Genesis Contract-Related Dispute. As described above under “Genesis Agreements,” we are party to a variety of contracts and agreements with Genesis and its affiliates, including GEL that enable the purchase of crude oil and condensate, transportation of crude oil and condensate, and other services.
In May 2016, GEL filed, in state district court in Harris County, Texas, a petition and application for a temporary restraining order, temporary injunction, and permanent injunction (the “Petition”) against LE and LEH. The Petition alleges that LE breached the Joint Marketing Agreement, and that LEH tortiously interfered with the Joint Marketing Agreement, in connection with an agreement by LEH to supply jet fuel acquired from LE to a customer. The Petition primarily sought temporary and permanent injunctions related to sales of product from the Nixon Facility to this customer. In June 2016, the court issued a temporary injunction against LE and LEH as requested by GEL. LE believes that GEL’s claims in the Petition are without merit and intends to defend the matter vigorously.
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BLUE DOLPHIN ENERGY COMPANY -- FORM 10-Q 9/30/16
Notes to Consolidated Financial Statements (Continued)
In a matter separate from the above referenced Petition, LE filed a demand for arbitration in June 2016, pursuant to the terms of a Dispute Resolution Agreement between the parties(the “Arbitration”). The Arbitration alleges that GEL breached the Crude Supply Agreement related to:
(i) failure to provide crude oil and condensate at cost as defined in the Crude Supply Agreement, and (ii) significant under delivery of crude oil and condensate, resulting in significant refinery downtime and a significant decrease in refinery throughput, refinery production, and refined petroleum product sales for the nine months ended September 30, 2016.
With regard to the Petition, a trial date has been set for December 5, 2016, although the parties may elect arbitration prior to that date. With respect to the Arbitration, an initial hearing was held on November 9, 2016 at which the parties presented evidence supporting their position. The next hearing date related to Arbitration is November 16, 2016.
We do not expect the temporary injunction issued by the court related to the Litigation to have a material effect on our results of operations or financial condition. However, although GEL resumed normal delivery of crude oil and condensate to the Nixon Facility in July 2016, the adverse change in our relationship with Genesis has had a material adverse effect on our operations, liquidity, and financial condition. In addition, the contract-related dispute has disrupted our normal business operations and diverted management’s focus away from operations. We are unable to predict the outcome of the current proceedings with Genesis and GEL or their ultimate impact, if any, on our business, financial condition or results of operations. Accordingly, we have not recorded an asset or a liability on our consolidated balance sheet as of September 30, 2016.
(20) Subsequent Events Financial Covenant Defaults . As of September 30, 2016, LE and LRM were in violation of certain financial covenants related to the First Term Loan Due 2034, Second Term Loan Due 2034, and Term Loan Due 2017. As a result of these covenant defaults, Sovereign could declare the amounts owed under these loan agreements immediately due and payable, exercise its rights with respect to collateral securing our obligations under these loan agreements, and/or exercise any other rights and remedies available.
By letter dated November 10, 2016, Sovereign waived the financial covenant defaults as of the quarter ended September 30, 2016. However, the debt associated with these loans was classified within the current portion of long-term debt on our consolidated balance sheets due to the uncertainty of our ability to meet the financial covenants in the future. There can be no assurance that Sovereign will provide future waivers, which may have an adverse impact on our financial position and results of operations.
Marker: Blue Dolphin Energy (BDCO) $4.10 up 0.16 (4.06%) Volume: 151
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