Blue Dolphin Energy Company (BDCO) Risk Analysis

PHMSA has established a series of rules requiring pipeline operators to develop and implement integrity management programs for hazardous liquid pipelines that, in the event of a pipeline leak or rupture, could affect high consequence areas ("HCAs"), which are areas where a release could have the most significant adverse consequences, including high-population areas, certain drinking water sources, and unusually sensitive ecological areas. Although our pipelines are inactive, PHMSA regulations require pipelines to be maintained and monitored to ensure safety standards are met until the subject pipeline is officially taken out of service and properly abandoned.  The rules require pipeline operators to: - Perform ongoing assessments of pipeline integrity. - Identify and characterize applicable threats to pipeline segments that could impact an HCA. - Improve data collection, integration, and analysis. - Repair and remediate the pipeline as necessary. - Implement preventative and mitigating actions. In addition, certain states have also adopted regulations similar to existing PHMSA regulations for intrastate gathering and transmission lines. These requirements could require us to install new or modified safety controls, pursue additional capital projects, or conduct maintenance programs on an accelerated basis, any or all of which tasks could result in us incurring increased operating costs that could be significant and have a material adverse effect on our financial position or results of operations. Additionally, we are subject to periodic inspections and audits regarding these requirements.  Moreover, changes to pipeline safety laws by Congress and regulations by PHMSA that result in more stringent or costly safety standards could result in our incurring increased operating costs that could have a material adverse effect on our financial position or results of operations.

We rely on trucks for the receipt of crude oil and condensate into and the sale of refined products out of our Nixon facility. Since we do not own or operate any of these trucks, their continuing operation is not within our control. If any of the third-party trucking companies that we use, or the trucking industry in general, become unavailable to transport crude oil, condensate, or our refined products or experience interruptions in transportation because of acts of God, accidents, government regulation, terrorism or other events, our revenue and net income would be materially and adversely affected.

Crude oil refining is primarily a margin-based business. To improve margins, we must maximize yields of higher value finished petroleum products and minimize costs of feedstocks and operating expenses. When the spread between these commodity prices decreases, our margins are negatively affected. Although an increase or decrease in the commodity price for crude oil and other feedstocks generally results 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 decreases, the price of jet fuel per barrel will also generally decrease, 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 markets and commodity prices for crude oil and condensate and our finished products have historically been volatile, are likely to continue to be volatile, and depend on factors beyond our control. These factors include: - The level of domestic and offshore production. - The availability of crude oil and U.S. and global demand for this commodity. - A general downturn in economic conditions. - The impact of weather, including abnormally mild or extreme winter or summer weather that causes lower or higher energy usage for heating or cooling purposes, respectively, or extreme weather that may disrupt our operations or related upstream or downstream operations. - Actions taken by foreign oil and gas producing and importing nations, including the ability or willingness of OPEC and OPEC+ to set and maintain pricing and production levels for oil. - The availability of local, intrastate, and interstate transportation systems. - U.S. and global economic conditions, including inflationary pressures, tariffs, further increases in interest rates, and a general economic slowdown or recession. - Geopolitical tensions, including conflicts and war (such as the ongoing military conflicts in Ukraine and Israel and escalations in the Middle East). - The availability and marketing of competitive fuels. - The extent of governmental regulation and taxation.

We are subject to a variety of regulatory requirements, including through BOEM, BSEE, OSHA and TCEQ.   From time to time, we have received penalties from these organizations or been required to have periodic inspections.  For example, in July 2025, BSEE imposed over $2 million in penalties against BDPL.  In some cases, the groups can exercise even more substantial rights against us for failure to comply with applicable regulations.  Failure to satisfy our obligations or pay the penalties when do could have a material adverse effect on our business and results of operation.

Scientific studies conclusively show that, in the absence of human intervention, the rate of increase of carbon dioxide in the atmosphere will significantly increase in the next 100 years. This increase in carbon dioxide has enhanced the Earth's natural greenhouse effect, resulting in global warming. Higher concentrations of GHGs (including carbon dioxide, methane, and nitrous oxides) in the atmosphere can produce changes in climate with significant physical effects, including increased frequency and severity of storms, floods, and other extreme weather events that could affect our operations. Increased concern over the effects of climate change have begun to affect our competition and customers' energy strategies, consumer consumption patterns, and government and private sector alternative energy initiatives. In recent years, more aggressive efforts by governments and non-governmental organizations to put in place laws requiring or otherwise driving reductions in GHG emissions were gaining approval. Any such future laws and regulations could result in increased compliance costs or additional operating restrictions to us and our customers, and any increase in the prices of refined products resulting from such increased costs, GHG cap-and-trade programs or taxes on GHGs, could result in reduced demand for our refined petroleum products. Additionally, changing customer sentiment towards renewable and sustainable energy products may reduce demand for our products, and an excess of supply over demand could reduce fossil fuel prices. If we fail to stay in step with the pace and extent of the market shift, we could impact future earnings; if we move too fast, we risk investing in technologies, markets, and low-carbon products that will be unsuccessful. These factors could also have a material adverse effect on our business, financial condition, and results of operations. Although the Biden Administration focused on reducing GHG emissions by: (i) having the U.S. rejoin the Paris Agreement (February 2021), (ii) announcing a new U.S. target to achieve a 50% to 52% reduction from 2005 levels in economy-wide net GHG pollution by 2030 (April 2021), and (iii) signing into law the Inflation Reduction Act of 2022, which includes nearly $370 billion in climate-related provisions that provide funding, programs, and incentives to accelerate the U.S.'s transition to a clean energy economy, President Trump signed an executive order directing the U.S. to withdraw from the Paris Agreement (January 2025), and the Trump Administration and the Republican-led Congress have taken steps to rescind previous administration's positions and GHG commitments. The Inflation Reduction Act of 2022 imposes a tax, or "methane fee," on energy producers that exceed a certain level of methane emissions.  In January 2024, the EPA published a proposed rule to implement the methane fee. These and similar regulations could require us to incur costs to monitor, report, and reduce GHG emissions associated with our operations.  However, future emission reduction targets and other provisions of legislative or regulatory initiatives and policies enacted in the future by the U.S. could be brought by future administrations or, in the absence of federal action, states may become more active and focused on taking legislative or regulatory actions aimed at climate change and minimizing GHG emissions. Federal and state requirements to reduce GHG emissions could result in increased costs to operate and maintain the Nixon facility as well as implement and manage new emission controls and programs. Cap-and-trade places a cap on GHGs and refiners are required to acquire a sufficient number of credits to cover emissions from their refinery and in-state sales of gasoline and diesel. Similarly, low carbon fuel standards require an established percentage reduction in the carbon intensity of gasoline and diesel by a specified time period. Compliance with the low carbon fuel standard is achieved through blending lower carbon intensity biofuels into gasoline and diesel or by purchasing credits. Compliance with each of these programs is facilitated through a market-based credit system. If sufficient credits are unavailable for purchase or refiners are unable to pass through costs to their customers, they must pay a higher price for credits. The Nixon refinery does not produce gasoline or diesel.  In the event we do incur increased costs as a result of increased efforts to control GHG emissions, we may not be able to pass on any of these costs to our customers. Regulatory requirements also could adversely affect demand for the refined petroleum products that we produce. Any increased costs or reduced demand could materially and adversely affect our business and results of operations. D. Security

In February 2025, the Trump Administration imposed tariffs on imports to the U.S. from Canada, China, and Mexico as part of an emergency response to countries deemed national threats. While the Trump Administration initially negotiated a temporary stay in implementation of the tariffs against Canada and Mexico, the tariffs went into effect in March 2025.  In response to U.S. tariffs, Canada, China, and Mexico each imposed retaliatory tariffs on certain U.S. goods.  While we obtain our crude oil and condensate from the Eagle Ford Shale (domestically sourced crude), U.S. refiners that have historically sourced heavy crude oil from Canada and Mexico are identifying lighter, domestic crude oil to use as an alternative in their refining processes. The shift in demand for U.S.-sourced crude oil could adversely impact the cost and supply of crude oil and condensate that we acquire from the Eagle Ford Shale, as well as the price for our refined products, which may lower our refining margins and could have a material adverse effect on our financial results and financial condition. In February 2022, Russia initiated significant military action against Ukraine. In response, the U.S. and certain other countries imposed significant sanctions and export controls against Russia.  In October 2023, Hamas launched a surprise attack on Israel.  In response, the U.S. and certain other countries imposed sanctions against Hamas and key Hamas terrorist group members. The U.S. and certain other countries could impose further sanctions, trade restrictions, and other retaliatory actions should these conflicts continue or worsen. It is not possible to predict the broader consequences of these conflicts, including related geopolitical tensions, the measures and retaliatory actions taken by the U.S. and other countries, counter measures or retaliatory actions by Russia or Hamas in response (e.g., potential cyberattacks or the disruption of energy exports). Such consequences are likely to cause regional instability, geopolitical shifts, and could materially adversely affect global trade, currency exchange rates, regional economies, and the global economy.  While it is difficult to predict the impact of any of the foregoing, these conflicts and actions taken in response could increase our costs for crude oil, disrupt our supply chain, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition, and results of operations. The ongoing Iran conflict, which began in 2026, and remains unresolved as of the date of this report, together with related geopolitical tensions in the Middle East, could have a material adverse effect on our business, results of operations, financial condition and cash flows. The conflict has already resulted in significant volatility in the global energy and commodity markets, disruptions to international shipping lanes (including the Strait of Hormuz), imposition of new or expanded economic sanctions by the United States and other governments, and heightened risks of cyber-attacks, terrorism, and supply-chain interruptions. Any escalation of the Iran conflict, including broader involvement of regional or global powers, direct attacks on oil infrastructure, or additional sanctions targeting energy exports, could lead to sharp increases in crude oil and natural gas prices, higher insurance and transportation costs, delays or cancellations of customer demand, and reduced availability of critical raw materials and components.

Our operations are subject to all the risks and operational hazards inherent in receiving, handling, storing, and transferring crude oil and petroleum products.  These risks include damages to facilities, related equipment and surrounding properties caused by severe weather (such as extreme cold or hot temperatures, hurricanes, floods, and other natural disasters) or other events (such as equipment malfunctions, mechanical or structural failures, explosions, fires, spills, or acts of terrorism) and can occur at our facilities or at third-party facilities on which our operations are dependent. Severe weather or other events could cause severe damage or destruction to our assets or the temporary or permanent shut-down of our operations. If we are unable to operate, our liquidity, business, financial condition, and results of operations could be materially affected.

Our financial results are affected by the relationship, or margin, between our refined product prices and the price for crude oil, which can vary based on global, regional, and local market conditions. Historically, refining margins have been volatile, and we believe they will continue to be volatile in the future. Our cost to acquire feedstocks and the price at which we can ultimately sell products depend upon several factors beyond our control, including regional and global supplies of and demand for feedstocks (such as crude oil), liquid transportation fuels, and other products. These in turn depend on, among other things, the availability and quantity of feedstocks and liquid transportation fuels imported into the U.S., the production levels of suppliers, levels of product inventories, productivity and growth (or the lack thereof) of the U.S. and global economies, the U.S. government's relationships with foreign governments, political affairs, the extent of government regulation, including tariffs, and the events described in many of the other risk factors below. The ability of the members of the OPEC to agree on and to maintain crude oil price and production controls has also had, and is likely to continue to have, a significant impact on the market prices of crude oil and certain of our products. Some of these factors can vary by region and may change quickly, adding to market volatility, while others may have longer-term effects. The longer-term effects of these and other factors on refining margins are uncertain. We do not produce crude oil, and we must purchase nearly all of the feedstock we process. Price level changes during the period between purchasing crude oil and selling the resulting refined products has had, and could continue to have, a significant effect on our financial results. A decline in market prices for our refined products and crude oil has had, and could again have, a negative impact to the carrying value of our inventories. Factors outside of our control, such as economic uncertainty, inflation (and the potential for increased prices to create demand destruction), tariffs, persistently high interest rates, public health crises, and political unrest or hostilities, have affected, and could continue to affect, economic activity and growth levels of the U.S. and other countries. A decrease in the demand for and consumption of our products due to lower economic activity and growth levels has caused, and could again cause, declines in our revenues and refining margins and could negatively impact our growth prospects and capital allocation decisions.