EXHIBIT 10.1


                                 January 1, 2005


MCNIC Offshore Pipeline & Processing Company
2000 Second Avenue, 688 WCB
Detroit, Michigan 48226
Attention:  General Counsel

         Re:      Asset Purchase  Agreement  dated February 1, 2002 by and among
                  MCNIC  Offshore  Pipeline  &  Processing  Company,  a Michigan
                  corporation ("Seller"),  and Blue Dolphin Pipe Line Company, a
                  Delaware corporation ("Buyer") (the "Purchase Agreement")


Gentlemen:

         It is our understanding that we have agreed as follows:

         1.       Section  1.03 of the Purchase  Agreement  shall be amended and
                  restated in its entirety as follows:

                           1.03 Conditional Consideration. Within 90 days of the
                  end of each  calendar  year that  includes any period which is
                  subsequent  to  January  1,  2005,  Buyer  shall pay Seller an
                  annual  amount equal to 50% of the Net Revenue for the portion
                  of such  calendar year which is subsequent to January 1, 2005.
                  Payments  pursuant to this Section shall continue until Seller
                  has received payments equal to $500,000.  Notwithstanding  the
                  foregoing,  however,  no amounts shall be payable  pursuant to
                  this  Section  with  respect to the Net  Revenue of any period
                  subsequent  to the  Termination  Date.  For  purposes  of this
                  Section 1.03 only:

                           (a) The term  "Net  Revenue"  shall  mean  the  gross
                  revenue  attributable to the Purchased Interests as determined
                  on  a  cash  basis,   consistently  applied,   minus  (i)  the
                  reasonable   operating   expenditures   attributable   to  the
                  Purchased  Interests  (including  the  Operator's  Fee, not to
                  exceed  $12,800 per month) as  determined by Buyer in a manner
                  consistent with past practices,  which shall specifically take
                  into account,  by way of example and not by way of limitation,
                  any legal fees with respect to litigation  that relates to the
                  Purchased  Interests,  and (ii)  any  negative  amount  of Net
                  Revenue for any period subsequent to January 1, 2005 which has
                  not been offset by positive Net Revenue  generated  subsequent
                  to the period in which such negative amount was realized.  Net
                  Revenue  shall  include the sales  proceeds  realized from the
                  sale of any of the  Purchased  Interests  unless the Purchased
                  Interests  are sold pursuant to a Majority  Interest  Sale, as
                  defined in the Note.


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                           Within  ten  (10)  days  of  Buyer  entering  into an
                  agreement for the sale of any of the Purchased Interests other
                  than a Majority  Interest  Sale,  Buyer shall notify Seller in
                  writing (a "Purchased  Interest Transfer Notice"),  describing
                  the consideration to be received  (including cash and non-cash
                  consideration)  with  respect  to  such  sale  of a  Purchased
                  Interest. To the extent that such sale of a Purchased Interest
                  involves assets other than the Purchased Interests,  (1) Buyer
                  will include in the Purchased  Interest  Transfer Notice their
                  reasonable  good  faith  determination  of the  portion of the
                  total  consideration  that  is  applicable  to  the  Purchased
                  Interests and (2) if the Seller does not raise any  objections
                  to such  determination  within 15 days  after  receipt of such
                  Purchased  Interest Transfer Notice,  such  determination will
                  become final and binding upon all  Parties;  provided  that if
                  the Seller raises any objection within such 15-day period, the
                  actual  fair  market  value  of  such  consideration  will  be
                  determined by a third-party  appraiser mutually agreed upon by
                  the   Parties.   To  the  extent  that  any  portion  of  such
                  consideration  is non-cash  consideration,  (i) the Buyer will
                  include  in  the  Purchased  Interest  Transfer  Notice  their
                  reasonable good faith  determination  of the fair market value
                  of such non-cash consideration and (ii) if the Seller does not
                  raise  any  objections  to such  determination  within 15 days
                  after receipt of such Purchased Interest Transfer Notice, such
                  determination  will become final and binding upon all Parties;
                  provided that if the Seller  raises any objection  within such
                  15-day  period,  the actual fair market value of such non-cash
                  consideration  will be determined  by a third-party  appraiser
                  mutually agreed upon by the Parties.

                           (b) The term  "Termination  Date" means  December 31,
                  2006;  provided,  however  that  the  Termination  Date  shall
                  automatically  extend by one additional calendar year (up to a
                  maximum of two calendar  years) for each instance in which the
                  non-recurring,  extraordinary expenditures attributable to the
                  Purchased Interests exceed $200,000, in the aggregate,  during
                  any calendar year subsequent to January 1, 2005.

         2.       The "Note" which is referenced in Section 1.02 of the Purchase
                  Agreement has been amended and restated pursuant to an amended
                  and  restated  promissory  note  dated the date  hereof in the
                  original principal amount of $250,000.

All capitalized terms set forth in this letter agreement shall have the meanings
given to them in the Purchase Agreement,  unless otherwise indicated.  Except as
specifically  provided in this letter  agreement,  the Purchase  Agreement shall
continue in full force and effect as originally written.



<PAGE>

If the foregoing sets forth the terms of our binding  agreement,  which shall be
binding  and  enforceable  in  accordance  with the  laws of the  State of Texas
without reference to the conflict of laws principles thereof.


                                                  Sincerely,

                                                  BLUE DOLPHIN PIPE LINE COMPANY


                                                  By:
                                                     ---------------------------
                                                     Name:
                                                     Title:

ACCEPTED AND AGREED TO:

MCNIC OFFSHORE PIPELINE &
PROCESSING COMPANY


By:
   ---------------------------
   Name:
   Title: