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7. EQUITY METHOD INVESTMENTS
 6 Months Ended
Jun. 30, 2013
Equity Method Investments and Joint Ventures [Abstract]  
EQUITY METHOD INVESTMENTS

NOTE 7 – EQUITY METHOD INVESTMENTS

 

Condor Energy Technology, LLC

 

In October 2011, the Company formed a new subsidiary, Condor Energy Technology LLC (“Condor”), a limited liability company organized under the laws of the State of Nevada. The Company accounts for its 20% ownership in Condor using the equity method. The Company evaluated its relationship with Condor to determine if Condor was a variable interest entity (“VIE”) as defined in ASC 810-10, and whether the Company was the primary beneficiary of Condor, in which case consolidation with the Company would be required. The Company determined that Condor qualified as a VIE, however, the Company concluded that MIE Holdings was the primary beneficiary as a result of being in control of the Board and its ability to control the funding commitments to Condor. The Company’s total investment in Condor at June 30, 2013 was $0, after recording its share of Condor’s losses for the six months ended June 30, 2013 of $363,441 ($160,353 to the investment account and the balance of $203,088 used to reduce the notes receivable balance) and losses for the year ended December 31, 2012 of $428,100.

 

    June 30,     December 31,  
    2013     2012  
Beginning balance   $ 160,353     $ 588,453  
Contributions     -       -  
Equity in net loss at 20%     (160,353 )     (428,100 )
                 
Ending balance   $ -0-     $ 160,353  

 

 

On June 13, 2013, Condor spudded the State 16-7-60 1H well (the “State Well”).  Pursuant to that certain Purchase and Sale Agreement, dated July 26, 2012, entered into by Condor and Esenjay Oil & Gas, Ltd., Winn Exploration Co., Inc., Lacy Properties, Ltd., and Crain Energy, Ltd. (collectively, “Esenjay”), Condor became obligated to issue 27,804 shares of common stock (the “Esenjay Shares”) of the Company to Esenjay, as additional consideration due to Esenjay upon the spudding of the first well..  The Esenjay Shares were issuable to Esenjay within ten (10) days of the spud date of the State Well. As of June 30, 2013, the Company had not issued the Esenjay Shares and recorded $116,499 as a stock subscription receivable, due from Condor, for the total of 27,804 shares at $4.19 per share on the date of grant to reflect the shares owed Esenjay by the Company on Condor’s behalf and a corresponding liability for common stock payable.

 

The Company loaned Condor funds for operations pursuant to a promissory note entered into on February 14, 2013, with an effective date of November 1, 2012, which note permits multiple loans to be made thereunder up to $8,000,000 as separate “advances”. The note receivable bears interest at a rate per annum equal to the one (1) month LIBOR rate for U.S. dollar deposits plus four (4.0) percentage points. Principal and interest are due thirty-six (36) months from the date each advance is made under the note, with the first repayment being due September 24, 2015. As of June 30, 2013, the balance of the note receivable is $3,862,021 plus accrued interest of $95,258 due from Condor.

 

The Company has an agreement to provide operational and financial management services to Condor for which Condor owes $214,582 at June 30, 2013. The monthly management fee is determined at least annually by the Members of Condor. Prior to November 1, 2012, the Company charged a monthly management of $28,250 to Condor. On November 1, 2012, the Members of Condor agreed to a monthly management fee of $40,300 for 2013 which was further revised in the period ending June 30, 2013 to $55,000 per month.

 

At June 30, 2013, Condor owes the Company $155,504 from production sales related to the Company’s net revenue interests in the Niobrara Asset which is reflected in accounts receivable – oil and gas – related party in the accompanying balance sheet.

 

At June 30, 2013, the Company owes Condor $214,940 from production related expenses and $2,235,399 related to capital expenditures incurred by Condor for the drilling of three wells on the Niobrara property which is reflected in accounts payable – related party in the accompanying balance sheet. Related to the February 22, 2013 Agreement for Purchase of Term Assignment (the “Purchase Agreement”) between PEDCO MSL and Berexco for the acquisition of the Mississippian Asset and approximately 10.5 square miles of related 3-D seismic data for an aggregate purchase price of $4,207,117, the $864,866 initial deposit due from PEDCO MSL to Berexco were funds which were initially held in escrow by Berexco on Condor’s behalf in connection with a previously contemplated transaction between Condor and Berexco. An amount of $432,433 is due from the Company to Condor, representing 50% of this initial deposit, and this amount is also reflected in accounts payable - related party in the accompanying balance sheet.

 

Summarized income statement information of Condor follows:

 

   

Six months

ended

June 30, 2013

    

Six months

ended

June 30, 2012

  
Revenues   $ 1,967,865     $ -  
Net loss from operations   $ (1,439,030 )   $ (281,666 )
Net loss   $ (1,817,291 )   $ (329,606 )

 

White Hawk Petroleum, LLC

 

The Company accounts for its 50% ownership in White Hawk using the equity method. The Company’s total investment in White Hawk at June 30, 2013 was $1,933,820 after recording its share of White Hawk’s net loss for the six months ended June 30, 2013 of $4,161.

 

   

June 30,

2013

  
       
Beginning balance, December 31, 2012   $ 1,937,981  
Equity in net loss at 50%     (4,161 ) 
Ending balance, June 30, 2013   $ 1,933,820  

 

The Company loaned White Hawk funds for operating expenses and drilling and completion costs for a third Eagle Ford well, pursuant to a promissory note entered into on June 4, 2012, which note permits multiple loans to be made thereunder as separate “advances”, with no stated maximum limit of loan principal. The note receivable bears interest at a rate per annum equal to the one (1) month LIBOR rate for U.S. dollar deposits plus four (4.0) percentage points. Principal and interest of each loan is due thirty-six (36) months from the date each advance is made under the note, with the first repayment being due June 4, 2015. As of June 30, 2013, the balance of the note receivable is $332,974 including accrued interest of $7,395.