EXHIBIT 10.1


                           NOTE MODIFICATION AGREEMENT

         This Note Modification  Agreement (this  "Modification") by and between
BLUE DOLPHIN ENERGY COMPANY (the "Borrower") and WESTERN GULF PIPELINE PARTNERS,
LP (the "Lender") is entered into on the 8th day of April 2005.

                                    RECITALS:

         A. Borrower  executed that certain  Promissory  Note dated September 8,
2004,  payable to the order of Lender,  in the face amount of  $275,000.00  (the
"Note"), a copy of which is attached hereto as Exhibit A.

         B.  Pursuant to Section 3(c) of the Note,  the Maturity  Date under the
Note was extended to the Extended Maturity Date.

         C. Borrower and Lender have agreed to amend certain terms of the Note.

         D.  Borrower  and  Lender  desire  to  acknowledge   and  document  the
amendments to the Note subject to the terms and conditions contained herein.

                  NOW,  THEREFORE,  in  consideration  of  the  promises  herein
contained,  the  mutual  benefits  to be  derived  herefrom  and other  good and
valuable  consideration received by each party, and each intending to be legally
bound hereby, the parties agree as follows:

         1. Specific Amendments to Note.

                  A. The  following  definitions  are  hereby  amended  in their
         entirety to read as follows:

                  Base Rate means,  from day-to-day,  an annual rate of interest
         equal to the lesser of (a) 12.0% and (b) the Maximum Rate.

         Maturity Date means the earlier to occur of (a) June 30, 2006,  and (b)
         the date upon which the  Obligation  has been  accelerated  pursuant to
         Section 11 below.

                  B. The following definition is hereby added to the Note:

         Modification means that certain Note Modification Agreement dated April
         8, 2005 between Borrower and Lender.

                  C. The  definition  of Extended  Maturity Date as set forth in
         the Note is hereby  deleted  therefrom  for all purposes from and after
         the date of this Modification.

                  D. Section  3(b) is hereby  amended in its entirety to read as
         follows:


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                  (b) So long as no Default exists on any interest payment date,
         from the date of the Modification until the Maturity Date, interest due
         under  this Note  that has  accrued  during  such  period  shall not be
         payable on such interest  payment date, but shall continue to accrue on
         a daily  basis  and  shall be due and  payable  on the  Maturity  Date;
         provided that, all accrued but unpaid interest under this Note shall be
         due and payable on any interest payment if a Default exists on any such
         interest payment date. The outstanding  Principal Debt plus all accrued
         and unpaid interest on this Note and all other Obligations shall be due
         and payable on the Maturity Date.

         2. General  Amendments  to Loan  Documents.  The Loan  Documents  shall
continue in force and effect to secure the  obligations of Borrower  pursuant to
the Note, and any reference to the descriptions of the obligations, indebtedness
or liabilities of Borrower secured by any such Loan Documents shall be deemed to
refer to the  obligations of Borrower  pursuant to the Note, as hereby  amended.
This  Modification  modifies the Note and the other Loan Documents but in no way
acts as a release or  relinquishment  of the liens securing payment of the Note,
including  without  limitation the liens and security  interests  created by the
Mortgage,  and such liens and security  interests are hereby renewed,  extended,
ratified, confirmed and carried forward by Borrower in all respects.

         3.  Conditions  Precedent in  Connection  with the  Modification.  This
Modification   shall  not  become  effective  unless  and  until  the  following
conditions have been satisfied:

                  A.  Receipt  of  Modification.   Lender  shall  have  received
         multiple counterparts of this Note Modification Agreement, as requested
         by Lender, duly executed by an authorized officer of Borrower.

                  B.  Payment of Legal Fees.  Lender shall have paid to Porter &
         Hedges,  L.L.P.  all  reasonable  legal fees  incurred  to such firm in
         connection with this Modification.

                  C. Legal  Matters  Satisfactory  to Lender.  All legal matters
         incident to the consummation of the  transactions  contemplated by this
         Modification shall be satisfactory to the Lender.

         4. Reaffirmation of Representations and Warranties.

                  A. To  induce  the  Lender to enter  into  this  Modification,
         Borrower hereby represents and warrants to Lender as follows:

                           i.       The   execution   and   delivery   of   this
                                    Modification  and  the  performance  by  the
                                    Borrower  of  its  obligations   under  this
                                    Modification   (i)  are  within   Borrower's
                                    corporate   power,   (ii)   have  been  duly
                                    authorized   by  all   necessary   corporate
                                    action,  (iii) have been  authorized  by all
                                    necessary   governmental  approval  (if  any
                                    shall be required), and (iv) do not and will


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                                    not   contravene   or   conflict   with  any
                                    provision  of  law  or of  the  articles  of
                                    incorporation  or the bylaws of  Borrower or
                                    of any agreement binding upon Borrower.

                           ii.      This  Modification   represents  the  legal,
                                    valid and  binding  obligations  of Borrower
                                    enforceable  against  Borrower in accordance
                                    with its  terms  subject  as to  enforcement
                                    only     to     bankruptcy,      insolvency,
                                    reorganization,  moratorium or other similar
                                    laws affecting the enforcement of creditors'
                                    rights generally.

                           iii.     Since  the  original  date of the  Note,  no
                                    change,   event  or  state  of  affairs  has
                                    occurred  and  is  continuing   which  would
                                    constitute   a  Default  or  solely  by  the
                                    passage  of time  or the  giving  of  notice
                                    would constitute a Default.

                  B. To induce the  Borrower  to enter  into this  Modification,
         Lender hereby represents and warrants to Borrower as follows:

                           i.       Each and every document  which  evidences or
                                    secures  payment of the Note  represents the
                                    valid,     enforceable    and    collectible
                                    obligation to Borrower.

                           ii.      There are no  existing  claims,  defenses or
                                    rights of setoff with  respect to any of the
                                    documents  evidencing or securing payment of
                                    the Note.

                           iii.     Since  the  original  date of the  Note,  no
                                    change,   event  or  state  of  affairs  has
                                    occurred  and  is  continuing   which  would
                                    constitute   a  Default  or  solely  by  the
                                    passage  of time  or the  giving  of  notice
                                    would constitute a Default.

         5.  Reaffirmation of Note. This  Modification  shall be deemed to be an
amendment to the Note,  and the Note,  as amended  hereby,  is hereby  ratified,
adopted and confirmed in each and every respect.

         6. Defined Terms.  Each capitalized  term used herein,  but not defined
herein, shall have the meaning given to it in the Note.

         7. Governing Law. THIS MODIFICATION  SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED  STATES OF AMERICA.  This  Modification  has been  entered into in Harris
County,  Texas,  and it shall be performable  for all purposes in Harris County,
Texas. Courts within the State of Texas shall have jurisdiction over any and all
disputes  between  the  Borrower  and  the  Lender,  whether  in law or  equity,
including,  but not limited to, any and all disputes  arising out of or relating
to this Modification or any other Loan Documents;  and venue in any such dispute
whether in federal or state court shall be laid in Harris County, Texas.


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         8. Severability.  Whenever possible each provision of this Modification
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
applicable law, but if any provision of this Modification shall be prohibited by
or invalid under  applicable  law, such  provision  shall be  ineffective to the
extent of such prohibition or invalidity,  without invalidating the remainder of
such provision or the remaining provisions of this Modification.

         9. Execution in Counterparts.  This Modification may be executed in any
number of counterparts and by the different parties on separate  counterparts on
different dates,  and each such  counterpart  shall be deemed to be an original,
but all  such  counterparts  shall  together  constitute  but  one and the  same
agreement.

         10. Section  Captions.  Section captions used in this  Modification are
for convenience of reference only, and shall not affect the construction of this
Modification.

         11. Successors and Assigns. This Modification shall be binding upon the
Borrower,  the Lender and its respective successors and assigns, and shall inure
to the benefit of the Borrower,  the Lender and the  respective  successors  and
assigns of the Lender.

         12.   Non-Application  of  Chapter  346  of  Texas  Finance  Code.  The
provisions  of Chapter 346 of the Texas  Finance Code (which  regulates  certain
revolving  loan accounts and  revolving  tri-party  accounts)  are  specifically
declared by the parties hereto not to be applicable to this  Modification or any
of the other Loan Documents or to the transactions contemplated hereby.

         13. NOTICE OF FINAL AGREEMENT.  THE WRITTEN NOTE AND LOAN DOCUMENTS, AS
HEREBY AMENDED,  REPRESENT THE FINAL AGREEMENT AMONG THE LENDER AND BORROWER AND
MAY NOT BE  CONTRADICTED  BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS,  OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS  BETWEEN
THE PARTIES.


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                                             BORROWER:

                                             BLUE DOLPHIN ENERGY COMPANY,
                                             a Delaware corporation



                                             By:________________________________
                                                Michael J. Jacobson
                                                President


                                             LENDER:


                                             WESTERN GULF PIPELINE PARTNERS, LP,
                                             a Texas limited partnership

                                             By: PEREGRINE MANAGEMENT, LLC,
                                                 its General Partner


                                                 By:____________________________
                                                    Barrett L. Webster,
                                                    its Manager