| Fair Value Measurements | 13. FAIR VALUE MEASUREMENTS Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these
approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability,
including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable,
market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques the
Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks
the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair
value will be classified and disclosed in one of the following three categories: Level 1 - Quoted prices for identical
assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 2 - Observable inputs other than
Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs
that can be corroborated by observable market data. Level 2 also includes derivative contracts whose value is determined using
a pricing model with observable market inputs or can be derived principally from or 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; also includes observable inputs for nonbinding single dealer quotes not corroborated by observable market
data. 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: Marketable Equity Securities Valuation
Methodologies The fair value of available for sale
securities is based on quoted market prices obtained from independent pricing services. Accordingly, the Company has classified
these instruments as Level 1. Derivative Assets and Liabilities Derivative assets and liabilities, at
fair value, are included on our consolidated balance sheets as current or non-current assets or liabilities based on the anticipated
timing of cash settlements under the related contracts. Changes in the fair value of our commodity derivative contracts,
not designated as cash-flow hedges, are recorded in earnings as they occur and included in income (expense) on our consolidated
statements of operations. We estimate the fair values of swap contracts based on the present value of the difference
in exchange-quoted forward price curves and contractual settlement prices multiplied by notional quantities. Accordingly, the Company
has classified these instruments as Level 2. Warrant Valuation Methodologies The warrants contain a dilutive issuance
and other liability provisions which 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. The Company estimated the value of the
warrants issued in connection with the closing of its registered direct offering on December 21, 2016 on March 31, 2017 to be $1,030,000,
or $1.03 per warrant, using the Monte Carlo model with the following assumptions: a term expiring June 21, 2022, exercise price
of $2.05, stock price of $1.28, average volatility rate of 90%, and a risk-free interest rate of 2.01%. The Company re-measured
the warrants as of March 31, 2018, using the same Monte Carlo model, using the following assumptions: a term expiring June 21,
2022, exercise price of $1.13, stock price of $1.23, average volatility rate of 95%, and a risk-free interest rate of 2.5%. The
“ratchet” anti-dilution provision in the warrants may result in the downward adjustment of the exercise price of the
warrants. If the Company issues common stock, options or common stock equivalents at a price less than the exercise price of the
warrants, subject to certain customary exceptions, the exercise price of the warrants is reduced to that lower price, however in
no event will the exercise price be reduced below $.392 per share. As of March 31, 2018, the fair value of the warrants was $930,000,
or $0.93 per warrant, and was recorded as a liability on the accompanying consolidated balance sheets. An increase in any of the
variables would cause an increase in the fair value of the warrants. Likewise, a decrease in any variable would cause a decrease
in the value of the warrants. Other Financial Instruments The carrying amount of cash and equivalents,
oil and gas sales receivable, other current assets, accounts payable and accrued expenses approximate fair value because of the
short-term nature of those instruments. The recorded amounts for the Credit Facility discussed in Note 7 approximates the fair
market value due to the variable nature of the interest rates, and the fact that market interest rates have remained substantially
the same since the latest amendment to the Credit Facility. Recurring Fair Value Measurements Recurring measurements of the fair value
of assets and liabilities as of March 31, 2018 and December 31, 2017 are as follows:
March 31, 2018 December 31, 2017
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Marketable equity securities:
Sutter Gold Mining Company $ - $ 10 $ - $ 10 $ - $ 8 $ - $ 8
Anfield Resources, Inc. 788 - - 788 868 - - 868
Total $ 788 $ 10 $ - $ 798 $ 868 $ 8 $ - $ 876
Commodity price risk derivatives $ - $ 107 - $ 107 - $ 161 - $ 161
Outstanding warrant liability - 930 930 $ - - 1,200 1,200
Total $ - $ 107 $ 930 $ 1,037 $ 161 $ 1,200 $ 1,361 The following table presents a reconciliation of changes
in liabilities measured at Level 3 fair value on a recurring basis for the period ended March 31, 2018 and the year ended December
31, 2017.
Liabilities
Warrants
(Level 3) Net
Fair value, December 31, 2017 $ 1,200 $ 1,200
Total net losses included in:
Other comprehensive loss - -
Fair value adjustments included in net loss:
Net unrealized gain on warrant fair value adjustment (270 ) (270 )
Fair value, March 31, 2018 $ 930 $ 930 |
