Blue Dolphin Energy Company (BDCO)

[56Chevy]

GEL recently relinquished its claims for equitable and declaratory relief and its ability to keep the contracts in force and effect on a going-forward basis. Therefore, the Company is now filing this Current Report on Form 8-K to confirm that the parties’ agreements, including the Crude Supply Agreement and the JMA, have terminated.

Arbitration proceedings related to the dispute with GEL are currently in progress.

BDCO is not out of the woods on this dispute with GEL. The arbitration fuse is still lit and is seeking $44MM ...if they win its lights out.

Genesis Contract-Related Dispute

We are party to a variety of contracts and agreements with Genesis and GEL for 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, concerning an agreement by LEH to supply jet fuel acquired from LE to a government agency. 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 is defending the matter vigorously.

In a matter separate from the above referenced Petition, LE filed a demand for arbitration in June 2016, pursuant to the terms of the Dispute Resolution Agreement between the parties (the “Arbitration”). The Arbitration alleges that GEL breached the Crude Supply Agreement by:

(i) overcharging for crude oil and condensate based on Genesis’ cost as defined in the Crude Supply Agreement,

(ii) overcharging for trucking costs, and

(iii) significantly under-delivering crude oil and condensate, resulting in 59 days of refinery downtime and significant decreases in refinery throughput, refinery production, and refined petroleum product sales for the year ended December 31, 2016.

GEL has made counter claims in the Arbitration with allegations against LE similar to those made in the Petition. GEL is seeking substantial damages, as well as recovery of attorneys’ fee and costs, totaling approximately $44.0 million in the aggregate, based on allegations of breach of contract, fraudulent transfer and unjust enrichment. We believe GEL’s counter claims are without merit and are defending them vigorously in the Arbitration. However, any determination by the arbitrator that we owe significant damages to GEL would have a material adverse effect on our business, liquidity and financial condition and results of operations. If GEL were awarded significant damages, we may not be able to pay such damages, which would affect our ability to continue as a going concern.

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Blue Dolphin Energy (BDCO)
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