Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENT

v3.21.2
FAIR VALUE MEASUREMENT
9 Months Ended
Jun. 30, 2021
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 September 30, 2020, and June 30, 2021, respectively:

 

                         

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 at September 30, 2020

 

$

 

 

 

$

(1,070,551

)

 

$

 

 

 

$

(1,070,551

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Financial Instrument at June 30, 2021

 

$

 

 

$

(1,332,229

)

 

$

 

 

$

(1,332,229

)

 

 

The change in derivative financial instruments for the nine months ended June 30, 2021 is as follows:

 

September 30, 2020 balance

 

$

(1,070,551)

 

New derivative instruments issued

 

 

 

Derivative instruments extinguished

 

 

46,261

 

Change in fair value

 

 

(307,939)

 

June 30, 2021 balance

 

$

(1,332,229)

 

 

Non-recurring fair value assessments include oil and natural gas impairments and stock-based compensation. During the nine months ended June 30, 2021 and 2020, the Company recorded an impairment charge of nil and approximately $2,125,000, and stock-based compensation of approximately $65,000 none of which was capitalized to oil and gas properties and approximately $968,000 of which approximately $498,000 was capitalized to oil and gas properties, respectively.