Document:

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.

<PAGE>

                           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:EXHIBIT 10.2

                                 PROMISSORY NOTE
                                 ---------------

$250,000.00                      Houston, Texas                  January 1, 2005

         For value received, the undersigned,  Blue Dolphin Pipe Line Company, a
Delaware  corporation  (the  "Maker"),  promises  to pay to the  order  of MCNIC
Offshore Pipeline & Processing Company, a Michigan corporation,  or its designee
(the "Payee"),  at 2000 Second Avenue,  WCB 937,  Detroit  Michigan 48226, or at
such other place as the owner and holder hereof may from time to time designate,
in writing,  the principal sum of Two Hundred Fifty  Thousand and No/100 Dollars
($250,000.00). No interest shall accrue on the principal balance of this Note.

         If not  sooner  paid,  this Note  shall be due and  payable  in full on
December 31, 2006.

         THE PRINCIPAL AMOUNT of this Note is payable as follows:  $20,000 shall
be payable upon the execution and delivery of this Note.  Commencing on February
28,  2005 and  continuing  on the last day of each month  thereafter,  an amount
equal to $10,000 shall be paid pursuant to this Note. On December 31, 2006,  all
amounts of principal  which then remain  outstanding and unpaid pursuant to this
Note shall be due and payable.

         The Maker may from time to time prepay this Note,  in whole or in part,
without notice or penalty.

         The entire principal  balance hereof shall  immediately  become due and
payable (a) upon the merger, consolidation,  dissolution, liquidation or sale of
all or  substantially  all the assets of the Maker; (b) if any "Person" (as such
term is used in Sections 12(d) and 14(d) of the Securities Exchange Act of 1934,
as  amended  (the  "Exchange  Act"))  other  than  the  Maker  is or  becomes  a
"beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act) directly of
(i) any portion of the Purchased Interests (as hereinafter defined), or (ii) 50%
or  more  of the  Maker's  ownership  interest  in the  Blue  Dolphin  Pipeline,
Buccaneer Pipeline, the Land, or the Shore Facilities (all as more fully defined
in that certain Asset  Purchase  Agreement  dated January 1, 2002 by and between
Maker and Payee (the "Purchase Agreement"); or (c) upon the failure by the Maker
to  perform  or  observe  any of the  provisions  of this Note or the Pledge and
Security  Agreement,  dated January 1, 2002, by and between Maker and Payee (the
"Security  Agreement")  which  failure  is not cured  within 30 days of  written
notice thereof.

         In the  event  the Maker  sells  50% or more of the  Maker's  ownership
interest in the Blue Dolphin  Pipeline,  Buccaneer  Pipeline,  the Land, and the
Shore Facilities in a single transaction or a series of related  transactions to
a single purchaser prior to December 31, 2006 (a "Majority  Interest Sale"),  an
additional amount of principal equal to $500,000 shall be added to the principal
balance of this Note and shall be immediately due and payable.

<PAGE>

         The failure of the Maker to pay when due any installment due hereunder,
which is not cured within 10 days of written notice  thereof,  or the bankruptcy
of the Maker, shall constitute an "Event of Default".

         If an Event of Default  shall  occur,  the holder  hereof  may,  at the
option of the holder,  without  demand,  notice (except as provided  above),  or
presentment, declare the entire unpaid principal balance of this Note, to be due
and payable immediately.  Upon any such declaration,  the principal of this Note
shall  become and be  immediately  due and  payable,  and the holder  hereof may
thereupon  proceed to protect and enforce the obligations of the Maker hereunder
by suit in  equity,  by  action  of law,  or by other  appropriate  proceedings,
whether  for  specific  performance  (to  the  extent  permitted  by law) of any
covenant or  agreement  contained  herein or in aid of the exercise of any power
granted herein, or proceed to enforce the payment of this Note or to enforce any
other  legal or  equitable  right  of the  holder  hereof.  Any  installment  of
principal not paid when due,  whether by acceleration  or otherwise,  shall bear
interest at the Maximum Non-usurious Rate (as hereinafter defined) from the date
due.

         If this  Note is not paid when due  (whether  the Note  becomes  due by
acceleration  or  otherwise)  and is  placed  in the  hands of an  attorney  for
collection,  or if suit is filed  hereon,  or if this Note shall be collected by
legal  proceedings or through a probate,  bankruptcy,  or other court, the Maker
agrees  to  pay  all  reasonable  costs  of  collection,   including  reasonable
attorneys' fees.

         EXCEPT AS  PROVIDED  HEREIN,  THE MAKER  expressly  waives  demand  and
         presentment  for  payment,  notice of  nonpayment,  protest,  notice of
         protest,  notice  of  dishonor,  notice of  intent  to  accelerate  the
         maturity  hereof,  notice of the  acceleration of the maturity  hereof,
         notice of any other kind with  respect  thereto,  bringing  of suit and
         diligence in taking any action to collect  amounts called for hereunder
         and in the handling of  securities  at any time  existing in connection
         herewith;  and Maker shall be  directly  and  primarily  liable for the
         payment of all sums  owing and to be owing  hereon,  regardless  of and
         without any notice,  diligence,  act or omission as or with  respect to
         the collection of any amount called for hereunder or in connection with
         any  right,  lien,  interest  or  property  at any and all times had or
         existing as security for any amount called for hereunder.

         IT IS  the  intention  of  Maker  and  Payee  to  conform  strictly  to
applicable  usury laws.  Accordingly,  if the transactions  contemplated  hereby
would be usurious under applicable law (including the laws of the State of Texas
and  the  laws  of  the  United  States  of  America),   then,  in  that  event,
notwithstanding anything to the contrary herein or in any agreement entered into
in connection  with or as security for this Note,  it is agreed as follows:  (a)
the aggregate of all consideration  which constitutes  interest under applicable
law that is taken, reserved, contracted for, charged or received under this Note
or under any of the other  aforesaid  agreements or otherwise in connection with
this Note shall under no  circumstances  exceed the  maximum  amount of interest
allowed by applicable  law (the  "Maximum  Non-usurious  Rate"),  and any excess
shall be cancelled  automatically and, if theretofore paid, shall be credited on
the Note by Payee  (or,  to the  extent  that this Note shall have been or would
thereby be paid in full,  refunded to Maker); and (b) in the event that maturity
of this Note is accelerated by reason of an election by Payee resulting from any
default  hereunder  or  otherwise,  or in the event of any required or permitted

<PAGE>

prepayment,  then such consideration that constitutes interest may never include
more than the Maximum  Non-usurious Rate, and excess interest,  if any, provided
for in this Note or otherwise shall be cancelled automatically as of the date of
such  acceleration or prepayment and, if theretofore  paid, shall be credited on
this Note (or, to the extent that this Note shall have been or would  thereby be
paid in full, refunded to Maker).

         This Note is an amendment and  restatement  of that certain  Promissory
Note  dated  January 1, 2002  payable  by the Maker to the Payee (the  "Original
Note").  The Original Note was  delivered by the Maker to the Payee  pursuant to
Purchase Agreement,  pursuant to which the Payee has sold to the Maker undivided
1/3 of 8/8ths interests in and to the Blue Dolphin Pipeline, Buccaneer Pipeline,
the Land, the Shore Facilities,  and the Omega Pipeline (collectively,  such 1/3
of 8/8ths interests are referred to herein as the "Purchased Interests").

         THIS  NOTE is  entitled  to the  benefits  of the  Security  Agreement.
Reference is made to the Security  Agreement for  provisions for the granting of
liens and  security  interests  in the  Collateral  (as defined in the  Security
Agreement) as security for this Note and for all other pertinent purposes.

         This Note shall be construed in  accordance  with the laws of the State
of Texas and the laws of the United States applicable to transactions in Texas.

         Any  notice to be given  pursuant  to this  Note to the Maker  shall be
given at 801 Travis, Suite 2100, Houston, Texas 77002.

         Any check,  draft, money order, or other instrument given in payment of
all or any portion of any amounts  due  hereunder  may be accepted by the holder
hereof and handled in collection in the customary manner, but the same shall not
constitute  payment hereunder or diminish any rights of the holder hereof except
to the extent that actual cash proceeds of such  instrument are  unconditionally
received by the holder and applied to the  indebtedness in the manner  elsewhere
herein provided.

         Payments which are due on a Saturday,  Sunday,  or on a bank holiday of
the United States of America shall be due on the following business day.

         This  Note  shall  only be  assignable  by Payee  (i) with the  written
consent of Maker,  or (ii) to a person  that is under  common  control  with the
Payee.

         THIS NOTE REPRESENTS THE FINAL AGREEMENT OF MAKER AND PAYEE 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.

<PAGE>

         It is agreed that time is of the essence with respect to this Note.

                                               BLUE DOLPHIN PIPE LINE COMPANY

                                               By:______________________________
                                                  Michael J. Jacobson, President

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