bdco20260331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	Quarterly REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2026

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 0-15905

BLUE DOLPHIN ENERGY COMPANY

(Exact name of registrant as specified in its charter)

Delaware		73-1268729
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

801 Travis Street, Suite 2100, Houston, Texas		77002
(Address of principal executive offices)		(Zip Code)

	713-568-4725
	(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:

	Common Stock, par value $ 0.01 per share
	(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. Yes ☑ No ☐

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). Yes ☑ No ☐

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	☐
Non-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 ☐ No ☑

Number of shares of common stock, par value $0.01 per share, outstanding at May 15, 2026: 14,921,968

Table of Contents

Table of Contents


PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	8

	Consolidated Balance Sheets (Unaudited)	8
	Consolidated Statements of Income (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	33

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	51

ITEM 4.	CONTROLS AND PROCEDURES	51

PART II - OTHER INFORMATION		51

ITEM 1.	LEGAL PROCEEDINGS	51

ITEM 1A.	RISK FACTORS	53

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	54

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	54

ITEM 4.	MINE SAFETY DISCLOSURES	54

ITEM 5.	OTHER INFORMATION	54

ITEM 6.	EXHIBITS	54

SIGNATURES		55

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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 and LTRI). Together, Jonathan Carroll and LEH owned 84.9% 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 U.S. Department of the Interior.

BSEE. Bureau of Safety and Environmental Enforcement; an agency within the U.S. Department of the Interior.

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.

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Glossary of Terms (Continued)

Common Stock. Blue Dolphin common stock, par value $0.01 per share. Blue Dolphin has 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.

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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.

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 has 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.

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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.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Balance Sheets (Unaudited)

	March 31,		December 31,
	2026		2025
	(in thousands, except share amounts)

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	401	$	1,010
Restricted cash, current		1,000		1,000
Accounts receivable, net		6,190		276
Accounts receivable, related party		20,780		8,068
Prepaid expenses and other current assets		1,727		2,735
Deposits		185		185
Inventory		37,719		30,892
Total current assets		68,002		44,166

LONG-TERM ASSETS
Total property and equipment, net		49,284		50,012
Operating lease right-of-use assets, net		121		191
Surety bonds		350		350
Deferred tax assets, net		1,193		4,353
Total long-term assets		50,948		54,906

TOTAL ASSETS	$	118,950	$	99,072

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Long-term debt less unamortized debt issue costs, current portion (in default)	$	31,111	$	31,830
Line of credit, related party		9,847		9,847
Long-term debt, related party, current portion		2,810		2,731
Interest payable		156		169
Interest payable, related party		68		24
Accounts payable		19,211		12,263
Accounts payable, related party		194		-
Current portion of lease liabilities		147		217
Income taxes payable		727		56
Asset retirement obligations, current portion		6,025		6,025
Accrued expenses and other current liabilities		4,159		5,406
Total current liabilities		74,455		68,568

LONG-TERM LIABILITIES
Long-term debt, net of current portion (in default)		2,403		2,410
Long-term debt, related party, net of current portion		-		732
Total long-term liabilities		2,403		3,142

TOTAL LIABILITIES		76,858		71,710

Commitments and contingencies (Note 14)

STOCKHOLDERS' EQUITY
Common stock ($0.01 par value, 20,000,000 shares authorized; 14,921,968 shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively) (1)		149		149
Additional paid-in capital		39,758		39,758
Retained earnings (deficit)		2,185		(12,545	)
TOTAL STOCKHOLDERS' EQUITY		42,092		27,362

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	118,950	$	99,072

^₍₁₎

Blue Dolphin has 2,500,000 shares of preferred stock, par value $0.10 per share, authorized. At March 31, 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.

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Financial Statements (Continued)

Consolidated Statements of Income (Unaudited)

	Three Months Ended March 31,
	2026			2025
	(in thousands, except share and per-share amounts)
REVENUE FROM OPERATIONS
Refinery operations	$	80,725		$	82,868
Tolling and terminaling		765			824
Total revenue from operations		81,490			83,692

COSTS AND EXPENSES
Crude oil, fuel use, and chemicals		57,229			74,576
Other conversion costs		2,934			2,281
Tolling and terminaling costs		112			122
Depreciation and amortization		645			640
Total cost of goods sold		60,920			77,619
Other operating costs (gain)
LEH operating fee, related party		233			182
Other operating expenses		161			119
General and administrative expenses		1,172			1,355
Gain on regulatory settlement		(1,013	)		-
Depreciation and amortization		74			74
Total cost of operations		61,547			79,349

Income from operations		19,943			4,343

OTHER EXPENSE
Interest and other expense		(1,382	)		(1,464	)
Total other expense		(1,382	)		(1,464	)

Income before income taxes		18,561			2,879

Income tax benefit (expense)		(3,831	)		(635	)

Net income	$	14,730		$	2,244

Income per common share:
Basic	$	0.99		$	0.15
Diluted	$	0.99		$	0.15

Weighted average number of common shares outstanding:
Basic		14,921,968			14,921,968
Diluted		14,921,968			14,921,968

The accompanying notes are an integral part of these consolidated financial statements.

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Financial Statements (Continued)

Consolidated Statements of Stockholders ’ Equity (Deficit) (Unaudited)

	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		14,921,968	$	149	$	39,758	$	(6,944	)	$	32,963

Net income		-		-		-		2,244			2,244

Balance at March 31, 2025		14,921,968	$	149	$	39,758	$	(4,700	)	$	35,207

	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		14,921,968	$	149	$	39,758	$	(12,545	)	$	27,362

Net income		-		-		-		14,730			14,730

Balance at March 31, 2026		14,921,968	$	149	$	39,758	$	2,185		$	42,092

The accompanying notes are an integral part of these consolidated financial statements.

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Financial Statements (Continued)

Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended March 31,
	2026			2025
	(in thousands)
OPERATING ACTIVITIES
Net income	$	14,730		$	2,244
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		719			714
Deferred income tax		3,160			528
Amortization of debt issue costs		51			51
Changes in operating assets and liabilities
Accounts receivable		(5,914	)		524
Accounts receivable, related party		(12,712	)		(3,065	)
Prepaid expenses and other current assets		1,008			1,083
Inventory		(6,827	)		(2,115	)
Accounts payable, accrued expenses and other liabilities		6,422			(1,691	)
Accounts payable, related party		194			-
Net cash provided by (used) in operating activities		831			(1,727	)

INVESTING ACTIVITIES
Capital expenditures		(11	)		-
Net cash used in investing activities		(11	)		-

FINANCING ACTIVITIES
Payments on debt principal		(776	)		(2,118	)
Proceeds from related-party debt		-			5,055
Payments on third party debt principal		(653	)		-
Net cash provided by (used in) financing activities		(1,429	)		2,937
Net change in cash, cash equivalents, and restricted cash		(609	)		1,210

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD		2,010			1,081
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD	$	1,401		$	2,291

Supplemental Information:
Non-cash investing and financing activities:
Financing of capital expenditures via long-term note	$	-		$	139
Interest paid	$	745		$	996

The accompanying notes are an integral part of these consolidated financial statements.

Blue Dolphin Energy Company

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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, 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.”

Assets are organized into two 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 in offshore oil and gas assets), 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 84.9% 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 “Note (3)” to our consolidated financial statements for additional disclosures related to Affiliate agreements, arrangements, and risks associated with working capital deficits.

Working Capital . As of March 31, 2026 and the filing date of this report, certain conditions and events existed, in the aggregate, that caused management to evaluate Blue Dolphin's ability to continue as a going concern. Those conditions and events included historical and current working capital deficits and significant debt in default. Management believes that we have sufficient liquidity to meet our obligations as they become due through the generation of cash flows from operations and liquidation of current working capital amounts for a reasonable period (defined as one year from the issuance of these financial statements). Management acknowledges that uncertainty remains related to future operating margins; however, management has a reasonable expectation of Blue Dolphin's ability to generate adequate working capital for, amongst other requirements, purchasing crude oil and condensate and making payments on our long-term debt.

(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 months ended March 31, 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.

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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 March 31, 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 March 31, 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:

	March 31,		December 31,
	2026		2025
	(in thousands)
Cash and cash equivalents	$	401	$	1,010
Restricted cash, current		1,000		1,000
	$	1,401	$	2,010

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 no allowance for credit losses at March 31, 2026 and December 31, 2025, respectively.

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 March 31, 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 $47.6 million and $49.1 million at March 31, 2026 and December 31, 2025 , respectively.

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.

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Notes to Consolidated Financial Statements (Continued)

Revenue Recognition .

Refinery Operations Revenue . We recognize revenue from refined products sales when we meet our performance obligation to the customer. We meet our performance obligation when the customer receives control of the product. The customer accepts control of the product when the product is lifted. Under bill and hold arrangements, the customer takes control of the product when added to the customer's bulk inventory as stored at the Nixon facility. We allocate a transaction price to each separately identifiable refined product load.

We consider a variety of facts and circumstances in assessing the point of a control transfer, including but not limited to: whether the purchaser can direct the use of the refined product, the transfer of significant risks and rewards, our rights to payment, and transfer of legal title. In each case, the term between the sale and when payment is due is not significant. We include incurred transportation, shipping, and handling costs in the cost of goods sold. We do not include excise and other taxes collected from customers and remitted to governmental authorities in revenue.

Tolling and Terminaling Revenue . Tolling and terminaling revenue represents fees under (i) terminal services agreements whereby a customer agrees to pay a certain fee per storage tank based on tank size over time for the storage of products and (ii) tolling agreements, whereby a customer agrees to pay a certain fee per gallon or barrel for throughput volumes moving through the naphtha stabilizer unit and a fixed monthly reservation fee for the use of the naphtha stabilizer unit.

We typically satisfy performance obligations for tolling and terminaling operations over time. We determine the transaction price at agreement inception based on the guaranteed minimum amount of revenue over the agreement term. We allocate the transaction price to the single performance obligation that exists under the agreement. We recognize revenue in the amount for which we have a right to invoice. Generally, payment terms do not exceed 30 days.

Revenue from storage tank customers may, from time to time, include fees for ancillary services, such as in-tank and tank-to-tank blending. These are optional customer services. The fixed cost under the customer's storage tank agreement does not include ancillary services fees. We consider ancillary services as a separate performance obligation under the storage tank agreement. We satisfy the performance obligation and recognize the associated fee when we complete the requested service.

Deferred Revenue . Deferred revenue represents a liability related to a revenue-producing activity as of the balance sheet date. We record unearned revenue, which usually consists of customer prepayments, when we receive the cash payment. Once we satisfy the performance obligation, we recognize revenue in conformity with U.S. GAAP.

Contract Balances . The timing of revenue recognition, billings, and cash collections results in billed accounts receivable and customer pre-payments and deposits (contract liabilities) on our consolidated balance sheet. We bill amounts as customers lift products or upon signing of bulk sales contracts. We sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities. These deposits liquidate when we recognize the revenue.

Computation of Earnings Per Share . We present basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. We calculate diluted EPS by dividing net income available to common stockholders by the diluted weighted average number of common shares outstanding. Diluted EPS includes the potential dilution that could occur if securities or other contracts to issue shares of common stock were converted to common stock that then shared in the entity's earnings. We do not currently have issued options, warrants, or similar instruments. Convertible shares, if granted, are not included in the computation of earnings per share if anti-dilutive. See "Note (13)” for additional information related to EPS.

New Accounting Standards and Disclosures

New Pronouncements Adopted . During the three months ended March 31, 2026 we did not adopt any ASUs.

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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; 1-year term; expires 04/01/2027 or notice by either party at any time of material breach or 90 days Board notice; LEH receives a management fee of 5% of all consolidated operating costs of Blue Dolphin and its subsidiaries, excluding crude costs, depreciation, amortization and interest; LEH-provided services include personnel serving in a variety of capacities across all Blue Dolphin entities, including, but not limited to corporate executives such as the principal executive officer and principal financial and accounting officer; as a result, Blue Dolphin and its subsidiaries have no employees for reporting purposes; all personnel are employed and paid by LEH.
Amended and Restated Jet Fuel Sales Agreement	LE LEH	04/01/2023	Jet fuel sales by LE to LEH; 1-year automatic renewals; LEH lifts the jet fuel from LE as needed and sells it to the DLA under preferential pricing terms due to LEH's HUBZone certification.
NPS Terminal Services Agreement	NPS LEH	11/01/2022	LEH pays NPS a tank rental fee of $ 0.2 million per month to store jet fuel at the Nixon facility; 1-year term; either party may cancel upon 60 days' prior written notice.
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 $ 0.1 million per month; the agreement expires 03/01/2027.
LE Amended and Restated Guaranty Fee Agreement	LE Jonathan Carroll	01/01/2023	Relates to payoff of LE $ 25.0 million Huntington loan; as consideration for providing his personal guarantee, Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under the LE Term Loan Due 2034.
NPS Guaranty Fee Agreement	NPS Jonathan Carroll	01/01/2023	Relates to payoff of NPS $ 10.0 million GNCU loan; as consideration for providing his personal guarantee, Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under the NPS Term Loan Due 2031.
LRM Amended and Restated Guaranty Fee Agreement	LRM Jonathan Carroll	01/01/2023	Relates to payoff of LRM $ 10.0 million Huntington loan; as consideration for providing his personal guarantee, Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal owed under the LRM Term Loan Due 2034.
Blue Dolphin Guaranty Fee Agreement	Blue Dolphin Jonathan Carroll	01/01/2023	Relates to payoff of Blue Dolphin $ 2.0 million SBA loan; as consideration for providing his personal guarantee, Jonathan Carroll receives a cash fee equal to 2.00% per annum of outstanding principal balance owed under the Blue Dolphin Term Loan Due 2051.
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 $0.003 million per month.
Ground Lease Agreement	LEH NPS	07/01/2025	LEH pays NPS a ground storage fee of $0.015 million per month to store equipment at the Nixon facility; month-to-month basis to end with a 30 days' notice of cancellation.

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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	$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

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.

Related-Party Financial Impact

Consolidated Balance Sheets.

Accounts receivable and accounts payable, related party. W e net settle amounts owed between Blue Dolphin and its subsidiaries and Affiliates under financial and operating agreements (as discussed elsewhere within this "Note (3)"). Amounts owed between the parties can vary significantly from period to period even if underlying transactions remain relatively stable based on settlement dates. We reflect any excess amounts owed by Affiliates to Blue Dolphin and its subsidiaries on our consolidated balance sheets within accounts receivable — related party. Except for debt, we reflect any excess amounts owed by Blue Dolphin and its subsidiaries to Affiliates on our consolidated balance sheets within accounts payable, related party. Accounts receivable and accounts payable, related-party as of the dates indicated was as follows:

	March 31,		December 31,
	2026		2025
	(in thousands)

Current assets
Accounts receivable, related party	$	20,780	$	8,068
Current liabilities
Accounts payable, related party		194		-

Accounts receivable, related party at March 31, 2026 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:

	March 31,			December 31
	2026			2025
	(in thousands)
LEH
Amended and Restated BDPL-LEH Loan Agreement	$	2,810		$	3,463
Line of credit, related party		9,847			9,847
LEH Total		12,657			13,310

Less: Long-term debt, related party, current portion		(2,810	)		(2,731	)
Less: Line of credit, related party		(9,847	)		(9,847	)
Long-term debt, related party, net of current portion	$	-		$	732

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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:

	March 31,			December 31
	2026			2025
	(in thousands)
LEH
Amended and Restated BDPL-LEH Loan Agreement	$	-		$	17
Jonathan Carroll
Guaranty fee agreements		68			7
		68			24

Less: Interest payable, related party - current portion		(68	)		(24	)
Long-term interest payable, related party, net of current portion	$	-		$	-

Consolidated Statements of Income.

Total revenue from operations. Revenue from Affiliates under the Amended and Restated Jet Fuel Sales Agreement and the NPS Terminal Services Agreement as of the dates indicated was as follows:

	Three Months Ended March 31,
	2026				2025
	(in thousands, except percent amounts)
Refinery operations
LEH	$	34,579	42.4	%	$	24,948	29.8	%
Third-Parties		46,146	56.6	%		57,920	69.2	%
Tolling and terminaling
LEH		585	0.7	%		540	0.6	%
Third-Parties		180	0.2	%		284	0.3	%
	$	81,490	100.0	%	$	83,692	100.0	%

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 March 31,
	2026		2025
	(in thousands)
Jonathan Carroll
Guaranty Fee Agreements
Tied to First Term Loan Due 2034	$	87	$	93
Tied to NPS Term Loan Due 2031		42		39
Tied to Second Term Loan Due 2034		36		46
Tied to Blue Dolphin Term Loan Due 2051		10		10
LEH
Amended and Restated BDPL-LEH Loan Agreement		80		106
Second Amended and Restated Affiliate Revolving Credit Agreement		205		119
	$	460	$	413

Other. BDSC received income from LEH under the office sub-lease agreement totaling $ 0.02 million for both the three months ended March 31, 2026 and 2025. NPS received lease income from LEH under the ground lease agreement totaling $0.1 million and $0.0 million for three months ended March 31, 2026 and 2025.

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Notes to Consolidated Financial Statements (Continued)

The LEH operating fee, related party under the Fifth Amended and Restated Operating Agreement totaled $0.2 million and $0.2 million for the three months ended March 31, 2026 and 2025, respectively.

Lease expense associated with the Third Amended and Restated Master Services Agreement (as discussed elsewhere within this "Note ( 3)" and in "Note ( 12)" to our consolidated financial statements) totaled $0.3 million for both the three months ended March 31, 2026 and 2025.

(4)

Revenue and Segment Information

We have two reportable business segments: (i) refinery operations, which derives revenue from refined product sales, and (ii) tolling and terminaling, which derives revenue from storage tank rental fees, ancillary services fees (such as for in-tank blending) and tolling and reservation fees for use of the naphtha stabilizer at the Nixon refinery. ‘Corporate and other’ includes costs and expenses for BDSC, BDPL, and BDPC.

Our chief operating decision maker ("CODM") is our Chief Executive Officer. For our refining segment, significant expenses relate to crude oil, fuel use, and chemicals, and other conversion costs. For our tolling and terminaling segment, significant expenses relate to fees associated with an intercompany tolling agreement. The CODM reviews segment profit or loss on a monthly and quarterly basis and considers trend analyses as well as other market factors when making decisions about resource allocation. The measure of segment assets reported on our consolidated balance sheets and reviewed by our CODM is total assets.

Revenue from Contracts with Customers.

Disaggregation of Revenue. We present revenue in the table below under ‘Segment Information’ separated by business segment because management believes this presentation is beneficial to users of our financial information.

Receivables from Contracts with Customers. We present accounts receivable from contracts with customers as accounts receivable, net on our consolidated balance sheets.

Contract Liabilities. Our contract liabilities consist of unearned revenue from customers in the form of prepayments. We include unearned revenue in accrued expenses and other current liabilities on our consolidated balance sheets. See “Note ( 8)” to our consolidated financial statements for more information related to unearned revenue.

Remaining Performance Obligations. Most of our customer contracts are settled immediately and therefore have no remaining performance obligations.

Contract Balances.

	March 31,		December 31,
	2026		2025
	(in thousands)

Accounts receivable (including related-party), beginning January 1st, of period	$	8,344	$	5,960
Accounts receivable (including related-party), end of period		26,970		8,344

Unearned revenue, beginning January 1st, of period	$	780	$	2,727
Unearned revenue, end of period		784		780

Segment Information.

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Notes to Consolidated Financial Statements (Continued)

Business segment information for the periods indicated (and as of the dates indicated) was as follows:

	Three Months Ended
	March 31,
	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	$	80,725	$	1,332	$	-		$	(567	)	$	81,490		$	82,868	$	1,391	$	-		$	(567	)	$	83,692

Crude oil, fuel use, and chemicals		57,229		-		-			-			57,229			74,576		-		-			-			74,576
Other conversion costs		3,501		-		-			(567	)		2,934			2,848		-		-			(567	)		2,281
Tolling and terminaling costs		-		112		-			-			112			-		122		-			-			122
Depreciation and amortization		498		147		-			-			645			298		342		-			-			640
Total costs of goods sold		61,228		259		-			(567	)		60,920			77,722		464		-			(567	)		77,619

LEH operating fee, related party		233		-		-			-			233			182		-		-			-			182
General and administrative expenses		1,172		-		-			-			1,172			339		88		928			-			1,355
Gain on regulatory settlement		-		-		(1,013	)		-			(1,013	)		-		-		-			-			-
Other operating expenses(2)		-		-		161			-			161			-		-		119			-			119
Depreciation and amortization		-		-		74			-			74			-		-		74			-			74
Interest, net		854		414		114			-			1,382			836		477		151			-			1,464
Total costs and expenses		63,487		673		(664	)		(567	)		62,929			79,079		1,029		1,272			(567	)		80,813

Income (loss) before income taxes		17,238		659		664			-			18,561			3,789		362		(1,272	)		-			2,879

Income tax expense		-		-		(3,831	)		-			(3,831	)		-		-		(635	)		-			(635	)

Net income (loss)	$	17,238	$	659	$	(3,167	)	$	-		$	14,730		$	3,789	$	362	$	(1,907	)	$	-		$	2,244

⁽¹⁾

Fees associated with an intercompany tolling agreement related to naphtha volumes.

⁽²⁾

Includes costs and expenses associated with our pipeline and facilities assets.

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Notes to Consolidated Financial Statements (Continued)

	Three Months Ended
	March 31,
	2026		2025
	(in thousands)
Capital expenditures
Refinery operations ⁽¹⁾	$	11	$	139
Total capital expenditures	$	11	$	139

⁽¹⁾

$0.1 million of the capital expenditures were vendor financed for the three months ended March 31, 2025.

	March 31,		December 31,
	2026		2025
	(in thousands)
Identifiable assets
Refinery operations	$	99,816	$	78,150
Tolling and terminaling		16,044		16,017
Corporate and other		3,090		4,905
Total identifiable assets	$	118,950	$	99,072

(5)

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets, as of the dates indicated, consisted of the following:

	March 31,		December 31
	2026		2025
	(in thousands)

Prepaid insurance	$	495	$	1,441
Surety bonds, current portion		905		905
Other prepaids		327		389
	$	1,727	$	2,735

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Notes to Consolidated Financial Statements (Continued)

(6)

Inventory

Inventory, as of the dates indicated, consisted of the following:

	March 31,		December 31
	2026		2025
	(in thousands)

HOBM	$	19,269	$	21,212
Naphtha		15,446		5,814
Jet fuel		2,082		3,378
Crude oil and condensate		322		186
Chemicals		158		184
AGO		393		87
Propane		27		24
LPG mix		22		7
	$	37,719	$	30,892

We incurred an inventory impairment expense of $0.1 million and $0.3 million for the three months ended March 31, 2026 and 2025.

(7)

Property, Plant and Equipment, Net

Property, plant and equipment, net, as of the dates indicated, consisted of the following:

	March 31,			December 31
	2026			2025
	(in thousands)

Refinery and facilities	$	72,776		$	72,776
Land		566			566
Other property and equipment		1,107			1,061
		74,449			74,403

Less: Accumulated depreciation and amortization		(28,753	)		(28,109	)
		45,696			46,294

Construction in progress		3,588			3,718
	$	49,284		$	50,012

(8)

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities, as of the dates indicated, consisted of the following:

	March 31,		December 31
	2026		2025
	(in thousands)

Accrued fines and penalties	$	2,242	$	3,255
Insurance		251		733
Unearned revenue from contracts with customers		784		780
Taxes payable		288		60
Other payable		243		302
Customer deposits		163		151
Board of director fees payable		188		125
	$	4,159	$	5,406

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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	$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 March 31, 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 March 31, 2026 and December 31, 2025 restricted cash totaled $1.0 million.}

⁽²⁾	^{As of March 31, 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 effective in February 2022. Loan is not forgivable.}

⁽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.}

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Outstanding Principal, Debt Issue Costs, and Accrued Interest. Third-party long-term debt, including outstanding original principal, as of the dates indicated, was as follows:

	March 31,			December 31,
	2026			2025
	(in thousands)
Huntington Loans
LE Term Loan Due 2034 (in default)	$	17,191		$	17,532
LRM Term Loan Due 2034 (in default)		7,195			7,326
GNCU Loan
NPS Term Loan Due 2031 (in default)		8,195			8,495
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		123			127
		35,004			35,780

Less: Long-term debt, net, current portion		(31,111	)		(31,830	)
Less: Unamortized debt issue costs		(1,490	)		(1,540	)
	$	2,403		$	2,410

Unamortized debt issue costs associated with the Huntington and GNCU loans, as of the dates indicated, consisted of the following:

	March 31,			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		(1,682	)		(1,632	)
	$	1,490		$	1,540

Amortization expense was less than $0.1 million for each of the three months ended March 31, 2026 and 2025.

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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:

	March 31,			December 31,
	2026			2025
	(in thousands)

SBA Economic Injury Disaster Loans
Blue Dolphin Term Loan Due 2051	$	41		$	51
LE Term Loan Due 2050		4			5
NPS Term Loan Due 2050		4			5
Huntington Loans
LE Term Loan Due 2034 (in default)		40			41
LRM Term Loan Due 2034 (in default)		52			52
GNCU Loan
NPS Term Loan Due 2031 (in default)		15			15
		156			169
Less: Accrued interest payable, current portion		(156	)		(169	)
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 March 31, 2026 and December 31, 2025 due to being in default.

Defaults.

As of March 31, 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. We can provide no assurance that: (i) our assets or cash flow will be sufficient to fully repay borrowings under secured loan agreements that are in default, either upon maturity or if accelerated, (ii) LE, LRM, or NPS will be able to refinance or restructure the debt, or (iii) third parties will provide future forbearances or default waivers, particularly if the banks with whom we have relationships fail. 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 business, the trading price of our Common Stock, and on the value of an investment in our Common Stock, and holders of our Common Stock could lose their investment in our Common Stock in its entirety. If the debt associated with secured loan agreements is accelerated and we are unable to refinance or restructure the debt or obtain default waivers, we may have to consider other options, including selling assets, raising additional debt or equity capital, cutting costs, reducing cash requirements, filing bankruptcy, or ceasing operating. 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.

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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
		●	$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
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.}

Representations, Warranties, and Covenants. The First Term Loan Due 2034, Second Term Loan Due 2034, NPS Term Loan Due 2031, BDEC Term Loan Due 2051, LE Term Loan Due 2050, and NPS Term Loan Due 2050 contain representations and warranties, affirmative and negative covenants, and events of default that we consider usual and customary for bank facilities of these types. Specifically, The First Term Loan Due 2034 and Second Term Loan Due 2034 contain quarterly debt service coverage, total combined current assets, total combined current liabilities, and total combined debt ratios and annual current and debt to net worth ratios. The First Term Loan Due 2034 also requires that a $1.0 million payment reserve account be maintained. The NPS Term Loan Due 2031 requires NPS to have an active deposit account with the lender, provide standalone audited financial statements for NPS, a wholly owned subsidiary, and meet annual maintenance of debt service coverage and current ratios. There are no covenants associated with BDEC Term Loan Due 2051, LE Term Loan Due 2050, NPS Term Loan Due 2050, and the Equipment Loan Due 2031.

(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.

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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 recorded a liability for the fair value of an ARO at the time the asset was 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:

	March 31,		December 31
	2026		2025
	(in thousands)

AROs, at the beginning of the period	$	6,025	$	2,999
Liabilities settled		-		-
Changes in estimate		-		3,026
		6,025		6,025
Less: AROs, current portion		6,025		6,025
Long-term AROs, at the end of the period	$	-	$	-

BDPL's ARO estimate was $6.0 million and $6.0 million related to decommissioning our pipeline and facilities assets at March 31, 2026 and December 31, 2025, respectively. During the twelve months ended December 31, 2025, we determined that the estimated future cost of decommissioning these assets changed, and as a result, we recorded a $3.0 million increase in our ARO liability. This increase resulted in a $3.0 million ARO asset impairment.

See "Note (14)" for additional disclosures related to our pipelines and facilities assets.

(11)

Lease Obligations

Lease Obligations

Office Lease. We maintain our corporate headquarters in Houston, Texas. In October 2024, BDSC signed a new 24-month extension, the sixth amendment, to its operating lease. The sixth amendment was deemed to be a separate contract and not a lease modification.

An Affiliate, LEH, sub-leases a portion of the Houston office space. BDSC received sub-lease income from LEH totaling $0.02 million for both the three months ended March 31, 2026 and 2025, respectively. See “Note ( 3)” to our consolidated financial statements for additional disclosures related to the Affiliate sub-lease.

Tank Lease. 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 March 31, 2026 and 2025, respectively. 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.

The following table presents the lease-related assets and liabilities recorded on the consolidated balance sheet:

		March 31,			December 31
	Balance Sheet Location	2026			2025
		(in thousands)
Assets
Operating lease ROU assets	Operating lease ROU assets	$	497		$	497
Less: Accumulated amortization on operating lease assets	Operating lease ROU assets		(376	)		(306	)

Total lease assets			121			191

Liabilities
Current
Operating lease	Current portion of lease liabilities		147			217

Noncurrent
Operating lease	Long-term lease liabilities, net of current		-			-
Total lease liabilities		$	147		$	217

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Notes to Consolidated Financial Statements (Continued)

Weighted average remaining lease term in years
Operating lease	0.42
Weighted average discount rate
Operating lease	8.25	%

The following table presents information related to lease costs incurred for operating and finance leases:

	Three Months Ended
	March 31,
	2026		2025
	(in thousands)

Operating lease costs	$	74	$	64
Short-term lease expense, related party		300		300
Total lease cost	$	374	$	364

The table below presents supplemental cash flow information related to leases as follows:

	Three Months Ended
	March 31,
	2026		2025
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating lease	$	75	$	72

As of March 31, 2026, maturities of lease liabilities and future minimum annual lease commitments that are non-cancelable for the periods indicated was as follows:

March 31,	Operating Lease
	(in thousands)

2025	$	147
2026		-
	$	147

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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
	March 31,
	2026			2025
	(in thousands)
Current
Federal	$	(518	)	$	(69	)
State		(153	)		(38	)
Deferred
Federal		(3,160	)		(528	)
Total provision for income taxes	$	(3,831	)	$	(635	)

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 March 31, 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:

	March 31,			December 31,
	2026			2025
	(in thousands)
Deferred tax assets:
NOL and capital loss carryforwards	$	4,432		$	6,668
Business interest expense		3,776			4,719
Start-up costs (crude oil and condensate processing facility)		63			85
ARO liability/deferred revenue		1,265			1,265
Other		88			82
Total deferred tax assets		9,624			12,819

Deferred tax liabilities:
Basis differences in property and equipment		(8,431	)		(8,466	)

Deferred tax assets, net	$	1,193		$	4,353

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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 no valuation allowance against our deferred tax assets as of March 31, 2026 and December 31, 2025.

At March 31, 2026, there were no 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 $16.3 million in NOL carryforwards generated before the ownership change to an annual use limitation of approximately $0.6 million per year. We may use any unused portions of the limitation in subsequent years. Because of the yearly restriction, approximately $6.7 million in NOL carryforwards generated before the 2012 ownership change will expire unused and are excluded in the NOL carryforward presented below. NOL carryforwards generated after the 2012 ownership change but before 2018 are not subject to an annual use limitation; we can use these NOL carryforwards for 20 years in addition to NOL carryforward amounts generated before the ownership change. NOL carryforwards generated beginning in 2018 may only be used to offset 80% of taxable income and are carried forward indefinitely.

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	$	3,871		$	28,374		$	32,245

Net operating losses used and expired		(494	)		-			(494	)

Balance at December 31, 2025	$	3,377		$	28,374		$	31,751

Net operating losses used and expired		(783	)		(9,871	)		(10,654	)

Balance at March 31, 2026	$	2,594		$	18,503		$	21,097

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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
	March 31,
	2026		2025
	(in thousands,
	except share and per share amounts)

Net income (loss)	$	14,730	$	2,244

Basic and diluted earnings (loss) per share	$	0.99	$	0.15
Basic and diluted shares used in computing earnings per share		14,921,968		14,921,968

Diluted EPS for the three and three months ended March 31, 2026 and 2025 was the same as basic EPS as there were no stock options or other dilutive instruments outstanding. Basic and diluted EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding.

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.

Defaults Under Secured Loan Agreements. See “Note ( 9)” to our consolidated financial statements for additional information regarding defaults under secured loan agreements with third parties and their potential effects on our business, financial condition, and results of operations.

Financing Agreements and Guarantees

Indebtedness. See “Notes ( 3) and ( 9)” to our consolidated financial statements for disclosures related to related-party and third-party indebtedness and defaults thereto.

Guarantees. Affiliates provided guarantees on certain debt of Blue Dolphin and its subsidiaries. The maximum amount of any guarantee is equal to the principal amount and accrued interest, which amounts are reduced as payments are made. See “Notes ( 3) and ( 9)” to our consolidated financial statements for additional disclosures related to related-party and third-party guarantees associated with indebtedness and defaults thereto.

Health, Safety and Environmental Matters. The operations of certain Blue Dolphin subsidiaries are subject to extensive federal, state, and local environmental, health, and safety regulations governing, among other things, the generation, storage, handling, use and transportation of petroleum products and hazardous substances; the emission and discharge of materials into the environment; waste management; characteristics and composition of jet fuel and other products; and the monitoring, reporting and control of air emissions. These operations also require numerous permits and authorizations under various environmental, health, and safety laws and regulations. Failing to obtain and comply with these permits or environmental, health, or safety laws could result in fines, penalties or other sanctions, or a revocation of our permits.

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Notes to Consolidated Financial Statements (Continued)

Contingencies - Supplier Dispute

The Company is disputing certain balances owed under its crude supply agreement. As of March 31, 2026, the Company has recorded an accounts payable balance of $18.0 million related to this supplier. The supplier has asserted that additional amounts are due; however, the Company disputes these claims. The matter primarily relates to pricing terms, and discussions with the supplier are ongoing. The Company has evaluated this matter in accordance with Accounting Standards Codification Topic 450, Contingencies. Based on the information currently available, management believes that the likelihood of loss in excess of amounts recorded ranges from remote to reasonably possible. Accordingly, no additional accrual has been recorded. While the Company does not believe a loss is probable, it is reasonably possible that a loss of up to approximately $3.4 million could be incurred. The Company is unable to estimate a more precise range of potential loss at this time. The ultimate resolution of this matter may differ from the amounts currently recorded, and such differences could have a material effect on the Company’s financial position, results of operations, or cash flows in the period in which the matter is resolved.

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.

Resolved Matters.

TCEQ Final Agreed Order. In February 2025, TCEQ approved a final agreed order between the agency and LRM in which: (i) the TCEQ acknowledged that LRM had ceased unauthorized disposal of industrial solid waste and industrial hazardous waste and (ii) LRM accepted a final penalty amount of approximately $0.4 million. LRM is paying the penalty in monthly installments over a three-year period. In June 2025, LRM submitted a third-party prepared Site Investigation Report to the TCEQ as required under the final agreed order. In February 2026, the TCEQ requested additional assessment activities by LRM following review of the Site Investigation Report. LRM has 120 days (until June 6, 2026) to comply with the TCEQ's February 2026 letter request.

Unresolved Matters

Supplemental Pipeline Bonds. To cover the obligations of such lessees and grant holders, BOEM evaluates an operator's or grant holder's financial ability to carry out present and future work obligations to determine whether the operator must provide additional security beyond minimum bonding requirements. Such obligations include the cost of decommissioning platforms and pipelines at the end of production or service activities. Once decommissioning work has been completed, the collateral backing the financial assurance is released by BOEM. In March 2018, BOEM ordered BDPL to provide an 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. BDPL appealed the INCs. In August 2025, the IBLA issued an order dismissing the appeal. In its order, the IBLA clarified that BDPL's appeal was dismissed 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). There can be no assurance that we will be able to meet additional supplemental pipeline bond requirements. If BDPL is required by BOEM to provide significant additional supplemental pipeline bonds or is assessed significant penalties under the INCs, we will experience a significant and material adverse effect on our operations, liquidity, and financial condition. We cannot predict the outcome of the supplemental pipeline bond INCs. Accordingly, we did not record a liability on our consolidated balance sheets as of March 31, 2026 and December 31, 2025. At both March 31, 2026 and December 31, 2025, BDPL maintained $0.9 million in cash-backed pipeline bonds issued to BOEM through RLI Corp.

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Notes to Consolidated Financial Statements (Continued)

Offshore Platform Inspections, Decommissioning Obligations, INCs, and Civil Penalties. Until decommissioning, BSEE, PHMSA, and the U.S. Coast Guard, as applicable, require lessees and grant holders to inspect and maintain platforms and other structures in accordance with regulatory requirements.

Platform Inspection Obligation. We are required by BSEE and the U.S. Coast Guard to perform annual structural inspections of our offshore platform, as well as to perform monthly platform checks of navigational aids, fog horns, and lifesaving equipment. On April 9, 2025, BSEE issued BDPL and INC for failing to conduct required pollution inspections at the prescribed or approved intervals during the months of September 2024 and March 2025. BDPL corrected the INC on April 22, 2025, which was reviewed and approved by BSEE on June 3, 2025. On January 7, 2026, BSEE issued BDPL an INC for failing to perform a Level 3 inspection on the GA-288C platform. On January 26, 2026 BDPL requested an extension from BSEE. On February 2, 2026, BSEE granted BDPL's extension request to July 31, 2026.

Decommissioning Obligations. BSEE mandated that BDPL's pipelines and facilities assets, including its platform, offshore in federal waters, be decommissioned due to their extended period of inactivity. Beginning in mid-2025, management used a third-party consultant to conduct a request for bid process to decommission BDPL's offshore assets. In October 2025, the consultant completed its review, which resulted in final project bids that were double what management expected. As a result, management increased Blue Dolphin's ARO liability by $3.0 million at September 30, 2025. Management is currently working with the consultant to fulfill BDPL's decommissioning obligations to BSEE, PHMSA, and the USACOE related to its offshore assets in federal waters. BDPL's delay in decommissioning its offshore assets does not relieve BDPL of its obligations to comply with BSEE's mandate or of BSEE's authority to issue INCs or impose civil penalties. At March 31, 2026 , we accrued $2.2 million on our balance sheet within accrued expenses and other current liabilities related to BSEE civil penalties.

BSEE INCs and Civil Penalties. BDPL has outstanding INCs issued from BSEE related to its GA-288C platform, PSN 8437, PSN 13101, and PSN 15635. In addition, BDPL has two open civil penalties with the agency (Civil Penalty G-2024-054 and Civil Penalty G-2024-056). In April 2026, BSEE and BDPL reached a settlement agreement regarding the outstanding BSEE INCs and the two BSEE civil penalties (the "BSEE Settlement Agreement"). The confidential BSEE Settlement Agreement requires specific payment and performance obligations on the part of BDPL. In April 2026, BSEE and BDPL reached a settlement agreement regarding the outstanding BSEE INCs and the two BSEE civil penalties (the "BSEE Settlement Agreement"). The confidential BSEE Settlement Agreement requires specific payment and performance obligation on the part of BDPL. During the three months ended March 31, 2026, we reversed a portion of the previous accrual for penalties associated with these matters in Gain on regulatory settlement.

The following BDPL civil penalty referral was closed:

●

Civil Penalty G-2024-010. In April 2024, BDPL received a civil penalty referral letter from BSEE for failing to remediate certain BSEE INCs issued in September 2023 associated with its GA-288C junction platform offshore in federal waters. Specifically, remediation was associated with BSEE INC Nos. E120 (physically boarding platform monthly, performing visual inspections for environmental pollution, and maintaining monthly inspection records), G112 (timely removing 55-gallon drum leaking oil on platform deck), L141 (timely flushing and filling Pipeline Segment No. 13101 with inhibited seawater), and L142 (timely decommissioning in place Pipeline Segment No. 13101). In March 2025, BSEE calculated a proposed civil penalty of $1.1 million against BDPL. In April 2025, BDPL exercised its right to request a meeting with the penalty reviewing officer to submit additional information for consideration. BSEE held the meeting in June 2025, and in July 2025 the agency sent BDPL a Notice of Civil Penalty Case Dismissal indicating no penalty would be assessed for the associated INCs.

There can be no assurance that BDPL will be able to meet the required payment requirements, 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 BSEE Settlement Agreement as intended, BSEE may exercise its rights under supplemental pipeline bonds or exercise any other rights and remedies it has available.

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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.

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, 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 84.9% 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 quarter of 2026, gross profits were $14.4 million more favorable as compared to to the first quarter of 2025. Blue Dolphin's net income increased to $14.7 million, or $0.99 per share, for the three months ended March 31, 2026 compared to net income of $2.2 million, or $0.15 per share, for the three months ended March 31, 2025.

Our full operating results for the three months ended March 31, 2026 and March 31, 2025, including results by segment, can be found within ‘Results of Operations.’

General Trends and Outlook

Uncertainties remain surrounding general macroeconomic conditions related to inflation, tariffs, interest rates, capital and credit markets, and geopolitical tensions (including military conflicts in Ukraine and continued escalations 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. We do not operate or own assets in Russia, Ukraine, or the Middle East. However, 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, below are key factors that impacted our results of operations so far in 2026 and will likely impact our results of operations for the rest of 2026:

●	Light crude oil commodity pricing and demand.

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Management’s Discussion and Analysis (Continued)

●	Jet fuel commodity pricing and demand.

●	Naphtha commodity pricing and demand.

We can provide no guarantees that: 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. Further, if lenders exercise their rights and remedies under secured loan agreements that are in default, our business, financial condition, and results of operations will be materially adversely affected.

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. If we are unable to refinance or restructure our debt, certain of which is currently in default or waive defaults and lenders exercise their rights with respect to the debt, we may not, in the short term, be able to purchase crude oil and condensate or meet debt payment obligations. 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, raising additional debt or equity capital, filing bankruptcy, or ceasing operations.

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. 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.

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

● Leverage existing infrastructure to engage in renewable energy projects.

● Take advantage of market opportunities as they arise.

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, (iv) having favorable margins on refined products, and (v) collaborating with new partners to develop and finance clean energy projects. 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, negotiating with our creditors to restructure our applicable obligations, filing bankruptcy, or ceasing operating. 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.

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Management’s Discussion and Analysis (Continued)

Optimize Existing Asset Base. During the three months ended March 31, 2026, the Nixon facility experienced 6 days of downtime, which relates to 4 days of maintenance and repairs 1 day of inventory management and 1 day of utility failure. Comparatively, the Nixon facility experienced 1 day of downtime for the three months ended March 31, 2025, which related to maintenance and repairs.

Improve Operational Efficiencies. During the three months ended March 31, 2026 we optimized the efficiency of the Nixon refinery's flare gas monitoring system. Improvements to the flare gas system will reduce greenhouse gas emissions, optimize combustion efficiency, and enhance safety.

Seize Market Opportunities. Management continues to review renewable energy growth opportunities with potential commercial partners. Although the One Big Beautiful Bill Act under the Trump Administration dismantled Biden-era renewable energy incentives, cancelled loan guarantees, froze grants, and repealed tax credits, the evolving policy environment is creating new opportunities. Management will continue to seek ways to leverage our existing assets through strategic investments in new technologies where economically feasible.

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

Downstream Operations. The refinery operations business segment consists of the following assets and operations:

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

Nixon, Texas

Crude Oil and Condensate Supply. On December 29, 2023, we entered a crude supply agreement with MVP, effective January 1, 2024. This agreement provides a firm source of light-sweet Eagle Ford crude oil to the Nixon facility under improved credit terms, and the crude supply agreement renews on a quarterly evergreen basis. Related to the crude supply agreement, MVP stores crude oil at the Nixon facility under a terminal services agreement. Management believes that MVP can provide us with adequate amounts of crude oil and condensate for the foreseeable future. Because we obtain our crude oil and condensate without the benefit of a long-term crude supply agreement, our exposure to the risks associated with volatile crude oil prices may increase, crude oil transportation costs could increase, and our liquidity may be reduced. Similarly, if producers experience crude supply constraints and increased transportation costs, our crude acquisition costs may rise, or we may not receive sufficient amounts to meet our needs, which could result in refinery downtime and could materially affect our business, financial condition, and results of operations. If we are unable to manage this, we may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operations.

Products and Markets. Our market is the Gulf Coast region of the U.S., which is represented by the EIA as PADD 3. We sell our products primarily in the U.S. within PADD 3. Occasionally, we sell refined products to customers that export to other countries, such as naphtha and HOBM to Mexico. The Nixon refinery’s product slate is adjusted based on market demand. We currently produce a single finished product – jet fuel – and several intermediate products, including naphtha, HOBM, and AGO. An Affiliate, LEH, purchases most of our jet fuel under the Amended and Restated Jet Fuel Sales Agreement; LEH then sells the jet fuel to the DLA under preferential pricing terms due to the Affiliate's HUBZone certification. The agreement with LEH has a one-year term with automatic renewals. Our intermediate products are primarily sold in nearby markets to wholesalers and refiners as a feedstock for further blending and processing.

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Management’s Discussion and Analysis (Continued)

Customer s. Customers for our refined products include distributors, wholesalers, and refineries primarily in the lower portion of the Texas Triangle (the Houston – San Antonio – Dallas/Fort Worth area). An Affiliate, LEH, is a significant customer. Most of our contracts require our customers to prepay, with us selling them fixed quantities or minimum quantities of finished and intermediate petroleum products. Many of these prepay arrangements are subject to periodic renegotiation on a forward-looking basis, which could result in higher or lower relative prices on future sales of our refined products. From time to time, we sell bulk product from point of shipment. We extend credit terms to allow the time required for transport from shipment point to destination and for the destination-date pricing to finalize.

Competition. Most of our competitors are larger than us and are engaged on a national or international level in many segments of the oil and gas industry, including exploration and production, gathering and transportation, and marketing. These competitors may have greater flexibility in responding to or absorbing market changes occurring in one or more of these business segments. We compete primarily based on cost. Due to the low complexity of our simple “topping unit” refinery, we can be relatively nimble in adjusting our refined products slate because of changing commodity prices, market demand, and refinery operating costs.

Safety and Downtime. We operate the refinery in a manner that is materially consistent with industry safety practices and standards. EPA, OSHA, and comparable state and local regulatory agencies provide oversight for personnel safety, process safety management, and risk management to prevent or minimize the accidental release of toxic, reactive, flammable, or explosive chemicals. Our storage tanks are equipped with leak detection devices. We also have response and control plans in place for spill prevention and emergencies.

The Nixon refinery periodically undergoes planned and unplanned temporary shutdowns. We periodically complete a planned turnaround to repair, restore, refurbish, or replace refinery equipment. The timing of planned turnarounds is adjusted to capitalize on favorable market conditions. Occasionally, unplanned shutdowns occur. Unplanned downtime can occur for a variety of reasons. Common reasons for unplanned downtime include repair/replacement of disabled equipment, crude deficiencies associated with cash constraints, extreme temperatures (high or low), and power outages.

We are particularly vulnerable to operational disruptions because all our refining operations occur at a single facility. Shutdowns for maintenance may result in lost margin opportunity, potential increased maintenance expense, and reduced refined products inventory, which could adversely impact our ability to meet our payment obligations.

Midstream Operations. Our tolling and terminaling segment consists of the following assets and operations:

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

Products and Customers. The Nixon facility’s petroleum storage tanks and infrastructure are primarily suited for crude oil and condensate and refined products, such as naphtha, jet fuel, diesel, and fuel oil. Our storage customers are typically from the lower portion of the Texas Triangle (the Houston – San Antonio – Dallas/Fort Worth area). Shipments are received and redelivered from the Nixon facility via third party trucks.

Operations Safety. Our midstream operations are operated in a manner materially consistent with industry safe practices and standards. These operations are subject to OSHA regulations and comparable state and local regulators. Storage tanks used for terminal operations are designed for crude oil and condensate and refined products, and most are equipped with appropriate controls that minimize emissions and promote safety. Our terminal operations have response and control plans, spill prevention and other programs to respond to emergencies.

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Management’s Discussion and Analysis (Continued)

Inactive Operations. We own pipeline and facilities assets and have working interests in offshore oil and gas assets. These assets are inactive. Our pipeline assets were fully impaired in 2016 and our working interests in offshore oil and gas wells were fully impaired in 2011. Our pipeline assets and oil and gas working interests had no revenue during each of the three months ended March 31, 2026 and 2025.

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

Pipeline and Facilities Safety. Although our pipeline and facility assets are inactive, they require upkeep and maintenance and are subject to safety regulations under OSHA, PHMSA, BOEM, BSEE, and comparable state and local regulators. We have response and control plans, spill prevention and other programs to respond to emergencies related to these assets.

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.

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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.

Q1 2026 Versus Q1 2025.

Overview. Net income for 2026 was $14.7 million or $ 0.99 per share, compared to net income of $2.2 million, or $ 0.15 per share, in 2025. The $12.5 million, or $0.84 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 $81.5 million for 2026 compared to total revenue from operations of $83.7 million for 2025, representing a decrease of $2.2 million. The decrease in 2026 related to declines in both refinery operations and tolling and terminaling revenue. Refinery operations revenue in 2026 decreased primarily due to an 18.0% decrease in sales volume partially offset by higher market pricing. 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 $60.9 million for 2026 compared to total cost of goods sold of $77.6 million for 2025, representing a decrease of 21.5%. The decrease in 2026 related to product sales mix and an 18.0% decrease in sales volumes.

Gross Profit. Gross profit totaled $20.6 million for 2026 compared to gross profit of $6.1 million for 2025. More favorable gross margins offset by a decrease in sales volume positively impacted refinery operations gross profit in 2026 compared to 2025.

LEH Operating Fee, Related Party. For 2026 the LEH operating fee, related party totaled $0.2 million compared to $0.2 million for 2025.

General and Administrative Expenses. General and administrative expenses totaled $1.2 million in 2026 compared to general and administrative expenses of $1.4 million in 2025. The $0.2 million, or 14.3%, decrease in 2026 primarily related to a reduction in regulatory penalties.

Gain on regulatory settlement. BDPL has outstanding INCs issued from BSEE related to its GA-288C platform, PSN 8437, PSN 13101, and PSN 15635. In addition, BDPL has two open civil penalties with the agency (Civil Penalty G-2024-054 and Civil Penalty G-2024-056). In April 2026, BSEE and BDPL reached a settlement agreement regarding the outstanding BSEE INCs and the two BSEE civil penalties (the "BSEE Settlement Agreement"). The confidential BSEE Settlement Agreement requires specific payment and performance obligations on the part of BDPL. In April 2026, BSEE and BDPL reached a settlement agreement regarding the outstanding BSEE INCs and the two BSEE civil penalties (the "BSEE Settlement Agreement"). The confidential BSEE Settlement Agreement requires specific payment and performance obligation on the part of BDPL. During the three months ended March 31, 2026, we reversed a portion of the previous accrual for penalties associated with these matters in Gain on regulatory settlement.

Interest and Other Non-Operating Expenses, Net. Total other expense in 2026 was $1.4 million compared to $1.5 million in 2025.

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Management’s Discussion and Analysis (Continued)

Consolidated EBITDA. Consolidated EBITDA in 2026 totaled $20.7 million compared to $5.1 million in 2025 representing an increase of $15.6 million. The increase in 2026 was related to more favorable gross margins partially offset by lower sales volumes. See Non-GAAP Measures, below, for a reconciliation to GAAP.

	Three Months Ended
	March 31,
	2026			2025
	(in thousands)

Total revenue from operations	$	81,490		$	83,692

Total costs of good sold		60,920			77,619

Gross profit		20,570			6,073

LEH operating fee, related party		233			182
Other operating expenses		161			119
General and administrative expenses		1,172			1,355
Gain on regulatory settlement		(1,013	)		-
Depreciation and amortization		74			74
Interest, net		1,382			1,464
Total costs and expenses		2,009			3,194

Income before income taxes		18,561			2,879

Income tax benefit (expense)		(3,831	)		(635	)

Net income (loss)	$	14,730		$	2,244

Income (loss) per common share
Basic	$	0.99		$	0.15
Diluted	$	0.99		$	0.15

	Three Months Ended
	March 31,
	2026		2025
	(in thousands)
Income before income taxes	$	18,561	$	2,879

Add: depreciation and amortization		719		714
Add: interest, net		1,382		1,464
Consolidated EBITDA	$	20,662	$	5,057

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.

Q1 2026 Versus Q1 2025

Total refined product sales by distillation (from light to heavy) for the periods indicated consisted of the following:

	Three Months Ended March 31,
	2026				2025
	(in thousands, except percent amounts)
LPG mix	$	172	0.2	%	$	-	0.0	%
Naphtha		9,385	11.6	%		15,881	19.2	%
Jet fuel		34,549	42.8	%		28,223	34.1	%
HOBM		21,283	26.4	%		17,745	21.4	%
AGO		15,336	19.0	%		21,019	25.3	%
	$	80,725	100.0	%	$	82,868	100.0	%

Refinery Downtime. Refinery downtime increased to 6 days in Q1 2026 from 1 day in Q1 2025. Refinery downtime in Q1 2026 related to maintenance and repairs (1 day), utility failure (1 day) and inventory management (1 days). Refinery downtime in Q1 2025 related to maintenance and repairs.

Refinery Operations Revenue. Refinery operations revenue was $80.7 million for Q1 2026 compared to $83.0 million for Q1 2025, representing a decrease of 2.7%. The decrease in Q1 2026 related to lower sales volume partially offset by more favorable market pricing.

Cost of Goods Sold. Cost of goods sold for refinery operations was $61.2 million for Q1 2026 compared to $77.7 million for Q1 2025, representing a decrease of 21.2%. The decrease in Q1 2026 was related to the product sales mix and lower crude pricing.

LEH Operating Fee, Related Party. LEH operating fee for Q1 2026 was $0.2 million compared to $0.2 million for Q1 2025.

Refining EBITDA. Refining EBITDA was $18.6 million in Q1 2026 compared to $4.9 million in Q1 2025, representing an increase of 277.6%. The significant increase in Q1 2026 was related to more favorable gross margins. See Non-GAAP Measures, below, for a reconciliation to GAAP.

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Management’s Discussion and Analysis (Continued)

Refining Operations EBITDA per Bbl. On a per barrel basis, refining EBITDA was $23.24 for 2026 compared to $5.04 for 2025, representing an increase of $18.20 per barrel. The increase in 2026 related to more favorable gross margins.

	Three Months Ended
	March 31,
	2026		2025
	(in thousands)

Refinery operations revenue	$	80,725	$	82,868

Crude oil, fuel use, and chemicals		57,229		74,576
Other conversion costs		3,501		2,848
Depreciation and amortization		498		298
Cost of goods sold		61,228		77,722

LEH operating fee, related party		233		182
General and administrative expenses		1,172		339
Interest, net		854		836
Total costs and expenses		63,487		79,079

Income before income taxes		17,238		3,789

Add: depreciation and amortization		498		298
Add: interest, net		854		836
Refining EBITDA	$	18,590	$	4,923

Sales (Mbbls)		800		976

Refining operations EBITDA per bbl	$	23.24	$	5.04

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.

Q1 2026 Versus Q1 2025

Tolling and Terminaling Total Revenue. Tolling and terminaling total revenue was $1.3 million in Q1 2026 compared to $1.4 million in Q1 2025, representing a decrease of 7.1%. The decrease in Q1 2026 related to lower tank rental fees and a decrease in the number of tanks rented.

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Management’s Discussion and Analysis (Continued)

Tolling and Terminaling EBITDA. We had tolling and terminaling EBITDA of $1.2 million in Q1 2026 compared to $1.2 million in Q1 2025.

	Three Months Ended
	March 31,
	2026		2025
	(in thousands)

Tolling and terminaling revenue	$	1,332	$	1,391

Tolling and terminaling costs		112		122
Depreciation and amortization		147		342
Cost of goods sold		259		464

General and administrative expenses		-		88
Interest, net		414		477
Total costs and expenses		673		1,029

Income before income taxes		659		362

Add: depreciation and amortization		147		342
Add: interest, net		414		477
Tolling and terminaling EBITDA	$	1,220	$	1,181

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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 months ended March 31, 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
	March 31,
	2026								2025
	Refinery Operations		Tolling & Terminaling		Corporate & Other		Total		Refinery Operations		Tolling & Terminaling		Corporate & Other			Total
	(in thousands)

Income (loss) before income taxes	$	17,238	$	659	$	664	$	18,561	$	3,789	$	362	$	(1,272	)	$	2,879

Add: depreciation and amortization		498		147		74		719		298		342		74			714
Add: interest, net		854		414		114		1,382		836		477		151			1,464

EBITDA	$	18,590	$	1,220	$	852	$	20,662	$	4,923	$	1,181	$	(1,047	)	$	5,057

Capital Resources and Liquidity

Working Capital.

As of March 31, 2026 and the filing date of this report, certain conditions and events existed, in the aggregate, that caused management to evaluate Blue Dolphin's ability to continue as a going concern. Those conditions and events included historical and current working capital deficits and significant debt in default. Management believes that we have sufficient liquidity to meet our obligations as they become due through the generation of cash flows from operations and liquidation of current working capital amounts for a reasonable period (defined as one year from the issuance of these financial statements). Management acknowledges that uncertainty remains related to future operating margins; however, management has a reasonable expectation of Blue Dolphin's ability to generate adequate working capital for, amongst other requirements, purchasing crude oil and condensate and making payments on our long-term debt.

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Management’s Discussion and Analysis (Continued)

Liquidity. Cash and cash equivalents totaled $0.4 million and $1.0 million at March 31, 2026 and December 31, 2025, respectively, representing a decrease of $0.6 million. A significant portion of our liquidity at March 31, 2026 was invested in inventory and accounts receivable. Restricted cash, current totaled $1.0 million at both March 31, 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 $20.8 million and $8.1 million at March 31, 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, raising additional debt or equity capital, filing bankruptcy, or ceasing operations.

Sources and Use of Cash.

Components of Cash Flows.

	Three Months Ended
	March 31,
	2026			2025
	(in thousands)
Cash Flows Provided By (Used In):
Operating activities	$	831		$	(1,727	)
Investing activities		(11	)		-
Financing activities		(1,429	)		2,937
Increase (decrease) in Cash and Cash Equivalents	$	(609	)	$	1,210

Cash Flow from Operations. We generated $0.8 million in cash flow from operations during the three months ended March 31, 2026 compared to using $1.7 million in cash flow from operations during the three months ended March 31, 2025. The $2.6 million increase in cash flow provided by operations between the periods was primarily do to more favorable gross margins from the refining segment in 2026.

Capital Expenditures. We spent $0.0 million in capital expenditures for both the three months ended March 31, 2026 and 2025, however, we incurred $0.1 million in vendor financed capital expenditures during the three months ended March 31, 2025. Due to continued 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 anticipate continuing to limit 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.

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Management’s Discussion and Analysis (Continued)

Financing Activities. During the three months ended March 31, 2026, Blue Dolphin made payments on debt principal totaling $1.4 million compared to payments on debt principal totaling $2.1 million for the three months ended March 31, 2025. Proceeds from debt totaled $0.0 million for the three months ended March 31, 2026 compared to proceeds from debt totaling $5.1 for the three months ended March 31, 2025. In 2025, proceeds from debt related to the Second Amended and Restated Affiliate Revolving Credit Agreement.

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

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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 March 31, 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 March 31, 2026 and December 31, 2025 restricted cash totaled $1.0 million.}

⁽²⁾	^{As of March 31, 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.}

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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 new 24-month extension, the sixth amendment, to its operating lease. The sixth amendment was deemed to be a separate contract and not a lease modification. The first two months of the lease cover the holdover period of September and October 2024 wherein management negotiated the lease with the landlord; BDSC was not subject to a holdover rate during the holdover period. During months 3 through 12, which began on November 1, 2024, the landlord reduced the annual base rent to $29.00 per square foot. During months 13 through 24 the annual base rent increased to $30.00 per square foot. As additional rent, BDSC pays a proportionate share of basic building costs (e.g., utilities) up to a maximum of $1,500 per month. The total rental area under the sixth amendment is 9,961 square feet. See "Part I, Item 1. Financial Statements —Note (11)" to our consolidated financial statements for additional disclosures related to the BDSC office lease.

An Affiliate, LEH, sub-leases a portion of the Houston office space. BDSC received sub-lease income from LEH totaling $0.02 million and $0.01 million for the three months ended March 31, 2026 and 2025. NPS received ground lease income from LEH totaling $0.1 million and $0.0 million for the three months ended March 31, 2026 and 2025.

Tank Lease. 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 March 31, 2026 and 2025, respectively. 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.

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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.

	March 31,			December 31,
	2026			2025
	(in thousands)
Huntington Loans
LE Term Loan Due 2034 (in default)	$	17,191		$	17,532
LRM Term Loan Due 2034 (in default)		7,195			7,326
GNCU Loan
NPS Term Loan Due 2031 (in default)		8,195			8,495
LEH
Line of credit payable, related party		9,847			9,847
Amended and Restated BDPL-LEH Loan Agreement		2,810			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		123			127
	47,661			49,090

Less: Line of credit, related party		(9,847	)		(9,847	)
Less: Current portion of long-term debt, net		(33,921	)		(34,561	)
Less: Unamortized debt issue costs		(1,490	)		(1,540	)
	$2,403			$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 March 31, 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:

	March 31,			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		(1,682	)		(1,632	)
	$	1,490		$	1,540

Amortization expense was less than $0.1 million for the three months ended March 31, 2026 and 2025.

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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:

	March 31,			December 31,
	2026			2025
	(in thousands)

LEH
Amended and Restated BDPL-LEH Loan Agreement	$	-		$	17
Jonathan Carroll
Guaranty fee agreements		68			7
Huntington Loans
LE Term Loan Due 2034 (in default)		40			41
LRM Term Loan Due 2034 (in default)		52			52
GNCU Loan
NPS Term Loan Due 2031 (in default)		15			15
SBA Economic Injury Disaster Loans
Blue Dolphin Term Loan Due 2051		41			51
LE Term Loan Due 2050		4			5
NPS Term Loan Due 2050		4			5
	224			193
Less: Accrued interest payable, current portion		(224	)		(193	)
Long-term interest payable, net of current portion	$	-		$	-

Defaults. As of March 31, 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. We can provide no assurance that: (i) our assets or cash flow will be sufficient to fully repay borrowings under the secured loan agreements that are in default, either upon maturity or if accelerated, (ii) LE or NPS will be able to refinance or restructure the debt, or (iii) the third party will provide a future forbearance or default waiver. 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 business operations, including crude oil and condensate procurement and our customer relationships; financial condition; and results of operations. 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. If we are unable to manage this, we may have to consider other options, such as selling assets, raising additional debt or equity capital, filing bankruptcy, or ceasing operations.

Proceeds from Debt. Proceeds from debt totaled $0.0 million for the three months ended March 31, 2026 compared to proceeds from debt totaling $5.1 million for the three months ended March 31, 2025. In 2025, proceeds from debt related to the Second Amended and Restated Affiliate Revolving Credit Agreement.

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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			March 31,
Three Months Ended	Customers		from Operations			(in millions)

March 31, 2026		2		62.0	%	$	20.8
March 31, 2025		3		67.7	%	$	8.3

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 43.2% and 30.8% of our total revenue from operations for the three months ended March 31, 2026 and 2025 respectively. The Affiliate represented $20.8 million and $8.3 million in accounts receivable, related party at March 31, 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 March 31, 2026 and December 31, 2025, our cash balances (including restricted cash) exceeded the FDIC insurance limit per depositor by $1.1 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" and "Part II, Item 1. Legal Proceedings—Unresolved Matters—RLI Corp. Surety 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—Resolved Matters—TCEQ Final Agreed Order."

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. See "Part I, Item 1. Financial Statements and Supplementary Data - Note (1) and “Part II, Item 8. 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.

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 relates to impairment of long-lived assets, asset retirement obligations, and valuation allowance for deferred tax assets, as described in Item 7 of our Annual Report on Form 10-k for the year ended December 31, 2025.

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Management’s Discussion and Analysis (Continued)

New Accounting Standards and Disclosures

New Pronouncements Adopted. During the three months ended March 31, 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

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 three months ended March 31, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

Resolved Matters

TCEQ Final Agreed Order. In February 2025, TCEQ approved a final agreed order between the agency and LRM in which: (i) the TCEQ acknowledged that LRM had ceased unauthorized disposal of industrial solid waste and industrial hazardous waste and (ii) LRM accepted a final penalty amount of approximately $0.4 million. LRM is paying the penalty in monthly installments over a three-year period. In June 2025, LRM submitted a third-party prepared Site Investigation Report to the TCEQ as required under the final agreed order. In February 2026, the TCEQ requested additional assessment activities by LRM following review of the Site Investigation Report. LRM has 120 days (until June 6, 2026) to comply with the TCEQ's February 2026 letter request.

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Legal Proceedings (Continued)

Unresolved Matters

BOEM Supplemental Pipeline Bonds.

To cover the obligations of such lessees and grant holders, BOEM evaluates an operator's or grant holder's financial ability to carry out present and future work obligations to determine whether the operator must provide additional security beyond minimum bonding requirements. Such obligations include the cost of decommissioning platforms and pipelines at the end of production or service activities. Once decommissioning work has been completed, the collateral backing the financial assurance is released by BOEM. In March 2018, BOEM ordered BDPL to provide an 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. BDPL appealed the INCs. In August 2025, the IBLA issued an order dismissing the appeal. In its order, the IBLA clarified that BDPL's appeal was dismissed 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). There can be no assurance that we will be able to meet additional supplemental pipeline bond requirements. If BDPL is required by BOEM to provide significant additional supplemental pipeline bonds or is assessed significant penalties under the INCs, we will experience a significant and material adverse effect on our operations, liquidity, and financial condition. We cannot predict the outcome of the supplemental pipeline bond INCs. Accordingly, we did not record a liability on our consolidated balance sheets as of March 31, 2026 and December 31, 2025. At both March 31, 2026 and December 31, 2025, BDPL maintained $0.9 million in cash-backed pipeline bonds issued to BOEM through RLI Corp.

Offshore Platform Inspections, Decommissioning Obligations, INCs, and Civil Penalties.

Until decommissioning, BSEE, PHMSA, and the U.S. Coast Guard, as applicable, require lessees and grant holders to inspect and maintain platforms and other structures in accordance with regulatory requirements.

Platform Inspection Obligation.

We are required by BSEE and the U.S. Coast Guard to perform annual structural inspections of our offshore platform, as well as to perform monthly platform checks of navigational aids, fog horns, and lifesaving equipment. On April 9, 2025, BSEE issued BDPL and INC for failing to conduct required pollution inspections at the prescribed or approved intervals during the months of September 2024 and March 2025. BDPL corrected the INC on April 22, 2025, which was reviewed and approved by BSEE on June 3, 2025. On January 7, 2026, BSEE issued BDPL an INC for failing to perform a Level 3 inspection on the GA-288C platform. On January 26, 2026 BDPL requested an extension from BSEE. On February 2, 2026, BSEE granted BDPL's extension request to July 31, 2026.

Decommissioning Obligations.

BSEE mandated that BDPL's pipelines and facilities assets, including its platform, offshore in federal waters, be decommissioned due to their extended period of inactivity. Beginning in mid-2025, management used a third-party consultant to conduct a request for bid process to decommission BDPL's offshore assets. In October 2025, the consultant completed its review, which resulted in final project bids that were double what management expected. As a result, management increased Blue Dolphin's ARO liability by $3.0 million at September 30, 2025. Management is currently working with the consultant to fulfill BDPL's decommissioning obligations to BSEE, PHMSA, and the USACOE related to its offshore assets in federal waters. BDPL's delay in decommissioning its offshore assets does not relieve BDPL of its obligations to comply with BSEE's mandate or of BSEE's authority to issue INCs or impose civil penalties.

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Legal Proceedings (Continued)

BSEE INCs and Civil Penalties.

BDPL has outstanding INCs issued from BSEE related to its GA-288C platform, PSN 8437, PSN 13101, and PSN 15635. In addition, BDPL has two open civil penalties with the agency (Civil Penalty G-2024-054 and Civil Penalty G-2024-056). In April 2026, BSEE and BDPL reached a settlement agreement regarding the outstanding BSEE INCs and the two BSEE civil penalties (the "BSEE Settlement Agreement"). The confidential BSEE Settlement Agreement requires specific payment and performance obligations on the part of BDPL. At March 31, 2026, we accrued $2.2 million on our balance sheet within accrued expenses and other current liabilities related to BSEE civil penalties.

The following BDPL civil penalty referral was closed:

●

Civil Penalty G-2024-010. In April 2024, BDPL received a civil penalty referral letter from BSEE for failing to remediate certain BSEE INCs issued in September 2023 associated with its GA-288C junction platform offshore in federal waters. Specifically, remediation is associated with BSEE INC Nos. E120 (physically boarding platform monthly, performing visual inspections for environmental pollution, and maintaining monthly inspection records), G112 (removing 55-gallon drum leaking oil on platform deck), L141 (flushing and filling Pipeline Segment No. 13101 with inhibited seawater), and L142 (decommissioning in place Pipeline Segment No. 13101). In March 2025, BSEE calculated a proposed civil penalty of $1.1 million against BDPL. In April 2025, BDPL exercised its right to request a meeting with the penalty reviewing officer to submit additional information for consideration. BSEE held the meeting, which reviewing officers combined with Civil Penalties G-2024-054 and G-2024-056 above, on June 11, 2025. On July 16, 2025, BSEE sent BDPL a Notice of Civil Penalty Case Dismissal that indicated that no penalty would be assessed against BDPL based on the underlying INCs. For the three months ended March 31, 2026, we reversed the previous accrual for penalties associated with this matter in General and administrative expenses.

Default under a Secured Loan Agreement. As of March 31, 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 our business, financial condition, and results of operations. If the lenders exercises their rights and remedies due to the defaults under our secured loan agreement, our business, financial condition, and results of operations will be materially adversely affected.

ITEM 1A. RISK FACTORS

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.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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.

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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
	(Registrant)


May 15, 2026	By:	/ s / BRYCE D. KLUG
		Bryce D. Klug Treasurer and Assistant Secretary
		(Principal Financial and Accounting Officer)

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