
	September 30,			December 31,				September 30,		December 31,
ASSETS	2017			2016			ASSETS	2023		2022
Current assets:							Current assets:
Cash	$	11,047		$	10,200
Cash and cash equivalents							Cash and cash equivalents	$	16,592	$	—
Accounts receivable:							Accounts receivable:
Oil, natural gas, and natural gas liquids revenues		15,093			13,998		Oil, natural gas, and natural gas liquids revenues	177,353		161,531
Joint interest billings and other, net of allowance of $138 at September 30, 2017 and $163 at December 31, 2016		4,371			2,698
Joint interest billings and other, net of allowance of $19 and $19 at September 30, 2023 and December 31, 2022, respectively							Joint interest billings and other, net of allowance of $19 and $19 at September 30, 2023 and December 31, 2022, respectively	32,574		34,549
Derivative asset		147			—		Derivative asset	1,542		31,331
Prepaid expenses and other current assets		1,299			446		Prepaid expenses and other current assets	40,323		18,854
Total current assets		31,957			27,342		Total current assets	268,384		246,265

Oil and gas properties, successful efforts method:							Oil and gas properties, successful efforts method:
Proved properties		599,222			363,072		Proved properties	5,488,844		3,987,901
Unproved properties		291,364			51,723		Unproved properties	305,706		282,589
Land		5,534			—		Land	6,338		5,482
Total oil and gas properties		896,120			414,795		Total oil and gas properties	5,800,888		4,275,972

Accumulated depreciation, depletion and amortization		(122,842	)		(145,393	)	Accumulated depreciation, depletion and amortization	(955,434)		(619,196)
Net oil and gas properties		773,278			269,402		Net oil and gas properties	4,845,454		3,656,776

Other noncurrent assets:							Other noncurrent assets:
Goodwill		17,620			17,620
Office and other equipment, net of accumulated depreciation of $1,973 and $1,600 at September 30, 2017 and December 31 2016, respectively		1,039			1,479

Office and other equipment, net of accumulated depreciation of $6,601 and $5,273 at September 30, 2023 and December 31, 2022, respectively							Office and other equipment, net of accumulated depreciation of $6,601 and $5,273 at September 30, 2023 and December 31, 2022, respectively	6,724		5,394
Derivative asset							Derivative asset	507		9,117
Operating lease right-of-use assets							Operating lease right-of-use assets	6,573		4,569
Other noncurrent assets		1,078			669		Other noncurrent assets	18,913		15,280
TOTAL ASSETS	$	824,972		$	316,512		TOTAL ASSETS	$	5,146,555	$	3,937,401
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	19,343		$	11,927		Accounts payable	$	61,995	$	91,815
Revenues and royalties payable							Revenues and royalties payable	209,589		163,368
Accrued expenses		16,516			5,392		Accrued expenses	221,366		80,942
Revenues and royalties payable		9,156			10,769

Asset retirement obligation							Asset retirement obligation	415		948
Derivative liability							Derivative liability	50,369		14,053
Advances		5,048			4,542		Advances	6,338		7,312
Derivative liability		1,986			4,595
Current portion of long-term debt		1,704			1,604
Operating lease liabilities							Operating lease liabilities	923		842
Finance lease liabilities							Finance lease liabilities	1,359		802
Other current liabilities							Other current liabilities	23,689		16,202
Total current liabilities		53,753			38,829		Total current liabilities	576,043		376,284

Noncurrent liabilities:							Noncurrent liabilities:
Long-term debt		71,400			12,693

Long-term debt, net							Long-term debt, net	1,722,066		1,053,879
Deferred tax liability		16,513			15,776		Deferred tax liability	193,266		138,336
Asset retirement obligation		3,204			6,013
Derivative liability		422			1,575
Other noncurrent liabilities		143			169
Total noncurrent liabilities		91,682			36,226

Commitments and Contingencies (Note 13)

Equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued or outstanding		—			—
Common stock, $0.001 par value, no shares authorized; none issued or outstanding at September 30, 2017 and 100,000,000 shares authorized; 22,289,177 issued and 22,273,820 outstanding at December 31, 2016		—			23
Class A Common stock, $0.001 par value, 200,000,000 shares authorized; 22,988,759 issued and outstanding at September 30, 2017 and none issue or outstanding at December 31, 2016		23			—
Class B Common Stock, $0.0001 par value, 50,000,000 shares authorized; 36,070,828 shares issued and outstanding at September 30, 2017; none issued or outstanding at December 31, 2016		36			—
Additional paid-in capital		463,009			454,202
Accumulated deficit		(227,146	)		(212,308	)
Treasury stock, no shares at September 30, 2017 and 15,357 shares at December 31, 2016		—			(460	)
Total Earthstone Energy, Inc. equity		235,922			241,457
Noncontrolling interest		443,615			—
Total equity		679,537			241,457

TOTAL LIABILITIES AND EQUITY	$	824,972		$	316,512


														Three Months Ended				Nine Months Ended
	Three Months Ended September 30,						Nine Months Ended September 30,							September 30,				September 30,
	2017			2016			2017			2016				2023		2022		2023		2022
REVENUES													REVENUES
Oil	$	25,733		$	8,262		$	59,815		$	21,898		Oil	$	366,574	$	332,036	$	978,949	$	756,420
Natural gas		2,513			1,417			6,338			3,376		Natural gas	39,275		113,937		89,942		233,020
Natural gas liquids		3,036			851			6,249			1,843		Natural gas liquids	69,967		85,522		190,069		210,756
Total revenues		31,282			10,530			72,402			27,117		Total revenues	475,816		531,495		1,258,960		1,200,196

OPERATING COSTS AND EXPENSES													OPERATING COSTS AND EXPENSES
Lease operating expense		5,407			4,581			14,989			11,081		Lease operating expense	101,156		75,829		276,736		147,974
Severance taxes		1,588			522			3,705			1,418
Rig idle and termination expense		—			—			—			5,059
Production and ad valorem taxes													Production and ad valorem taxes	38,419		40,219		103,377		87,729

Depreciation, depletion and amortization													Depreciation, depletion and amortization	123,059		90,880		343,799		191,669
Impairment expense		92			—			66,740			—		Impairment expense	—		—		854		—
Depreciation, depletion and amortization		10,330			5,149			28,258			16,252
General and administrative expense		5,608			2,285			14,838			6,961		General and administrative expense	26,508		14,188		64,079		40,571
Stock-based compensation		1,687			1,328			4,645			1,889
Transaction costs		109			846			4,676			1,641		Transaction costs	1,503		1,778		1,904		12,118
Accretion of asset retirement obligation		72			143			378			404		Accretion of asset retirement obligation	683		758		1,958		1,863
Exploration expense		—			—			1			5		Exploration expense	488		2,248		7,036		2,340
Total operating costs and expenses		24,893			14,854			138,230			44,710		Total operating costs and expenses	291,816		225,900		799,743		484,264

Gain on sale of oil and gas properties		2,157			8			3,848			8		Gain on sale of oil and gas properties	1,290		14,803		47,404		14,803

Income (loss) from operations		8,546			(4,316	)		(61,980	)		(17,585	)
Income from operations													Income from operations	185,290		320,398		506,621		730,735

OTHER INCOME (EXPENSE)													OTHER INCOME (EXPENSE)
Interest expense, net		(903	)		(341	)		(1,873	)		(934	)	Interest expense, net	(34,232)		(20,988)		(79,180)		(42,931)
Write-off of deferred financing costs		-			—			(526	)		—		Write-off of deferred financing costs	—		—		(5,109)		—
(Loss) gain on derivative contracts, net		(3,663	)		946			4,137			(2,517	)	(Loss) gain on derivative contracts, net	(45,047)		60,286		(111,820)		(141,101)
Other (expense) income, net		(66	)		12			(34	)		(70	)

Other income, net													Other income, net	70		134		882		430
Total other income (expense)		(4,632	)		617			1,704			(3,521	)	Total other income (expense)	(79,209)		39,432		(195,227)		(183,602)

Income (loss) before income taxes		3,914			(3,699	)		(60,276	)		(21,106	)
Income tax benefit (expense)		94			(201	)		10,046			(387	)
Net income (loss)		4,008			(3,900	)		(50,230	)		(21,493	)
Income before income taxes													Income before income taxes	106,081		359,830		311,394		547,133
Income tax expense													Income tax expense	(18,930)		(60,518)		(55,584)		(81,673)
Net income													Net income	87,151		299,312		255,810		465,460

Less: Net income (loss) attributable to noncontrolling interest		2,452			—			(35,392	)		—
Less: Net income attributable to noncontrolling interest													Less: Net income attributable to noncontrolling interest	25,793		87,856		75,862		142,597

Net income (loss) attributable to Earthstone Energy, Inc.	$	1,556		$	(3,900	)	$	(14,838	)	$	(21,493	)
Net income attributable to Earthstone Energy, Inc.													Net income attributable to Earthstone Energy, Inc.	$	61,358	$	211,456	$	179,948	$	322,863

Net income (loss) per common share attributable to Earthstone Energy, Inc.:
Basic and diluted	$	0.07		$	(0.17	)	$	(0.66	)	$	(1.23	)
Net income per common share attributable to Earthstone Energy, Inc.:													Net income per common share attributable to Earthstone Energy, Inc.:
Basic													Basic	$	0.58	$	2.01	$	1.69	$	3.91
Diluted													Diluted	$	0.57	$	1.94	$	1.67	$	3.61

Weighted average common shares outstanding:													Weighted average common shares outstanding:
Basic and diluted		22,905,023			22,289,177			22,638,977			17,433,079
Basic													Basic	106,332,278		105,254,778		106,172,873		82,483,635
Diluted													Diluted	108,285,229		109,278,661		107,741,704		92,844,854

For the Nine Months Ended September 30,

2017

2016

Cash flows from operating activities:

Net loss

$
(50,230
)

$
(21,493
)
Adjustments to reconcile net loss to net cash provided by operating activities:

Impairment of proved and unproved oil and gas properties

66,740

—

Depreciation, depletion and amortization

28,258

16,252

Accretion of asset retirement obligations

378

404

Settlement of asset retirement obligations

—

(15
)
Gain on sale of oil and gas properties

(3,848
)

(8
)
Rig idle and termination expense

—

5,059

Total (gain) loss on derivative contracts, net

(4,137
)

2,517

Operating portion of net cash received in settlement of derivative contracts

229

3,330

Stock-based compensation

4,645

1,889

Deferred income taxes

(10,046
)

387

Write-off of deferred financing costs

526

—

Amortization of deferred financing costs

195

220

Changes in assets and liabilities:

Decrease in accounts receivable

6,964

9,141

Increase in prepaid expenses and other current assets

(455
)

(1,790
)
Decrease in accounts payable and accrued expenses

(11,522
)

(3,462
)
Decrease in revenues and royalties payable

(4,019
)

(1,730
)
Increase (decrease) in advances

506

(8,966
)
Net cash provided by operating activities

24,184

1,735

Cash flows from investing activities:

Bold Contribution Agreement, net of cash acquired

(55,609
)

—

Lynden Arrangement, net of cash acquired

—

(31,334
)
Additions to oil and gas properties

(29,958
)

(15,272
)
Additions to office and other equipment

(139
)

(63
)
Proceeds from sales of oil and gas properties

5,054

—

Net cash used in investing activities

(80,652
)

(46,669
)
Cash flows from financing activities:

Proceeds from borrowings

70,000

36,597

Repayments of borrowings

(11,193
)

(38,165
)
Common stock exchanged and cancelled

(324
)

—

Issuance of common stock, net of offering costs of $2.7 million

—

47,125

Deferred financing costs

(1,168
)

(78
)
Net cash provided by financing activities

57,315

45,479

Net increase in cash and cash equivalents

847

545

Cash at beginning of period

10,200

23,264

Cash at end of period

$
11,047

$
23,809

Supplemental disclosure of cash flow information

Cash paid for:

Interest

$
1,555

$
688

Non-cash investing and financing activities:

Class B Common stock issued in Bold Contribution Agreement

$
489,842

$
—

Class A Common stock issued in Bold Contribution Agreement

$
2,037

$
—

Common stock issued in Lynden Arrangement

$
—

$
45,699

Accrued capital expenditures

$
19,519

$
8,938

Asset retirement obligations

$
83

$
101

Promissory Note

$
—

$
5,059

Earthstone consolidates the ~~closing sale price~~financial results of the Class A Common Stock was $13.58 per share. On May 10, 2017, the Class A Common Stock was uplisted from the NYSE MKT, LLC (the “NYSE MKT”) to the New York Stock Exchange (the “NYSE”) where it is listed under the symbol “ESTE.”

~~On May 9, 2017, in connection with the closing of the Bold Transaction, Earthstone, EnCap Investments L.P. (“EnCap”), Oak Valley Resources, LLC (“Oak Valley”),~~EEH and ~~Bold Holdings entered into a voting agreement (the “Voting Agreement”), pursuant to which EnCap, Oak Valley,~~its subsidiaries and Bold Holdings agreed not to vote any shares of Class A Common Stock or Class B Common Stock held by them in favor of any action, or take any action that would in any way alter the composition of the board of directors of Earthstone (the “Board”) from its composition immediately following the closing of the Bold Transaction as long as the Voting Agreement is in effect.

Pursuant to the terms of the Bold Contribution Agreement, at the closing of the Bold Transaction, Earthstone, Bold Holdings, and the unitholders of Bold Holdings entered into a registration rights agreement (the “Registration Rights Agreement”) relating to the shares of Class A Common Stock issuable upon the exchange of the EEH Units and Class B Common Stock held by Bold Holdings or its unitholders. In accordance with the Registration Rights Agreement, Earthstone filed a registration statement (the “Registration Statement”) with the SEC to permit the public resale of the shares of Class A Common Stock issued by Earthstone to Bold Holdings or its unitholders in connection with the exchange of Class B Common Stock and EEH Units in accordance with the terms of the First Amended and Restated Limited Liability Company Agreement of EEH. On October 18, 2017, the Registration Statement was declared effective by the SEC.

The Bold Transaction was recorded in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and is consolidated in these financial statements in accordance with FASB ASC Topic 810, Consolidation, which requires the recording ofrecords a noncontrolling interest ~~component of net income (loss), as well as a noncontrolling interest component within equity, including changes to additional paid-in capital to reflect~~for the ~~noncontrolling interest within equity in the Condensed Consolidated Balance Sheet as of September 30, 2017 at the noncontrolling interest’s respective membership~~economic interest in ~~EEH.~~

~~New significant accounting policy~~

~~Noncontrolling Interest~~ ~~– represents third-party equity ownership~~Earthstone held by the members of EEH other than Earthstone and ~~is presented as a component of equity in the Condensed Consolidated Balance Sheet as of September 30, 2017, as well as an adjustment to~~Lynden US. Net income ~~(loss)~~attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017. As~~2023 and 2022 represents the portion of ~~September 30, 2017,~~net income attributable to the economic interest in the Company held by the members of EEH other than Earthstone and Lynden ~~US owned a 38.9% membership~~US. Noncontrolling interest ~~in EEH while Bold Holdings owned the remaining 61.1%. See further discussion in~~ ~~Note 6. Noncontrolling Interest~~.

~~Recently Issued Accounting Standards~~

~~Standards not yet adopted~~

~~Revenue Recognition~~ - In May 2014, the FASB issued updated guidance for recognizing revenue from contracts with customers, which seeks to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries and across capital markets. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. In addition, new and enhanced disclosures will be required. The amendment is effective prospectively for reporting periods beginning on or after December 15, 2017, and early adoption is permitted for periods beginning on or after December 15, 2016. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company does not expect net income (loss) or cash flows to be materially impacted by the new standard; however, the Company is currently analyzing whether changes to total revenues and total expenses will be necessary to properly reflect revenue for certain gas processing agreements. The Company continues to evaluate the expected disclosure requirements, changes to relevant business practices, accounting policies and control activities as a result of adoption and has not yet developed estimates of the quantitative impact to the Company's Condensed Consolidated Financial Statements. The Company has selected the modified retrospective method and will adopt this guidance on the effective date of January 1, 2018.

~~Leases~~ ~~– In February 2016, the FASB issued updated guidance on accounting for leases.~~ The update requires that a lessee recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Similar to current guidance, the update continues to differentiate between finance leases and operating leases; however, this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The standards

~~EARTHSTONE ENERGY, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

update is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted. Entities are required to use a modified retrospective adoption, with certain relief provisions, for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements when adopted. The Company expects to adopt this standards update, as required, beginning with the first quarter of 2019. ~~The Company is in the process of evaluating the impact, if any, of the adoption of this guidance on its Condensed Consolidated Financial Statements.~~

~~Statement of Cash Flows –~~ In August 2016, the FASB issued updated guidance that clarifies how certain cash receipts and cash payments are presented in the statement of cash flows. This update provides guidance on eight specific cash flow issues. The standards update is effective for interim and annual periods beginning after December 15, 2017, and should be applied retrospectively to all periods presented. Early adoption is permitted. The Company expects to adopt this standards update, as required, beginning with the first quarter of 2018. The Company is in the process of evaluating the impact, if any, of the adoption of this guidance on its Condensed Consolidated Financial Statements.

~~Business Combinations –~~ In January 2017, the FASB issued updated guidance that clarifies the definition of a business, which amends the guidance used in evaluating whether a set of acquired assets and activities represents a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not considered a business. As a result, acquisition fees and expenses will be capitalized to the cost basis of the property acquired, and the tangible and intangible components acquired will be recorded based on their relative fair values as of the acquisition date. The standard is effective for all public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted for periods for which financial statements have not yet been issued. The Company is in the process of evaluating the impact, if any, of the adoption of this guidance on its Condensed Consolidated Financial Statements.

~~Intangibles - Goodwill and Other –~~ In January 2017, the FASB issued updated guidance simplifying the test for goodwill impairment. The update eliminates Step 2 of the goodwill impairment test. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The update is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company is in the process of evaluating the impact, if any, on its Condensed Consolidated Financial Statements.

~~Compensation – Stock Compensation –~~ In May 2017, the FASB issued updated guidance that provides clarity about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The update is effective for annual periods beginning after December 15, 2017, and early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the impact, if any, of this update, but does not expect the adoption to have a material impact on its Condensed Consolidated Financial Statements.

~~Note 2. Acquisitions and Divestitures~~

~~The Company accounts for its acquisitions that qualify as business combinations, under the acquisition method of accounting in accordance with FASB ASC Topic 805,~~ ~~Business Combinations~~, which, among other things, requires the assets acquired and liabilities assumed to be measured and recorded at their fair values as of the acquisition date. The initial accounting for acquisitions may not be complete and adjustments to provisional amounts, or recognition of additional assets acquired or liabilities assumed, may occur as additional information is obtained about the facts and circumstances that existed as of the acquisition dates.

~~Bold Transaction~~

~~On May 9, 2017, Earthstone completed the Bold Transaction~~ ~~described in~~ ~~Note 1. Basis of Presentation and Summary of Significant Accounting Policies~~.

An allocation of the purchase price was prepared using, among other things, a reserve report prepared by qualified reserve engineers and priced as of the acquisition date. The following allocation is still preliminary with respect to final tax amounts and certain accruals and includes the use of estimates based on information that was available to management at the time these Condensed Consolidated Financial Statements were prepared.

~~EARTHSTONE ENERGY, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~The following table summarizes the consideration transferred, fair value of assets acquired and liabilities assumed (in thousands, except share and share price amounts~~):

Consideration:

Shares of Class A Common Stock issued pursuant to the Bold Contribution Agreement to certain employees of Bold

150,000

EEH Units issued to Bold Holdings

36,070,828

Total equity interest issued in the Bold Transaction

36,220,828

Closing per share price of Class A Common Stock as of May 9, 2017

$
13.58

Total consideration transferred ⁽¹⁾⁽²⁾

$
491,879

Fair value of assets acquired:

Cash and cash equivalents

$
2,355

Other current assets

10,078

Oil and gas properties ⁽³⁾

557,704

Amount attributable to assets acquired

$
570,137

Fair value of liabilities assumed:

Long-term debt ⁽⁴⁾

$
58,000

Current liabilities

17,042

Deferred tax liability

2,857

Noncurrent asset retirement obligations

359

Amount attributable to liabilities assumed

$
78,258

~~(1)~~

~~Consideration included 150,000 shares of Class A Common Stock recorded above based upon its fair value which was determined using its closing price of $13.58 per share on May 9, 2017.~~

~~(2)~~

Consideration was 36,070,828 EEH Units. Additionally, Bold Holdings purchased 36,070,828 shares of Class B Common Stock for $36,071. Each EEH Unit, together with one share of Class B Common Stock, is convertible into one share of Class A Common Stock. The fair value of the consideration was determined using the closing price of the Company’s Class A Common Stock of $13.58 per share on May 9, 2017.

~~(3)~~

The market assumptions as to the future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of the future development and operating costs, projecting of future rates of production, expected recovery rate and risk adjusted discount rates used by the Company to estimate the fair value of the oil and natural gas properties represent Level 3 inputs; see ~~Note 3. Fair Value Measurements, below.~~

~~(4)~~

~~Concurrent with the closing of the Bold Transaction, EEH assumed Bold’s outstanding borrowings of $58 million under its credit agreement.~~

~~EARTHSTONE ENERGY, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

The following unaudited supplemental pro forma condensed results of operations present consolidated information as though the Bold Transaction had been completed as of January 1, 2016. The unaudited supplemental pro forma financial information was derived from the historical consolidated and combined statements of operations for Bold and Earthstone and adjusted to include: (i) depletion expense applied to the adjusted basis of the properties acquired and (ii) to eliminate non-recurring transaction costs directly related to the Bold Transaction that do not have a continuing impact on the Company’s operating results. These unaudited supplemental pro forma results of operations are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future. Future results may vary significantly from the results reflected in this unaudited pro forma financial information (~~in thousands, except per share amounts~~):

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2017

2016

Revenue

$
15,865

$
99,192

$
38,165

Loss before taxes

$
(4,860
)

$
(41,420
)

$
(31,723
)

Net loss

$
(5,061
)

$
(31,374
)

$
(32,109
)

Less: Net loss available to noncontrolling interest

$
(3,120
)

$
(19,253
)

$
(21,587
)

Net loss attributable to Earthstone Energy, Inc.

$
(1,941
)

$
(12,121
)

$
(10,522
)

Pro forma net loss per common share attributable to Earthstone Energy, Inc.:

Basic and diluted

$
(0.09
)

$
(0.53
)

$
(0.60
)

The Company has included in its Condensed Consolidated Statements of Operations, revenues of $17.7 million and direct operating expenses of $9.8 million for the three months ended September 30, 2017, and revenues of $28.6 million and direct operating expenses of $16.0 million for the period May 9, 2017 to September 30, 2017 related to the properties acquired in the Bold Transaction.

~~2017 Divestitures~~

~~For the three months ended September 30,~~ 2017, the Company sold certain non-core properties for a total cash consideration of approximately $2.7 million, while eliminating approximately $3.6 million of future abandonment obligations. The sales resulted in a net gain of approximately $2.2 million recorded in Gain on sale of oil and gas properties in the Condensed Consolidated ~~Statements~~Balance Sheets as of ~~Operations.~~

~~For~~September 30, 2023 and December 31, 2022 represents the portion of net assets of the Company attributable to the members of EEH other than Earthstone and Lynden US.

September 30, 2017	Level 1		Level 2		Level 3		Total

September 30, 2023									September 30, 2023	Level 1		Level 2		Level 3		Total
Financial assets									Financial assets
Derivative asset - current	$	—	$	147	$	—	$	147	Derivative asset - current	$	—	$	1,542	$	—	$	1,542
Derivative asset - noncurrent									Derivative asset - noncurrent	—		507		—		507
Total financial assets	$	—	$	147	$	—	$	147	Total financial assets	$	—	$	2,049	$	—	$	2,049

Financial liabilities									Financial liabilities
Derivative liability - current	$	—	$	1,986	$	—	$	1,986	Derivative liability - current	$	—	$	50,369	$	—	$	50,369
Derivative liability - noncurrent		—		422		—		422	Derivative liability - noncurrent	—		7,612		—		7,612
Share-based compensation liability - current									Share-based compensation liability - current	—		20,359		—		20,359
Share-based compensation liability - noncurrent									Share-based compensation liability - noncurrent	—		5,153		—		5,153
Total financial liabilities	$	—	$	2,408	$	—	$	2,408	Total financial liabilities	$	—	$	83,493	$	—	$	83,493

December 31, 2016
December 31, 2022									December 31, 2022
Financial assets									Financial assets
Derivative asset - current									Derivative asset - current	$	—	$	31,331	$	—	$	31,331
Derivative asset - noncurrent									Derivative asset - noncurrent	—		9,117		—		9,117
Total financial assets									Total financial assets	$	—	$	40,448	$	—	$	40,448

Financial liabilities									Financial liabilities
Derivative liability - current	$	—	$	4,595	$	—	$	4,595	Derivative liability - current	$	—	$	14,053	$	—	$	14,053
Derivative liability - noncurrent		—		1,575		—		1,575
Total financial assets	$	—	$	6,170	$	—	$	6,170

Share-based compensation liability - current									Share-based compensation liability - current	—		14,411		—		14,411
Share-based compensation liability - noncurrent									Share-based compensation liability - noncurrent	—		10,357		—		10,357
Total financial liabilities									Total financial liabilities	$	—	$	38,821	$	—	$	38,821

~~Earthstone consolidates~~equipment was $122.5 million and $342.4 million, respectively For the ~~financial results of EEH~~three and ~~its subsidiaries,~~nine months ended September 30, 2022, depletion expense for oil and ~~records a noncontrolling interest for the economic interest in Earthstone held by the members of EEH other than Earthstone~~gas producing property and ~~Lynden US. Net income (loss) attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations~~related equipment was $90.4 million and $190.8 million, respectively.

The following table summarizes the Company’s asset retirement obligation transactions recorded during the nine months ended September 30, 2023 (in thousands):

2017

2016

Beginning asset retirement obligations

$
6,013

$
5,075

Liabilities incurred

64

114

Liabilities settled

—

(15
)
Acquisitions ⁽¹⁾

359

250

Accretion expense

378

404

Divestitures ⁽²⁾

(3,629
)

—

Revision of estimates

19

(13
)
Ending asset retirement obligations

$
3,204

$
5,815

	~~(1)~~	~~The 2017 amount is related to the Bold Transaction. The 2016 amount is related to the Lynden Arrangement.~~
			2023
Beginning asset retirement obligations			$	30,559
Liabilities incurred			222
Liabilities settled			(1,727)
Acquisitions			1,844
Accretion expense			1,958
Divestitures			(843)
Revision of estimates			612
Ending asset retirement obligations			$	32,625

~~(2)~~

~~See~~ ~~Note 2. Acquisitions and Divestitures.~~

Note 12. Related Party Transactions

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EARTHSTONE ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

FASB ASC Topic 850,, Related Party Disclosures,, requires that information about transactions with related parties that would make a difference in decision making shall be disclosed so that users of the financial statements can evaluate their significance.

~~Flatonia Energy, LLC (“Flatonia”), which owns approximately 12.9%~~ The Audit Committee of the ~~outstanding~~Board independently reviews and approves all related party transactions.

Earthstone has two significant shareholders that consist of various investment funds managed by each of the two private equity firms who may manage other investments in entities with which the Company interacts in the normal course of business (the “Significant Shareholders” or separately, each a “Significant Shareholder”).

As discussed in Note 5. Acquisitions and Divestitures, the Chisholm Acquisition was consummated on February 15, 2022, whereby the Company acquired the Chisholm Assets for a purchase price of $383.9 million in cash, net of customary purchase price adjustments, and approximately 19.4 million shares of Class A Common Stock. A Significant Shareholder was the majority owner of Chisholm as of the closing of the Chisholm Acquisition. The deferred payment of $70 million as of March 31, 2022 was paid on April 15, 2022 and included in Deferred acquisition payment – Chisholm in the Condensed Consolidated Balance Sheet as of March 31, 2022. The issuance of approximately 19.4 million shares of Class A Common Stock as of September 30, 2017, is a party to a joint operating agreement (the “Operating Agreement”) with the Company. The Operating Agreement covers certain jointly owned oil and natural gas properties located in the Eagle Ford trend in Texas. In connection with the Operating Agreement, the Company made payments to Flatonia of $6.4 million and $20.8 million and received payments from Flatonia of $0.8 million and $3.2 million for the three and nine months ended September 30, 2017, respectively. For the three and nine months ended September 30, 2016, the Company made payments to Flatonia of $5.1 million and $21.3 million and received payments from Flatonia of $5.8 million and $8.6 million, respectively. At September 30, 2017, amounts receivable from Flatonia in connection with the ~~Operating Agreement~~closing of the Chisholm Acquisition was (1) approved by a majority of the voting power of all outstanding disinterested shares of the Common Stock and (2) increased the Significant Shareholder's beneficial ownership of Class A Common Stock from approximately 25% to 36% as of February 15, 2022. On April 10, 2023, 105,894 shares of Class A Common Stock were ~~$1.5 million. At December 31, 2016,~~released to Earthstone ~~had $1.5 million of outstanding receivables due~~ from ~~Flatonia. Amounts payable to Flatonia~~escrow and canceled in connection with the ~~Operating Agreement were $3.1 million at December 31, 2016. There were no payables outstanding~~settlement of the Chisholm Acquisition.

As discussed in Note 5. Acquisitions and ~~due to Flatonia as~~Divestitures, on June 14, 2023, EEH entered into the Novo Purchase Agreement. A Significant Shareholder is the majority owner of ~~September 30, 2017.~~

the Sellers.

Note 13. Commitments and Contingencies

Legal

George Assad, et al. v. EnCap Investments L.P., et al.: On September 12, 2022, a complaint (the “Complaint”) styled as a “derivative action” was filed in the Delaware Court of Chancery (the “Court”) by George Assad (the “plaintiff”) a purported holder of a small number of shares of Class A Common Stock against Earthstone, six of its 10 directors and EnCap Investments L.P. (“EnCap”), a principal stockholder. The Complaint alleges that a majority of Earthstone’s directors were conflicted and, along with EnCap, breached their fiduciary duties in approving the sale of shares of Series A Convertible Preferred Stock that is convertible into Class A Common Stock pursuant to the Securities Purchase Agreement dated as of January 30, 2022, by and among Earthstone and the Investors. The plaintiff requested the Court to declare that the defendants breached their fiduciary duties, award of unspecified monetary damages, including interest and costs, and/ or rescind the stock purchase transaction. On October 14, 2022, the defendants filed a motion to dismiss the amended Complaint. Oral argument with respect to defendants’ motion to dismiss occurred on July 18, 2023. On August 22, 2023, in response to Earthstone’s announcement that it had entered into a definitive merger agreement with Permian Resources Corporation, the Plaintiff filed an emergency motion to expedite the Plaintiff’s derivative suit. On August 29, 2023 a hearing was held and the Court denied Plaintiff’s motion to expedite. Earthstone believes the Complaint is completely without merit and intends to contest vigorously the allegations made therein and to seek reimbursement for its costs and expenses in so doing. Earthstone carries insurance for the claims asserted against it and the officer and director defendants in the Complaint, and the carrier has accepted coverage subject to applicable self-retentions and limits of liability. The Company does not expect this case to have a material adverse effect on the results of operations, financial position or cash flows of the Company.

From time to time, the Company ~~and its subsidiaries~~ may be involved in other various legal proceedings and claims in the ordinary course of ~~business.~~

~~In July 2015, EF Non-Op, LLC,~~business, none of which are reasonably expected to result in a ~~subsidiary of Earthstone, filed suit in the 125~~^th ~~Judicial District Court of Harris County, Texas against the operator of its properties in LaSalle County, Texas. In the case~~ ~~EF Non-Op, LLC vs. BHP Billiton Petroleum Properties (N.A.), LP (F/K/A Petrohawk Properties, LP),~~ ~~the Company claims the operator has breached the applicable joint operating agreements in numerous ways, including, but not limited~~material liability to improper authorization for expenditure requests, improper and imprudent operations, misrepresentation of charges and excessive billings, as well as refusal to provide requested information. The Company also claims damages from negligent representation and fraud. The Company is seeking all relief to which it is entitled, including consequential damages and attorneys’ fees. BHP Billiton has claimed they are owed unpaid lease operating expenses and attorneys’ fees. With respect to a portion of the litigation associated with nine non-operated gas wells that were drilled in 2014 and placed on production in the first half of 2015, BHP Billiton in early 2016 elected to deem the Company as ~~a non-consenting working interest owner regarding costs associated with the drilling, completing and operating~~ of these nine wells, as BHP’s sole and exclusive remedy. The Company has accepted this “non-consent” status. The litigation is continuing with respect to the other disputes. The outcome of remaining disputes in this proceeding is uncertain, and while the Company is confident in its position, any potential monetary recovery or loss to the Company cannot be estimated at this time.

~~Olenik v. Lodzinksi et al.~~: On June 2, 2017, Nicholas Olenik filed a purported shareholder class and derivative action in the Delaware Court of Chancery against the Company’s Chief Executive Officer, along with other members of the Board, EnCap, Bold, Bold Holdings and Oak Valley. The complaint alleges that the Company’s directors breached their fiduciary duties in connection with the Bold Contribution Agreement. The Plaintiff asserts that the directors negotiated the Bold Transaction to benefit EnCap and its affiliates, failed to obtain adequate consideration for the Earthstone shareholders who were not affiliated with EnCap or Earthstone

~~EARTHSTONE ENERGY, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

management, did not follow an adequate process in negotiating and approving the Bold Transaction, and made materially misleading or incomplete proxy disclosures in connection with the Bold Transaction. The suit seeks unspecified damages and purports to assert claims derivatively on behalf of the Company and as a class action on behalf of all persons who held Common Stock up to March 13, 2017, excluding defendants and their affiliates. The Company and each of the other defendants believe the claims are entirely without merit and they intend to mount a vigorous defense. The outcome of this suit is uncertain, and while the Company is confident in its position, any potential monetary recovery or loss to the Company cannot be estimated at this time.

On August 18, 2017, litigation captioned Trinity Royal Partners, LP v. Bold Energy III LLC, et al. was filed with the 142nd Judicial District of the District Court in Midland County, Texas, asserting breach of contract and indemnity claims for alleged damages from loss of property relating to two oil and natural gas wells in which Bold was the operator. Trinity Royalty Partners, LP (“Trinity”) alleges that Bold is required to indemnify Trinity under the terms of an Assignment and a Participation and Joint Development Agreement between Bold and Trinity. Damages are alleged to include costs incurred in attempting to repair and restore an oil and natural gas well and for the loss of future reserves attributable to both wells. Trinity is seeking approximately $7.2 million in damages and attorneys’ fees. Earthstone and Bold believe the suit is without any merit and Bold intends to mount a vigorous defense. The outcome of this suit is uncertain, and while the Company is confident in its position, any potential monetary recovery or loss to the Company cannot be estimated at this time.

September 30, 2023.

Environmental and Regulatory

As of September 30, ~~2017,~~2023, there were no known environmental or other regulatory matters related to the Company’s properties or operations that are reasonably expected to result in a material liability to the Company.

Note 14. Income Taxes

~~Following the closing of the Bold Transaction, the Company continues to record an income tax provision consistent with its status as a corporation.~~

The Company’s corporate structure requires the filing of two separate ~~consolidated~~ U.S. Federal income tax returns and one Canadian income tax return ~~resulting from the Lynden Arrangement that includes~~which include Lynden US, Earthstone, and Lynden ~~Corp.~~Corp, respectively. As such, taxable income of Earthstone cannot be offset by tax attributes, including net operating losses, of Lynden US, nor can taxable income of Lynden US be offset by tax attributes of Earthstone. ~~Following the Bold Transaction,~~ Earthstone and Lynden US record a tax provision, respectively, for their share of the book income or loss of EEH, net of the non-controlling ~~interest, as well as any standalone income or loss generated by each company.~~interest. As EEH is treated as a partnership for U.S. Federal income tax purposes, it is not subject to income tax at the federal level and only recognizes the Texas Margin Tax.

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EARTHSTONE ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

On February 15, 2022, the Company completed the Chisholm Acquisition which included the issuance of 19,311,582 shares of Class A Common Stock, which resulted in an ownership change within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). As a result of the ownership change, the Company’s ability to utilize net operating losses (“NOLs”) and credits generated prior to the ownership change date may be limited to offset taxable income incurred after the ownership change date (the “382 Limitation”).

As of September 30, 2023 and December 31, 2022, current liabilities of $1.0 million and $1.8 million, respectively, are included in Other current liabilities in the Condensed Consolidated Balance Sheets related solely to current Texas Margin Tax payable.

During the nine months ended September 30, ~~2017,~~2023, the Company recorded an income tax ~~benefit~~expense of approximately $55.6 million comprised of (1) deferred federal income tax expense for Earthstone of $47.3 million resulting from its share of the distributable income from EEH, (2) a deferred federal income tax expense for Lynden US of ~~$2.7~~$2.8 million as a result of its ~~standalone pre-tax~~share of the distributable income from EEH and (3) income tax expense of $5.5 million related to both current and deferred state income taxes. Lynden Corp incurred no material income or loss, ~~incurred before~~or related income tax expense or benefit, for the ~~Bold Transaction~~nine months ended September 30, 2023.

During the nine months ended September 30, 2022, the Company recorded income tax expense of approximately $81.7 million comprised of (1) income tax expense for Earthstone of $70.0 million which included a deferred income tax expense of $74.5 million and a current income tax expense of $2.0 million, resulting from its share of the distributable income from EEH, offset by a $6.5 million release of valuation allowance, (2) a deferred income tax expense for Lynden US of $5.5 million as a result of its share of the distributable loss from EEH ~~after the Bold Transaction.~~

~~During~~and (3) income tax expense of $6.2 million related to state taxes, which included a deferred income tax expense of $4.1 million and a current income tax expense of $2.1 million. Lynden Corp incurred no material income or loss, or related income tax expense or benefit, for the nine months ended September 30, ~~2017,~~2022.

Note 15. Supplemental Disclosures

Accounts Payable

The following table summarizes the ~~Company did not record an income tax benefit~~Company’s current accounts payable at September 30, 2023 and December 31, 2022 (in thousands):


	September 30,		December 31,
	2023		2022
Accounts payable related to vendors	$	35,036	$	76,044
Accounts payable related to severance taxes	14,317		10,380
Other	12,642		5,391
Total accounts payable	$	61,995	$	91,815

Revenue and Royalties Payable

The following table summarizes the Company’s revenues held in suspense and royalties payable at September 30, 2023 and December 31, 2022 (in thousands):


	September 30,		December 31,
	2023		2022
Revenue held in suspense	$	119,652	$	101,838
Revenue and royalties payable	89,937		61,530
Total revenue and royalties payable	$	209,589	$	163,368

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EARTHSTONE ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accrued Expenses

The following table summarizes the Company’s current accrued expenses at September 30, 2023 and December 31, 2022 (in thousands):


	September 30,		December 31,
	2023		2022
Accrued capital expenditures	$	84,353	$	38,482
Accrued lease operating expenses	23,919		14,173
Accrued interest	37,864		10,995
Accrued general and administrative expense	10,114		7,351
Accrued ad valorem taxes	30,255		4,243
Other	34,861		5,698
Total accrued expenses	$	221,366	$	80,942

Supplemental Cash Flow Information

The following table provides supplemental disclosures of cash flow information for ~~Earthstone as a result of its standalone pre-tax loss incurred before~~ the Bold Transaction and its share of the distributable loss from EEH after the Bold Transaction, because the future realization of such loss cannot be reasonably assured and is subject to a full valuation allowance. Earthstone recorded a $7.5 million income tax benefit as a discrete item during the current reporting period, which resulted from a change in assessment of the realization of its net deferred tax assets due to the deferred tax liability that was recorded with respect to its investment in EEH as part of the Bold Transaction as an adjustment to Additional paid-in capital within the Condensed Consolidated Balance Sheet.

~~Lynden Corp incurred no material net income (loss), or related income tax expense (benefit), for the three and~~ nine months ended September 30, ~~2017.~~

2023 and 2022 (in thousands):


	For the Nine Months Ended September 30,
	2023		2022
Cash paid for:
Interest	$	47,206	$	17,485
Income taxes	$	2,518	$	625
Non-cash investing and financing activities:


Class A Common Stock issued in Chisholm Acquisition	$	(1,361)	$	249,515
Class A Common Stock issued in Bighorn Acquisition	$	—	$	77,757
Class A Common Stock issued in Titus Acquisition	$	—	$	53,574

Accrued capital expenditures	$	102,039	$	40,969
Lease asset additions - ASC 842	$	1,818	$	3,111
Asset retirement obligations	$	833	$	722

~~EEH recorded deferred tax expense during nine months ended September 30, 2017~~Table of ~~$0.2 million related~~Contents

EARTHSTONE ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 16. Subsequent Events

On October 23, 2023, the Board declared a cash dividend (the “Special Dividend”) of $0.1446 per share of Class A Common Stock and Class B Common Stock. The Special Dividend is payable on November 6, 2023, to shareholders of record as of October 31, 2023 who hold their shares through the ~~Texas Margin Tax as~~closing of the ~~deficit margin generated during~~Merger Agreement.

The Special Dividend is conditioned upon the ~~period cannot~~closing of the Merger Agreement and is being declared in accordance with the terms of the Merger Agreement, which provides that (a) the record date of the Special Dividend will be ~~carried forward to offset future taxable margin related to state basis differences in EEH’s oil~~the close of business on the business day immediately preceding the closing date of the Merger Agreement and ~~natural gas properties.~~

(b) the Special Dividend will be paid three business days after the closing date of the Merger Agreement. Accordingly, the record date and payment date may change based on the actual closing date of the Merger Agreement.

I~~tem~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statement Regarding Forward-Looking Information

This discussion and other items in this Quarterly Report on Form 10-Q contain forward-looking statements and information that are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. When used in this document, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “may,” “will,” “project,” “forecast,” “plan,” and similar expressions are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. These statements are subject to numerous risks, uncertainties and assumptions. Certain of these risks are summarized in this report and under “Item 1A. Risk Factors” in our ~~2016~~2022 Annual Report on Form 10-K ~~as amended,~~and “Part II, Item 1A - Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 that ~~was~~were filed with the Securities and Exchange Commission (“SEC”), which you should read carefully in connection with our forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated. We undertake no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

You should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with the corresponding sections and our audited ~~consolidated financial statements~~Consolidated Financial Statements for the year ended December 31, ~~2016,~~2022, which are included in our ~~2016~~2022 Annual Report on Form ~~10-K, as amended.~~

10-K.

Overview

~~We are~~

Earthstone Energy, Inc., a Delaware corporation (“Earthstone” and together with its consolidated subsidiaries, the “Company,” “our,” “we,” “us,” or similar terms), is a growth-oriented independent oil and gas company engaged in the acquisition and development of oil and gas reserves through activities that include the acquisition, drilling and development of undeveloped leases, asset and corporate acquisitions and ~~mergers and, to a lesser extent, exploration activities.~~mergers. Our operations are all in the upstream segment of the oil and natural gas industry and all our properties are onshore in the United States. At present, our ~~primary~~ assets are located primarily in the Delaware Basin in New Mexico and in the Midland Basin in West Texas.

As of ~~west Texas, the Eagle Ford trend of south Texas and the Bakken/Three Forks formations of North Dakota~~.

~~Earthstone Energy, Inc. (“Earthstone”) is the sole managing member~~September 30, 2023, outstanding common shares of Earthstone, ~~Energy Holdings,~~along with the equal number of corresponding outstanding EEH Units, were approximately 140.7 million, consisting of 106.4 million shares of Class A common stock, par value $0.001 per share of Earthstone ("Class A Common Stock"), and 34.3 million shares of Class B common stock, par value $0.001 per share of Earthstone ("Class B Common Stock"). The following diagram indicates our simplified ownership structure as of the date of this report. This diagram is provided for illustrative purposes only and does not represent all legal entities affiliated with us.

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Recent Developments

Permian Resources Merger Agreement

On August 21, 2023, Earthstone entered into an agreement and plan of merger (the “Merger Agreement”) with Permian Resources Corporation, a Delaware corporation (“PR”), Smits Merger Sub I Inc., a Delaware corporation and a direct wholly owned subsidiary of PR (“PR Sub I”), Smits Merger Sub II LLC, a Delaware limited liability company ~~(together~~and a direct wholly owned subsidiary of PR (“PR Sub II”), and Permian Resources Operating, LLC, a Delaware limited liability company (“PR OpCo”), pursuant to which (i) PR Sub I will merge with ~~its wholly-owned consolidated subsidiaries, “EEH”~~and into Earthstone (the “Initial Company Merger”), with Earthstone surviving the Initial Company Merger as a ~~controlling~~wholly owned subsidiary of PR (the “Initial Surviving Corporation”), (ii) following the Initial Company Merger, the Initial Surviving Corporation will merge with and into PR Sub II (the “Subsequent Company Merger” and, together with the Initial Company Merger, the “Company Mergers”), with PR Sub II surviving the Subsequent Company Merger as a wholly owned subsidiary of PR (in such capacity, the “Surviving Company”), and (iii) following the Company Mergers, EEH will merge with and into PR OpCo (the “OpCo Merger,” and, collectively with the Company Mergers, the “Mergers”), with PR OpCo surviving the OpCo Merger.

On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Initial Company Merger (the “Initial Company Merger Effective Time”), by virtue of the Initial Company Merger, (i) each share of capital stock of PR Sub I issued and outstanding immediately prior to the Initial Company Merger Effective Time will be converted into and will represent one validly issued, fully paid and nonassessable share of Class A common stock, par value $0.01 per share, of the Initial Surviving Corporation, which will constitute the only outstanding shares of common stock of the Initial Surviving Corporation immediately following the Initial Company Merger Effective Time, (ii) each share of Class A Common Stock, issued and outstanding immediately prior to the Initial Company Merger Effective Time (excluding certain Excluded Shares (as defined in the Merger Agreement) will be converted automatically into the right to receive a number of validly issued, fully paid and nonassessable shares (the "Class A Merger Consideration") of PR's Class A common stock, par value $0.0001 per share (the “PR Class A Common Stock”), equal to 1.446 (the “Exchange Ratio”), with cash to be paid in lieu of fractional shares and (iii) each share of Class B Common Stock issued and outstanding immediately prior to the Initial Company Merger Effective Time (excluding certain Excluded Shares and Appraisal Shares (each as defined in the Merger Agreement)) will be converted automatically into the right to receive a number of validly issued, fully paid and nonassessable shares of PR’s Class C common stock, par value $0.0001 per share (the “PR Class C Common Stock” and, together with the PR Class A Common Stock, the “PR Common Stock”), equal to the Exchange Ratio.

At the effective time of the Subsequent Company Merger (the “Subsequent Company Merger Effective Time”), by virtue of the Subsequent Company Merger, (i) each share of capital stock of the Initial Surviving Corporation issued and outstanding immediately prior to the Subsequent Company Merger Effective Time will be converted into and will represent one validly

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issued, fully paid and nonassessable unit of the Surviving Company and (ii) each unit of PR Sub II will be unaffected by the Subsequent Company Merger and will remain outstanding as a unit of the Surviving Company.

On October 30, 2023, at the special meeting of stockholders of Earthstone, the stockholders of Earthstone approved the Merger Agreement and the transactions contemplated thereby, among other proposals. The parties to the Merger Agreement expect the Mergers to close on or about November 1, 2023, subject to other customary closing conditions. However, the consolidated financial information presented in this Quarterly Report has been prepared under the assumption that the Company will continue as a going concern for the next 12 months.

Special Cash Dividend

On October 23, 2023, the board of directors (the “Board”) of Earthstone declared a cash dividend (the “Special Dividend”) of $0.1446 per share of Class A Common Stock and Class B Common Stock. The Special Dividend is payable on November 6, 2023, to shareholders of record as of October 31, 2023 who hold their shares through the closing of the Merger Agreement.

The Special Dividend is conditioned upon the closing of the Merger Agreement and is being declared in accordance with the terms of the Merger Agreement, which provides that (a) the record date of the Special Dividend will be the close of business on the business day immediately preceding the closing date of the Merger Agreement and (b) the Special Dividend will be paid three business days after the closing date of the Merger Agreement. Accordingly, the record date and payment date may change based on the actual closing date of the Merger Agreement.

Novo Acquisition

On June 14, 2023, EEH, as purchaser, entered into (i) a Securities Purchase Agreement (the “Novo Purchase Agreement”) with Novo Oil & Gas Legacy Holdings, LLC (“Holdings”), Novo Intermediate, LLC (“Intermediate,” and together with Holdings, collectively, the “Sellers”) and Novo Oil & Gas Holdings, LLC (“Novo”), pursuant to which EEH would acquire 100% of the issued and outstanding equity interests (the “Subject Securities”) of Novo (the “Novo Acquisition”) and (ii) an Acquisition and Cooperation Agreement (the “Cooperation Agreement”) with Northern Oil and Gas, Inc. (“NOG”), pursuant to which NOG agreed to acquire, immediately after the closing of the Novo Acquisition, an undivided 1/3 interest in ~~EEH. Earthstone,~~Novo’s oil and natural gas properties and related assets (the “Novo Assets”) acquired pursuant to the Novo Purchase Agreement (the “Novo Divestiture” and, together with ~~its wholly-owned subsidiary, Lynden Energy Corp.~~the Novo Acquisition, the “Novo Transactions”).

On August 15, 2023, the transactions contemplated in the Novo Purchase Agreement were consummated whereby EEH acquired the Subject Securities for aggregate cash consideration of approximately $1.4 billion, net of customary preliminary purchase price adjustments and subject to final post-closing settlement between EEH and the Sellers (which included a $112.5 million cash deposit previously paid into escrow by EEH and NOG upon execution of the Novo Purchase Agreement and the Cooperation Agreement), which was funded with a ~~corporation organized~~combination of cash on hand (including cash proceeds received pursuant to the Novo Divestiture) and borrowings under the ~~laws~~Credit Agreement.

Prior to the Novo Acquisition, EnCap Investments L.P. and certain of ~~British Columbia (“Lynden Corp”~~its affiliates (collectively, “EnCap”), owned all of the Subject Securities and, ~~Lynden Corp’s wholly-owned consolidated subsidiary, Lynden USA Inc., a Utah corporation (“Lynden US”)~~as of the date of the closing of the Acquisition, EnCap beneficially owned approximately 39.9% of the outstanding voting power of Earthstone. Three of Earthstone’s directors are employed by EnCap. The Novo Purchase Agreement and ~~also a member~~the Novo Acquisition contemplated thereby were previously evaluated and approved by the conflicts committee of the Board.

Additionally, on August 15, 2023, immediately after the completion of the Novo Acquisition, the Novo Divestiture was completed whereby EEH ~~consolidates the financial results~~received approximately $468.4 million in cash, net of customary preliminary purchase price adjustments and subject to final post-closing settlement between EEH and ~~records~~NOG (which included a ~~noncontrolling~~$37.5 million cash deposit previously paid into escrow by NOG upon the execution of the Cooperation Agreement) from NOG pursuant to the Cooperation Agreement in exchange for the transfer to NOG of an undivided one-third interest in the ~~Condensed Consolidated Financial Statements representing the economic interests~~Novo Assets.

Notes Offering

On June 27, 2023, EEH, and four of ~~EEH's members other than~~EEH’s wholly-owned subsidiaries, Earthstone ~~and Lynden US (collectively, the “Company” “our,” “we,” “us,” or similar terms).~~

~~Recent Developments~~

~~Bold Contribution Agreement~~

On May 9, 2017, Earthstone completed a contribution agreement dated as of November 7, 2016 and as amended on March 21, 2017 (the “Bold Contribution Agreement”), by and among Earthstone, EEH, Lynden US, Lynden USA Operating, LLC, a Texas limited liability company (“~~Lynden Op”~~Earthstone Operating”), ~~Bold Energy Holdings,~~Earthstone Permian LLC, a Texas limited liability company (“~~Bold Holdings”~~Earthstone Permian”), ~~and Bold~~Sabine River Energy, ~~III~~ LLC, a Texas limited liability company (“Bold”). The purpose of the Bold Contribution Agreement was to provide for, among other things described below, the business combination between Earthstone and Bold, which owns significant developed and undeveloped oil and natural gas properties in the Midland Basin of west Texas (the “Bold Transaction”).

The Bold Transaction was structured in a manner commonly known as an “Up-C.” Under this structure and the Bold Contribution Agreement, (i) Earthstone recapitalized its common stock into two classes – Class A common stock, $0.001 par value per share (the “Class A Common Stock”Sabine River Energy”), and ~~Class B common stock, $0.001 par value per share (the “Class B Common Stock”),~~Independence Resources Technologies, LLC, a Delaware limited liability company (“Independence Technology” and, all of Earthstone’s existing outstanding common stock, $0.001 par value per share (the “Common Stock”), was recapitalized on a one-for-one basis for Class A Common Stock (the “Recapitalization”); (ii) Earthstone transferred all of its membership interests intogether with Earthstone Operating, ~~LLC,~~Earthstone Permian, Sabine River Energy ~~LLC, EF Non-Op, LLC~~ and Earthstone, ~~Legacy Properties,~~the “Guarantors”), entered into a purchase agreement (the “2031 Notes Purchase Agreement”) with Wells Fargo Securities, LLC, ~~(formerly Earthstone GP, LLC)~~as representative of the several initial purchasers named in Exhibit A thereto (together, the “Initial Purchasers”), providing for the private offer and ~~$36,071 in cash from the~~ sale ~~of Class B Common Stock to Bold Holdings (collectively, the “Earthstone Assets”) to EEH, in exchange for 16,791,296 membership units of~~by EEH (the ~~“EEH Units”~~“Offering”)~~; (iii) Lynden US transferred all~~ of ~~its membership interests in Lynden Op to EEH in exchange for 5,865,328 EEH Units; (iv) Bold Holdings transferred all~~$500.0 million aggregate principal amount of its membership interests in Bold to EEH in exchange for 36,070,828 EEH Units and purchased 36,070,828 shares of Class B Common Stock issued by Earthstone for $36,071; and (v) Earthstone granted an aggregate of 150,000 fully vested shares of Class A Common Stock under Earthstone’s 2014 Long-Term Incentive Plan, as amendedEEH’s 9.875% senior notes due 2031 (the ~~“2014 Plan”~~“2031 Notes”), ~~to certain employees of Bold. Each EEH Unit, together~~along with ~~one share of Class B Common Stock, are convertible into one share of Class A Common Stock.~~

~~Upon closing~~related guarantees (the “Guarantees”) of the ~~Bold Transaction on May 9, 2017, Bold Holdings owned approximately 61.4%~~2031 Notes.

Table of Contents

The 2031 Notes Purchase Agreement contains customary representations and warranties of the ~~outstanding shares of Class A Common Stock, on a fully diluted, as converted basis. The~~parties and indemnification and contribution provisions under which EEH ~~Units~~ and the ~~shares of Class B Common Stock issued~~Guarantors, on one hand, and the Initial Purchasers, on the other, have agreed to ~~Bold Holdings were not registered~~indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the ~~“Securities Act”~~"Securities Act")~~, but~~.

The Offering was made pursuant to an offering memorandum dated June 27, 2023 and closed on June 30, 2023. The 2031 Notes were issued byat a price of 97.968% of their principal amount, resulting in net proceeds to EEH of approximately $482.3 million (after deducting underwriting discounts and ~~Earthstone~~commissions, but before offering expenses). EEH used the net proceeds from the Offering to fund a portion of the purchase price of the Novo Acquisition. The 2031 Notes and the Guarantees were offered and sold in ~~reliance on~~a transaction exempt from the ~~exemption provided under Section 4(a)(2)~~registration requirements of the Securities Act.

~~Pursuant~~ The 2031 Notes and the Guarantees were resold to ~~the terms~~persons reasonably believed to be qualified institutional buyers under Rule 144A of the ~~Bold Contribution Agreement, at~~Securities Act and outside the ~~closing~~United States to non-U.S. persons in compliance with Regulation S of the Bold Transaction, Earthstone, Bold Holdings, and the unitholders of Bold Holdings entered into a registration rights agreement (the “Registration Rights Agreement”) relating to the shares of Class A Common Stock issuable upon the exchange of the EEH Units and Class B Common Stock held by Bold Holdings or its unitholders. In accordance with the Registration Rights Agreement, Earthstone filed a registration statement (the “Registration Statement”) with the SEC to permit the public resale of the shares of Class A Common Stock issued by Earthstone to Bold Holdings or its unitholdersSecurities Act.

Indenture

On June 30, 2023, in connection with the ~~exchange~~completion of ~~Class B Common Stock~~the Offering, EEH entered into that certain indenture, dated as of June 30, 2023 (the “2031 Indenture”), by and among EEH, ~~Units in accordance~~the Guarantors and U.S. Bank Trust Company, National Association, as trustee, that was previously reported on Form 8-K filed with the ~~terms~~SEC on June 30, 2023.

The 2031 Notes will mature on July 15, 2031 with interest accruing at a rate of 9.875% per annum payable semi-annually in cash in arrears on January 15 and July 15 of each year, commencing January 15, 2024. Before July 15, 2026, EEH may redeem some or all of the ~~First Amended and Restated Limited Liability Company Agreement of EEH. On October 18, 2017, the SEC issued~~2031 Notes at a ~~Notice of Effectiveness for the Registration Statement.~~

~~On May 9, 2017, in connection with the closing~~redemption price equal to 100% of the Bold Contribution Agreement, Earthstone, EnCap Investments L.P. (“EnCap”), Oak Valley Resources, LLC (“Oak Valley”), and Bold Holdings entered into a voting agreement (the “Voting Agreement”), pursuant to which EnCap, Oak Valley, and Bold Holdings agreed not to vote any shares of Class A Common Stock or Class B Common Stock held by them in favor of any action, or take any action that would in any way alter the compositionaggregate principal amount of the ~~board~~2031 Notes redeemed plus the “applicable premium” as of ~~directors~~and accrued and unpaid interest, if any, to, but excluding, the date of ~~Earthstone (the “Board”) from~~redemption. EEH may redeem, at its ~~composition immediately following the closing~~option, all or part of the ~~Bold Contribution Agreement as long as~~2031 Notes at any time on or after July 15, 2026, at the ~~Voting Agreement is in effect.~~

~~Immediately following~~applicable redemption price plus accrued and unpaid interest to, but not including, the ~~closing~~date of redemption. Further, before July 15, 2026, EEH may on one or more occasions redeem up to 35% of the Bold Contribution Agreement, the Board was increased to nine members from eight members, four of which are designated by EnCap, three of which are independent, and two of which are members of management, including Earthstone’s Chief Executive Officer. At any time during the effectivenessaggregate principal amount of the ~~Voting Agreement during which EnCap’s collective ownership~~2031 Notes in an amount not exceeding the net proceeds from one or more private or public equity offerings at a redemption price of ~~Earthstone exceeds 50%~~109.875% of the ~~total issued~~principal amount of the 2031 Notes, plus accrued and unpaid interest to the date of redemption, if at least 65% of the aggregate principal amount of the 2031 Notes remains outstanding ~~voting stock, EnCap may remove~~immediately after such redemption and ~~replace one director that was not originally designated by EnCap, and his or her successors. Any such removal and replacement will be conducted in accordance with~~ the ~~provisions of Earthstone’s certificate of incorporation and bylaws then in effect. The Voting Agreement terminates on the earlier of (i) the fifth anniversary~~redemption occurs within 180 days of the closing date of ~~the Bold Contribution Agreement and (ii) the date upon which EnCap, Oak Valley, and Bold Holdings collectively own,~~each such equity offering. Upon a Change of ~~record and beneficially, less than 20% of Earthstone’s outstanding voting stock.~~

On May 9, 2017, the closing sale price of the Class A Common Stock was $13.58 per share. On May 10, 2017, the Class A Common Stock was uplisted from the NYSE MKT, LLC (the “NYSE MKT”) to the New York Stock Exchange (the “NYSE”) where it is listed under the symbol “ESTE.”

~~Management’s Plans~~

~~Since establishing a substantial operated presence~~Control (as defined in the ~~Midland Basin, we have been focused~~Indenture) EEH must offer to repurchase the 2031 Notes on ~~integrating the operations, engineering, geology, land, accounting~~terms and ~~personnel functions throughout the Company as well as continuing a drilling and completion program. Although commodity prices have been volatile~~conditions set forth in ~~2017, our current business plan is to continue to operate one rig primarily~~detail in the Midland Basin of west Texas throughout the rest of 2017 and through 2018. In the Eagle Ford trend, we concluded an 11 well drilling program and expect to start completion operations on those wells in November 2017.

~~We intend to focus on reducing our lease operating expenses and general and administrative expense on a per unit of production basis, as well as improving the efficiency of our capital spending.~~

~~We will remain vigilant in assessing volatility in the commodity prices and adjust our business plan accordingly.~~

2031 Indenture.

Credit Agreement

On ~~May 9, 2017, in connection with~~July 7, 2023, but effective as of the closing of the ~~Bold Transaction,~~Novo Transactions on August 15, 2023, Earthstone, as Parent, EEH, as Borrower, the ~~Company exited its credit agreement~~guarantors party thereto, the lenders party thereto (the “Lenders”) and Wells Fargo Bank, National Association (“Wells Fargo”) as Administrative Agent and Issuing Bank, entered into that certain Ninth Amendment to the Credit Agreement (the “Ninth Amendment”), which amends that certain Credit Agreement, dated ~~December 19, 2014,~~as of November 21, 2019, by and among EEH, as Borrower, Earthstone, ~~Oak Valley Operating, LLC, EF Non-OP, LLC, Sabine River Energy, LLC, Basic Petroleum Services, Inc., BOKF, NA dba~~as Parent, Wells Fargo, as Administrative Agent and Issuing Bank, ~~of Texas, and~~ the Lenders party thereto and the documentation agents party thereto (as amended ~~modified~~by the Ninth Amendment and as further amended, restated, amended and restated, supplemented or ~~restated~~otherwise modified from time to time, the ~~“ESTE Credit~~“Credit Agreement”). ~~At that time, all outstanding borrowings of $10.0 million~~Among other things, the Ninth Amendment (i) added JPMorgan Chase Bank, N.A. and Citibank N.A. as new Lenders, arrangers, and documentation agents for the Lenders under the ~~ESTE~~ Credit Agreement, ~~were repaid~~(ii) increased the aggregate elected borrowing base commitments from $1.40 billion to $1.75 billion, and ~~$0.5 million~~(iii) increased the borrowing base from $1.65 billion to $2.0 billion.

Natural Gas Takeaway Capacity

The Permian Basin has been experiencing a lack of ~~remaining unamortized deferred financing costs were expensed and included~~sufficient pipeline transportation that is connected to markets which are purchasing the gas. This has resulted in ~~Write-off of deferred financing costs~~negative gas prices at times, whereby the seller actually pays the purchaser to take the gas. If these depressed or inverted natural gas prices continue in the ~~Condensed Consolidated Statements~~region, our natural gas revenues will continue to be negatively impacted.

Inflation

Inflation has increased costs associated with our capital program and production operations. We have experienced increases in the costs of ~~Operations.~~

On May 9, 2017, EEH (the “Borrower”), Earthstone Operating, LLC, EF Non-Op, LLC, Sabine River Energy, LLC, Earthstone Legacy Properties, LLC, Lynden Op, Bold, Bold Operating, LLC (the “Guarantors”), BOKF, NA dba Bank of Texas, as Agent and Lead Arranger, Wells Fargo Bank, National Association as Syndication Agent and the Lenders party thereto (the “Lenders”), entered into a credit agreement (the “EEH Credit Agreement”).

The borrowing base under the EEH Credit Agreement is $150.0 million, and is subject to redetermination on or about November 1st and May 1st of each year. The amounts borrowed under the EEH Credit Agreement bear annual interest rates at either (a) the London

Interbank Offered Rate (“LIBOR”) plus 2.25% to 3.25% or (b) the prime lending rate of Bank of Texas plus 1.25% to 2.25%, depending on the amounts borrowed under the EEH Credit Agreement. Principal amounts outstanding under the EEH Credit Agreement are due and payable in full at maturity on May 9, 2022. Allmany of the ~~obligations under the EEH Credit Agreement,~~materials, supplies, equipment and ~~the guarantees of those obligations, are secured by substantially all of EEH’s assets. Additional payments due under the EEH Credit Agreement include paying a commitment fee of 0.50% per year~~services used in our operations and we expect inflation to ~~the Lenders in respect of the unutilized commitments thereunder, as well as certain other customary fees.~~

~~The EEH Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, EEH’s ability to incur additional indebtedness, create liens~~continue based on assets, make investments, enter into sale and leaseback transactions, pay dividends and make distributions or repurchase its limited liability interests, engage in mergers or consolidations, sell certain assets, sell or discount any notes receivable or accounts receivable and engage in certain transactions with affiliates.

current economic circumstances. In addition, the ~~EEH Credit Agreement requires EEH~~attempts to ~~maintain~~reduce inflation by the ~~following financial covenants: a current ratio~~Federal Reserve have resulted in increased interest rates on debt and contributed to debt and equity market volatility. We continue to closely monitor costs and take all reasonable steps to mitigate the inflationary effect on our cost structure and also work to enhance our efficiency to minimize additional cost increases where possible.

Table of ~~not less than 1.0 to 1.0 and a leverage ratio~~Contents

Areas of not greater than 4.0 to 1.0. Leverage ratio means the ratio of (i) the aggregate debt of EEH and its consolidated subsidiaries as at the last day of the fiscal quarter (excluding any debt from obligations relating to non-cash losses under FASB ASC 815 as a result of changesOperation

Our primary focus is concentrated in the fair market value of derivatives) to (ii) the product of EBITDAX for such fiscal quarter multiplied by four. The term “EBITDAX” means, for any period, the sum of consolidated net income for such period plus (a) the following expenses or charges to the extent deducted from consolidated net incomeDelaware Basin in ~~such period: (i) interest, (ii) taxes, (iii) depreciation, (iv) depletion, (v) amortization, (vi) non-cash losses under FASB ASC 815 as a result of changes~~New Mexico and in the ~~fair market value of derivatives, (vii) exploration expenses, (viii) impairment expenses,~~Midland Basin in West Texas, both containing high oil and ~~(ix) non-cash compensation expenses~~liquids rich resources which provides us with multiple horizontal targets with proven production results, long-lived reserves and ~~minus (b) to the extent included in consolidated net income in such period, non-cash gains under FASB ASC 815 as~~historically high drilling success rates.

Operations Update

We operated a ~~result of changes in the fair market value of derivatives.~~

The EEH Credit Agreement contains customary affirmative covenants and defines events of default to include failure to pay principal or interest, breach of covenants, breach of representations and warranties, insolvency, judgment default, and if Frank A. Lodzinski ceases to serve and function as Chief Executive Officer of EEH and the majority of the Lenders do not approve of Mr. Lodzinski’s successor. Upon the occurrence and continuance of an event of default, the Lenders have the right to accelerate repayment of the loans and exercise their remedies with respect to the collateral. As of September 30, 2017, EEH was in compliance with these covenants under the EEH Credit Agreement.

As of September 30, 2017, the Company had a $150 million borrowing base under the EEH Credit Agreement, of which $70 million was outstanding, bearing annual interest of 3.7311%, resulting in an additional $80 million of borrowing base availability under the EEH Credit Agreement.

~~Class A Common Stock Offering~~

In October 2017, the Company completed a public offering of 4,500,000 shares of Class A Common Stock, at a public offering price of $9.25 per share, receiving net proceeds of $39.2 million, after deducting underwriters’ fees and offering expenses of $2.4 million. The net proceeds were used to repay outstanding indebtedness under the EEH Credit Agreement. We also agreed to issue and sell to the underwriters, at their option, up to 675,000 additional shares of Class A Common Stock under an overallotment option expiring November 23, 2017. As of the date of the filing of this quarterly report, the option had not been exercised.

~~Divestiture of Assets~~

During the nine months ended September 30, 2017, we sold several small legacy properties for cash consideration of approximately $4.2 million. These properties were substantially non-operated, low margin properties which produced approximately 341 Boepd (64% gas) year to date. We may seek further sales of smaller, non-core assets through year-end pending economic prices. We are also considering a divestiture of our Bakken non-operated assets, which averaged approximately 876 Boepd (64% oil, 82% liquids)five-rig drilling program during the third ~~quarter. A sale~~quarter of ~~these assets would allow us to further support our growth~~2023 with four rigs in the Delaware Basin and one in the Midland Basin.

~~Uplisting of Class A Common Stock~~

On May 8, 2017, the Board approved (i) the transfer of the listing of the common stock, $0.001 par value per share (the “Common Stock”) of Earthstone, from the NYSE MKT to the NYSE, and (ii) the voluntary delisting of the Common Stock from the NYSE MKT. In connection with the closing of the Bold Transaction, all of the Common Stock was converted into Class A Common Stock, on a one-for-one basis. The Class A Common Stock began trading on the NYSE on May 10, 2017. The ticker symbol for the Class A Common Stock is the same as the Common Stock and trades under the symbol “ESTE.”

~~Closing of Denver Office~~

On June 30, 2017, Earthstone management informed the employees of its office located in Denver, Colorado, that it would be closing those offices and providing severance pay, consisting of both regular salary and benefits, for a specified period, if the employee agreed to stay through the transition period ended July 31, 2017.

~~Areas of Operation~~

~~Our core areas of operations are in the Midland Basin of west Texas, the Eagle Ford trend of south Texas and the Bakken/Three Forks formations of North Dakota.~~

~~Our operating results for the three and nine months ended September 30, 2017, were affected by the following factors:~~

~~In early 2016, we survived a low commodity price environment and industry downturn by reducing our costs and capital expenditures.~~

~~On May 18, 2016, Earthstone acquired Lynden US giving rise to our Midland Basin operations.~~

Our pre-Lynden US inventory of wells that were drilled but not completed in 2014 and 2015 were completed in the fourth quarter of 2016 in an improved commodity price environment compared to earlier in 2016.

~~On May 9, 2017, we completed the Bold Transaction, adding significant production to our operating results.~~

~~Commodity prices continue to be volatile.~~

~~Midland Basin~~

We believe that the Midland Basin continues to have attractive economics and we expect to continue to focus our attention on growing our footprint through acreage trades, acquisitions, development drilling and merger and acquisition opportunities. We are acutely focused on expansion in the Midland Basin and production results continue to be as good or better than we projected. Well results in the Wolfcamp formation have continued to meet or exceed our expectations.

We have been operating a one drilling rig program in the Midland Basin and plan to maintain a one rig program throughout the remainder of 2017 and 2018, with a view toward adding a second rig at some point in 2018 based upon commodity prices, our drilling results and liquidity. We recently completed drilling our seventh Midland Basin well (100% working interest) located in Reagan County and recently completed a three well pad (100% working interest) in Reagan County. We currently have a rig drilling the first well of a two-well pad in Reagan County, and we anticipate that the rig will thereafter be moved to Midland County to drill a two well pad. There are currently five wells in Reagan County waiting on completion for which we plan to initiate completion operations in November 2017.

~~We continue to be active in acreage trades and acquisitions in the Midland Basin which generally allow for longer laterals, increased operated inventory and greater operating efficiency.~~

~~Eagle Ford Trend~~

We recently completed an 11 well drilling program for 2017 in southern Gonzales County, Texas by drilling six wells in our Crosby Unit. Completion operations on the 11 wells are expected to begin in November 2017. We expect our 2018 drilling program to be consistent with our 2017 program. Additionally, during each of the second and third quarters of 2017, we entered into a Joint Development Agreements ("JDA") in southern Gonzales County. In each of the two JDA’s, the financial partner is obligated to pay a promoted (higher) share of the capital expenditures to earn 50% of our interest in these units and adjacent acreage. Based on current estimates, the two JDA’s are expected to reduce the Company's overall capital expenditures by approximately $17 million, allowing the Company to shift capital resources from the Eagle Ford to the Midland Basin while still maintaining operating control over its Eagle Ford program.

Additionally, the impacts from Hurricane Harvey during the third quarter were relatively minimal for us in the Eagle Ford, with no significant damages to our operations there. Minor weather associated delays in initiating completion operations in southern Gonzales County may reduce the number of our wells brought online during the last quarter of 2017, pushing some completions into early 2018.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to use our judgment to make estimates and assumptions that affect certain amounts reported in our financial statements. As additional information becomes available, these estimates and assumptions are subject to change and thus impact amounts reported in the future. Critical accounting policies are those accounting policies that involve judgment and uncertainties affecting the application of those policies and the likelihood that materially different amounts would be reported under different conditions or using differing assumptions. We periodically update our estimates used in the preparation of the financial statements based on our latest assessment of the current and projected business and general economic environment.

~~The following~~ There have been no significant ~~change has been made~~changes to our critical accounting policies during the nine months ended September 30, ~~2017:~~

2023.

~~The Bold Transaction was recorded in accordance with Financial~~Recent Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and is consolidated in these financial statements in accordance with FASB ASC Topic 810, Consolidation, which requiresPronouncements

The Novo Acquisition, Titus Acquisition, Bighorn Acquisition and Chisholm Acquisition (collectively, the “Acquisitions”) have had a significant impact on our results of operations for the three and nine months ended ~~September30, 2017. As of~~ September 30, ~~2017, Earthstone and Lynden US held 38.9% of the outstanding membership interests in EEH while Bold Holdings held the remaining 61.1%. See further discussion in~~ ~~Note 6. Noncontrolling Interest~~ ~~in the~~ ~~Notes to Unaudited Condensed Consolidated Financial Statements~~.

~~Results of Operations~~

~~Three months ended September 30, 2017,~~2023 as compared to the ~~three months ended September 30, 2016~~

Three Months Ended September 30,

2017

2016

Change

Sales volumes:

Oil (MBbl)

563

201

180
%
Natural gas (MMcf)

967

563

72
%
Natural gas liquids (MBbl)

166

71

134
%
Barrels of oil equivalent (MBOE)

890

366

143
%

Average prices realized: ⁽¹⁾

Oil (per Bbl)

$
45.73

$
41.11

11
%
Natural gas (per Mcf)

$
2.60

$
2.52

3
%
Natural gas liquids (per Bbl)

$
18.29

$
11.95

53
%

(In thousands)

Oil revenues

$
25,733

$
8,262

211
%
Natural gas revenues

$
2,513

$
1,417

77
%
Natural gas liquids revenues

$
3,036

$
851

257
%

Lease operating expense

$
5,407

$
4,581

18
%
Severance taxes

$
1,588

$
522

204
%
Depreciation, depletion and amortization

$
10,330

$
5,149

101
%
General and administrative expense

$
5,608

$
2,285

145
%
Stock-based compensation

$
1,687

$
1,328

27
%
Transaction costs

$
109

$
846

-87
%
Gain on sale of oil and gas properties

$
2,157

$
8

NM

Interest expense, net

$
(903
)

$
(341
)

165
%
(Loss) gain on derivative contracts, net

$
(3,663
)

$
946

-487
%
Income tax benefit (expense)

$
94

$
(201
)

-147
%

~~(1) Prices presented exclude any effects~~corresponding periods in 2022. Below is a discussion highlighting the impact of ~~oil and natural gas derivatives.~~

~~NM – Not Meaningful~~

our recent Acquisitions.

Nine Months Ended September 30, 2023, compared to the ~~nine months ended~~Nine Months Ended September 30, ~~2016~~

Nine Months Ended September 30,

2017

2016

Change

Sales volumes:

Oil (MBbl)

1,300

607

114
%
Natural gas (MMcf)

2,328

1,593

46
%
Natural gas liquids (MBbl)

350

161

117
%
Barrels of oil equivalent (MBOE)

2,038

1,034

97
%

Average prices realized: ⁽¹⁾

Oil (per Bbl)

$
46.02

$
36.09

28
%
Natural gas (per Mcf)

$
2.72

$
2.12

28
%
Natural gas liquids (per Bbl)

$
17.86

$
11.43

56
%

(In thousands)

Oil revenues

$
59,815

$
21,898

173
%
Natural gas revenues

$
6,338

$
3,376

88
%
Natural gas liquids revenues

$
6,249

$
1,843

239
%

Lease operating expense

$
14,989

$
11,081

35
%
Severance taxes

$
3,705

$
1,418

161
%
Rid idle and termination expense

$
—

$
5,059

-100
%
Impairment expense

$
66,740

$
—

NM

Depreciation, depletion and amortization

$
28,258

$
16,252

74
%
General and administrative expense

$
14,838

$
6,961

113
%
Stock-based compensation

$
4,645

$
1,889

146
%
Transaction costs

$
4,676

$
1,641

185
%
Gain on sale of oil and gas properties

$
3,848

$
8

NM

Interest expense, net

$
(1,873
)

$
(934
)

101
%
Write-off of deferred financing costs

$
(526
)

$
—

NM

Gain (loss) on derivative contracts, net

$
4,137

$
(2,517
)

-264
%
Income tax benefit (expense)

$
10,046

$
(387
)

NM

2022


	Nine Months Ended September 30,
	2023		2022		Change
Sales volumes:
Oil (MBbl)	12,602		7,569		66	%
Natural gas (MMcf)	55,551		36,567		52	%
Natural gas liquids (MBbl)	7,900		5,229		51	%
Barrels of oil equivalent (MBoe)	29,761		18,892		58	%
Average Daily Production (Boepd)	109,016		69,203		58	%

Average prices:
Oil (per Bbl)	$	77.68	$	99.93	(22)	%
Natural gas (per Mcf)	$	1.62	$	6.37	(75)	%
Natural gas liquids (per Bbl)	$	24.06	$	40.31	(40)	%

Average prices adjusted for realized derivatives settlements:
Oil ($/Bbl)	$	76.38	$	83.44	(8)	%
Natural gas ($/Mcf)	$	1.38	$	5.15	(73)	%
Natural gas liquids ($/Bbl)	$	24.06	$	40.31	(40)	%

(In thousands)
Oil revenues	$	978,949	$	756,420	29	%
Natural gas revenues	$	89,942	$	233,020	(61)	%
Natural gas liquids revenues	$	190,069	$	210,756	(10)	%

Lease operating expense	$	276,736	$	147,974	87	%
Production and ad valorem taxes	$	103,377	$	87,729	18	%

Impairment expense	$	854	$	—	NM
Depreciation, depletion and amortization	$	343,799	$	191,669	79	%

General and administrative expense (excluding stock-based compensation)	$	37,102	$	25,459	46	%
Stock-based compensation - equity and liability awards	$	26,977	$	15,112	79	%
General and administrative expense	$	64,079	$	40,571	58	%

Transaction costs	$	1,904	$	12,118	(84)	%
Exploration expense	$	7,036	$	2,340	NM
Gain on sale of oil and gas properties	$	47,404	$	14,803	NM
Interest expense, net	$	(79,180)	$	(42,931)	84	%
Write-off of deferred financing costs	$	(5,109)	$	—	NM

Unrealized (loss) gain on derivative contracts	$	(82,326)	$	28,607	(388)	%
Realized loss on derivative contracts	$	(29,494)	$	(169,708)	(83)	%
Loss on derivative contracts, net	$	(111,820)	$	(141,101)	(21)	%


Income tax expense	$	(55,584)	$	(81,673)	(32)	%

~~(1)~~ ~~Prices presented exclude any effects of oil and natural gas derivatives.~~

NM – Not Meaningful

Table of Contents

Oil revenues

For the nine months ended September 30, ~~2017,~~2023, oil revenues increased by ~~approximately~~ ~~$37.9~~$222.5 million, or ~~173%~~29%, relative to the comparable period in ~~2016.~~2022. Of the increase, ~~approximately~~ ~~$6.0~~$391.0 million was attributable to an increase in volume, partially offset by $168.5 million attributable to a decrease in our realized ~~price and $31.9 million was attributable to increased volume.~~ prices. Our average realized price per Bbl ~~increased~~decreased from ~~$36.09~~$99.93 for the nine months ended September 30, ~~2016~~2022 to ~~$46.02~~$77.68, or ~~28%~~22%, for the nine months ended September 30, ~~2017.~~ We2023. Additionally, we had a net increase in the volume of oil sold of ~~693~~5,033 MBbls, or ~~114%~~66%, primarily ~~due to~~resulting from the ~~Midland Basin properties we~~wells acquired in the ~~Bold Transaction.~~

Acquisitions, partially offset by natural declines in our other wells.

Natural gas revenues

For the nine months ended September 30, ~~2017,~~2023, natural gas revenues ~~increased~~decreased by ~~$3.0~~$143.1 million, or ~~88%~~61%, relative to the comparable period in ~~2016.~~2022. Of the ~~increase,~~ ~~approximately~~ ~~$1.0~~decrease, $173.8 million was attributable to ~~an increase~~a decrease in ~~our~~ realized ~~price and $2.0~~prices, partially offset by $30.7 million ~~was attributable~~due to increased sales volume. Our average realized price per Mcf ~~increased~~decreased 75% from ~~$2.12~~$6.37 for the nine months ended September 30, ~~2016~~2022 to ~~$2.72 or 28%~~$1.62 for the nine months ended September 30, ~~2017.~~2023. The total volume of natural gas ~~produced and~~ sold increased ~~735~~18,984 MMcf, or ~~46%~~52%, primarily ~~due to~~resulting from the ~~Midland Basin properties we~~wells acquired in the ~~Bold Transaction.~~

Acquisitions, partially offset by natural declines in our other wells.

Natural gas liquids revenues

For the nine months ended September 30, ~~2017,~~2023, natural gas liquids revenues ~~increased~~decreased by ~~$4.4~~$20.7 million, or ~~239%~~10%, relative to the comparable period in ~~2016.~~2022. Of the ~~increase,~~ ~~approximately~~ ~~$1.0 million was attributable to an increase in our realized price and $3.4~~decrease, $64.3 million was attributable to increased ~~volume.~~ ~~The~~ volume, ~~of natural gas liquids produced and sold increased~~partially offset by ~~189 MBbls or 117%, primarily due~~$85.0 million attributable to ~~156 MBbls of additional volume provided by the Midland Basin properties we acquired~~a decrease in ~~the Bold Transaction.~~

~~Lease operating expense (“LOE”)~~

~~LOE increased by $3.9 million or 35%~~our realized prices. Our average realized price per Bbl decreased 40% from $40.31 for the nine months ended September 30, ~~2017~~2022 to $24.06 for the nine months ended September 30, 2023. The volume of natural gas liquids sold increased by 2,671 MBbls, or 51%, primarily resulting from the wells acquired in the Acquisitions, partially offset by natural declines in our other wells.

Lease operating expense (“LOE”)

LOE increased by $128.8 million, or 87%, for the nine months ended September 30, 2023 relative to the comparable period in ~~2016, primarily~~2022, due to ~~costs to operate~~a $80.1 million increase resulting from the ~~producing assets~~LOE of the properties acquired in the ~~Bold Transaction~~Acquisitions and ~~the Lynden Arrangement that were not present~~a $48.7 million increase resulting from both higher production volumes from new wells coming online and inflationary factors experienced in the ~~prior~~current year period.

~~Severance~~

Production and ad valorem taxes

~~Severance~~

Production and ad valorem taxes for the nine months ended September 30, ~~2017~~2023 increased by ~~$2.3~~$15.6 million, or ~~161%~~18%, relative to the comparable period in ~~2016, primarily~~2022 due to a $29.4 million increase resulting from the ~~increase~~properties acquired in the Acquisitions, partially offset by a $13.8 million decrease related to our other wells resulting from lower commodity prices.

Impairment expense

During the nine months ended September 30, 2023, we recorded non-cash impairment charges of $0.9 million to our oil and natural gas ~~prices. However, as a percentage of revenues from~~properties due to acreage expirations in our non-core operating areas. No impairments were recorded to our oil ~~natural gas,~~ and natural gas ~~liquids, severance taxes remained flat when compared to the prior year period.~~

~~Rig idle and termination expense~~

~~We incurred rig idle and contract termination expenses of $5.1 million~~properties during the nine months ended September 30, 2016. In July 2016, we entered into an agreement with a rig contractor to terminate our contract with the contractor. Per the terms of the agreement, a termination fee for the remaining commitment on the contract was due and the termination fees were retroactively applied to January 2016, when we suspended drilling and temporarily idled the drilling rig. In connection with the termination, we issued a three-year amortizing promissory note with a principal amount of $5.1 million, which was equivalent to the idle charges and contract termination fee.

~~Impairment expense~~

~~As a result of significant forward commodity price declines, as described below in~~ ~~Liquidity and Capital Resources, Commodity Prices, and the recording of certain acreage expirations, we recognized $66.7 million of non-cash asset impairments during~~ ~~the nine months ended September 30, 2017~~ that have negatively impacted our results of operations and equity. These impairments consisted of $63.0 million to our proved oil and natural gas properties and $3.7 million to our unproved oil and natural gas properties, primarily to our properties located in ~~the Eagle Ford shale trend of south Texas. See~~ ~~Note 3. Fair Value Measurements~~ ~~in the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of how impairments are measured.~~

2022.

Depreciation, depletion and amortization

(“DD&A”)

~~Delaware~~	~~84-0592823~~
Delaware		84-0592823
(State or other jurisdiction		(~~I.R.S~~I.R.S. Employer
of incorporation or organization)		Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share	ESTE	New York Stock Exchange


	For the Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	255,810	$	465,460
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	343,799		191,669
Impairment of oil and gas properties	854		—

Accretion of asset retirement obligations	1,958		1,863
Settlement of asset retirement obligations	(1,727)		(664)
Gain on sale of oil and gas properties	(47,404)		(14,803)
Gain on sale of office and other equipment	(33)		(152)

Total loss on derivative contracts, net	111,820		141,101
Operating portion of net cash paid in settlement of derivative contracts	(29,494)		(169,708)
Stock-based compensation - equity and liability awards	26,977		15,112
Deferred income taxes	54,930		77,591
Write-off of deferred financing costs	5,109		—
Amortization of deferred financing costs	5,704		3,723

Changes in assets and liabilities (net of assets and liabilities acquired):
(Increase) decrease in accounts receivable	63,523		(189,504)
(Increase) decrease in prepaid expenses and other current assets	(11,307)		(16,546)
Increase (decrease) in accounts payable and accrued expenses	(43,326)		92,450
Increase (decrease) in revenues and royalties payable	26,273		94,260
Increase (decrease) in advances	(1,568)		11,317

Net cash provided by operating activities	761,898		703,169
Cash flows from investing activities:
Acquisition of oil and gas properties, net of cash acquired	(924,482)		(1,518,269)
Additions to oil and gas properties	(522,404)		(325,109)
Additions to office and other equipment	(840)		(1,694)
Proceeds from sales of oil and gas properties	57,353		26,165
Net cash used in investing activities	(1,390,373)		(1,818,907)
Cash flows from financing activities:
Proceeds from borrowings under Credit Agreement	3,467,269		2,348,728
Repayments of borrowings under Credit Agreement	(3,037,022)		(2,276,996)
Proceeds from issuance of 8.000% Senior Notes due 2027, net	—		537,256
Proceeds from issuance of 9.875% Senior Notes due 2031, net	480,304		—
Proceeds from term loan	—		244,209
Repayment of term loan	(250,000)		—
Proceeds from issuance of Series A Convertible Preferred Stock, net of offering costs of $674	—		279,326
Cash paid related to the exchange and cancellation of Class A Common Stock	(8,131)		(5,168)
Cash paid for finance leases	(599)		(408)
Deferred financing costs	(6,754)		(15,222)
Net cash provided by financing activities	645,067		1,111,725
Net increase (decrease) in cash and cash equivalents	16,592		(4,013)
Cash and cash equivalents at beginning of period	—		4,013
Cash and cash equivalents at end of period	$	16,592	$	—


	EEH Units Held By Earthstone and Lynden US	%		EEH Units Held By Others	%		Total EEH Units Outstanding
As of December 31, 2022	105,547,139	75.5	%	34,259,641	24.5	%	139,806,780
EEH Units exchanged for shares of Class A Common Stock	2,000			(2,000)			—
EEH Units cancelled in connection with the settlement of Chisholm escrow shares	(105,894)			—			(105,894)



EEH Units issued in connection with the vesting of restricted stock units and performance units	1,000,346			—			1,000,346
As of September 30, 2023	106,443,591	75.7	%	34,257,641	24.3	%	140,701,232

	Price Swaps
Period	Commodity	Volume (Bbls / MMBtu)		Weighted Average Price ($/Bbl / $/MMBtu)
Q4 2017	Crude Oil		157,500	$	50.66
Q1 - Q4 2018	Crude Oil		1,279,000	$	50.16
Q4 2017	Natural Gas		645,000	$	3.167
Q1 - Q4 2018	Natural Gas		810,000	$	3.066

☒
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Asset retirement obligation	32,210		29,611
Derivative liability	7,612		—
Operating lease liabilities	3,286		3,889
Finance lease liabilities	1,538		876
Other noncurrent liabilities	28,633		10,509
Total noncurrent liabilities	1,988,611		1,237,100

Commitments and Contingencies (Note 13)

Equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued or outstanding	—		—


Class A Common Stock, $0.001 par value, 200,000,000 shares authorized; 106,443,591 and 105,547,139 issued and outstanding at September 30, 2023 and December 31, 2022, respectively	106		106
Class B Common Stock, $0.001 par value, 50,000,000 shares authorized; 34,257,641 and 34,259,641 issued and outstanding at September 30, 2023 and December 31, 2022, respectively	34		34
Additional paid-in capital	1,348,580		1,346,463
Retained earnings	472,659		292,711

Total Earthstone Energy, Inc. equity	1,821,379		1,639,314
Noncontrolling interest	760,522		684,703
Total equity	2,581,901		2,324,017

TOTAL LIABILITIES AND EQUITY	$	5,146,555	$	3,937,401

	For the Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(50,230	)	$	(21,493	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Impairment of proved and unproved oil and gas properties		66,740			—
Depreciation, depletion and amortization		28,258			16,252
Accretion of asset retirement obligations		378			404
Settlement of asset retirement obligations		—			(15	)
Gain on sale of oil and gas properties		(3,848	)		(8	)
Rig idle and termination expense		—			5,059
Total (gain) loss on derivative contracts, net		(4,137	)		2,517
Operating portion of net cash received in settlement of derivative contracts		229			3,330
Stock-based compensation		4,645			1,889
Deferred income taxes		(10,046	)		387
Write-off of deferred financing costs		526			—
Amortization of deferred financing costs		195			220
Changes in assets and liabilities:
Decrease in accounts receivable		6,964			9,141
Increase in prepaid expenses and other current assets		(455	)		(1,790	)
Decrease in accounts payable and accrued expenses		(11,522	)		(3,462	)
Decrease in revenues and royalties payable		(4,019	)		(1,730	)
Increase (decrease) in advances		506			(8,966	)
Net cash provided by operating activities		24,184			1,735
Cash flows from investing activities:
Bold Contribution Agreement, net of cash acquired		(55,609	)		—
Lynden Arrangement, net of cash acquired		—			(31,334	)
Additions to oil and gas properties		(29,958	)		(15,272	)
Additions to office and other equipment		(139	)		(63	)
Proceeds from sales of oil and gas properties		5,054			—
Net cash used in investing activities		(80,652	)		(46,669	)
Cash flows from financing activities:
Proceeds from borrowings		70,000			36,597
Repayments of borrowings		(11,193	)		(38,165	)
Common stock exchanged and cancelled		(324	)		—
Issuance of common stock, net of offering costs of $2.7 million		—			47,125
Deferred financing costs		(1,168	)		(78	)
Net cash provided by financing activities		57,315			45,479
Net increase in cash and cash equivalents		847			545
Cash at beginning of period		10,200			23,264
Cash at end of period	$	11,047		$	23,809
Supplemental disclosure of cash flow information
Cash paid for:
Interest	$	1,555		$	688
Non-cash investing and financing activities:
Class B Common stock issued in Bold Contribution Agreement	$	489,842		$	—
Class A Common stock issued in Bold Contribution Agreement	$	2,037		$	—
Common stock issued in Lynden Arrangement	$	—		$	45,699
Accrued capital expenditures	$	19,519		$	8,938
Asset retirement obligations	$	83		$	101
Promissory Note	$	—		$	5,059


	Issued Shares
	Series A Convertible Preferred Stock	Class A Common Stock	Class B Common Stock	Series A Convertible Preferred Stock		Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Retained Earnings		Total Earthstone Energy, Inc. Equity		Noncontrolling Interest		Total Equity
At December 31, 2022	—	105,547,139	34,259,641	$	—	$	106	$	34	$	1,346,463	$	292,711	$	1,639,314	$	684,703	$	2,324,017
Stock-based compensation expense	—	—	—	—		—		—		3,844		—		3,844		—		3,844
Vesting of restricted stock units, net of taxes paid	—	756,429	—	—		—		—		—		—		—		—		—
Class A Shares retained by the Company in exchange for payment of recipient mandatory tax withholdings	—	460,473	—	—		—		—		(6,342)		—		(6,342)		—		(6,342)
Cancellation of Treasury shares	—	(460,473)	—	—		—		—		—		—		—		—		—

Net income	—	—	—	—		—		—		—		60,548		60,548		25,663		86,211
At March 31, 2023	—	106,303,568	34,259,641	—		$	106	$	34	$	1,343,965	$	353,259	$	1,697,364	710,366		$	2,407,730
Stock-based compensation expense	—	—	—	—		—		—		3,937		—		3,937		—		3,937
Vesting of restricted stock units, net of taxes paid	—	131,381	—	—		—		—		—		—		—		—		—
Class A Shares retained by the Company in exchange for payment of recipient mandatory tax withholdings	—	56,683	—	—		—		—		(799)		—		(799)		—		(799)
Cancellation of Treasury shares	—	(56,683)	—	—		—		—		—		—		—		—		—
Class B Common Stock converted to Class A Common Stock	—	2,000	(2,000)	—		—		—		43		—		43		(43)		—
Settlement of Chisholm escrow shares	—	(105,894)	—	—		—		—		(1,489)		—		(1,489)		—		(1,489)
Net income	—	—	—	—		—		—		—		58,042		58,042		24,406		82,448
At June 30, 2023	—	106,331,055	34,257,641	—		$	106	$	34	$	1,345,657	$	411,301	$	1,757,098	734,729		$	2,491,827
Stock-based compensation expense	—	—	—	—		—		—		3,912		—		3,912		—		3,912
Vesting of restricted stock units, net of taxes paid	—	112,536	—	—		—		—		—		—		—		—		—
Class A Shares retained by the Company in exchange for payment of recipient mandatory tax withholdings	—	48,870	—	—		—		—		(989)		—		(989)		—		(989)
Cancellation of Treasury shares	—	(48,870)	—	—		—		—		—		—		—		—		—


Net income	—	—	—	—		—		—		—		61,358		61,358		25,793		87,151
At September 30, 2023	—	106,443,591	34,257,641	$	—	$	106	$	34	$	1,348,580	$	472,659	$	1,821,379	760,522		$	2,581,901

Consideration:
Shares of Class A Common Stock issued pursuant to the Bold Contribution Agreement to certain employees of Bold		150,000
EEH Units issued to Bold Holdings		36,070,828

Total equity interest issued in the Bold Transaction		36,220,828
Closing per share price of Class A Common Stock as of May 9, 2017	$	13.58

Total consideration transferred ⁽¹⁾⁽²⁾	$	491,879

Fair value of assets acquired:
Cash and cash equivalents	$	2,355
Other current assets		10,078
Oil and gas properties ⁽³⁾		557,704
Amount attributable to assets acquired	$	570,137

Fair value of liabilities assumed:
Long-term debt ⁽⁴⁾	$	58,000
Current liabilities		17,042
Deferred tax liability		2,857
Noncurrent asset retirement obligations		359
Amount attributable to liabilities assumed	$	78,258


	Costless Collars
Period	Commodity	Volume (Bbls / MMBtu)	Bought Floor ($/Bbl / $/MMBtu)	Sold Ceiling ($/Bbl / $/MMBtu)
Q4 2023	Crude Oil Costless Collar	1,122,400	$62.58	$84.84
Q1 - Q4 2024	Crude Oil Costless Collar	732,000	$60.00	$76.01
Q4 2023	Natural Gas Costless Collar	7,090,400	$3.00	$4.91
Q1 - Q4 2024	Natural Gas Costless Collar	14,640,000	$2.56	$4.51


Derivatives not designated as hedging contracts under ASC Topic 815			Three Months Ended September 30,				Nine Months Ended September 30,
	Statement of Cash Flows Location	Statement of Operations Location	2023		2022		2023		2022
Unrealized (loss) gain	Not separately presented	Not separately presented	$	(22,996)	$	119,209	$	(82,326)	$	28,607
Realized loss	Operating portion of net cash paid in settlement of derivative contracts	Not separately presented	(22,051)		(58,923)		(29,494)		(169,708)
	Total (loss) gain on derivative contracts, net	(Loss) gain on derivative contracts, net	$	(45,047)	$	60,286	$	(111,820)	$	(141,101)


Consideration:
Cash consideration	$	936,929
Direct transaction costs	10,038
Total consideration transferred	$	946,967

Assets acquired:
Cash	$	15,053
Current assets	78,806
Oil and gas properties	983,842
Other noncurrent assets	5,908
Amount attributable to assets acquired	$	1,083,609

Liabilities assumed:
Current liabilities	$	113,895
Asset retirement obligations	1,844
Other noncurrent liabilities	20,903
Amount attributable to liabilities assumed	$	136,642


Consideration:
Shares of Class A Common Stock issued	3,857,015
Class A Common Stock price as of August 10, 2022	$	13.89
Class A Common Stock consideration	53,574
Cash consideration	568,184
Direct transaction costs	1,202
Total consideration transferred	$	622,960

Assets acquired:
Oil and gas properties	$	626,727
Amount attributable to assets acquired	$	626,727

Liabilities assumed:
Current liabilities	$	2,853
Noncurrent liabilities - ARO	914
Amount attributable to liabilities assumed	$	3,767

	Shares			Weighted-Average Grant Date Fair Value
Unvested RSUs at December 31, 2016		781,500		$	12.53
Granted		254,500		$	11.67
Forfeited		(36,000	)	$	13.30
Vested		(594,380	)	$	12.45
Unvested RSUs at September 30, 2017		405,620		$	12.03


Consideration:
Shares of Class A Common Stock issued	5,650,977
Class A Common Stock price as of April 14, 2022	$	13.76
Class A Common Stock consideration	77,757
Cash consideration	625,887
Direct transaction costs	2,397
Total consideration transferred	$	706,041

Assets acquired:
Current assets	$	769
Oil and gas properties	746,211
Amount attributable to assets acquired	$	746,980

Liabilities assumed:
Suspense payable	$	25,710
Other current liabilities	2,035
Noncurrent liabilities - ARO	13,194
Amount attributable to liabilities assumed	$	40,939


Consideration:
Shares of Class A Common Stock issued	19,311,582
Class A Common Stock price as of February 15, 2022	$	12.85
Class A Common Stock consideration	248,154
Cash consideration	383,877

Total consideration transferred	$	632,031

Fair value of assets acquired:
Oil and gas properties	$	642,391
Amount attributable to assets acquired	$	642,391

Fair value of liabilities assumed:
Other current liabilities	$	4,389
Asset retirement obligation - noncurrent	5,971
Amount attributable to liabilities assumed	$	10,360

Total consideration transferred ⁽¹⁾	$	491,879
Change to Additional paid-in capital to reflect the noncontrolling interest within equity at their membership interest		(12,872	)
Portion of equity attributable to noncontrolling interest ⁽²⁾	$	479,007


	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
Development costs	$	186,078	$	561,164
Leasehold costs	5,633		7,259
Total capital expenditures	$	191,711	$	568,423

	2017
As of December 31, 2016	$	—
Noncontrolling interest recorded within equity in connection with the closing of the Bold Transaction		479,007
Net loss attributable to noncontrolling interest		(35,392	)
As of September 30, 2017	$	443,615


	Shares	Weighted-Average Grant Date Fair Value
Unvested RSUs at December 31, 2022	869,978	$	11.40
Granted	426,655	$	13.38
Forfeited	(25,526)	$	12.22
Vested	(522,572)	$	11.00
Unvested RSUs at September 30, 2023	748,535	$	12.78


	Shares	Weighted-Average Grant Date Fair Value
Unvested Performance Units at December 31, 2022	2,616,085	$	10.21
Granted	559,325	$	18.86

Vested	(1,043,800)	$	5.36
Unvested Performance Units at September 30, 2023	2,131,610	$	14.85


Earthstone’s Annualized TSR			TSR Multiplier
23.9% or greater			2.0
14.5%			1.0
8.4%			0.5
Less than 8.4%			0.0


	September 30, 2023		December 31, 2022
Revolving credit facility	$	700,383	$	270,136
Term loan under credit facility due 2027	—		250,000
8.000% Senior notes due 2027	550,000		550,000
9.875% Senior notes due 2031	500,000		—
	1,750,383		1,070,136
Unamortized debt issuance costs on term loan	—		(5,309)
Unamortized debt issuance costs on 8.000% Senior notes	(9,016)		(10,948)
Original issue discount on 9.875% Senior notes	(9,956)		—
Unamortized debt issuance costs on 9.875% Senior notes	(9,345)		—
Long-term debt, net	$	1,722,066	$	1,053,879


	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
Drilling and completions	$	186,078	$	561,164
Leasehold costs	5,633		7,259
Total capital expenditures	$	191,711	$	568,423


	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Programs
July 2023	—	$	—	—	—
August 2023	—	—		—	—
September 2023	48,870	$	20.24	—	—