Quarterly report pursuant to Section 13 or 15(d)

11. Fair Value of Financial Instruments

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11. Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2016
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

The Company adopted FASB ASC 820-10 upon inception at April 9, 2010. Under FASB ASC 820-10-5, fair value is defined as 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 (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

 

The Company has revolving credit facilities that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

 

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

 

The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of September 30, 2016 and December 31, 2015:

 

    Fair Value Measurements at September 30, 2016  
    Level 1     Level 2     Level 3  
Assets                        
Cash and cash equivalents   $ 57,366     $     $  
Derivative Instruments (crude oil swaps and collars)                  
Total assets     57,366              
Liabilities                        
Derivative Instruments (crude oil swaps and collars)                  
Revolving credit facilities and long term debt                  
Total Liabilities                  
    $ 57,366     $     $  

 

    Fair Value Measurements at December 31, 2015  
    Level 1     Level 2     Level 3  
Assets                        
Cash and cash equivalents   $ 228,194     $     $  
Derivative Instruments (crude oil swaps and collars)           1,154,400        
Total assets     228,194       1,154,400        
Liabilities                        
Revolving credit facilities and long term debt           60,350,629        
Total Liabilities           60,350,629        
    $ 228,194     $ (59,196,229 )   $  

 

There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the nine months ended September 30, 2016 and 2015.

 

Level 2 liabilities include Revolving credit facilities. No fair value adjustment was necessary during the nine months ended September 30, 2016 and 2015.

 

The derivative instruments and revolving credit facilities are reflected on the balance sheets as part of assets or liabilities from discontinued operations as detailed in Note 4 – Debt Restructuring.