or (ii) relating to the Assets.


     (d)  Validity  and  Enforceability.  Seller  has the  corporate  power  and
authority to execute and deliver this Agreement and the Closing Agreements.  The
execution and delivery by Seller of this  Agreement  and the Closing  Agreements
and the  consummation by Seller of the transactions and performance of the terms
and  conditions  contemplated  hereby  and  thereby  have been duly and  validly
authorized by all necessary corporate action on behalf of Seller. This Agreement
has been, and, at the Closing,  the Closing Agreements will be, duly and validly
executed and delivered by Seller and,  assuming  this  Agreement and the Closing
Agreements  constitute  valid and binding  obligations of Buyer,  this Agreement
constitutes,  and at the Closing, this Agreement and the Closing Agreements will
constitute,  valid and binding obligations of Seller,  enforceable in accordance
with their respective terms (except as the enforceability thereof may be limited
by  bankruptcy,   insolvency,   reorganization,   bank  moratorium,   fraudulent
conveyance,  or similar laws  affecting  creditors'  rights  generally,  general
principles  of  equity,  and laws  restricting  the  availability  of  equitable
remedies).


                                       5
<PAGE>

     (e)  Ownership  of  Assets.  Seller  is the  owner of and has  title to the
Purchased  Interests that are to be assigned by Seller pursuant to Section 1.01,
free and clear of all Liens  created  by  through,  or under  Seller  other than
Permitted Encumbrances.

     (f) No Brokers.  Neither Seller nor any of its affiliates has incurred, and
neither Seller nor any of its affiliates will incur, directly or indirectly,  as
a result of any action taken by Seller under this  Agreement,  any liability for
brokerage or finders' fees or commissions  or any similar  charges in connection
with this Agreement, for which Buyer will have any liability after the Closing.

     (g) Not a  Retailer.  Seller is not  engaged  in the  business  of  selling
tangible personal  property at retail,  does not hold a sales and use tax permit
issued by the  state of  Texas,  and has not made any  retail  sale of  tangible
personal property during the twelve month period ending on the Effective Time.

     (h) No Actions Taken. Seller has not entered into any contract or agreement
or participated in any governmental  proceeding,  or filed any suit or otherwise
taken any action with respect to the Assets  other than actions  taken on behalf
of the  Seller by the Buyer in its  capacity  as  operator  under the  Operating
Agreement or of which Buyer has actual knowledge.

     4.02 No Other  Warranties.  Except as and to the  extent  set forth in this
Article IV, Seller (i) has not made any  representations  or warranties to Buyer
whatsoever,  and (ii) hereby disclaims all liability and  responsibility for any
other representation,  warranty,  statement, or information made or communicated
(orally  or in  writing)  to Buyer  or its  representatives  (including  without
limitation any opinion, information, projection, or advice that may have been or
may be provided to Buyer by any director,  officer, employee, agent, consultant,
or representative of Seller or any Affiliate  thereof) by any person,  including
without limitation Seller or any of its representatives.  Specifically as a part
of (but not a limitation  of) the  foregoing,  Buyer  acknowledges  that neither
Seller  nor  any of  its  affiliates  has  made,  and  Seller  hereby  expressly
disclaims,  any representation or warranty (express,  implied, under common law,
by statute or otherwise) relating to the condition of any of the tangible assets
included in the Purchased  Interests (WITHOUT  LIMITATION,  SELLER  SPECIFICALLY
DISCLAIMS  ANY  IMPLIED OR EXPRESS  WARRANTY OF  MERCHANTABILITY,  FITNESS FOR A
PARTICULAR  PURPOSE,  OR  CONFORMITY  TO MODELS OR  SAMPLES OF  MATERIALS),  and
acknowledges  that it will acquire such  tangible  assets "AS IS" and "WHERE IS"
without  any  representation  or warranty  from Seller or any of its  affiliates
relating to their condition,  merchantability or fitness for a specific purpose.
By  its  action  in  closing  the  transactions   contemplated   hereby,   Buyer
acknowledges (or will be deemed to have  acknowledged) that it has been provided
access to all of the  Purchased  Interests  and to all records and other data to
which  it  requested  access,  all in  accordance  with the  provisions  of this
Agreement.


                                       6
<PAGE>

                                    ARTICLE V
                                    ---------

                     REPRESENTATIONS AND WARRANTIES OF BUYER

     5.01 By Buyer. Buyer represents and warrants to Seller as set forth below:

     (a)  Organization  and Powers.  Buyer (i) is a corporation  duly organized,
validly existing,  and in good standing under the laws of the state of Delaware,
(ii) is duly qualified to do business in, and is in good standing under the laws
of,  the  state of  Texas,  and (iii)  has all  corporate  power  and  authority
necessary to conduct its business as it is presently conducted.

     (b)  Agreements  and  Consents.   Neither  the  execution,   delivery,  nor
performance  of this  Agreement  or the  Closing  Agreements  by Buyer  will (i)
conflict with or result in any breach of any  provisions of the  certificate  of
incorporation or bylaws of Buyer; (ii) to Buyer's knowledge, require the consent
or approval, authorization, or permit of, or filing with or notification to, any
governmental or regulatory authority, except any regulatory approvals or routine
governmental  consents normally acquired after consummation of transactions such
as  transactions of the nature  contemplated  by this Agreement,  (iii) violate,
effect acceleration of, or result in termination,  cancellation, or modification
of any material agreement,  indenture,  instrument,  lease,  contract,  or other
undertaking  to which Buyer is a party or by which it is bound,  except for such
defaults (or rights of termination,  cancellation,  or acceleration) as to which
requisite  waivers or consents have been  obtained or will be obtained  prior to
the  Effective  Time;  or (iv) violate any order,  writ,  or injunction to which
Buyer is bound or may be bound,  or (v) to the  knowledge of Buyer,  violate any
decree, statute, rule, or regulation to which Buyer is bound or may be bound.

     (c)  Litigation;  Orders.  There is no Litigation,  judgment or outstanding
order, writ, injunction,  decree,  stipulation,  or award (whether rendered by a
court or administrative  agency, or by arbitration) pending, or to the knowledge
of Buyer threatened,  to which Buyer is or would be a party or to which Buyer is
bound that would have an adverse  effect on the  ability of Buyer to  consummate
the transactions  contemplated hereby or in the Closing Agreements or that would
prevent or delay in any material  respect the  consummation of the  transactions
contemplated  hereby  or  in  the  Closing  Agreements  or  could  otherwise  be
reasonably expected to materially adversely affect the Purchased Interests.

     (d)  Validity  and  Enforceability.  Buyer  has  the  corporate  power  and
authority to execute and deliver this Agreement and the Closing Agreements.  The
execution and delivery by Buyer of this Agreement and the Closing Agreements and
the  consummation by Buyer of the  transactions and performance of the terms and
conditions contemplated hereby and thereby have been duly and validly authorized
by all necessary  corporate action on behalf of Buyer.  This Agreement has been,
and, at the Closing,  the Closing  Agreements will be, duly and validly executed
and delivered by Buyer and,  assuming this Agreement and the Closing  Agreements
constitute a valid and binding obligation of Seller, the Agreements  constitute,
and, at the Closing,  the Closing Agreements will constitute,  valid and binding
obligations  of  Buyer,  enforceable  against  Buyer in  accordance  with  their
respective  terms  (except  as the  enforceability  thereof  may be  limited  by
bankruptcy, insolvency,  reorganization, bank moratorium, fraudulent conveyance,
or similar laws affecting  creditors'  rights generally,  general  principles of
equity, and laws restricting the availability of equitable remedies).


                                       7
<PAGE>

     (e) No Brokers.  Neither Buyer nor any of its affiliates has incurred,  and
will not incur, directly or indirectly, as a result of any action taken by Buyer
under  this  Agreement,   any  liability  for  brokerage  or  finders'  fees  or
commissions or any similar charges in connection with this Agreement,  for which
Seller has or will have any liability.

                                   ARTICLE VI
                                   ----------

                              ADDITIONAL COVENANTS

     6.01 Public Announcements.  Without the prior written approval of the other
parties  hereto,  which approval shall not be  unreasonably  withheld,  no party
hereto will issue, or permit any agent or affiliate to issue, any press releases
or otherwise make or cause any agent or affiliate to make, any public statements
with respect to this Agreement or the  transactions  contemplated  hereby except
where such release or statement is deemed in good faith by the  releasing  party
to be required by applicable law or any national securities exchange.  Any party
or parties issuing such a release or statement will use its or their  reasonable
efforts to provide a copy to the other  parties  prior to the  issuance  of such
release or statement.

     6.02 Tax Matters.

     (a) The term  "Taxes"  shall  mean all  income,  gross  receipts,  profits,
franchise,  sales, use,  occupation,  property (including in lieu-of-taxes),  ad
valorem,  capital, wealth,  environmental,  employment,  severance,  production,
excise, stamp, transfer, workers' compensation,  social security, withholding or
similar taxes, motor vehicle registration fees, customs or import duties and all
other  taxes or other  governmental  fees or charges  imposed by any  country or
political  subdivision  thereof,  together  with  any  interest,   additions  or
penalties with respect thereto.

     (b) Buyer  shall pay all  transfer  taxes,  including  without  limitation,
sales, use, excise (including excise taxes on petroleum,  products of petroleum,
petrochemicals,  chemicals, and other taxable substances),  stamp,  documentary,
filing,  recording,  permit,  license,  authorization,  and other similar Taxes,
filing  fees and  similar  charges  ("Transfer  Taxes"),  incurred or imposed in
connection  with or as a result of the  transactions  effected  pursuant to this
Agreement regardless of upon whom such Transfer Tax is levied or imposed by law.
Buyer shall  prepare and file all returns and reports for such  Transfer  Taxes.
Should Seller be required by law to pay such  Transfer  Tax,  Buyer shall notify
Seller of such  amount  and the due dates  thereof  and remit the amount of such
Transfer  Tax and  pre-prepared  filings  associated  therewith  to  Seller  for
remittance at least ten days before such Transfer Tax is due.

     (c)  Seller  shall be  liable  for all Taxes  (other  than  Transfer  Taxes
described  in  Section  6.02(b))  incurred  in  connection  with the sale of the
Purchased Interests and all taxes with respect to the ownership and operation of
the Purchased  Interests for taxable  periods  ending on or before the Effective
Time.  Buyer  shall be liable  for its pro rata  share of all Taxes  other  than
(subject to its obligations under the Operating Agreements) employment, workers'


                                       8
<PAGE>

compensation,  social  security,  withholding,  or  similar  taxes  relating  to
employees) imposed with respect to the ownership and operation of the Assets for
periods  beginning  after the Effective Time. With respect to any taxable period
which  includes  the  Effective  Time (i)  property  and other ad valorem  Taxes
accruing with respect to the Purchased  Interests  shall be apportioned  between
Seller,  on the one  hand,  and  Buyer,  on the other  hand,  based on the daily
proration of such Taxes,  and (ii) any other Taxes  accruing  during such period
shall be equitably apportioned among the parties.

     (d) Seller and Buyer agree that the Purchase Price shall be allocated among
the Purchased Interests in the manner set forth in Schedule 6.02(d).  Each party
agrees to complete IRS Form 8594  consistently with the agreed allocation and to
furnish  the other  party  with a draft  copy of such form  within a  reasonable
period before the filing due date of such form.  Neither  Seller nor Buyer shall
file any return with a tax authority that is inconsistent with such allocation.

     6.03 Further  Assurances.  After the Closing,  Seller and Buyer shall,  and
shall cause their  affiliates  to,  execute,  acknowledge,  and deliver all such
further conveyances, notices, assumptions,  releases, and acquittances, and such
other instruments,  and shall take such further actions,  as may be necessary or
appropriate more fully to assure to Buyer, and its successors or assigns, all of
the properties,  rights,  titles,  interests,  estates,  remedies,  powers,  and
privileges  intended to be conveyed to Buyer  pursuant to this  Agreement and to
assure  fully  to  Seller,  its  affiliates  and  successors  and  assigns,  the
assumption of the liabilities  and  obligations  intended to be assumed by Buyer
pursuant to this Agreement.

     6.04 Third  Party  Consents.  Seller and Buyer  shall use their  respective
reasonable   best   efforts  to  obtain   all   consents,   approvals,   orders,
authorizations,  and waivers of, and to effect all  declarations,  filings,  and
registrations with, all third parties (including governmental entities) that are
necessary or required to enable  Seller to transfer the  Purchased  Interests to
Buyer  as  contemplated  by  this  Agreement  and to  otherwise  consummate  the
transactions  contemplated  hereby.  All  costs and  expenses  of  obtaining  or
effecting  any  and  all of the  consents,  approvals,  orders,  authorizations,
waivers,  declarations,  filings, and registrations  referred to in this Section
shall be borne by Seller, provided, however, that the foregoing shall not affect
the obligation of Buyer to pay recording  costs and such expenses as required to
comply with  regulatory  requirements  imposed by the Federal Energy  Regulatory
Commission and the Minerals Management Service with respect to this transaction.

     6.05 Operating Agreement. From and after the Effective Time, Seller will no
longer have any  obligations  or rights  pursuant to the terms of the  Operating
Agreement.

     6.06 Access. So long as any obligations under the Note remain  outstanding,
but at least  until  December  31,  2007,  Buyer will  provide  Seller  with any
reports,  materials,  documents  and other  information  that Buyer is currently
required  to provide to Seller  under the  Operating  Agreement,  including  the
financial  information that Buyer is required to provide the Seller,  and Seller
will have the right of access to information  regarding the Purchased  Interests
that Seller had access to as an owner of any of the Purchased Interests.  Should
any Purchased  Interest  subsequently  be transferred  by Buyer,  so long as any
obligations under the Note continue to remain outstanding,  Buyer agrees to take
all action in its contractual  arrangements  relating to such transfer necessary
to allow Seller to receive information and to have the access described above.


                                       9
<PAGE>

     6.07 Audit. So long as any obligations  under the Note remain  outstanding,
but at least until December 31, 2007,  Seller shall have the right, upon written
notice to Buyer and at a time  mutually  acceptable  to the parties  hereto,  to
audit at its own expense during reasonable  business hours all books and records
of Buyer relating to the Purchased  Interests and the Net Revenue.  In the event
any audit  results in an adjustment in favor of the Seller in excess of $10,000,
any  reasonably  incurred costs and expenses of the audit shall be reimbursed by
Buyer up to a maximum  amount equal to fifty percent (50%) of the amount of such
adjustment.

                                   ARTICLE Rw
VII

                         ASSUMPTION AND INDEMNIFICATION

     7.01 Assumption of Liabilities Relating to the Purchased  Interests.  Buyer
shall  assume  and agree to pay,  perform,  and  discharge  or cause to be paid,
performed,   and   discharged   all   duties,   obligations,   and   liabilities
("Obligations")  arising out of, in connection  with, or otherwise in respect of
the  ownership or  operation  of the  Purchased  Interests,  whether  primary or
secondary,  fixed or  contingent,  including  a pro rata  portion of the duties,
obligations,  and  liabilities  of Seller under the Customer  Contracts  and the
agreements  (the  "Applicable  Agreements")  relating  to the  operation  of the
Businesses  that  either  (i)  were in  existence  at the  time of the  Original
Purchase,  or (ii) were  entered  into on  behalf of the  Seller by Buyer in its
capacity as operator under the Operating Agreement  (collectively,  the "Assumed
Obligations");  provided, however, that Buyer does not assume any Obligations of
Seller associated with or arising out of matters as to which Seller is obligated
to indemnify Buyer pursuant to Section 7.02.

     7.02  Indemnification by Seller.  Seller shall indemnify,  defend, and hold
harmless Buyer (and its directors, officers, employees, affiliates,  successors,
and  assigns)  from and against any  Obligations  based upon,  arising out of or
otherwise in respect of (a) any  inaccuracy in or breach of any  representation,
warranty,  or  covenant  of  Seller  contained  in this  Agreement;  and (b) any
liability for Taxes the  responsibility  for the payment of which is retained by
Seller pursuant to Section 6.02(c); provided, however, that Seller shall have no
liability  under this Section  7.02 with respect to matters  described in clause
(a) above for Obligations  until the aggregate amount of such Obligations  shall
exceed the sum of $25,000  and, in any event only with  respect to the amount in
excess  thereof,  subject at all times,  to the  provisions of this Article VII.
Notwithstanding anything to the contrary herein contained, the maximum aggregate
amount of the  obligations  of Seller to indemnify  Buyer pursuant to clause (a)
above shall be the Purchase Price which has been paid to Seller.

     7.03  Indemnification  by Buyer.  Buyer shall indemnify,  defend,  and hold
harmless Seller (and its respective directors, officers, employees,  affiliates,
successors,  and assigns) from and against any Obligations  based upon,  arising
out of or  otherwise  in  respect  of (a) any  inaccuracy  in or  breach  of any
representation,  warranty, or covenant of Buyer contained in this Agreement; (b)
any liability for Taxes the  responsibility  for the payment of which is assumed
by Buyer  pursuant  to  Section  6.02(b)  and (c)  hereof;  and (c) the  Assumed
Obligations.


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<PAGE>

     7.04  Notice of Asserted  Liability.  Promptly  after  receipt by any party
hereto (the "Indemnitee") of notice of any demand, claim, or circumstance which,
with the  lapse of time,  would  give  rise to a claim or the  commencement  (or
threatened  commencement),  or any  action,  proceeding,  or  investigation  (an
"Asserted  Liability")  that may result in an Obligation,  the Indemnitee  shall
give  notice  thereof  (the  "Claims  Notice")  to the other  party  hereto (the
"Indemnifying  Party").  The Claims Notice shall describe the Asserted Liability
in reasonable detail, and shall indicate the amount (estimated, if necessary) of
the   Obligation   that  has  been  or  may  be  suffered  by  the   Indemnitee.
Notwithstanding  the  foregoing,  no party shall have any  liability  for claims
arising  pursuant to Section  7.02(a) or 7.03(a) unless a Claims Notice has been
delivered within the appropriate time period indicated in Section 8.01.

     7.05 Opportunity to Defend.  The Indemnifying Party may elect to compromise
or defend, at its own expense and by its own counsel, any Asserted Liability and
if it does so the Indemnifying  Party shall have the right to make all judgments
and  decisions  in  respect of the  handling  of the  defense  of such  Asserted
Liability and the settlement or compromise of the Asserted Liability, subject to
the provisions of this Section 7.05. If the Indemnifying  Party elects to defend
such  Asserted  Liability,  it shall  within 30 days of the  Claims  Notice  (or
sooner,  if the  nature  of the  Asserted  Liability  so  requires)  notify  the
Indemnitee  of its  intent to do so,  and the  Indemnitee  shall  cooperate,  as
requested by and at the expense of the Indemnifying Party, in the compromise of,
or defense against,  such Asserted  Liability.  If the Indemnifying Party elects
not to defend the  Asserted  Liability,  fails to notify the  Indemnitee  of its
election as herein  provided or contests its obligation to indemnify  under this
Agreement,  the  Indemnitee  may  pay,  compromise,   or  defend  such  Asserted
Liability. Notwithstanding the foregoing, neither the Indemnifying Party nor the
Indemnitee  may settle or compromise any claim subject to  indemnification  over
the  objection of the other,  provided,  however,  that consent to settlement or
compromise shall not be unreasonably  withheld. In any event, the Indemnitee and
the Indemnifying Party may participate,  at their own expense, in the defense of
such Asserted Liability.  If the Indemnifying Party chooses to defend any claim,
the  Indemnitee  shall  make  available  to the  Indemnifying  Party any  books,
records, or other documents within its control that are necessary or appropriate
for such defense.

     7.06 Negligence and Strict Liability Waiver. The  indemnification  provided
for in this Article VII shall be applicable regardless of whether Obligations in
question  arose  solely  or in part  from the  active,  passive,  or  concurrent
negligence of any Indemnitee (or under any theory of strict  liability) prior to
the Effective Time or after the Effective Time, as the case may be.

     7.07 Exclusive  Remedy.  After the Closing,  and to the extent permitted by
applicable  law, the rights and remedies  expressly set forth in this  Agreement
and in the Closing  Agreements shall be the exclusive rights and remedies of the
parties  hereto with  respect to losses or claims  relating to the  transactions
consummated pursuant to this Agreement.


                                       11
<PAGE>

                                  ARTICLE VIII
                                  ------------

                                  MISCELLANEOUS

     8.01 Survival.  The representations and warranties made by Seller and Buyer
pursuant to this  Agreement  shall expire twelve (12) months after the Effective
Time  and  shall   thereafter  be  of  no  force  and  effect  except  (i)  such
representations and warranties shall be considered as continuing until three (3)
years  after the  Effective  Time with  respect to any  intentional  and willful
misrepresentations  set forth  herein,  after which time no claim or suit may be
brought  with  respect  to the same,  (ii) the  representations  made in Section
4.01(e), which shall survive indefinitely, and (iii) the representations made in
Section  5.01(d),  which shall  survive  until six (6) years after the Effective
Time.

     8.02  Counterparts.   This  Agreement  may  be  executed  in  one  or  more
counterparts,  all of which shall be considered one and the same agreement,  and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.

     8.03 Governing  Law. This  Agreement  shall be governed by and construed in
accordance  with  the  laws of the  State  of  Texas  without  reference  to the
conflicts of law principles thereof.

     8.04 Entire Agreement. The Agreements and the Schedules and Exhibits hereto
supersede all prior  agreements  between the parties  (written or oral) and, are
intended as a complete and  exclusive  statement  of the terms of the  agreement
between the parties.  This Agreement may be amended only by a written instrument
duly executed by the parties.

     8.05 Expenses. Except as expressly set forth in this Agreement, whether the
transactions contemplated hereby are or are not consummated, all legal and other
costs  and  expenses   incurred  in  connection  with  this  Agreement  and  the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses.

     8.06 Notices. All notices hereunder shall be sufficiently given (and deemed
made) for all purposes hereunder if in writing and (a) delivered personally, (b)
sent by documented  overnight  delivery  service,  (c) to the extent  receipt is
confirmed,  sent by telecopy,  telefax, or other electronic transmission service
to the  appropriate  address or number as set forth below, or (d) sent by United
States mail,  postage prepaid with return receipt  requested.  Notices to Seller
shall be transmitted or addressed to:

         MCNIC Offshore Pipeline & Processing Company
         2000 Second Avenue, 688 WCB
         Detroit, Michigan 48226
         Attention:  General Counsel
         Telecopier No.: (313) 235-8500

or at such other addresses or telefax numbers and to the attention of such other
person as Seller may designate by written notice to the other party.


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<PAGE>

         Notices to Buyer shall be transmitted or addressed to:

         Blue Dolphin Pipe Line Company
         801 Travis, Suite 2100
         Houston, Texas 77002
         Attention:  President
         Telecopier No.: (713) 227-7626

or at such other addresses or telefax numbers and to the attention of such other
person as Buyer may designate by written notice to the other party.

     8.07 Successors and Assigns. This Agreement shall be binding upon and inure
to the  benefit  of the  parties  hereto  and their  respective  successors  and
assigns; provided, however, that (i) Buyer may not assign its rights or delegate
its obligations  under this Agreement  without the express prior written consent
of the  Seller  and (ii)  Seller may only  assign  its  rights or  delegate  its
obligations  under this  Agreement to an  affiliate or with the express  written
consent of the Buyer.

     8.08 Headings. The section and article headings contained in this Agreement
are inserted for  convenience  of reference only and will not affect the meaning
or interpretation of this Agreement.

     8.09  Severability.  If any term or provision of this Agreement is invalid,
illegal, or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall  nevertheless  remain in
full  force  and  effect  so long as the  economic  or  legal  substance  of the
transactions  contemplated hereby is not affected in any material adverse manner
to any  party.  Upon  such  determination  that any term or other  provision  is
invalid,  illegal,  or incapable  of being  enforced,  the parties  hereto shall
negotiate  in good faith to modify this  Agreement  so as to effect the original
intent of the parties as closely as possible in an acceptable  manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.

     8.10 No Third  Party  Beneficiaries.  Except as  provided  in Article  VII,
nothing in this  Agreement  shall entitle any person other than Seller and Buyer
or their respective  successors and assigns permitted hereby to any claim, cause
of action, remedy, or right of any kind.

     8.11 Cross-references.  References in this Agreement to Articles, Sections,
Exhibits,  or Schedules shall be deemed to be references to Articles,  Sections,
Exhibits,  and Schedules of this Agreement  unless the context  specifically and
expressly requires otherwise.

     8.12 Gender.  Pronouns in masculine,  feminine,  and neuter genders will be
construed to include any other  gender,  and words in the singular  form will be
construed  to include  the plural and vice versa,  unless the context  otherwise
requires.

     8.13 Modification and Waiver. No amendment,  modification or alternation of
the terms or provisions of this Agreement shall be binding unless the same shall
be in writing and duly  executed by the Parties  hereto,  except that any of the
terms or  provisions  of this  Agreement may be waived in writing at any time by


                                       13
<PAGE>

the Person that is entitled to the benefits of such waived terms or  provisions.
No waiver of any of the provisions of this Agreement shall be deemed to or shall
constitute a waiver of any other provision  hereof (whether or not similar).  No
delay on the part of any  Person in  exercising  any right,  power or  privilege
hereunder shall operate as a waiver hereof.

     8.14 DTPA Waiver. To the extent applicable to the transactions contemplated
by this  Agreement,  Buyer waives the  provisions of the Texas  Deceptive  Trade
Practices Act, Chapter 17, Subchapter E, Sections 17.41 through 17.63, inclusive
(other than Section  17.55A,  which is not waived),  Tex. Bus. & Comm.  Code. In
order to evidence its ability to grant such waiver,  Buyer hereby represents and
warrants to Seller that Buyer (a) is in the business of seeking or acquiring, by
purchase or lease,  goods or services for  commercial  or business  use, (b) has
assets of $5,000,000 or more  according to its most recent  financial  statement
prepared in accordance with generally accepted  accounting  principles,  (c) has
knowledge and  experience in financial and business  matters that enable them to
evaluate  the  merits  and  risks  of  the  transactions  contemplated  by  this
Agreement, and (d) is not in a significantly disparate bargaining position.

     8.15 Agreement Duly Negotiated.  The Parties acknowledge that the Agreement
is the  product  of  negotiations  among  them and that each  Party  contributed
substantially to its preparation. For this reason, neither the Agreement nor any
documents to be executed and delivered in  connection  with it will be construed
more favorably toward one Party than any other.


IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of
the parties as of the date first above written.

MCNIC OFFSHORE PIPELINE                      BLUE DOLPHIN PIPE LINE
& PROCESSING COMPANY,                        COMPANY,
a Michigan corporation                       a Delaware corporation

By:_______________________________           By:________________________________
Name:                                           Larry Turpin, President
Title:


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