XML 15 R21.htm IDEA: XBRL DOCUMENT v3.20.1
Fair Value Measurements
 3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements

15. FAIR VALUE MEASUREMENTS

 

The Company’s fair value measurements are estimated pursuant to a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, giving highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability, and may affect the valuation of the assets and liabilities and their placement within the hierarchy level. The three levels of inputs that may be used to measure fair value are defined as:

 

Level 1 - Quoted prices for identical assets and liabilities traded in active exchange markets.

 

Level 2 - Observable inputs other than Level 1 that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities inactive markets, or other observable inputs that can be 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.

 

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 March 31, 2020 and December 31, 2019 using a Lattice model, with the following assumptions:

 

    March 31,     December 31,  
    2020     2019  
       
Number of warrants outstanding     100,000       100,000  
Expiration date     June 21, 2022       June 21, 2022  
Exercise price   $ 11.30     $ 11.30  
Stock price   $ 3.10     $ 3.00  
Dividend yield     0 %     0 %
Average volatility rate     90 %     80 %
Risk free interest rate     .25 %     1.59 %

 

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 March 31, 2020 and December 31, 2019, the fair value of the warrants was $79 thousand and $73 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 an investment in the marketable equity securities of Anfield Energy (“Anfield”), which it acquired as consideration for sales of certain mining operations. Anfield is traded on the TSX Venture Exchange, an active market under the trading symbol AEC:TSXV and has been classified as Level 1.

 

    As of
March 31,
2020		  
Number of shares owned     3,631,365  
Quoted market price   $ 0.064  
         
Fair value   $ 230,614  

 

Other Financial Assets and Liabilities

 

The Company evaluates the fair value on a non-recurring basis of properties acquired in business combinations. The fair value of the oil and gas properties is determined based upon estimated future discounted cash flow, a Level 3 input, using estimated production which we reasonably expect, and estimated prices adjusted for differentials. Unobservable inputs include estimated future oil and natural gas production, prices, operating and development costs, and a discount rate of 10%, all Level 3 inputs within the fair value hierarchy.

 

The carrying value of financial instruments included in current assets and current liabilities approximate fair value due to the short-term nature of those instruments.

 

Recurring Fair Value Measurements

 

Recurring measurements of the fair value of assets and liabilities as of March 31, 2020 and December 31, 2019 are as follows:

 

    March 31, 2020     December 31, 2019  
    Level 1     Level 2     Level 3     Total     Level 1     Level 2     Level 3     Total  
    (in thousands)  
Assets:                                                
Marketable Equity Securities   $ 231     $ -     $ -     $ 231     $ 307     $ -     $ -     $ 307  
                                                                 
Liabilities:                                                                
Warrants   $ -     $ -     $ 79     $ 79     $ -     $ -     $ 73     $ 73  

 

The following table presents a reconciliation of our Level 3 warrants measured at fair value

 

    Three Months Ended March 31, 2020     Year Ended December 31,
2019		  
    (in thousands)  
Fair value liabilities of Level 3 instruments beginning of period   $      73     $       425  
                 
Net loss (gain) on warrant valuation     6       (352 )
      -          
Fair value liabilities of Level 3 instruments end of period   $ 79     $ 73