New ERA Energy & Digital, Inc. Fair Value Disclosure
NOTE 17. FAIR VALUE MEASUREMENTS
The Company accounts for certain liabilities at fair value and classifies these liabilities with the fair value hierarchy. Our asset retirement obligation liabilities are measured at fair value on a non-recurring basis.
Assets and liabilities subject to fair value measurements are as follows:
| December 31, 2025 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liability: | ||||||||||||||||
| ARO liabilities | 12,319,132 | 12,319,132 | ||||||||||||||
| December 31, 2024 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Asset: | ||||||||||||||||
| Equity facility derivative asset | 16,999 | 16,999 | ||||||||||||||
| Liability: | ||||||||||||||||
| ARO liabilities | 2,198,064 | 2,198,064 | ||||||||||||||
| Assignment of interest in certain properties | 166,449 | 166,449 | ||||||||||||||
| Embedded derivative liability | 309,181 | 309,181 | ||||||||||||||
The carrying value of cash and cash equivalents, accounts receivable, prepaid and other current assets, related party receivable, accounts payable, accrued liabilities, due to related party, and other current liabilities, as reflected in the consolidated balance sheets, approximate fair value, due to the short-term maturity of these instruments. The carrying value of notes payable approximates their fair value due to immaterial changes in market interest rates.
The equity facility derivative asset and the embedded derivative liability were valued using a Monte Carlo model.
The following table presents quantitative information regarding the Level 3 fair value measurements of the embedded derivative as of December 6, 2024 and January 15, 2025.
| Embedded Derivative Liability January 15, 2025 (Initial Measurement) | Equity Facility Derivative Asset December 6, 2024 (Initial Measurement) | Embedded Derivative Liability December 6, 2024 (Initial Measurement) | |||||||||
| Conversion price | 10.00 | 10.00 | |||||||||
| Share price | 3.00 | 9.88 | 9.88 | ||||||||
| Volatility | 32.0 | 29.0 | 28.0 | ||||||||
| Probability of default | 41.0 | 0.0 | 41.0 | ||||||||
| Risk-free rate | 4.1 | 4.2 | 4.1 | ||||||||
| Dividend yield | |||||||||||
| Embedded Derivative Liabilities | Equity Facility Derivative Asset | |||||||
| Fair value as of January 1, 2025 | 309,181 | 16,999 | ||||||
| Initial fair value as of January 15, 2025 | 263,012 | |||||||
| Change in valuation inputs or other assumptions | (572,193 | ) | (16,999 | ) | ||||
| Fair value as of December 31, 2025 | ||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 12, 2026 | Showing above |
| 2024 | Mar 31, 2025 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.