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. Our 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. We are 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 our assets and liabilities measured at fair value on a recurring basis as of

March 31, 2020

and

December 31, 2019

, and indicate the fair value hierarchy of the valuation techniques utilized by us to determine such fair value:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2020
Assets:
NYMEX fixed price derivative contracts	$	—	$	69,533	$	—	$	69,533
NYMEX basis differential swap contracts		—		—		1,275		1,275
Total Assets	$	—	$	69,533	$	1,275	$	70,808

Liabilities:
NYMEX fixed price derivative contracts	$	—	$	—	$	—	$	-
NYMEX basis differential swaps		—		—		800		800
Total Liabilities	$	—	$	-	$	800	$	800

	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, 2019
Assets:
NYMEX fixed price derivative contracts	$	—	$	4,253	$	—	$	4,253
Total Assets	$	—	$	4,253	$	—	$	4,253

Liabilities:
NYMEX fixed price derivative contracts	$	—	$	5,583	$	—	$	5,583
NYMEX basis differential swaps		—		—		6,104		6,104
Total Liabilities	$	—	$	5,583	$	6,104	$	11,687

As of

March 31, 2020

and

December 31, 2019

our derivative contracts consisted of NYMEX-based fixed price swaps and basis differential swaps. Under fixed price swaps, we receive a fixed price for our production and pay a variable market price to the contract counter-party. Under basis swaps, if the market price is above the fixed price, we pay the counter-party, if the market price is below the fixed price, the counter-party pays us. The NYMEX-based fixed price derivative swaps and basis differential swap 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 types 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, we enter the various inputs into a model and compare our results to the

third

party for reasonableness. The fair value of the 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 our recurring fair value measurements using significant unobservable inputs (Level

inputs) for the

three

months ended

March 31, 2020

Unobservable inputs at January 1, 2020	$	(6,104	)
Changes in market value		5,178
Settlements during the period		1,401
Unobservable inputs at March 31, 2020	$	475

Nonrecurring Fair Value Measurements

Non-financial assets and liabilities measured at fair value on a nonrecurring basis included certain non-financial 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. Unproved oil and gas properties are assessed periodically, at least annually, to determine whether impairment has occurred. The assessment considers the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves, the economic viability of development if proved reserves were assigned and other current market conditions. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to amortization.

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 asset retirement obligation is presented in Note

Other Financial Instruments

The carrying amounts of our 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