EARTHSTONE ENERGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Level 3  – Prices or valuations that require unobservable inputs that are both significant to the fair value measurement and unobservable. Valuation under Level 3 generally involves a significant degree of judgment from management. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instrument’s complexity. The Company reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level. There were no transfers between fair value hierarchy levels for the year ended December 31, 2019. Derivative financial instruments are carried at fair value and measured on a recurring basis. The derivative financial instruments consist of swaps for crude oil and natural gas. The Company’s swaps are valued based on a discounted future cash flow model. The primary input for the model is published forward commodity price curves. The swaps are also designated as Level 2 within the valuation hierarchy. The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of commodity derivative instruments in a liability position include a measure of the Company’s nonperformance risk. These measurements were not material to the Consolidated Financial Statements. Fair Value on a Recurring Basis Fair Value on a Nonrecurring Basis Other financial instruments include cash, accounts receivable and payable, and revenue royalties. The carrying amount of these instruments approximates fair value because of their short-term nature. The Company’s long-term debt obligation bears interest at floating market rates, therefore carrying amounts and fair value are approximately equal. The Company applies the provisions of the fair value measurement standard on a non-recurring basis to its non-financial assets and liabilities, including oil and gas properties and goodwill. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances.  Proved oil and natural gas properties are reviewed for impairment on a nonrecurring basis. The impairment charge reduces the carrying values to their estimated fair values. These fair value measurements are classified as Level 3 measurements and include Proved Oil and Natural Gas Properties 15 The following table summarizes the fair value of the Company’s financial assets and liabilities, by level within the fair-value hierarchy  (in thousands) :  December 31, 2019 Level 1 Level 2 Level 3 Total Financial assets Derivative asset- current $ — $ 8,860 $ — $ 8,860 Derivative asset- noncurrent — 770 — 770 Total financial assets $ — $ 9,630 $ — $ 9,630 Financial liabilities Derivative liability - current $ — $ 6,889 $ — $ 6,889 Derivative liability - noncurrent — — — — Total financial liabilities $ — $ 6,889 $ — $ 6,889 December 31, 2018 Financial assets Derivative asset- current $ — $ 43,888 $ — $ 43,888 Derivative asset- noncurrent — 21,121 — 21,121 Total financial assets $ — $ 65,009 $ — $ 65,009 Financial liabilities Derivative liability - current $ — $ 528 $ — $ 528 Derivative liability - noncurrent — 1,891 — 1,891 Total financial liabilities $ — $ 2,419 $ — $ 2,419