Quarterly report pursuant to Section 13 or 15(d)

9. Fair Value Measurements

v3.7.0.1
9. Fair Value Measurements
 6 Months Ended
Jun. 30, 2017
Fair Value Disclosures [Abstract]  
Fair Value Measurements

The fair value hierarchy prioritizes the inputs used in valuation techniques into three levels, as follows:

 

  • Level 1 – Observable inputs – unadjusted quoted prices in active markets for identical assets and liabilities;

 

  • Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data; and

 

  • Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable. For fair value measurements using significant unobservable inputs, a description of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the prior reporting period.

 

Warrants – The Company’s warrants were valued using a Monte Carlo Binomial Lattice-Based valuation methodology, adjusted for marketability restrictions. The Company recorded its warrants issued in 2012 at fair value and designated them as Level 3 on their issuance dates.

 

Significant assumptions used and related fair values for the warrants as of December 31, 2016 were as follows:

 

Original
Issuance 		Exercise
Price 		Volatility Risk Free
Interest Rate 		Term
(years) 		Market
Discount 		Warrants
Outstanding 		Fair
Value
07/3/2012 $6.09 40.9% 0.62% 0.50 11.3% 211,000 $  651,000

 

Other Derivative Instruments – The Company’s other derivative instruments consist of commodity positions. The fair values of the commodity positions are based on quoted prices on the commodity exchanges and are designated as Level 1 inputs.

 

The following table summarizes recurring fair value measurements by level at June 30, 2017 (in thousands):

 

    Fair                    
    Value     Level 1     Level 2     Level 3  
Assets:                                
Derivative instruments   $ 1,150     $ 1,150     $ –     $ –  
    $ 1,150     $ 1,150     $ –     $ –  
                                 
Liabilities:                                
Warrants   $ –     $ –     $ –     $ –  
Derivative instruments     (1,721 )     (1,721 )     –       –  
    $ (1,721 )   $ (1,721 )   $ –     $ –  

 

 

The changes in the Company’s fair value of its Level 3 inputs with respect to its warrants were as follows (in thousands):

 

Balance, December 31, 2016   $ 651  
Exercised warrants     (178 )
Adjustments to fair value for the period     (473 )
Balance, June 30, 2017   $ –