3. NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARIES

6 Months Ended

Jun. 30, 2015

Noncontrolling Interest [Abstract]

3. NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARIES

NOTE 3: NONCONTROLLING INTEREST IN CONSOLIDATED SUBSIDIARIES

2013 NWE Drilling Program 1 LP

On March 18, 2013, the Company formed a new entity 2013 NWE Drilling Program 1 LP (the “Limited Partnership”). The Limited Partnership was specifically formed to drill three oil wells on the Company’s B&W Ranch lease in the Chautauqua County, Kansas. The Company became the General Partner and owns 51% of the Limited Partnership. The Limited Partnership closed upon receiving a cash contribution of $650,000 from one non-affiliate shareholder of the Company as the Limited Partner, and the Company’s contribution as the General Partner was $6,500 in cash and giving the rights and commitment to the Limited Partnership to drill three oil wells on the Company’s B&W Ranch lease. Pursuant to the terms of the partnership agreement, the Limited Partner will be entitled to receive 70% of the net income and cash available for distributions until such time an amount equal to the Limited Partner’s initial investment plus a 50% return on such initial investment is received by the Limited Partner. Thereafter, net income and cash available for distributions shall be allocated 20% to the Limited Partner and 80% to the General Partner. The Limited Partnership entered into turnkey drilling agreement with the managing General Partner, to drill and complete the partnership wells. The turnkey price included all ordinary costs of drilling, testing and completing the wells. When the wells begin producing, the General Partner, as operator of the wells, will be reimbursed at actual cost for all direct expenses incurred on behalf of the Limited Partnership, and shall receive a fixed fee of $250 per well per month for supervising, operating and maintaining the wells during production operations.

The Limited Partnership recorded a loss of $62,504 and $178,626 for the three months and six months periods ended June 30, 2015 as compared to a loss of $83,114 and $264,282 for the same comparable periods in 2014. The Company allocated $30,627 and $87,527 of the limited partnership’s loss for the three months and six months periods ended June 30, 2015, and $40,725 and $129,498 of the limited partnership’s loss for the three months and six months periods ended June 30, 2014 to its noncontrolling member in its consolidated financial statements as of June 30, 2015 and 2014, respectively. As a result, the noncontrolling interest of the limited partner was reduced to $176,368 at June 30, 2015.

The following provides a summary of activity in the noncontrolling interest (“NCI”) in Limited Partnership, a consolidated subsidiary account for the six months ended June 30, 2015 and 2014:

Balance NCI at December 31, 2013	$	511,942
Contribution by noncontrolling interest		—
Net loss applicable to noncontrolling interest for six months ended June 30, 2014 – 49%		(129,498	)
Balance NCI at June 30, 2014	$	382,444
Balance NCI at December 31, 2014	$	263,895
Contribution by noncontrolling interest		—
Net loss applicable to noncontrolling interest for six months ended June 30, 2015 – 49%		(87,527	)
Balance NCI at June 30, 2015	$	176,368

NWE Oil & Gas Program #1 LP

On April 9, 2015, the Company formed an entity NWE Oil & Gas Program #1 LP, a California limited partnership (the “California Limited Partnership”), for the sole purpose of (a) acquiring and drilling, managing, owning, re-working operating oil and gas wells located on the leased property in Osage County, Oklahoma, and (b) new oil and gas wells. The Company became the General Partner and shall own 21 Units which shall represent 51% ownership of the California Limited Partnership. The Limited Partners shall own no more than 20 Units which shall represent 49% of the California Limited Partnership. As of June 30, 2015, the Company received cash contributions of $345,000 from three non-affiliated limited partners from the sale of three (3) Units of $115,000 each. The Company is obligated to contribute as General Partner $23,000 in cash for its ownership interest and the Company has not made its cash contribution as of June 30, 2015. The partnership commenced on April 9, 2015 and will continue for a term of 25 years unless sooner terminated in accordance with the terms of the agreement. Pursuant to the terms of the partnership agreement, the net income and distributions of the partnership shall be allocated 70% to the Limited Partners and 30% to the General Partner, until the Limited Partners has received in cash distributions an amount equal to their initial capital plus a 30% return on their original invested capital. Thereafter, net income and distributions shall be allocated 30% to the Limited Partners and 70% to the General Partner. Any net proceeds from the sale of any of the leases owned by the partnership shall be distributed 49% to the Limited Partners in accordance with each Limited Partner’s capital account and 51% to the General Partner.

The following provides a summary of activity in the noncontrolling interest (“NCI”) in California Limited Partnership, a consolidated subsidiary account for the six months ended June 30, 2015:

Balance NCI at December 31, 2014	$	—
Net assets applicable to noncontrolling interest - $368,000 @ 7.35%		27,048
Net loss applicable to noncontrolling interest for six months ended June 30, 2015		—
Balance NCI at June 30, 2015	$	27,048

Total noncontrolling interest in consolidated subsidiaries amounted to $203,416 as of June 30, 2015 and $263,895 as of December 31, 2014, respectively.