Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENT

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FAIR VALUE MEASUREMENT
9 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENT

NOTE 7 – FAIR VALUE MEASUREMENT

 

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified and disclosed in one of the following categories:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange traded derivative financial instruments as well as warrants to purchase common stock and long-term incentive plan liabilities calculated using the Black-Scholes model to estimate the fair value as of the measurement date.
Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity).

 

As required by ASC 820-10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

 

Fair Value on a Recurring Basis

 

The following table sets forth by level within the fair value hierarchy the Company’s derivative financial instruments that were accounted for at fair value on a recurring basis as of June 30, 2020:

 

Description  

Quoted Prices in

Active Markets for

Identical Assets
(Level 1)

   

Significant Other

Observable Inputs
(Level 2)

   

Significant Other

Unobservable

Inputs
(Level 3)

    Total Fair
Value as of
 
Derivative Financial Instrument   $     $ 2,238,053     $     $ 2,238,053  

 

The change in derivative financial instruments for the nine months ended June 30, 2020 is as follows:

 

September 30, 2019 balance   $ 3,534,456  
New derivative instruments issued     880,462  
Derivative instruments converted/extinguished     (673,473
Change in fair value     (1,503,392 )
June 30, 2020 balance   $ 2,238,053  

 

Non-recurring fair value assessments include impaired oil and natural gas property assessments and stock-based compensation. During the nine months ended June 30, 2020, the Company recorded an impairment charge of $2,124,885 and stock-based compensation expense of approximately $968,000, of which approximately $498,000 was capitalized to oil and gas properties.