Fair Value Measurements

9 Months Ended

Sep. 30, 2013

12 – Fair Value Measurements

Fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are classified into two categories: observable inputs and unobservable inputs. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. These two types of inputs are further prioritized into the following fair value input hierarchy:

Level 1 –

quoted prices for identical assets or liabilities in active markets.

Level 2 –

quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates) and inputs derived principally from or corroborated by observable market data by correlation or other means.

Level 3 –

unobservable inputs for the asset or liability.

The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.

The following tables summarize the valuation of the Company’s financial assets and liabilities at September 30, 2013 and December 31, 2012:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant or Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Fair Value at September 30, 2013
Assets:
Commodities derivatives	$	—	$	3,504		$	—		$	3,504
Total	$	—	$	3,504		$	—		$	3,504
Liabilities
Environmental liability	$	—	$	—		$	(2,086,833	)	$	(2,086,833	)
Asset retirement obligations (non-recurring)	$	—	$	—		$	(3,453,782	)	$	(3,453,782	)
Commodities Derivative	$	—	$	(95,896	)	$	—		$	$(95,896	)
Total	$	—	$	(95,896	)	$	(5,540,615	)	$	(5,636,511	)

	Fair Value Measurements at Reporting Date Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant or Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Fair Value at December 31, 2012
Assets:
Commodities derivatives	$	—	$	290,788	$	—		$	290,788
Total	$	—	$	290,788	$	—		$	290,788

Liabilities:
Environmental liability	$	—	$	—	$	(2,100,000	)	$	(2,100,000	)
Asset retirement obligations (non-recurring)		—		—		(3,317,358	)		(3,317,358	)
Total	$	—	$	—	$	(5,417,358	)	$	(5,417,358	)

The following is a summary of changes to fair value measurements using Level 3 inputs during the three months ended September 30, 2013:

	Environmental Liability
Balance, December 31, 2012	$	2,100,000
Acquisitions		—
Settlement of liabilities		13,167
Revisions of previous estimates		—
Balance, September 30, 2013	$	2,086,833

- 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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CROSS BORDER RESOURCES, INC. 10-Q