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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2019
Fair Value Disclosures [Abstract] |
Fair Value Measurements | 15. 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 three categories: Level 1 - Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York 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 Company has not changed its methodology of determining fair values. The following is a description of the valuation methodologies used for complex financial instruments measured at fair value: Warrant Valuation Methodologies The warrants contain a dilutive issuance and other provisions that 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. There were no changes in the methodology to value the warrants. The Company worked with a third-party valuation expert to estimate the value of the warrants at September 30, 2019 and December 31, 2018 using a Lattice model, with the following assumptions:
|  | September 30, 2019 |  |  | December 31, 2018 |
Number of warrants outstanding |  |  | 1,000,000 |  |  |  | 1,000,000 |
Expiration date |  |  | June 21, 2022 |  |  |  | June 21, 2022 |
Exercise price |  | $ | 1.13 |  |  | $ | 1.13 |
Stock price |  | $ | 0.51 |  |  | $ | 0.67 |
Dividend yield |  |  | 0 | % |  |  | 0 | %
Average volatility rate |  |  | 85 | % |  |  | 90 | %
Risk free interest rate |  |  | 1.59 | % |  |  | 2.47 | %
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. At September 30, 2019 and December 31, 2018, the fair value of the warrants was $206 thousand and $425 thousand, respectively. Marketable Equity Securities Valuation Methodologies The fair value of marketable equity securities is based on quoted market prices obtained from independent pricing services. The Company has investments in the marketable equity securities of Anfield Resources Inc. (“Anfield”) and Sutter Gold Mining Company (“Sutter”). Anfield is traded in an active market and has been classified as Level 1, while Sutter is traded in a less active market and accordingly has been classified as Level 2. Other Financial Instruments The carrying amount of cash and equivalents, oil and gas sales receivable, other current assets, accounts payable and accrued expenses approximate fair value because of the short-term nature of those instruments. The recorded amounts for the credit facility discussed in Note 6—Debt, and which the Company repaid in full on March 1, 2019 and subsequently matured on July 30, 2019, approximates the fair market value due to the variable nature of the interest rates, and the fact that market interest rates have remained substantially the same since the last amendment to the credit facility. Recurring Fair Value Measurements Recurring measurements of the fair value of assets and liabilities as of September 30, 2019 and December 31, 2018 are as follows:
|  | September 30, 2019 |  |  | December 31, 2018 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable Equity Securities |  | $ | 302 |  |  | $ | - |  |  | $ | - |  |  | $ | 302 |  |  | $ | 533 |  |  | $ | 3 |  |  | $ | - |  |  | $ | 536 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warrants |  | $ | - |  |  | $ | - |  |  | $ | 206 |  |  | $ | 206 |  |  | $ | - |  |  | $ | - |  |  | $ | 425 |  |  | $ | 425 |
The following table presents a reconciliation of our Level 3 warrants measured at fair value
|  | Nine Months Ended September 30, 2019 |  |  | Year Ended December 31, 2018 |
|  | (in thousands) |
Fair value liabilities of Level 3 instruments- beginning of period |  | $ | 425 |  |  | $ | 1,200 |
Net gain on warrant valuation |  |  | (219 | ) |  |  | (775 | )
|  |  | - |  |  |  |  |
Fair value liabilities of Level 3 instruments- end of period |  | $ | 206 |  |  | $ | 425 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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