Quarterly report pursuant to Section 13 or 15(d)

10. Fair Value Measurements

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10. Fair Value Measurements
 9 Months Ended
Sep. 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 September 30, 2017 (in thousands):

 

    Fair                    
    Value     Level 1     Level 2     Level 3  
Assets:                                
   Derivative instruments   $ 3,017     $ 3,017     $ –     $ –  
    $ 3,017     $ 3,017     $ –     $ –  
                                 
Liabilities:                                
   Warrants   $ –     $ –     $ –     $ –  
   Derivative instruments     (2,755 )     (2,755 )     –       –  
    $ (2,755 )   $ (2,755 )   $ –     $ –  

 

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, September 30, 2017   $ –