Fair Value Measurements

3 Months Ended

Dec. 31, 2021

The FASB has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy consists of three broad levels. Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 are unobservable inputs for an asset or liability.

The carrying values of financial instruments comprising cash and cash equivalents, payables, receivables, related party accounts receivable and accounts payable, and advances from joint interest owners approximate fair values due to the short-term maturities of these instruments. The carrying value reported for the revolving line of credit approximates fair value because the underlying instruments are at interest rates which approximate current market rates. The revolving line of credit is considered a Level 3 measurement.

Assets and Liabilities Measured on a Recurring Basis

The fair value of commodity derivatives and interest rate swaps is estimated using internal discounted cash flow calculations based upon forward curves. The following table presents the Company’s financial assets and liabilities that were

accounted for at fair value on a recurring basis as of December 31, 2021 and September 30, 2021, by Level within the fair value hierarchy:


	December 31, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Commodity derivative assets	$	—	$	187	$	—	$	—
Interest rate assets	$	—	$	361	$	—	$	—
Financial liabilities:
Commodity derivative liabilities	$	—	$	(40,687)	$	—	$	—
Interest rate liabilities	$	—	$	(10)	$	—	$	—

	September 30, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial assets:
Commodity derivative assets	$	—	$	308	$	—	$	—
Interest rate assets	$	—	$	106	$	—	$	—
Financial liabilities:
Commodity derivative liabilities	$	—	$	(51,336)	$	—	$	—
Interest rate liabilities	$	—	$	(48)	$	—	$	—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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