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Fair Value Measurements | 9 Months Ended
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Sep. 30, 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. Warrant Valuation 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, 2020 and December 31, 2019 using a Lattice model, with the following observable and unobservable inputs:
|  | September 30, 2020 |  |  | December 31, 2019 |
Number of warrants outstanding |  |  | 50,000 |  |  |  | 100,000 |
Expiration date |  |  | June 21, 2022 |  |  |  | June 21, 2022 |
Exercise price |  | $ | 5.25 |  |  | $ | 11.30 |
Beginning share price |  | $ | 5.00 |  |  | $ | 3.00 |
Dividend yield |  |  | 0 | % |  |  | 0 | %
Average volatility rate (1) |  |  | 115 | % |  |  | 80 | %
Probability of down-round event (2) |  |  | 50 | % |  |  | 25 | %
Risk free interest rate |  |  | 0.13 | % |  |  | 1.59 | %
(1) | The average volatility represents the Company’s 2-year volatility measurement, the observed volatility of our peer group over a similar period, and the stock market volatility as of the valuation date.
(2) | Represents the estimated probability of a future down-round event during the remaining term of the warrants.
At September 30, 2020, the Company used the average value calculated by the Lattice model of $137 thousand with a range from $135 thousand to $ 143 thousand. At December 31, 2019, the Company used the average value of $73 thousand with a range from $60 thousand to $120 thousand. An increase in any of the inputs would cause an increase in the fair value of the warrants. Likewise, a decrease in any input would cause a decrease in the fair value of the warrants. Marketable Equity Securities Valuation The fair value of marketable equity securities is based on quoted market prices obtained from independent pricing services. The Company acquired its investment in Anfield Energy, Inc. (“Anfield”) 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. On July 22, 2020, the Company entered into a share purchase agreement to sell 1,210,455 common shares of the Company’s holdings in Anfield for approximately $45 thousand. Following the sale, the Company owns 2,420,910 shares in Anfield. Other 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 Company evaluates the fair value on a non-recurring basis of its Riverton, Wyoming real estate assets when circumstances indicate that the value has been impaired. The change in the economic environment due to the COVID-19 pandemic and the property’s remote location has caused a lack of relevant comparable sales to use as a basis for estimating fair value. At June 30, 2020, the Company estimated the fair value of the real estate based upon the expected annual net operating income of the building, estimated capitalization rates for properties in rural areas and values for vacant land based on comparable sales, 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 September 30, 2020 and December 31, 2019 are as follows:
|  | September 30, 2020 |  |  | December 31, 2019 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (in thousands) |
Current Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable Equity Securities |  | $ | 109 |  |  | $ | - |  |  | $ | - |  |  | $ | 109 |  |  | $ | 307 |  |  | $ | - |  |  | $ | - |  |  | $ | 307 |
Non-current Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warrants |  | $ | - |  |  | $ | - |  |  | $ | 137 |  |  | $ | 137 |  |  | $ | - |  |  | $ | - |  |  | $ | 73 |  |  | $ | 73 |
The following table presents a reconciliation of our Level 3 warrants measured at fair value
|  | Nine Months Ended September 30, 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 |  |  | 64 |  |  |  | (352 | )
|  |  | - |  |  |  |  |
Fair value liabilities of Level 3 instruments end of period |  | $ | 137 |  |  | $ | 73 |

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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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