Blue Dolphin Energy (BDCO) swings to $32.5M H1 profit amid debt defaults
Rhea-AI Filing Summary
Blue Dolphin Energy Company reported sharply improved results for the three and six months ended June 30, 2026. Total revenue was $144.3 million for the quarter and $225.7 million year-to-date, up from $56.6 million and $140.3 million in 2025, driven mainly by refinery operations. Net income rose to $17.7 million for the quarter and $32.5 million for six months, compared with a loss of $1.7 million and income of $0.5 million a year earlier, with basic and diluted EPS of $1.19 and $2.18, respectively.
Cash and cash equivalents increased to $30.7 million from $1.0 million at year-end 2025, supported by $39.0 million of operating cash flow in the first half of 2026. Total assets were $130.3 million and stockholders’ equity improved to $59.8 million from $27.4 million, as retained earnings moved from a deficit to $19.9 million. Third-party long-term debt principal was $34.3 million, with $30.5 million classified as current due to covenant defaults on several secured term loans.
The company highlights reliance on an Affiliate that controls 85.1% of voting power, provides management services, funding support, guarantees certain debt, and is a major customer. Management notes benefits from unusually favorable crude and product price differentials in early 2026, but cautions these conditions may not persist and emphasizes ongoing risks from loan defaults, offshore decommissioning obligations, regulatory matters, and a crude supplier pricing dispute.
Positive
- Revenue and profit surged with six-month revenue at $225.7 million and net income at $32.5 million, up from $140.3 million and $0.5 million in 2025.
- Operating cash flow strengthened to $39.0 million for the first half of 2026 versus negative $3.3 million a year earlier, significantly improving liquidity.
- Balance sheet improved as equity rose to $59.8 million from $27.4 million and retained earnings shifted from a $12.5 million deficit to $19.9 million positive.
- Related-party debt reduced, with balances falling from $13.3 million to $5.6 million, and long-term related-party debt eliminated.
- Cash position strengthened as cash and restricted cash climbed to $31.7 million from $2.0 million at December 31, 2025.
Negative
- Key term loans are in default, with $30.5 million of third-party debt classified as current; lenders could accelerate repayment or enforce collateral.
- Supplier pricing dispute could result in an additional loss of up to $3.4 million beyond the recorded $14.5 million payable if resolved unfavorably.
- Offshore decommissioning and penalties remain significant, including a current $5.2 million ARO liability and about $2.2 million accrued for BSEE civil penalties.
- High related-party concentration persists, with an Affiliate controlling 85.1% of voting power, operating all assets, providing key financing, and acting as a major customer.
- Earnings benefited from atypical market conditions, including unusually wide crude-to-product spreads, which management cautions may not recur.
Filing Explained
No new shares were reported, while affiliate transactions and unresolved decommissioning and supplier obligations remain active.
This Form 10-Q is an unaudited interim report, and at
The Affiliate operates and manages all company properties under a one-year agreement expiring
Decommissioning has progressed but is not complete: offshore pipeline field work was completed, while platform work was anticipated for the third quarter of 2026 and a BSEE inspection extension runs to
The supplier dispute remains unresolved: the company recorded a
Key Figures
Key Terms
asset retirement obligations financial
alternative minimum tax financial
Net operating loss carryforwards financial
HUBZone certification regulatory
contingencies financial
civil penalties regulatory
Earnings Snapshot
FAQ
How did Blue Dolphin Energy (BDCO) perform financially in Q2 2026?
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AI-generated analysis. How Rhea-AI works. Not financial advice.
Table of Contents
| UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |
FORM
(Mark One)
| | Quarterly REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| | 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.
BLUE DOLPHIN ENERGY COMPANY
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| (Exact name of registrant as specified in its charter) |
| | | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | | |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
| | ||
| (Title of class) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is an large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definition of “large accelerated filer,” “accelerated filer, ” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
| | ☑ | Smaller reporting company | | ||
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
| Number of shares of common stock, par value $0.01 per share, outstanding at August 14, 2026: |
Table of Contents
| PART I - FINANCIAL INFORMATION | ||
| ITEM 1. | FINANCIAL STATEMENTS | 8 |
| Consolidated Balance Sheets (Unaudited) | 8 | |
| Consolidated Statements of Operations (Unaudited) | 9 | |
| Consolidated Statements of Stockholders’ Equity (Unaudited) | 10 | |
| Consolidated Statements of Cash Flows (Unaudited) | 11 | |
| Notes to Consolidated Financial Statements | 12 | |
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 34 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 56 |
| ITEM 4. | CONTROLS AND PROCEDURES | 56 |
| PART II - OTHER INFORMATION | 56 | |
| ITEM 1. | LEGAL PROCEEDINGS | 56 |
| ITEM 1A. | RISK FACTORS | 58 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 59 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 59 |
| ITEM 4. | MINE SAFETY DISCLOSURES | 59 |
| ITEM 5. | OTHER INFORMATION | 59 |
| ITEM 6. | EXHIBITS | 59 |
| SIGNATURES | 60 | |
Glossary of Terms
Throughout this Quarterly Report on Form 10-Q, we have used the following terms:
| Affiliate. Refers, either individually or collectively, to certain related parties including Jonathan Carroll, Chairman and Chief Executive Officer of Blue Dolphin, and his affiliates (including Ingleside and Lazarus Capital) and LEH and its affiliates (including LMT, MTI, MTO and LTRI). Together, Jonathan Carroll and LEH owned 85.1% of the Common Stock as of the filing date of this report.
AGO. Atmospheric gas oil (also known as atmospheric tower bottoms) is the heaviest product boiled by a crude distillation tower operating at atmospheric pressure. This fraction ordinarily sells as distillate fuel oil, either in pure form or blended with cracked stocks. Certain ethylene plants, called heavy oil crackers, can take AGO as feedstock.
AMT. Alternative Minimum Tax.
API Gravity. American Petroleum Institute (API) gravity; measures how heavy or light petroleum liquids are compared to water; standard used in the oil and gas industry to classify crude oil.
ARO. Asset retirement obligations.
ASU. Accounting Standards Update issued by FASB.
bbl(s). Barrel; a unit of volume equal to 42 U.S. gallons.
BDEX. Blue Dolphin Exploration Company, a wholly owned subsidiary of Blue Dolphin.
BDPC. Blue Dolphin Petroleum Company, a wholly owned subsidiary of Blue Dolphin.
BDPL. Blue Dolphin Pipe Line Company, a wholly owned subsidiary of Blue Dolphin.
BDSC. Blue Dolphin Services Co., a wholly owned subsidiary of Blue Dolphin.
Blue Dolphin. Blue Dolphin Energy Company, one or more of its consolidated subsidiaries, or all of them taken as a whole.
bpd. Barrel per day; a measure of the bbls of daily output produced in a refinery or transported through a pipeline.
Board. Board of Directors of Blue Dolphin.
BOEM. Bureau of Ocean Energy Management; an agency within the USDOI; effective July 10, 2026, the USDOI reunified BOEM and BSEE into the newly formed Minerals Management Administration.
BSEE. Bureau of Safety and Environmental Enforcement; an agency within the USDOI; effective July 10, 2026, the USDOI reunified BSEE and BOEM into the newly formed Minerals Management Administration.
CIP. Construction in progress. |
Distillation. The first step in the refining process whereby crude oil and condensate are heated at atmospheric pressure in the base of a distillation tower. As the temperature increases, the various compounds vaporize in succession at their various boiling points and then rise to prescribed levels within the tower based on their densities (from lightest to heaviest). They then condense in distillation trays and are drawn off individually for further refining. Distillation is also used at other points in the refining process to remove impurities.
DLA. Defense Logistics Agency, an agency within the U.S. Department of Defense.
Downtime. Scheduled and unscheduled periods in which the crude distillation tower is not operating. Downtime may occur for a variety of reasons, including severe weather, power failures, and preventive maintenance.
EIA. Energy Information Administration.
EIDL. Economic Injury Disaster Loan; an SBA program that provides economic relief to businesses within a declared disaster area.
EPA. Environmental Protection Agency.
Eagle Ford Shale. A hydrocarbon-producing geological formation extending across South Texas from the Mexican border into East Texas; crude oil from within this shale is typically characterized as light, sweet crude with a high API Gravity; particularly suitable for refining into gasoline and other light products.
Exchange Act. Securities Exchange Act of 1934, as amended.
FASB. Financial Accounting Standards Board.
FDIC. Federal Deposit Insurance Corporation.
Feedstocks. Crude oil and other hydrocarbons, such as condensate and intermediate products, used as basic input materials in a refining process. Feedstocks are transformed into one or more finished products.
Finished petroleum products. Materials or products which have received the final increments of value through processing operations, and which are being held in inventory for delivery, sale, or use.
Freeport facility. Onshore terminal facility consisting of processing units for: (i) crude oil and natural gas separation and dehydration, (ii) natural gas processing, treating, and redelivery, and (iii) vapor recovery; also includes the onshore portion of a 20-inch, 34 mile gathering pipeline originating at an offshore anchor platform in Galveston Area Block 288, a 16-inch natural gas pipeline connecting the Freeport facility to the Dow Chemical Plant complex, and 162 acres of land; facility is currently inactive.
GNCU. Greater Nevada Credit Union. |
| Glossary of Terms (Continued) |
| Common Stock. Blue Dolphin common stock, par value $0.01 per share. Blue Dolphin had 20,000,000 shares of Common Stock authorized and 14,921,968 shares of Common Stock issued and outstanding as of the filing date of this report.
Complexity. A numerical score that denotes, for a given refinery, the extent, capability, and capital intensity of the refining processes downstream of the crude distillation tower. Refinery complexities range from the relatively simple crude distillation tower (“topping unit”), which has a complexity of 1.0, to the more complex deep conversion (“coking”) refineries, which have a complexity of 12.0.
Condensate. Liquid hydrocarbons that are produced in conjunction with natural gas. Although condensate is sometimes like crude oil, it is usually lighter.
Consolidated EBITDA. Income (loss) before interest, taxes, and depreciation and amortization on a consolidated basis.
Cost of goods sold. For refinery operations, calculated as crude oil, fuel use, and chemicals plus other conversion costs plus intercompany processing fees plus associated depreciation and amortization. For tolling and terminaling, calculated as tolling and terminaling costs plus associated depreciation and amortization.
Crude distillation tower. A tall column-like vessel in which crude oil and condensate is heated and its vaporized components are distilled by means of distillation trays. This process refines crude oil and other inputs into intermediate and finished petroleum products; commonly referred to as a crude distillation unit or an atmospheric distillation unit.
Crude oil. A mixture of thousands of chemicals and compounds, primarily hydrocarbons. Crude oil quality is measured in terms of density (light to heavy) and sulfur content (sweet to sour). Light crude oil is thinner, has a high API Gravity, and requires less processing; heavy crude oil is thicker, has a low API Gravity, and requires more processing. Sweet crude contains sulfur content of less than 0.5% while sour crude contains sulfur content of greater than 0.5%. Crude oil must be broken down into its various components (distillates) by distillation before use as fuels or conversion to other products.
Distillates. The result of crude distillation and therefore any refined oil product. Distillate is more commonly used as an abbreviated form of middle distillate. There are mainly four (4) types of distillates: (i) very light oils or light distillates (such as naphtha), (ii) light oils or middle distillates (such as our jet fuel), (iii) medium oils, and (iv) heavy oils (such as our low-sulfur diesel and HOBM, reduced crude, and AGO). |
Greenhouse gases (GHGs). Molecules in the Earth’s atmosphere, such as carbon dioxide, methane, and chlorofluorocarbons that warm the atmosphere because they absorb some of the thermal radiation emitted from the Earth’s surface. GHG process emissions from the petroleum refining sector include emissions from venting, flares, and fugitive leaks from equipment (e.g., valves, flanges, pumps); GHG emissions also include combustion emissions from stationary combustion units.
Gross profit (deficit). Calculated as total revenue less total cost of goods sold; reflected as a dollar ($) amount.
HOBM. Heavy oil-based mud blendstock; see also “distillates.”
HUBZone. Historically Underutilized Business Zones program established by the SBA to help small businesses in both urban and rural communities.
Huntington. Huntington Bank.
IBLA. Interior Board of Land Appeals; an appellate review body within the U.S. Department of the Interior.
INC. Incident of Noncompliance issued by BOEM or BSEE.
Ingleside. Ingleside Crude, LLC, an affiliate of Jonathan Carroll.
Intercompany processing fees. Fees associated with an intercompany tolling agreement related to naphtha volumes.
Intermediate petroleum products. A petroleum product that might require further processing before being saleable to the ultimate consumer; further processing might be done by the producer or by another processor. Thus, an intermediate petroleum product might be a final product for one company and an input for another company to process it further.
IRC Section 382. Title 26, Internal Revenue Code, Subtitle A – Income Taxes, Subchapter C – Corporate Distributions and Adjustments, Part V Carryovers, § 382. Limits NOL carryforwards and certain built-in losses following ownership change.
IRS. Internal Revenue Service. |
| Glossary of Terms (Continued) |
| Jet fuel. A high-quality kerosene product primarily used in aviation. Kerosene-type jet fuel (including Jet A and Jet A-1) has a carbon number distribution between 8 and 16 carbon atoms per molecule; wide-cut or naphtha-type jet fuel (including Jet B) has between 5 and 15 carbon atoms per molecule.
Lazarus Capital. Lazarus Capital, LLC, an affiliate of Jonathan Carroll.
LE. Lazarus Energy, LLC, a wholly owned subsidiary of Blue Dolphin.
LEH. Lazarus Energy Holdings, LLC, an affiliate of Jonathan Carroll and controlling shareholder of Blue Dolphin as of the date filing of this report.
LMT. Lazarus Marine Terminal I, LLC, an affiliate of LEH.
LRM. Lazarus Refining & Marketing, LLC, a wholly owned subsidiary of Blue Dolphin.
LTRI. Lazarus Texas Refinery I, an affiliate of LEH.
Mbbls. One thousand bbls.
Mbbls/d. One thousand barrels of oil per day; a measure of the barrels of daily output produced in a refinery or transported through a pipeline.
MTI. Midstream Texas Ingleside LLC, an affiliate of Jonathan Carrol and LEH; a subsidiary of MTO.
MTO. Midstream Texas Operating LLC, an affiliate of Jonathan Carrol and LEH; acquired by a subsidiary of LEH effective May 29,2026.
MVP. MV Purchasing, LLC.
Naphtha. A refined or partly refined light distillate fraction of crude oil. Blended further or mixed with other materials, it can make high-grade motor gasoline or jet fuel. It is also a generic term for the lightest and most volatile petroleum fractions.
Natural gas. A naturally occurring hydrocarbon gas mixture consisting primarily of methane but commonly including varying amounts of other higher alkanes and sometimes a small percentage of carbon dioxide, nitrogen, hydrogen sulfide, or helium.
Nixon facility. Encompasses the Nixon refinery, petroleum storage tanks, loading and unloading facilities, and 56 acres of land in Nixon, Texas. |
Nixon refinery. The 15,000-bpd crude distillation tower and associated processing units in Nixon, Texas.
NOL. Net operating losses.
NPS. Nixon Product Storage, LLC, a wholly owned subsidiary of Blue Dolphin.
Operating days. Represents the number of days in a period in which the crude distillation tower operated; operating days are calculated by subtracting downtime in a period from calendar days in the same period.
OSHA. Occupational Safety and Health Administration.
Other conversion costs. Represents the combination of direct labor costs and manufacturing overhead costs. These are the costs that are necessary to convert our raw materials into refined products.
PADD. Petroleum Administration for Defense Districts; PADD regions enable regional analysis of petroleum product supply and movements by the EIA.
Petroleum. A naturally occurring flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds. The name petroleum covers both the naturally occurring unprocessed crude oils and petroleum products that are made up of refined crude oil.
PHMSA. Pipeline and Hazardous Materials Safety Administration of the U.S. Department of Transportation.
Preferred Stock. Blue Dolphin preferred stock, par value $0.10 per share. Blue Dolphin had 2,500,000 shares of Preferred Stock authorized and no shares of Preferred Stock issued and outstanding as of the filing date of this report.
Production. The volume processed as output from the crude distillation tower. Refinery production includes finished petroleum products, such as jet fuel, and intermediate petroleum products, such as naphtha, HOBM, and AGO.
Product slate. Represents type and quality of products produced.
Propane. A by-product of natural gas processing and petroleum refining. Propane is one of a group of liquified petroleum gases. Others include butane, propylene, butadiene, butylene, isobutylene, and mixtures thereof.
Refined products. Hydrocarbon compounds, such as jet fuel and residual fuel, produced by a refinery.
|
| Glossary of Terms (Continued) |
| Refinery. Within the oil and gas industry, a refinery is an industrial processing plant where crude oil, condensate, and intermediate feeds are separated and transformed into petroleum products.
Refining EBITDA. Income (loss) before interest, taxes, and depreciation and amortization for our refinery operations business segment.
Refining operations EBITDA per bbl. Refining EBITDA divided by sales (Mbbls) for the reporting period.
ROU. Right-of-use.
SBA. Small Business Administration.
SEC. Securities and Exchange Commission.
Securities Act. The Securities Act of 1933, as amended.
Significant customer. A customer who represents more than 10% of our total revenue from operations.
Stabilizer unit. A distillation column intended to remove the lighter boiling compounds, such as butane or propane, from a product.
Sulfur. Present at various levels of concentration in many hydrocarbon deposits, such as petroleum, coal, or natural gas. Also, produced as a by-product of removing sulfur-containing contaminants from natural gas and petroleum. Some of the most commonly used hydrocarbon deposits are categorized based on their sulfur content, with lower sulfur fuels (e.g., ultra low sulfur diesel) selling at a higher, premium price and higher sulfur fuels (e.g., HOBM) selling at a lower, discounted price.
TCEQ. Texas Commission on Environmental Quality.
Throughput. The volume processed as input through the crude distillation tower. Refinery throughput includes crude oil or condensate.
Tolling and terminaling EBITDA. Income (loss) before interest, taxes, and depreciation and amortization for our tolling and terminaling business segment. |
Topping unit. A type of petroleum refinery that engages in only the first step of the refining process (see crude distillation tower). A topping unit uses atmospheric distillation to separate crude oil and condensate into constituent petroleum products. A topping unit has a refinery complexity range of 1.0 to 2.0.
Turnaround. A planned period of time when an industrial plant shuts down one or more units (and sometimes an entire facility) to perform maintenance, inspections, repairs, or upgrades.
USACOE. U.S. Army Corps of Engineers.
USDA. U.S. Department of Agriculture.
USDOI. U.S. Department of the Interior.
U.S. GAAP. Accounting principles generally accepted in the United States of America.
Working Interest. The percent ownership interest in offshore oil and gas assets.
WSJ Prime rate. The base rate on corporate loans posted by at least 70% of the ten largest U.S. banks as published by the Wall Street Journal. Effective December 11, 2025, the WSJ Prime rate decreased to 6.75%.
XBRL. eXtensible Business Reporting Language.
Yield. The percentage of refined products that is produced from crude oil and other feedstocks.
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Important Information Regarding Forward-Looking Statements
This report (including information incorporated by reference) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, including, but not limited to, those under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact, including without limitation statements regarding expectations regarding revenue, cash flows, capital expenditures, and other financial items, our business strategy, goals, and expectations concerning our market position, future operations, and profitability, are forward-looking statements. Forward-looking statements may be identified by use of the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar terms and phrases. Although we believe our assumptions concerning future events are reasonable, several risks, uncertainties, and other factors could cause actual results and trends to differ materially from those projected, including but not limited to:
| Business and Industry
● Significant debt in current liabilities, certain of which is in default. ● Inability to meet financial covenants under certain loan agreements. ● Restrictive covenants in our debt instruments that limit our ability to undertake certain types of transactions. ● Increased costs of capital or a reduction in the availability of credit. ● Affiliate Common Stock ownership and transactions that could cause conflicts of interest. ● Operational hazards inherent in transporting, processing, and storing crude oil and condensate and refined products. ● Geographical concentration of our assets and customers in West Texas. ● Competition from companies with more significant financial and other resources. ● Market changes in insurance that impact premium costs and available coverages. ● Industry technological developments, including AI, that outpace our ability to keep up. ● Use of NOL carryforwards to offset future taxable income for U.S. federal income tax purposes, which is subject to limitation. ● Variable interest rates on certain of our debt.
Downstream and Midstream Operations
● Commodity price and refined product demand volatility, which can adversely affect our gross margins. ● Crude oil, other feedstocks, and refined products commodity price volatility. ● Availability and cost of crude oil and other feedstocks to operate the Nixon facility. ● Downtime at the Nixon refinery. ● Reliable supply and price of electricity to operate the Nixon facility. ● Potential impairment in the carrying value of long-lived assets, which could negatively affect our operating results. ● Adverse changes in operational cash flow and working capital, shortfalls for which Affiliates may not fund. ● Critical personnel loss, labor actions, and workplace safety issues. ● Market share loss, an unfavorable financial condition shift, or the bankruptcy or insolvency of a significant customer. ● Increases in the cost or availability of third-party vessels, pipelines, trucks, and other means of delivering and transporting our crude oil and condensate, feedstocks, and refined products. ● Sourcing of a substantial amount, if not all, of our crude oil and condensate from the Eagle Ford Shale. ● Geographical concentration of our refining operations and customers within the Eagle Ford Shale. ● Severe weather or other climate-related events that affect our facilities or those of our vendors, suppliers, or customers. ● Our ability to implement a new business strategy, such as renewable fuels, may be materially and adversely affected by many known and unknown factors. ● Our ability to effect and integrate potential acquisitions. |
|
Legal, Government, and Regulatory
● Environmental laws and regulations that may require us to make substantial capital improvements to remain compliant or remediate current or future contamination that could lead to material liabilities. ● Strict laws and regulations regarding personnel and process safety. ● Uncertainty regarding the impact of current and future sanctions (including tariffs) imposed by governments, including the U.S., and other authorities in response to economic and geopolitical tensions, including most recently in Iran. ● General economic, political, or regulatory developments, including recession, inflation, tariffs, interest rates, or changes in governmental policies relating to refined petroleum products, crude oil, or taxation. ● Assessment of penalties by regulatory agencies, such as BOEM, BSEE, OSHA and the TCEQ for violations. ● Our estimates of future AROs related to our pipeline and facilities assets, which may increase. ● Regulatory changes and other measures related to GHG emissions, climate change, and an ongoing desire to transition to greater renewable energy solutions.
Security
● A terrorist attack or armed conflict. ● Increased activism against oil and gas companies. ● Actual or potential cybersecurity threats or loss of data privacy.
Common Stock
● Fluctuations in our stock price that may result in a substantial investment loss. ● Increasing attention to environmental, social, and governance matters. ● Declines in our stock price due to share sales. ● Dilution of the equity of current stockholders and the potential decline of our stock price due to the issuance of new Common Stock or Preferred Stock from the pool of authorized shares that we have available to issue. ● The potential sale of shares in accordance with Rule 144, which may adversely affect the market. ● The lack of dividend payments. |
See also the risk factors described in greater detail under “Item 1A.” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the SEC and elsewhere in our subsequent quarterly and periodic reports, including this report. All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events, or otherwise.
Unless the context otherwise requires, references in this report to “Blue Dolphin,” “we,” “us,” “our,” or “ours” refer to Blue Dolphin Energy Company, one or more of its consolidated subsidiaries, or all of them taken as a whole.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (in thousands, except share amounts) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash, current | ||||||||
| Accounts receivable, net | ||||||||
| Accounts receivable, related party | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Deposits | ||||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| LONG-TERM ASSETS | ||||||||
| Total property and equipment, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Surety bonds | ||||||||
| Deferred tax assets, net | ||||||||
| Total long-term assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Long-term debt less unamortized debt issue costs, current portion (in default) | $ | $ | ||||||
| Line of credit, related party | ||||||||
| Long-term debt, related party, current portion | ||||||||
| Interest payable | ||||||||
| Interest payable, related party | ||||||||
| Accounts payable | ||||||||
| Current portion of lease liabilities | ||||||||
| Income taxes payable | ||||||||
| Asset retirement obligations, current portion | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Deferred tax liability, net | ||||||||
| Long-term debt, net of current portion | ||||||||
| Long-term debt, related party, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock ($ par value, shares authorized; shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively) (1) | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings (deficit) | ( | ) | ||||||
| TOTAL STOCKHOLDERS' EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
| (1) | Blue Dolphin has 2,500,000 shares of preferred stock, par value $0.10 per share, authorized. At June 30, 2026 and December 31, 2025, there were no shares of preferred stock issued and outstanding. |
The accompanying notes are an integral part of these consolidated financial statements.
| Financial Statements (Continued) |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands, except share and per-share amounts) | (in thousands, except share and per-share amounts) | |||||||||||||||
| REVENUE FROM OPERATIONS | ||||||||||||||||
| Refinery operations | $ | $ | $ | $ | ||||||||||||
| Tolling and terminaling | ||||||||||||||||
| Total revenue from operations | ||||||||||||||||
| COSTS AND EXPENSES | ||||||||||||||||
| Crude oil, fuel use, and chemicals | ||||||||||||||||
| Other conversion costs | ||||||||||||||||
| Tolling and terminaling costs | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total cost of goods sold | ||||||||||||||||
| Other operating costs (gain) | ||||||||||||||||
| LEH operating fee, related party | ||||||||||||||||
| Other operating expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Gain on regulatory settlement | ( | ) | ||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total cost of operations | ||||||||||||||||
| Income (loss) from operations | ( | ) | ||||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest and other income | ||||||||||||||||
| Interest and other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) before income taxes | ( | ) | ||||||||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ||||||||||
| Income per common share: | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | $ | ||||||||||
| Diluted | $ | $ | ( | ) | $ | $ | ||||||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| Financial Statements (Continued) |
| Common Stock | ||||||||||||||||||||
| Shares Issued and | Additional Paid-In | Retained Earnings | Total Stockholders' | |||||||||||||||||
| Outstanding | Par Value | Capital | (Deficit) | Equity | ||||||||||||||||
| (in thousands except share amounts) | ||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income (loss) | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock |
||||||||||||||||||||
| Shares Issued and |
Additional Paid-In |
Retained Earnings |
Total Stockholders' |
|||||||||||||||||
| Outstanding |
Par Value |
Capital |
(Deficit) |
Equity |
||||||||||||||||
| (in thousands except share amounts) |
||||||||||||||||||||
| Balance at March 31, 2026 |
$ | $ | $ | $ | ||||||||||||||||
| Net income |
- | |||||||||||||||||||
| Balance at June 30, 2026 |
$ | $ | $ | $ | ||||||||||||||||
| Common Stock |
||||||||||||||||||||
| Shares Issued and |
Additional Paid-In |
Retained Earnings |
Total Stockholders' |
|||||||||||||||||
| Outstanding |
Par Value |
Capital |
(Deficit) |
Equity |
||||||||||||||||
| (in thousands except share amounts) |
||||||||||||||||||||
| Balance at December 31, 2024 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Net income |
- | |||||||||||||||||||
| Balance at June 30, 2025 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Common Stock |
||||||||||||||||||||
| Shares Issued and |
Additional Paid-In |
Retained Earnings |
Total Stockholders' |
|||||||||||||||||
| Outstanding |
Par Value |
Capital |
(Deficit) |
Equity |
||||||||||||||||
| (in thousands except share amounts) |
||||||||||||||||||||
| Balance at December 31, 2025 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Net income |
- | |||||||||||||||||||
| Balance at June 30, 2026 |
$ | $ | $ | $ | ||||||||||||||||
| Financial Statements (Continued) |
| Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| OPERATING ACTIVITIES | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Deferred income tax | ||||||||
| Amortization of debt issue costs | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Accounts receivable, related party | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Asset retirement obligations | ( | ) | ||||||
| Accounts payable, accrued expenses and other liabilities | ||||||||
| Net cash provided by (used) in operating activities | ( | ) | ||||||
| INVESTING ACTIVITIES | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Payments on debt principal | ( | ) | ( | ) | ||||
| Proceeds from related-party debt | ||||||||
| Payments on related-party debt | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash, cash equivalents, and restricted cash | ||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD | ||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | $ | ||||||
| Supplemental Information: | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Financing of capital expenditures via long-term note | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Notes to Consolidated Financial Statements |
| (1) | Organization |
Company Overview. Blue Dolphin was formed in 1986 as a Delaware corporation. The company is an independent downstream energy company operating in the Gulf Coast region of the U.S. Operations primarily consist of a light sweet-crude,
Assets are organized into business segments: ‘refinery operations’ (owned by LE) and ‘tolling and terminaling services’ (owned by LRM and NPS). ‘Corporate and other’ includes Blue Dolphin subsidiaries BDPL (inactive pipeline and facilities assets), BDPC (inactive working interests), and BDSC (administrative services). See “Note (4)” to our consolidated financial statements for more information about our business segments.
Unless the context otherwise requires, references in this report to “we,” “us,” “our,” or “ours” refer to Blue Dolphin, one or more of its consolidated subsidiaries, or all of them taken as a whole.
Jonathan Carroll, our Chief Executive Officer, and an Affiliate together controlled
| (2) | Principles of Consolidation and Significant Accounting Policies |
Basis of Presentation. We prepared the accompanying unaudited consolidated financial statements, which include Blue Dolphin and its subsidiaries, in accordance with U.S. GAAP for interim consolidated financial information pursuant to the rules and regulations of the SEC under Article 10 of Regulation S-X and the instructions to Form 10-Q. Accordingly, we condensed or omitted certain information and footnote disclosures normally included in our audited financial statements pursuant to the SEC's rules and regulations. We eliminated significant intercompany transactions in the consolidation. Management believes all adjustments considered necessary for a fair presentation are included, disclosures are adequate, and the presented information is not misleading.
We derived the consolidated balance sheet as of December 31, 2025 from the audited financial statements at that date. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the SEC. Operating results for the three and six months ended June 30, 2026 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2026, or for any other period.
Reclassifications. When necessary, we reclassified prior period financial information to conform to the current year's presentation.
Significant Accounting Policies. We present a summary of significant Blue Dolphin accounting policies to assist investors and other stakeholders in understanding our consolidated financial statements. Our consolidated financial statements and accompanying notes are representations of management, who are responsible for their integrity and objectivity. These accounting policies conform to U.S. GAAP and management consistently applied these accounting policies in the preparation of our consolidated financial statements.
| Notes to Consolidated Financial Statements (Continued) |
Use of Estimates.
The nature of our business requires that we make estimates and assumptions in accordance with U.S.GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. We assessed certain accounting matters that require consideration of forecasted financial information in context with information reasonably available to us as of June 30, 2026 and through the filing date of this report. We base our estimates and judgments on historical experience, various assumptions, and information we believe to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, we may adjust estimates as the operating environment changes, new events occur, or we gain greater insights or experience. While we believe the estimates and assumptions used to prepare these consolidated financial statements are appropriate, actual results could differ from our estimates.
Cash, Cash Equivalents, and Restricted Cash. Cash and cash equivalents represent liquid investments with an original maturity of three months or less. Cash balances are maintained in depository and overnight investment accounts with financial institutions that, at times, may exceed insured deposit limits. Although management historically deemed this a normal business risk, management continues to evaluate options to limit risk given current capital, credit, and commodity markets and financial institution health. Restricted cash, current and restricted cash, noncurrent at June 30, 2026 and December 31, 2025, if any, reflected amounts held in a payment reserve account with Huntington as security for payments under the LE Term Loan Due 2034. In the event that banks in which we maintain our cash balances (including restricted cash) fail, there can be no assurance that the federal government and the Federal Reserve would intervene. See "Notes (3) and (9)" to our consolidated financial statements for additional disclosures associated with covenants related to our secured loan agreements with related parties and third parties.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported in the consolidated statements of cash flows:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash, current | ||||||||
| $ | $ | |||||||
Accounts Receivable and Allowance for Credit Losses. Accounts receivables are presented net of any necessary allowance(s) for credit losses. Receivables are recorded at the invoiced amount and generally do not bear interest. When necessary, an allowance for credit losses is established based on prior experience and other factors which, in management's judgment, deserve consideration in estimating bad debts. Management assesses the collectability of the customer's account based on current aging status, collection history, and financial condition. Based on a review of these factors, management establishes or adjusts the allowance for specific customers and the entire accounts receivable portfolio. We had
Financial Instruments and Fair Value Measurements. Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and long-term debt. As of June 30, 2026 and December 31, 2025, the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximated their fair values because they are highly liquid or due to the short-term nature of these instruments. The carrying value of long-term debt approximates fair value as it carries interest rates that fluctuate with the prime rate.
We established a three-tier hierarchy that classifies fair value amounts recognized in the financial statements based on the observability of inputs used to estimate these fair values. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy. The fair value of our debt was $
Inventory. Inventory primarily consists of refined products, crude oil and condensate, and chemicals. We value inventory at the lower of cost or net realizable value with cost determined by the average cost method, and net realizable value determined based on estimated selling prices less associated delivery costs. If the net realizable value of our refined products inventory declines to an amount less than our average cost, we record a write-down of inventory and an associated adjustment to cost of goods sold. See “Note (6)” to our consolidated financial statements for additional disclosures related to inventory.
| Notes to Consolidated Financial Statements (Continued) |
| Notes to Consolidated Financial Statements (Continued) |
New Pronouncements Issued, Not Yet Effective. We expect to adopt the following ASUs in future periods:
| ●
| ASU 2024-03 — Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"). In November 2024, the FASB issued ASU 2024-03, requiring additional disclosure of certain costs and expenses within the notes to the consolidated financial statements. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the provisions of ASU 2024-03 and the incremental disclosures that will be required in our consolidated financial statements. |
| ●
| ASU 2025-11 — Interim Reporting (Topic 270): Narrow-Scope Improvements. In December 2025, the FASB issued ASU 2025-11 which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have had a material impact on the company. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2025-11. |
| (3) | Related-Party Transactions |
Affiliate Agreements.
Financial and Operating Agreements. Blue Dolphin and certain of its subsidiaries are currently parties to the following financial and operating agreements with Affiliates:
| Agreement / Transaction | Parties | Effective Date | Key Terms |
| Fifth Amended and Restated Operating Agreement | Blue Dolphin and subsidiaries LEH | 04/01/2026
| For LEH operation and management of all Blue Dolphin's assets; -year term; expires 04/01/2027 or notice by either party at any time of material breach or |
| Amended and Restated Jet Fuel Sales Agreement | LE LEH | 04/01/2023 | Jet fuel sales by LE to LEH; |
| NPS Terminal Services Agreement | NPS LEH | 11/01/2022 | LEH pays NPS a tank rental fee of $ |
| Third Amended and Restated Master Services Agreement | LE Ingleside | 03/01/2026 | For storage of LE products intended for customer receipt by barge; LE pays Ingleside a tank rental fee of $ |
| LE Amended and Restated Guaranty Fee Agreement | LE Jonathan Carroll | 01/01/2023 | Relates to payoff of LE $ |
| NPS Guaranty Fee Agreement | NPS Jonathan Carroll | 01/01/2023 | Relates to payoff of NPS $ |
| LRM Amended and Restated Guaranty Fee Agreement | LRM Jonathan Carroll | 01/01/2023 | Relates to payoff of LRM $ |
| Blue Dolphin Guaranty Fee Agreement | Blue Dolphin Jonathan Carroll | 01/01/2023 | Relates to payoff of Blue Dolphin $ |
| Office Sub-Lease Agreement | LEH BDSC | 09/01/2024 | LEH office space in Houston, Texas; sub-lease executed 10/30/24; 24-month extension of prior office sub-lease agreement; term expires 08/31/2026; rent is approximately $ |
| Ground Lease Agreement | LEH NPS | 07/01/2025 | LEH pays NPS a ground storage fee of $ |
| Master Terminal Services Agreement | LE MTI | 03/17/2026 | Governs LE's storage of petroleum products, through individual Terminal Services Release, see below, at MTI's terminal facility for a term of 3/17/2026 through 7/31/2026, then month to month, thereafter. |
| Terminal Services Release (as amended) | LE MTI | 3/17/2026 | Subject to the Master Terminal Services Agreement, LE pays MTI for storage of petroleum products for a fee of $ |
| Notes to Consolidated Financial Statements (Continued) |
Debt Agreements. Blue Dolphin and certain subsidiaries are parties to the following debt agreements with Affiliates:
| Original | Monthly | ||||||
| Principal | Payment | ||||||
| Loan Description | Parties | (in millions) | Maturity Date | (in millions) | Interest Rate | Loan Purpose | |
| Second Amended and Restated Affiliate Revolving Credit Agreement | Blue Dolphin and Subsidiaries | April 2027 | Set-off against other obligations Borrower owes to Lender |
| Working capital | ||
| LEH and Subsidiaries | |||||||
| Amended and Restated BDPL-LEH Loan Agreement | LEH |
|
| $ | | Working capital | |
| BDPL |
Covenants, Guarantees and Security. The Amended and Restated BDPL-LEH Loan Agreement contains representations and warranties, affirmative and negative covenants, and events of default that we consider usual and customary for a credit facility of this type. Certain BDPL property serves as collateral under the Amended and Restated BDPL-LEH Loan Agreement.
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Current assets | ||||||||
| Accounts receivable, related party | $ | $ | ||||||
| Current liabilities | ||||||||
| Accounts payable, related party | ||||||||
Accounts receivable, related party at June 30, 2026 and December 31, 2025 reflected amounts owed by LEH to LE under the Amended and Restated Jet Fuel Sales Agreement.
Related-Party Debt. We reflect the amounts owed by Blue Dolphin and its subsidiaries to Affiliates under debt agreements on our consolidated balance sheets within line of credit, related party, long-term debt, related party and interest payable, related party. Related-party debt as of the dates indicated was as follows:
| June 30, | December 31 | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| LEH | ||||||||
| Amended and Restated BDPL-LEH Loan Agreement | $ | $ | ||||||
| Line of credit, related party | ||||||||
| LEH Total | ||||||||
| Less: Long-term debt, related party, current portion | ( | ) | ( | ) | ||||
| Less: Line of credit, related party | ( | ) | ( | ) | ||||
| Long-term debt, related party, net of current portion | $ | $ | ||||||
| Notes to Consolidated Financial Statements (Continued) |
Related-party accrued interest associated with long-term debt and line of credit, related party, as of the dates indicated was as follows:
| June 30, | December 31 | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| LEH | ||||||||
| Amended and Restated BDPL-LEH Loan Agreement | $ | $ | ||||||
| Jonathan Carroll | ||||||||
| Guaranty fee agreements | ||||||||
| Less: Interest payable, related party - current portion | ( | ) | ( | ) | ||||
| Long-term interest payable, related party, net of current portion | $ | $ | ||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||
| (in thousands, except percent amounts) | (in thousands, except percent amounts) | |||||||||||||||||||||||||||||||
| Refinery operations | ||||||||||||||||||||||||||||||||
| LEH | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Third-Parties | % | % | % | % | ||||||||||||||||||||||||||||
| Tolling and terminaling | ||||||||||||||||||||||||||||||||
| LEH | % | % | % | % | ||||||||||||||||||||||||||||
| Third-Parties | % | % | % | % | ||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||
Interest expense. Interest expense associated with guaranty fee agreements and a debt agreement with Affiliates as of the dates indicated was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Jonathan Carroll | ||||||||||||||||
| Guaranty Fee Agreements | ||||||||||||||||
| Tied to First Term Loan Due 2034 | $ | $ | $ | $ | ||||||||||||
| Tied to NPS Term Loan Due 2031 | ||||||||||||||||
| Tied to Second Term Loan Due 2034 | ||||||||||||||||
| Tied to Blue Dolphin Term Loan Due 2051 | ||||||||||||||||
| LEH | ||||||||||||||||
| Amended and Restated BDPL-LEH Loan Agreement | ||||||||||||||||
| Second Amended and Restated Affiliate Revolving Credit Agreement | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Other. BDSC received income from LEH under the office sub-lease agreement totaling $
Lease expense associated with the Third Amended and Restated Master Services Agreement, as discussed elsewhere within this "Note (3)" and in "Note (11)", totaled $
Lease expense associated with the Terminal Services Release, as discussed elsewhere within this "Note (3)" and in "Note (11)", was $
| Notes to Consolidated Financial Statements (Continued) |
The LEH operating fee, related party under the Fifth Amended and Restated Operating Agreement totaled $
| (4) | Revenue and Segment Information |
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Accounts receivable (including related-party), beginning January 1st, of period | $ | $ | ||||||
| Accounts receivable (including related-party), end of period | ||||||||
| Unearned revenue, beginning January 1st, of period | $ | $ | ||||||
| Unearned revenue, end of period | ||||||||
| Notes to Consolidated Financial Statements (Continued) |
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
| June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||||||||||||||||
| Refinery Operations | Tolling & Terminaling | Corporate & Other | Intercompany Elimination (1) | Consolidated | Refinery Operations | Tolling & Terminaling | Corporate & Other | Intercompany Elimination | Consolidated | |||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||
| Segment revenue | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Crude oil, fuel use, and chemicals | ||||||||||||||||||||||||||||||||||||||||
| Other conversion costs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Tolling and terminaling costs | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||||||||||||||
| Total costs of goods sold | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| LEH operating fee, related party | ||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||||||||||||||||||
| Other operating expenses(2) | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||||||||||||||
| Interest, net | ||||||||||||||||||||||||||||||||||||||||
| Total costs and expenses | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||||
| (1) | Fees associated with an intercompany tolling agreement related to naphtha volumes. |
| (2) | Includes costs and expenses associated with our pipeline and facilities assets. |
| Notes to Consolidated Financial Statements (Continued) |
| Six Months Ended | ||||||||||||||||||||||||||||||||||||||||
| June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||||||||||||||||
| Refinery Operations | Tolling & Terminaling | Corporate & Other | Intercompany Elimination (1) | Consolidated | Refinery Operations | Tolling & Terminaling | Corporate & Other | Intercompany Elimination (1) | Consolidated | |||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||
| Segment revenue | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Crude oil, fuel use, and chemicals | ||||||||||||||||||||||||||||||||||||||||
| Other conversion costs | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Tolling and terminaling costs | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||||||||||||||
| Total costs of goods sold | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| LEH operating fee, related party | ||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||||||||||||||||||
| Gain on regulatory settlement | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Other operating expenses(2) | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||||||||||||||
| Interest, net | ||||||||||||||||||||||||||||||||||||||||
| Total costs and expenses | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||
| (1) | Fees associated with an intercompany tolling agreement related to naphtha volumes. |
| (2) | Includes costs and expenses associated with our pipeline and facilities assets. |
| Notes to Consolidated Financial Statements (Continued) |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Capital expenditures | ||||||||||||||||
| Refinery operations | $ | $ | $ | $ | ||||||||||||
| Total capital expenditures (1) | $ | $ | $ | $ | ||||||||||||
| (1) | $ |
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Identifiable assets | ||||||||
| Refinery operations | $ | $ | ||||||
| Tolling and terminaling | ||||||||
| Corporate and other | ||||||||
| Total identifiable assets | $ | $ | ||||||
| (5) | Prepaid Expenses and Other Current Assets |
Prepaid expenses and other current assets, as of the dates indicated, consisted of the following:
| June 30, | December 31 | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Prepaid insurance | $ | $ | ||||||
| Surety bonds, current portion | ||||||||
| Other prepaids | ||||||||
| $ | $ | |||||||
| Notes to Consolidated Financial Statements (Continued) |
| (6) | Inventory |
Inventory, as of the dates indicated, consisted of the following:
| June 30, | December 31 | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| HOBM | $ | $ | ||||||
| Naphtha | ||||||||
| Jet fuel | ||||||||
| Crude oil and condensate | ||||||||
| Chemicals | ||||||||
| AGO | ||||||||
| Propane | ||||||||
| LPG mix | ||||||||
| $ | $ | |||||||
We incurred an inventory impairment expense of $
| (7) | Property, Plant and Equipment, Net |
Property, plant and equipment, net, as of the dates indicated, consisted of the following:
| June 30, | December 31 | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Refinery and facilities | $ | $ | ||||||
| Land | ||||||||
| Other property and equipment | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Construction in progress | ||||||||
| $ | $ | |||||||
| (8) | Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities, as of the dates indicated, consisted of the following:
| June 30, | December 31 | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Accrued fines and penalties | $ | $ | ||||||
| Insurance | ||||||||
| Unearned revenue from contracts with customers | ||||||||
| Taxes payable | ||||||||
| Other payable | ||||||||
| Customer deposits | ||||||||
| Board of director fees payable | ||||||||
| $ | $ | |||||||
| Notes to Consolidated Financial Statements (Continued) |
| (9) | Third-Party Long-Term Debt |
Debt Agreements. Blue Dolphin and certain subsidiaries are currently parties to the following debt agreements with third parties:
| Original | Monthly Principal | |||||||||
| Principal | and Interest Payment | |||||||||
| Loan Description | Parties | (in millions) | Maturity | (in millions) | Interest Rate | Loan Purpose | ||||
| Huntington Loans | ||||||||||
| LE Term Loan Due 2034 (in default)(1) | LE | $ |
| $ |
| Capital improvements | ||||
| Huntington | ||||||||||
| LRM Term Loan Due 2034 (in default)(1) | LRM | $ |
| $ |
| Capital improvements | ||||
| Huntington | ||||||||||
| GNCU Loan | ||||||||||
| NPS Term Loan Due 2031 (in default)(2) | NPS | $ |
| $ | | Working capital | ||||
| GNCU | ||||||||||
| SBA Economic Injury Disaster Loans | ||||||||||
| Blue Dolphin Term Loan Due 2051(3) | Blue Dolphin | $ |
| $ | | Working capital | ||||
| SBA | ||||||||||
| LE Term Loan Due 2050(4) | LE | $ |
| $ | | Working capital | ||||
| SBA | ||||||||||
| NPS Term Loan Due 2050(4) | NPS | $ |
| $ | | Working capital | ||||
| SBA | ||||||||||
| Equipment Loan Due 2031 (5) | LE | $ | $ | Equipment Purchase | ||||||
| Ritchie Bros. Financial Services |
| (1) | Our secured loan agreements with Huntington are subject to certain financial and non-financial covenants. As of June 30, 2026, LE and LRM were in default related to financial covenants under the LE Term Loan Due 2034 and LRM Term Loan Due 2034. With respect to non-financial covenants, we are required to have a balance of $ |
| (2) | As of June 30, 2026 and the filing date of this report, the NPS Term Loan Due 2031 was in default due to non-financial covenant violations. |
| (3) | Original principal amount was $ |
| (4) | Loan is not forgivable. |
| (5) | In March 2025, LE entered into the Equipment Loan Due 2031 to purchase mobile offices; the mobile offices are used at the Nixon facility. |
|
Notes to Consolidated Financial Statements (Continued) |
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Huntington Loans | ||||||||
| LE Term Loan Due 2034 (in default) | $ | $ | ||||||
| LRM Term Loan Due 2034 (in default) | ||||||||
| GNCU Loan | ||||||||
| NPS Term Loan Due 2031 (in default) | ||||||||
| SBA Economic Injury Disaster Loans | ||||||||
| Blue Dolphin Term Loan Due 2051 | ||||||||
| LE Term Loan Due 2050 | ||||||||
| NPS Term Loan Due 2050 | ||||||||
| Equipment Loan Due 2031 | ||||||||
| Less: Long-term debt, net, current portion | ( | ) | ( | ) | ||||
| Less: Unamortized debt issue costs | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Unamortized debt issue costs associated with the Huntington and GNCU loans, as of the dates indicated, consisted of the following:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Huntington Loans | ||||||||
| LE Term Loan Due 2034 (in default) | $ | $ | ||||||
| LRM Term Loan Due 2034 (in default) | ||||||||
| GNCU Loan | ||||||||
| NPS Term Loan Due 2031 (in default) | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Amortization expense was less than $
| Notes to Consolidated Financial Statements (Continued) |
Accrued interest related to third-party long-term debt, reflected as accrued interest payable in our consolidated balance sheets, as of the dates indicated, consisted of the following:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| SBA Economic Injury Disaster Loans | ||||||||
| Blue Dolphin Term Loan Due 2051 | $ | $ | ||||||
| LE Term Loan Due 2050 | ||||||||
| NPS Term Loan Due 2050 | ||||||||
| Huntington Loans | ||||||||
| LE Term Loan Due 2034 (in default) | ||||||||
| LRM Term Loan Due 2034 (in default) | ||||||||
| GNCU Loan | ||||||||
| NPS Term Loan Due 2031 (in default) | ||||||||
| Less: Accrued interest payable, current portion | ( | ) | ( | ) | ||||
| Long-term interest payable, net of current portion | $ | $ | ||||||
We classified the debt associated with the LE Term Loan Due 2034, LRM Term Loan Due 2034, and NPS Term Loan Due 2031 within long-term debt, current portion on our consolidated balance sheets at June 30, 2026 and December 31, 2025 due to being in default.
Defaults.
As of June 30, 2026 and December 31, 2025 and through the filing date of this report, LE and LRM were in default related to financial covenants under the LE Term Loan Due 2034 and LRM Term Loan Due 2034, respectively. NPS was in default related to non-financial covenants under the NPS Term Loan Due 2031. Defaults may permit lenders to declare the amounts owed under the related loan agreements immediately due and payable, exercise their rights with respect to collateral securing obligors’ obligations, and exercise any other rights and remedies available. If one or more banks fail, we could be exposed to additional events of default (if not cured or waived) under existing secured loan agreements. Defaults under our secured loan agreements and any exercise by third parties of their rights and remedies related to such defaults may have a material adverse effect on our cash position. See “Notes (3) and (9)” to our consolidated financial statements for additional information regarding defaults under our secured loan agreements with third parties and their potential effects on our business, financial condition, and results of operations.
| Notes to Consolidated Financial Statements (Continued) |
Guarantees and Security.
| Loan Description | Guarantees | Security | |
| Huntington Loans | |||
| LE Term Loan Due 2034 (in default) | ● USDA | ● | First priority lien on Nixon facility’s business assets (excluding accounts receivable and inventory) |
| ● Jonathan Carroll(1) | ● | Assignment of all Nixon facility contracts, permits, and licenses | |
| ● Affiliate cross-guarantees | ● | Absolute assignment of Nixon facility rents and leases, including tank rental income | |
| ● | $ | ||
| LRM Term Loan Due 2034 (in default) | ● USDA | ● | Second priority lien on rights of LE in crude distillation tower and other collateral of LE |
| ● Jonathan Carroll(1) | ● | First priority lien on real property interests of LRM | |
| ● Affiliate cross-guarantees | ● | First priority lien on all LRM fixtures, furniture, machinery, and equipment | |
| ● | First priority lien on all LRM contractual rights, general intangibles, and instruments, except with respect to LRM rights in its leases of certain specified tanks for which Huntington has second priority lien | ||
| ● | Substantially all assets | ||
| GNCU Loan | |||
| NPS Term Loan Due 2031 (in default) | ● USDA | ● | Deed of trust lien on approximately |
| ● Jonathan Carroll(1) | ● | Leasehold deed of trust lien on certain property leased by NPS from LE | |
| ● Affiliate cross-guarantees | ● | Assignment of leases and rents and certain personal property | |
| SBA EIDL | |||
| BDEC Term Loan Due 2051 | --- | ● | Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) |
| LE Term Loan Due 2050 | --- | ● | Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) |
| NPS Term Loan Due 2050 | --- | ● | Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) |
| Equipment Loan Due 2031 | --- | ● | First priority security interest in the equipment (mobile offices) |
| (1) | Huntington required Jonathan Carroll to personally guarantee repayment of borrowed funds and accrued interest. |
| (10) | AROs |
Refinery and Facilities. Management has concluded that there is no legal or contractual obligation to dismantle or remove our refinery and facilities assets. Management believes that our refinery and facilities assets have indeterminate lives under FASB ASC guidance for estimating AROs because dates or ranges of dates upon which we would retire these assets cannot reasonably be estimated at this time. When a legal or contractual obligation to dismantle or remove refinery and facilities assets arises and a date or range of dates can reasonably be estimated for the retirement of these assets, we will estimate the cost of performing the retirement activities and record a liability for the fair value of that cost using present value techniques.
| Notes to Consolidated Financial Statements (Continued) |
Pipelines and Facilities and Oil and Gas Properties. We have AROs associated with decommissioning our pipelines and facilities assets, as well as for plugging and abandoning our oil and gas assets. We record a liability for the fair value of an ARO at the time the asset is installed or placed in service. From time to time we adjust the liability due to changes in estimates or the timing of decommissioning the assets. ARO liability as of the dates indicated was as follows:
| June 30, | December 31 | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| AROs, at the beginning of the period | $ | $ | ||||||
| Liabilities settled | ( | ) | ||||||
| Changes in estimate | ||||||||
| Less: AROs, current portion | ||||||||
| Long-term AROs, at the end of the period | $ | $ | ||||||
BDPL's ARO estimate was $
| (11) | Lease Obligations |
Lease Obligations
Office Lease. We maintain our corporate headquarters in Houston, Texas. In October 2024, BDSC signed a
An Affiliate, LEH, sub-leases a portion of the 801 Travis Street office space through August 2026. BDSC received sub-lease income from LEH totaling $
In January 2026, LEH entered into a new lease agreement for office space at 2301 Commerce Street, Suite 140, Houston Texas. LEH's lease commenced in July 2026. Blue Dolphin intends to sub-lease office space from LEH and change its corporate headquarters from 801 Travis Street to 2301 Commerce Street in connections with the natural termination of its existing operating lease.
Tank Leases
LE leases tanks from Ingleside under the Third Amended and Restated Master Services Agreement. Lease expense associated with the Third Amended and Restated Master Services Agreement totaled $
Due to its one-year term, the lease is being treated as short term. As a result, the lease was not recorded on our balance sheet. See “Note (3)” to our consolidated financial statements for additional disclosures related to the Third Amended and Restated Master Services Agreement.
Lease expense associated with the Terminal Services Release was $
The following table presents the lease-related assets and liabilities recorded on the consolidated balance sheet:
| June 30, | December 31 | ||||||||
| Balance Sheet Location | 2026 | 2025 | |||||||
| (in thousands) | |||||||||
| Assets | |||||||||
| Operating lease ROU assets | Operating lease ROU assets | $ | $ | ||||||
| Less: Accumulated amortization on operating lease assets | Operating lease ROU assets | ( | ) | ( | ) | ||||
| Total lease assets | |||||||||
| Liabilities | |||||||||
| Current | |||||||||
| Operating lease | Current portion of lease liabilities | ||||||||
| Noncurrent | |||||||||
| Operating lease | Long-term lease liabilities, net of current | ||||||||
| Total lease liabilities | $ | $ | |||||||
| Notes to Consolidated Financial Statements (Continued) |
| Weighted average remaining lease term in years | ||||
| Operating lease | ||||
| Weighted average discount rate | ||||
| Operating lease | % |
The following table presents information related to lease costs incurred for operating and finance leases:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Operating lease costs | $ | $ | $ | $ | ||||||||||||
| Short-term lease expense, related party | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
The table below presents supplemental cash flow information related to leases as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flows for operating lease | $ | $ | $ | $ | ||||||||||||
As of June 30, 2026, maturities of lease liabilities and future minimum annual lease commitments that are non-cancelable for the periods indicated was as follows:
| June 30, | Operating Lease | |||
| (in thousands) | ||||
| 2027 | $ | |||
| 2028 | ||||
| $ | ||||
| Notes to Consolidated Financial Statements (Continued) |
| (12) | Income Taxes |
The Inflation Reduction Act ("IRA") was enacted in August 2022. The IRA imposes a 15% alternative minimum tax on corporations whose average annual adjusted financial statement income during the most recently completed three-year period exceeds $1.0 billion. We do not fall within the “applicable corporations” category and are therefore exempt from paying an alternative minimum tax.
Tax Provision. The provision for income tax expense for the periods indicated was as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Current | ||||||||||||||||
| Federal | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| State | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deferred | ||||||||||||||||
| Federal | ( | ) | ( | ) | ( | ) | ||||||||||
| Total provision for income taxes | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
We record income tax related interest and penalties, if applicable, as a component of the provision for income tax expense. Furthermore, none of our federal and state income tax returns are currently under examination by the IRS or state authorities. As of June 30, 2026, years 2022 and later remain subject to examination by the IRS and years 2021 and later remain subject to examination by the State of Texas. We believe there are no uncertain tax positions for both federal and state income taxes.
U.S. GAAP treats Texas franchise tax, a form of business tax imposed on an entity’s gross profit rather than its net income, like an income tax for financial reporting purposes.
Deferred income taxes as of the dates indicated consisted of the following:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Deferred tax assets: | ||||||||
| NOL and capital loss carryforwards | $ | $ | ||||||
| Business interest expense | ||||||||
| Start-up costs (crude oil and condensate processing facility) | ||||||||
| ARO liability/deferred revenue | ||||||||
| Other | ||||||||
| Total deferred tax assets | ||||||||
| Deferred tax liabilities: | ||||||||
| Basis differences in property and equipment | ( | ) | ( | ) | ||||
| Deferred tax asset (liability), net | $ | ( | ) | $ | ||||
| Notes to Consolidated Financial Statements (Continued) |
Deferred Income Taxes. Balances for deferred income tax represent the effects of temporary differences between carrying amounts and the actual income tax basis of our assets and liabilities; the balances also reflect NOL and business interest carryforwards. We record the balances based on tax rates we expect to be in effect when paid. NOL and business interest carryforwards and deferred tax assets represent amounts available to reduce future taxable income.
Valuation Allowance. As of each reporting date, management considers new evidence, both positive and negative, to determine the realizability of deferred tax assets. This assessment (of whether there is more than a 50% probability that our deferred tax asset is realizable) depends on the generation of future taxable income before the expiration of any NOL carryforwards. We recorded
At June 30, 2026, there were uncertain tax positions for which a reserve or liability was necessary.
NOL Carryforwards. Under IRC Section 382, a corporation that undergoes an “ownership change” is subject to limitations on using pre-change NOL carryforwards to offset future taxable income. Within the meaning of IRC Section 382, an “ownership change” occurs when the aggregate stock ownership of stockholders who own more than 5% (after applying certain look-through rules) increases by more than fifty percent [50% over such stockholders’ lowest percentage ownership during the testing period (generally three years)]. Based on the tax rule, ownership changes occurred in 2005 and 2012. The 2005 ownership change related to a series of private placements; the 2012 ownership change related to a reverse acquisition.
The 2005 and 2012 ownership changes limit the use of pre-change NOL carryforwards to offset future taxable income. The annual use limitation generally equals the value of the common stock, on an aggregate basis, when the ownership change occurred multiplied by a specified tax-exempt interest rate. The 2012 ownership change will subject approximately $
NOL carryforwards that remained available for future use for the periods indicated was as follows (amounts shown are net of NOLs that will expire unused because of the IRC Section 382 limitation):
| Net Operating Loss Carryforward | ||||||||||||
| Pre-Ownership | Post-Ownership | |||||||||||
| Change | Change | Total | ||||||||||
| (in thousands) | ||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | |||||||||
| Net operating losses used and expired | ( | ) | ( | ) | ||||||||
| Balance at December 31, 2025 | $ | $ | $ | |||||||||
| Net operating losses used and expired | ( | ) | ( | ) | ( | ) | ||||||
| Balance at June 30, 2026 | $ | $ | $ | |||||||||
| Notes to Consolidated Financial Statements (Continued) |
| (13) | Earnings and Dividends Per Share |
A reconciliation between basic and diluted income per share for the periods indicated was as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (in thousands, | (in thousands, | |||||||||||||||
| except share and per share amounts) | except share and per share amounts) | |||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ||||||||||
| Basic and diluted earnings (loss) per share | $ | $ | ( | ) | $ | $ | ||||||||||
| Basic and diluted shares used in computing earnings per share | ||||||||||||||||
Diluted EPS for the three and six months ended June 30, 2026 and 2025 was the same as basic EPS as there were
Stockholders are entitled to receive such dividends as may be declared by our Board out of funds legally available for such purpose. However, no dividend may be declared or paid unless after-tax profit was made in the preceding fiscal year, we comply with covenants in our secured loan agreements, we are current on all required debt payments, and we have received prior written concurrence from certain lenders.
| (14) | Commitments and Contingencies |
Fifth Amended and Restated Operating Agreement. See “Note (3)” to our consolidated financial statements for additional disclosures related to operation and management of all Blue Dolphin assets by an Affiliate under the Fifth Amended and Restated Operating Agreement and modifications to this agreement.
| Notes to Consolidated Financial Statements (Continued) |
Contingencies - Supplier Dispute
The Company is disputing certain balances owed under its crude supply agreement. As of June 30, 2026, the Company had recorded an accounts payable balance of $
Legal Matters. In the ordinary course of business, we are involved in legal matters incidental to the routine operation of our business, such as mechanic’s liens and contract-related disputes. We may also become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. Large, sometimes unspecified, damages or penalties may be sought from us in some matters, which may require years to resolve. Although we cannot provide assurance, we believe that an adverse resolution of the matters described below would not have a material impact on our liquidity, consolidated financial position, or consolidated results of operations.
Unresolved Matters
Supplemental Pipeline Bonds. BOEM periodically reevaluates both the rules that govern and whether a grant holder, lessee, or operator must provide supplemental financial assurance. Such additional security beyond minimum bonding requirements covers the present and future cost of decommissioning platforms and pipelines at the end of their production or service activities.
| ●
| On March 9, 2026, in response to President Trump's Executive Order 14154 of January 20, 2025, Unleashing American Energy, BOEM published in the Federal Register a proposed Risk Management and Financial Assurance for Outer Continental Shelf ("OCS") Lease and Grant Obligations rule (the "2026 Proposed Rule") that would substantially revise certain provisions of the current Risk Management and Financial Assurance of OCS Lease and Grant Obligatons rule implemented in 2024 (the "2024 Final Rule"). The 2026 Proposed Rule, which proposes easing financial assurance requirements by lowering credit rating thresholds, reducing cost estimates, and providing greater flexibility using predecessor financial strength, intends to reverse many of the 2024 Final Rule's changes from the Biden Administration. Public comments on the 2026 Proposed Rule were originally due by May 8, 2026; however, BOEM extended the deadline to May 15, 2026. BOEM is currently reviewing and analyzing all comments that were submitted. |
| ●
| In March 2018, BOEM ordered BDPL to provide additional financial assurance totaling approximately $ |
As of the filing date of this report, BDPL completed field execution operations to decommission all of its offshore pipelines in federal waters; however, the company is preparing required documentation for submission to federal agencies. Once BSEE confirms that BDPL has satisfied its decommissioning obligations, the regulatory basis for requiring BDPL to maintain or provide financial assurance will be eliminated. BOEM can then authorize RLI Corp. to release the cash collateral backing BDPL's existing bonds and rescind the 2018 orders for additional financial assurance and the related INCs. We did not record a liability on our consolidated balance sheets as of June 30, 2026 and December 31, 2025. At both June 30, 2026 and December 31, 2025, BDPL maintained $
| Notes to Consolidated Financial Statements (Continued) |
BSEE INCs and Civil Penalties. BDPL has outstanding INCs and two open civil penalties (Civil Penalty G-2024-054 and Civil Penalty G-2024-056) issued from BSEE for failing to timely decommission its offshore assets. In July 2025, BSEE dismissed Civil Penalty G-2024-010 that was issued to BDPL in April 2024; no penalty was assessed against the company. In April 2026, BSEE and BDPL reached a settlement agreement regarding the INCs and two open civil penalties (the "Settlement Agreement"). The confidential Settlement Agreement, which does not relate to BOEM matters, requires specific payment and performance obligations on the part of BDPL. During the six months ended June 30, 2026, we reversed a portion of the previous accrual for penalties associated with these matters in Gain on regulatory settlement.
There can be no assurance that BDPL will complete the anticipated decommissioning work or correctly predict the outcome of the BSEE INCs or civil penalties. If BDPL is unable to perform its obligations under the Settlement Agreement as intended, BSEE may exercise its rights under supplemental pipeline bonds or exercise any other rights and remedies it has available.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is management’s perspective of our current financial condition and results of operations, as well as significant trends that may affect future performance. All statements in this section, other than statements of historical fact, are forward-looking statements that are inherently uncertain. See "Important Information Regarding Forward-Looking Statements” for a discussion of the factors that could cause actual results to differ materially from those projected in these statements. You should read the following discussion together with the financial statements and the related notes included elsewhere in this report, as well as with the business strategy, risk factors, and financial statements and related notes included thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Blue Dolphin was formed in 1986 as a Delaware corporation. The company is an independent downstream energy company operating in the Gulf Coast region of the U.S. Operations primarily consist of a light sweet-crude, 15,000-bpd crude distillation tower, and approximately 1.25 million bbls of petroleum storage tank capacity in Nixon, Texas. Blue Dolphin trades on the OTCQX under the ticker symbol “BDCO.”
Unless the context otherwise requires, references in this report to “we,” “us,” “our,” or “ours” refer to Blue Dolphin, one or more of its consolidated subsidiaries, or all of them taken as a whole.
Jonathan Carroll, our Chief Executive Officer, and an Affiliate together controlled 85.1% of the voting power of our Common Stock as of the filing date of this report. An Affiliate also operates and manages all Blue Dolphin properties, funds working capital requirements during periods of working capital deficits, guarantees certain of our third-party secured debt, and is a significant customer. Blue Dolphin and certain subsidiaries are currently parties to various agreements with Affiliates. See “Part I, Item 1. Financial Statements – Note (3)” for additional disclosures related to Affiliate agreements, arrangements, and risks associated with working capital deficits.
Business Operations Update
During the first and second quarters of 2026, our results benefited from a significantly elevated differential between the cost of crude oil and the sales prices of our finished and unfinished products. This widening spread, which expanded rapidly during the period, had a favorable impact on our gross profit and margins. In addition, we realized benefits from selling inventory produced and valued at lower crude oil costs prior to the price increases. There can be no guarantee that such factors will recur to the same degree, or at all, in any future period.
During the second quarter of 2026, gross profits were $25.1 million, or $24.5 million more favorable as compared to to the second quarter of 2025. For the six months ended June 30, 2026, gross profits were $45.7 million, or $39.0 million more favorable as compared to the six months ended June 30, 2025. Blue Dolphin's net income increased to $17.7 million, or $1.19 per share, for the three months ended June 30, 2026 compared to net income of ($1.7) million, or ($0.12) per share, for the three months ended June 30, 2025. For the six months ended June 30, 2026, net income was $32.5 million, or $2.18 per share, compared to net income of $0.5 million, or $0.03 per share, for the six months ended June 30, 2025.
Our full operating results for the three and six months ended June 30, 2026 and June 30, 2025, including results by segment, can be found within ‘Results of Operations.’
General Trends and Outlook
While we operate in the Gulf Coast region of the U.S., uncertainties that impact our business and industry remain surrounding general macroeconomic conditions related to inflation, tariffs, interest rates, capital and credit markets, and geopolitical tensions (including continued escalations and engagement in the Middle East). In addition, global crude oil and refined product markets have experienced significant volatility in 2026 due to the geopolitical instability in the Middle East, including the ongoing conflict involving Iran and resulting disruptions to maritime transit through the Strait of Hormuz. The extent to which these factors impact our working capital, commodity prices, refined product demand, supply chain, financial condition, liquidity, results of operations, and future prospects will depend on future developments, which cannot be predicted with any degree of confidence. While it is difficult to predict the ultimate economic impacts of these factors on our operations, feedstock and petroleum products' commodity pricing and demand impacted our results of operations so far in 2026 and will likely impact our results of operations for the rest of 2026.
|
Management’s Discussion and Analysis (Continued) |
We can provide no guarantees of the following: our business strategy will be successful, Affiliates will continue to fund our working capital needs when we experience working capital deficits, we will meet regulatory requirements to provide additional financial assurance (supplemental pipeline surety bonds) and decommission offshore pipelines and platform assets, we can obtain additional financing on commercially reasonable terms or at all, or margins on our refined products will be favorable.
Liquidity and Access to Capital Markets
We continue efforts to improve our balance sheet and continue to engage with potential lenders to obtain additional funding to refinance and restructure our debt. There can be no assurance that we will be able to raise additional capital on acceptable terms, if at all, or refinance existing debt.
Regulation Changes
Our operations and the operations of our customers have been, and will continue to be, affected by political developments and federal, state, tribal, local, and other laws and regulations that are increasing in number and becoming more stringent and complex. These laws and regulations include, among other things, permitting requirements, environmental protection measures such as limitations on methane and other GHG emissions, and renewable fuels standards. The number and scope of the regulations with which we and our customers must comply has a meaningful impact on our and their businesses, and new or revised regulations, reinterpretations of existing regulations, and permitting delays or denials could adversely affect the profitability of our assets.
Business Strategy and Accomplishments
We have outlined the below strategic business objectives to improve our financial profile and unlock future value. These objectives are modified, as necessary, to reflect changing economic conditions and other circumstances.
| Optimize Existing Asset Base |
● Maintain safe operations and enhance health, safety, and environmental systems. ● Plan and manage turnarounds and downtime. ● Upgrade existing facility to produce additional refined products. |
| Improve Operational Efficiencies |
● Reduce or streamline variable costs incurred in production. ● Increase throughput capacity and optimize product slate. ● Increase tolling and terminaling revenue. |
| Seize Market Opportunities |
● Take advantage of market opportunities as they arise. ● Leverage existing infrastructure to engage in renewable energy projects. |
Successful execution of our business strategy depends on multiple factors. These factors include (i) having adequate working capital to meet operational needs and regulatory requirements, (ii) maintaining safe and reliable operations at the Nixon facility, (iii) meeting contractual obligations and, (iv) having favorable margins on refined products. Our business strategy involves risks. Accordingly, we cannot assure investors that our plans will be successful. If we are unsuccessful, we would likely have to consider other options, such as selling assets, raising additional debt or equity capital, cutting costs, or otherwise reducing our cash requirements, or negotiating with our creditors to restructure our applicable obligations. In such a case, the trading price of our common stock and the value of an investment in our common stock could significantly decrease, which could lead to holders of our common stock losing their investment in our common stock in its entirety.
|
Management’s Discussion and Analysis (Continued) |
Optimize Existing Asset Base. During the six months ended June 30, 2026, the Nixon facility experienced 7 days of downtime, which relates to maintenance and repairs (5 days), utility failure (1 day), and inventory management (1 day). Comparatively, the Nixon facility experienced 15 days of downtime for the six months ended June 30, 2025, which related to 3 days of maintenance and repairs and a 12 day pre-planned turnaround.
Improve Operational Efficiencies. During the three and six months ended June 30, 2026 we refurbished or replaced Nixon refinery components, including the naphtha stabilizer heater, boiler deaerator, crude oil desalter, and crude oil charge pump. These upgrades will improve product yields while reducing energy costs and facility downtime.
Seize Market Opportunities. Management will continue to seek ways to leverage our existing assets through strategic investments in new technologies where economically feasible, and review growth opportunities with potential commercial partners. Although the One Big Beautiful Bill Act (OBBBA) under the Trump Administration dismantled Biden-era renewable energy incentives, cancelled loan guarantees, froze grants, and repealed tax credits, the evolving policy environment has enhanced renewable energy opportunities in geothermal energy, Battery Energy Storage Systems (BESS), Advanced and Small Modular Nuclear (SMR), and solar and wind generation.
Our Operations
Our assets are organized into two business segments:
| ● |
refinery operations (also referred to herein as downstream operations), which is owned by LE; and |
| ● |
tolling and terminaling services (also referred to herein as midstream operations), which is owned by LRM and NPS |
| Property |
Key Products Handled |
Operating Subsidiary |
Location |
| Nixon facility ● Crude distillation tower (15,000 bpd) ● Petroleum storage tanks ● Loading and unloading facilities ● Land (56 acres) |
Crude Oil
Refined Products |
LE |
Nixon, Texas |
|
Management’s Discussion and Analysis (Continued) |
| Property |
Key Products Handled |
Operating Subsidiary |
Location |
| Nixon facility ● Petroleum storage tanks (third-party leasing) ● Loading and unloading facilities |
Crude Oil Refined Products |
LRM, NPS |
Nixon, Texas |
|
Management’s Discussion and Analysis (Continued) |
| Property |
Operating Subsidiary |
Location |
| Freeport facility ● Crude oil and natural gas separation and dehydration ● Natural gas processing, treating, and redelivery ● Vapor recovery unit ● Two onshore pipelines (the onshore portion of the 20-inch offshore pipeline and a 16-inch natural gas pipeline connecting the Freeport facility to the Dow Chemical Plant complex) ● Land (178 acres) |
BDPL |
Freeport, Texas |
| Offshore Pipelines ● 20-inch, 34 mile gathering pipeline with lateral lines originating at an offshore anchor platform in Galveston Area Block 288 ● 8-inch, 13-mile offshore pipeline extending from Galveston Area Block 350 to an interconnect at a transmission pipeline in Galveston Area Block 391 |
BDPL |
U.S. Gulf of America |
| Working Interests in Offshore Oil and Gas Assets |
BDPC |
U.S. Gulf of America |
Results of Operations
Below is a discussion and analysis of the factors contributing to our consolidated financial results of operations. This information should be read in conjunction with our financial statements in “Part I, Item 1. Financial Statements.” While management intends for the financial statements, together with the following information, to provide investors with a reasonable basis for assessing our historical operations, they should not serve as the only criteria for predicting future performance.
Major Influences on Results of Operations. Our results of operations and liquidity are highly dependent upon the margins that we receive for our refined products. The dollar per barrel commodity price difference between crude oil and condensate (input) and refined products (output) is the most significant driver of gross profit, and they have historically been subject to wide fluctuations. When the spread between these commodity prices decreases, our margins are negatively affected. To improve margins, we must maximize yields of higher-value finished petroleum products and minimize costs of feedstocks and operating expenses. Although an increase or decrease in the commodity price for crude oil and other feedstocks generally result in a similar increase or decrease in commodity prices for finished petroleum products, typically there is a time lag between the two. For example, if the price per barrel of crude oil increases, the price of jet fuel per barrel will also generally increase, as jet fuel is a refined product derived from crude oil. Therefore, the effect of crude oil commodity price changes on our finished petroleum product commodity prices depends, in part, on how quickly and how fully the market adjusts to reflect these changes. Unfavorable margins may have a material adverse effect on our earnings, cash flows, and liquidity.
The general outlook for the oil and natural gas industry for the remainder of 2026 remains unclear given uncertainties surrounding general macroeconomic conditions related to inflation, tariffs, interest rates, capital and credit markets, and geopolitical tensions (including military conflicts in Ukraine and escalations in the Middle East). We can provide no assurances that gross profit will be positive and demand will increase.
|
Management’s Discussion and Analysis (Continued) |
How We Evaluate Our Operations. Management uses certain financial and operating measures to analyze segment performance. These measures are significant factors in assessing our operating results and profitability and include: Earnings before interest, income taxes, and depreciation and amortization ("EBITDA") on a consolidated and segment basis, refinery throughput, production and sales data, refinery downtime, tolling and terminaling revenue, and intercompany processing fees.
Consolidated Results. Our consolidated results of operations include certain other unallocated corporate activities and the elimination of intercompany transactions and therefore do not equal the sum of the operating results of our refinery operations and tolling and terminaling business segments.
Q2 2026 Versus Q2 2025.
Overview. Net income (loss) for Q2 2026 was $17.7 million or $ 1.19 per share, compared to net income (loss) of ($1.7) million, or $ (0.12) per share, in 2025. The $19.4 million, or $1.31 per share, increase in net income between the periods was the result of more favorable gross margins.
Total Revenue from Operations. Total revenue from operations was $144.3 million for Q2 2026 compared to total revenue from operations of $56.6 million for Q2 2025, representing a increase of $87.7 million. The increase in Q2 2026 related to increases in refinery operations. Refinery operations revenue in Q2 2026 increased primarily due to a 56.3% increase in sales volume and higher market pricing. Tolling and terminaling revenue in Q2 2026 declined primarily due to lower tank rental fees.
Total Cost of Goods Sold. Total cost of goods sold was $119.2 million for Q2 2026 compared to total cost of goods sold of $56.0 million for Q2 2025, representing an increase of 112.9%. The increase in Q2 2026 related to product sales mix, market pricing, and an 56.3% increase in sales volumes.
Gross Profit. Gross profit totaled $25.1 million for Q2 2026 compared to gross profit of $0.6 million for Q2 2025. More favorable gross margins and an increase in sales volume positively impacted refinery operations gross profit in Q2 2026 compared to Q2 2025.
LEH Operating Fee, Related Party. For Q2 2026 the LEH operating fee, related party totaled $0.3 million compared to $0.3 million for Q2 2025.
General and Administrative Expenses. General and administrative expenses totaled $0.9 million in Q2 2026 compared to general and administrative expenses of $0.7 million in Q2 2025. The $0.2 million, or 28.6%, increase in Q2 2026 primarily related to increased corporate expenses.
Interest and Other Non-Operating Expenses, Net. Total other expense in Q2 2026 was $1.1 million compared to $1.6 million in Q2 2025, primarily related to a decrease in note balances.
|
Management’s Discussion and Analysis (Continued) |
Consolidated EBITDA. Consolidated EBITDA in Q2 2026 totaled $24.4 million compared to $0.1 million in Q2 2025 representing an increase of $24.3 million. The increase in Q2 2026 was related to more favorable gross margins and higher sales volumes. See Non-GAAP Measures, below, for a reconciliation to GAAP.
| Three Months Ended |
||||||||
| June 30, |
||||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Total revenue from operations |
$ | 144,255 | $ | 56,583 | ||||
| Total costs of good sold |
119,155 | 56,033 | ||||||
| Gross profit |
25,100 | 550 | ||||||
| LEH operating fee, related party |
259 | 276 | ||||||
| Other operating expenses |
156 | 125 | ||||||
| General and administrative expenses |
885 | 704 | ||||||
| Depreciation and amortization |
74 | 74 | ||||||
| Interest, net |
1,123 | 1,552 | ||||||
| Total costs and expenses |
2,497 | 2,731 | ||||||
| Income before income taxes |
22,603 | (2,181 | ) | |||||
| Income tax benefit (expense) |
(4,867 | ) | 459 | |||||
| Net income (loss) |
$ | 17,736 | $ | (1,722 | ) | |||
| Income (loss) per common share |
||||||||
| Basic |
$ | 1.19 | $ | (0.12 | ) | |||
| Diluted |
$ | 1.19 | $ | (0.12 | ) | |||
| Three Months Ended |
||||||||
| June 30, |
||||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Income before income taxes |
$ | 22,603 | $ | (2,181 | ) | |||
| Add: depreciation and amortization |
720 | 717 | ||||||
| Add: interest, net |
1,123 | 1,552 | ||||||
| Consolidated EBITDA |
$ | 24,446 | $ | 88 | ||||
Management’s Discussion and Analysis (Continued)
YTD 2026 Versus YTD 2025.
Overview. Net income for YTD 2026 was $32.5 million or $2.18 per share, compared to net income of $0.5 million, or $0.03 per share, in YTD 2025. The $32.0 million, or $2.15 per share, increase in net income between the periods was the result of more favorable gross margins.
Total Revenue from Operations. Total revenue from operations was $225.7 million for 2026 compared to total revenue from operations of $140.3 million for YTD 2025, representing an increase of $85.5 million. The increase in YTD 2026 related to an increase in refinery operations partially offset by a decrease in tolling and terminaling revenue. Refinery operations revenue in YTD 2026 increased due to by higher market pricing partially and a 13.9% increase in sales volume. Tolling and terminaling revenue in 2026 declined primarily due to lower tank rental fees.
Total Cost of Goods Sold. Total cost of goods sold was $180.1 million for 2026 compared to total cost of goods sold of $133.7 million for YTD 2025, representing a increase of 34.7%. The increase in YTD 2026 related to product sales mix and market pricing partially as well as a 13.9% increase in sales volumes.
Gross Profit. Gross profit totaled $45.7 million for YTD 2026 compared to gross profit of $6.6 million for YTD 2025. Gross profit increased due to more favorable gross margins and an increase in sales volume.
LEH Operating Fee, Related Party. For YTD 2026 and YTD 2025 the LEH operating fee, related party totaled $0.5 million.
General and Administrative Expenses. General and administrative expenses totaled $2.1 million in YTD 2026 compared to general and administrative expenses of $2.1 million in YTD 2025.
Gain on regulatory settlement. During the six months ended June 30, 2026, we reversed a portion of previous accrual for penalties associated with matters related to the Settlement Agreement.
Interest and Other Non-Operating Expenses, Net. Total other expense in YTD 2026 was $2.5 million compared to $3.0 million in YTD 2025.
|
Management’s Discussion and Analysis (Continued) |
Consolidated EBITDA. Consolidated EBITDA in YTD 2026 totaled $45.1 million compared to $5.1 million in YTD 2025 representing an increase of $40.0 million. The increase in YTD 2026 was related to more favorable gross margins and an increase in sales volume. See Non-GAAP Measures, below, for a reconciliation to GAAP.
| Six Months Ended |
||||||||
| June 30, |
||||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Total revenue from operations |
$ | 225,745 | $ | 140,275 | ||||
| Total costs of good sold |
180,075 | 133,652 | ||||||
| Gross profit |
45,670 | 6,623 | ||||||
| LEH operating fee, related party |
492 | 458 | ||||||
| Other operating expenses |
317 | 244 | ||||||
| General and administrative expenses |
2,057 | 2,059 | ||||||
| Gain on regulatory settlement |
(1,013 | ) | - | |||||
| Depreciation and amortization |
148 | 148 | ||||||
| Interest, net |
2,505 | 3,016 | ||||||
| Total costs and expenses |
4,506 | 5,925 | ||||||
| Income before income taxes |
41,164 | 698 | ||||||
| Income tax expense |
(8,698 | ) | (176 | ) | ||||
| Net income |
$ | 32,466 | $ | 522 | ||||
| Income per common share |
||||||||
| Basic |
$ | 2.18 | $ | 0.03 | ||||
| Diluted |
$ | 2.18 | $ | 0.03 | ||||
| Six Months Ended |
||||||||
| June 30, |
||||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Income before income taxes |
$ | 41,164 | $ | 698 | ||||
| Add: depreciation and amortization |
1,439 | 1,431 | ||||||
| Add: interest, net |
2,505 | 3,016 | ||||||
| Consolidated EBITDA |
$ | 45,108 | $ | 5,145 | ||||
Downstream Operations. Our refinery operations business segment is owned by LE. Assets within this segment consist of a light sweet-crude, 15,000-bpd crude distillation tower, petroleum storage tanks, loading and unloading facilities, and approximately 56 acres of land. Refinery operations revenue is derived from refined product sales.
Management’s Discussion and Analysis (Continued)
Q2 2026 Versus Q2 2025
Total refined product sales by distillation (from light to heavy) for the periods indicated consisted of the following:
| Three Months Ended June 30, |
||||||||||||||||
| 2026 |
2025 |
|||||||||||||||
| (in thousands, except percent amounts) |
||||||||||||||||
| LPG mix |
$ | 281 | 0.2 | % | $ | - | 0.0 | % | ||||||||
| Naphtha |
27,790 | 19.4 | % | 5,146 | 9.2 | % | ||||||||||
| Jet fuel |
44,222 | 30.8 | % | 24,121 | 43.2 | % | ||||||||||
| HOBM |
41,124 | 28.7 | % | 6,680 | 12.0 | % | ||||||||||
| AGO |
30,073 | 20.9 | % | 19,848 | 35.6 | % | ||||||||||
| $ | 143,490 | 100.0 | % | $ | 55,795 | 100.0 | % | |||||||||
Refinery Downtime. Refinery downtime decreased to 1 day in Q2 2026 from 14 day in Q2 2025. Refinery downtime in Q2 2026 related to maintenance and repairs. Refinery downtime in Q2 2025 related to maintenance and repairs and a planned turnaround of 12 days.
Refinery Operations Revenue. Refinery operations revenue was $143.5 million for Q2 2026 compared to $55.8 million for Q2 2025, representing an increase of 157.2%. The increase in Q2 2026 related to higher sales volume and more favorable market pricing.
Cost of Goods Sold. Cost of goods sold for refinery operations was $119.3 million for Q2 2026 compared to $56.1 million for Q2 2025, representing a increase of 112.7%. The increase in Q2 2026 was related to the product sales mix and higher crude pricing.
LEH Operating Fee, Related Party. LEH operating fee for both Q2 2026 and Q2 2025 was $0.3 million.
Refining EBITDA. Refining EBITDA was $23.8 million in Q2 2026 compared to ($0.9) million in Q2 2025, representing an increase of 2795.8%. The significant increase in Q2 2026 was related to more favorable gross margins. See Non-GAAP Measures, below, for a reconciliation to GAAP.
|
Management’s Discussion and Analysis (Continued) |
Refining Operations EBITDA per Bbl. On a per barrel basis, refining EBITDA was $20.79 for 2026 compared to ($1.21) for 2025, representing an increase of $22.00 per barrel. The increase in Q2 2026 related to more favorable gross margins.
| Three Months Ended |
||||||||
| June 30, |
||||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Refinery operations revenue |
$ | 143,490 | $ | 55,795 | ||||
| Crude oil, fuel use, and chemicals |
109,111 | 50,669 | ||||||
| Other conversion costs |
9,919 | 5,154 | ||||||
| Depreciation and amortization |
304 | 301 | ||||||
| Cost of goods sold |
119,334 | 56,124 | ||||||
| LEH operating fee, related party |
259 | 276 | ||||||
| General and administrative expenses |
370 | 580 | ||||||
| Interest, net |
621 | 928 | ||||||
| Total costs and expenses |
120,584 | 57,908 | ||||||
| Income (loss) before income taxes |
22,906 | (2,113 | ) | |||||
| Add: depreciation and amortization |
304 | 301 | ||||||
| Add: interest, net |
621 | 928 | ||||||
| Refining EBITDA |
$ | 23,831 | $ | (884 | ) | |||
| Sales (Mbbls) |
1,146 | 733 | ||||||
| Refining operations EBITDA per bbl |
$ | 20.79 | $ | (1.21 | ) |
|||
YTD 2026 Versus YTD 2025
Total refined product sales by distillation (from light to heavy) for the periods indicated consisted of the following:
| Six Months Ended June 30, |
||||||||||||||||
| 2026 |
2025 |
|||||||||||||||
| (in thousands, except percent amounts) |
||||||||||||||||
| LPG mix |
$ | 453 | 0.2 | % | $ | - | 0.0 | % | ||||||||
| Naphtha |
37,175 | 16.6 | % | 21,027 | 15.2 | % | ||||||||||
| Jet fuel |
78,771 | 35.1 | % | 52,344 | 37.7 | % | ||||||||||
| HOBM |
62,407 | 27.8 | % | 24,425 | 17.6 | % | ||||||||||
| AGO |
45,409 | 20.3 | % | 40,867 | 29.5 | % | ||||||||||
| $ | 224,215 | 100.0 | % | $ | 138,663 | 100.0 | % | |||||||||
Refinery Downtime. Refinery downtime decreased to 7 days in YTD 2026 from 15 days in YTD 2025. Refinery downtime in YTD 2026 related to maintenance and repairs. Refinery downtime in YTD 2025 related to maintenance and repairs, including 12 days for a planned turnaround.
Refinery Operations Revenue. Refinery operations revenue was $224.2 million for YTD 2026 compared to $138.7 million for YTD 2025, representing a increase of 61.7%. The increase in YTD 2026 related to more favorable market pricing and higher sales volume.
Cost of Goods Sold. Cost of goods sold for refinery operations was $180.4 million for YTD 2026 compared to $133.8 million for YTD 2025, representing an increase of 34.8%.The increase in YTD 2026 was related to the product sales mix and higher crude pricing as well as a 13.9% increase in sales volumes.
LEH Operating Fee, Related Party. LEH operating fee for YTD 2026 was $0.5 million compared to $0.5 million for YTD 2025.
Refining EBITDA. Refining EBITDA was $43.0 million in YTD 2026 compared to $4.0 million in YTD 2025, representing an increase of 975.0%. The significant increase in YTD 2026 was related to more favorable gross margins. See Non-GAAP Measures, below, for a reconciliation to GAAP.
|
Management’s Discussion and Analysis (Continued) |
Refining Operations EBITDA per Bbl. On a per barrel basis, refining EBITDA was $22.12 for 2026 compared to $2.36 for YTD 2025, representing an increase of $19.76 per barrel. The increase in YTD 2026 related to more favorable gross margins.
| Six Months Ended |
||||||||
| June 30, |
||||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Refinery operations revenue |
$ | 224,215 | $ | 138,663 | ||||
| Crude oil, fuel use, and chemicals |
166,340 | 125,245 | ||||||
| Other conversion costs |
13,420 | 8,002 | ||||||
| Depreciation and amortization |
608 | 599 | ||||||
| Cost of goods sold |
180,368 | 133,846 | ||||||
| LEH operating fee, related party |
492 | 458 | ||||||
| General and administrative expenses |
918 | 919 | ||||||
| Interest, net |
1,475 | 1,764 | ||||||
| Total costs and expenses |
183,253 | 136,987 | ||||||
| Income before income taxes |
40,962 | 1,676 | ||||||
| Add: depreciation and amortization |
608 | 599 | ||||||
| Add: interest, net |
1,475 | 1,764 | ||||||
| Refining EBITDA |
$ | 43,045 | $ | 4,039 | ||||
| Sales (Mbbls) |
1,946 | 1,709 | ||||||
| Refining operations EBITDA per bbl |
$ | 22.12 | $ | 2.36 | ||||
Midstream Operations. Our tolling and terminaling business segment is owned by LRM and NPS. Assets within this segment include petroleum storage tanks and loading and unloading facilities. Tolling and terminaling revenue is derived from storage tank rental fees, ancillary services fees (such as in-tank blending), and tolling and reservation fees for use of the naphtha stabilizer.
Q2 2026 Versus Q2 2025
Tolling and Terminaling Total Revenue. Tolling and terminaling total revenue was $1.5 million in Q2 2026 compared to $1.4 million in Q2 2025, representing an increase of 7.1%. The increase in Q2 2026 related to higher tank rental fees.
|
Management’s Discussion and Analysis (Continued) |
Tolling and Terminaling EBITDA. We had tolling and terminaling EBITDA of $1.2 million in Q2 2026 compared to $1.1 million in Q2 2025.
| Three Months Ended |
||||||||
| June 30, |
||||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Tolling and terminaling revenue |
$ | 1,465 | $ | 1,361 | ||||
| Tolling and terminaling costs |
179 | 140 | ||||||
| Depreciation and amortization |
342 | 342 | ||||||
| Cost of goods sold |
521 | 482 | ||||||
| General and administrative expenses |
69 | 72 | ||||||
| Interest, net |
397 | 444 | ||||||
| Total costs and expenses |
987 | 998 | ||||||
| Income before income taxes |
478 | 363 | ||||||
| Add: depreciation and amortization |
342 | 342 | ||||||
| Add: interest, net |
397 | 444 | ||||||
| Tolling and terminaling EBITDA |
$ | 1,217 | $ | 1,149 | ||||
YTD 2026 Versus YTD 2025
Tolling and Terminaling Total Revenue. Tolling and terminaling total revenue was $2.8 million in YTD 2026 compared to $2.8 million in YTD 2025.
Tolling and Terminaling EBITDA. We had tolling and terminaling EBITDA of $2.4 million in YTD 2026 compared to $2.3 million in YTD 2025, representing a increase of 4.3%
| Six Months Ended |
||||||||
| June 30, |
||||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Tolling and terminaling revenue |
$ | 2,797 | $ | 2,752 | ||||
| Tolling and terminaling costs |
291 | 262 | ||||||
| Depreciation and amortization |
683 | 684 | ||||||
| Cost of goods sold |
974 | 946 | ||||||
| General and administrative expenses |
137 | 160 | ||||||
| Interest, net |
811 | 921 | ||||||
| Total costs and expenses |
1,922 | 2,027 | ||||||
| Income before income taxes |
875 | 725 | ||||||
| Add: depreciation and amortization |
683 | 684 | ||||||
| Add: interest, net |
811 | 921 | ||||||
| Tolling and terminaling EBITDA |
$ | 2,369 | $ | 2,330 | ||||
|
Management’s Discussion and Analysis (Continued) |
Non-U.S. GAAP Measures.
The following are non-U.S. GAAP measures we present for the periods ended three and six months ended June 30, 2026 and 2025:
Consolidated EBITDA. Income before interest, taxes, and depreciation and amortization on a consolidated basis.
Refining EBITDA. Income before interest, taxes, and depreciation and amortization for our refinery operations business segment.
Refining operations EBITDA per bbl. Refining EBITDA divided by sales (Mbbls) for the reporting period.
Tolling and terminaling EBITDA. Income before interest, taxes, and depreciation and amortization for our tolling and terminaling business segment.
We present these measures because they provide management and investors with (i) important supplemental indicators of the operational performance of our business, (ii) additional criteria for evaluation of our performance relative to our peers, and (iii) supplemental information to investors about certain material non-cash and other items that may not continue at the same level in the future. EBITDA has limitations as an analytical tool and should not be considered in isolation or as substitutes for analysis of our results as reported under U.S. GAAP or as alternatives to net income, operating income, gross margin, or any other measure of financial performance presented in accordance with U.S. GAAP.
| Three Months Ended |
||||||||||||||||||||||||||||||||
| June 30, |
||||||||||||||||||||||||||||||||
| 2026 |
2025 |
|||||||||||||||||||||||||||||||
| Refinery Operations |
Tolling & Terminaling |
Corporate & Other |
Total |
Refinery Operations |
Tolling & Terminaling |
Corporate & Other |
Total |
|||||||||||||||||||||||||
| (in thousands) |
||||||||||||||||||||||||||||||||
| Income (loss) before income taxes |
$ | 22,906 | $ | 478 | $ | (781 | ) | $ | 22,603 | $ | (2,113 | ) | $ | 363 | $ | (431 | ) | $ | (2,181 | ) | ||||||||||||
| Add: depreciation and amortization |
304 | 342 | 74 | 720 | 301 | 342 | 74 | 717 | ||||||||||||||||||||||||
| Add: interest, net |
621 | 397 | 105 | 1,123 | 928 | 444 | 180 | 1,552 | ||||||||||||||||||||||||
| EBITDA |
$ | 23,831 | $ | 1,217 | $ | (602 | ) | $ | 24,446 | $ | (884 | ) | $ | 1,149 | $ | (177 | ) | $ | 88 | |||||||||||||
| Six Months Ended |
||||||||||||||||||||||||||||||||
| June 30, |
||||||||||||||||||||||||||||||||
| 2026 |
2025 |
|||||||||||||||||||||||||||||||
| Refinery Operations |
Tolling & Terminaling |
Corporate & Other |
Total |
Refinery Operations |
Tolling & Terminaling |
Corporate & Other |
Total |
|||||||||||||||||||||||||
| (in thousands) |
||||||||||||||||||||||||||||||||
| Income (loss) before income taxes |
$ | 40,962 | $ | 875 | $ | (673 | ) | $ | 41,164 | $ | 1,676 | $ | 725 | $ | (1,703 | ) | $ | 698 | ||||||||||||||
| Add: depreciation and amortization |
608 | 683 | 148 | 1,439 | 599 | 684 | 148 | 1,431 | ||||||||||||||||||||||||
| Add: interest, net |
1,475 | 811 | 219 | 2,505 | 1,764 | 921 | 331 | 3,016 | ||||||||||||||||||||||||
| EBITDA |
$ | 43,045 | $ | 2,369 | $ | (306 | ) | $ | 45,108 | $ | 4,039 | $ | 2,330 | $ | (1,224 | ) | $ | 5,145 | ||||||||||||||
| Management’s Discussion and Analysis (Continued) |
Capital Resources and Liquidity
Liquidity. Cash and cash equivalents totaled $30.7 million and $1.0 million at June 30, 2026 and December 31, 2025, respectively, representing a increase of $29.7 million. A significant portion of our liquidity at June 30, 2026 was in held cash and invested in inventory and accounts receivable. Restricted cash, current totaled $1.0 million at both June 30, 2026 and December 31, 2025. Restricted cash, current is related to a Huntington payment reserve account. Accounts receivable—related party, which was associated with the sale of jet fuel to LEH, totaled $11.3 million and $8.1 million at June 30, 2026 and December 31, 2025, respectively.
We generally rely on revenue from operations, including sales of refined products and rental of petroleum storage tanks, Affiliates, and financing to meet our liquidity needs. Our short-term working capital needs are primarily related to: (i) purchasing crude oil and condensate to operate the Nixon refinery, (ii) reimbursing LEH for direct operating expenses and paying the LEH operating fee under the Fifth Amended and Restated Operating Agreement, (iii) servicing debt, (iv) maintaining and improving the Nixon facility through capital expenditures, and (v) meeting regulatory compliance requirements and associated civil penalties. Our long-term working capital needs are primarily related to repayment of long-term debt obligations.
We continue efforts to improve our balance sheet and continue to engage with potential lenders to obtain additional funding to refinance and restructure debt. However, there can be no assurance that we will be able to raise additional capital on acceptable terms, or at all.
Gross margins, which are affected by commodity prices and refined product demand, are volatile, and a reduction in gross margins will adversely affect the amount of cash we will have available for working capital. Similarly, capital, credit, and commodity markets, tariffs, as well as military conflicts in the Middle East and Europe continue to evolve, and the extent to which these factors may impact our working capital, commodity prices, refined product demand, supply chain, financial condition, liquidity, results of operations, and prospects will depend on future developments, which cannot be predicted with any degree of confidence. In the long term, we may not be able to manage business disruptions or execute our business strategy. We may have to consider other options, such as selling assets, or raising additional debt or equity capital.
Sources and Use of Cash.
Components of Cash Flows.
| Six Months Ended |
||||||||
| June 30, |
||||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Cash Flows Provided By (Used In): |
||||||||
| Operating activities |
$ | 39,033 | $ | (3,349 | ) | |||
| Investing activities |
(132 | ) | (29 | ) | ||||
| Financing activities |
(9,196 | ) | 4,116 | |||||
| Increase (decrease) in Cash and Cash Equivalents |
$ | 29,705 | $ | 738 | ||||
Cash Flow from Operations. We generated $39.0 million in cash flow from operations during the six months ended June 30, 2026 compared to using $3.3 million in cash flow from operations during the six months ended June 30, 2025. The $42.4 million increase in cash flow provided by operations between the periods was primarily due to more favorable gross margins from the refining segment in 2026.
Capital Expenditures. We spent $0.1 million and less than $0.1million in capital expenditures for the six months ended June 30, 2026 and 2025, however, we incurred $0.1 million in vendor financed capital expenditures during the six months ended June 30, 2025. Due to continued uncertainties surrounding general macroeconomic conditions related to inflation, tariffs, interest rates, capital and credit markets, and geopolitical tensions (including military escalations and engagement in the Middle East), we anticipate continuing to conservatively assess capital expenditures for the remainder of 2026. However, to the extent we can capitalize on growth opportunities, we may finance capital expenditures through project-based government loans.
We account for capital expenditures in accordance with U.S. GAAP. We also classify capital expenditures as ‘maintenance’ if the expenditure maintains capacity or throughput or as ‘expansion’ if the expenditure increases capacity or throughput capabilities. Although classification is generally a straightforward process, in certain circumstances the determination is a matter of management judgment and discretion. We budget for maintenance capital expenditures throughout the year on a project-by-project basis. Management determines projects based on maintaining safe and efficient operations, meeting customer needs, complying with operating policies and applicable law, and producing economic benefits, such as increasing efficiency or lowering future expenses.
| Management’s Discussion and Analysis (Continued) |
Financing Activities. During the six months ended June 30, 2026, Blue Dolphin made payments on debt principal totaling $9.2 million compared to payments on debt principal totaling $2.8 million for the six months ended June 30, 2025. Proceeds from debt was zero for the six months ended June 30, 2026 compared to proceeds from debt totaling $7.0 for the six months ended June 30, 2025. In 2025, proceeds from debt related to the Second Amended and Restated Affiliate Revolving Credit Agreement. Payment on related party debt was $7.7 million for the six months ended June 30, 2026.
Debt and Lease Obligations.
Debt Agreements.
Related-Party Agreements Summary. Blue Dolphin and certain subsidiaries are parties to the following debt agreements with related parties:
| Original |
Monthly |
||||||
| Principal |
Payment |
||||||
| Loan Description |
Parties |
(in millions) |
Maturity Date |
(in millions) |
Interest Rate |
Loan Purpose |
|
| Second Amended and Restated Affiliate Revolving Credit Agreement |
Blue Dolphin and Subsidiaries |
$15 maximum |
April 2027 |
Set-off against other obligations Borrower owes to Lender |
WSJ Prime + 2.00% |
Working capital |
|
| LEH and Subsidiaries |
|||||||
| Amended and Restated BDPL-LEH Loan Agreement |
LEH |
$4.0 |
April 2027 | $0.25 |
12.00% |
Working capital |
|
| BDPL |
| Management’s Discussion and Analysis (Continued) |
Third-Party Agreements Summary. Blue Dolphin and certain subsidiaries are parties to the following debt agreements with third parties:
| Original |
Monthly Principal |
|||||||||
| Principal |
and Interest Payment |
|||||||||
| Loan Description |
Parties |
(in millions) |
Maturity |
(in millions) |
Interest Rate |
Loan Purpose |
||||
| Huntington Loans |
||||||||||
| LE Term Loan Due 2034 (in default)(1) |
LE |
$25.0 |
June 2034 |
$0.3 |
WSJ Prime + 2.75% |
Capital improvements |
||||
| Huntington |
||||||||||
| LRM Term Loan Due 2034 (in default)(1) |
LRM |
$10.0 |
December 2034 |
$0.1 |
WSJ Prime + 2.75% |
Capital improvements |
||||
| Huntington |
||||||||||
| GNCU Loan |
||||||||||
| NPS Term Loan Due 2031 (in default)(2) |
NPS |
$10.0 |
October 2031 |
$0.1 |
5.75% |
Working capital |
||||
| GNCU |
||||||||||
| SBA Economic Injury Disaster Loans |
||||||||||
| Blue Dolphin Term Loan Due 2051(3) |
Blue Dolphin |
$2.0 |
June 2051 |
$0.01 |
3.75% |
Working capital |
||||
| SBA |
||||||||||
| LE Term Loan Due 2050(4) |
LE |
$0.15 |
August 2050 |
$0.0007 |
3.75% |
Working capital |
||||
| SBA |
||||||||||
| NPS Term Loan Due 2050(4) |
NPS |
$0.15 |
August 2050 |
$0.0007 |
3.75% |
Working capital |
||||
| SBA |
||||||||||
| Equipment Loan Due 2031 (5) | LE | $0.138 | March 2031 | $0.0028 | 12.7% | Equipment Purchase | ||||
| Ritchie Bros. Financial Services |
| (1) |
Our secured loan agreements with Huntington are subject to certain financial and non-financial covenants. As of June 30, 2026, LE and LRM were in default related to financial covenants under the LE Term Loan Due 2034 and LRM Term Loan Due 2034. With respect to non-financial covenants, we are required to have a balance of $1.0 million in a payment reserve account held by Huntington. At both June 30, 2026 and December 31, 2025 restricted cash totaled $1.0 million. |
| (2) |
As of June 30, 2026 and the filing date of this report, the NPS Term Loan Due 2031 was in default due to non-financial covenant violations. |
| (3) |
Original principal amount was $0.5 million; the loan was modified to increase the principal amount by $1.5 million; loan not forgivable. |
| (4) |
Loan not forgivable. |
| (5) | In March 2025, LE entered into the Equipment Loan Due 2031 to purchase mobile offices; the mobile offices are used at the Nixon facility. |
| Management’s Discussion and Analysis (Continued) |
Guarantees and Security.
| Loan Description |
Guarantees |
Security |
|
| Huntington Loans |
|||
| LE Term Loan Due 2034 (in default) |
● USDA |
● | First priority lien on Nixon facility’s business assets (excluding accounts receivable and inventory) |
| ● Jonathan Carroll(1) |
● | Assignment of all Nixon facility contracts, permits, and licenses |
|
| ● Affiliate cross-guarantees |
● | Absolute assignment of Nixon facility rents and leases, including tank rental income |
|
| ● | $5.0 million life insurance policy on Jonathan Carroll |
||
| LRM Term Loan Due 2034 (in default) |
● USDA |
● | Second priority lien on rights of LE in crude distillation tower and other collateral of LE |
| ● Jonathan Carroll(1) |
● | First priority lien on real property interests of LRM |
|
| ● Affiliate cross-guarantees |
● | First priority lien on all LRM fixtures, furniture, machinery, and equipment |
|
| ● | First priority lien on all LRM contractual rights, general intangibles, and instruments, except with respect to LRM rights in its leases of certain specified tanks for which Huntington has second priority lien |
||
| ● | Substantially all assets |
||
| GNCU Loan |
|||
| NPS Term Loan Due 2031 (in default) |
● USDA |
● | Deed of trust lien on approximately 56 acres of land and improvements owned by LE |
| ● Jonathan Carroll(1) |
● | Leasehold deed of trust lien on certain property leased by NPS from LE |
|
| ● Affiliate cross-guarantees |
● | Assignment of leases and rents and certain personal property |
|
| Amended and Restated BDPL-LEH Loan Agreement | --- | Certain BDPL property | |
| SBA EIDL |
|||
| Blue Dolphin Term Loan Due 2051 |
--- |
● | Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) |
| LE Term Loan Due 2050 |
--- |
● | Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) |
| NPS Term Loan Due 2050 |
--- |
● | Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) |
| Equipment Loan Due 2031 | --- | ● | First priority security interest in the mobile offices. |
| (1) |
Jonathan Carroll was required to personally guarantee repayment of borrowed funds and accrued interest. |
Lease Agreements.
Office Lease. We maintain our corporate headquarters in Houston, Texas. In October 2024, BDSC signed a 24-month extension, the sixth amendment, to its operating lease at 801 Travis Street, Suite 2100, Houston, Texas 77002.
An Affiliate, LEH, sub-leases a portion of the 801 Travis Street office space through August 2026. BDSC received sub-lease income from LEH totaling $0.02 for both the three months ended June 30, 2026 and 2025 , and $0.03 million for both the six months ended June 30, 2026 and 2025. NPS received ground lease income from LEH totaling $0.1 million and $0.0 million for the six months ended June 30, 2026 and 2025.
In January 2026, LEH entered into a new lease agreement for office space at 2301 Commerce Street, Suite 140, Houston, Texas; LEH’s lease commenced in July 2026. Blue Dolphin intends to sub-lease office space from LEH and change its corporate headquarters office from 801 Travis Street to 2301 Commerce Street in connection with the natural termination of its existing operating lease.
Tank Leases.
LE leases tanks from Ingleside under the Third Amended and Restated Master Services Agreement. Lease expense associated with the Third Amended and Restated Master Services Agreement totaled $0.3 million for both the three months ended June 30, 2026 and 2025, and $0.6 million for both the six months ended June 30, 2026 and 2025. See "Part I, Item 1. Financial Statements —Note (3)" to our consolidated financial statements for additional disclosures related to the Third Amended and Restated Master Services Agreement.
Lease expense associated with the Terminal Services Release was $0.1 million and none for the three months ended June 30, 2026 and 2025, and $0.1 million and none for the six months ended June 30, 2026 and 2025.
See “Note (3)” to our consolidated financial statements for additional disclosures related to the Terminal Services Release.
| Management’s Discussion and Analysis (Continued) |
Outstanding Original Principal, Debt Issue Costs, and Accrued Interest. Related-party and third-party long-term debt, including outstanding original principal and accrued interest, as of the dates indicated was as follows:
Outstanding Principal.
| June 30, | December 31, | |||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Huntington Loans |
||||||||
| LE Term Loan Due 2034 (in default) |
$ | 16,963 | $ | 17,532 | ||||
| LRM Term Loan Due 2034 (in default) |
7,065 | 7,326 | ||||||
| GNCU Loan |
||||||||
| NPS Term Loan Due 2031 (in default) |
7,884 | 8,495 | ||||||
| LEH |
||||||||
| Line of credit payable, related party |
3,427 | 9,847 | ||||||
| Amended and Restated BDPL-LEH Loan Agreement |
2,138 | 3,463 | ||||||
| SBA Economic Injury Disaster Loans |
||||||||
| Blue Dolphin Term Loan Due 2051 |
2,000 | 2,000 | ||||||
| LE Term Loan Due 2050 |
150 | 150 | ||||||
| NPS Term Loan Due 2050 |
150 | 150 | ||||||
| Equipment Loan Due 2031 |
118 | 127 | ||||||
| 39,895 | 49,090 | |||||||
| Less: Line of credit, related party |
(3,427 | ) | (9,847 | ) | ||||
| Less: Current portion of long-term debt, net |
(32,648 | ) | (34,561 | ) | ||||
| Less: Unamortized debt issue costs |
(1,439 | ) | (1,540 | ) | ||||
| $2,381 | $3,142 | |||||||
We classified the debt associated with the LE Term Loan Due 2034, LRM Term Loan Due 2034, and NPS Term Loan Due 2031 within long-term debt, current portion on our consolidated balance sheets at June 30, 2026 and December 31, 2025 due to being in default.
Debt Issue Costs. Unamortized debt issue costs associated with the Huntington and GNCU loans as of the dates indicated consisted of the following:
| June 30, | December 31, | |||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| Huntington Loans |
||||||||
| LE Term Loan Due 2034 (in default) |
$ | 1,674 | $ | 1,674 | ||||
| LRM Term Loan Due 2034 (in default) |
768 | 768 | ||||||
| GNCU Loan |
||||||||
| NPS Term Loan Due 2031 (in default) |
730 | 730 | ||||||
| Less: Accumulated amortization |
(1,733 | ) | (1,632 | ) | ||||
| $ | 1,439 | $ | 1,540 | |||||
Amortization expense was less than $0.1 million for both the three months ended June 30, 2026 and 2025 and $0.1 million for both the six months ended June 30, 2026 and 2025.
| Management’s Discussion and Analysis (Continued) |
Accrued Interest. Related-party and third-party accrued interest payable associated with long-term debt in our consolidated balance sheets, as of the dates indicated consisted of the following:
| June 30, | December 31, | |||||||
| 2026 |
2025 |
|||||||
| (in thousands) |
||||||||
| LEH |
||||||||
| Amended and Restated BDPL-LEH Loan Agreement |
$ | - | $ | 17 | ||||
| Jonathan Carroll |
||||||||
| Guaranty fee agreements |
10 | 7 | ||||||
| Huntington Loans |
||||||||
| LE Term Loan Due 2034 (in default) |
178 | 41 | ||||||
| LRM Term Loan Due 2034 (in default) |
49 | 52 | ||||||
| GNCU Loan |
||||||||
| NPS Term Loan Due 2031 (in default) |
15 | 15 | ||||||
| SBA Economic Injury Disaster Loans |
||||||||
| Blue Dolphin Term Loan Due 2051 |
30 | 51 | ||||||
| LE Term Loan Due 2050 |
3 | 5 | ||||||
| NPS Term Loan Due 2050 |
3 | 5 | ||||||
| 288 | 193 | |||||||
| Less: Accrued interest payable, current portion |
(288 | ) | (193 | ) | ||||
| Long-term interest payable, net of current portion |
$ | - | $ | - | ||||
Defaults. As of June 30, 2026 and through the filing date of this report, LE and LRM were in default related to financial covenants under the LE Term Loan Due 2034 and LRM Term Loan Due 2034. NPS was in default related to non-financial covenants under the NPS Term Loan Due 2031. Defaults may permit lenders to declare the amounts owed under the related loan agreements immediately due and payable, exercise their rights with respect to collateral securing obligors’ obligations, and exercise any other rights and remedies available. Any exercise by lenders of their rights and remedies under secured loan agreements that are in default could have a material adverse effect on our cash position.
Proceeds from Debt. Proceeds from debt totaled $0.0 million for the six months ended June 30, 2026 compared to proceeds from debt totaling $7.0 million for the six months ended June 30, 2025. In 2025, proceeds from debt related to the Second Amended and Restated Affiliate Revolving Credit Agreement.
| Management’s Discussion and Analysis (Continued) |
Concentration of Customer Risk
We routinely assess the financial strength of our customers. To date, we have not experienced significant write-downs in accounts receivable balances. We believe that our accounts receivable credit risk exposure is limited.
| Portion of |
||||||||||||
| Accounts |
||||||||||||
| Number of |
% Total |
Receivable at |
||||||||||
| Significant |
Revenue |
June 30, |
||||||||||
| Three Months Ended |
Customers |
from Operations |
(in millions) |
|||||||||
| June 30, 2026 |
3 | 65.3 | % | $ | 11.1 | |||||||
| June 30, 2025 |
3 | 88.7 | % | $ | 8.9 | |||||||
| Portion of |
||||||||||||
| Accounts |
||||||||||||
| Number of |
% Total |
Receivable at |
||||||||||
| Significant |
Revenue |
June 30, |
||||||||||
| Six Months Ended |
Customers |
from Operations |
(in millions) |
|||||||||
| June 30, 2026 |
2 | 55.5 | % | $ | 11.1 | |||||||
| June 30, 2025 |
2 | 64.9 | % | $ | 8.5 | |||||||
One of our significant customers is LEH, an Affiliate. LEH purchases most of our jet fuel under the Amended and Restated Jet Fuel Sales Agreement and sells the jet fuel to the DLA under preferential pricing terms due to its HUBZone certification. The Affiliate lifts the jet fuel, which is stored at the Nixon Facility, as needed. LEH accounted for 31.1% and 43.6% of our total revenue from operations for the three months ended June 30, 2026 and 2025, respectively. LEH accounted for 35.4% and 35.8% of our total revenue from operations for the six months ended June 30, 2026 and 2025, respectively. The Affiliate represented $11.3 million and $8.1 million in accounts receivable, related party at June 30, 2026 and December 31, 2025, respectively.
Bank Accounts. Financial instruments that potentially subject us to concentrations of risk consist primarily of cash, trade receivables and payables. We maintain cash balances at financial institutions in Houston, Texas. The FDIC insures certain financial products up to a maximum of $250,000 per depositor. At June 30, 2026 and December 31, 2025, our cash balances (including restricted cash) exceeded the FDIC insurance limit per depositor by $31.2 million and $1.5 million, respectively. Instability and volatility in the capital, credit, and commodity markets, as well as with financial institutions, could adversely affect our cash balances (including restricted cash) in excess of FDIC insurance limits per depositor. In the event that banks in which we maintain our cash balances (including restricted cash) fail, there can be no assurance that the federal government and the Federal Reserve would intervene.
Regulatory Activities.
BOEM. See "Part II, Item 1. Legal Proceedings —Unresolved Matters—BOEM Supplemental Pipeline Bonds."
BSEE. See “Part I, Item 1. Financial Statements —Notes (11) and (14)” and “Part II, Item 1. Legal Proceedings—Unresolved Matters—Offshore Platform Inspections, Decommissioning Obligations, INCs, and Civil Penalties.”
TCEQ. See "Part II, Item 1. Legal Proceedings—Unresolved Matters—TCEQ Final Agreed Order Follow Up."
Off-Balance Sheet Arrangements. None.
Accounting Standards.
Critical Accounting Policies and Estimates
Critical Accounting Policies. Our critical accounting policies relate to revenue recognition; inventory; property and equipment; income taxes; asset retirement obligations. For additional disclosures, see "Part I, Item 1. Financial Statements—Note (2)" herein and "Part II, Item 8. Financial Statements and Supplementary Data—Note (2)” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the SEC, which summarized our significant accounting policies.
Estimates. The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expense, and the disclosures of contingent assets and liabilities. We consider our critical accounting estimates to be those estimates that require complex or subjective judgment in the application of the accounting policy and that could significantly impact our financial results based on changes in those judgments. Changes in facts and circumstances may result in revised estimates and actual results may differ materially from those estimates. In preparing our financial statements, the most difficult, subjective and complex estimates and the assumptions that present the greatest amount of uncertainty relate to impairment of long-lived assets, asset retirement obligations, and valuation allowance for deferred tax assets, as described in "Part I, Item 1. Financial Statements—Notes (2), —(10), and —(12)" herein and "Part II, Item 8. Financial Statements and Supplementary Data—Notes (2), —(10), and —(12)” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the SEC.
|
Management’s Discussion and Analysis (Continued) |
New Accounting Standards and Disclosures
New Pronouncements Adopted. During the six months ended June 30, 2026 we did not adopt any ASUs.
New Pronouncements Issued, Not Yet Effective. We expect to adopt the following ASUs in future periods:
| ● |
ASU 2024-03 — Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"). In November 2024, the FASB issued ASU 2024-03, requiring additional disclosure of certain costs and expenses within the notes to the consolidated financial statements. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. We are evaluating the provisions of ASU 2024-03 and the incremental disclosures that will be required in our consolidated financial statements. |
| ● |
ASU 2025-11 — Interim Reporting (Topic 270): Narrow-Scope Improvements. In December 2025, the FASB issued ASU 2025-11 which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have had a material impact on the company. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2025-11. |
Evaluation of Disclosure Controls and Procedures
Under the supervision of, and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Treasurer (principal financial officer and principal accounting officer), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on our evaluation, our Chief Executive Officer (principal executive officer) and Treasurer (principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the six months ended June 30, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
|
Legal Proceedings (Continued) |
| ●
|
On March 9, 2026, in response to President Trump's Executive Order 14154 of January 20, 2025, Unleashing American Energy, BOEM published in the Federal Register a proposed Risk Management and Financial Assurance for Outer Continental Shelf ("OCS") Lease and Grant Obligations rule (the "2026 Proposed Rule") that would substantially revise certain provisions of the current Risk Management and Financial Assurance of OCS Lease and Grant Obligatons rule implemented in 2024 (the "2024 Final Rule"). The 2026 Proposed Rule, which proposes easing financial assurance requirements by lowering credit rating thresholds, reducing cost estimates, and providing greater flexibility using predecessor financial strength, intends to reverse many of the 2024 Final Rule's changes from the Biden Administration. Public comments on the 2026 Proposed Rule were originally due by May 8, 2026; however, BOEM extended the deadline to May 15, 2026. BOEM is currently reviewing and analyzing all comments that were submitted. |
| ●
|
In March 2018, BOEM ordered BDPL to provide additional financial assurance totaling approximately $5.7 million for five existing pipeline rights-of-way, an increase of approximately $4.8 million. In June 2018, BOEM issued BDPL INCs for each right of way that failed to comply. Although BDPL appealed the INCs in June 2018, the IBLA dismissed the appeal in August 2025 on the basis that: (i) one of the pipeline rights-of-way (ROW OCS-G 19655, HI A-173) was already decommissioned, and (ii) for the other four rights-of-way, BDPL should have challenged the March 2018 BOEM order, not the INCs issued due to BDPL's non-compliance with the March 2018 BOEM order (i.e., the doctrine of administrative finality). |
As of the filing date of this report, BDPL completed field execution operations to decommission all of its offshore pipelines in federal waters; however, the company is preparing required documentation for submission to federal agencies. Once BSEE confirms that BDPL has satisfied its decommissioning obligations, the regulatory basis for requiring BDPL to maintain or provide financial assurance will be eliminated. BOEM can then authorize RLI Corp. to release the cash collateral backing BDPL's existing bonds and rescind the 2018 orders for additional financial assurance and the related INCs. We did not record a liability on our consolidated balance sheets as of June 30, 2026 and December 31, 2025. At both June 30, 2026 and December 31, 2025, BDPL maintained $1.2 million in cash-backed existing bonds issued to BOEM through RLI Corp. These bonds consisted of $0.9 million in supplemental pipeline bonds and $0.3 million for a general compliance area-wide bond.
|
Legal Proceedings (Continued) |
BSEE INCs and Civil Penalties.
BDPL has outstanding INCs and two open civil penalties (Civil Penalty G-2024-054 and Civil Penalty G-2024-056) issued from BSEE for failing to timely decommission its offshore assets. In July 2025, BSEE dismissed Civil Penalty G-2024-010 that was issued to BDPL in April 2024; no penalty was assessed against the company. In April 2026, BSEE and BDPL reached a settlement agreement regarding the INCs and two open civil penalties (the "Settlement Agreement"). The confidential Settlement Agreement, which does not relate to BOEM matters, requires specific payment and performance obligations on the part of BDPL. At June 30, 2026, we accrued $2.2 million on our balance sheet within accrued expenses and other current liabilities related to BSEE civil penalties.
There can be no assurance that BDPL will complete the anticipated decommissioning work or correctly predict the outcome of the BSEE INCs or civil penalties. If BDPL is unable to perform its obligations under the Settlement Agreement as intended, BSEE may exercise its rights under supplemental pipeline bonds or exercise any other rights and remedies it has available.
Default under a Secured Loan Agreement. As of June 30, 2026 and the filing date of this report, certain of our bank debt to Huntington was in default related to a financial covenant violation, and bank debt to GNCU was in default related to non-financial covenant violations. See “Note (9)” to our consolidated financial statements for additional disclosures related to third-party debt, default on such debt, and the potential effects of such a default on cash position.
In addition to the other information set forth in this Quarterly Report, careful consideration should be given to the risk factors discussed under “Part I, Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the SEC. These risks and uncertainties could materially and adversely affect our business, financial condition, and results of operations. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business. There have been no material changes in our assessment of our risk factors from those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibits Index
| No. | Description | |
| 31.1* |
Jonathan P. Carroll Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
|
| 31.2* |
Bryce D. Klug Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
|
| 32.1* | Jonathan P. Carroll Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Bryce D. Klug Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS** |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document. |
|
| 101.SCH** |
Inline XBRL Taxonomy Extension Schema Document. |
|
| 101.CAL** |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
| 101.LAB** |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
| 101.PRE** |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
| 101.DEF** |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
| 104 ** | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibition 101). |
* Filed herewith.
** Submitted electronically herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BLUE DOLPHIN ENERGY COMPANY |
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| (Registrant) |
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| August 14, 2026 | By: | / s / BRYCE D. KLUG | |
| Bryce D. Klug Treasurer and Assistant Secretary |
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| (Principal Financial and Accounting Officer) | |||