BLUE DOLPHIN ENERGY CO
PURCHASE AND SALE AGREEMENT
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>bluedol8kex101102904.txt
<DESCRIPTION>PURCHASE AND SALE AGREEMENT
<TEXT>

                                  Exhibit 10.1





                           PURCHASE AND SALE AGREEMENT

                                  by and among

                          Blue dolphin energy company,

                      wbi pipeline and storage group, inc.

                                     - and -

                                  SEMGAS, L.P.



                           Executed: October 29, 2004


<PAGE>

                                Table of Contents

                                                                            Page

470196.13:731264:01420

ARTICLE 1             DEFINITIONS..............................................1

         1.01     Definitions..................................................1

ARTICLE 2             PURCHASE AND SALE........................................7

         2.01     Purchase and Sale............................................7

         2.02     Further Assurances...........................................9

         2.03     Agreement Regarding Records..................................9

ARTICLE 3             PURCHASE PRICE FOR BUSINESS..............................9

         3.01     Purchase Price at Closing....................................9

         3.02     Earn Out....................................................10

ARTICLE 4             CLOSING.................................................10

         4.01     Time and Place of Closing...................................10

         4.02     Closing Obligations.........................................10

ARTICLE 5             REPRESENTATIONS AND WARRANTIES OF SELLERS...............11

         5.01     Organization and Qualification..............................11

         5.02     Authority, Approval and Enforceability......................12

         5.03     No Violation or Consent.....................................13

         5.04     Absence of Certain Changes and Operation of the Facility....13

         5.05     Material Contracts..........................................14

         5.06     Real Property...............................................14

         5.07     Tangible Personal Property..................................15

         5.08     Permits.....................................................15

         5.09     Compliance with Law.........................................15

         5.10     Litigation..................................................15

         5.11     Environmental Matters.......................................16

         5.12     Taxes.......................................................16

         5.13     Regulatory Status...........................................17

         5.14     Brokers.....................................................17

         5.15     Title to Personal Property..................................17

         5.16     Credit Support..............................................17

         5.17     Employees...................................................17

         5.18     Title to New Avoca Membership Interests.....................17




                                       i
<PAGE>

                                Table of Contents
                                   (continued)
                                                                            Page

         5.19     Capitalization of New Avoca.................................18

         5.20     New Avoca Distributions.....................................18

ARTICLE 6             REPRESENTATIONS AND WARRANTIES OF BUYER.................18

         6.01     Organization and Qualification..............................18

         6.02     Authority, Approval and Enforceability......................18

         6.03     No Violation or Consent.....................................18

         6.04     Brokers.....................................................19

         6.05     Seller Disclaimer...........................................19

ARTICLE 7             COVENANTS OF SELLERS....................................20

         7.01     Operation of Business Assets Prior to the Closing Date......20

         7.02     Fulfillment of Closing Conditions...........................20

         7.03     Access to Facility..........................................21

         7.04     Title Commitments and Policies..............................21

         7.06     Non-Solicitation............................................21

ARTICLE 8             COVENANTS OF BUYER......................................22

         8.01     Fulfillment of Closing Conditions...........................22

ARTICLE 9             EMPLOYEE MATTERS........................................22

ARTICLE 10            COVENANTS REGARDING CREDIT SUPPORT......................22

         10.01    Substitution of Credit Support..............................22

         10.02....Plugging Bonds and Escrow Funds.............................22

ARTICLE 11            CONDITIONS TO CLOSING AND TERMINATION...................22

         11.01    Conditions to Obligation of Buyer...........................22

         11.02    Conditions to Obligation of Sellers.........................23

         11.03    Termination.................................................24

         11.04    Effect of Termination.......................................24

         11.05    Survival....................................................25

ARTICLE 12            ADDITIONAL AGREEMENTS OF THE PARTIES....................25

         12.01    Indemnification.............................................25

         12.02    Exclusive Remedy............................................29

         12.03    Cooperation and Preservation of Books and Records...........29

         12.04    Investigation of Books and Records..........................29



                                       ii

<PAGE>

                                Table of Contents
                                   (continued)
                                                                            Page



         12.05    Bulk Transfer Laws..........................................29

         12.06    Non-Competition.............................................30

ARTICLE 13            MISCELLANEOUS...........................................30

         13.01    Governing Law...............................................30

         13.02    Entire Agreement............................................30

         13.03    Waiver......................................................30

         13.04    Captions....................................................30

         13.05    Assignment..................................................31

         13.06    Notices.....................................................31

         13.07    Expenses....................................................32

         13.08    Severability................................................32

         13.09    Amendment...................................................32

         13.10    Further Actions.............................................32

         13.11    Third-Party Beneficiaries...................................33

         13.12    Injunctive Relief...........................................33

         13.13    Counterparts; Exhibits......................................33

         13.14    Publicity...................................................33

         13.15    Construction................................................33

         13.16    Limitation of Liability.....................................34

         13.17    Schedules...................................................34








                                      iii
<PAGE>

                           PURCHASE AND SALE AGREEMENT

         This Purchase and Sale Agreement ("Agreement") is made and entered into
on this 29th day of October,  2004 by and among BLUE DOLPHIN ENERGY  COMPANY,  a
Delaware  corporation ("Blue Dolphin"),  WBI PIPELINE AND STORAGE GROUP, INC., a
Delaware  corporation ("WBI," Blue Dolphin and WBI are sometimes herein referred
to individually as a "Seller," and  collectively as the "Sellers"),  and SEMGAS,
L.P., an Oklahoma  limited  partnership  ("Buyer," which term shall also include
any Affiliate of Buyer that becomes a party hereto by Buyer assigning its rights
hereunder to such Affiliate).  Blue Dolphin,  WBI and Buyer are sometimes herein
referred to individually as a "Party" and collectively as the "Parties."

                                     RECITAL

         Sellers own all of the issued and outstanding  membership  interests of
New Avoca Gas Storage LLC ("New Avoca"),  a Texas limited liability company that
owns a natural gas storage facility near Avoca, New York (the "Facility"). Buyer
desires to purchase from Sellers,  and Sellers  desire to sell to Buyer,  all of
the issued and  outstanding  membership  interests of New Avoca on the terms and
conditions set forth in this Agreement.


                                   AGREEMENTS

         NOW,  THEREFORE,  for and in consideration of the premises,  the mutual
covenants  and  agreements   contained  herein,  and  other  good  and  valuable
consideration,  the receipt and sufficiency of which are hereby  acknowledged by
the Parties, the Parties hereby agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

         1.01  Definitions.  Each  capitalized  term used herein  shall have the
meaning given such term as set forth below.

         "Affiliate" shall mean, with respect to a specified  Person,  any other
Person  controlling,  controlled  by or under  common  control  with that  first
Person. As used in this definition, the term "control" includes (a) with respect
to any Person  having  voting shares or the  equivalent  and elected  directors,
managers or Persons performing  similar functions,  the ownership of or power to
vote, directly or indirectly,  shares or the equivalent representing 50% or more
of the  power  to  vote  in the  election  of  directors,  managers  or  Persons
performing  similar  functions,  (b)  ownership  of 50% or more of the equity or
equivalent  interest in any Person,  and (c) the ability to direct the  business
and affairs of any Person by acting as a general partner, manager or otherwise.

         "Agreement"  shall have the meaning given such term in the introductory
paragraph hereof.



                                       1
<PAGE>

         "Assumed Liabilities" shall have the meaning given such term in Section
2.01(c).

         "Blue   Dolphin"  shall  have  the  meaning  given  such  term  in  the
introductory paragraph hereof.

         "Blue Dolphin  Organizational  Documents"  shall have the meaning given
such term in Section 5.01(a) hereof.

         "Business  Assets"  shall have the  meaning  given such term in Section
2.01(b).

         "Business  Day"  shall mean any day  except a  Saturday,  Sunday or any
other day on which commercial banks in Houston, Texas are required or authorized
by a Legal Requirement to be closed.

         "Buyer"  shall have the  meaning  given  such term in the  introductory
paragraph hereof.

         "Buyer  Indemnified  Parties" shall have the meaning given such term in
Section 12.01(a).

         "Buyer Organizational Documents" shall have the meaning given such term
in Section 6.01.

         "Cap" shall have the meaning given such term in Section 12.01.

         "Cash  Collateral"  shall have the  meaning  given such term in Section
5.17(c).

         "Claim  Notice"  shall  have the  meaning  given  such term in  Section
12.01(c).

         "Claims" shall mean any and all claims,  actions,  suits,  injunctions,
citations,  directives, summons, investigations or other demands or proceedings,
whether in the nature of judicial or  prejudicial  proceedings,  arbitration  or
mediation proceedings, made or brought against a Person for recovery of Damages.

         "Closing" shall have the meaning given such term in Section 4.01.

         "Closing Date" shall have the meaning given such term in Section 4.01.

         "Confidentiality  Agreement"  shall mean that  certain  Confidentiality
Agreement  by  and  between  Sellers  and  Buyer  dated  as of the  10th  day of
September, 2004.

         "Contracts"   shall  have  the  meaning  given  such  term  in  Section
2.01(b)(vi).

         "Creditors'  Rights"  shall have the meaning given such term in Section
5.02(a).

         "Damages" shall mean any and all damages,  losses, costs,  liabilities,
expenses  (including  expenses of  investigation,  defense and settlement of any
Claim,  including reasonable fees and disbursements of counsel, court costs, and
consultants' and experts' fees), debts, accounts,  liens,  judgments,  penalties
and fines, and consequential and incidental damages, lost profits,  punitive and
special  damages  of  a  Non-Affiliated   party  whose  claims  are  subject  to
indemnification  under  this  Agreement,  provided,  however,  that (a) the term



                                       2
<PAGE>

"Damages" shall not include any  consequential or indirect damages suffered by a
Buyer  Indemnified  Party or a Seller  Indemnified  Party or punitive or special
damages payable by a Buyer Indemnified Party or a Seller  Indemnified Party, and
(b) the amount of any  Damage  shall be offset by (i) the net tax effect of such
Damages  actually  realized by the Party  receiving an  indemnification  payment
hereunder on account of such Damages and provided  that such net amount shall be
increased to give effect to the income Taxes  attributable to the receipt of any
such  indemnification  payment,  or (ii) any amounts received by the Indemnified
Person from any  third-party  (including  insurers or sureties)  with respect to
such Damages.

         "Deductible" shall have the meaning given such term in Section 12.01.

         "Easements"   shall  have  the  meaning  given  such  term  in  Section
2.01(b)(iv).

         "Encumbrances"  shall mean any lien,  mortgage,  deed of trust, pledge,
charge,  security  interest,  conditional  sales  arrangement,  defect in title,
option,  preferential  purchase  right,  right of first refusal,  restriction on
transferability  or other  encumbrance  or  title  imperfection,  including  any
restriction on the exercise of any attributes of ownership.

         "Environmental  Condition"  shall mean any  environmental  condition or
circumstance,  including a Release of or the presence of Hazardous Materials, at
or relating to any of the Business Assets.

         "Environmental  Legal  Requirements"  shall  mean  any  and  all  Legal
Requirements  relating to the  protection or  conservation  of the  environment,
including,  but  not  limited  to,  the  Comprehensive  Environmental  Response,
Compensation,  and Liability Act of 1980, as amended,  the Superfund  Amendments
and  Reauthorization  Act of 1986,  as amended,  the Resource  Conservation  and
Recovery  Act of 1976,  as amended,  the Clean Air Act, as amended,  the Federal
Water  Pollution  Control Act, as amended,  The Oil  Pollution  Act of 1990,  as
amended,  the Safe  Drinking  Water Act, as  amended,  the  Hazardous  Materials
Transportation  Act, as amended,  the Toxic Substances  Control Act, as amended,
and other environmental conservation or protection laws.

         "Environmental  Liability" shall mean any Liability,  known or unknown,
resulting from, relating to or arising out of an Environmental Condition.

         "Environmental  Permits"  shall  mean  any and all  permits,  licenses,
approvals,  exemptions or  authorizations,  and any  amendments,  modifications,
terminations,  renewals or updates thereof  required under  Environmental  Legal
Requirements  in  connection  with the  ownership  or  operation of the Business
Assets.

         "Escrow Funds" shall have the meaning given such term in Section 10.02.

         "Facility"  shall have the  meaning  given such term in the  recital to
this Agreement.

         "Fee  Acreage"  shall  have the  meaning  given  such  term in  Section
2.01(b)(i).



                                       3
<PAGE>

         "Governmental  Entity" shall mean any court,  governmental  department,
commission,  council,  board, bureau, agency or other judicial,  administrative,
regulatory,  legislative  or  other  instrumentality  of the  United  States  of
America,  any foreign  country,  tribal,  state,  county,  municipality or local
governmental body or political subdivision.

         "Guaranties" shall have the meaning set forth in Section 5.17(b).

         "Hazardous Materials" shall mean (a) any hazardous materials, hazardous
wastes,  solid wastes,  hazardous  substances or toxic  substances,  as those or
similar terms are defined under any Environmental  Legal  Requirements;  (b) any
medical,  infectious  or special  wastes,  as those or similar terms are defined
under any Environmental Legal Requirements; (c) any asbestos, whether friable or
non-friable;  (d)  any  polychlorinated  biphenyls  ("PCBs")  or  PCB-containing
materials;  (e)  radon  gas;  and (f)  any  petroleum,  petroleum  hydrocarbons,
petroleum  products,  crude oil and any  components,  fractions  or  derivatives
thereof,  any oil or gas exploration or production  waste,  and any natural gas,
synthetic gas and any mixtures thereof.

         "Improvements"  shall  have the  meaning  given  such  term in  Section
2.01(b)(iii).

         "Indemnified  Party" shall have the meaning  given such term in Section
12.01(c).

         "Indemnifying  Party" shall have the meaning given such term in Section
12.01(c).

         "Knowledge"  wherever  used in the phrase "to the knowledge of" a Party
or to a Party's  "knowledge" or wherever it is said that a Party has or does not
have "knowledge,"  shall mean, the actual awareness,  knowledge,  information or
belief of the senior manager(s) or other key employees of Buyer or Sellers,  who
have as a principal job  responsibility  as of the date of this Agreement and as
of the Closing Date oversight for the subject matter of the relevant  statement,
representation or warranty.

         "Leases" shall have the meaning given such term in Section 2.01(b)(ii).

         "Legal Requirements" shall mean (a) any and all laws, statutes,  codes,
rules, regulations,  ordinances, judgments, orders, writs, decrees, requirements
or determinations of any Governmental  Entity, and (b) to the extent not covered
by clause (a) immediately above, any and all requirements of permits,  licenses,
certificates, authorizations, concessions, franchises or other approvals granted
by any Governmental  Entity,  it being  understood that the term  "Environmental
Legal   Requirements"   is  included   within  the  scope  of  the  term  "Legal
Requirements."

         "Letters  of  Credit"  shall  have the  meaning  set  forth in  Section
5.17(a).

         "Letter of Intent"  shall mean that  certain  letter  agreement  by and
among Blue Dolphin, WBI and Buyer dated as of September 28, 2004.

         "Liability" shall mean any direct or indirect liability,  indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.



                                       4
<PAGE>

         "Material Contracts" shall mean any of the following type of contracts,
oral or written, to which New Avoca is a party (by execution or succession):

                  (i) the PILOT Agreements and the Leases;

                  (ii) any  contract,  agreement or  arrangement,  that requires
         aggregate  expenditures  by or  payments  to New  Avoca  of  more  than
         $20,000;

                  (iii) any contract,  agreement or arrangement  that may not be
         cancelled  on thirty (30) days or fewer  notice  without  liability  or
         penalty to New Avoca or resulting in a breach thereunder;

                  (iv) any  contract,  agreement or  arrangement  affecting  the
         Business  Assets,  between  New  Avoca  and a  Seller  or  any  of  its
         Affiliates;

                  (v)  any  contract,   agreement  or   arrangement   containing
         provisions  that  restrict the right of New Avoca to engage in any type
         of  business  or compete in any  geographic  area and which  provisions
         would be binding on New Avoca or Buyer following the Closing Date;

                  (vi) any partnership or joint venture  agreement  covering the
         Business Assets;

                  (vii) any  security  agreement,  mortgage  or other  agreement
         creating an Encumbrance (other than Permitted Encumbrances);

                  (viii) any contract,  agreement or  arrangement  affecting the
         Business Assets, the performance of which by New Avoca is guaranteed by
         an  Affiliate  of a Seller or secured by a letter of credit,  surety or
         other arrangements; or

                  (ix) any  contract,  agreement or  arrangement  affecting  the
         Business  Assets  pursuant  to  which  New  Avoca  has  guaranteed  the
         performance by another Person of any obligation of such Person.

         "New  Avoca"  shall mean New Avoca Gas  Storage,  LLC, a Texas  limited
liability company.

         "New Avoca Membership Interests" shall have the meaning given such term
in Section 2.01(a) hereof.

         "New Avoca Organizational  Documents" shall have the meaning given such
term in Section 5.01(c) hereof.

         "Notice  Period"  shall  have the  meaning  given  such term in Section
12.01(c).

         "Ownership Period" means the period beginning on November 22, 1999, and
ending on the Closing Date.




                                       5
<PAGE>

         "Party(ies)" shall have the meaning given such term in the introductory
paragraph hereof.

         "Permits"   shall  have  the   meaning   given  such  term  in  Section
2.01(b)(viii).

         "Permitted Encumbrances" shall mean the following matters:

                  (i)  All  Legal  Requirements  that  govern  or  apply  to the
         ownership,  operation  or  transfer  of the  Facility  or the  Business
         Assets;

                  (ii) Any lien for Taxes that are not yet due and payable;

                  (iii)  Materialmen's,   mechanic's,  repairmen's,  employees',
         contractors',  tax and other  similar  liens or charges  arising in the
         ordinary course of business for obligations  that are not delinquent or
         that will be paid and discharged in the ordinary course of business or,
         if  delinquent,  that are being  contested in good faith by appropriate
         action;

                  (iv) Preferential rights to purchase and required  third-party
         consents  to or  approvals  of or waivers  respecting  assignments  and
         similar agreements with respect to which waivers or consents, approvals
         or waivers are obtained from the appropriate parties;

                  (v) All  rights  reserved  to or  vested  in any  Governmental
         Entity to control or regulate any part of the Business Assets;

                  (vi) All  easements,  restrictions,  reservations,  contracts,
         rights of way,  agreements,  terms,  conditions  and  covenants  now of
         record, or otherwise validly burdening the Business Assets and referred
         to in an Exhibit or Schedule to this Agreement; and

                  (vii) Any  Encumbrances  that do not impair the  continued use
         and  operation of the  Business  Assets to which they relate and do not
         affect the value of the Business Assets to which they relate.

         "Person" shall mean an  individual,  a  corporation,  a partnership,  a
limited liability company, an association,  a trust or any other legal entity or
organization, including any Governmental Entity.

         "PILOT  Agreements"  shall have the meaning  given such term in Section
2.01(b)(i).

         "Plugging  Bonds"  shall  have the  meaning  given such term in Section
10.02.

         "Property Taxes" shall mean all ad valorem taxes,  real property taxes,
personal property taxes and similar obligations.

         "Real  Property"  shall  have the  meaning  given  such term in Section
2.01(b)(iv).

         "Records"  shall  have  the  meaning  given  to such  term  in  Section
2.01(b)(ix).



                                       6
<PAGE>

         "Release" shall mean any release,  spill, emission,  leaking,  pumping,
injection, deposit, disposal,  discharge,  dispersal or leaching into the indoor
or outdoor environment.

         "Required  Consents"  shall mean those  waivers,  approvals,  consents,
filings  and  notices,  which are  required to be made by a Seller or given to a
Seller to transfer such Seller's rights in the New Avoca Membership Interests.

         "Sellers"  shall have the meaning  given such term in the  introductory
paragraph hereof.

         "Seller Indemnified  Parties" shall have the meaning given such term in
Section 12.01(b).

         "Tangible  Personal Property" shall have the meaning given such term in
Section 2.01(b)(v).

         "Taxes" shall mean any and all federal, state, local, foreign and other
net income,  gross income,  gross receipts,  sales,  use, ad valorem,  transfer,
franchise, profits, license, leases, service, service use, withholding, payroll,
property, employment,  excise, severance, stamp, occupation,  premium, property,
windfall profits,  customs,  duties or other taxes, fees, assessments or charges
of any kind  whatsoever,  together with any interest and any and all  penalties,
additions to tax, or additional amounts with respect thereto.

         "Tax  Return"  shall mean any return,  declaration,  report,  claim for
refund,  information  return  or  statement  relating  to Taxes,  including  any
schedule or attachment thereto, and including any amendment thereof.

         "Unassumed Liability" shall have the meaning given such term in Section
2.01(c).

         "WBI"  shall  have the  meaning  given  such  term in the  introductory
paragraph hereof.

         "WBI Organization  Documents" shall have the meaning given such term in
Section 5.01(b) hereof.

                                    ARTICLE 2

                                PURCHASE AND SALE

         2.01 Purchase and Sale.  (a) On the Closing  Date,  effective as of the
Closing  Date  and  subject  to the  terms  and  conditions  set  forth  in this
Agreement, Sellers shall sell, assign, transfer and convey, or cause to be sold,
assigned,  transferred or conveyed,  to Buyer, and Buyer shall assume,  purchase
and pay for all of the issued and outstanding  membership interests in New Avoca
(the "New Avoca Membership Interests").

         (b) The Sellers covenant that as of the Closing Date New Avoca will own
the "Business Assets." As used herein, the term "Business Assets" shall mean any
and all of the property and assets, whether real, personal, tangible, intangible
or mixed, that are owned by New Avoca, including, without limitation:



                                       7
<PAGE>

                  (i) The  rights and  interests  of New Avoca  pursuant  to the
         agreements  listed on  Schedule  2.01(b)(i)  (the  "PILOT  Agreements")
         relating  to the  fee  property  depicted  and  described  on  Schedule
         2.01(b)(i) (collectively, the "Fee Acreage");

                  (ii) All leases of real property by New Avoca, including,  but
         not  limited  to,  the  leases   depicted  and  described  on  Schedule
         2.01(b)(ii) (collectively, the "Leases");

                  (iii) All structures,  fixtures,  facilities and appurtenances
         to the Fee Acreage, Leases and Easements,  including without limitation
         any buildings, pipelines, valves, fittings, distribution racks, storage
         tanks and pumping facilities (collectively, the "Improvements"),  which
         shall be treated as real  property for all purposes of this  Agreement,
         subject to the terms of the PILOT Agreements and the Leases;

                  (iv) All easements,  rights-of-way,  property use  agreements,
         line rights and real property licenses (including  right-of-way permits
         from Governmental Entities) including, but not limited to, those listed
         as "easements,"  "permits" or "rights-of-way"  on Schedule  2.01(b)(iv)
         (the  "Easements,"  which,  together  with the Fee Acreage,  Leases and
         Improvements are sometimes referred to collectively herein as the "Real
         Property");

                  (v) To the extent same do not constitute Improvements, any and
         all  fittings,   tools,  spare  parts,  racks,   rectifiers,   cathodic
         protection  devices,  storage  tanks,  machinery,   equipment,   pumps,
         engines, pipes, valves,  connections,  gates, scraper traps and scraper
         trap extenders,  lines, wires, computer hardware,  rolling stock, motor
         vehicles,  trailers and all other tangible  personal  property wherever
         located (the "Tangible Personal Property");

                  (vi)  All  contracts,  agreements,   terminalling  agreements,
         supply   agreements,    purchase   contracts,    exchange   agreements,
         distribution   agreements,    transportation   agreements,    gathering
         agreements,  storage agreements,  blending agreements and other legally
         binding  rights and  obligations  of New Avoca,  including any notes or
         accounts  receivable of New Avoca,  but excluding  those  contracts and
         agreements  constituting  PILOT  Agreements,  Leases or Easements  (the
         "Contracts");

                  (vii)  All of the  rights  of New Avoca  with  respect  to any
         permits, licenses, certificates, authorizations, registrations, orders,
         waivers,  variances and approvals  granted by any  Governmental  Entity
         with respect to the ownership  and operation of the Business  Assets to
         the  extent  the same are  assignable  which  are  listed  on  Schedule
         2.1(b)(vii) (the "Permits");

                  (viii)  Such  records and  documents  as Buyer and Sellers may
         determine  pursuant to Section 2.03 to be a part of the Business Assets
         or as relate to their condition (the "Records"); and

                  (ix) Any  intellectual  property  rights,  including,  without
         limitation, New Avoca's logos, emblems, signs, trademarks,  trade names
         or service marks.

         (c) The Buyer  acknowledges  that it has been advised that New Avoca is
obligated  pursuant to or is otherwise  subject to the Liabilities  described on
Schedule 2.01(c) (the "Assumed  Liabilities") and will remain obligated pursuant



                                       8
<PAGE>

to or will be  subject  to such  liabilities  after  the  Closing.  Buyer is not
assuming  under this  Agreement or any other  document  contemplated  hereby and
Sellers expressly acknowledge that Sellers are retaining any and all Liabilities
with  respect  to the  Facility  and the  Business  Assets  which  relate to the
Ownership  Period  other  than the  Assumed  Liabilities  (each,  an  "Unassumed
Liability").  To the extent any  invoices are received by a Seller or any of its
Affiliates which are payable by Buyer hereunder, Sellers shall promptly transmit
such invoices to Buyer.  To the extent any invoices are received by Buyer or any
of its Affiliates which are payable by Sellers  hereunder,  Buyer shall promptly
transmit such invoices to the Sellers and Sellers shall promptly pay for same.

         2.02 Further Assurances. (a) If at any time after the Closing Date, any
further  action  is  reasonably  necessary  to carry  out the  purposes  of this
Agreement,  Buyer and Sellers shall execute such additional conveyances or other
instruments,  and take such other action, as may be reasonably necessary to more
effectively  transfer,  convey and assign to Buyer title to, and to put Buyer in
actual  possession and operating  control of the New Avoca Membership  Interests
and all of the Business Assets. In connection therewith, Sellers shall cause any
of their Affiliates to execute such additional conveyances and other instruments
contemplated by the preceding sentence.

         (b) The Parties shall supplement or revise the Schedules referred to in
Section 2.01 as necessary prior to and after Closing in order to insure that the
Business Assets are fully and properly described.

         2.03 Agreement Regarding Records.  Prior to Closing,  Buyer and Sellers
shall use all  reasonable  efforts to identify  those records and documents that
shall  constitute a part of the Records.  As soon as practical after the Closing
Date,  Sellers  shall  provide to Buyer  originals  of the  Records or copies if
originals are not available.  Sellers shall deliver any Records  relating to New
Avoca,  the Facility  and/or the Business Assets that are discovered by a Seller
to be in its possession or the  possession of its  Affiliates  after the date on
which the Records are delivered to Buyer pursuant to the  provisions  hereof and
promptly notify Buyer as to such discovery.

                                    ARTICLE 3

                           PURCHASE PRICE FOR BUSINESS

         3.01 Purchase Price at Closing.

         (a) The purchase price for the New Avoca Membership  Interests shall be
Three  Million Five Hundred  Thousand and 00/100  Dollars  ($3,500,000.00)  (the
"Purchase  Price"),  inclusive of working capital and inventory,  which Purchase
Price shall be paid by Buyer to Sellers at Closing in  accordance  with  Section
3.01(b) hereof;  provided,  however, the Purchase Price shall be adjusted by the
Parties at Closing for any payment due at Closing  pursuant to Section 10.02. At
the Closing,  25% of the Purchase Price shall be paid to Blue Dolphin and 75% of
the Purchase Price shall be paid to WBI.



                                       9
<PAGE>

         (b) Payment of the  Purchase  Price  shall be made by wire  transfer of
immediately  available funds to a bank  account(s)  designated in writing by the
respective Seller to Buyer.

         3.02 Earn Out. After Closing,  in addition to the Purchase Price, Buyer
shall pay Sellers (25% to Blue Dolphin and 75% to WBI) an  additional  amount of
One Million Five Hundred Thousand and 00/100 Dollars  ($1,500,000.00),  upon the
first  commercial  operation of a storage cavern located on the Real Property in
Steuben  County,  New York,  with  "commercial  operation"  being defined as the
earlier of (a) actual receipt by New Avoca (or any of its successors in interest
with  respect  to the  ownership  or  operation  of the  Facility)  of  storage,
transfer,  throughput or other fees or  compensation  for the storage of natural
gas or other  products  at or in the  Facility  and/or the Real  Property or (b)
actual storage of natural gas or other products at or in the Facility and/or the
Real Property for which fees or other compensation are or will be payable to New
Avoca (or any of its  successors  in interest  with respect to the  ownership or
operation of the Facility), provided that such first commercial operation occurs
prior to the seventh (7th) anniversary of the Closing Date.

                                    ARTICLE 4

                                     CLOSING

         4.01 Time and Place of  Closing.  Subject to the  conditions  stated in
this Agreement,  the consummation of the transactions  contemplated  hereby (the
"Closing")  shall occur on the latest of the  following  dates:  (i) October 29,
2004,  (ii) two (2)  Business  Days  after  the  satisfaction  or waiver of each
Party's  closing  conditions  as set forth in Section  11.01 and  Section  11.02
hereof or (iii) such other date as the Parties may mutually agree upon. The date
Closing  actually  occurs is herein called the "Closing Date." The Closing shall
be held at the offices of the law firm of Hall, Estill, Hardwick,  Gable, Golden
& Nelson, P.C. located at 320 South Boston,  Suite 400, Tulsa,  Oklahoma,  or at
such other location as may be mutually agreed upon by the Parties.

         4.02 Closing  Obligations.  At the Closing,  the following events shall
occur:

         (a) Each Seller shall execute,  acknowledge and deliver to Buyer one or
more Assignments  conveying to Buyer good and marketable title to its respective
New Avoca Membership  Interest  effective as of the Closing Date and waiving any
and all rights such Seller may have to purchase or may otherwise have in the New
Avoca Membership Interest of the other Seller. Such Assignments shall be in form
acceptable  to  Sellers  and  Buyer and shall  convey  the New Avoca  Membership
Interests free and clear of any Encumbrance except for Permitted Encumbrances;

         (b) Sellers shall deliver to Buyer the bank account  signature  card(s)
for the following bank account: Union Bank of California,  New Avoca Gas Storage
LLC Escrow, Account Number 700016127-001.

         (c) Sellers and Buyer shall  exchange  the  certificates  described  in
Sections 11.01(b) and 11.02(b);



                                       10
<PAGE>

         (d) Buyer  shall pay the  Purchase  Price to  Sellers as  described  in
Section 3.01;

         (e) Sellers shall deliver written  evidence that all Required  Consents
have been obtained;

         (f) Sellers  shall deliver to Buyer and Buyer shall deliver to Sellers,
incumbency  certificates  with  respect to any Persons  executing  documents  at
Closing on its behalf;

         (g) Sellers  shall deliver to Buyer and Buyer shall deliver to Sellers,
certificates of the proper  officers,  certifying that a reasonable  inquiry has
been made with respect to any representation  contained herein that is qualified
by "Knowledge";

         (h) Each  Seller  shall  deliver  to Buyer and Buyer  shall  deliver to
Sellers a certificate of good standing or existence from its state of formation,
as the case may be, dated not more than ten (10) days prior to the Closing Date;

         (i) Sellers shall deliver  resignations by all the managers and all the
officers of New Avoca;

         (j) Sellers shall deliver releases,  in the form of Exhibit A, attached
hereto pursuant to which Sellers and the resigning  managers and officers of New
Avoca release any and all Claims against New Avoca that each may have;

         (k)  Sellers  shall  deliver to Buyer  Uniform  Commercial  Code search
certificates  and lien search  certificates  reflecting that the Business Assets
and the New Avoca  Membership  Interests are free and clear of all  Encumbrances
except Permitted  Encumbrances or, to the extent such Encumbrances are reflected
in such  search  certificates,  appropriate  releases  of such  Encumbrances  in
recordable form; and

         (l) Each Party shall execute such other instruments and take such other
actions as may be reasonably  requested by the other Party in order to give full
effect to the obligations of such Party under this Agreement.

                                    ARTICLE 5

                    REPRESENTATIONS AND WARRANTIES OF SELLERS

         Subject to the survival  provisions  set forth in Section 11.05 and the
limitations provided for in Article 12, and except as provided in the Disclosure
Schedule which has been  delivered to the Buyer by the Sellers (the  "Disclosure
Schedule"),   Sellers   jointly  and   severally   (except  to  the  extent  the
representations  and  warranties of this Article are  specifically  limited to a
specific  Seller)  represent and warrant to Buyer that the  representations  and
warranties set forth in this Article 5 are true and accurate.

         5.01 Organization and Qualification. (a) Blue Dolphin hereby represents
that it is a corporation  duly organized,  validly existing and in good standing
under  the laws of the State of  Delaware  and has the  requisite  power to own,



                                       11
<PAGE>

lease and  operate  its  properties  and to carry on its  business  as now being
conducted. Blue Dolphin has furnished to Buyer a true, correct and complete copy
of the Certificate of  Incorporation  and Bylaws of Blue Dolphin  (collectively,
the "Blue Dolphin  Organizational  Documents").  The Blue Dolphin Organizational
Documents are in full force and effect as of the date hereof and,  together with
all other  documents and agreements  referenced  therein,  constitute all of the
current  organizational and governing  documents for Blue Dolphin.  There are no
proceedings or actions pending or contemplated to dissolve Blue Dolphin.

         (b) WBI hereby  represents  that it is a  corporation  duly  organized,
validly  existing and in good  standing  under the laws of the State of Delaware
and has the  requisite  power to own,  lease and operate its  properties  and to
carry on its business as now being conducted. WBI has furnished to Buyer a true,
correct and complete copy of the Certificate of Incorporation  and Bylaws of WBI
(collectively,  the  "WBI  Organizational  Documents").  The WBI  Organizational
Documents are in full force and effect as of the date hereof and,  together with
all other  documents and agreements  referenced  therein,  constitute all of the
current organizational and governing documents for WBI. There are no proceedings
or actions pending or contemplated to dissolve WBI.

         (c) New Avoca is a limited  liability  company duly organized,  validly
existing and in good  standing  under the laws of the State of Texas and has the
requisite  power to own,  lease and operate its  properties  and to carry on its
business as now being conducted.  New Avoca is duly qualified to do business and
is in good standing as a foreign limited liability company in each of the states
in which the  Business  Assets are located.  Sellers  have  furnished to Buyer a
true,  correct and complete copy of the Articles of Organization and the current
Amended and  Restated  Regulations  of New Avoca  (collectively,  the "New Avoca
Organizational  Documents").  The New Avoca Organizational Documents are in full
force and effect as of the date hereof and,  together  with all other  documents
and agreements referenced therein,  constitute all of the current organizational
and  governing  documents  for New Avoca.  There are no  proceedings  or actions
pending or contemplated to dissolve New Avoca.

         5.02 Authority,  Approval and  Enforceability.  (a) Blue Dolphin hereby
represents  that:  (i) it has all  requisite  corporate  power and  authority to
execute and deliver this  Agreement  and to perform any covenant and  obligation
required of it hereunder,  (ii) the execution and delivery of this  Agreement by
Blue Dolphin and the performance of the transactions  contemplated  hereunder by
Blue  Dolphin  have been duly and validly  approved by all  requisite  corporate
action necessary on behalf of Blue Dolphin, (iii) this Agreement constitutes the
legal,  valid and binding obligation of Blue Dolphin,  enforceable  against Blue
Dolphin  in  accordance  with  its  terms,  subject  to  applicable  bankruptcy,
insolvency or other similar laws  relating to or affecting  the  enforcement  of
creditors'  rights  generally and to general  principles of equity  ("Creditors'
Rights"),  and  (iv) at the  Closing  all  documents  required  hereunder  to be
executed and delivered by Blue Dolphin will have been duly authorized,  executed
and  delivered  by Blue  Dolphin and will  constitute  legal,  valid and binding
obligations of Blue Dolphin, enforceable against Blue Dolphin in accordance with
its terms, subject to Creditors' Rights.

         (b) WBI hereby  represents  that:  (i) it has all  requisite  corporate
power and  authority  to execute and deliver this  Agreement  and to perform any
covenant  and  obligation  required  of it  hereunder,  (ii) the  execution  and



                                       12
<PAGE>

delivery  of  this  Agreement  by WBI and the  performance  of the  transactions
contemplated  hereunder  by WBI have  been  duly  and  validly  approved  by all
requisite  corporate  action  necessary on behalf of WBI,  (iii) this  Agreement
constitutes the legal, valid and binding obligation of WBI,  enforceable against
WBI in accordance with its terms,  subject to Creditors' Rights, and (iv) at the
Closing all  documents  required  hereunder to be executed and  delivered by WBI
will  have  been  duly  authorized,  executed  and  delivered  by WBI  and  will
constitute legal, valid and binding obligations of WBI,  enforceable against WBI
in accordance with its terms, subject to Creditors' Rights.

         5.03 No  Violation  or  Consent.  The  execution  and  delivery  by the
respective  Seller of this Agreement and the  consummation by that Seller of the
transactions contemplated hereby will not:

         (a)  conflict  with  or  result  in  a  default  under  its  respective
organizational  documents or the New Avoca  Organizational  Documents or entitle
any Person to exercise any  preferential  purchase right,  option to purchase or
similar right with respect to any of the Business Assets;

         (b) conflict with or result in a material default under any Contract to
which that Seller or New Avoca is a party or to which any of the Business Assets
are bound or subject;

         (c) conflict  with or result in a material  default  under any material
Legal Requirement or any material judgment,  decree, order, governmental permit,
certificate  or license  that the  respective  Seller or New Avoca is a party or
that it is  subject or by which any of the  Business  Assets is bound or subject
(other than Environmental Legal Requirements that are covered by Section 5.11);

         (d) result in the creation of any Encumbrance  upon any of the Business
Assets;

         (e) conflict with or result in a material default under any Easement or
Lease; or

         (f) require either the respective Seller or New Avoca to obtain or make
any material waiver, consent, action,  approval,  clearance or authorization of,
or registration, declaration or filing with, any Governmental Entity.

         5.04 Absence of Certain  Changes and Operation of the  Facility.  Since
September 28, 2004, to the Knowledge of each Seller:

         (a)  there has not been any  material  adverse  change  in the  makeup,
condition or composition of the Business Assets,  whether taken as a whole or as
to any material part thereof;

         (b) there has not been any damage, destruction or loss, whether covered
by  insurance  or not, to the  Business  Assets  that has had, or is  reasonably
likely to have, a material  adverse  effect on the ownership or operation of the
Business Assets;

         (c) there has not been any  waiver  by New  Avoca of any  rights  that,
singularly  or in the  aggregate,  has had, or is  reasonably  likely to have, a
material  adverse  effect on the ownership or operation of the Business  Assets;
and



                                       13
<PAGE>

         (d) except to the extent the  failure to do so has not had,  and is not
reasonably  likely  to have,  a  material  adverse  effect on the  ownership  or
operation of the Business Assets,  New Avoca has operated the Business Assets in
the ordinary course of business consistent with past practices.

         5.05 Material Contracts.

         (a)  Schedule  5.05  to the  Disclosure  Schedule  lists  all  Material
Contracts.  Sellers  have  furnished  or made  available  to Buyer  complete and
correct copies of all written Material  Contracts,  together with all amendments
thereto,  and accurate  descriptions  of all material terms of all oral Material
Contracts.

         (b) New Avoca is not in default  under any Material  Contract.  Neither
Seller has received  nor has  Knowledge of any written  communication  from,  or
given any written communication to, any other party indicating that New Avoca or
such other party, as the case may be, is in default under any Material Contract.

         5.06 Real Property.  (a) Schedule 2.01(b)(i),  Schedule 2.01(b)(ii) and
Schedule 2.01(b)(iv) collectively contain a complete and accurate description of
all Real Property.  The Real Property  listed on Schedule  2.01(b)(i),  Schedule
2.01(b)(ii) and Schedule  2.01(b)(iv)  includes all of New Avoca's  interests in
all real property.  Subject to Permitted  Encumbrances,  the Sellers warrant New
Avoca has good title to such Real Property.

         (b) Subject to Permitted  Encumbrances,  all  Improvements  to the Real
Property  are  located  within  the  boundary  lines of the Real  Property  that
constitutes part of the Business Assets and to the Knowledge of each Seller,  no
structure,  fixture,  facility or improvement on any parcel adjacent to the Real
Property encroaches onto any portion of the Real Property;

         (c)  Subject to  Permitted  Encumbrances,  New Avoca has good and valid
rights of physical  and legal  ingress and egress to and from its Real  Property
from and to the public systems for all usual street,  road and utility purposes,
and no  conditions  exist that would  reasonably  be  expected  to result in the
termination of such ingress and egress;

         (d) Neither Seller nor New Avoca has received  notice or otherwise been
formally  advised,  nor does  either  Seller have any  Knowledge,  that any Real
Property, or any present use or operation of the Real Property,  does not comply
with  all  applicable  Legal  Requirements   (other  than  Environmental   Legal
Requirements  which are covered by Section 5.11)  (including,  those relating to
zoning, land use, safety, health, employment and employment practices and access
by the handicapped) and all valid covenants, conditions, restrictions, easements
and similar matters affecting the Real Property.

         (e) Except for environmental  matters that are covered by Section 5.11,
there are no pending, threatened,  condemnation, fire, health, safety, building,
zoning or other land use  regulatory  proceedings,  lawsuits  or  administrative
actions  relating to any portion of the Real Property  that would  reasonably be
expected  to  adversely  affect the current use or  occupancy  thereof,  nor has
either Seller  received notice of any pending or threatened  special  assessment
proceedings affecting any portion of the Real Property;



                                       14
<PAGE>

         (f) There are no  approvals,  consents,  waivers,  filings  or  notices
required  to be made or given by a Seller  or New  Avoca or given to a Seller or
New Avoca in  relation  to New  Avoca's  rights to any Real  Property  under any
Permit,  Easement,  Lease or Contract by virtue of the transaction  contemplated
herein, which will not, prior to the Closing Date, have been so made or given;

         (g) To the Knowledge of each Seller, because of the arrangement created
pursuant to the PILOT Agreements no Property Taxes (and applicable penalties and
interest,  if any) have accrued with respect to New Avoca's interest in the Real
Property during the Ownership Period;

         (h) The PILOT Agreements,  Leases and Easements are valid and effective
in accordance  with their  respective  terms,  and there is no material  default
under any of such contracts;

         (i) Neither  Seller nor New Avoca has granted a third party  possession
of any Real  Property  or any  portion  thereof;  nor is a Seller or New Avoca a
party to any lease, sublease,  license, concession or other contract granting to
any third party the right to use or occupy any portion of the Real Property; and

         (j) There are no outstanding options,  rights of first offer, rights of
first  refusal,  or other  similar  contracts  or  rights to  purchase  the Real
Property or any portion  thereof or interest  therein granted by a Seller or New
Avoca.

         5.07 Tangible Personal  Property.  To the Knowledge of each Seller, all
of the Tangible Personal Property conforms with any Legal Requirements  material
to its use and operation (except for Environmental  Legal  Requirements that are
covered by Section 5.11).

         5.08 Permits.  Schedule  2.01(b)(vii)  sets forth a list of the Permits
which to the  Knowledge of Sellers were  previously  applicable to the Facility.
The Sellers have advised the Buyer that (i) they can give no assurance regarding
the extent to which such Permits are currently  effective,  and (ii)  additional
permits,  licenses,  etc. may be required to be obtained before the Facility may
be lawfully operated.

         5.09  Compliance  with Law. Each Seller and New Avoca are in compliance
in all material respects with all Legal  Requirements  (other than Environmental
Legal  Requirements that are covered by Section 5.11 and Legal Requirements that
relate to tax  matters  that are  covered by  Section  5.12)  applicable  to the
ownership, use or operation of the Facility and the Business Assets.

         5.10  Litigation.  (a) There are no  civil,  criminal,  administrative,
arbitration or other  proceedings  or  governmental  investigations  pending or,
threatened against either Seller, any of its Affiliates or New Avoca relating to
the  ownership or  operation of the Facility or any of the Business  Assets that
could materially adversely affect Buyer's ownership or operation of the Facility



                                       15
<PAGE>

or the  Business  Assets or that seek to  restrain  or enjoin  the  transactions
contemplated  by this Agreement or which would  reasonably be expected to have a
material adverse effect on the financial condition or results of operations,  of
the Facility,  and (b) neither Seller has received  notice of, nor has Knowledge
of, any demand,  suit,  action,  investigation  or  proceeding  (whether  civil,
criminal, administrative or otherwise) from any Person regarding compliance with
Legal  Requirements  in  connection  with the  ownership  and  operation  of the
Facility and the Business Assets.

         5.11  Environmental  Matters.  (a) Neither Seller has received  written
notification, nor has any Knowledge, that the Business Assets and all operations
thereon are not  currently  in  compliance  in all  material  respects  with all
applicable  Environmental  Legal  Requirements,  and, to the  Knowledge  of each
Seller there are no conditions  existing on or resulting  from  activities on or
use of the  Business  Assets  (including  any use,  transportation,  disposal or
arrangement for transportation or disposal of Hazardous Materials by a Seller or
New Avoca) that give rise to any  required  on-site or offsite  Remedial  Action
under any applicable Environmental Legal Requirements;

         (b) Certain Environmental Permits are listed on Schedule  2.01(b)(vii).
The Sellers have advised the Buyer that additional  Environmental Permits may be
required to be obtained or filed in connection  with the operation or use of the
Business Assets;

         (c) To the  Knowledge  of each Seller,  the Sellers  have  delivered to
Buyer all  audits,  assessments,  spill  reports,  risks  assessments  and other
material  reports and studies relating to  Environmental  Conditions  associated
with  the  Business  Assets  that  are in the  possession  of such  Seller,  its
Affiliates or New Avoca;

         (d) Neither  Seller has received  notice of, nor has any  Knowledge of,
any demand, suit, action,  investigation or proceeding (whether civil,  criminal
or  administrative)  from any  Governmental  Entity  regarding  a  violation  of
Environmental  Legal  Requirements in connection with the ownership or operation
of the Facility or the Business Assets; and

         (e) The execution and delivery by each Seller of this  Agreement or any
other documents  required  hereunder to be executed and delivered by each Seller
at the  Closing,  or  otherwise,  and the  consummation  by each  Seller  of the
transactions  contemplated hereby or thereby will not conflict with or result in
a default under any Environmental Legal Requirement.

         5.12 Taxes. New Avoca has filed or will file in a timely manner all Tax
reports, returns and forms affecting the Business Assets and the Facility as may
have been required under applicable Legal Requirements,  including, all required
federal, state and local income, sales, use, property and franchise Tax Returns,
and has paid or will pay all required Taxes or similar assessments affecting the
Business Assets and the Facility including any interest,  penalties or additions
attributable  thereto shown as due on all such filings for the periods ending on
or before the Closing Date. No Encumbrances (other than Permitted Encumbrances),
proceedings,  lawsuits,  investigations known to a Seller,  inquiries known to a
Seller or other  actions  which are pending,  to be  threatened or open seek the
assessment  or  collection  of  additional  Taxes of any kind  from New Avoca or
relating to any portion of the Business Assets, and to each Seller's  Knowledge,



                                       16
<PAGE>

no other  examination  by the  Internal  Revenue  Service  or any  other  taxing
authority  affecting  the Facility or any portion of the Business  Assets is now
pending. Taxes which New Avoca was required by Legal Requirements to withhold or
collect in respect to the Business  Assets or the Facility have been withheld or
collected  and have been paid over to the proper  Governmental  Entities  or are
properly held by New Avoca for such payment when due and payable.

         5.13 Regulatory Status. Each Seller is exempt from, or is otherwise not
subject to regulation as, (a) a "holding  company," a "subsidiary  company" of a
"holding  company," an "affiliate" of a "holding  company," or a "public utility
company," as each of such terms is defined in the Public Utility Holding Company
Act of 1935,  as  amended,  and the rules  and  regulations  thereunder,  (b) an
investment  company or a company  controlled by an investment company within the
meaning of the  Investment  Company Act of 1940,  as  amended,  or (c) a "public
utility" within the meaning of the Federal Power Act, as amended,  and the rules
and regulations thereunder.

         5.14 Brokers.  Neither  Seller,  nor any of their  Affiliates,  nor New
Avoca has entered  (directly or  indirectly)  into any agreement with any Person
that  provides for the payment of any  commission,  brokerage or "finders'  fee"
arising out of the  transactions  contemplated by this Agreement for which Buyer
might have any Liability or obligation.

         5.15 Title to Personal  Property.  New Avoca has good and  indefeasible
title  to all of the  Tangible  Personal  Property  and such  Tangible  Personal
Property  is not or  will  not  prior  to the  Closing  Date be  subject  to any
Encumbrances (other than Permitted Encumbrances).  There is no Tangible Personal
Property used in the operation of the Facility that is owned by any Person other
than New Avoca that, as of the Closing  Date,  will not be licensed or leased to
New Avoca or Buyer under valid,  current  license  arrangements  or leases.  The
Business  Assets  are all of the assets  used by New Avoca  with  respect to the
Facility.

         5.16 Credit Support.

         (a)  Schedule  5.16 to the  Disclosure  Schedule  lists all  letters of
credit  posted by each Seller,  its  Affiliates,  New Avoca or third  parties in
connection  with the Facility (the "Letters of Credit")  specifying the amounts,
term and the counterparties.

         (b)  Schedule  5.16 to the  Disclosure  Schedule  lists all  guaranties
posted by each Seller, its Affiliates,  New Avoca or third parties in connection
with the  Facility  (the  "Guaranties")  specifying  the  amounts,  term and the
counterparties.

         (c) Schedule 5.16 to the Disclosure Schedule lists all cash collateral,
cash  equivalents and surety bonds posted by each Seller,  its  Affiliates,  New
Avoca or third parties in connection  with the Facility (the "Cash  Collateral")
specifying the amounts, term and the counterparties.

         5.17  Employees.  New  Avoca  does  not  have  and  has  never  had any
employees.

         5.18 Title to New Avoca  Membership  Interests.  Sellers are the direct
legal and beneficial owners of 100% of the New Avoca Membership Interests,  free
and clear of all Encumbrances,  and Sellers have the absolute,  right, power and
capacity  to  sell,  assign,  transfer  and  deliver  the New  Avoca  Membership
Interests to Buyer.



                                       17
<PAGE>

         5.19  Capitalization  of New Avoca. All New Avoca Membership  Interests
have  been  duly   authorized   and  validly  issued  and  are  fully  paid  and
non-assessable.  There are no outstanding  options,  subscriptions,  convertible
securities,  warrants, calls, rights, commitments or other rights obligating New
Avoca to issue, transfer,  deliver or sell any membership interest in New Avoca.
None of the New Avoca  Membership  Interests  were  issued in  violation  of any
preemptive rights.


                                    ARTICLE 6

                     REPRESENTATIONS AND WARRANTIES OF BUYER

         Subject to the survival  provisions  set forth in Section 11.05 and the
limitations provided for in Article 12, Buyer represents and warrants to Sellers
that:

         6.01  Organization and  Qualification.  Buyer is a limited  partnership
duly organized,  validly  existing and is in good standing under the laws of the
State of  Delaware  and has the  requisite  power to own,  lease and operate its
properties  and to carry on its business as now being  conducted.  Buyer is duly
qualified to do business and in good standing as a foreign  limited  partnership
in all  jurisdictions  in which the  character  of the  properties  now owned or
leased by it or the nature of the business  conducted by it requires it to be so
licensed  or  qualified.  Buyer has  furnished  to Sellers a true,  correct  and
complete copy of the  certificate  of limited  partnership  of Buyer and Buyer's
agreement  of  limited   partnership,   together  with  all  amendments  thereto
(collectively,  the "Buyer Organizational Documents").  The Buyer Organizational
Documents are in full force and effect as of the date hereof and,  together with
all other  documents and agreements  referenced  therein,  constitute all of the
organizational  and governing  documents for Buyer.  There are no proceedings or
actions pending or contemplated to dissolve Buyer.

         6.02 Authority,  Approval and  Enforceability.  Buyer has all requisite
power and  authority  to execute and deliver this  Agreement  and to perform its
respective obligations under this Agreement.  The execution and delivery of this
Agreement by Buyer and the performance of the transactions  contemplated  hereby
have been duly and  validly  approved  by all  requisite  partnership  action on
behalf of  Buyer.  This  Agreement  constitutes  the  legal,  valid and  binding
obligation of Buyer,  enforceable  against  Buyer in accordance  with its terms,
subject to Creditors'  Rights. At the Closing,  all documents required hereunder
to be executed and delivered by Buyer will have been duly  authorized,  executed
and delivered by Buyer and will constitute legal, valid and binding  obligations
of Buyer,  enforceable  against Buyer in accordance  with its terms,  subject to
Creditors' Rights.

         6.03 No  Violation  or  Consent.  The  execution  and  delivery of this
Agreement by Buyer or the consummation of the transactions  contemplated  hereby
or thereby will not:



                                       18
<PAGE>

         (a)  conflict  with or result in a breach,  default or violation of the
Buyer Organizational Documents;

         (b) conflict  with or result in a breach,  default or violation  of, or
require  a  consent  under,  any  material  Legal  Requirement  or any  material
agreement, document,  instrument,  judgment, decree, order, governmental permit,
certificate or license to which Buyer is a party or to which it is subject; or

         (c)  require  Buyer to obtain  or make any  material  waiver,  consent,
action, approval, clearance or authorization of, or registration, declaration or
filing with, any Governmental Entity.

         6.04 Brokers.  Neither Buyer nor any of its Affiliates has incurred any
Liability for brokers' or finders'  fees in respect of the matters  provided for
in this Agreement that will be the responsibility of Sellers.

         6.05 Seller Disclaimer.  NOTWITHSTANDING  ANYTHING IN THIS AGREEMENT TO
THE CONTRARY, BUYER REPRESENTS,  WARRANTS, ACKNOWLEDGES AND AGREES THAT BUYER IS
KNOWLEDGEABLE  AND  EXPERIENCED  IN  ACQUIRING  ASSETS  SIMILAR TO THE  BUSINESS
ASSETS,  AND IN THE  DEVELOPMENT  OF STORAGE  PROJECTS  SIMILAR TO THE FACILITY.
BUYER  ACKNOWLEDGES  THAT IT HAS HAD THE OPPORTUNITY TO INSPECT THE FACILITY AND
TO RETAIN  CONSULTANTS OF ITS CHOICE TO MAKE SUCH  INSPECTIONS OR EVALUATIONS OF
THE FACILITY AS BUYER DEEMS  NECESSARY.  BUYER FURTHER  ACKNOWLEDGES  AND AGREES
THAT EXCEPT AS EXPRESSLY SET FORTH IN THIS  AGREEMENT,  NEITHER  SELLER HAS MADE
AND EACH SELLER HEREBY  DISCLAIMS ANY AND ALL,  REPRESENTATIONS  AND  WARRANTIES
REGARDING THE VIABILITY OF THE FACILITY OR THE CONDITION OF THE BUSINESS ASSETS,
WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE,  INCLUDING
BUT NOT LIMITED TO:

         (a) THE NATURE,  QUALITY OR CONDITION  OF, OR THE  SUITABILITY  FOR ANY
PARTICULAR PURPOSE OF, ANY AND ALL INJECTION WELLS AND DISPOSAL WELLS RELATED TO
THE FACILITY;

         (b) THE INCOME TO BE DERIVED FROM THE FACILITY;

         (c) THE  SUITABILITY OF THE BUSINESS ASSETS FOR ANY ACTIVITIES AND USES
WHICH BUYER MAY CONDUCT THEREON;

         (d) THE  CONDITION OF THE BUSINESS  ASSETS,  WHICH ARE ACQUIRED "AS IS"
"WHERE IS"; AND

         (e) THE ABILITY OF BUYER TO OBTAIN OR MAINTAIN ANY PERMITS NECESSARY TO
OPERATE THE FACILITY,  WHETHER NOW HELD BY NEW AVOCA OR LISTED ON THE DISCLOSURE
SCHEDULE, OR OTHERWISE.



                                       19
<PAGE>

         BUYER  HEREBY  WAIVES  ANY  SUCH  REPRESENTATION,  WARRANTY,  PROMISES,
COVENANTS,  AGREEMENTS OR  GUARANTIES  SPECIFIED  UNDER THIS SECTION  6.05.  THE
PROVISIONS OF THIS SECTION 6.05 SHALL SURVIVE THE CLOSING.

                                    ARTICLE 7

                              COVENANTS OF SELLERS

         7.01 Operation of Business  Assets Prior to the Closing Date.  Sellers,
jointly and severally,  covenant and agree that, except as expressly provided in
this Agreement or as otherwise  approved by Buyer in writing,  at all times from
the date hereof  through the Closing Date,  they shall comply with the following
with respect to the Business Assets and the Facility:

         (a) The  Business  Assets  shall  in all  material  respects  be  kept,
operated and  maintained in the ordinary  course of business in accordance  with
the past operating and maintenance practices of New Avoca.

         (b) Each Seller shall use commercially  reasonable  efforts to continue
to preserve the present  customer and supplier  relations  that have  heretofore
been developed by New Avoca in connection with the Facility.

         (c) Each Seller shall cause New Avoca to, in all material  respects and
in a timely  manner,  make all payments due under and otherwise  perform all its
other  obligations  under  all  Easements,  Leases,  Contracts  and  Permits  in
accordance with its respective  terms and not cancel,  amend,  modify,  abandon,
extend or renew any of the same, or permit any of the same to lapse,  other than
in the ordinary  course of business.  Notwithstanding  the  preceding,  should a
Seller or New Avoca cancel, amend, modify, abandon, extend or renew any Material
Contract,  or permit any of the same to lapse,  the Sellers  shall provide Buyer
written  notification  of such event  within  three (3)  Business  Days from the
occurrence thereof or prior to the Closing Date, whichever occurs first.

         (d)  Neither  Seller  shall,  nor permit  New Avoca to,  dispose of any
interest in any of the Business  Assets or take any action  (including the entry
into any contract, agreement or instrument) the taking of which, or omit to take
any action the omission of which,  would  reasonably be expected to (i) cause an
Encumbrance  to arise with  respect to any of the  Business  Assets  (other than
Permitted Encumbrances),  (ii) bind New Avoca or the Business Assets in a manner
that would  reasonably be expected to require capital  expenditures in excess of
Five Thousand and No/100 Dollars ($5,000.00),  or (iii) be outside of the normal
scope of maintaining and operating the Business Assets.

         7.02  Fulfillment  of Closing  Conditions.  Prior to the Closing,  each
Seller shall:



                                       20
<PAGE>

         (a) on a timely basis, give or cause to be given all such notices,  and
use  commercially  reasonable  efforts  to  obtain or cause to be  obtained  all
consents,  approvals  and waivers  that are  required to be given or obtained by
such Seller in connection with the consummation of the transactions contemplated
hereunder, including, without limitation the Required Consents; and

         (b) use its best efforts to fulfill or cause to be fulfilled  all other
conditions  to the  Closing  set forth in  Sections  11.01 to the  extent of its
ability to influence same.

         7.03  Access  to  Facility.  From  and  after  the  date  hereof,  upon
reasonable  advance notice and during reasonable  business hours,  Buyer, at its
own risk and expense, shall be given full and complete access to the facilities,
properties,  books  and  records  of New  Avoca and  Sellers  pertaining  to the
Business  Assets;  provided,  however,  that such  access  may not  unreasonably
interfere with the ongoing operations of New Avoca or Sellers. Each Seller shall
furnish  to  Buyer,  at  Buyer's  expense,  copies  of such  books  and  records
pertaining  to the Facility and the  Business  Assets as Buyer shall  reasonably
request in  connection  with its  investigation  of the  Facility  and  Business
Assets.  Prior to Closing,  Buyer,  at its own risk and expense,  shall have the
right to inspect the Real  Property  and other  Business  Assets,  to the extent
Buyer deems it necessary in performing its  environmental or operational  review
of the Facility and the Business Assets.

         7.04 Title  Commitments  and Policies.  Each Seller  acknowledges  that
Buyer  shall  have the  right  to  obtain,  at  Buyer's  own  cost and  expense,
commitments  for title insurance and title policies for all the Real Property at
or after the Closing  Date.  Each Seller  agrees to cooperate in a  commercially
reasonable  manner with Buyer in connection  with Buyer's efforts to obtain such
commitments and policies, if any, but at no cost or expense to Sellers.

         7.05  Non-Solicitation.  Prior to the Closing Date,  neither Seller nor
any of their  Affiliates  will (and  Sellers  will cause each of its  employees,
officers and agents not to) (a) solicit,  initiate,  entertain or encourage  the
submission  of any  proposal or offer from any Person  relating to the direct or
indirect  acquisition  of the  Facility  or any portion of the  Business  Assets
(other than in the  ordinary  course of  business),  or (b)  participate  in any
discussions or negotiations regarding,  furnish any information with respect to,
assist or  participate  in, or  facilitate  in any other  manner  any  effort or
attempt by any Person to do or seek any of the  foregoing.  Sellers  will notify
Buyer if any Person makes any proposal,  offer,  inquiry or contact with respect
to any of the  foregoing  within two (2) Business Days after receipt of any such
offer or proposal.

         7.06  Distributions.  Sellers  shall cause New Avoca to pay the current
obligations listed on Schedule 7.06 at or prior to the Closing. Sellers shall be
permitted  to cause New  Avoca to  distribute.  effective  prior to or as of the
Closing, all of its cash,  receivables,  and other liquid assets remaining after
the payment of such amounts.






                                       21
<PAGE>

                                    ARTICLE 8

                               COVENANTS OF BUYER

         8.01  Fulfillment  of  Closing  Conditions.  Buyer  shall  use its best
efforts to fulfill or cause to be fulfilled  all  conditions  to the Closing set
forth in Sections 11.02 to the extent of its ability to influence same.

                                    ARTICLE 9

                                EMPLOYEE MATTERS

         [Intentionally omitted.]

                                   ARTICLE 10

                       COVENANTS REGARDING CREDIT SUPPORT

         10.01 Substitution of Credit Support. Subject to Section 10.02, Sellers
and Buyer hereby  acknowledge  that nothing  contained herein shall be deemed to
cause Buyer or any of its Affiliates to be substituted  for either Seller or any
of their respective Affiliates with respect to any of the Guaranties, Letters of
Credit or Cash  Collateral.  Should either Seller desire to have Buyer or any of
its  Affiliates  substitute  or replace  any of the  Guaranties,  the Letters of
Credit  or  Cash  Collateral,   such  Seller  shall  disclose  in  writing  such
instruments  to Buyer  prior to the  Closing  Date,  and Buyer  shall cause such
substitution to occur as soon as practical after the Closing.  Such  Guaranties,
Letters  of Credit or Cash  Collateral  shall not have  Buyer or its  Affiliates
substituted  thereunder  unless and until  specifically  agreed to in writing by
Buyer or its Affiliates,  but the assumption of any such obligations by Buyer or
its Affiliates  shall include a complete  release of Sellers in respect  thereof
after Closing.

         10.02 Plugging Bonds and Escrow Funds. Buyer understands that New Avoca
is obligated under those certain Well Plugging and Surface  Restoration Bonds in
favor of New York State  Department of  Environmental  Conservation,  in a total
current amount of $242,200.00  ("Plugging Bonds"), and New Avoca is obligated in
similar  amounts to the United States  Environmental  Protection  Agency,  which
obligations  are  supported  by funds in an escrow  account  with  Union Bank of
California,  said funds  totaling  $273,624.87 as of September 30, 2004 ("Escrow
Funds"). Effective as of the Closing, Buyer or its Affiliate, as the case may be
will  replace the  Plugging  Bonds and  purchase  the Escrow Funds at Closing by
paying  Sellers an amount  equal to the  Escrow  Funds on deposit at the time of
Closing.

                                   ARTICLE 11

                      CONDITIONS TO CLOSING AND TERMINATION

         11.01  Conditions to Obligation  of Buyer.  The  obligation of Buyer to
perform its respective  obligations hereunder at the Closing shall be subject to



                                       22
<PAGE>

the  satisfaction  of the  conditions  set forth below (which  conditions may be
waived  in whole or in part by Buyer  in its  sole and  absolute  discretion  in
writing on or before the Closing Date):

         (a) The  representations  and warranties of each Seller hereunder shall
be true and correct in all  material  respects as of the Closing  Date  (without
regard to any materiality  qualifier contained  therein),  and each Seller shall
have performed in all material  respects all covenants and obligations  required
of such Seller by this  Agreement  to be performed on or before the Closing Date
(without regard to any materiality qualifier contained therein).

         (b) Each  Seller  shall  have  delivered  to Buyer a  certificate  of a
corporate  officer or other  authorized  person,  dated as of the Closing  Date,
certifying  on behalf of such  Seller that the  conditions  set forth in Section
11.01(a) have been fulfilled.

         (c) Each  Seller  shall  have  given  or  caused  to be given  all such
notices,  and  obtained or caused to be obtained  all  consents,  approvals  and
waivers  from  any  third  parties  not  constituting   Governmental   Entities,
including, but not limited to, the Required Consents.

         (d) There  shall not be in effect any Legal  Requirement  that makes it
illegal  for Buyer to  perform  its  obligations  hereunder  at  Closing  or any
judgment,  order,  writ or  decree  that  enjoins  Buyer  from  performing  such
obligations.

         (e) No event shall have occurred since  September 28, 2004 that has had
or would  reasonably  be  expected  to have a  material  adverse  effect  on the
Facility or Business Assets taken as a whole.

         (f) Buyer shall be satisfied in its sole and absolute  discretion  with
the  results  of such due  diligence,  examinations,  studies,  tests,  reviews,
assessments, audits and inspections, as Buyer deems necessary or desirable, with
respect to New Avoca, the Facility and the Business Assets.

         (g) All documents, instruments, certificates or other items required to
be delivered by each Seller  pursuant to Section 4.02 shall have been delivered,
including but not limited to the Required Consents.

         (h) Prior to Closing,  each Seller shall have full legal and beneficial
title to and ownership of its respective  New Avoca  Membership  Interests,  New
Avoca  shall  have  full  legal and  beneficial  title to and  ownership  of the
Business  Assets,  and the New Avoca  Membership  Interests and Business  Assets
shall be free and clear of all Encumbrances other than Permitted Encumbrances.

         11.02  Conditions  to  Obligation  of Sellers.  The  obligation of each
Seller to perform its  obligations  hereunder at the Closing shall be subject to
the  satisfaction  of the  conditions  set forth below (which  conditions may be
waived in whole or in part by Sellers in writing on or before the Closing Date).

         (a) The representations and warranties of Buyer hereunder shall be true
and correct in all material  respects as of the Closing Date (without  regard to
any materiality qualifier contained therein),  and Buyer shall have performed in
all material  respects all covenants  required of Buyer by this  Agreement to be
performed on or before the Closing Date.



                                       23
<PAGE>

         (b) Buyer shall have  delivered to Sellers a certificate of its general
partner or proper officer, dated the Closing Date, certifying on behalf of Buyer
that the conditions set forth in Section 11.02(a) have been fulfilled.

         (c) There  shall not be in effect any Legal  Requirement  that makes or
will make it illegal for either Seller to perform its  obligations  hereunder at
Closing or any judgment,  order,  writ or decree that enjoins either Seller from
performing such obligations.

         (d) All  other  required  material  permits,  consents,  approvals  and
authorizations from Governmental Entities shall have been obtained.

         (e) All documents, instruments, certificates or other items required to
be delivered by Buyer pursuant to Section 4.02 shall have been delivered.

         11.03  Termination.  Notwithstanding  anything  herein to the contrary,
this  Agreement may be terminated at any time without  liability of any Party to
the other Parties except as set forth in Section 11.04:

         (a) By either Buyer or Sellers if the Closing  shall not have  occurred
on or before October 29, 2004;

         (b) by either Buyer or Sellers, upon delivery of ten (10) Business Days
prior written notice to the other Party,  if events have occurred that have made
it  impossible  to satisfy a condition to the  terminating  Party's  obligations
hereunder that such terminating Party is not willing to waive (the Parties agree
to  promptly  notify the other  Party if such Party  discovers  that events have
taken place that give such Party the right to terminate this Agreement  pursuant
to this Section 11.03(b));

         (c) by any Party at any time prior to  Closing,  upon  delivery of five
(5) Business Days prior written notice to the other Party,  if a final order has
been issued by a Governmental Entity with appropriate  jurisdiction  prohibiting
the consummation of the transactions contemplated by this Agreement; or

         (d) by mutual agreement of the Parties;

provided,  however,  no Party may exercise any right of termination  pursuant to
this Agreement if the event giving rise to such termination  right resulted from
the  failure by such Party to fulfill any  material  undertaking  or  commitment
provided  for herein that is required to be fulfilled by such Party prior to the
Closing.

         11.04 Effect of Termination.  If this Agreement is terminated  pursuant
to Section 11.03 or otherwise pursuant to the terms hereof, this Agreement shall
become  void and of no further  force or effect  (except for the  provisions  of
Sections 5.14, 6.04, 12.01,  13.01,  13.07, 13.11, 13.14 and 13.16, which shall,



                                       24
<PAGE>

except to the extent otherwise specifically  provided,  survive such termination
and continue in full force and effect). If this Agreement is terminated pursuant
to the provisions hereof,  nothing herein shall relieve any Party from liability
for any willful breach of this Agreement occurring prior to such termination.

         11.05  Survival.   The  representations,   warranties,   covenants  and
obligations of the Parties under this  Agreement,  and the obligation to provide
indemnification  pursuant  to Article 12,  shall  survive the Closing and may be
enforced within the time periods specified herein.  The facts giving rise to any
and all  Damages  from the breach of a  representation,  warranty,  covenant  or
obligation  hereunder or to a Claim in connection therewith or otherwise subject
to  indemnification  under  Article  XII must have  occurred  on or prior to the
second (2nd)  anniversary  of the Closing  Date,  and provided  further that the
Party seeking a remedy  pursuant to Section 12.01 must commence a Claim for such
Damages  on or  prior  to the  third  (3rd)  anniversary  of the  Closing  Date;
provided,  however,  said time  limitations  shall not apply to any  Damages  or
Claims  arising  from breach of the earn out or  non-compete  obligations  under
Sections 3.02 or 12.06.

         In the event that a Claim for indemnification is properly brought under
Section  12.01,  the  applicable  survival  period under this Section 11.05 with
respect to the breach of the  representation,  warranty,  covenant or obligation
shall be deemed to toll,  with  respect to such Claim only,  until such Claim is
ultimately  resolved by a written instrument  executed by each of the Parties or
finally resolved by a court of competent jurisdiction.

                                   ARTICLE 12

                      ADDITIONAL AGREEMENTS OF THE PARTIES

         12.01 Indemnification. (a) Subject to the survival provisions set forth
in Section 11.05 and the  limitations  set forth in this Section  12.01(a),  and
except to the extent any such Claims or Damages are covered by Buyer's indemnity
in favor of Seller Indemnified Parties pursuant to Section 12.01(b), the Sellers
shall,  jointly and  severally,  indemnify,  defend,  hold  harmless and release
Buyer,  its general and limited  partners  and  Affiliates,  and its  respective
directors,  officers,  employees,  legal counsel,  financial advisors and agents
(collectively,  the "Buyer  Indemnified  Parties")  from and against any and all
Claims and Damages  suffered or incurred by the Buyer  Indemnified  Parties that
arise out of, result from or are payable as a result of the following:

                  (i) the breach of any  representation  or  warranty  made by a
         Seller in Article 5 of this  Agreement or in any  certificate  or other
         document or  instrument  delivered by or on behalf of a Seller to Buyer
         pursuant  to this  Agreement  (except  for  Section  5.11  that will be
         covered   by  the   indemnity   obligation   set   forth   in   Section
         12.01(a)(iii)),  provided,  however, only the breaching Seller shall be
         obligated to indemnify the Buyer Indemnified Parties under this Section
         12.01(a)(i) with respect to its breach of a representation  or warranty
         that is expressly limited to that specific Seller.

                  (ii) the  failure  of a Seller  to  perform  any  covenant  or
         obligation required to be performed by it under this Agreement;



                                       25
<PAGE>

                  (iii) any Claims made by third parties (including Governmental
         Entities)  against  the Buyer  Indemnified  Parties to the extent  such
         Claims arise out of, result from,  relate to or are payable as a result
         of (A) any  Environmental  Condition  which  arose  or  developed  with
         respect to the Business Assets during the Ownership Period,  other than
         with  respect  to an  Assumed  Liability,  or  (B)  the  breach  of any
         representation or warranty made by a Seller in Section 5.11;

                  (iv) any Claims made by third parties (including  Governmental
         Entities)  against  the Buyer  Indemnified  Parties to the extent  such
         Claims arise out of or are  attributable to events occurring during the
         Ownership  Period with respect to the Business  Assets  (except for any
         Claims  relating  to  environmental  matters  that are  covered  by the
         indemnity  obligation set forth in Section  12.01(a)(iii)),  other than
         with respect to an Assumed Liability; and

                  (v) any Unassumed Liability (except for any Claims relating to
         environmental  matters that are covered by the indemnity obligation set
         forth in Section 12.01(a)(iii));

         IN EACH  CASE,  WITHOUT  REGARD  TO THE  SOLE,  PARTIAL  OR  CONCURRENT
         NEGLIGENCE,  OR  STRICT  LIABILITY  (BUT  NOT THE  WILLFUL  AND  WANTON
         MISCONDUCT) OF THE BUYER INDEMNIFIED PARTIES;  provided,  however, that
         the indemnity  obligations  of the Sellers under this Section  12.01(a)
         shall be subject to the following limitations:

                  (1)   Notwithstanding   anything  to  the   contrary  in  this
         Agreement,  Sellers  shall  not be  obligated  to  indemnify  the Buyer
         Indemnified  Parties for any Damages  pursuant to (A) Section  12.01(a)
         above to the extent the  aggregate  amount of such Damages  suffered or
         incurred by the Buyer  Indemnified  Parties does not exceed One Hundred
         Thousand  and 00/100  Dollars  (the  "Deductible")  or (ii) exceeds the
         Purchase  Price (the "Cap"),  provided  further that the liability of a
         specific  Seller  shall  not  exceed  the  share of that  Seller of the
         Purchase Price.  All liability and  responsibility  for amounts outside
         the limits set forth in the preceding sentence shall be borne by Buyer.

         (b) Subject to the survival  provisions set forth in Section 11.05, and
except to the extent  that any such  Claims or Damages  are  covered by Sellers'
indemnity  in  favor  of the  Buyer  Indemnified  Parties  pursuant  to  Section
12.01(a),  Buyer shall indemnify,  defend, hold harmless and release Sellers and
their  Affiliates,  and its respective  directors,  officers,  employees,  legal
counsel,  financial advisors and agents  (collectively,  the "Seller Indemnified
Parties")  from and against all Claims and Damages  arising out of or  resulting
from or payable as a result of the following:

                  (i) the breach of any representation or warranty made by Buyer
         in Article 6 of this Agreement or in any  certificate or other document
         or instrument delivered by or on behalf of Buyer to Sellers pursuant to
         this Agreement;



                                       26
<PAGE>

                  (ii) without  limiting or expanding the  obligations  of Buyer
         pursuant to the express  terms of such  covenants or  obligations,  the
         failure of Buyer to perform any covenant or  obligation  required to be
         performed by it under this Agreement;

                  (iii) any Claims made by third parties (including Governmental
         Entities)  against  the Seller  Indemnified  Parties to the extent such
         Claims  arise  out  of or  are  attributable  to  the  ownership,  use,
         condition or operation of the Business  Assets after the Closing  Date;
         and

                  (iv) any Assumed Liability.

         IN  EACH  CASE  WITHOUT  REGARD  TO THE  SOLE,  PARTIAL  OR  CONCURRENT
         NEGLIGENCE,  OR  STRICT  LIABILITY  (BUT  NOT THE  WILLFUL  AND  WANTON
         MISCONDUCT) OF THE SELLER INDEMNIFIED PARTIES; provided,  however, that
         the indemnity obligations of Buyer under this Section 12.01(b) shall be
         subject to the following limitation:

         Notwithstanding anything to the contrary in this Agreement, Buyer shall
         not be obligated to indemnify  the Seller  Indemnified  Parties for any
         Damages  pursuant to Section 12.01(b) above to the extent the aggregate
         amount of such Damages  suffered or incurred by the Seller  Indemnified
         Parties (i) does not exceed the Deductible or (ii) does exceed the Cap.
         All liability  and  responsibility  for amounts  outside the limits set
         forth in the preceding sentence shall be borne by Sellers.

         (c) In the event that any Claim for which a Seller, on the one hand, or
Buyer, on the other hand (each an "Indemnifying  Party"), could be liable to the
other Party or another  indemnified Person (each  collectively,  an "Indemnified
Party") under this Section  12.01 is asserted  against or sought to be collected
from such Indemnified Party by a third party, the Indemnified Party shall notify
the  Indemnifying  Party of such Claim  within  the time  periods  specified  in
Section 11.05 hereof, specifying the nature of and specific basis for such Claim
and the amount or the estimated  amount thereof to the extent then feasible (the
"Claim Notice");  provided,  however,  that no failure or delay in the giving of
such  Claim  Notice  shall  relieve  the  Indemnifying  Party  of any  Liability
hereunder  if such delay does not  materially  impair the defense of such Claim.
The Indemnifying  Party shall have 30 days from the delivery of the Claim Notice
(the "Notice Period") to notify the Indemnified Party whether or not it desires,
at the  sole  cost  and  expense  of  the  Indemnifying  Party,  to  defend  the
Indemnified Party against such Claim;  provided,  however,  that any Indemnified
Party is hereby  authorized  prior to and during  the Notice  Period to file any
motion,  answer or other pleading that it shall deem necessary or appropriate to
protect its interests or those of the Indemnifying  Party and not prejudicial to
the defense of such Claim.  If the  Indemnifying  Party notifies the Indemnified
Party within the Notice Period that it desires to defend the  Indemnified  Party
against  such  Claim or demand  and  except as  hereinafter  provided,  then the
Indemnifying Party shall have the right, at its own expense and after reasonable
coordination with the Indemnified Party, to assume the defense of any such Claim
either  directly or through its  insurer.  In such case,  but subject to Section
12.01(d) below, (i) the Indemnifying  Party shall control the course of and make
all decisions  concerning any such  proceeding,  select and employ counsel (with
the approval of the Indemnified  Party,  not to be unreasonably  withheld),  and



                                       27
<PAGE>

expeditiously  settle or prosecute such  proceeding to a final  conclusion,  and
(ii) the Indemnified Party may participate in, but not control, any such defense
or settlement  at its own cost and with its own counsel,  and (iii) if requested
by the Indemnifying  Party,  the Indemnified  Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any Claim that the Indemnifying
Party  elects  to  contest,  or,  if  appropriate  and  related  to the Claim in
question,   in  making  any  counterclaim   against  the  Person  asserting  the
third-party Claim, or any cross-complaint  against any Person. To the extent the
Indemnifying  Party  elects  not  to  assume  the  defense  of  any  Claim,  the
Indemnified  Party  shall,  at the cost and for the account of the  Indemnifying
Party, assume all obligations with respect thereto,  and shall take such prudent
steps as may be required in connection  therewith as though the  indemnities did
not exist and such Claim were the Indemnified  Party's  responsibility.  In such
case, the  Indemnified  Party shall have the right with respect to any Claim for
which it is assuming the defense to choose counsel and make decisions  regarding
any such proceeding,  provided that it shall keep the Indemnifying Party advised
with respect thereto.  Subject to Section 12.01(e) below, the Indemnifying Party
shall be bound by any and all rulings,  judgments,  compromises  and settlements
reached by the Indemnified Party in good faith.

         (d)  If a  Party  becomes  an  Indemnified  Party,  it  shall,  at  the
Indemnifying  Party's expense,  cooperate with the Indemnifying Party and permit
the  Indemnifying  Party  reasonable  access to the  Indemnified  Party's books,
records, facilities and employees for the purpose of permitting the Indemnifying
Party to perform its obligations  under this Section 12.01;  provided,  however,
that the Indemnified Party shall not be required to disclose to the Indemnifying
Party any documents or correspondence  covered by the attorney-client  privilege
or the work product doctrine,  except pursuant to a joint defense agreement.  To
the  extent  that  any   documents   or   correspondence   are  covered  by  the
attorney-client  privilege or the work product  doctrine,  the Indemnified Party
shall notify the  Indemnifying  Party if the Indemnified  Party seeks to protect
such  privilege  with  respect to third  parties.  The  Indemnified  Party shall
disclose  to the  Indemnifying  Party the  non-privileged  contents  of any such
documents  or  correspondence.  If  requested  by the  Indemnifying  Party,  the
Indemnified  Party and the  Indemnifying  Party shall  negotiate in good faith a
joint  defense  agreement  with respect to the matter that is the subject of the
privileged communication or work product.

         (e) No third-party Claim may be made the subject of a consent decree or
otherwise  settled  or  compromised  without  the prior  written  consent of the
Indemnifying Party, which consent shall not be unreasonably withheld. No consent
decree or other  settlement or  compromise  of any such Claim  involving (i) the
entry of a plea of guilty or nolo contendere to any criminal charge, or (ii) any
admission  of  responsibility  for which  the  Indemnified  Party  could be held
criminally  liable, may be entered into without the prior written consent of the
Indemnified  Party.  Any  consent  decree  or  other  settlement  or  compromise
involving  or  affecting  Buyer's  ownership,  operation  or use of the Business
Assets shall require the prior consent of Buyer, which shall not be unreasonably
withheld.

         (f) Subject to the terms hereof,  no  investigation  by an  Indemnified
Party at or prior to the  Closing  shall  relieve an  Indemnifying  Party of any
Liability hereunder.



                                       28
<PAGE>

         12.02 Exclusive Remedy.  In the absence of actual fraud,  Section 12.01
shall be the exclusive  remedy of all Parties for monetary damages for breach of
this Agreement,  and each Party hereby waives any other Claim,  cause of action,
or remedy for monetary  Damages that it might assert  against the other  Parties
for breach of this  Agreement,  whether  under  statutory  or common law, or any
other Legal Requirement.

         12.03  Cooperation and  Preservation of Books and Records.  The Parties
shall provide such  assistance  to each other as the other Party may  reasonably
request in  connection  with the  preparation  of any Tax Return  required to be
filed with respect to the Facility,  any audit or other  examination by a taxing
authority,  any judicial or administrative  proceeding relating to Liability for
federal,  foreign,  state or local Taxes,  or any claim for refund in respect of
such Taxes. The Parties shall retain,  and upon request provide,  any records or
information that may be reasonably relevant to such return, audit,  examination,
proceeding,  or claim. Such assistance shall include, but is not limited to, (a)
making  employees or counsel  available at and for  reasonable  times to provide
additional  information and explanation of any material to be provided hereunder
and (b), subject to the right of each Party to refrain from disclosing or making
available any proprietary  information,  any written or oral communications that
are subject to the attorney-client  privilege and any documents that are covered
by the work product  doctrine,  furnishing access to, and permitting the copying
of any records,  returns,  schedules,  documents,  work papers or other relevant
materials  which might  reasonably be expected to be of use in  connection  with
such return, audit, examination, proceeding, or claim.

         The Parties recognize that the Parties and their respective  Affiliates
may  need  access,  from  time to time,  after  the  Closing  Date,  to  certain
accounting and Tax records and information held by the other Parties; therefore,
the Parties shall (a) use commercially reasonable efforts to properly retain and
maintain  such records  until the 30th day  following the last date on which the
period to which such records relate is subject to audit,  and (b) subject to the
right  of each  Party  to  refrain  from  disclosing  or  making  available  any
proprietary information,  any written or oral communications that are subject to
the  attorney-client  privilege and any  documents  that are covered by the work
product doctrine, allow the requesting Party and its respective agents and other
representatives,  at times and dates  mutually  acceptable  to the  Parties,  to
inspect,  review,  and make copies of such records as the  requesting  Party may
deem necessary or appropriate from time to time, such activities to be conducted
during normal business hours and at the requesting Party's expense.

         12.04  Investigation  of Books  and  Records.  Buyer's  closing  of the
transaction  contemplated hereby will constitute Buyer's  acknowledgment that it
has had, prior to the Closing Date, access to the Business Assets,  the Records,
and the officers and employees of Sellers and New Avoca to its full and complete
satisfaction.  Buyer hereby further  acknowledges that in making the decision to
enter into this Agreement and consummate the transactions  contemplated  hereby,
it is  relying  solely  on its own  independent  investigation  and the  express
representations,  warranties,  covenants and  agreements of Sellers set forth in
this Agreement.

         12.05 Bulk Transfer  Laws.  Buyer hereby  waives  compliance by Sellers
with the provisions of any so called bulk transfer laws of any  jurisdiction  in
connection with the purchase and sale of the Business Assets;  provided however,
that in  accordance  with Article 12 hereof,  Sellers  shall  indemnify and hold
Buyer  harmless  from any Damages which Buyer may incur due to failure to comply
with such laws.



                                       29
<PAGE>

12.06 Non-Competition. Neither Seller nor any of their Affiliates shall, within
the States of New York or Pennsylvania, own or operate a natural gas storage
business that competes with the Facility, or enter or reenter such business,
until the third (3rd) anniversary of the Closing Date, without the prior written
consent of Buyer, which consent may be withheld in Buyer's sole and absolute
discretion. Each Seller acknowledges that (a) the provisions of this Section are
reasonable and necessary to protect the legitimate interests of Buyer and its
Affiliates; (b) any violation of this Section will result in irreparable injury
to Buyer and its Affiliates; and that (c) Buyer and its Affiliates shall be
entitled to injunctive relief in accordance with Section 13.12 hereof. In the
event that this Section should ever be deemed to exceed the time, geographic,
product or any other limitations permitted by Legal Requirements, such
provisions shall be deemed reformed to the maximum extent permitted by Legal
Requirements.

                                   ARTICLE 13

                                  MISCELLANEOUS

         13.01  Governing  Law. This Agreement and all  instruments  executed in
accordance with it shall be governed by and construed,  interpreted and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law rules  that would  direct  application  of the laws of another  jurisdiction
(except to the extent that such instruments  otherwise  provide or that the laws
of another  state  mandatorily  apply to the Real Property  located  within such
state).

         13.02  Entire  Agreement.  This  Agreement  (including  the  documents,
schedules, attachments, exhibits, annexes and instruments referred to herein and
therein)  together  with the  Confidentiality  Agreement  constitute  the entire
agreement between the Parties and supersedes all prior agreements,  documents or
other instruments with respect to the matters covered hereby.  The Parties agree
that the terms and  conditions of the  Confidentiality  Agreement  will apply to
this Agreement and all other  agreements  between the Parties which are attached
as exhibits  hereto.  The Parties  make,  and have made,  no oral  agreements or
undertakings pertaining to the subject matter of this Agreement,  except for any
that are no  longer  in  effect.  In the  event of any  irreconcilable  conflict
between the terms of this Agreement and any conveyancing  documents contemplated
hereby, the terms of this Agreement shall be controlling.

         13.03  Waiver.  No waiver of any of the  provisions  of this  Agreement
shall be deemed or shall  constitute  a waiver  of any other  provisions  hereof
(whether or not similar),  nor shall such waiver  constitute a continuing waiver
unless otherwise expressly provided.

         13.04 Captions. The captions in this Agreement are for convenience only
and  shall  not  be  considered  a  part  of  or  affect  the   construction  or
interpretation of any provision of this Agreement.



                                       30
<PAGE>

         13.05 Assignment. This Agreement and all of the provisions hereof shall
be binding  upon and inure to the  benefit  of the  Parties  and its  respective
successors and permitted  assigns,  but except as provided  below,  neither this
Agreement nor any of the rights,  interests or  obligations  hereunder  shall be
assigned  by any Party  without  the prior  written  consent of either  Buyer or
Sellers,  as applicable,  and any such assignment that is not consented to shall
be null and void; provided, however, that a Party may assign this Agreement upon
notice to the other Party to (a) an Affiliate of that Party, or (b) a Person who
(i)  purchases  all or  substantially  all of the assets of such Party,  or (ii)
merges with that Party,  provided,  further;  however, that any assignment under
clause (a) or (b) shall not release,  affect or reduce in any way the  assigning
Party's  obligations  under this  Agreement.  The Buyer may assign the New Avoca
Membership  Interests,  or permit  New  Avoca to  assign  all or any part of the
Facility, if the assignee agrees to be bound by the terms of Section 3.02 hereof
and Buyer  gives  Sellers  notice  of any such  assignment  (delivered  within a
reasonable time after such  assignment)  occurring  within seven (7) years after
the Closing  Date;  provided,  however,  the consent of the Sellers shall not be
required for any such assignment. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than the Parties and its  respective
permitted successors and assigns, any rights, benefits or obligations hereunder.

         13.06 Notices.  Any notice provided or permitted to be given under this
Agreement  shall be in  writing,  and may be served by  personal  delivery or by
depositing  same in the mail,  addressed  to the Party to be  notified,  postage
prepaid,  and registered or certified with a return  receipt  requested.  Notice
deposited  in the mail in the manner  hereinabove  described  shall be deemed to
have been given and  received on the date of the delivery as shown on the return
receipt.  Notice  served in any other  manner shall be deemed to have been given
and received  only if and when actually  received by the addressee  (except that
notice given by facsimile  shall be deemed given and received  upon receipt only
if received  during  normal  business  hours and if  received  other than during
normal  business hours shall be deemed received as of the opening of business on
the next  Business  Day).  For purposes of notice,  the  addresses and facsimile
numbers of the Parties shall be as follows:

For Blue Dolphin to:
                                 Blue Dolphin Energy Company
                                 801 Travis, Suite 2100
                                 Houston, Texas 77002
                                 United States of America
                                 Attn:  President
                                 Facsimile: (713) 227-7626

                                 Doherty & Doherty LLP
With a copy to:                  1717 St. James Place, Suite 520
                                 Houston, Texas  77056
                                 Attn:  Casey W. Doherty
                                 Facsimile:  (713) 572-1001



                                       31
<PAGE>

For WBI to:                      Barry Haugen
                                 P.O. Box 5601
                                 Bismarck, North Dakota
                                 Facsimile:(701) 530-1599
                                 SemGas, L.P.
For Buyer to:                    6120 South Yale, Suite 700
                                 Tulsa, OK 74136
                                 Attn:  President
                                 Facsimile:  (918)  388-8920

With a copy to:                  Hall, Estill, Harwick, Gable,
                                 Golden & Nelson, P.C.
                                 320 South Boston, Suite 400
                                 Tulsa, Oklahoma  74103
                                 Attn:  Michael D. Cooke
                                 Facsimile:  (918) 594-0505


Each Party shall have the right,  upon  giving  five days'  prior  notice to the
other in the manner hereinabove  provided, to change its address for purposes of
notice.

         13.07 Expenses. Each Party shall be solely responsible for all expenses
incurred by it in connection with this transaction  (including fees and expenses
of its own counsel, accountants and consultants).

         13.08  Severability.  If a provision  of this  Agreement  that does not
affect the essential nature of, or consideration  for, the arrangement among the
Parties  reflected  hereby  is  ruled  to  be  invalid  or  unenforceable,  such
declaration  shall not affect the validity or  enforceability  of the  remaining
provisions of this Agreement,  which shall continue in full force and effect. In
such event,  however,  the Parties shall negotiate in good faith to replace such
invalid or unenforceable  provision with a valid and enforceable  provision that
places each Party in  substantially  the same position it would have been in had
such original provision been valid and enforceable.

         13.09 Amendment.  This Agreement  (including the documents,  schedules,
attachments,  exhibits,  annexes and instruments  referred to herein) may not be
amended except by an instrument in writing signed by each of the Parties.

         13.10 Further Actions.  Each Party shall execute and deliver such other
certificates,  agreements and other documents and take such other actions as may
reasonably be requested by the other Parties in order to consummate or implement
the transactions contemplated by this Agreement.



                                       32
<PAGE>

         13.11  Third-Party  Beneficiaries.  Except  as  expressly  set forth in
Section 12.01 with respect to Buyer  Indemnified  Parties or Seller  Indemnified
Parties,  nothing  in this  Agreement  is  intended  to create  any  third-party
beneficiary  rights  respecting  any Person or to confer upon any Person,  other
than the  Parties and its  respective  successors  and  permitted  assigns,  any
rights,  remedies or obligations  under or by reason of this Agreement,  and the
Parties specifically negate any such intention.

         13.12 Injunctive  Relief. In the event of a breach or threatened breach
by a Seller or Buyer of the provisions of this Agreement,  each Seller and Buyer
agree that the non  breaching  Party  shall be  entitled  to  equitable  relief,
including an injunction and specific  performance,  alone or in combination,  in
addition to all other  remedies  available  at law or in equity to such Party in
the event of any breach of the  provisions of this  Agreement by the other Party
or  any  of  its  Affiliates.  If a  court  exercising  applicable  jurisdiction
determines that a Party is entitled to such injunctive or equitable relief, such
Party or Parties  against whom relief is sought agrees to waive any  requirement
for the  securing or posting of any bond or other  security in  connection  with
such remedy.

         13.13 Counterparts;  Exhibits. This Agreement may be executed in one or
more  counterparts  (delivery of which may be made by facsimile),  each of which
shall be deemed an original,  but all of which together shall constitute one and
the same instrument. All Attachments, Schedules and Exhibits attached hereto are
hereby made a part of this Agreement and incorporated herein by this reference.

         13.14 Publicity.  Prior to making any public  announcement with respect
to the transactions contemplated hereby, each Party shall consult with the other
Parties and to use reasonable efforts to agree upon the text of a proposed joint
announcement  or obtain the other  Party's or  Parties'  approval of the text of
such announcement (which approval shall not be unreasonably withheld); provided,
however, that any Party may make such disclosures or statements as it reasonably
believes may be required by applicable Legal  Requirements,  including any rules
or regulations of any stock exchange.

         13.15  Construction.  (a) The Parties have participated  jointly in the
negotiation  and  drafting  of this  Agreement.  In the  event an  ambiguity  or
question of intent or interpretation  arises,  this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise  favoring or  disfavoring  any Party by virtue of the authorship of any of
the  provisions of this  Agreement.  If the date specified in this Agreement for
giving any  notice or taking any action is not a Business  Day (or if the period
during which any notices  required to be given or any action taken  expires on a
date  which is not a Business  Day),  then the date for  giving  such  notice or
taking such action (and the expiration  date for such period during which notice
is  required  to be  given or  action  taken)  shall be the next day  which is a
Business Day.

         (b) Unless the context requires  otherwise:  (i) the gender (or lack of
gender) of all words used in this Agreement includes the masculine and feminine;
(ii)  references to Articles and Sections refer to Articles and Sections of this
Agreement;  (iii) references to Attachments,  Schedules or Exhibits refer to the
Attachments, Schedules and Exhibits attached to this Agreement, each of which is
made a part  hereof  for all  purposes;  and  (iv) the  word  "including"  means
"including, without limitation."



                                       33
<PAGE>

         (c) Any item  disclosed in one Section or Schedule will be deemed to be
disclosed in any other  Section or Schedule  where such  disclosure is relevant,
even if there is no express  cross-reference,  provided  that the nature and the
relevance of the disclosure is reasonably apparent. Disclosure of items that may
or may not be required to be disclosed by this Agreement does not mean that such
items are material or create a standard of materiality and will not be deemed an
admission that any such disclosed  matter is or may give rise to a breach of any
Contract or violation of any Legal Requirement.

         13.16  Limitation  of Liability.  EXCEPT AS EXPRESSLY  PROVIDED IN THIS
AGREEMENT,  IN NO EVENT SHALL ANY PARTY HERETO BE LIABLE TO ANY OTHER  HEREUNDER
FOR EXEMPLARY, PUNITIVE, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES
OF ANY KIND,  ARISING  DIRECTLY OR INDIRECTLY  FROM,  INCIDENT TO, OR IN ANY WAY
CONNECTED  WITH THIS  AGREEMENT,  REGARDLESS OF SOLE OR  CONCURRENT  NEGLIGENCE,
STRICT LIABILITY,  OR DEFECT IN PREMISES,  EQUIPMENT OR MATERIAL, AND REGARDLESS
OF WHETHER PRE-EXISTING THIS AGREEMENT. This Section 13.16 shall in no way limit
or qualify the Parties'  indemnification  obligations  under  Section 12.01 with
respect to Claims made against any Party by a third person.

         13.17  Schedules.  In the event  information  from one Schedule is also
appropriate to be included on another  Schedule,  such  information  need not be
repeated and a reference to the other  Schedule  will have the same effect as if
the information were specifically repeated on that Schedule.

                 [Remainder of page intentionally left blank.]





















                                       34
<PAGE>

         IN WITNESS WHEREOF,  the Parties have executed this Agreement as of the
day and year first set forth above.


                                 SELLERS:


                                 BLUE DOLPHIN ENERGY COMPANY


                                 By:
                                    --------------------------------------------

                                 Name: Michael J. Jacobson
                                      ------------------------------------------

                                 Title: President
                                       -----------------------------------------


                                 WBI PIPELINE AND STORAGE GROUP, INC.


                                 By:
                                    --------------------------------------------

                                 Name: Barry D. Haugen
                                      ------------------------------------------

                                 Title: Authorized Agent
                                       -----------------------------------------


                                 BUYER:


                                 SEMGAS, L.P., by SemOperating G.P., L.L.C., its
                                 general partner


                                 By:
                                    --------------------------------------------

                                 Name: Gregory C. Wallace
                                      ------------------------------------------

                                 Title: Vice President and Secretary
                                       -----------------------------------------



                                       35
<PAGE>


                                    EXHIBIT A



                                     RELEASE

FOR GOOD AND VALUABLE  CONSIDERATION,  the receipt and  sufficiency of which are
hereby acknowledged, each undersigned party (each a "Releasing Party"), pursuant
to that  certain  Purchase and Sale  Agreement by and among Blue Dolphin  Energy
Company,  WBI Pipeline and Storage Group, Inc., and SemGas,  L.P., dated October
__, 2004, hereby releases,  acquits and forever discharges New Avoca Gas Storage
LLC,  and its legal  representatives,  successors  and  assigns  (the  "Released
Party"), from any and all claims,  demands,  suits, actions and causes of action
whatsoever, whether in law, equity or otherwise, whether known or unknown, which
such Releasing Party or its/his/her heirs, successors,  assigns, subsidiaries or
affiliated  entities  now  have or ever  have had  against  the  Released  Party
("Claims").

Each  Releasing  Party hereby  represents  and warrants  that  it/he/she has not
assigned to any other  party any Claims of the type  released  pursuant  hereto.
Each  Releasing  Party  also  agrees  on  its/his/her  behalf  and on  behalf of
its/his/her  heirs,  successors or assigns to forever refrain from  instituting,
pursuing  or in any way  encouraging  others to  institute  or pursue any Claims
released herein.

The undersigned  acknowledge  that they HAVE CAREFULLY READ THE FOREGOING WAIVER
AND  RELEASE  AND KNOW AND  UNDERSTAND  THE  CONTENTS  HEREOF  AND THAT THEY ARE
EXECUTING THE SAME AS THEIR OWN FREE ACT AND DEED.

         Executed on this 29th day of October, 2004.

                                            BLUE DOLPHIN:

                                            Blue Dolphin Energy Company



                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------
                                            Title:
                                                  ------------------------------






                                            WBI:

                                            WBI Pipeline and Storage Group, Inc.


                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------
                                            Title:
                                                  ------------------------------


                                            MANAGERS:



                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------




                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------


                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------



                                             By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------



                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------




<PAGE>


                                            OFFICERS



                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------



                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------



                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------



                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------



                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------






</TEXT>
</DOCUMENT>
