##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from

to .
 Commission File No. 0-15905
 BLUE DOLPHIN ENERGY COMPANY
  Delaware
    
    73-1268729State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization
    
    Identification No.)801 Travis Street, Suite 2100Houston, Texas
    
    77002(Address of principal executive offices)
    
    (Zip Code)
 (713) 568-4725
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $0.01 per share
    
    NASDAQ Capital Market
 Securities registered pursuant to Section 12(g) of the Act:
  o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ(Do not check if a smaller
reporting company)
 o þ
  Number of shares of Common Stock outstanding as of March 31, 2011
    
    
    2,078,514
 DOCUMENTS INCORPORATED BY REFERENCE




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##### 



BLUE DOLPHIN ENERGY COMPANY
FORM 10-K REPORT INDEX
 PART IITEM 1. BUSINESS
    
    
    3ITEM 1A. RISK FACTORS
    
    
    20ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    26ITEM 2. PROPERTIES
    
    
    26ITEM 3. LEGAL PROCEEDINGS
    
    
    27ITEM 4. (REMOVED AND RESERVED)
    
    
    27PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
    
    
    28ITEM 6. SELECTED FINANCIAL DATA
    
    
    30ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    31ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    37ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    37ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    62ITEM 9A. CONTROLS AND PROCEDURES
    
    
    62ITEM 9B. OTHER INFORMATION
    
    
    63PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    63ITEM 11. EXECUTIVE COMPENSATION
    
    
    63ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
    
    
    63ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    63ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    63PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    64SIGNATURES
    
    
    67EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-32.1EX-32.2EX-99.1
  2




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##### Table of Contents



PART I
 Forward Looking Statements . Certain of the statements included in this annual report
on Form 10-K, 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 results
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:
 
    
    ability to continue as a going concern;
    
    collectability of a $2.0 million loan receivable, net of credited and recovered amounts;
    
    ability to complete a combination with one or more target businesses;
    
    ability to secure additional working capital to fund operations;
    
    ability to monetize our pipeline assets;
    
    ability to improve pipeline utilization levels;
    
    performance of third party operators for properties where we have an interest;
    
    production from oil and gas properties that we have interests in;
    
    volatility of oil and gas prices;
    
    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;
    
    costly changes in environmental and other government regulations for which we are
subject;
    
    adverse changes in the global financial markets; and
    
    potential delisting of our Common Stock by NASDAQ due to non-compliance with NASDAQ
listing requirements.
 Additional factors that could cause actual results to differ materially from those indicated in the
forward-looking statements are discussed in Item 1A 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. 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;
    
    Blue Dolphin Services Co., a Texas corporation; and
    
    Petroport, Inc., a Delaware corporation.
 3




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##### Table of Contents



http://www.blue-dolphin.com.
  Recent Developments
 NASDAQ Listing
  Reverse Stock Split
 Outstanding Loan Receivable
 4




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##### Table of Contents



Blue Dolphin v. LLRII (State of Louisiana) st
 Blue Dolphin v. LEH (State of Texas) th
 Blue Sky Langsa Purchase
 Growth Strategy
   5




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##### Table of Contents



Pipeline Operations
  Pipeline Assets.
 Pipeline
    
    
    
    
    
    
    
    Miles of
    
    
    Capacity
    
    
    Storage
    
    
    Average ThroughputSegment
    
    Market
    
    
    Ownership
    
    
    Pipeline
    
    
    (MMcf/d)
    
    
    (Bbls)
    
    
    (MMcf/d)2010
    
    
    2009
    
    
    2008BDPS(1)
    
    Gulf of Mexico
    
    
    83.3
    %
    
    
    38
    
    
    
    180
    
    
    
    85,000
    
    
    
    13.7
    
    
    
    15.5
    
    
    
    22.6GA 350
    
    Gulf of Mexico
    
    
    83.3
    %
    
    
    13
    
    
    
    65
    
    
    
    
    
    
    
    17.4
    
    
    
    19.0
    
    
    
    23.8Omega(2)
    
    Gulf of Mexico
    
    
    83.3
    %
    
    
    18
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The BDPS includes the Blue Dolphin Pipeline, an offshore platform, the
Buccaneer Pipeline, onshore facilities for oil and gas separation and dehydration, 85,000 Bbls
of above-ground tankage for storage of crude oil and condensate, a barge loading terminal on
the Intracoastal Waterway and 360 acres of land in Brazoria County, Texas where the Blue
Dolphin Pipeline comes ashore and where the BDPS onshore facilities, pipeline easements and
rights-of-way are located. The BDPS gathers and transports oil and gas from various offshore
fields in the Galveston Area of the U.S. Gulf of Mexico to our onshore facilities located in
Freeport, Texas. After processing, the gas is transported to an end user and a major
intrastate pipeline system with further downstream tie-ins to other intrastate and interstate
pipeline systems and end users. The Blue Dolphin Pipeline, which is a component of the BDPS,
consists of two segments, an offshore segment and an onshore segment. The offshore segment
transports both oil and gas and is comprised of approximately 34 miles of 20-inch pipeline
originating at an offshore platform in Galveston Area Block 288 and running to shore. The
offshore segment also includes the platform in Galveston Area Block 288 and 5 field gathering
lines totaling approximately 27 miles connected to the main 20-inch line. An additional 2
miles of 20-inch pipeline onshore connects the offshore segment to the onshore facility at
Freeport, Texas. The onshore segment also includes approximately 2 miles of 16-inch pipeline
for transportation of gas from the onshore facility to a sales point at a chemical plant
complex and intrastate pipeline system tie-in in Freeport, Texas. The Buccaneer Pipeline, an
approximate 2 mile, 8-inch liquids pipeline, transports crude oil and condensate from the
onshore facility storage tanks to our barge-loading terminal on the Intracoastal Waterway near
Freeport, Texas for sale to third parties.(2)
    
    Inactive. 
    
    Blue Dolphin Pipeline System(BDPS) The BDPS spans approximately 38 miles
from Galveston Area Block 288 offshore to our onshore facilities and the Dow Chemical Plant
Complex in Freeport, Texas. We own an 83% undivided interest in the BDPS. The BDPS has an
aggregate capacity of approximately 180 MMcf of gas and 7,000 Bbls of crude oil and condensate
per day. The BDPS is currently transporting an aggregate of approximately 9 Mcf of gas per
day from 7 shippers, which represents 5% of throughput capacity.
    
    Galveston Area Block 350 Pipeline(the GA 350 Pipeline) The GA 350 Pipeline is
an 8-inch, 13 mile offshore pipeline extending from Galveston Area Block 350 to an
interconnect with a transmission pipeline in Galveston Area Block 391 located approximately 14
miles south of the Blue Dolphin Pipeline. Current system capacity on the GA 350 Pipeline is
65 MMcf of gas per day. We own an 83% undivided interest in the GA 350 Pipeline. The GA 350
Pipeline is currently transporting an aggregate of approximately 14 MMcf of gas per day from 5
shippers, which represents 22% of throughput capacity.
    
    Omega Pipeline The Omega Pipeline originates in the High Island Area, East
Addition Block A-173 and extends to West Cameron Block 342, where it was previously connected
to the High Island Offshore System. We own an 83% undivided interest in the Omega Pipeline.
The Omega Pipeline is
 6




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##### Table of Contents



currently inactive. Reactivation of the Omega Pipeline is dependent upon future drilling
activity in the vicinity and successfully attracting producer/shippers to the system.
 Exploration and Production
  Exploration and Production Assets
 Approximate Working /Field
    
    Operator
    
    Royalty InterestU.S. Gulf of Mexico:Galveston Area Block 321
    
    Maritech Resources, Inc.
    
    0.5%High Island Block 115
    
    Rooster Petroleum, LLC
    
    2.5%High Island Block 37
    
    Hilcorp Energy Company
    
    2.8%Indonesia:North Sumatra Basin-Langsa Field
    
    Blue Sky Langsa, Ltd.
    
    7.0%
 
    
    Galveston Area Block 321  Galveston Area Block 321 is located approximately 32
miles southeast of Galveston in an average water depth of approximately 66 feet. The block
contains one active well, the A-4 Well. We own a 0.5% overriding royalty interest in the well.
The lease is operated by Maritech Resources. The A-4 Well is currently producing
approximately 1.2 MMcf of gas per day and 110 barrels of oil per day.
    
    High Island Block 115  High Island Block 115 is located approximately 30 miles
southeast of Bolivar Peninsula in an average water depth of approximately 38 feet. The block
contains one active well, the B-1 ST2 Well. We own a 2.5% working interest in a single
production zone in the well. The lease is operated by Rooster Petroleum, LLC. The B-1 ST2
Well is currently producing approximately 4.2 MMcf of gas per day.
    
    High Island Block 37High Island Block 37 is located approximately 15 miles
south of Sabine Pass in an average water depth of approximately 36 feet. The block contains
one active well, the A-2 Well, and one inactive well, the B-1 Well. We own an approximate
2.8% working interest in this lease that covers 5,760 acres. The lease is operated by Hilcorp
Energy Company. The A-2 Well is currently producing approximately 0.8 MMcf of gas per day.
    
    North Sumatra Basin-Langsa FieldLocated in offshore Indonesia, the North
Sumatra Basin-Langsa Field covers approximately 77 square kilometers and contains two oil
fields in waters less than 325 feet deep. Four wells have been completed in the Malacca
Formation  one active, the H-4 Well, and three inactive. Production is gathered via a
floating production storage and offloading (FPSO) vessel operated by Mitsui Ocean Development
& Engineering Co., Ltd. We own a 7.0% working interest in the oil field. The H-4 Well is
currently producing approximately 430 barrels of oil per day.
  7




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##### Table of Contents



Productive Wells and Acreage
 Productive Wells
 Oil
    
    
    Natural Gas
    
    
    TotalGross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetU.S. Gulf of MexicoWorking Interest
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    0.1
    
    
    
    2.0
    
    
    
    0.1Royalty Interest
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    0.1
    
    
    
    1.0
    
    
    
    0.1IndonesiaWorking Interest
    
    
    1.0
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    0.11.0
    
    
    
    0.1
    
    
    
    3.0
    
    
    
    0.2
    
    
    
    4.0
    
    
    
    0.3
  Acreage
 Developed
    
    
    Undeveloped
    
    
    TotalGross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetU.S. Gulf of Mexico
    
    
    17,280
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    17,280
    
    
    
    264Indonesia
    
    
    3,108
    
    
    
    218
    
    
    
    15,919
    
    
    
    1,114
    
    
    
    19,027
    
    
    
    1,33220,388
    
    
    
    482
    
    
    
    15,919
    
    
    
    1,114
    
    
    
    36,307
    
    
    
    1,596
 Estimated Proved Reserves and Future Net Cash Flows
  8




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Proved Undeveloped Reserves
  Proved Natural Gas and Oil Reserves  as of December 31, 2010
 DiscountedPresent Valueof Future NetCash InflowsNet Oil Reserves
    
    
    Net Gas Reserves
    
    
    (Outflows)(1)(Mbbls)
    
    
    (MMcf)
    
    
    (in thousands)Proved DevelopedGalveston Area Block 321
    
    
    0.2
    
    
    
    9
    
    
    $
    47High Island Block 115
    
    
    
    
    
    
    131
    
    
    
    297High Island Block 37
    
    
    
    
    
    
    15
    
    
    
    (48
    )North Sumatra Basin-Langsa Field
    
    
    29.9
    
    
    
    
    
    
    
    276Total Proved Reserves
    
    
    30.1
    
    
    
    155
    
    
    $
    572Proved UndevelopedGalveston Area Block 321
    
    
    
    
    
    
    
    
    
    $
    High Island Block 115
    
    
    
    
    
    
    
    
    
    
    High Island Block 37
    
    
    
    
    
    
    
    
    
    
    North Sumatra Basin-Langsa Field
    
    
    104.0
    
    
    
    
    
    
    
    3,913Total Proved Developed
    
    
    104.0
    
    
    
    
    
    
    $
    3,913
 
 (1)
    
    The estimated present value of future net cash outflows from our proved reserves has
been determined by using domestic prices of $79.61 per barrel of oil and $4.33 per Mcf
of gas and an international price of $80.35 per barrel of oil, representing the
12-month average price for oil and natural gas, respectively, calculated as the
unweighted arithmetic average of the first-day-of-the-month price for each month within
the 12-month prior period to the end of the reporting period and discounted at a 10%
annual rate in accordance with requirements for reporting oil and gas reserves pursuant
to regulations promulgated by the Securities and Exchange Commission (the SEC
Method). 9




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##### Table of Contents



Internal Controls over Reserve Estimates
 Capital Expenditures for Proved Reserves
 Estimated Undiscounted Capital Expenditures  Associated with Plugging and Abandonment of Wells
 Years Ending December 31,2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015Galveston Area Block 321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    High Island Block A-7
    
    $
    192
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    High Island Block 115
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    38
    
    
    
    High Island Block 37
    
    
    
    
    
    
    
    
    
    $
    68
    
    
    
    
    
    
    
    North Sumatra Basin-Langsa Field
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  10




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##### Table of Contents



Production, Price and Cost Data
 Net Production, Price and Cost Data
 Years Ended December 31,2010
    
    
    2009
    
    
    2008U.S. Gulf
    
    
    
    
    
    
    U.S. Gulf
    
    
    
    
    
    
    U.S. Gulfof Mexico
    
    
    Indonesia
    
    
    of Mexico
    
    
    Indonesia
    
    
    of Mexico
    
    
    IndonesiaCrude Oil and Condensate:Production (Bbls)
    
    
    250
    
    
    
    8,154
    
    
    
    250
    
    
    
    
    
    
    
    117
    
    
    
    Revenue
    
    $
    20,377
    
    
    $
    720,348
    
    
    $
    17,401
    
    
    $
    
    
    
    $
    14,057
    
    
    $
    Average production per day (Bbls)(*)
    
    
    0.7
    
    
    
    22.3
    
    
    
    0.7
    
    
    
    
    
    
    
    0.3
    
    
    
    Average sales price per Bbl
    
    $
    81.51
    
    
    $
    88.34
    
    
    $
    69.60
    
    
    $
    
    
    
    $
    120.25
    
    
    $
    Natural Gas:Production (Mcf)
    
    
    31,654
    
    
    
    
    
    
    
    33,630
    
    
    
    
    
    
    
    44,700
    
    
    
    Revenue
    
    $
    121,960
    
    
    $
    
    
    
    $
    108,576
    
    
    $
    
    
    
    $
    526,522
    
    
    $
    Average production per day (Mcf)(*)
    
    
    86.7
    
    
    
    
    
    
    
    92.1
    
    
    
    
    
    
    
    122.5
    
    
    
    Average sales price per Mcf
    
    $
    3.85
    
    
    $
    
    
    
    $
    3.23
    
    
    $
    
    
    
    $
    11.78
    
    
    $
    NGLs:Production (gallons)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revenue
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Average production per day (gallons)(*)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average sales price per gallon
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Production Costs (**):Per Mcfe:
    
    $
    2.19
    
    
    $
    12.29
    
    
    $
    2.71
    
    
    $
    
    
    
    $
    5.36
    
    
    $
    
 
 (*)
    
    Average production is based on a 365 day year.(**)
    
    Production costs, exclusive of work-over costs, are costs incurred to operate
and maintain wells and equipment and to pay production taxes. Drilling, Exploration and Development Activity
 Wells Drilled, Net Exploratory(1)2010
    
    
    2009
    
    
    2008U.S. Gulf of MexicoProductive
    
    
    
    
    
    
    
    
    
    
    Dry
    
    
    
    
    
    
    
    
    
    
    1IndonesiaProductive
    
    
    
    
    
    
    
    
    
    
    Dry
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
 
 (1)
    
    Gross interest reflects the total wells we participated in, regardless of our
ownership interest. 11




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##### Table of Contents



Customers
  Natural Gas
    
    
    Pipeline
    
    
    Customer
    
    
    % ofand Oil Sales
    
    
    Operations
    
    
    Total
    
    
    Total RevenueYear Ended December 31, 2010:Blue Sky
    
    $
    720,348
    
    
    $
    
    
    
    $
    720,348
    
    
    
    26
    %W&T Offshore
    
    $
    
    
    
    $
    557,419
    
    
    $
    557,419
    
    
    
    20
    %Maritech Resources
    
    $
    48,194
    
    
    $
    296,921
    
    
    $
    345,115
    
    
    
    12
    %Year Ended December 31, 2009:Gryphon Exploration Co.
    
    $
    
    
    
    $
    379,828
    
    
    $
    379,828
    
    
    
    20
    %W&T Offshore
    
    $
    
    
    
    $
    332,396
    
    
    $
    332,396
    
    
    
    18
    %Helis Oil & Gas
    
    $
    
    
    
    $
    216,047
    
    
    $
    216,047
    
    
    
    12
    %Maritech Resources
    
    $
    
    
    
    $
    191,512
    
    
    $
    191,512
    
    
    
    10
    %
 Markets & Competition
  
    
    the level of domestic and foreign 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
    
    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.
   12




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Intellectual Property
  Governmental Regulation
  Domestic
 Federal Regulation of Natural Gas Transportation
  13




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##### Table of Contents



Federal Regulation of Oil Pipelines
 Safety and Operational Regulations
 Federal Oil and Gas Leases
  14




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Environmental Regulation
     15




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##### Table of Contents



Legislation and Rulemaking
  16




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##### Table of Contents



Foreign
 Employees
  Environmental
  Executive Officers of the Registrant
  Name
    
    Office
    
    Officer Since
    
    AgeIvar Siem
    
    Chairman of the Board, Chief
Executive Officer, President,
Assistant Treasurer and
Secretary
    
    
    1989
    
    
    
    64T. Scott Howard
    
    Treasurer and Assistant Secretary
    
    
    2008
    
    
    
    39
 Ivar Siem
 17




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##### Table of Contents



T. Scott Howard
 Available Information
 http://www.sec.gov
  Glossary of Certain Oil and Gas Terms
  Back-in After Payout Interest
 Bbl
 Bcf
 Btu or British Thermal Unit
 Condensate
 Development Well
 Exploratory Well
 Field
 18




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##### Table of Contents



Leasehold Interest
 Mbbls
 Mcf
 Mcfe
 MMbtu
 MMcf
 MMcfe
 Net Revenue Interest
 Non-operating Working Interest
 Overriding Royalty Interest
 Prospect
 Proved Developed Reserves
 Proved Developed Producing
 Proved Developed Non-producing
 Proved Reserves
 Proved Undeveloped Reserves
 Reversionary Interest
 Royalty Interest
 19




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##### Table of Contents



Undivided Interest
 Working interest
 
 ITEM 1A. RISK FACTORS
 There are numerous factors that affect our business and operating results, many of which are
beyond our control. The following is a description of significant factors that might cause our
future operating results to differ materially from those currently expected. The risks described
below are not the only risks we face. Additional risks and uncertainties not specified herein, not
currently known to us or currently deemed to be immaterial also may materially adversely affect our
business, financial position, operating results and/or cash flows.
 Risks Related to our Business
 Based on our historical financials, there is uncertainty as to our ability to continue as a going
concern.
    If the $1.7 million award under a partial summary judgment in favor of Blue Dolphin and against LEH and
LLRII is not recovered, we could deplete our cash reserves by the end of the third quarter of 2011.
 st
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If we are not able to generate sufficient funds from our operations, monetize our pipeline assets,
or obtain financing from other sources, we may not be able to continue our operations.
  We are primarily dependent on revenue from our pipeline systems and our working interests in four
oil and gas producing properties.
   A significant decrease in exploration and production activity within the areas where our pipelines
are located would adversely affect our revenue and cash flow.
  21




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The global financial crisis may have an impact on our business and financial condition that we
currently cannot predict.
  If our Common Stock is delisted from trading on the NASDAQ, the market price of our Common Stock
could be adversely affected.
   The geographic concentration of our assets may have a greater effect on us compared to other
companies.
  22




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##### Table of Contents



A substantial and extended decline in the prices of oil and gas would have a material adverse
effect on our operations.
  
    
    U.S. weather conditions;
    
    the U.S. economy;
    
    Organization of Petroleum Exporting Countries actions;
    
    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
    
    impairing our ability to obtain needed capital.
 Strong competition from larger companies may negatively impact our ability to continue our
operations.
  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.
  
    
    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.
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##### Table of Contents



We cannot control the activities on properties we do not operate.
   We have pursued and intend to continue pursuing 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.
  24




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##### Table of Contents



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.
   Our business requires the retention and recruitment of a skilled workforce and the loss of
employees could result in the failure to implement our business plan.
  25




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Compliance with environmental and other government regulations could be costly and could negatively
impact our operations.
  
    
    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.
    
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
   26




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##### Table of Contents



ITEM 3. LEGAL PROCEEDINGS
  Blue Dolphin v. LLRII (State of Louisiana) st
 Blue Dolphin v. LEH (State of Texas)
 
 ITEM 4. (REMOVED AND RESERVED)
  27




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market Price for Common Stock
   Quarter Ended
    
    High(1)
    
    
    Low(1)2010December 31
    
    $
    2.88
    
    
    $
    1.70September 30
    
    $
    3.64
    
    
    $
    0.99June 30
    
    $
    4.89
    
    
    $
    1.33March 31
    
    $
    4.86
    
    
    $
    2.242009December 31
    
    $
    4.34
    
    
    $
    2.03September 30
    
    $
    4.06
    
    
    $
    2.73June 30
    
    $
    5.53
    
    
    $
    2.52March 31
    
    $
    3.15
    
    
    $
    1.82
 
 (1)
    
    Adjusted to reflect our reverse stock split, which occurred in the quarter ended
September 30, 2010.   Dividend Policy
  28




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##### Table of Contents



Equity Compensation Plan Information
  Securities Authorized for Issuance under Equity Compensation Plans
 Number ofSecuritiesRemaining AvailableNumber of
    
    
    
    
    
    
    for Future IssuanceSecurities to be
    
    
    
    
    
    
    Under EquityIssued Upon
    
    
    Weighted Average
    
    
    Compensation PlansExercise of
    
    
    Exercise Price of
    
    
    (ExcludingOutstanding
    
    
    Outstanding
    
    
    SecuritiesOptions, Warrants
    
    
    Options, Warrants
    
    
    Reflected in Columnand Rights
    
    
    and Rights
    
    
    (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by
security holders
    
    
    30,390
    
    
    $
    13.29
    
    
    
    1,107,564Equity compensation plans not approved
by security holders
    
    
    
    
    
    $
    0.00
    
    
    
    Total
    
    
    30,390
    
    
    $
    13.29
    
    
    
    1,107,564
  29




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
 Quarters EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    Total2010Revenue from operations:Pipeline operations
    
    $
    429,087
    
    
    $
    462,392
    
    
    $
    502,369
    
    
    $
    485,038
    
    
    $
    1,878,886Oil and gas sales
    
    
    19,022
    
    
    
    21,199
    
    
    
    237,940
    
    
    
    584,524
    
    
    
    862,685Total revenue from operations
    
    
    448,109
    
    
    
    483,591
    
    
    
    740,309
    
    
    
    1,069,562
    
    
    
    2,741,571Cost of operations:Pipeline operating expenses
    
    
    286,988
    
    
    
    325,323
    
    
    
    243,531
    
    
    
    242,755
    
    
    
    1,098,597Lease operating expenses
    
    
    21,188
    
    
    
    7,824
    
    
    
    221,019
    
    
    
    423,737
    
    
    
    673,768Depletion, depreciation and amortization
    
    
    117,846
    
    
    
    128,855
    
    
    
    217,105
    
    
    
    155,523
    
    
    
    619,329Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recovery of allowance for doubtful loan
receivable
    
    
    
    
    
    
    
    
    
    
    (201,000
    )
    
    
    
    
    
    
    (201,000
    )General and administrative expenses
    
    
    479,222
    
    
    
    359,027
    
    
    
    306,288
    
    
    
    283,266
    
    
    
    1,427,803Stock based compensation
    
    
    40,320
    
    
    
    13,440
    
    
    
    
    
    
    
    
    
    
    
    53,760Accretion expense
    
    
    29,058
    
    
    
    29,057
    
    
    
    30,563
    
    
    
    31,316
    
    
    
    119,994Total cost of operations
    
    
    974,622
    
    
    
    863,526
    
    
    
    817,506
    
    
    
    1,136,597
    
    
    
    3,792,251Other income (expense),
including income tax expense
    
    
    759
    
    
    
    9,998
    
    
    
    8,115
    
    
    
    8,913
    
    
    
    27,785Net loss
    
    $
    (525,754
    )
    
    $
    (369,937
    )
    
    $
    (69,082
    )
    
    $
    (58,122
    )
    
    $
    (1,022,895
    )Loss per share:Basic and diluted
    
    $
    (0.26
    )
    
    $
    (0.22
    )
    
    $
    (0.04
    )
    
    $
    (0.03
    )
    
    $
    (0.55
    )2009Revenue from operations:Pipeline operations
    
    $
    514,759
    
    
    $
    548,636
    
    
    $
    442,249
    
    
    $
    361,327
    
    
    $
    1,866,971Oil and gas sales
    
    
    21,946
    
    
    
    44,075
    
    
    
    42,269
    
    
    
    17,687
    
    
    
    125,977Total revenue from operations
    
    
    536,705
    
    
    
    592,711
    
    
    
    484,518
    
    
    
    379,014
    
    
    
    1,992,948Cost of operations:Pipeline operating expenses
    
    
    466,260
    
    
    
    491,461
    
    
    
    309,695
    
    
    
    247,946
    
    
    
    1,515,362Lease operating expenses
    
    
    48,031
    
    
    
    674
    
    
    
    29,731
    
    
    
    16,705
    
    
    
    95,141Depletion, depreciation and amortization
    
    
    128,913
    
    
    
    134,227
    
    
    
    133,362
    
    
    
    120,840
    
    
    
    517,342Impairment of oil and gas properties
    
    
    203,110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203,110Allowance for doubtful note receivable,
net of consulting agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500,000
    
    
    
    1,500,000General and administrative expenses
    
    
    602,194
    
    
    
    650,754
    
    
    
    372,159
    
    
    
    364,925
    
    
    
    1,990,032Stock based compensation
    
    
    62,644
    
    
    
    40,320
    
    
    
    62,562
    
    
    
    39,320
    
    
    
    204,846Accretion expense
    
    
    27,918
    
    
    
    27,919
    
    
    
    27,586
    
    
    
    27,420
    
    
    
    110,843Total cost of operations
    
    
    1,539,070
    
    
    
    1,345,355
    
    
    
    935,095
    
    
    
    2,317,156
    
    
    
    6,136,676Other income (expense),
including income tax expense
    
    
    2,356
    
    
    
    2,395
    
    
    
    129,191
    
    
    
    (127,106
    )
    
    
    6,836Net loss
    
    $
    (1,000,009
    )
    
    $
    (750,249
    )
    
    $
    (321,386
    )
    
    $
    (2,065,248
    )
    
    $
    (4,136,892
    )Loss per share:Basic and diluted
    
    $
    (0.60
    )
    
    $
    (0.45
    )
    
    $
    (0.19
    )
    
    $
    (1.22
    )
    
    $
    (2.46
    )
 30




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Executive Summary
  Pipeline Operations .
 
    
    BDPS  The BDPS is currently transporting an aggregate of approximately 9 MMcf of
gas per day from 7 shippers, which represents 5% of throughput capacity.
 
    
    GA 350 Pipeline  The GA 350 Pipeline is currently transporting an aggregate of
approximately 14 MMcf of gas per day from 5 shippers, which represents 22% of throughput
capacity.
 Exploration and Production
 
    
    Galveston Area Block 321  The A-4 Well is commingled in the 5,400 and 5,300
sands. Once this commingled completion depletes, there are two upper zones up the hole with
booked reserves. The A-4 Well is currently producing approximately 1.2 MMcf of gas per day
and 110 barrels of oil per day.
 
    
    High Island Block 115  The B-1 ST2 Well resumed production in July 2010 after
being shut-in since August 2009 due to production handling problems on our downstream
production handling platform, High Island Block 71. The B-1 ST2 Well is currently producing
approximately 4.2 MMcf of gas per day.
 
    
    High Island Block 37  Production from the A-2 Well was restarted in February
2009, after being shut-in since September 2008 following Hurricane Ike. The A-2 Well is
currently producing approximately 0.8 MMcf of gas per day.
 
    
    North Sumatra Basin-Langsa FieldThe H-4 Well is currently producing
approximately 430 barrels of oil per day.
  31




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##### Table of Contents



Results of Operations
  2010 Compared to 2009
 Revenue from Pipeline Operations
 Revenue from Oil and Gas Sales
  Pipeline Operating Expenses .
 Lease Operating Expenses
 Depletion, Depreciation and Amortization
 Impairment of Oil and Gas Properties
 32




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##### Table of Contents



General and Administrative Expenses and Stock Based Compensation
 Recovery of Allowance for Doubtful Loan Receivable
 Three Months Ended December 31, 2010 Compared to Three Months Ended December 31, 2009
 Revenue from Pipeline Operations
 Revenue from Oil and Gas Sales
 Pipeline Operating Expenses
 Lease Operating Expenses
 Depletion, Depreciation and Amortization
 General and Administrative Expenses and Stock Based Compensation
 33




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##### Table of Contents



Liquidity and Capital Resources
 Sources and Uses of Cash
  For Year Ended December 31,2010
    
    
    2009Cash flow from operationsLoss from operations
    
    $
    (350,812
    )
    
    $
    (1,520,751
    )Change in current assets and liabilities
    
    
    226,219
    
    
    
    388,143Total cash flow from operations
    
    
    (124,593
    )
    
    
    (1,132,608
    )Cash outflowsCapital expenditures and advance of loan receivable
    
    
    (58,719
    )
    
    
    (1,515,643
    )Payments on financing activities
    
    
    (207,317
    )
    
    
    (200,142
    )Total cash outflows
    
    
    (266,036
    )
    
    
    (1,715,785
    )Total change in cash flows
    
    $
    (390,629
    )
    
    $
    (2,848,393
    )
  Going Concern
   34




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##### Table of Contents



Critical Accounting Policies
  Accounting for the Impairment or Disposal of Long-Lived Assets
 Asset Retirement Obligations
 35




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##### Table of Contents



Accounting for Uncertainty in Income Taxes
   Fair Value Measurements
 Fair Value Option for Financial Assets and Financial Liabilities
 Recently Adopted Accounting Pronouncements
 Generally Accepted Accounting Principles
 Recently Issued Accounting Pronouncements and Accounting Developments
 Fair Value Measurements
 36




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##### Table of Contents



Variable Interest Entities
 
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  Report of Independent Registered Public Accounting Firm
    
    
    38Consolidated Balance Sheets at December 31, 2010 and 2009
    
    
    39Consolidated Statements of Operations
Years Ended December 31, 2010 and 2009
    
    
    40Consolidated Statements of Stockholders Equity
Years Ended December 31, 2010 and 2009
    
    
    41Consolidated Statements of Cash Flows
Years Ended December 31, 2010 and 2009
    
    
    42Notes to Consolidated Financial Statements
    
    
    43
  37




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     /s/ UHY LLPHouston, TexasMarch 31, 2011 38




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##### Table of Contents



BLUE
DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    625,854
    
    
    $
    1,016,483Accounts receivable, net of allowance for doubtful accounts
    
    
    598,391
    
    
    
    428,124Loan receivable, net of allowance for loan receivable
    
    
    
    
    
    
    Prepaid expenses and other current assets
    
    
    213,071
    
    
    
    359,850Total current assets
    
    
    1,437,316
    
    
    
    1,804,457Property and equipment, at cost:Oil and gas properties (full-cost method)
    
    
    2,222,535
    
    
    
    1,086,733Pipelines
    
    
    4,659,686
    
    
    
    4,659,686Onshore separation and handling facilities
    
    
    1,919,402
    
    
    
    1,919,402Land
    
    
    860,275
    
    
    
    860,275Other property and equipment
    
    
    503,813
    
    
    
    302,81310,165,711
    
    
    
    8,828,909Less: Accumulated depletion, depreciation and amortization
    
    
    5,630,730
    
    
    
    5,011,401Total property and equipment, net
    
    
    4,534,981
    
    
    
    3,817,508Other assets
    
    
    9,463
    
    
    
    9,463Total assets
    
    $
    5,981,760
    
    
    $
    5,631,428LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    543,327
    
    
    $
    372,275Note payable  insurance
    
    
    124,936
    
    
    
    173,479Asset retirement obligation  current portion
    
    
    192,470
    
    
    
    Accrued expenses and other liabilities
    
    
    2,142
    
    
    
    8,136Other long-term liabilities  current portion
    
    
    
    
    
    
    25,996Total current liabilities
    
    
    862,875
    
    
    
    579,886Long-term liabilities:Asset retirement obligations, net of current portion
    
    
    2,535,386
    
    
    
    2,262,018Other long-term liabilities, net of current portion
    
    
    
    
    
    
    Total long-term liabilities
    
    
    2,535,386
    
    
    
    2,262,018Total liabilities
    
    
    3,398,261
    
    
    
    2,841,904Commitments and contingenciesStockholders equity:Common stock ($0.01 par value, 100,000,000 shares authorized, 2,078,514
and 1,696,710
shares issued and outstanding at December 31, 2010 and 2009, respectively)
    
    
    20,785
    
    
    
    16,967Additional paid-in capital
    
    
    33,693,260
    
    
    
    32,880,208Accumulated deficit
    
    
    (31,130,546
    )
    
    
    (30,107,651
    )Total stockholders equity
    
    
    2,583,499
    
    
    
    2,789,524Total liabilities and stockholders equity
    
    $
    5,981,760
    
    
    $
    5,631,428
  39




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##### Table of Contents



BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 Years Ended December 31,2010
    
    
    2009Revenue from operations:Pipeline operations
    
    $
    1,878,886
    
    
    $
    1,866,971Oil and gas sales
    
    
    862,685
    
    
    
    125,977Total revenue from operations
    
    
    2,741,571
    
    
    
    1,992,948Cost of operations:Pipeline operating expenses
    
    
    1,098,597
    
    
    
    1,515,362Lease operating expenses
    
    
    673,768
    
    
    
    95,141Depletion, depreciation and
amortizaton
    
    
    619,329
    
    
    
    517,342Impairment of oil and gas properties
    
    
    
    
    
    
    203,110Allowance for doubtful note receivable
    
    
    
    
    
    
    1,500,000Recovery of allowance for doubtful
loan receivable
    
    
    (201,000
    )
    
    
    General and administrative expenses
    
    
    1,427,803
    
    
    
    1,990,032Stock-based compensation
    
    
    53,760
    
    
    
    204,846Accretion expense
    
    
    119,994
    
    
    
    110,843Total cost of operations
    
    
    3,792,251
    
    
    
    6,136,676Loss from operations
    
    
    (1,050,680
    )
    
    
    (4,143,728
    )Other income (expense):Interest and other income
    
    
    32,370
    
    
    
    9,921Total other income (expense)
    
    
    32,370
    
    
    
    9,921Loss before income taxes
    
    
    (1,018,310
    )
    
    
    (4,133,807
    )Income tax expense
    
    
    (4,585
    )
    
    
    (3,085
    )Net loss
    
    $
    (1,022,895
    )
    
    $
    (4,136,892
    )Loss per common share:Basic
    
    $
    (0.55
    )
    
    $
    (2.46
    )Diluted
    
    $
    (0.55
    )
    
    $
    (2.46
    )Weighted average number of common shares outstanding:Basic
    
    
    1,864,354
    
    
    
    1,683,678Diluted
    
    
    1,864,354
    
    
    
    1,683,678
  40




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##### Table of Contents



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, 2008
    
    
    1,670,178
    
    
    $
    16,702
    
    
    $
    32,595,627
    
    
    $
    (25,970,759
    )
    
    $
    6,641,570Common stock issued for services
    
    
    26,532
    
    
    
    265
    
    
    
    79,735
    
    
    
    
    
    
    
    80,000Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    204,846
    
    
    
    
    
    
    
    204,846Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,136,892
    )
    
    
    (4,136,892
    )Balance at December 31, 2009
    
    
    1,696,710
    
    
    
    16,967
    
    
    
    32,880,208
    
    
    
    (30,107,651
    )
    
    
    2,789,524Common stock issued for acquisition
    
    
    342,857
    
    
    
    3,429
    
    
    
    682,285
    
    
    
    
    
    
    
    685,714Common stock issued for services
    
    
    39,987
    
    
    
    400
    
    
    
    79,600
    
    
    
    
    
    
    
    80,000Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    53,760
    
    
    
    
    
    
    
    53,760Retirement of fractional shares
    
    
    (1,040
    )
    
    
    (11
    )
    
    
    (2,593
    )
    
    
    
    
    
    
    (2,604
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,022,895
    )
    
    
    (1,022,895
    )Balance at December 31, 2010
    
    
    2,078,514
    
    
    $
    20,785
    
    
    $
    33,693,260
    
    
    $
    (31,130,546
    )
    
    $
    2,583,499
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BLUE
DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Years Ended December 31,2010
    
    
    2009OPERATING ACTIVITIESNet loss
    
    $
    (1,022,895
    )
    
    $
    (4,136,892
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depletion, depreciation and amortization
    
    
    619,329
    
    
    
    517,342Recovery of previous allowance for doubtful loan receivable
    
    
    (201,000
    )
    
    
    Impairment of oil and gas properties
    
    
    
    
    
    
    203,110Accretion expense
    
    
    119,994
    
    
    
    110,843Stock-based compensation
    
    
    53,760
    
    
    
    204,846Common stock issued for services
    
    
    80,000
    
    
    
    80,000Allowance for doubtful note receivable, net of consulting agreement
    
    
    
    
    
    
    1,500,000Changes in operating assets and liabilities:Accounts receivable
    
    
    (170,267
    )
    
    
    14,591Prepaid expenses and other current assets
    
    
    302,949
    
    
    
    450,013Abandonment costs incurred
    
    
    (45,525
    )
    
    
    (32,015
    )Accounts payable, accrued expenses and other liabilities
    
    
    139,062
    
    
    
    (44,446
    )Net cash used in operating activities
    
    
    (124,593
    )
    
    
    (1,132,608
    )INVESTING ACTIVITIESAdvance of loan receivable
    
    
    
    
    
    
    (1,500,000
    )Exploration and development costs
    
    
    
    
    
    
    (3,143
    )Capital expenditures
    
    
    (58,719
    )
    
    
    (12,500
    )Net cash used in investing activities
    
    
    (58,719
    )
    
    
    (1,515,643
    )FINANCING ACTIVITIESPayments on notes payable
    
    
    (204,713
    )
    
    
    (200,142
    )Retirement of fractional shares
    
    
    (2,604
    )
    
    
    Net cash used in financing activities
    
    
    (207,317
    )
    
    
    (200,142
    )Decrease in cash and cash equivalents
    
    
    (390,629
    )
    
    
    (2,848,393
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    1,016,483
    
    
    
    3,864,876CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    625,854
    
    
    $
    1,016,483Non-cash investing and financing activities:Financing of insurance premiums
    
    $
    156,170
    
    
    $
    373,621Purchase of property and equipment with company stock
    
    $
    685,714
    
    
    $
    Property and equipment acquired as partial settlement of loan receivable
    
    $
    201,000
    
    
    $
    Increase in asset retirement obligation and property and equipment
    
    $
    391,369
    
    
    $
    
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 (1)
    
    Organization and Significant Accounting Policies
 Organization
 Blue Dolphin Energy Company (Blue Dolphin, we and our) 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 services. 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.Reverse Stock SplitOn March 16, 2010, our Board of Directors (the Board) approved and authorized, subject to
stockholder approval, implementation of a reverse stock split of our common stock, par value
$0.01 per share (the Common Stock) at a ratio within a range from 1 for 5 (1:5) to 1 for
10 (1:10), at the discretion of the Board, at any time prior to September 1, 2010. The
reverse stock split was approved by our stockholders on June 9, 2010. The Board set the
reverse stock split ratio at 1 for 7 (1:7) on June 30, 2010. The effective date for the
reverse stock split was July 16, 2010. No fractional shares were issued in connection with
the reverse stock split. Each holder of Common Stock who would otherwise be entitled to
receive a fractional share of Common Stock was, in lieu of such fractional share, paid in
cash at fair market value. We paid approximately $2,604 for the repurchase of fractional
shares.In addition, the Board elected not to alter the number of authorized shares or change the
par value of the Common Stock, such number of authorized shares remaining at 100,000,000
shares and such par value remaining a $0.01 per share. Earnings per share, common stock
outstanding and weighted average common stock outstanding as referred to in these
consolidated financial statements have been restated, where applicable, to give retroactive
effect of the reverse stock split.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 (GAAP). This includes assessing the realization
of the note receivable, 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.Going ConcernOur consolidated financial statements, which have been prepared in accordance with GAAP,
contemplate that we will continue as a going concern. As such, our consolidated financial
statements do not contain any adjustments that might result if we were unable to continue as
a going concern. We incurred a net loss of $1,022,895 for the year ended December 31, 2010.
As of December 31, 2010, we had an accumulated deficit of $31,130,546. We anticipate that
we will continue to incur substantial operating losses unless we are able to achieve and
sustain profitability.
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 Our limited revenue and cash flow deficiencies raise substantial doubt as to our ability to
continue as a going concern. Existing and anticipated working capital needs, lower than
anticipated revenue, increased expenses and/or the inability to recover damages awarded
under a partial summary judgment related to a defaulted loan could all affect our ability to
continue as a going concern.The continuation of our business is dependent upon obtaining additional financing. We will
seek to raise additional working capital through private placements, sale of existing
assets, public offerings, bank financing and/or advances from related parties or shareholder
loans, as well as to continue evaluating potential merger and/or acquisition opportunities.
There are no assurances that we will be able to raise additional capital through private
placement, public offerings and/or bank financing, and this report may make it more
difficult to raise such capital. Furthermore, the issuance of additional equity securities
could result in a significant dilution in the equity interests of current or future
stockholders. Obtaining commercial loans, assuming those loans would be available, will
increase liabilities and future cash commitments. We do not currently have any arrangements
in place to raise additional capital.Cash and Cash EquivalentsCash equivalents include liquid investments with an original maturity of three months or
less. We maintain cash and cash equivalent balances at one financial institution that is
insured by the Federal Deposit Insurance Corporation (the FDIC). 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.In October 2008, the FDIC amended its deposit insurance provisions to increase the basic
limit amount from $100,000 to $250,000 per depositor. The coverage increase, which was
intended to be temporary, was to revert back to $100,000 per depositor limit on December 31,
2009. However, in May 2009, the FDIC extended the coverage date through December 31, 2013.
The temporary increase was made permanent in 2010 by the Dodd-Frank Wall Street Reform and
Consumer Protection Act.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 use one cost center for domestic properties and one cost center for foreign
properties. Amortization of such costs and estimated future development costs are 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 we prepare internally. 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 revenue from proved reserves,
after giving effect to income taxes, and the lower of cost or estimated fair value of
unproved properties. Since our unamortized cost exceeded the present value of estimated
future net revenue, we recorded an impairment to our oil and gas properties of $203,110 in
2009. We recorded no such impairment in
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 2010. Disposition of oil and gas properties is
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.We capitalize interest on expenditures made in connection with significant exploration and
development projects that are not subject to current amortization. Interest is capitalized
only for the period that activities are in progress to bring these projects to their
intended use. No interest has been capitalized for the years reflected herein.Pipelines and FacilitiesPipelines and facilities are recorded at cost. Depreciation is computed using the
straight-line method over estimated useful lives ranging from 10 to 22 years.In accordance with Financial Accounting Standards Board (FASB) standards on accounting for
the impairment or disposal of long-lived assets, assets are grouped and evaluated for
impairment based on the ability to identify separate cash flows generated therefrom.Other Property and EquipmentDepreciation of furniture, fixtures and other equipment is computed using the straight-line
method over estimated useful lives ranging from 3 to 10 years.Asset Retirement ObligationsWe follow the guidance on accounting for asset retirement obligations, which addresses
financial accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The standard applies
to legal obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or normal use of the asset.The guidance requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of fair value
can be made. The fair value of the liability is added to the carrying amount of the
associated asset and this additional carrying amount is depreciated over the life of
the asset. If the obligation is settled for other than the carrying amount of the
liability, a gain or loss on settlement is recognized.
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 We have asset retirement obligations associated with the future abandonment of our pipelines
and related facilities and our offshore oil and gas properties. The following table
summarizes our asset retirement obligation transactions during the years ended December 31,
2010 and 2009 (amounts in thousands).
 Years Ended December 31,2010
    
    
    2009Beginning asset retirement obligations
    
    $
    2,262
    
    
    $
    2,183Liabilities incurred
    
    
    392
    
    
    
    Liabilities settled
    
    
    (46
    )
    
    
    (32
    )Accretion expense
    
    
    120
    
    
    
    111Ending asset retirement obligations
    
    $
    2,728
    
    
    $
    2,262
 Stock-Based CompensationStock-based compensation is recognized in our consolidated financial statements based on the
fair value, on the date of grant or modification, of the equity instrument awarded.
Stock-based compensation expense is recognized in the consolidated financial statements on a
straight-line basis over the vesting period for the entire award.Recognition of Oil and Gas RevenueSales from producing wells are recognized on the entitlement method of accounting, which
defers recognition of sales when, and to the extent that, deliveries to customers exceed our
net revenue interest in production. Similarly, when deliveries are below our net revenue
interest in production, sales are recorded to reflect the full net revenue interest. Our
imbalance liability at December 31, 2010 was not material.Recognition of Pipeline Transportation RevenueRevenue from our pipelines is derived from fee-based contracts and is typically based on
transportation fees per unit of volume transported multiplied by the volume delivered.
Revenue is recognized when volumes have been physically delivered for the customer through
the pipeline.Allowance for Doubtful AccountsAccounts receivable are customer obligations due under normal trade terms. The allowance
for doubtful accounts represents our estimate of the amount of probable credit losses
existing in our accounts receivable. We have a limited number of customers with
individually large amounts due at any given date. Any unanticipated change in any one of
these customers credit worthiness or other matters affecting the collectability of amounts
due from such customers could have a material adverse effect on our results of operations in
the period in which such changes or events occur. We regularly review all aged accounts
receivables for collectability and establish an allowance as necessary for individual
customer balances. As of December 31, 2010 and 2009, we recorded an allowance for doubtful
accounts of $0 and $0, respectively, related to accounts receivable.
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 Income TaxesWe provide for income taxes using the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.The evaluation of a tax position is a two-step process. The first step is a recognition
process whereby the enterprise determines whether it is more likely than not that a 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.Earnings Per ShareWe apply the provisions of FASBs guidance on earnings per share. The guidance requires the
presentation of basic earnings per share (EPS) which excludes dilution and is computed by
dividing net income (loss) available to common stockholders by the weighted-average number
of shares of common stock outstanding for the period. The guidance requires dual
presentation of basic EPS and diluted EPS on the face of the consolidated statement of
operations and requires a reconciliation of the numerators and denominators of basic EPS and
diluted EPS. Diluted EPS is computed by dividing net income (loss) available to common
shareholders by the diluted weighted average number of common shares outstanding, which
includes the potential dilution that could occur if securities or other contracts to issue
common stock were converted to common stock that then shared in the earnings of the entity.Employee stock options and stock warrants outstanding were not included in the computation
of diluted earnings per share for the years ended December 31, 2010 and 2009, because their
assumed exercise and conversion would have an anti-dilutive effect on the computation of
diluted loss per share.The following table provides reconciliation between basic and diluted loss per share:
 Year EndedDecember 31,Basic and Diluted
    
    2010
    
    
    2009Net loss
    
    $
    (1,022,895
    )
    
    $
    (4,136,892
    )Weighted average number of shares of common
stock outstanding and potential dilutive shares
of common stock
    
    
    1,864,354
    
    
    
    1,683,678Per share amount
    
    $
    (0.55
    )
    
    $
    (2.46
    )
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 EnvironmentalWe are subject to extensive domestic and foreign environmental laws and regulations. These
laws, which are constantly changing, regulate the discharge of materials into the
environment and may require us to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites. Environmental
expenditures are expensed or capitalized depending on their future economic benefit.
Expenditures that relate to an existing condition caused by past operations and that have no
future economic benefits are expensed. Liabilities for expenditures of a noncapital nature
are recorded when environmental assessment and/or remediation is probable, and the costs can
be reasonably estimated. Such liabilities are generally recorded at their undiscounted
amounts unless the amounts and timing of payments is fixed or reliably determinable. As of
December 31, 2010 and 2009, no environmental violation was recorded on our consolidated
balance sheets.Recently Adopted Accounting PronouncementsGenerally Accepted Accounting Principles. In June 2009, the FASB issued guidance
that established the Accounting Standards Codification as the sole source of authoritative
GAAP. We updated references to GAAP in our consolidated financial statements pursuant to
the provisions of FASBs guidance. The adoption of FASBs guidance did not impact our
consolidated financial position or results of operations.Recently Issued Accounting PronouncementsFair Value Measurements. In January 2010, the FASB issued guidance that requires
reporting entities to make new disclosures about recurring or nonrecurring fair-value
measurements including significant transfers into and out of Level 1 and Level 2 fair value
measurements and information on purchases, sales, issuances, and settlements on a gross
basis in the reconciliation of Level 3 fair value measurements. The guidance is effective
for annual reporting periods beginning after December 15, 2009, except for Level 3
reconciliation disclosures that are deferred to annual periods beginning after December 15,
2010. Adoption of this guidance did not have a material impact on our consolidated
financial statements and we do not expect the deferral provisions to have a material impact
on our consolidated financial statements.Variable Interest Entities. In December 2009, the FASB issued revised authoritative
guidance associated with the consolidation of variable interest entities. This revised
guidance replaces the current quantitative-based assessment for determining which enterprise
has a controlling financial interest in a variable interest entity with an approach that is
now primarily qualitative. This qualitative approach focuses on identifying the enterprise
that has: (i) the power to direct the activities of the variable interest entity that can
most significantly impact the entitys economic performance and (ii) the obligation to
absorb losses or the right to receive benefits from the entity that could potentially be
significant to the variable interest entity. This revised guidance also requires an ongoing
assessment of whether an enterprise is the primary beneficiary of a variable interest entity
rather than a reassessment only upon the occurrence of specific events. The revised guidance
is effective for financial statements issued for fiscal years beginning after November 15,
2009. The implementation of this guidance did not have any impact on our consolidated
financial statements.(2)
    
    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)
 (3)
    
    Loan Receivable
 We recorded an allowance for doubtful loan receivable of $1.5 million at December
31, 2009. The loan receivable is associated with a $2.0 million loan, net of credited and recovered amounts
(the Loan), made to Lazarus Louisiana Refinery II, LLC (LLRII or the Borrower) on July
31, 2009 and due on January 31, 2010. As of December 31, 2010, we continued to maintain an allowance for the uncollected balance of the Loan.
 In the second quarter of 2010, we began foreclosure proceedings in Louisiana against the
collateral, as well as legal proceedings in Texas against the guaranty, that secured the
Loan. As a result of a foreclosure auction in Louisiana, we acquired a salt water disposal
well in the third quarter of 2010. Based on the assets appraised value, we recovered
$201,000 of the allowance for doubtful loan receivable. Under the legal proceedings in
Texas, we were granted a partial summary judgment on liability under the promissory note and
guaranty in favor of Blue Dolphin. However, the court deferred a ruling on the damages and
attorneys fees to be awarded. On March 28, 2010, our motion for entry of the partial
summary judgment was heard before the court. The court entered the partial summary judgment
in the amount of $1.7 million
in favor of Blue Dolphin and against LEH and LLRII on the promissory note and guaranty. The
only claim that remains pending is the counter-claim alleging breach of contract under the
confidentiality agreement.
 (4)
    
    Income Taxes
 Income tax expense consisted of $4,585 and $3,085 and was related to state income tax
for the years ended 2010 and 2009, respectively.
 The income tax effects of temporary differences that give rise to significant portions of
deferred tax assets and deferred tax liabilities at December 31, 2010 and 2009 are presented
below:
 2010
    
    
    2009Deferred tax assets:Net operating loss and capital loss carryforwards
    
    $
    7,236,636
    
    
    $
    7,029,596AMT credit carryforward
    
    
    11,564
    
    
    
    11,564Basis differences in property and equipment
    
    
    596,354
    
    
    
    470,908Total deferred tax assets
    
    
    7,844,554
    
    
    
    7,512,068Less: valuation allowance
    
    
    (7,844,554
    )
    
    
    (7,512,068
    )Deferred tax assets, net
    
    $
    
    
    
    $
    
 In assessing the recoverability of deferred tax assets, we determine whether it is more
likely than not that some portion or all of the deferred tax assets will be realized. A
full valuation allowance against our deferred tax asset was recognized at December 31, 2010
and 2009 due to our uncertainty as to the utilization of the deferred tax assets in the
foreseeable future. The net change in the total valuation allowance for the years ended
December 31, 2010 and 2009 was an increase of $332,486 and $1,304,427, respectively.
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 Our effective tax rate applicable to continuing operations in 2010 and 2009 is as
follows:
 Years Ended December 31,2010
    
    
    2009Expected tax rate
    
    
    (34.00
    %)
    
    
    (34.00
    %)Change in valuation allowance recognized
in earnings
    
    
    34.42
    %
    
    
    34.07
    %0.42
    %
    
    
    0.07
    %
 For federal tax purposes, we had net operating loss carry-forwards (NOLs) of approximately
$21.3 million at December 31, 2010. These NOLs must be used prior to their expiration,
which will occur between 2011 and 2030.We adopted FASBs guidance on accounting for uncertainty in income taxes. The guidance
clarifies the accounting for uncertainty in income taxes recognized in an enterprises
financial statements. The guidance also prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The standard also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition.The provisions of the guidance on accounting for uncertainty in income taxes have been
applied to all of our material tax positions taken for all open tax years on the date of
adoption through the fiscal year ended December 31, 2010. 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.
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 guidance.In May 2006, the State of Texas enacted a new business tax that is imposed on gross revenue
to replace its current franchise tax regime. Although the Texas margins tax (TMT) is
imposed on an entitys gross revenue rather than on its net income, certain aspects of the
tax make it similar to an income tax. In accordance with the FASB guidance, we have
properly determined the impact of the newly-enacted legislation in the determination of our
reported state current and deferred income tax liability.As part of the adoption of this guidance, we record income tax related interest and
penalties, if applicable, as a component of the provision for income tax expense. However,
there were no amounts recognized relating to interest and penalties in the consolidated
statements of operations for the years ended December 31, 2010 and 2009. Furthermore, none
of our federal and state income tax returns are currently under examination by the Internal
Revenue Service (IRS) or state authorities, but fiscal years 2006 and later remain subject
to examination by the IRS and the State of Texas. We believe there are no uncertain tax
positions for both federal and state income taxes.
 (5)
    
    Stock Options
 We adopted the 2000 Stock Incentive Plan (the 2000 Plan) effective April 14, 2000,
under which we make stock-based compensation awards. In 2007, the number of shares of
Common Stock reserved for grants of incentive stock options (ISOs) and other stock-based
awards under the 2000 Plan was increased to 1,200,000 shares. As of December 31, 2010, we
had 1,107,564 shares of Common Stock available for future grants. Options granted under the
2000 Plan have
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 contractual terms ranging 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 as determined on the grant
date. With the exception of certain ISOs granted in 2007 and 2008, all ISO awards vested
immediately. Specifically, 200,000 ISOs granted in May 2007 and 75,000 ISOs granted in
August 2008 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 the Board.We are permitted a corporate income tax deduction for certain stock options that are
exercised by our employees. The corporate income tax deduction is the amount of income
recognized by the employee as a result of exercising the stock option. The income tax
benefit, when taken, is shown on our Consolidated Statement of Cash Flows as financing cash
inflows. For the foreseeable future, any tax deductions we receive from the exercise of
stock options will be applied to the valuation allowance in determining our net operating
loss carry forward.Additionally, we used the alternate transition method (simplified method) for calculating
the beginning balance in the pool of excess tax benefits in accordance with FASBs guidance
on transition election related to accounting for the tax effects of share-based payment
awards.We estimate the fair value of stock options granted on the date of grant using the
Black-Scholes-Merton option-pricing model. There were no options granted during the years
ended December 31, 2010 and 2009. Expected volatility used in the model is based on the
historical volatility of our Common Stock and is weighted 50% for the historical volatility
over a past period equal to the expected term and 50% for the historical volatility over the
previous two years prior to the grant date. This weighting method was chosen to account for
the significant changes in our financial condition beginning approximately four years ago.
These changes include decreases in our working capital and pipeline throughput, as well as
the reduction and ultimate elimination of our outstanding debt.The expected term of options granted used in the model represents the period of time that
options granted are expected to be outstanding. The method used to estimate the expected
term is the simplified method as allowed under the provisions of Securities and Exchange
Commission (SEC) Staff Accounting Bulletin No. 107. This number is calculated by taking
the average of the sum of the vesting period and the original contract term. The risk-free
interest rate for periods within the contractual life of the option is based on the U.S.
Treasury yield curve in effect at the date of the grant. As we have not declared dividends
on our Common Stock since we became a public entity, no dividend yield was used. No
forfeiture rate was assumed due to the forfeiture history for this type of award. Actual
value realized, if any, is dependent on the future performance of our Common Stock and
overall stock market conditions. There is no assurance that the value realized by an
optionee will be at or near the value estimated by the Black-Scholes-Merton option-pricing
model.
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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Continued)
 At December 31, 2010, there were a total of 30,390 shares of Common Stock reserved for
issuance upon exercise of outstanding options under the 2000 Plan. A summary of the status
of our stock options granted to key employees, officers and directors, for the purchase of
shares of Common Stock, is as follows:
 Year Ended December 31, 2010WeightedWeighted
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    ValueOptions
outstanding at December 31, 2008
    
    
    79,360
    
    
    $
    17.01Options granted
    
    
    
    
    
    $
    0.00Options exercised
    
    
    
    
    
    $
    0.00Options expired or cancelled
    
    
    (18,714
    )
    
    $
    14.91Options outstanding at
December 31, 2009
    
    
    60,645
    
    
    $
    17.69Options granted
    
    
    
    
    
    $
    0.00Options exercised
    
    
    
    
    
    $
    0.00Options expired or cancelled
    
    
    (30,255
    )
    
    $
    22.10Options outstanding at
December 31, 2010
    
    
    30,390
    
    
    $
    13.29
    
    
    
    2.8
    
    
    $
    Options exercisable at
December 31, 2010
    
    
    30,390
    
    
    $
    13.29
    
    
    
    2.8
    
    
    $
    
  52




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 The following table summarizes additional information about stock options outstanding at
December 31, 2010:
 Options Outstanding
    
    Options ExercisableAverage
    
    
    
    
    
    
    
    
    
    WeightedRemaining
    
    Weighted
    
    
    
    
    
    AverageRange of Exercise
    
    Number
    
    Contractual Life
    
    Average
    
    Number
    
    ExercisePrices
    
    Outstanding
    
    (Years)
    
    Exercise Price
    
    Exercisable
    
    Price$2.45 to $5.60
    
    
    10,118
    
    
    
    2.3
    
    
    $
    3.06
    
    
    
    10,118
    
    
    $
    3.06$10.85 to $13.30
    
    
    3,346
    
    
    
    1.1
    
    
    $
    11.95
    
    
    
    3,346
    
    
    $
    11.95$19.67
    
    
    16,926
    
    
    
    3.4
    
    
    $
    19.67
    
    
    
    16,926
    
    
    $
    19.6730,390
    
    
    
    
    
    
    
    
    
    
    
    30,390
 The following summarizes the net change in non-vested stock options for the years shown:
 WeightedAverageGrant DateShares
    
    
    Fair ValueNon-vested at December 31, 2008
    
    
    40,571
    
    
    $
    12.81Granted
    
    
    
    
    
    $
    0.00Canceled or expired
    
    
    (14,286
    )
    
    $
    8.40Vested
    
    
    (16,571
    )
    
    $
    14.49Non-vested at December 31, 2009
    
    
    9,714
    
    
    $
    16.46Granted
    
    
    
    
    
    $
    0.00Canceled or expired
    
    
    
    
    
    $
    0.00Vested
    
    
    (9,714
    )
    
    $
    16.46Non-vested at December 31, 2010
    
    
    0
    
    
    $
    0.00
 As of December 31, 2010, there was $0 of unrecognized compensation cost related to
non-vested stock options granted under the 2000 Plan.
 53




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 (6)
    
    LeasesWe have various operating leases that extend through 2013. The following is a schedule
of future minimum lease payments under non-cancelable operating leases exceeding one year at
December 31, 2010:
 Years Ending
    
    Future MinimumDecember 31,
    
    Lease Payments2011
    
    $
    150,7772012
    
    
    7192013
    
    
    480$
    151,976
 Rent expense on operating leases for the years indicated are as follows:
 LeaseYears Ended December 31,

    
    Expense2010
    
    $
    115,8372009
    
    $
    115,557
 (7)
    
    Commitments and ContingenciesWe are involved in various claims and legal actions arising in the ordinary course of
business. In our opinion, the ultimate disposition of these matters will not have a
material effect on our consolidated financial position, results of operations or cash flows.(8)
    
    Business Segment InformationOur operations are conducted in two principal business segments: (i) pipeline
transportation services and (ii) oil and gas exploration and production. Our segments are
managed jointly mainly due to our size. We use earnings before interest expense and income
taxes (EBIT) to assess the operating results and effectiveness of our business segments,
which consist of our consolidated businesses and investments. We believe EBIT is useful to
our investors because it allows them to evaluate our operating performance using the same
performance measure analyzed internally by our management. We define EBIT as net income
(loss) adjusted for (i) items that do not impact our income or loss from continuing
operations, such as the impact of accounting changes, (ii) income taxes and (iii) interest
expense (income). We exclude interest expense (income) and other expense or income not
pertaining to the operations of our segments from this measure so that investors may
evaluate our current operating results without regard to our financing methods or capital
structure. We understand that EBIT may not be comparable to measurements used by other
companies. Additionally, EBIT should be considered in conjunction with net income and other
performance measures such as operating cash flows.
 54




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 Below is a reconciliation of our EBIT (by segment) for each of the years ended December 31,
2010 and 2009:
 Year Ended December 31, 2010SegmentOil and GasPipeline
    
    
    Exploration &
    
    
    Corporate &Transportation
    
    
    Production
    
    
    Other(1)
    
    
    TotalRevenues
    
    $
    1,878,886
    
    
    $
    862,685
    
    
    $
    
    
    
    $
    2,741,571Operation cost(2)
    
    
    1,943,216
    
    
    
    1,013,575
    
    
    
    417,131
    
    
    
    3,373,922Depletion, depreciation
and amortization
    
    
    418,923
    
    
    
    195,438
    
    
    
    4,968
    
    
    
    619,329EBIT
    
    $
    (483,253
    )
    
    $
    (346,328
    )
    
    $
    (422,099
    )
    
    $
    (1,251,680
    )Capital expenditures
    
    $
    
    
    
    $
    1,135,802
    
    
    $
    201,000
    
    
    $
    1,336,802Identifiable assets(3)
    
    $
    4,303,719
    
    
    $
    1,347,628
    
    
    $
    330,413
    
    
    $
    5,981,760
 
 (1)
    
    Includes unallocated G&A costs associated with corporate maintenance costs and legal
expenses. It also includes as identifiable assets corporate available cash of $0.6
million.(2)
    
    Allocable G&A costs are allocated based on revenue.(3)
    
    Identifiable assets contain related legal obligations of each segment including
cash, accounts receivable and payable and recorded net assets. Year Ended December 31, 2009SegmentOil and GasPipeline
    
    
    Exploration &
    
    
    Corporate &Transportation
    
    
    Production
    
    
    Other(1)
    
    
    TotalRevenues
    
    $
    1,866,971
    
    
    $
    125,977
    
    
    $
    
    
    
    $
    1,992,948Operation cost(2)
    
    
    4,740,912
    
    
    
    307,692
    
    
    
    367,620
    
    
    
    5,416,224Depletion,
depreciation and amortization(3)
    
    
    420,171
    
    
    
    292,809
    
    
    
    7,472
    
    
    
    720,452EBIT
    
    $
    (3,294,112
    )
    
    $
    (474,524
    )
    
    $
    (375,092
    )
    
    $
    (4,143,728
    )Capital expenditures
    
    $
    12,500
    
    
    $
    
    
    
    $
    
    
    
    $
    12,500Identifiable assets(4)
    
    $
    4,634,238
    
    
    $
    267,713
    
    
    $
    729,477
    
    
    $
    5,631,428
 
 (1)
    
    Includes unallocated G&A costs associated with corporate maintenance costs and legal
expenses. It also includes as identifiable assets corporate available cash of $0.7
million.(2)
    
    Allocable G&A costs are allocated based on revenue.(3)
    
    Includes an impairment charge.(4)
    
    Identifiable assets contain related legal obligations of each segment including
cash, accounts receivable and payable and recorded net assets. 55




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 We are exposed to concentrations of credit risk as 100% of our customers are within the
oil and gas industry. Our customers may be similarly affected by changes in economic,
regulatory or other factors. Trade receivables are generally not collateralized. However,
our customers historical and future credit positions are thoroughly analyzed prior to
extending credit. Revenue from customers exceeding 10% of our total revenue was as follows
for the periods indicated:
 Oil and Gas
    
    
    Pipeline
    
    
    Customer
    
    
    % ofSales
    
    
    Operations
    
    
    Total
    
    
    Total RevenueYear Ended December 31, 2010:Blue Sky
    
    $
    720,348
    
    
    $
    
    
    
    $
    720,348
    
    
    
    26
    %W&T Offshore
    
    $
    
    
    
    $
    557,419
    
    
    $
    557,419
    
    
    
    20
    %Maritech Resources
    
    $
    48,194
    
    
    $
    296,921
    
    
    $
    345,115
    
    
    
    12
    %Year Ended December 31, 2009:Gryphon Exploration Co.
    
    $
    
    
    
    $
    379,828
    
    
    $
    379,828
    
    
    
    20
    %W&T Offshore
    
    $
    
    
    
    $
    332,396
    
    
    $
    332,396
    
    
    
    18
    %Helis Oil & Gas
    
    $
    
    
    
    $
    216,047
    
    
    $
    216,047
    
    
    
    12
    %Maritech Resources
    
    $
    
    
    
    $
    191,512
    
    
    $
    191,512
    
    
    
    10
    %
 We recorded an allowance for doubtful note receivable of $0 and $1,500,000 at December 31,
2010 and 2009, respectively.
 (9)
    
    Supplemental Oil and Gas Information (Unaudited)The following supplemental information regarding our oil and gas activities is
presented pursuant to the disclosure requirements promulgated by the SEC and the FASB.Associated with our non-operating interest in Galveston Area Block 321, we recognized gas
and oil sales revenue of approximately $48,200 and $26,000 in 2010 and 2009, respectively,
and lease operating expenses of approximately $0 and $0 in 2010 and 2009, respectively. We
have an overriding royalty interest of 0.5% in an exploratory well in the lease.Associated with our non-operating interest in High Island Block 115, we recognized gas and
oil sales revenue of approximately $48,900 and $57,000 in 2010 and 2009, respectively, and
lease operating expenses of approximately $32,900 and $53,000 in 2010 and 2009,
respectively. We have a working interest of 2.5% in one zone of a single well in the lease.Associated with our non-operating interest in High Island Block 37, we recognized gas and
oil sales revenue of approximately $45,300 and $43,000 in 2010 and 2009, respectively, and
lease operating expenses of approximately $39,500 and $42,000 in 2010 and 2009,
respectively. We have a working interest of approximately 2.8% in the block.Associated with our non-operating interest in the North Sumatra Basin-Langsa Field, we
recognized gas and oil sales revenue of approximately $720,300 and $0 in 2010 and 2009,
respectively, and lease operating expenses of approximately $601,200 and $0 in 2010 and
2009, respectively. We have a working interest of 7.0% in the oil field.
 56




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 Estimated Quantities of Proved Oil and Gas Reserves (Unaudited)We retain an independent geologist to provide year-end estimates of our future net
recoverable oil and natural gas. Estimated proved net recoverable reserves as shown below
include only those quantities that can be expected to be commercially recoverable.
Estimated reserves for the year ended December 31, 2010 were computed using benchmark prices
based on the unweighted arithmetic average of the first-day-of-the-month prices for oil and
natural gas during each month of 2010, as required by SEC Release No. 33-8995,
Modernization of Oil and Gas Reporting, effective December 31, 2009. Costs were estimated
using costs in effect at the balance sheet dates under existing regulatory practices and
with conventional equipment and operating methods.
  57




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 Set forth below is a summary of the changes in the estimated quantities of our crude oil and
condensate, and gas reserves for the periods indicated, as estimated by us at December 31,
2010 and 2009. Our reserves are located in the U.S. Gulf of Mexico and the North Sumatra
Basin in offshore Indonesia. Proved reserves cannot be measured exactly because the
estimation of reserves involves numerous judgmental determinations. Accordingly, reserve
estimates must be continually revised as a result of new information obtained from drilling
and production history, new geological and geophysical data and changes in economic
conditions.Proved reserves are estimated quantities of gas, crude oil, and condensate that geological
and engineering data demonstrate, with reasonable certainty, are recoverable in future years
from known reservoirs under existing economic and operating conditions. Proved developed
reserves are proved reserves that can be expected to be recovered through existing wells
with existing equipment and operating methods.
 Oil
    
    
    Natural GasQuantity of Proved Oil and Gas Reserves
    
    (Bbls)
    
    
    (Mcf)Total proved reserves at December 31, 2008
    
    
    769
    
    
    
    158,218Revisions to previous estimates
    
    
    239
    
    
    
    3,162Extensions, discoveries, improved recovery and
other additions
    
    
    
    
    
    
    Purchase of reserves in place
    
    
    
    
    
    
    Sales of reserves in place
    
    
    
    
    
    
    Production
    
    
    (250
    )
    
    
    (33,531
    )Total proved reserves at December 31, 2009
    
    
    758
    
    
    
    127,849Revisions to previous estimates
    
    
    (232
    )
    
    
    59,269Extensions, discoveries, improved recovery and
other additions
    
    
    
    
    
    
    Purchase of reserves in place
    
    
    139,915
    
    
    
    Sales of reserves in place
    
    
    
    
    
    
    Production
    
    
    (6,319
    )
    
    
    (31,634
    )Total proved reserves at December 31, 2010
    
    
    134,122
    
    
    
    155,484Proved developed reserves:December 31, 2010
    
    
    30,171
    
    
    
    155,484December 31, 2009
    
    
    758
    
    
    
    127,849Total proved reserves:December 31, 2010
    
    
    134,122
    
    
    
    155,484December 31, 2009
    
    
    758
    
    
    
    127,849
 58




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 Capitalized Costs of Oil and Gas Producing ActivitiesThe following table sets forth the aggregate amounts of capitalized costs relating to our
oil and gas producing activities and the aggregate amount of related accumulated depletion,
depreciation, amortization as of:
 December 31,2010
    
    
    2009Unproved properties and prospect generation
costs not being amortized
    
    $
    
    
    
    $
    Proved properties being amortized
    
    
    2,222,535
    
    
    
    1,086,733Total capitalized costs
    
    
    2,222,535
    
    
    
    1,086,733Accumulated depreciation, depletion and amortization
    
    
    (1,063,480
    )
    
    
    (868,041
    )Net capitalized costs
    
    $
    1,159,055
    
    
    $
    218,692
 Costs Incurred in Oil and Gas Producing ActivitiesThe following table reflects the costs incurred in oil and gas property acquisition,
disposition, exploration and development activities during the periods indicated:
 Years Ended December 31,2010
    
    
    2009Costs incurred:Acquisition of proved properties
    
    $
    685,714
    
    
    $
    Acquisition of unproved properties
    
    
    
    
    
    
    Exploration costs
    
    
    58,719
    
    
    
    3,143Development costs
    
    
    
    
    
    
    Total costs incurred
    
    $
    744,433
    
    
    $
    3,143
 59




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 Results of Operations for Oil and Gas Producing ActivitiesThe results of operations from oil and gas producing activities below exclude non-oil and
gas revenue, general and administrative expenses, interest expense and interest income.
 Years Ended December 31,2010
    
    
    2009Revenues from oil and gas producing activities
    
    $
    862,685
    
    
    $
    125,977Production costs
    
    
    (673,768
    )
    
    
    (95,141
    )Depreciation, depletion, and amortization
    
    
    (195,438
    )
    
    
    (89,699
    )Impairment of oil and gas properties
    
    
    
    
    
    
    (203,110
    )Pretax income from producing activities
    
    
    (6,521
    )
    
    
    (261,973
    )Income tax expense/estimated loss carryforward benefit
    
    
    103
    
    
    
    4,139Results of oil and gas producing activities (excluding
corporate overhead and interst cost)
    
    $
    (6,418
    )
    
    $
    (257,834
    )
 Standardized Measure of Discounted Future Net Cash Flows (Unaudited)The following table reflects the Standardized Measure of Discounted Future Net Cash Flows
relating to our interest in proved oil and gas reserves for:
 Years Ended December 31,2010
    
    
    2009Future cash inflows
    
    $
    11,449,829
    
    
    $
    529,376Future development costs
    
    
    (700,000
    )
    
    
    Future production costs
    
    
    (3,165,036
    )
    
    
    (164,100
    )Future income taxes
    
    
    
    
    
    
    10% discount factor
    
    
    (2,219,392
    )
    
    
    (28,980
    )Standardized measure of discounted
future net cash inflows (outflows)
    
    $
    5,365,401
    
    
    $
    336,296
 
 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: (i) multiplying
estimated quantities of proved reserves to be produced during each year by year-end
prices and (ii) deducting estimated expenditures to be incurred during each year to
develop and produce the proved reserves (based on year-end costs). 60




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BLUE DOLPHIN ENERGY COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
 Income taxes were computed by applying year-end statutory rates to pretax net cash
flows, reduced by the tax basis of the properties and available net operating loss
carry-forwards. The annual future net cash flows were discounted, using a prescribed 10%
rate, and summed to determine the standardized measure of discounted future net cash flow.We caution readers that the standardized measure information which places a value on proved
reserves is not indicative of either fair market value or present value of future cash
flows. Other logical assumptions could have been used for this computation which would
likely have resulted in significantly different amounts. Such information is disclosed
solely in accordance with authoritative guidance and the requirements promulgated by the SEC
to provide readers with a common base for use in preparing their own estimates of future
cash flows and for comparing reserves among companies. We do not rely on these computations
when making investment and operating decisions. Principal changes in the Standardized
Measure of Discounted Future Net Cash Flows attributable to our proved oil and gas reserves
for the periods indicated are as follows:
 Years Ended December 31,2010
    
    
    2009Sales and transfers, net of production costs
    
    $
    (188,917
    )
    
    $
    (30,836
    )Net change in sales and transfer prices, net of
production costs
    
    
    421,761
    
    
    
    (31,511
    )Extension, discoveries and improved recovery, net
of future production and development costs
    
    
    
    
    
    
    Development costs incurred during the period that
reduced future development costs
    
    
    (45,500
    )
    
    
    (32,000
    )Changes in estimated future development cost
    
    
    (32,186
    )
    
    
    (29,461
    )Revisions of quantity estimates
    
    
    (39,618
    )
    
    
    (1,872
    )Accretion of discount
    
    
    33,630
    
    
    
    51,023Net change in income taxes
    
    
    
    
    
    
    Change in production rates (timing) and other
    
    
    4,879,935
    
    
    
    (99,280
    )Net change
    
    $
    5,029,105
    
    
    $
    (173,937
    )
  61




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Annual Report on Internal Control over Financial Reporting
   Changes in Internal Control over Financial Reporting
  62




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ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
   63




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PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
  Exhibits
 No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Blue Dolphin(1)3.2
    
    Amended and Restated By-Laws of Blue Dolphin(9)4.1
    
    Specimen Stock Certificate (2)4.2
    
    Form of Promissory Note issued pursuant to the Note and Warrant Purchase
Agreement dated September 8, 2004 (7)4.3
    
    Promissory Note of Lazarus Louisiana Refinery II, LLC, payable to Blue Dolphin
dated July 31, 2009 (15)10.1
    
    Blue Dolphin 2000 Stock Incentive Plan (3)*10.2
    
    First Amendment to the Blue Dolphin 2000 Stock Incentive Plan (4)*10.3
    
    Second Amendment to the Blue Dolphin 2000 Stock Incentive Plan (5)10.4
    
    Purchase and Sale Agreement by and between Blue Dolphin Pipe Line Company and MCNIC,
dated February 1, 2002(6)10.5
    
    Sale of American Resources Offshore, Inc. Common Stock Agreement between Blue Dolphin
Exploration Co. and Ivar Siem, dated September 8, 2004 (7)10.6
    
    Purchase and Sale Agreement by and between Blue Dolphin, WBI
Pipeline & Storage Group, Inc. and SemGas LP, dated October 29, 2004 (8)10.7
    
    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)10.8
    
    Placement Agency Agreement by and between Blue Dolphin and Starlight Investments, LLC
dated May 27, 2005 (12)10.9
    
    Form of Stock Purchase Agreement between Blue Dolphin 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 (13)10.10
    
    Loan and Option Agreement by and among Lazarus Energy Holdings, LLC, Lazarus
Louisiana Refinery II, LLC, Lazarus Energy, LLC, Lazarus Environmental, LLC, and Blue
Dolphin dated July 31, 2009 (14)10.11
    
    Sale and Purchase Agreement by and among Blue Dolphin Exploration Company,
Blue Sky Langsa Limited and Blue Sky Energy and Power Inc. dated July 21, 2010.
(16)
 
 *
    
    Management Compensation Plan.**
    
    Filed herewith. 64




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##### Table of Contents



No.
    
    Description10.12
    
    Option Agreement by and among Blue Dolphin Exploration Company, Blue Sky
Langsa Limited and Blue Sky Energy and Power Inc. dated July 21, 200.
(17)14.1
    
    Code of Ethics applicable to the Chairman, Chief Executive Officer and Senior
Financial Officer (11)21.1
    
    List of Subsidiaries of Blue Dolphin **23.1
    
    Consent of UHY LLP **23.2
    
    Consent of William J. Driscoll, Geologist **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
    
    T. Scott Howard 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
    
    T. Scott Howard Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 **99.1
    
    Memo from William J. Driscoll, Geologist, regarding Estimated Prove Reserves and
Future Revenue **
 
 (1)
    
    Incorporated herein by reference to Exhibit 3.1 filed in connection with
the Form 8-K of Blue Dolphin under the Securities and Exchange Act of 1934, dated June 2, 2009
(Commission File No. 000-15905).(2)
    
    Incorporated herein by reference to exhibits filed in connection with Form 10-K
of Blue Dolphin 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 Appendix 1 filed in connection with the
Proxy Statement of Blue Dolphin under the Securities and Exchange Act of 1934, dated April 20,
2000 (Commission File No. 000-15905).(4)
    
    Incorporated herein by reference to Appendix B filed in connection with the
definitive Proxy Statement of Blue Dolphin under the Securities and Exchange Act of 1934,
dated April 16, 2003 (Commission File No. 000-15905).(5)
    
    Incorporated herein by reference to Appendix A filed in connection with the
definitive Proxy Statement of Blue Dolphin under the Securities and Exchange Act of 1934,
dated April 27, 2006(Commission File No. 000-15905).(6)
    
    Incorporated herein by reference to Exhibit 10.20 filed in connection with Form
10-KSB of Blue Dolphin under the Securities and Exchange Act of 1934, dated March 21, 2003
(Commission File No. 000-15905).(7)
    
    Incorporated herein by reference to Exhibit 10.4 filed in connection with
Form 8-K of Blue Dolphin under the Securities and Exchange Act of 1934, dated September 14,
2004 (Commission File No. 000-15905).(8)
    
    Incorporated herein by reference to Exhibit 10.1 filed in connection with
Form 8-K of Blue Dolphin under the Securities and Exchange Act of 1934, dated November 3, 2004
(Commission File No. 000-15905).(9)
    
    Incorporated herein by reference to Exhibit 3.1 filed in connection with Form
8-K of Blue Dolphin under the Securities and Exchange Act of 1934, dated December 26, 2007
(Commission File No. 000-15905).*
    
    Management Compensation Plan.**
    
    Filed herewith. 65




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##### Table of Contents



(10)
    
    Incorporated herein by reference to Exhibit 10.1 filed in connection with Form
8-K of Blue Dolphin under the Securities and Exchange Act of 1934, dated March 3, 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 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 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 for the year ended December 31, 2005 under the Securities Exchange
Act of 1934, dated March 30, 2006 (Commission File No. 000-15905).(14)
    
    Incorporated herein by reference to Exhibit 10.1 filed in connection with Form
8-K of Blue Dolphin under the Securities Exchange Act of 1934, dated August 6, 2009
(Commission File No. 000-15905).(15)
    
    Incorporated herein by reference to Exhibit 10.2 filed in connection with Form
8-K of Blue Dolphin under the Securities Exchange Act of 1934, dated August 6, 2009
(Commission File No. 000-15905).(16)
    
    Incorporated herein by reference to Exhibit 10.1 filed in connection with Form
8-K of Blue Dolphin under the Securities Exchange Act of 1934, dated July 21, 2010 (Commission
File No. 000-15905).(17)
    
    Incorporated herein by reference to Exhibit 10.2 filed in connection with Form
8-K of Blue Dolphin under the Securities Exchange Act of 1934, dated July 21, 2010 (Commission
File No. 000-15905).*
    
    Management Compensation Plan.**
    
    Filed herewith.  66




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##### Table of Contents



SIGNATURES
  BLUE DOLPHIN ENERGY COMPANY
(Registrant)By:
    /s/ Ivar SiemIvar SiemChairman, CEO, President
Assistant Treasurer and Secretary
(Principal Executive Officer)Date: March 31, 2011  Signature
    
    Title
    
    Date/s/ Ivar Siem
    
    Chairman, CEO, President,
    
    March 31, 2011Ivar Siem
    
    Assistant Treasurer and Secretary
(Principal Executive Officer)/s/ T. Scott Howard
    
    Treasurer and Assistant Secretary
    
    March 31, 2011T. Scott Howard
    
    (Principal Financial and Accounting Officer)/s/ Laurence N. Benz
    
    Director
    
    March 31, 2011Laurence N. Benz/s/ John N. Goodpasture
    
    Director
    
    March 31, 2011John N. Goodpasture/s/ Harris A. Kaffie
    
    Director
    
    March 31, 2011Harris A. Kaffie/s/ Erik Ostbye
    
    Director
    
    March 31, 2011Erik Ostbye
 67




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##### Table of Contents



Exhibit Index
 No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Blue Dolphin(1)3.2
    
    Amended and Restated By-Laws of Blue Dolphin (9)4.1
    
    Specimen Stock Certificate (2)4.2
    
    Form of Promissory Note issued pursuant to the Note and Warrant Purchase
Agreement dated September 8, 2004 (7)4.3
    
    Promissory Note of Lazarus Louisiana Refinery II, LLC, payable to Blue Dolphin dated
July 31, 2009 (15)10.1
    
    Blue Dolphin 2000 Stock Incentive Plan (3) *10.2
    
    First Amendment to the Blue Dolphin 2000 Stock Incentive Plan (4) *10.3
    
    Second Amendment to the Blue Dolphin 2000 Stock Incentive Plan (5)10.4
    
    Purchase and Sale Agreement by and between Blue Dolphin Pipe Line Company and MCNIC,
dated February 1, 2002 (6)10.5
    
    Sale of American Resources Offshore, Inc. Common Stock Agreement between Blue Dolphin Exploration Co. and
Ivar Siem, dated September 8, 2004 (7)10.6
    
    Purchase and Sale Agreement by and between Blue Dolphin, WBI
Pipeline & Storage Group, Inc. and SemGas LP, dated October 29, 2004 (8)10.7
    
    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)10.8
    
    Placement Agency Agreement by and between Blue Dolphin and Starlight Investments, LLC dated May 27, 2005
(12)10.9
    
    Form of Stock Purchase Agreement between Blue Dolphin 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 (13)10.10
    
    Loan and Option Agreement by and among Lazarus Energy Holdings, LLC, Lazarus
Louisiana Refinery II, LLC, Lazarus Energy, LLC, Lazarus Environmental, LLC, and Blue
Dolphin dated July 31, 2009 (14)10.11
    
    Sale and Purchase Agreement by and among Blue Dolphin Exploration Company,
Blue Sky Langsa Limited and Blue Sky Energy and Power Inc. dated July 21, 2010
(16)10.11
    
    Option Agreement by and among Blue Dolphin Exploration Company, Blue Sky
Langsa Limited and Blue Sky Energy and Power Inc. dated July 21, 2010
(16)14.1
    
    Code of Ethics applicable to the Chairman, Chief Executive Officer and Senior
Financial Officer (11)21.1
    
    List of Subsidiaries of Blue Dolphin **23.1
    
    Consent of UHY LLP **
 68




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##### Table of Contents



No.
    
    Description23.2
    
    Consent of William J. Driscoll, Geologist **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
    
    T. Scott Howard 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
    
    T. Scott Howard Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 **99.1
    
    Memo from William J. Driscoll, Geologist, regarding Estimated Prove Reserves and
Future Revenue**
 
 (1)
    
    Incorporated herein by reference to Exhibit 3.1 filed in connection with
the Form 8-K of Blue Dolphin under the Securities and Exchange Act of 1934, dated June 2, 2009
(Commission File No. 000-15905).(2)
    
    Incorporated herein by reference to exhibits filed in connection with Form 10-K
of Blue Dolphin 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 Appendix 1 filed in connection with
the Proxy Statement of Blue Dolphin under the Securities and Exchange Act of 1934, dated April
20, 2000 (Commission File No. 000-15905).(4)
    
    Incorporated herein by reference to Appendix B filed in connection with
the definitive Proxy Statement of Blue Dolphin under the Securities and Exchange Act of 1934,
dated April 16, 2003 (Commission File No. 000-15905).(5)
    
    Incorporated herein by reference to Appendix A filed in connection with the
definitive Proxy Statement of Blue Dolphin under the Securities and Exchange Act of 1934,
dated April 27, 2006(Commission File No. 000-15905).(6)
    
    Incorporated herein by reference to Exhibit 10.20 filed in connection with Form
10-KSB of Blue Dolphin under the Securities and Exchange Act of 1934, dated March 21, 2003
(Commission File No. 000-15905).(7)
    
    Incorporated herein by reference to Exhibit 10.4 filed in connection with
Form 8-K of Blue Dolphin under the Securities and Exchange Act of 1934, dated September 14,
2004 (Commission File No. 000-15905).(8)
    
    Incorporated herein by reference to Exhibit 10.1 filed in connection with
Form 8-K of Blue Dolphin under the Securities and Exchange Act of 1934, dated November 3, 2004
(Commission File No. 000-15905).(9)
    
    Incorporated herein by reference to Exhibit 3.1 filed in connection with Form
8-K of Blue Dolphin under the Securities and Exchange Act of 1934, dated December 26, 2007
(Commission File No. 000-15905).(10)
    
    Incorporated herein by reference to Exhibit 10.1 filed in connection with Form
8-K of Blue Dolphin under the Securities and Exchange Act of 1934, dated March 3, 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 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 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 for the year ended December 31, 2005 under the Securities Exchange
Act of 1934, dated March 30, 2006 (Commission File No. 000-15905). 69




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##### Table of Contents



(14)
    
    Incorporated herein by reference to Exhibit 10.1 filed in connection with Form
8-K of Blue Dolphin under the Securities Exchange Act of 1934, dated August 6, 2009
(Commission File No. 000-15905).(15)
    
    Incorporated herein by reference to Exhibit 10.2 filed in connection with Form
8-K of Blue Dolphin under the Securities Exchange Act of 1934, dated August 6, 2009
(Commission File No. 000-15905).(16)
    
    Incorporated herein by reference to Exhibit 10.1 filed in connection with Form
8-K of Blue Dolphin under the Securities Exchange Act of 1934, dated July 21, 2010 (Commission
File No. 000-15905).(17)
    
    Incorporated herein by reference to Exhibit 10.2 filed in connection with Form
8-K of Blue Dolphin under the Securities Exchange Act of 1934, dated July 21, 2010 (Commission
File No. 000-15905). 
 *
    
    Management Compensation Plan.**
    
    Filed herewith. 70