UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (BASIS OF PRESENTATION DESCRIBED IN NOTE 1)


Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(BASIS OF PRESENTATION DESCRIBED IN NOTE 1)

On June 14, 2023, Earthstone Energy Holdings, LLC (“EEH”), a subsidiary of Earthstone Energy, Inc. (“Earthstone”), entered into (i) a Securities Purchase Agreement (the “Agreement”) with Novo Oil & Gas Legacy Holdings, LLC, Novo Intermediate, LLC and Novo Oil & Gas Holdings, LLC (“Novo”), pursuant to which EEH will acquire 100% of the issued and outstanding equity interests of Novo (the “Novo Acquisition”) and (ii) an Acquisition and Cooperation Agreement with Northern Oil and Gas, Inc. (“NOG”), pursuant to which NOG has agreed to acquire, immediately after the closing of the Acquisition, an undivided one-third interest in Novo’s oil and gas and related assets acquired in the Novo Acquisition for $0.5 billion, resulting in a $1.0 billion purchase price net to Earthstone for the retained two-thirds interest acquired pursuant to the Purchase Agreement (together with the Novo Acquisition, the “Novo Transactions”). The effective date of the Novo Transactions is May 1, 2023. Consideration at closing will be subject to customary purchase price adjustments.

Earthstone is in the process of evaluating the accounting treatment of the Novo Acquisition. For the purposes of the unaudited pro forma condensed combined financial statements presented herein, Earthstone is assuming the Novo Acquisition will be accounted for as an asset acquisition. The fair value of the consideration paid by us and allocation of that amount to the underlying assets acquired and liabilities assumed, on a relative fair value basis, will be recorded on our books as of the date of the closing of the Novo Acquisition. Additionally, costs directly related to the Novo Acquisition will be capitalized as a component of the purchase price.

As previously disclosed in its Current Report on Form 8-K filed on August 11, 2022 with the SEC, on August 10, 2022, EEH completed the acquisition of the assets of Xxxxx Oil & Gas Production, LLC, Xxxxx Oil & Gas Corporation, Lenox Minerals, LLC, Lenox Mineral Title Holdings, Inc., Xxxxx Oil & Gas Production II, LLC, Lenox Minerals II, LLC, and Lenox Mineral Holdings II, LLC (the “Xxxxx Acquisition”). At the closing of the Xxxxx Acquisition, among other things, EEH acquired interests in oil and gas leases and related property located in the Delaware Basin, New Mexico, for a purchase price of approximately $568.5 million in cash, net of customary purchase price adjustments and an aggregate 3,857,015 shares of Class A common stock, par value $0.001 per share, of Earthstone (“Class A Common Stock”).

The Xxxxx Acquisition was accounted for as an asset acquisition in accordance with ASC 805. The fair value of the consideration paid by us and allocation of that amount to the underlying assets acquired, on a relative fair value basis, is recorded on our books as of the date of the closing of the Xxxxx Xxxxxxxxxxx. Additionally, costs directly related to the Xxxxx Acquisition are capitalized as a component of the purchase price. The operating results of Xxxxx are consolidated in our financial statements beginning on the date of the closing of the Xxxxx Acquisition. The unaudited pro forma condensed combined financial statements presented herein have been prepared to reflect the transaction accounting adjustments to Earthstone’s historical condensed consolidated financial information in order to account for the Xxxxx Xxxxxxxxxxx and include the assumption of liabilities for acquisition-related expenses and the recognition of the estimated tax impact of the pro forma adjustments.

As previously disclosed in its Current Report on Form 8-K filed on April 18, 2022 with the SEC, on April 14, 2022, EEH completed the acquisition of the assets of Bighorn Asset Company, LLC (the “Bighorn Acquisition”). At the closing of the Bighorn Acquisition, among other things, EEH acquired interests in oil and gas leases and related property of Bighorn located in the Midland Basin, Texas, for a purchase price of approximately $628.2 million in cash, net of preliminary and customary purchase price adjustments, and 5,650,977 shares of Class A Common Stock.

Also, as previously disclosed in its Current Report on Form 8-K filed on April 18, 2022 with the SEC, on April 14, 2022, Earthstone, EnCap Energy Capital Fund XI, L.P. (“EnCap Fund XI”), an affiliate of EnCap Investments L.P., and Cypress

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Investments, LLC (“Cypress” and collectively with EnCap Fund XI, the “Investors”), a fund managed by Post Oak Energy Capital, L.P., consummated the sale and issuance of 280,000 shares of newly authorized Series A convertible preferred stock, par value $0.001 per share, of Earthstone (the “Preferred Stock”), pursuant to that certain Securities Purchase Agreement dated as of January 30, 2022, by and among Earthstone and the Investors (the “SPA”) that was previously reported on Form 8-K filed on February 2, 2022 with the SEC. At the closing of the SPA, Earthstone issued 280,000 shares of Preferred Stock in exchange for cash proceeds, net of offering costs, of $278.7 million. On July 6, 2022, the Series A Preferred Stock automatically converted into 25,225,225 shares of Class A Common Stock.

The Bighorn Acquisition was accounted for as an asset acquisition in accordance with ASC 805. The fair value of the consideration paid by us and allocation of that amount to the underlying assets acquired, on a relative fair value basis, is recorded on our books as of the date of the closing of the Bighorn Acquisition. Additionally, costs directly related to the Bighorn Acquisition are capitalized as a component of the purchase price. The operating results of Bighorn are consolidated in our financial statements beginning on the date of the closing of the Bighorn Acquisition. The unaudited pro forma condensed combined financial statements presented herein have been prepared to reflect the transaction accounting adjustments to Earthstone’s historical condensed consolidated financial information in order to account for the Bighorn Acquisition and include the assumption of liabilities for acquisition-related expenses and the recognition of the estimated tax impact of the pro forma adjustments.

As previously disclosed in its Current Report on Form 8-K filed on February 18, 2022 with the SEC, on February 15, 2022, EEH completed the acquisition of the assets of Xxxxxxxx Energy Holdings, LLC (the “Xxxxxxxx Acquisition”). At the closing of the Xxxxxxxx Acquisition, among other things, EEH acquired interests in oil and gas leases and related property of Xxxxxxxx located in Lea County and Eddy County, New Mexico, for a purchase price consisting of approximately $383.8 million in cash, net of preliminary and customary purchase price adjustments, and 19,311,582 shares of Class A Common Stock.

The Xxxxxxxx Acquisition was accounted for as a business combination in accordance with ASC 805 using the acquisition method of accounting, with Earthstone identified as the acquirer. The unaudited pro forma condensed combined financial statements presented herein have been prepared to reflect the transaction accounting adjustments to Earthstone’s historical condensed consolidated financial information in order to account for the Xxxxxxxx Acquisition and include the assumption of liabilities for acquisition-related expenses and the recognition of the estimated tax impact of the pro forma adjustments.

The unaudited pro forma condensed combined balance sheet as of March 31, 2023 gives effect to the Novo Transactions as if they had been completed on March 31, 2023. The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2023 gives effect to the Xxxxxxxx Acquisition, Bighorn Acquisition and Novo Transactions (collectively, the “Acquisitions”) as if they had been completed on January 1, 2022. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 gives effect to the Acquisitions as if they had been completed on January 1, 2022. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined balance sheet does not purport to represent what Earthstone’s financial position would have been had the Novo Transactions actually been consummated on March 31, 2023. The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2023 does not purport to represent what Earthstone’s results of operations would have been had the Acquisitions been consummated on January 1, 2022. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 does not purport to represent what Earthstone’s results of operations would have been had the Acquisitions been consummated on January 1, 2022. The unaudited pro forma condensed combined financial information may not be indicative of Earthstone’s future financial position or results of operations and does not reflect future events that may occur after the Acquisitions, including, but not limited to, the anticipated realization of ongoing savings from operating efficiencies, or offsetting unforeseen incremental costs.

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The unaudited pro forma condensed combined balance sheet as of March 31, 2023 has been derived from and should be read in conjunction with:

•    the unaudited historical condensed consolidated balance sheet of Earthstone as of March 31, 2023 included in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023.
•    the unaudited historical combined consolidated balance sheet of Novo Oil & Gas Holdings, LLC as of March 31, 2023 included in this report.
The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2023 has been derived from:

•    the unaudited historical condensed consolidated statement of operations of Earthstone for the three months ended March 31, 2023 included in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023;
•    the unaudited historical consolidated statement of operations of Novo Oil & Gas Holdings, LLC for the three months ended March 31, 2023 included in this report;

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 has been derived from:

•    the historical consolidated statement of operations of Earthstone for the year ended December 31, 2022 included in its Annual Report on Form 10-K for year ended December 31, 2022;
•    the historical combined consolidated statement of operations of Novo Oil & Gas Holdings, LLC for the year ended December 31, 2022 included in this report;
•    the unaudited statement of revenues and direct operating expenses of the Xxxxx Properties for the six months ended June 30, 2022 (incorporated by reference from Exhibit 99.2 to Earthstone’s Current Report on Form 8-K/A filed with the SEC on September 30, 2022);
•    the unaudited statement of revenues and direct operating expenses of the Xxxxx Properties for the period July 1, 2022 through August 10, 2022, based on the allocated number of days from the entire period’s results;
•    the unaudited historical condensed consolidated statement of operations of Bighorn Permian Resources, LLC for the three months ended March 31, 2022 (incorporated by reference from Exhibit 99.2 to Earthstone’s Current Report on Form 8-K/A filed with the SEC on June 22, 2022);

•    the unaudited historical condensed consolidated statement of operations of Bighorn Permian Resources, LLC for the period April 1, 2022 through April 14, 2022, based on the allocated number of days from the entire period’s results; and
•    the unaudited historical condensed consolidated statement of operations of Xxxxxxxx Energy Holdings, LLC for the period January 1, 2022 through February 15, 2022, based on the allocated number of days from the entire period’s results);


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EARTHSTONE ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2023
(In thousands, except share and per share amounts)
ASSETSEarthstone HistoricalNovo HistoricalUnacquired Portion of NovoNovo Portion Sold to NOGTransaction Accounting AdjustmentsEarthstone
Pro Forma
Combined
Current assets:(n)
Cash$— $24,679 $— $500,000 $(500,000)(a)$24,679 
Accounts receivable161,151 69,773 (14,021)— — 216,903 
Derivative asset14,444 36,157 (36,157)— — 14,444 
Prepaid expenses and other current assets24,658 1,348 (1,293)— — 24,713 
Total current assets200,253 131,957 (51,471)500,000 (500,000)280,739 
Oil and gas properties, successful efforts method:
Proved properties4,195,206 1,172,432 (58,576)(500,000)393,040 (b)5,202,102 
Unproved properties282,228 56,688 (21,814)— (14,874)(b)302,228 
Land (surface rights)5,482 — — — — 5,482 
Total oil and gas properties4,482,916 1,229,120 (80,390)(500,000)378,166 5,509,812 
Accumulated depreciation, depletion, amortization and impairment(729,318)(248,386)28,014 — 220,372 (b)(729,318)
Net oil and gas properties3,753,598 980,734 (52,376)(500,000)598,538 4,780,494 
Other noncurrent assets:
Office and other equipment, net of accumulated depreciation5,571 251 (235)— — 5,587 
Derivative asset73 3,592 (3,592)— — 73 
Operating lease right-of-use assets6,573 86 (86)— — 6,573 
Other noncurrent assets17,407 3,183 (3,038)— 1,266 (c)18,818 
TOTAL ASSETS$3,983,475 $1,119,803 $(110,798)$— $99,804 $5,092,284 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$40,148 $42,168 $(11)$— $12,744 (d)96,315 
1,266 (c)
Revenues and royalties payable194,900 44,153 — — — 239,053 
Accrued expenses123,704 7,178 (1,287)— — 129,595 
Asset retirement obligation881 — — — — 881 
Derivative liability3,864 — — — — 3,864 

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Advances8,242 7 — — — 8,249 
Operating lease liabilities890 86 (86)— — 890 
Finance lease liabilities880 — — — 880 
Other current liabilities11,447 2,333 — — — 13,780 
Current portion of long-term debt— — — 
Total current liabilities384,956 95,925 (1,384)— 14,010 493,507 
Noncurrent liabilities:
Long-term debt, net991,855 310,000 (310,000)— 988,445 (e)1,967,556 
(12,744)(d)
Deferred tax liability156,937 — — — — 156,937 
Asset retirement obligation29,941 2,779 — — — 32,720 
Deferred revenues— 21,778 — — — 21,778 
Derivative liability3,698 3,392 (3,392)— — 3,698 
Operating lease liabilities3,758 — — — — 3,758 
Finance lease liabilities865 — — — — 865 
Other noncurrent liabilities3,735 — — — — 3,735 
Total noncurrent liabilities1,190,789 337,949 (313,392)— 975,701 2,191,047 
Equity:
Members' Equity— 685,929 203,978 — (889,907)(f)— 
Preferred stock— — — — — — 
Class A common stock106 — — — — 106 
Class B common stock34 — — — — 34 
Additional paid-in capital1,343,965 — — — — 1,343,965 
Retained earnings353,259 — — — — 353,259 
Total Earthstone Energy, Inc. stockholders’ equity1,697,364 685,929 203,978 — (889,907)1,697,364 
Noncontrolling interest710,366 — — — — 710,366 
Total equity2,407,730 685,929 203,978 — (889,907)2,407,730 
TOTAL LIABILITIES AND EQUITY$3,983,475 $1,119,803 $(110,798)$— $99,804 $5,092,284 

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EARTHSTONE ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2023
(In thousands, except share and per share amounts)

Earthstone HistoricalNovo HistoricalUnacquired Portion of NovoNovo Portion Sold to NOG Transaction Accounting Adjustments Earthstone
Pro Forma
Combined
REVENUES(n)
Oil and natural gas revenues$413,136 $177,519 $(19,663)$(52,619)$— $518,373 
Total revenues413,136 177,519 (19,663)(52,619)— 518,373 
OPERATING COSTS AND EXPENSES
Lease operating expense 87,978 21,490 8,813 (10,101)— 108,180 
Production and ad valorem taxes33,153 13,029 (2,021)(3,669)— 40,492 
Depreciation, depletion, amortization and accretion111,379 36,412 (19,935)(5,492)20,230 (g)142,594 
General and administrative expense 17,579 1,723 (162)— — 19,140 
Transaction costs193 — — — (15)(h)178 
Exploration expense466 61 (61)— — 466 
Total operating costs and expenses250,748 72,715 (13,366)(19,262)20,215 311,050 
Loss on sale of oil and gas properties(3,140)— — — — (3,140)
Income from operations159,248 104,804 (6,297)(33,357)(20,215)204,183 
OTHER INCOME (EXPENSE)
Interest expense, net (22,856)(5,692)5,692 — (21,573)(i)(45,352)
(923)(j)
Write-off deferred financing costs(5,109)— — — 752 (k)(4,357)
(Loss) gain on derivative contracts, net(26,464)31,934 (31,934)— — (26,464)
Gain (loss) on disposal of asset— 8 (8)— — — 
Deferred midstream revenue— 583 — — — 583 
Other income (expense), net (7)76 (4)— — 65 
Total other income (expense)(54,436)26,909 (26,254)— (21,744)(75,525)
Income (loss) before income taxes104,812 131,713 (32,551)(33,357)(41,959)128,658 
Income tax (expense) benefit(18,601)(71)— 24 (5,948)(l)(24,596)

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Net income (loss)$86,211 $131,642 $(32,551)$(33,333)$(47,907)$104,062 
Less: Net income (loss) attributable to noncontrolling interests25,663 — — — (240)(m)25,423 
Net income (loss) attributable to Earthstone Energy, Inc. common stockholders$60,548 $131,642 $(32,551)$(33,333)$(47,667)$78,639 
Net income per common share:
Basic$0.57 $0.74 
Diluted$0.56 $0.73 
Weighted average common shares outstanding:
Basic105,972,734 105,972,734 
Diluted107,525,017 107,525,017 




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EARTHSTONE ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2022
(In thousands, except share and per share amounts)

Earthstone HistoricalXxxxxxxx Historical
(1/1/22 - 2/15/22)		Bighorn Historical
(1/1/22 - 4/14/22)		Xxxxx
Historical
(1/1/22 - 8/10/22)		Novo HistoricalUnacquired Portion of NovoNovo Portion Sold to NOG Transaction Accounting Adjustments Earthstone
Pro Forma
Combined
REVENUES(n)
Oil and natural gas revenues$1,695,154 $36,005 $190,951 $500,046 $663,540 $(71,773)$(197,256)$— $2,816,667 
Total revenues1,695,154 36,005 190,951 500,046 663,540 (71,773)(197,256)— 2,816,667 
OPERATING COSTS AND EXPENSES
Lease operating expense 230,515 5,503 29,956 35,094 45,326 20,477 (21,934)— 344,937 
Production and ad valorem taxes123,054 2,948 12,521 37,210 48,969 (7,574)(13,798)— 203,330 
Depreciation, depletion, amortization and accretion304,465 7,140 16,769 104,021 102,851 (4,889)(32,654)17,245 (g)514,948 
General and administrative expense 74,175 — 7,441 — 8,641 (818)— — 89,439 
Transaction costs8,248 — — — — — — 1,070 (h)9,318 
Exploration expense2,492 — — — 808 (282)— — 3,018 
Total operating costs and expenses742,949 15,591 66,687 176,325 206,595 6,914 (68,386)18,315 1,164,990 
Gain (loss) on sale of oil and gas properties13,900 — — — (60)136 — — 13,976 
Income (loss) from operations966,105 20,414 124,264 323,721 456,885 (78,551)(128,870)(18,315)1,665,653 
OTHER INCOME (EXPENSE)
Interest expense, net (66,821)— (1,597)— (8,791)8,792 — (102,512)(i)(175,638)
(4,709)(j)
(Loss) gain on derivative contracts, net(125,107)— (63,874)— (10,325)10,325 — — (188,981)
Deferred midstream revenue— — — — 2,333 — — — 2,333 
Other income (expense), net 856 — 57 — 331 88 — — 1,332 
Total other income (expense)(191,072)— (65,414)— (16,452)19,205 — (107,221)(360,954)
Income (loss) before income taxes775,033 20,414 58,850 323,721 440,433 (59,346)(128,870)(125,536)1,304,699 
Income tax (expense) benefit(124,416)— (959)— (403)52 117 (96,106)(l)(221,715)
Net income (loss)$650,617 $20,414 $57,891 $323,721 $440,030 $(59,294)$(128,753)$(221,642)$1,082,984 

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Less: Net income attributable to noncontrolling interests198,132 — — — — — — 74,689 (m)272,821 
Net income (loss) attributable to Earthstone Energy, Inc. common stockholders$452,485 $20,414 $57,891 $323,721 $440,030 $(59,294)$(128,753)$(296,331)$810,163 
Net income per common share:
Basic$5.12 $7.96 
Diluted$4.83 $7.39 
Weighted average common shares outstanding:
Basic88,349,088 13,442,289 101,791,377 
Diluted96,328,217 13,373,179 109,701,396 




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EARTHSTONE ENERGY, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 1. Basis of Presentation

The accompanying unaudited pro forma condensed combined financial statements (the “Pro Forma Financial Statements”) were prepared in accordance with Article 11 of Regulation S-X, as amended by SEC Final Rule Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and based on the historical consolidated and combined financial information of Earthstone, Xxxxxxxx, Bighorn, Xxxxx and Novo. The Novo Acquisition has been accounted for as an asset acquisition in accordance with ASC 805. The fair value of the consideration paid by us and allocation of that amount to the underlying assets acquired, on a relative fair value basis, is recorded on our books as of the date of the closing of the Novo Acquisition. Additionally, costs directly related to the Novo Acquisition are capitalized as a component of the purchase price.

Presented in the Pro Forma Financial Statements are the combined impact of the Xxxxxxxx Acquisition, Bighorn Acquisition, Xxxxx Acquisition and Novo Transactions (the “Acquisitions”). The Bighorn Acquisition, Xxxxx Acquisition and Novo Acquisition were accounted for as asset acquisitions in accordance with ASC 805 and the Xxxxxxxx Acquisition was accounted for as a business combination in accordance with ASC 805. Certain transaction accounting adjustments have been made in order to show the effects of the Acquisitions in the Pro Forma Financial Statements. The accounting adjustments related to the Novo Acquisition are preliminary and based on estimates of the purchase consideration and estimates of fair value and useful lives of the assets to be acquired and liabilities to be assumed.

The accounting adjustments are described in the accompanying notes and are based on available information and certain assumptions that Earthstone believes are reasonable; however, actual results may differ from those reflected in these statements. The Pro Forma Financial Statements do not purport to represent what Earthstone’s financial position or results of operations would have been if the Acquisitions had occurred on the dates described in the Pro Forma Financial Statements, and they may not be indicative of Earthstone’s future financial position or results of operations. Certain information normally included in financial statements and the accompanying notes has been condensed or omitted. The Pro Forma Financial Statements should be read in conjunction with the historical financial statements and related notes of Earthstone, Xxxxxxxx, Bighorn, Xxxxx and Novo for the periods presented.

The pro forma condensed combined balance sheet as of March 31, 2023 gives effect to the Novo Transactions as if they had been completed on March 31, 2023. The pro forma condensed combined statement of operations for the three months ended March 31, 2023 gives effect to the Acquisitions as if they had been completed on January 1, 2022. The pro forma condensed combined statement of operations for the year ended December 31, 2022 gives effect to the Acquisitions as if they had been completed on January 1, 2022.

Note 2. Accounting Policies and Presentation

The unaudited pro forma condensed combined balance sheet as of March 31, 2023 and the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2023 and the year ended December 31, 2022 have been compiled in a manner consistent with the accounting policies adopted by Earthstone. Certain reclassifications and adjustments have been made to the historical financial information of Xxxxxxxx, Bighorn, Xxxxx and Xxxx presented herein to conform to Earthstone’s historical presentation.


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Note 3. Preliminary Purchase Price Allocation

The preliminary allocation of the total purchase price in the Novo Acquisition, on a relative fair value basis, is based upon management’s estimates of and assumptions related to the fair value of assets to be acquired and liabilities to be assumed as of the closing date of the transaction using currently available information. Because the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included herein.

The preliminary purchase price allocation is subject to change due to several factors, including but not limited to changes in the estimated fair value of assets acquired and liabilities assumed as of the closing date of the transaction, which could result from changes in future oil and natural gas commodity prices, reserve estimates, interest rates, as well as other factors.

The consideration transferred, assets acquired and liabilities assumed by Earthstone are expected to be initially recorded as follows (in thousands, except share amounts and stock price):
Consideration:
Cash consideration (1)
$985,945 
Direct transaction costs (2)
2,500 
Total consideration transferred$988,445 
Assets acquired:
Cash$24,679 
Accounts receivable - Oil, natural gas, and natural gas liquids revenues46,789 
Accounts receivable - Joint interest xxxxxxxx and other, net of allowance8,963 
Prepaid expenses and other current assets55 
Oil and gas properties1,026,896 
Office and other equipment, net16 
Other noncurrent assets145 
Amount attributable to assets acquired$1,107,543 
Liabilities assumed:
Accounts payable$42,157 
Revenues and royalties payable44,153 
Accrued expenses5,891 
Advances7 
Other current liabilities2,333 
Asset retirement obligation, noncurrent2,779 
Deferred revenues, noncurrent21,778 
Amount attributable to liabilities assumed$119,098 
(1)Includes preliminary customary purchase price adjustments.
(2)Represents $2.5 million of estimated transaction costs associated with the Novo Acquisition which have been capitalized in accordance with ASC 805-50.

The consideration will be allocated to the assets acquired and liabilities assumed on a relative fair value basis. The fair value measurements of assets acquired and liabilities assumed, on a relative fair value basis, are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair value of oil and gas properties and asset retirement obligations were measured using the discounted cash flow technique of valuation.


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Significant inputs to the valuation of oil and gas properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, (iv) future plugging and abandonment costs, (v) estimated future cash flows, and (vi) a market-based weighted average cost of capital rate. These inputs require significant judgments and estimates and are the most sensitive and subject to change.

Note 4. Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet and Unaudited Pro Forma Condensed Combined Statements of Operations

The following adjustments were made in the preparation of the unaudited pro forma condensed combined balance sheet as of March 31, 2023 and the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2023 and for the year ended December 31, 2022:

a)Represents cash consideration received from Northern and used to partially fund the Novo Acquisition.
b)Adjustment to reflect the Novo assets acquired, on a relative fair value basis.
c)Adjustment to reflect deferred financing costs related to Earthstone's revolving credit facility to be recorded in connection with the Novo Acquisition, net of amortization.
d)Adjustment to reflect deferred financing costs related to high yield notes payable to be recorded related to the Novo Acquisition.
e)Adjustment to reflect new borrowings related to the cash consideration used in the Acquisitions.
f)Adjustment to reflect the elimination of the Members’ Equity of Novo.
g)Adjustments to reflect the depreciation, depletion and amortization expense that would have been recorded had the Acquisitions occurred on January 1, 2022 and the properties were adjusted in accordance with ASC 805.
h)Represents nonrecurring transaction costs related to the Acquisitions that were incurred, or are expected to be incurred, by Earthstone in 2023 that are assumed to be incurred on January 1, 2022, including advisory, legal, regulatory, accounting, valuation and other professional fees that are not capitalized as part of the Acquisitions.
i)Adjustments to reflect the estimated interest expense that would have been recorded in the periods presented with respect to the incremental borrowings expected to finance the cash consideration for the Acquisitions.
j)Adjustments to reflect the amortization of deferred financing costs related to the financing of the Acquisitions.
k)Adjustment to reduce the write-off of deferred financing costs based on additional amortization that would have occurred had the Acquisitions taken place on January 1, 2022.
l)Adjustments to reflect the estimated incremental Income tax expense that would have been recorded in the period presented if the Acquisitions had occurred on January 1, 2022. The income tax rates used in calculating the tax impact of the adjustments recorded to the pro forma condensed combined statements of operations presented herein included a statutory federal income tax rate of 21%, a statutory Texas Margin tax rate of 0.75%, and a statutory New Mexico income tax rate of 5.9%, which represent the statutory rates in effect in those jurisdictions during the periods presented. The effective federal and New Mexico tax rates are less than the statutory rates as they only apply to taxable income related to the controlling interest of Earthstone.
m)Adjustments to reflect the estimated incremental Net income (loss) attributable to noncontrolling interests that would have been recorded in the period presented if the Acquisitions had occurred on January 1, 2022.
n)Adjustment to reflect the unacquired portion of Novo based on information provided by Novo.

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Note 5. Supplemental Unaudited Combined Oil and Natural Gas Reserves and Standardized Measure Information

The following table sets forth information with respect to the historical and combined estimated oil and natural gas reserves as of December 31, 2022 for Earthstone and Novo. The Earthstone reserve data presented below was derived from the independent engineering report of Xxxxxx, Xxxxxxxxx & Associates, Inc. (“CG&A”), Xxxxxxxxxx’s independent reserve engineer. The reserve information of Novo was prepared by Netherland, Xxxxxx & Associates, Inc. Future exploration, exploitation and development expenditures, as well as future commodity prices and service costs, will affect the quantity of reserve volumes. The reserve estimates shown below were determined using the average first day of the month price for each of the preceding 12 months for oil and natural gas for the year ended December 31, 2022 for Earthstone and Novo.
Earthstone (1)
Novo (2)
Combined
Estimated Proved Developed Reserves:
Oil (MBbl)88,759 12,335 101,094 
Natural Gas (MMcf)574,762 143,669 718,431 
Natural Gas Liquids (MBbl)80,168 20,944 101,112 
Total (MBoe)(3)
264,721 57,224 321,945 
Estimated Proved Undeveloped Reserves:
Oil (MBbl)49,641 8,197 57,838 
Natural Gas (MMcf)167,404 58,304 225,708 
Natural Gas Liquids (MBbl)25,673 9,694 35,367 
Total (MBoe)(3)
103,215 27,608 130,823 
Estimated Proved Reserves:
Oil (MBbl)138,400 20,532 158,932 
Natural Gas (MMcf)742,166 201,973 944,139 
Natural Gas Liquids (MBbl)105,841 30,638 136,479 
Total (MBoe)(3)
367,936 84,832 452,768 
(1) As of December 31, 2022, holders of Earthstone's Class B Common Stock owned a non-controlling indirect interest of 24.4% of the estimated proved reserves, as adjusted for the impact of the Acquisitions.
(2) Represents the retained two-thirds interest acquired in the Novo Acquisition.
(3) Assumes a ratio of 6 Mcf of natural gas per Boe.

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The following table sets forth summary information with respect to historical and combined oil and natural gas production for the year ended December 31, 2022 for Earthstone, Xxxxxxxx, Bighorn, Xxxxx and Novo. The Earthstone oil and natural gas production data presented below was derived from Earthstone’s Annual Report on Form 10-K for the year ended December 31, 2022. The Xxxxxxxx, Bighorn, Xxxxx and Novo oil and natural gas production data presented below was derived from the supplemental oil and gas reserve information (unaudited) included in notes to their audited financial statements for the year ended December 31, 2022.
Earthstone (1)
Xxxxxxxx (2)
Bighorn (3)
Xxxxx (4)
Novo (5)
Combined
Oil (MBbl)11,866 343 902 4,021 2,259 19,391 
Natural Gas (MMcf)54,392 705 10,417 6,247 18,022 89,783 
Natural Gas Liquids (MBbl)7,599 90 1,338 1,007 2,607 12,641 
Total (MBoe)(6)
28,531 551 3,976 6,069 7,870 46,997 
(1) As of December 31, 2022, holders of Earthstone's Class B Common Stock owned a non-controlling indirect interest of 24.4% of the estimated proved reserves, as adjusted for the impact of the Acquisitions.
(2) Based on the pro rata allocation of 45 days of January-February 2022 production from internal reports.
(3) Includes the pro rata allocation of 14 days of April 2022 production from internal reports.
(4) Includes the pro rata allocation of 41 days of July-August 2022 production from internal reports.
(5) Represents the retained two-thirds interest acquired in the Novo Acquisition.
(6) Assumes a ratio of 6 Mcf of natural gas per Boe.

The following unaudited combined estimated discounted future net cash flows reflect Earthstone, Xxxxxxxx, Bighorn, Xxxxx and Novo as of December 31, 2022. The unaudited combined standardized measure of discounted future net cash flows are as follows (in thousands):
Earthstone (1)
Novo (2)
Combined
Future cash inflows$21,506,026 $4,013,814 $25,519,840 
Future production costs(6,362,901)(1,258,890)(7,621,791)
Future development costs(1,207,597)(195,155)(1,402,752)
Future income tax expense(1,910,370)(4,213)(1,914,583)
Future net cash flows12,025,158 2,555,556 14,580,714 
10% annual discount for estimated timing of cash flows(5,300,657)(925,442)(6,226,099)
Standardized measure of discounted future net cash flows$6,724,501 $1,630,114 $8,354,615 
(1) As of December 31, 2022, holders of Earthstone's Class B Common Stock owned a non-controlling indirect interest of 24.4% of the estimated proved reserves, as adjusted for the impact of the Acquisitions.
(2) Represents the retained two-thirds interest acquired in the Novo Acquisition.

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Filed: June 27th, 2023
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