Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE

v2.4.0.8
FAIR VALUE
9 Months Ended
Sep. 30, 2013
FAIR VALUE [Abstract]  
FAIR VALUE
NOTE 10 FAIR VALUE

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following schedule summarizes the valuation of financial instruments measured at fair value on a recurring basis in the balance sheet as of September 30, 2013 and December 31, 2012.

 
 
Fair Value Measurements at
September 30, 2013 Using
 
 
 
Quoted Prices In Active Markets for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
 
Commodity Derivatives – Current Asset (crude oil swaps and collars)
 
$
-
   
$
22,692
   
$
-
 
Commodity Derivatives – Current Liability (crude oil swaps and collars)
   
-
     
(21,841,508
)
   
-
 
Commodity Derivatives – Non- Current Asset (crude oil swaps and collars)
   
-
     
934,545
     
-
 
Commodity Derivatives – Non- Current Liability (crude oil swaps and collars)
   
-
     
(3,059,416
)
   
-
 
Total
 
$
-
   
$
(23,943,687
)
 
$
-
 

 
 
Fair Value Measurements at
December 31, 2012 Using
 
 
 
Quoted Prices In Active Markets for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
 
Commodity Derivatives – Current Asset (crude oil swaps and collars)
 
$
-
   
$
4,095,197
   
$
-
 
Commodity Derivatives – Non-Current Asset (crude oil swaps and collars)
   
-
     
1,763,008
     
-
 
Commodity Derivatives – Non-Current Liability (crude oil swaps and collars)
   
-
     
(2,547,745
)
   
-
 
Total
 
$
-
   
$
3,310,460
   
$
-
 

Level 2 assets and liabilities consist of derivative assets and liabilities (see Note 12), the Revolving Credit Facility (see Note 4) and the Notes (see Note 4). The fair value of the Company's derivative financial instruments is determined based upon futures prices, volatility and time to maturity, among other things. Counterparty statements are utilized to determine the value of the commodity derivative instruments and are reviewed and corroborated using various methodologies and significant observable inputs. The Company's and the counterparties' nonperformance risk is evaluated. The fair value of all derivative contracts is reflected on the balance sheet. The current derivative asset and liability amounts represent the fair values expected to be settled in the subsequent year. The book value of the Revolving Credit Facility approximates fair value because of its floating rate structure. The fair value of our 8% senior notes is based on an end of period market quote.

The Company's long-term debt is not measured at fair value on the balance sheets and the fair value is being provided for disclosure purposes. At September 30, 2013, the Company had $500 million of senior unsecured notes and $45.0 million under the Revolving Credit Facility outstanding, with a fair value of $501 million and $45.0 million, respectively. At December 31, 2012, the Company had $300 million of senior unsecured notes and $124.0 million under the Revolving Credit Facility outstanding, with a fair value of $310.5 million and $124.0 million, respectively. The estimated fair value of debt was based upon quoted market prices and, where such prices were not available, other observable inputs regarding interest rates available to the Company at the end of each respective period.

Though the Company believes the methods used to estimate fair value are consistent with those used by other market participants, the use of other methods or assumptions could result in a different estimate of fair value. There were no transfers of financial assets or liabilities between Level 1, Level 2 or Level 3 inputs for the nine month period ended September 30, 2013.