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Fair Value Measurements

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

14. 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 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:

Warrant Valuation Methodologies

The warrants contain a dilutive issuance and other liability 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 during 2020. The Company worked with a third-party valuation expert estimating the value of the warrants at December 31, 2020 and 2019, with the following assumptions:

		2020				2019

Number of warrants outstanding			50,000				100,000
Expiration date			June 21, 2022				June 21, 2022
Exercise price		$	3.92			$	11.30
Stock price		$	3.68			$	3.00
Dividend yield			0	%			0	%
Average volatility rate ⁽¹⁾			120	%			80	%
Probability of down-round event ⁽²⁾			0	%			25	%
Risk free interest rate			0.11	%			1.59	%

⁽¹⁾	The average volatility represents the Company’s 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 December 31, 2020, the Company used the average value calculated by the Black-Scholes model as opposed to a Monte Carlo model, because the strike price is set at the floor of $3.92 and therefore cannot be rounded down further. 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 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 in an active market under the trading symbol AEC:TSXV and has been classified as Level 1. Prior to May 2019, the Company also had an investment in Sutter Gold Mining Company (“Sutter”). In May 2019, Sutter’s secured lender made a demand for full repayment of Sutter’s indebtedness and gave notice to enforce its security, thereby forcing Sutter into bankruptcy. As a result, the fair value of the Company’s investment in the marketable equity securities of Sutter is $0.

		Anfield				Sutter

Number of shares owned			2,421,180				495,816
Quoted market price		$	0.07455			$	0.0000

Fair value		$	180,500			$	-

Other Assets and Liabilities

The Company evaluates the fair value on a non-recurring basis of properties acquired in business combinations, asset acquisitions and the related asset retirement obligations. 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 Company evaluated the fair value of the real estate assets based upon offers we have received from potential purchasers of the property, 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 December 31, 2020 and 2019 are as follows:

		December 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			181				-				-				181				307				-				-				307
Total		$	181			$	-			$	-			$	181			$	307			$	-			$	-			$	307
Liabilities:
Warrants			-				-				95				95				-				-				73				73
Total		$	-			$	-			$	95			$	95			$	-			$	-			$	73			$	73

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

		Year Ended December 31,
		2020				2019
		(in thousands)
Fair value of Level 3 instruments liabilities at beginning of period		$	73			$	425

Net unrealized loss (gain) on warrant valuation			22				(352	)
			-
Fair value of Level 3 instruments liabilities at end of period		$	95			$	73

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.

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