Blue Dolphin Energy Company (BDCO)

[mrholty]

Littlefish-
I agree with much of what you write on smallcaps and mgmt for some and I can’t be suspicious in how BDCO came about. Carroll owned the Plant and sold it to Lazarus. He could have kept 100% of it but I think he needed the capital to get the plant running. (to be honest I need to spend more time looking at this)
I did want to post about your thoughts on Carroll/Lazarus skimming $750k off the top each month. My first take on this was like you but I’ve realized that he is running a tight ship. In essence BDCO is paying to run the plant (up to $750k per month but with penalties and incentives). Because of this I look at what they pay to refine a barrel and I include mgmt. costs and for the Q it was around $3.68 a barrel and is considerably less than other larger peers (I allocate almost all expenses to the refinery as I consider the pipeline and mgmt. expenses to be fixed). It is also basically flat to prior quarters. (they report a lower number in the $2’s). Because of that I don’t think you can take the OI and add back in $9M. Either you pay this company or you pay your own staff.

Also note that corporate expenses are down by 25% YOY so they watch that closely and would be a way to suck money out of the company as well via consulting or other agreements.Nothing I see here is sketchy but I am watching closely. When the founder owns 80% you easily could get squashed. If this changes I’ll be leaving.

Other things that make sleep well at night is the fact that mgmt. has signed their own names and collateral on the loans. I’ll be happy when the pay off the $1.3M Notre Dame Loan and its 16% interest in 2016. I’d like to see them pay it early but they just extended it from 2015 and they do need a cash balance I’m ok with it. The rest of their debt is at 5.75 – 6.00% if I’m not mistaken and appear to pay down debt aggressively as the covenants allow.

Operationally, they still have the ability to increase both the daily output from 11.8k bbls/day to the permitted amount of 15k/day and reduce the days of downtime. Q1 of last year they had no downtime and ran at 81% of daily capacity. Both historical highs for the company. They purposely took 7 days of downtime last summer to do capital improvements (see the $1.4M spend) and they also are spending $500k on a capital lease that was delivered in Q4 2014 and put into service in Q1 2015 will help this amount. The labor to run the plant is highly fixed so I was watching to see how the margin did and it stayed stable.

I was long before and see no reason to sell and some reasons to buy. If you take the last three quarters and exclude the $5M of tax credits they have earned $.33/share. Annualized that is $.45/share x 10x = $4.50 shareprice which to me looks like a floor. Any operational improvement should really flow directly to the bottom line. In fact I was really happy to see the margins increase even as the oil price declines in the quarter.