Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
 9 Months Ended
Mar. 31, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Note 5 - Fair Value Measurements
The Company follows authoritative guidance related to fair value measurement and disclosure, which establishes a three level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the 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 three levels are defined as follows:
•
Level 1: Quoted prices in active markets for identical assets.
•
Level 2: Significant other observable inputs – 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 3: Significant inputs to the valuation model are unobservable inputs.
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's policy is to recognize transfers in and/or out of a fair value hierarchy as of the end of the reporting period for which the event or change in circumstances caused the transfer. The Company has consistently applied the valuation techniques discussed for all periods presented. During the nine months ended March 31, 2013, and 2012, there have been no transfers in and/or out of Level 1, Level 2, or Level 3. Items required to be measured at fair value on a non-recurring basis include liabilities related to AROs and the warrant repurchased from Sopak and retired.
The following table presents the amounts of assets and liabilities carried at fair value by the level in which they are classified within the valuation hierarchy as follows:
 
March 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
14,516

 
$
—

 
$
—

 
$
14,516

Securities available for sale (1)
125

 
—

 
—

 
125

 
$
14,641

 
$
—

 
$
—

 
$
14,641

Liabilities
 
 
 
 
 
 
 
Contingent consideration payable
$
—

 
$
—

 
$
4,244

 
$
4,244

 
 
 
 
 
 
 
 
 
June 30, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
41,215

 
$
—

 
$
—

 
$
41,215

Securities available for sale (1)
155

 
—

 
—

 
155

 
$
41,370

 
$
—

 
$
—

 
$
41,370

Liabilities
 
 
 
 
 
 
 
Contingent consideration payable
$
—

 
$
—

 
$
4,072

 
$
4,072

(1) Included in the unaudited condensed consolidated balance sheets under prepaid and other assets.
Cash and cash equivalents and securities available for sale are measured at fair value on a recurring basis in conformity with GAAP using Level 1 inputs. As of March 31, 2013, the Company had $14.5 million in cash and cash equivalents, with $3.9 million held in cash and $10.7 million classified as cash equivalents. Cash equivalents have maturities of 90 days or less. In the United States cash equivalents were held in U.S. Treasury notes and in Australia cash equivalents were held in several time deposit accounts.
The contingent consideration payable is a standalone liability that is measured at fair value on a recurring basis for which there is no available quoted market price, principal market, or market participants. The inputs for this instrument are unobservable and therefore classified as Level 3 inputs. The calculation of this liability is a significant management estimate and uses drilling and production projections to estimate future production bonus payments. The liability is estimated by converting a schedule of irregular future production bonus payments to a single net present value amount. Payment of future production bonuses are sensitive to the Company's 60 day rolling production average and would increase the contingent consideration payable with significant production increases.
The following table presents a roll forward of liabilities measured at fair value using significant unobservable inputs (Level 3) for the nine months ended March 31, 2013:
 
Total
 
(In thousands)
June 30, 2012
$
4,072

Accretion of contingent consideration payable
172

March 31, 2013
$
4,244


The fair value of the contingent consideration payable is calculated with a discounted cash flow model using production projections and the estimated timing of production payouts. The Company also utilizes a discount rate that is consistent with the rate used in valuing its asset retirement obligations and reflective of the Company’s credit adjusted borrowing rate.