Financial Instruments

Assets and liabilities measured at fair value are categorized into

one

three

different levels depending on the observability of the inputs employed in the measurement. The

three

levels are defined as follows:

•

Level

– inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•

Level

- inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•

Level

- inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon 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 in its entirety requires judgment and considers factors specific to the asset or liability. The Company is further required to assess the creditworthiness of the counter-party to the derivative contract. The results of the assessment of non-performance risk, based on the counter-party’s credit risk, could result in an adjustment of the carrying value of the derivative instrument. The following tables sets forth information about the Company’s assets and liabilities measured at fair value on a recurring basis as of

June 30, 2018

and

December

31,

2017,

and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of June 30, 2018
Assets:
NYMEX fixed price derivative contracts	$	-	$	-	$	-	$	-
Total Assets	$	-	$	-	$	-	$	-

Liabilities:
NYMEX fixed price derivative contracts	$	-	$	32,329	$	-	$	32,329
Total Liabilities	$	-	$	32,329	$	-	$	32,329

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2017
Assets:
NYMEX fixed price derivative contracts	$	-	$	-	$	-	$	-
Total Assets	$	-	$	-	$	-	$	-

Liabilities:
NYMEX fixed price derivative contracts	$	-	$	13,208	$	-	$	13,208
NYMEX basis differential swap		-		-		16		16
Total Liabilities	$	-	$	13,208	$	16	$	13,224

The Company’s derivative contracts consisted of NYMEX-based fixed price swaps as of

June 30, 2018,

and NYMEX-based fixed price swaps and a basis differential swap as of

December 31, 2017.

Under fixed price swaps, the Company receives a fixed price for its production and pays a variable market price to the contract counter-party. Under a basis differential swap, if the market price is above the fixed price the Company pays the counter-party, if the market price is below the fixed price, the counter-party pays the Company. The NYMEX-based fixed price derivative swaps and basis swaps contracts are indexed to NYMEX futures contracts, which are actively traded, for the underlying commodity and are commonly used in the energy industry. A number of financial institutions and large energy companies act as counter-parties to these type of derivative contracts. As the fair value of NYMEX-based fixed price swaps are based on a number of inputs, including contractual volumes and prices stated in each derivative contract, current and future NYMEX commodity prices, and quantitative models that are based upon readily observable market parameters that are actively quoted and can be validated through external sources, we have characterized these derivative contracts as Level

In order to verify the

third

party valuation, the Company enters the various inputs into a model and compares our results to the

third

party for reasonableness. The fair value of the collar and basis differential swap instruments are based on inputs that are

not

as observable as the fixed price swaps. In addition to the actively quoted market price, variables such as time value, volatility and other unobservable inputs are used. Accordingly, these instruments have been classified as Level

The following is additional information for the Company's recurring fair value measurements using significant unobservable inputs (Level

inputs) for the

six

months ended

June 30, 2018.

Unobservable inputs at January 1, 2018	$	(16	)
Changes in market value		—
Settlements during the period		16
Unobservable inputs at June 30, 2018	$	—

Nonrecurring Fair Value Measurements

The Company follows the provisions of ASC

820

for nonfinancial assets and liabilities measured at fair value on a nonrecurring basis. As it relates to the Company, ASC

820

applies to certain nonfinancial assets and liabilities as

may

be acquired in a business combination and thereby measured at fair value and the initial recognition of asset retirement obligations for which fair value is used.

The asset retirement obligation estimates are derived from historical costs as well as management’s expectation of future cost environments. As there is

corroborating market activity to support the assumptions used, the Company has designated these liabilities as Level

A reconciliation of the beginning and ending balances of the Company’s future site restoration obligations is presented in Note

Other Financial Instruments

The carrying amounts of the Company's cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value because of the short-term maturities and/or liquid nature of these assets and liabilities. The carrying value of our debt approximates fair value as the interest rates are market rates and this debt is considered Level