Edgar Filing: BLUE DOLPHIN ENERGY CO

BLUE DOLPHIN ENERGY COMPANY
801 Travis, Suite 2100
Houston, Texas 77002

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 21, 2003

To the Stockholders of
Blue Dolphin Energy Company:

You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of Blue Dolphin Energy Company (the "Company") to be held
in Houston, Texas, on Wednesday, May 21, 2003, at 10:00 a.m., Houston time, at
the Company's principal executive offices, 801 Travis, Suite 2100, Houston,
Texas, for the following purposes:

1. To elect four directors to serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified,
or until their earlier resignation or removal;

2. To amend the Company's 2000 Stock Incentive Plan to increase the number
of shares of Common Stock that can be issued pursuant to the plan; and

3. To transact such other business as may properly come before the Annual
Meeting, and any adjournment or postponement thereof.

Stockholders of record at the close of business on April 21, 2003, are entitled
to notice of, and to vote at, the Annual Meeting and any adjournment or
postponement thereof.

Your vote is important. Since many stockholders are not able to attend
the Annual Meeting, we have enclosed a proxy card for your use. You may vote on
the matters to be acted upon at the Annual Meeting by completing and returning
the proxy card promptly in the enclosed stamped return envelope.

For the Board of Directors

/s/ Michael J. Jacobson
-----------------------
MICHAEL J. JACOBSON,
President and Chief Executive Officer

Houston, Texas
April 16, 2003

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE ENCOURAGED TO
INDICATE YOUR VOTE AS TO THE MATTERS TO BE ACTED UPON ON THE ENCLOSED PROXY CARD
AND RETURN THE PROXY CARD PROMPTLY. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY
CHANGE YOUR VOTE AT THAT TIME.

BLUE DOLPHIN ENERGY COMPANY
801 Travis, Suite 2100
Houston, Texas 77002

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS
May 21, 2003

This Proxy Statement is being furnished to the stockholders in
connection with the solicitation of proxies by the Board of Directors of Blue
Dolphin Energy Company, a Delaware corporation (the "Company"), from holders of
the Company's common stock, $.01 par value per share ("Common Stock"), for use
at the 2003 Annual Meeting of Stockholders and any adjournment or postponement
thereof (such meeting and any adjournment or postponement thereof is referred to
herein as the "Annual Meeting"). The Annual Meeting is to be held on Wednesday
May 21, 2003, at 10:00 a.m., Houston time, at the Company's principal executive
offices, 801 Travis, Suite 2100, Houston, Texas.

This Proxy Statement, the accompanying notice and form of proxy are
first being mailed to stockholders on or about April 21, 2003 along with the
Annual Report to Stockholders for the year ended December 31, 2002.

The Company will bear all costs of this solicitation. Proxies will be
solicited primarily by mail, but directors, officers and other employees of the
Company may also solicit proxies in person or by telephone in the ordinary
course of business for which they will not be compensated. The Company has
requested that brokerage houses, nominees, fiduciaries and other custodians send
proxy materials to the beneficial owners of the Common Stock, for which the
Company will reimburse them for their reasonable out-of-pocket expenses.

VOTING

At the Annual Meeting, stockholders will be asked (i) to consider and
vote upon the election of four nominees to serve on the Board of Directors of
the Company (ii) to consider and vote upon an amendment to the Company's 2000
Stock Incentive Plan (the "Incentive Plan") increasing the number of shares of
Common Stock that can be issued pursuant to the Incentive Plan and (iii) to
consider and take action upon such other matters as may properly come before the
Annual Meeting.

All shares of Common Stock represented at the Annual Meeting by
properly executed proxies will be voted in accordance with the instructions
indicated on the proxies. If no instructions are indicated with respect to any
shares for which properly executed proxies have been received, such proxies will
be voted "FOR" election of all nominees to the Board of Directors and "FOR"
approval of the amendment to the Incentive Plan to increase the number of shares
of Common Stock that can be issued pursuant to the Incentive Plan. The Board of
Directors of the Company does not know of any other matter to be brought before
the Annual Meeting. If any other matter is properly presented at the Annual
Meeting for action, the persons named in the proxies and acting thereunder will
have discretion to vote on such matter.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by any
of the following actions:

o by providing written notice of revocation to the Company;

o delivering to the Company a signed proxy of a later date; or

o by voting in person at the Annual Meeting.

Any written notice revoking a proxy should be sent to the Secretary of
the Company at the Company's principal executive offices, 801 Travis, Suite
2100, Houston, Texas 77002.

The Board of Directors has fixed the close of business on April 21,
2003, as the record date (the "Record Date") for the determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting. A
complete list of stockholders entitled to vote at the Annual Meeting will be
open for examination by any stockholder during normal business hours for a
period of ten days prior to the Annual Meeting at the Company's principal
executive offices, 801 Travis, Suite 2100, Houston, Texas. At the close of
business on April 11, 2003, there were outstanding 6,635,157 shares of Common
Stock. Stockholders will be entitled to one vote per share of Common Stock held
of record on the Record Date on each matter presented at the Annual Meeting. The
holders of a majority of the total shares of Common Stock issued and
outstanding, whether present in person or represented by proxies, will
constitute a quorum for the transaction of business at the Annual Meeting.
Abstentions and broker non-votes (i.e. shares held by brokers and other nominees
as to which they have not received voting instructions from the beneficial
owners and lack the discretionary authority to vote on a particular matter) are
counted as present for purposes of determining whether a quorum is present.

Proposal No. 1 ELECTION OF DIRECTORS

The members of the Board of Directors serve one-year terms. A plurality
of the votes cast by the stockholders present and entitled to vote at the Annual
Meeting, in person or by proxy, is necessary for the election of directors.
Accordingly, abstentions and broker non-votes will have no effect on the
election of directors.

Nominees

Messrs. Michael S. Chadwick, Harris A. Kaffie, James M. Trimble and
Ivar Siem (each a "Nominee" and collectively, the "Nominees") have been
nominated by the Board of Directors to serve as directors until the next annual
meeting of stockholders, or in each case, until their successors have been duly
elected and qualified, or until their earlier resignation or removal. Each
Nominee is currently a director of the Company and have all previously been
elected by the stockholders, except for Mr. Trimble. Each Nominee has consented
to be nominated and has expressed his intention to serve if elected. The Board
of Directors has no reason to believe that any of the Nominees will be unable or
unwilling to serve if elected. However, should any Nominee become unable or
unwilling to serve as a director at the time of the Annual Meeting, the person
or persons exercising the proxies will vote for the election of a substitute
nominee designated by the Board of Directors. Robert D. Wagner, Jr. notified the
Company that he will not seek reelection to the Board of Directors.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES.

Nominees, Directors and Executive Officers
------------------------------------------

The following table provides certain information with respect to the
Nominees, directors and the executive officers of the Company.

Position
Name Age Position Held Since
---- --- -------- ----------
Ivar Siem 56 Chairman of the Board, 1989
and Director
Michael S. Chadwick 51 Director 1992
Harris A. Kaffie 53 Director 1989
James M. Trimble 54 Director 2002
Robert D. Wagner, Jr. 61 Director 2001
Michael J. Jacobson 56 President and Chief 1990
Executive Officer
John P. Atwood 51 Vice President 1998
G. Brian Lloyd 44 Vice President, Treasurer 1989
and Secretary

The following is a brief description of the background and principal
occupation of each Nominee, director and executive officer:

Ivar Siem - Chairman of the Board of Directors - Since September 2000,
Mr. Siem has served as Chairman and President of Drillmar, Inc. a well
construction and intervention company. From 1995 to 2000, Mr. Siem served on the
Board of Directors of Grey Wolf, Inc., during which time he served as Chairman
from 1995 to 1998 and interim President (1995) during its restructuring. Since
1985, he has been an international consultant in energy, technology and finance.
He has served as a Director of Business Development for Norwegian Petroleum
Consultants and as an independent consultant to the oil and gas exploration and
production industry based in London, England. Mr. Siem holds a Bachelor of
Science Degree in Mechanical Engineering from the University of California,
Berkeley, and has completed an executive MBA program at Amos Tuck School of
Business, Dartmouth University. Mr. Siem has served as Chairman of the Company
since December 1989.

Michael S. Chadwick - Director - Mr. Chadwick has been engaged in the
commercial and investment banking businesses since 1975. From 1988 to 1994, Mr.
Chadwick was President of Chadwick, Chambers & Associates, Inc., a private
merchant and investment banking firm in Houston, Texas, which he founded in
1988. In 1994, Mr. Chadwick joined Sanders Morris Harris, an investment banking
and financial advisory firm, as Senior Vice President and a Managing Director in
the Corporate Finance Group, a position he continues to hold today. He currently
serves as a Director of Landry's Restaurants, Inc. and Home Solutions of
America, as well as numerous privately held companies. Mr. Chadwick holds a
Bachelor of Arts Degree in Economics from the University of Texas at Austin and
a Master of Business Administration Degree from Southern Methodist University.
Mr. Chadwick has served as a director of the Company since 1992.

Harris A. Kaffie - Director - Mr. Kaffie is a partner in Kaffie
Brothers, a real estate, farming and ranching partnership. He currently serves
as a Director of KBK Capital Corporation, Drillmar, Inc., and CCNG, Inc., a
privately held company with interests in natural gas related assets, oilfield
services, and real estate development. Mr. Kaffie received a Bachelor of
Business Administration Degree from Southern Methodist University in 1972. Mr.
Kaffie has served as a director of the Company since 1989.

James M. Trimble - Director - Mr. Trimble has been President and CEO of
Tri-Union Development Corporation since July 2002. Previously he served as
President of Elysium Energy, L.L.C., from July 2000 until the contribution of
its properties to a public oil and gas company in November 2001. Prior to
Elysium, Mr. Trimble served at Cabot Oil & Gas Corporation from May 1983 to May
2000 in several managerial and senior level executive positions. Before joining
Cabot, Mr. Trimble served as President of Volvo Petroleum, Inc. a Houston based,
private domestic and international exploration and production company. Mr.
Trimble graduated from Mississippi State University where he majored in
Petroleum Engineering for undergraduate and graduate studies. Mr. Trimble has
served as a director of the Company since 2002. Robert D. Wagner, Jr. - Director
- Mr. Wagner was the Managing Director of Arthur Andersen's Global Energy
Corporate Finance Group from 1999 through April 2001. He previously was the
Managing Director of Energy Corporate Finance for Bankers Trust/BT Alex. Brown
and Bear Stearns and was an Executive Vice President of First City Houston. He
is a past President and Director of the Petroleum Club of Houston. He is also a
Director of Comfort Systems USA and Electric City Corporation. Mr. Wagner
received a Bachelor of Arts degree in History from Holy Cross College in 1963
and a Master of Business Administration degree in Finance from New York
University in 1971. Mr. Wagner has served as a director of the Company since
2001 and will not be seeking reelection at the Annual Meeting.

Michael J. Jacobson - President and Chief Executive Officer - Mr.
Jacobson has been associated with the energy industry since 1968, serving in
various senior management capacities since 1980. He served as Senior Vice
President and Chief Financial and Administrative Officer for Creole
International, Inc. and it's subsidiaries, international providers of
engineering and technical services to the energy sector, as well as Vice
President of Operations for the parent holding company, from 1985 until joining
the Company in January 1990. He has also served as Vice President and Chief
Financial Officer of Volvo Petroleum, Inc., and for certain Fred. Olsen oil and
gas interests. Mr. Jacobson began his career with Shell Oil Company, where he
served in various analytical and management capacities in the exploration and
production organization during the period 1968 through 1974. Mr. Jacobson holds
a Bachelor of Science Degree in Finance from the University of Colorado. Mr.
Jacobson has served as President and Chief Executive Officer of the Company
since January 1990.

John P. Atwood - Vice President, Business Development - Mr. Atwood has
been associated with the energy industry since 1974, serving in various
management capacities since 1981. He served as Senior Vice President of Land and
Administration for Glickenhaus Energy from 1987 to 1991, Area Land Manager for
CSX Oil & Gas Corporation and Division Land Manager for Hamilton Brothers Oil
Company/Volvo Petroleum, Inc. He served in various land capacities for Tenneco

Oil Company from 1977 to 1981. Mr. Atwood is a Certified Professional Landman
and holds a Bachelor of Arts Degree from Oklahoma City University and a Master
of Business Administration Degree from Houston Baptist University. Mr. Atwood
served as Vice President of Land of the Company from 1991 to 1998 and Vice
President of Finance and Corporate Development until his appointment as Vice
President of Business Development in 2001.

G. Brian Lloyd - Vice President, Treasurer and Secretary - Mr. Lloyd is
a Certified Public Accountant and has been employed by the Company since
December 1985. Prior to joining the Company, he was an accountant for DeNovo Oil
and Gas Inc., an independent oil and gas company. Mr. Lloyd received a Bachelor
of Science Degree in Finance from Miami University, Oxford, Ohio in 1982 and
attended the University of Houston in 1983 and 1984. Mr. Lloyd has served as
Secretary and Treasurer of the Company since 1989 and Vice President since March
1998.

There are no family relationships between any Nominee, director, or
executive officer.

COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS

During 2002, the Board of Directors of the Company held seven meetings.
Each director attended at least 75% of the total number of meetings of the Board
of Directors and committees on which he served.

At the beginning of 2002, the Audit Committee consisted of Mr. Robert L
Barbanell and Messrs. Wagner and Chadwick. After Mr. Barbanell's resignation in
February 2002, Mr. Wagner was elected as Chairman of the Audit Committee. The
Audit Committee's duties include overseeing the Company's financial reporting
and internal control functions. The Audit Committee met four times during the
last fiscal year.

At the beginning of 2002, the Compensation Committee, consisted of
Messrs. Siem, Kaffie, and Barbanell. Mr. Barbanell resigned in February 2002.
The Compensation Committee's duties are to oversee and set the Company's
compensation policy and to administer its stock option plans. The Compensation
Committee met once during the last fiscal year.

The Company does not have a nominating committee. However, pursuant to
the Company's Certificate of Incorporation, stockholder nominations for election
to the Board of Directors must be received by the Company before February 20,
2004 for the 2004 Annual Meeting. See "Nominations and Proposals by Stockholders
for the 2004 Annual Meeting."

REPORT OF THE AUDIT COMMITTEE

The duties and responsibilities of the Audit Committee are set forth in a
written charter adopted by the Board of Directors. The Audit Committee of the
Board of Directors consists entirely of directors who meet the independence and
experience requirements of Nasdaq Stock Market, Inc., as determined by the Board
of Directors. The Audit Committee reviews and reassesses the charter annually
and recommends any changes to the Board of Directors for approval. The Audit
Committee has reviewed the relevant requirements of the Sarbanes-Oxley Act of
2002, the rules, proposed and adopted, of the Securities and Exchange Commission
and the proposed new listing standards of the Nasdaq Small-cap Market regarding
audit committee procedures and responsibilities. Although the Audit Committee's

existing procedures and responsibilities generally complied with the
requirements of these rules and standards, the Board of Directors has adopted
amendments to the Audit Committee's charter to voluntarily implement certain of
the rules and to make explicit its adherence to others. A copy of the Audit
Committee's amended and restated charter is attached to this Proxy Statement as
Appendix A.

The Audit Committee's primary duties and responsibilities are to:

o assess the integrity of the Company's financial reporting
process and systems of internal control regarding accounting;

o assess the independence and performance of the Company's
outside auditors; and

o provide an avenue of communication among the outside auditors,
management and the Board of Directors.

Management is responsible for the Company's internal controls and the
financial reporting process. The outside auditors are responsible for performing
an independent audit of the Company's consolidated financial statements in
accordance with auditing standards generally accepted in the United States of
America and to issue a report thereon. The Audit Committee's responsibility is
to monitor and oversee these processes.

The Audit Committee held four meetings during fiscal 2002.

The Audit Committee, comprised of Messers. Chadwick and Wagner reviewed
and discussed the audited financial statements of the Company for the fiscal
year ended December 31, 2002 with the Company's management and management
represented to the Audit Committee that the Company's financial statements were
prepared in accordance with accounting principles generally accepted in the
United States of America. The Audit Committee discussed with Mann Frankfort the
matters required to be discussed by Statement on Auditing Standards No. 61, and
related amendments (Communication with Audit Committees).

The Audit Committee received the written disclosures and the letter
from Mann Frankfort required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees), and the Audit Committee
discussed with Mann Frankfort their independence from the Company. The Audit
Committee considered the non-audit services provided by Mann Frankfort and
determined that the services provided are compatible with maintaining Mann
Frankfort's independence.

The fees paid to Mann Frankfort in calendar year 2002 are as follows:

Audit Fees ...................................................... $105,699
Financial Information System Design and Implementation Fees --
All other Fees .................................................. 38,500
--------

Total ........................................................... $144,199
========

The estimated audit fees to be paid to Mann Frankfort in calendar year 2003 are
$70,000.

Based on the Audit Committee's discussions with management and Mann
Frankfort, and the Audit Committee's review of the representation of management
and the report of Mann Frankfort to the Audit Committee, the Audit Committee
recommended to the Board of Directors that the Company's audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2002 for filing with the Securities and Exchange
Commission.
The Audit Committee
Robert D. Wagner, Jr., Chairman
Michael S. Chadwick

COMPENSATION OF DIRECTORS

In fiscal 2002, the Company paid to non-employee members of the Board
of Directors an annual retainer of $12,000, payable 50% in cash and 50% in
Common Stock. The Audit Committee chairman receives an annual retainer of $3,000
and other Audit Committee members receive an annual retainer of $1,500. In
addition, each director received stock options to acquire an aggregate market
value of $20,000 of the underlying shares. No additional remuneration is paid to
directors for committee meetings attended, except that directors are entitled to
be reimbursed for expenses related to attendance of board or committee meetings.

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid to the Chief
Executive Officer and each of the executive officers of the Company whose annual
salary exceeded $100,000 in fiscal 2002 (collectively, the "Named Executive
Officers") for services rendered to the Company.

SUMMARY COMPENSATION TABLE*

Long-Term
Compensation
Awards
---------------
Name and Annual Compensation Securities
------------------- Underlying
Principal Position Year Salary (1) Bonus Options (#) (2)
------------------------- ---- ---------- ----- ---------------

Ivar Siem 2002 $ 80,000 -- 10,000
Chairman of the Board 2001 $150,000 -- --
2000 $150,000 -- 8,000

Michael J. Jacobson 2002 $125,000 -- 10,000
President and Chief 2001 $200,000 -- --
Executive Officer 2000 $200,000 -- 6,000
John P. Atwood
Vice President - 2002 $ 90,000 -- 10,000
Business 2001 $137,500 -- --
Development 2000 $124,167 -- 4,000

G. Brian Lloyd 2002 $105,000 -- 10,000
Vice President - 2001 $103,083 -- --
Treasurer 2000 $ 99,422 -- 3,000

* Excludes certain personal benefits, the aggregate value of which do not exceed
10% of the Annual Compensation shown for each person.

(1) Effective January 1, 2002, as part of the Company's cost reduction program,
the annual salaries of Messers Siem, Jacobson and Atwood were reduced to
$80,000, $125,000 and $80,000, respectively. Effective October 1, 2002, Mr.
Atwood's annual salary was increased to $120,000.

(2) In fiscal year 2001 no options were granted to the named Executive Officers.

OPTION GRANTS IN LAST FISCAL YEAR

Percent of
Total
Number of Options
Securities Granted to
Underlying Employees Exercise of
Options In Fiscal Base Price* Expiration
Name Granted Year ($/Sh) Date
---- ------------ ---------------- ------------- -----------

Ivar Siem 10,000 14% $1.55 3/25/2012

Michael J. Jacobson 10,000 14% $1.55 3/25/2012

John P. Atwood 10,000 14% $1.55 3/25/2012

G. Brian Lloyd 10,000 14% $1.55 3/25/2012

(*) The per share market price, as reported by the Nasdaq Smallcap Market on
March 26, 2002, the date of grant, was $1.55.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Year End at Year End (*)
Shares Acquired Value -------------------------------- ------------------------------
Name on Exercise (#) Relalized Exercisable Unexercisable Exercisable Unexercisable
---- -------------------- ------------- ------------- --------------- ------------- ---------------

Ivar Siem -- $ -- 22,000 4,000 $ -- $ --

Michael J. Jacobson -- $ -- 20,000 4,000 $ -- $ --

John P. Atwood -- $ -- 16,666 2,667 $ -- $ --

G. Brian Lloyd -- $ -- 14,666 1,667 $ -- $ --

(*) Based on the difference between the average of the closing bid and ask
prices on December 31, 2002 (the last trading day of 2002), which exceeded
the exercise price.

The Company's stock option plans provide that upon a change of control
the Compensation Committee may accelerate the vesting of options, cancel options
and make payments in respect thereof in cash in accordance with the terms of the
stock option plans, adjust the outstanding options as appropriate to reflect
such change of control, or provide that each option shall thereafter be
exercisable for the number and class of securities or property that the optionee
would have been entitled to receive had the option been exercised. The stock
option plans provide that a change of control occurs if any person, entity or
group acquires or gains ownership or control of more than 50% of the outstanding
Common Stock or, if after certain enumerated transactions, the persons who were
directors before such transactions cease to constitute a majority of the Board
of Directors.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of April 11, 2003, certain
information with respect to the beneficial ownership of shares of Common Stock
(the Company's only class of voting security issued and outstanding) as to (i)
all persons known by the Company to be beneficial owners of 5% or more of the
outstanding shares of Common Stock, (ii) each director and Nominee, (iii) each
Named Executive Officer and (iv) all executive officers and directors, as a
group. Unless otherwise indicated, each of the following persons has sole voting
and dispositive power with respect to such shares.

Shares Owned Beneficially
Name of ---------------------------------------
Beneficial Owner Number Percent (1)
---------------------------------- ---------------------------------------

Colombus Petroleum
Limited, Inc. (2) 911,712 13.0
Ivar Siem (3) 935,207 13.3
Harris A. Kaffie (3) 801,737 11.4
Michael S. Chadwick (3) 107,365 1.5
Robert D. Wagner, Jr. (3) 96,185 1.4
James M. Trimble (3) 64,785 1.0
Michael J. Jacobson (3) 174,060 2.5
John P. Atwood (3) 55,346 *
G. Brian Lloyd (3) 49,921 *
Executive Officers and
Directors, as a Group
(8 persons) (3) 2,284,606 32.6

----------------------------------
* Less than 1%

(1) Based upon 6,635,157 shares of Common Stock outstanding on April 11, 2003.

(2) Based on a Schedule 13D filed with the Securities and Exchange Commission on
February 1, 1999. The address of Colombus Petroleum Limited, Inc., is
Aeulestrasse 74, FL-9490, Vaduz, Liechtenstein.

(3) Includes shares of Common Stock issuable upon exercise of options that may
be exercised within 60 days of February 18, 2003 as follows: Mr. Siem -
22,000; Mr. Kaffie - 85,238; Mr. Chadwick - 84,071; Mr. Wagner - 80,571; Mr.
Trimble - 57,142; Mr. Jacobson - 20,000; Mr. Atwood - 16,666; Mr. Lloyd -
14,666 and all directors and executive officers as a group - 380,354.

Equity Compensation Plans. The following table sets forth certain
information as of December 31, 2002 with respect to shares of Common Stock that
may be issued under the Incentive Plan and other equity compensation plans.

Equity Compensation Plan Information

Number of securities
Number of Weighted-average remaining available
securities to be exercise price of for future issuance
issued upon outstanding options, under equity
exercise of warrants and rights compensation plans
outstanding (excluding
options, warrants securities reflected
and rights in the first column)
----------------- -------------------- ---------------------

Plan Category
-------------
Equity compensation plan approved
by security holders (*) 385,655 $1.23 61,644

Equity compensation plan not approved
by security holders 30,666 3.13 366,157
----------------- -------------------- ---------------------
Total 416,321 $1.37 397,801
================= ==================== =====================

(*) Represents shares of Common Stock issuable upon exercise of outstanding
options granted under the Incentive Plan.

Proposal No. 2 To Approve Amendment to 2000 Stock Incentive Plan

As of March 19, 2003, 114,395 shares of Common Stock were available for
grant pursuant to the Incentive Plan. The Board of Directors does not believe
that such remaining amount under this plan is sufficient to carry out its
compensation policy. Accordingly, as part of the Company's overall effort to
increase shareholder value, on March 19, 2003, the Board of Directors
unanimously adopted an amendment to the Incentive Plan, subject to shareholder
approval, increasing the aggregate number of shares reserved for grant pursuant
to the Incentive Plan from 500,000 to 650,000. The amendment to the Incentive
Plan is intended to (i) further the Company's efforts in attracting, retaining
and motivating officers, key employees and non-employee consultants of the
Company and (ii) continue to closely align the interest of participants in the
Incentive Plan with those of stockholders by encouraging stock ownership and by
tying compensation to the performance of the Company and the Company Stock.

If approved, 264,345 shares of Common Stock will be available for
future grants pursuant to the Incentive Plan. If approved, this amendment will
not change any other material term of the Incentive Plan.

The amendment appears as Appendix B to this proxy statement.

Participation in the Incentive Plan

The grant of incentive and non-qualified stock options, shares of restricted
stock and stock bonuses under the Incentive Plan to key employees, consultants,
and non-employee directors, including our Chairman, Chief Executive Officer, and
each of the other Named Executive Officers, is subject to the discretion of the
Compensation Committee. As of April 11, 2003, the fair market value of the
Common Stock was $.42 per share, which was the closing sale price reported by
The Nasdaq Small Cap Stock Market. The following table sets forth information
with respect to grants of options to the Named Executive Officers and the other
individuals and groups indicated that were previously approved by the
Compensation Committee and are subject to the approval of the stockholders of
the amendment to the Incentive Plan. The exercise price per share of all options
granted on January 6, 2003 is $.43 per share. No associate of any of such
individuals has been granted options under the Incentive Plan.

STOCK OPTIONS GRANTED BY COMPENSATION COMMITTEE SUBJECT TO STOCKHOLDER
APPROVAL OF THE AMENDMENT TO THE INCENTIVE PLAN

SHARES OF COMMON STOCK UNDERLYING
NAME AND POSITION OPTION GRANTS
------------------------------------------------------------------ ---------------------------------------

Ivar Siem - Chairman of the Board 30,000

Michael J. Jacobson - President and Chief Executive Officer 30,000

John P. Atwood - Vice President - Business Development 30,000

G. Brian Lloyd - Vice President - Treasurer 30,000

All executive officers as a group (4 persons) 120,000

All current directors who are not executive officers as a group -
(4 persons)

All employees, including all current officers who are not 36,000
executive officers, as a group

Vote Required for Approval

The affirmative vote of a majority of the Common Stock represented in person
or by proxy and entitled to vote at the Annual Meeting is required to approve

the amendment to the Incentive Plan. Abstentions will have the same effect as a
vote "Against" this proposal. Broker non-votes will have no effect on the
approval of this proposal.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND
THE INCENTIVE PLAN.

Compliance With Section 16(A) Of The Securities Exchange Act Of 1934, as amended

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers, and stockholders who own
more than 10% of the Common Stock, to file reports of stock ownership and
changes in ownership with the Securities and Exchange Commission and to furnish
the Company with copies of all such reports they file. Based solely on a review
of the copies of the Section 16(a) reports furnished to the Company, the Company
believes that during fiscal year 2002, all Section 16(a) filing requirements
applicable to its directors, executive officers and greater than 10%
shareholders were complied with.

Certain Relationships and Related Transactions

In March 2003, the Company entered into a sublease agreement expiring
December 31, 2006 for certain of its office space with Tri-Union Development
Corporation ("Tri-Union"). The Company's annual receipts from this sublease will
be $81,630. Mr. James M. Trimble, a director of the Company is the Chairman and
Chief Executive Officer of Tri-Union.

In September 2001, Drillmar, Inc. an affiliate of the Company, entered
into a merger agreement and merged with Zephyr Drilling Ltd. ("Zephyr"). Ivar
Siem, Chairman of the Company, and Harris A. Kaffie, a director of the Company,
are both directors, and Mr. Siem is Chairman and President of Drillmar. Prior to
the merger, Zephyr was a limited partnership in which Drillmar was the general
partner and Messrs. Siem and Kaffie were limited partners. Zephyr owned a
semi-submersible drilling rig that was prepared for reconfiguration into a
semi-tender. Prior to the merger, the Company owned approximately 64% of
Drillmar's outstanding common stock. As a result of the merger between Drillmar
and Zephyr, the Company's interest in Drillmar decreased to 12.8% and Messrs.
Siem and Kaffie became owners of 30.3% and 30.6%, respectively, of Drillmar's
common stock.

Messrs. Siem and Kaffie provided funding to Drillmar in 2002 of
$116,000 and $100,000, respectively, and in 2001 of $300,000 and $425,000,
respectively, and were issued unsecured promissory notes from Drillmar. The
promissory notes were due June 30, 2002 and bore interest at the rate of 10% per
annum. Along with the promissory notes, Drillmar issued detachable warrants to
Messrs. Siem and Kaffie of 41,500 and 42,500, respectively. Each warrant
provides for the purchase of one share of Drillmar common stock at $5 per share
and are exercisable through June 2005. At December 31, 2002, the promissory
notes and accrued interest had not been paid. The promissory notes issued by
Drillmar are nonrecourse to the Company.

In January 2003, Drillmar stockholders approved a restructuring plan
whereby Drillmar will issue up to $3.0 million of convertible notes that will
convert into common stock representing over 99% of Drillmar's outstanding
shares. As a result, the Company's ownership in Drillmar will be reduced to less
than 1%. Messrs. Siem and Kaffie are expected to exchange their promissory notes
and accrued interest into Drillmar new convertible notes.

Effective March 31, 2002, the Company recorded a full impairment of its
investment in Drillmar of approximately $340,000 and a full reserve for the
accounts receivable amount owed from Drillmar of approximately $200,000, due to
Drillmar's working capital deficiency and delays in securing capital funding.

In May 2002, the Company and Drillmar entered into a new agreement
effective as of May 1, 2002, whereby the Company will provide office space and
minimal accounting and administrative services to Drillmar for $2,000 per month.
If Drillmar is able to secure financing to implement its business plan, the fee
will increase to $20,000 per month retroactive to May 1, 2002. The agreement can
be terminated upon 30 days notice or by the mutual agreement of the parties.

In January 2003, the Company and Drillmar entered into a new agreement
effective as of February 1, 2003, whereby the Company will provide office space
to Drillmar for $1,500 per month. The Company will also provide professional,
accounting and administrative services to Drillmar based on hourly rates based
on the Company's cost. The agreement can be terminated upon 30 days notice or by
the mutual agreement of the parties.

NOMINATIONS AND PROPOSALS BY STOCKHOLDERS
FOR THE 2004 ANNUAL MEETING

The Company has tentatively set its year 2004 annual meeting for May
19, 2004. Accordingly, stockholders should submit nominations and proposals in
accordance with the guidance set forth below.

Nominations for the year 2004 Annual Meeting. The Company's Certificate
of Incorporation provides that no person shall be eligible for nomination and
election as a director unless written notice of such nomination is received from
a stockholder of record by the Secretary of the Company 90 days before the
anniversary date of the previous year's annual meeting. Further, such written
notice is to be accompanied by the written consent of the nominee to serve, the
name, age, business and residence addresses, and principal occupation of the
nominee, the number of shares beneficially owned by the nominee, and any other
information which would be required to be furnished by law with respect to any
nominee for election to the Board of Directors. Stockholders who desire to
nominate, at the year 2004 annual meeting of stockholders, persons to serve on
the Board of Directors, must submit nominations to the Company, at its principal
executive office, so that such notice is received by the Company no later than
February 20, 2004. In order to avoid controversy as to the date on which any
such nomination is received by the Company, it is suggested that stockholders
submit their nominations, if any, by certified mail, return receipt requested.

Proposals for the year 2004 Annual Meeting. Stockholders who desire to
present proposals, other than notices of nomination for the election of
directors, to stockholders of the Company at the year 2004 annual meeting of
stockholders, and to have such proposals included in the Company's proxy
materials, must submit their proposals to the Company, at its principal
executive office, by December 22, 2003. In order to avoid controversy as to the
date on which any such proposal is received by the Company, it is suggested that
stockholders submit their proposals, if any, by certified mail, return receipt
requested.

Moreover, any stockholder who intends to submit a proposal for
consideration at the Company's 2004 annual meeting, but not for inclusion in the
Company's proxy materials, must notify the Company. Pursuant to the rules of the
U.S. Securities and Exchange Commission, such notice must (1) be received at the
Company's executive offices no later than February 20, 2004 and (2) satisfy the
rules of the U.S. Securities and Exchange Commission.

RELATIONSHIP WITH
INDEPENDENT PUBLIC ACCOUNTANTS

In February 2002, the Company elected not to continue the engagement of
KPMG LLP ("KPMG") as the Company's independent accountants and the Audit
Committee recommended, and the Board approved, the selection of Mann Frankfort
Stein & Lipp CPAs, LLP ("Mann Frankfort") as its new independent accountants.

In connection with the audits of the Company's consolidated financial
statements for each of the two fiscal years ended December 31, 1999 and 2000,
and the subsequent interim period through February 15, 2002, there were no
disagreements with KPMG on any matter of accounting principles or practices,
financial disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction, would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement. The
audit reports of KPMG on the consolidated financial statements of the Company
and subsidiaries as of and for the years ended December 31, 1999 and 2000 did
not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles,
except that KPMG's report on the Company's consolidated financial statements for
the years ended December 31, 1999 and 2000 contain a separate paragraph stating
that "As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1999, the Company changed its method of accounting for costs of
start-up activities."

During the two fiscal years ended December 31, 2001 and the subsequent
interim period prior to engaging Mann Frankfort, neither the Company nor anyone
on its behalf consulted with Mann Frankfort regarding the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's financial
statements, and neither a written report nor advice was provided to the Company
by Mann Frankfort that was an important factor considered by the Company in
reaching a decision as to any accounting, auditing or financial reporting issue.

Mann Frankfort Stein & Lipp CPAs, LLP, has been engaged by the
Company's Board of Directors as the independent accountants for the Company. The
Company expects that they will continue as independent accountants.
Representatives of Mann Frankfort are expected to be present at the Annual
Meeting, with the opportunity to make a statement if they desire to do so, and
to respond to questions.

OTHER BUSINESS

At the date of this Proxy Statement, the Board of Directors does not
know of any matter to be acted upon at the Annual Meeting other than those
matters described above and set forth in the Notice. If other business comes
before the Annual Meeting, the persons named on the proxy will vote the proxy in
accordance with their best judgment.

By Order of the Board of Directors

/s/ G. Brian Lloyd
---------------------------------------
G. Brian Lloyd
Vice President, Treasurer and Secretary
Houston, Texas
April 16, 2003

Appendix A

BLUE DOLPHIN ENERGY COMPANY
AMENDED AND RESTATED
AUDIT COMMITTEE CHARTER
Effective April 15, 2003

The Audit Committee is appointed by the Board of Directors to assist the Board
in monitoring (1) the integrity of the financial statements of the Company, (2)
the compliance by the Company with legal and regulatory requirements, and (3)
the independence and performance of the Company's independent auditors.

The Audit Committee shall have the authority to retain, at the Company's
expense, special legal, accounting or other consultants or experts to advise the
Audit Committee. The Audit Committee may request any officer or employee of the
Company or the Company's outside counsel or independent auditor to attend a
meeting of the Audit Committee or to meet with any member of, or consultants to,
the Audit Committee.

The Audit Committee shall make regular reports to the Board. The Audit Committee
shall meet at least four times each year and hold such other meetings from time
to time as may be called by its Chairman or any two members of the Audit
Committee. At least quarterly, the Audit Committee will meet separately in an
executive session with the independent auditors.

Composition

The Audit Committee shall be comprised of at least three directors who shall be
appointed by the Board. The Audit Committee shall only include directors who
satisfy the independence requirements of the Securities and Exchange Commission
(the "SEC") and the NASDAQ Stock Market, Inc. (the "NASDAQ") applicable to the
Company and are free of any relationship that, in the opinion of the Board,
would interfere with their exercise of independent judgment as an Audit
Committee member. No member of the Audit Committee may receive any payment from
the Company other than payment for services as a director or member of a
committee of the Board of Directors or be an affiliate of the Company or any of
its subsidiaries.

Audit Committee members must be able to read and understand fundamental
financial statements, including the Company's balance sheet, income statement
and cash flow statement. As required by NASDAQ, one member of the Audit

Committee shall have accounting or related financial management expertise and
qualify as a "financial expert" in accordance with the requirements of the SEC
and the NASDAQ (as may be modified or supplemented). The role of the financial
expert will be that of assisting the Audit Committee in overseeing the audit
process, not auditing the Company.

Responsibilities and Duties.

The Audit Committee shall:

1. Review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval.

2. Review the annual audited financial statements with
management, including major issues regarding accounting and
auditing principles and practices as well as the adequacy of
internal controls that could significantly affect the
Company's financial statements.

3. Review with management and the independent auditor (a)
significant financial reporting issues, accounting principles,
practices and judgments made in connection with the
preparation of the Company's financial statements, including
an analysis of the effect of alternative GAAP methods on the
Company's financial statements and a description of any
transactions as to which management obtained Statement on
Auditing Standards No. 50 letters and (b) any material reports
or estimates prepared by outside consultants, reserve
engineers, or other experts or specialists.

4. Review with management and the independent auditor the effect
of regulatory and accounting initiatives as well as
off-balance sheet structures on the Company's financial
statements.

5. Review with management and the independent auditor the
Company's quarterly financial statements prior to the filing
of its Form 10-Q, including the results of the independent
auditors' reviews of the quarterly financial statements. The
Chair of the Committee may perform this task and convene the
Committee when appropriate.

6. Meet periodically with management to review the Company's
major financial risk exposures and the steps management has
taken to monitor and control such exposures.

7. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent
auditor or management.

8. Review the experience and qualifications of the senior members
of the independent auditor team and the quality control
procedures of the independent auditor.

9. Retain and, where warranted in the Committee's judgment,
terminate independent auditors selected to audit the financial
statements of the Company.

10. Approve all permissible non-audit services to be performed by
the independent auditors.

11. Approve the fees to be paid to the independent auditor.

12. Receive periodic reports from the independent auditor
regarding the auditor's independence consistent with
Independence Standards Board Standard 1, discuss such reports
with the auditor, and if so determined by the Audit Committee,
take or recommend that the full Board take appropriate action
to oversee the independence of the auditor.

13. Establish procedures for the receipt, retention, and treatment
of complaints received by the Company regarding accounting,
internal accounting controls, or auditing matters.

14. Approve all related-party transactions.

15. Meet with the independent auditor prior to the audit to review
the planning and staffing of the audit.

16. Obtain from the independent auditor assurance that Section 10A
of the Securities Exchange Act of 1934 (added by the Private
Securities Litigation Reform Act of 1995) has not been
implicated.

17. Review with management and the independent auditor any
correspondence with regulators or governmental agencies and
any employee complaints or published reports which raise
material issues regarding the Company's financial statements
or accounting policies.

18. Obtain reports from management and the independent auditor
that the acts and conduct of the Company's executives are in
conformity with applicable legal requirements.

19. Discuss with the independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61, and
related amendments, relating to the conduct of the audit.

20. Review with the independent auditor any problems or
difficulties the auditor may have encountered and any
management letter provided by the auditor and the Company's
response to that letter. Such review should include:

a. Any difficulties encountered in the course of the
audit work, including any restrictions on the scope
of activities or access to required information.
b. Any changes required in the planned scope of the
audit.

21. Prepare the Audit Committee report required by the rules of
the Securities and Exchange Commission to be included in the
Company's annual proxy statement.

22. Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and
regulations.

23. Review with the outside legal counsel matters that may have a
material impact on the financial statements, the Company's
compliance policies and any material reports or inquiries
received from regulators or governmental agencies.

While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations.

Approved by the Board of Directors

-----------------------------------
G. Brian Lloyd
Secretary

Appendix B

FIRST AMENDMENT TO THE
2000 STOCK INCENTIVE PLAN

Blue Dolphin Energy Company (the "Company") hereby amends the Blue
Dolphin Energy Company 2000 Stock Incentive Plan (the "2000 Plan") as follows,
effective March 19, 2003.

1. The first paragraph of Section 1.4 is amended to read as
follows in its entirety:

Subject to adjustment under Section 6.5, there shall be
available for Incentive Awards under the Plan that are granted wholly
or partly in Common Stock (including rights or Stock Options that may
be exercised for or settled in Common Stock) Six Hundred Fifty Thousand
(650,000) Shares of Common Stock. Six Hundred Fifty Thousand (650,000)
of the Shares reserved under the Plan shall be available for grants of
Incentive Stock Options. The number of Shares of Common Stock that are
the subject of Incentive Awards under this Plan, that are forfeited or
terminated, expire unexercised, are settled in cash in lieu of Common
Stock or in a manner such that all or some of the Shares covered by an
Incentive Award are not issued to a Grantee or are exchanged for
Incentive Awards that do not involve Common Stock, shall again
immediately become available for Incentive Awards hereunder. The
Committee may from time to time adopt and observe such procedures
concerning the counting of Shares against the Plan maximum as it may
deem appropriate.

During such period that the Company is a Publicly Held
Corporation, then unless and until the Committee determines that a
particular Incentive Award granted to a Covered Employee is not
intended to comply with the Performance-Based Exception, the following
rules shall apply to grants of Incentive Awards to Covered Employees:

(a) Subject to adjustment as provided in Section 6.5,
the maximum aggregate number of Shares of Common Stock
(including Stock Options, Restricted Stock, or Other
Stock-Based Awards paid out in Shares) that may be granted or
that may vest, as applicable, in any calendar year pursuant to
any Incentive Award held by any individual Covered Employee
shall be Five Hundred Thousand (500,000) Shares.

(b) The maximum aggregate cash payout (including
Other Stock-Based Awards paid out in cash) with respect to
Incentive Awards granted in any calendar year which may be
made to any Covered Employee shall be Five Hundred Thousand
dollars ($500,000).

(c) With respect to any Stock Option granted to a
Covered Employee that is canceled or repriced, the number of
Shares subject to such Stock Option shall continue to count
against the maximum number of Shares that may be the subject
of Stock Options granted to such Covered Employee hereunder
and, in this regard, such maximum number shall be determined
in accordance with Section 162(m) of the Code.

(d) The limitations of subsections (a), (b) and (c)
above shall be construed and administered so as to comply with
the Performance-Based Exception.

The following officer of the Company has caused this amendment to be
executed effective as of March 19, 2003, subject to shareholder approval.

BLUE DOLPHIN ENERGY COMPANY

By:
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Name:
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Title:
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