XML 31 R19.htm IDEA: XBRL DOCUMENT v3.24.3
Note 13 - Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

13. 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 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 in active 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.

 

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:

 

Recurring Fair Value Measurements

 

Commodity Derivative Instruments

 

On September 10, 2024, the Company received $1.8 million on the settlement of all outstanding commodity derivative contracts. The Company measures the fair value of commodity derivative contracts using an income valuation technique based on the contract price of the underlying positions, crude oil and natural gas forward curves, discount rates, and Company or counterparty non-performance risk. The fixed-price swaps and collar derivative contracts are included in Level 2. The fair value of commodity derivative contracts and their presentation in our unaudited Condensed Consolidated Balance Sheet as of December 31, 2023 is presented below:

 

 

As of December 31, 2023
                                           

Net Fair Value

  
   

Quoted Prices

                                    

Presented in the

  
   

in Active Markets

    

Significant Other

    

Significant

                    

Unaudited

  
   

for Identical

    

Observable

    

Unobservable

                    

Condensed

  
   

Assets

    

Inputs

    

Inputs

    

Total Gross

    

Effect of

    

Consolidated

  
   

(Level 1)

    

(Level 2)

    

(Level 3)

    

Fair Value

    

Netting

    

Balance Sheet

  

(in thousands)

  

Assets

                                                

Current:

                                                

Commodity derivatives

   $ -     $ 1,844     $ -     $ 1,844     $ -     $ 1,844  
                                                 

Net commodity derivative instruments

   $ -     $ 1,844     $ -     $ 1,844     $ -     $ 1,844  

 

Marketable Equity Securities

 

We measure the fair value of marketable equity securities 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.

 

   

September 30, 2024

    

December 31, 2023

  

Current assets:

                

Marketable equity securities

                

Number of shares owned

     2,421,180       2,421,180  

Quoted market price

   $ 0.04439     $ 0.06789  
                 

Fair value of marketable equity securities

   $ 107,474     $ 164,375  

 

Credit Facility

 

The Company’s credit facility approximates fair value because the interest rate is variable and reflective of market rates.

 

Other Financial Instruments

 

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.

 

Nonrecurring Fair Value Measurements

 

Unproved Properties

 

Unproved property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs may not be recoverable. The estimate of what could not be recoverable is based on the Company's intent to develop the properties or renew leases. To measure the fair value the Company uses a market approach which takes into account the following significant assumptions: remaining lease terms, future development plans, potential resource recovery, estimated reserve value and estimated acreage values based on prices received for similar recent acreage transactions by the Company or other market participants. If there is an indication that the value of unproved property has been impaired, the value being impaired is transferred to the full cost pool subject to depletion and the ceiling test limitation.

 

Asset Retirement Obligations

 

The Company measures the fair value of asset retirement obligations as of the date a well is acquired, the date a well begins drilling, or the date the Company revises its ARO assumptions. The Company’s estimated asset retirement obligations are based on historical experience in plugging and abandoning wells, estimated economic lives, estimated plugging and abandonment costs and federal and state regulatory requirements, all unobservable inputs, and therefore, are designated as Level 3 within the valuation hierarchy. The liability is discounted using the credit-adjusted risk-free rate estimated at the time the liability is incurred or revised upwards. The credit adjusted risk-free rate used to discount the Company’s plugging and abandonment liabilities range from 7.30% to 19.00%. See Note 10-Asset Retirement Obligations.