XML 64 R19.htm IDEA: XBRL DOCUMENT v3.10.0.1
Fair Value Measurements
 9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements

14. FAIR VALUE MEASUREMENTS

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following six categories:

 

Level 1 - Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange or the Toronto Stock Exchange.

 

Level 2 - Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. Level 2 also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data.

 

Level 3 - Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for nonbinding single dealer quotes not corroborated by observable market data.

 

The Company has processes and controls in place to attempt to ensure that fair value is reasonably estimated. The Company performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed, and any material exposures are evaluated through a management review process.

 

While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The following is a description of the valuation methodologies used for complex financial instruments measured at fair value:

 

Marketable Equity Securities Valuation Methodologies

 

The fair value of marketable securities is based on quoted market prices obtained from the Toronto Stock Exchange. Accordingly, the Company has classified these instruments as Level 1.

 

Derivative Assets and Liabilities

 

Derivative assets and liabilities, at fair value, are included on our consolidated balance sheets as current or non-current assets or liabilities based on the anticipated timing of cash settlements under the related contracts. Changes in the fair value of our commodity derivative contracts are recorded in other income (expense) on our consolidated statements of operations. We estimate the fair values of swap contracts based on the present value of the difference in exchange-quoted forward price curves and contractual settlement prices multiplied by notional quantities. Accordingly, the Company has classified these instruments as Level 2.

 

Warrant Valuation Methodologies

 

The warrants contain a dilutive issuance and other liability provisions which cause the warrants to be accounted for as a liability. Such warrant instruments are initially recorded and valued as a level 3 liability and are accounted for at fair value with changes in fair value reported in earnings.

 

The Company estimated the value of the warrants issued in connection with the closing of its registered direct offering on December 21, 2016 to be $1,030,000, or $1.03 per warrant, using the Monte Carlo model with the following assumptions: a term expiring June 21, 2022, exercise price of $2.05, stock price of $1.28, average volatility rate of 90%, and a risk-free interest rate of 2.01%. The Company re-measured the warrants as of September 30, 2018, using the same Monte Carlo model, using the following assumptions: a term expiring June 21, 2022, exercise price of $1.13, stock price of $1.02, average volatility rate of 90%, and a risk-free interest rate of 2.90%. The “ratchet” anti-dilution provision in the warrants may result in the downward adjustment of the exercise price of the warrants. If the Company issues common stock, options or common stock equivalents at a price less than the exercise price of the warrants, subject to certain customary exceptions, the exercise price of the warrants is reduced to that lower price, however in no event will the exercise price be reduced below $0.392 per share. As of September 30, 2018, the fair value of the warrants was $722 thousand, or $0.72 per warrant, and was recorded as a liability on the accompanying condensed consolidated balance sheets. An increase in any of the variables would cause an increase in the fair value of the warrants. Likewise, a decrease in any variable would cause a decrease in the value of the warrants.

 

Other Financial Instruments

 

The carrying amount of cash and equivalents, oil and gas sales receivable, other current assets and liabilities approximate fair value because of the short-term nature of those instruments.

 

Recurring Fair Value Measurements

 

Recurring measurements of the fair value of assets and liabilities as of September 30, 2018 and December 31, 2017 are as follows:

 

    September 30, 2018     December 31, 2017  
    Level 1     Level 2     Level 3     Total     Level 1     Level 2     Level 3     Total  
                                                 
Marketable equity securities:                                                                
Sutter Gold Mining Company   $ 5     $ -     $ -     $ 5     $ 8     $ -     $ -     $ 8  
Anfield Resources, Inc.     951       -       -       951       868       -       -       868  
Total   $ 956     $ -     $ -     $ 956     $ 876     $ -     $ -     $ 876  
                                                                 
Commodity price risk derivatives   $ -     $ 37       -     $ 37       -     $ 161       -     $ 161  
Outstanding warrant liability     -       -       722       722     $ -       -       1,200       1,200  
Total   $ -     $ 37     $ 722     $ 759             $ 161     $ 1,200     $ 1,361  

 

The following table presents a reconciliation of changes in liabilities measured at Level 3 fair value on a recurring basis for the period ended September 30, 2018 and the year ended December 31, 2017.

 

Liabilities            
Warrants            
(Level 3)   2018     2017  
             
Fair value, beginning of period   $ 1,200     $ 1,030  
                 
Total net losses included in:                
Other comprehensive loss     -       -  
Fair value adjustments included in net loss:                
Net fair value adjustment     (478 )     170  
Fair value, end of period   $ 722     $ 1,200