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 January 30, 2022, Earthstone Energy, Inc. (“Earthstone”), Earthstone Energy Holdings, LLC, a subsidiary of Earthstone (“EEH” and collectively with Earthstone, the “Company”), as buyer, and Bighorn Asset Company, LLC, a Delaware limited liability company (“Bighorn”), as seller, entered into a Purchase and Sale Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, EEH will acquire (the “Bighorn Acquisition”) interests in oil and gas leases and related property of Bighorn located in the Midland Basin, Texas, for a purchase price (the “Purchase Price”) of $770 million in cash and 6,808,511 shares (the “Shares” and such issuance, the “Stock Issuance”) of Class A common stock, $0.001 par value per share of Earthstone (the “Class A Common Stock”). The cash portion of the Purchase Price is subject to customary purchase price adjustments with an effective date of January 1, 2022. In connection with the Purchase Agreement, EEH deposited $50 million in cash into a third-party escrow account as a deposit pursuant to the Purchase Agreement, which will be credited against the purchase price upon closing of the Bighorn Acquisition. At the closing of the Bighorn Acquisition, 510,638 of the Shares (the “Escrow Shares”) will be deposited in a stock escrow account for indemnity obligations and 6,297,873 of the Shares (the “Closing Shares”) will be issued to Bighorn.

The Purchase Agreement contains customary representations and warranties for transactions of this nature. The Purchase Agreement also contains customary pre-closing covenants of the parties, including the obligation of Bighorn to conduct its business in the ordinary course consistent with past practice and to refrain from taking certain specified actions, subject to certain exceptions.

The Bighorn Acquisition is expected to close in the second quarter of 2022, subject to the satisfaction of several closing conditions, including (i) specified materiality standards, the accuracy of the applicable counterparty’s representations and warranties in the Purchase Agreement, (ii) the applicable counterparty’s performance or compliance in all material respects with the covenants contained in the Purchase Agreement, (iii) the absence of certain legal matters prohibiting the Bighorn Acquisition, (iv) each counterparty being ready to deliver specified closing deliverables, (v) the Shares being authorized for listing on the New York Stock Exchange, and (vi) the expiration of any applicable waiting period under the Xxxx-Xxxxx-Xxxxxx Improvements Act of 1976, as amended. The Purchase Agreement provides for an outside termination date of May 16, 2022 (which may be extended to July 13, 2022 in limited circumstances).

Earthstone is in the process of evaluating the accounting treatment of the Bighorn Acquisition. For the purposes of these unaudited pro forma condensed combined financial statements presented herein, Earthstone is assuming the Bighorn Acquisition will be accounted for as a business combination in accordance with Accounting Standards Codification Topic 805, Business Combinations (referred to as “ASC 805”), using the acquisition method of accounting, with Earthstone identified as the acquirer. The preliminary allocation of the total purchase price in the Bighorn Acquisition is based upon management’s estimates of and assumptions related to the fair value of assets acquired and liabilities assumed. The pro forma financial statements have been prepared to reflect the Bighorn Acquisition accounting adjustments to Earthstone’s historical condensed consolidated financial information in order to account for the Bighorn Acquisition and will 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, Earthstone completed the acquisition of the assets of Xxxxxxxx Energy Holdings, LLC (the “Xxxxxxxx Acquisition”). At the closing of the Transaction, 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 $384.7 million in cash, net of preliminary and customary purchase price adjustments and remains subject to final post-closing settlement between EEH and Xxxxxxxx, and 19,417,476 shares of Class A Common Stock. The purchase agreement related to the Xxxxxxxx Acquisition contains customary representations and warranties for transactions of this nature, as well as customary pre-closing covenants of the parties, including the obligation of Xxxxxxxx to conduct its business in the ordinary course consistent with past practice and to refrain from taking certain specified actions, subject to certain exceptions.

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 preliminary allocation of the total purchase price in the Transaction is based upon management’s estimates of and assumptions related to the fair value of assets acquired and liabilities

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assumed. The pro forma financial statements have been prepared to reflect the transaction accounting adjustments to Earthstone’s historical condensed consolidated financial information in order to account for the Transaction and will 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 January 13, 2021 with the SEC, on January 7, 2021, Earthstone completed the acquisition (the “IRM Acquisition”) of all of the issued and outstanding limited liability company interests in Independence and certain wholly owned subsidiaries as contemplated in a purchase and sale agreement dated December 17, 2020. On February 24, 2021, Earthstone filed a Current Report on Form 8-K/A for the purpose of providing unaudited pro forma condensed combined financial statements giving effect to the IRM Acquisition, as required by Item 9.01(b) of Form 8-K. The IRM Acquisition was accounted for as a business combination using the acquisition method of accounting, with Earthstone identified as the acquirer.

As previously disclosed in its Current Report on Form 8-K filed on July 23, 2021 with the SEC, on July 20, 2021, Earthstone completed the acquisition of the assets of Tracker Resource Development III, LLC and TRD III Royalty Holdings (TX), LP (the “Tracker Acquisition”) and the acquisition of the assets of SEG-TRD LLC (“SEG-I”) and SEG-TRD II LLC (the “Sequel Acquisition”) providing unaudited pro forma condensed combined financial statements giving effect to the Tracker Acquisition and the Sequel Acquisition, as required by Item 9.01(b) of Form 8-K, both of which were accounted for as asset acquisitions 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, were recorded on our books as of the date of the closing of the Tracker Acquisition and the Sequel Acquisition. Additionally, costs directly related to the Tracker Acquisition and the Sequel Acquisition were capitalized as a component of the purchase price.

The unaudited pro forma condensed combined balance sheet as of December 31, 2021 gives effect to the Xxxxxxxx Acquisition and the Bighorn Acquisition as if they had been completed on December 31, 2021. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 gives effect to the IRM Acquisition, the Tracker Acquisition, the Sequel Acquisition, the Xxxxxxxx Acquisition and the Bighorn Acquisition (collectively, the “Acquisitions”) as if they had been completed on January 1, 2021. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the pro forma condensed combined financial statements. As of the date of issuance of the unaudited pro forma condensed combined financial information, Earthstone has not completed the detailed valuation study necessary to arrive at the required final estimates of the fair value of the assets to be acquired and liabilities assumed in the Bighorn Acquisition.

The unaudited pro forma condensed combined balance sheet does not purport to represent what Earthstone’s financial position would have been had the Xxxxxxxx Acquisition and Bighorn Acquisition actually been consummated on December 31, 2021. The unaudited pro forma condensed combined statement of operations does not purport to represent what Earthstone’s results of operations would have been had the Acquisitions actually been consummated on January 1, 2021. The unaudited pro forma condensed combined financial information is not 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.

The unaudited pro forma condensed combined balance sheet as of December 31, 2021 has been derived from and should be read in conjunction with:
• the historical consolidated balance sheet of Earthstone as of December 31, 2021 included in its Annual Report on Form 10-K for year ended December 31, 2021;
• the consolidated balance sheet of Bighorn Permian Resources, LLC as of December 31, 2021 included in this Offering Memorandum; and
• the consolidated balance sheet of Xxxxxxxx Energy Holdings, LLC as of December 31, 2021 included in this Offering Memorandum.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 has been derived from:

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• the historical consolidated statement of operations of Earthstone for the year ended December 31, 2021 included in its Annual Report on Form 10-K for year ended December 31, 2021;
• the unaudited historical condensed consolidated statement of operations of Independence for the period January 1, 2021 through January 7, 2021, based on the allocated number of days from the entire month’s results;
• the historical consolidated statement of operations of Bighorn Permian Resources, LLC for the Period from February 2, 2021 to December 31, 2021 included in this Offering Memorandum;
• the historical consolidated statement of operations of Xxxxxxxx Energy Holdings, LLC for the year ended December 31, 2021 included in this Offering Memorandum;
• the unaudited historical condensed consolidated statement of operations of Tracker for the six months ended June 30, 2021 (incorporated by reference from Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on January 14, 2022);
• the unaudited historical statements of revenues and direct expenses of Sequel for the six months ended June 30, 2021 (incorporated by reference from Exhibit 99.2 to the Current Report on Form 8-K filed with the SEC on January 14, 2022);
• the unaudited historical condensed consolidated statement of operations of Tracker for the period July 1, 2021 through July 20, 2021, based on the allocated number of days from the entire month’s results; and
• the unaudited historical statements of revenues and direct expenses of Sequel for the period July 1, 2021 through July 20, 2021, based on the allocated number of days from the entire month’s results.



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EARTHSTONE ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2021
(In thousands, except share and per share amounts)

ASSETSEarthstone HistoricalXxxxxxxx Holdings HistoricalBighorn HistoricalTransaction Accounting AdjustmentsNotesEarthstone Pro Forma as Adjusted
Current assets:
Cash$4,013 $16,383 $14,996 $(31,379)(a)$4,013 
Accounts receivable:
Oil and natural gas revenues50,575 22,037 54,493 $(76,530)(a)50,575 
Joint interest xxxxxxxx and other, net of allowance2,930 14,289 6,249 $(20,538)(a)2,930 
Due from affiliates— 49 31,789 $(31,838)(a)— 
Derivative asset1,348 — — — 1,348 
Prepaid expenses and other current assets2,549 2,566 4,065 $(6,631)(a)2,549 
Total current assets61,415 55,324 111,592 (166,916)61,415 
Oil and gas properties, successful efforts method:
Proved properties1,625,367 999,887 864,612 (396,754)(b)3,093,112 
Unproved properties222,025 — — 58,433 (b)280,458 
Land (surface rights)5,382 — — — 5,382 
Total oil and gas properties1,852,774 999,887 864,612 (338,321)3,378,952 
Accumulated depreciation, depletion, amortization and impairment(395,625)(382,030)(52,950)434,980 (b)(395,625)
Net oil and gas properties1,457,149 617,857 811,662 96,659 2,983,327 
Other noncurrent assets:
Office and other equipment, net of accumulated depreciation1,986 3,305 776 (4,081)(a)1,986 
Derivative asset157 — — — 157 
Operating lease right-of-use assets1,795 — — — 1,795 
Other noncurrent assets33,865 4,000 83 (4,083)(a)9,237 
5,872 (c)
(30,500)(d)
TOTAL ASSETS$1,556,367 $680,486 $924,113 $(103,049)$3,057,917 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$31,397 $22,011 $16,450 $(38,461)(a)$51,397 

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5,872 (c)
14,128 (r)
Revenues and royalties payable36,189 16,796 — (16,796)(a)36,189 
Accrued expenses31,704 15,922 — (15,922)(a)33,558 
1,854 (i)
Asset retirement obligation395 622 — (622)(e)395 
Derivative liability45,310 24,177 65,479 (89,656)(a)45,310 
Advances4,088 — — — 4,088 
Operating lease liabilities681 — — — 681 
Other current liabilities851 — — — 851 
Total current liabilities150,615 79,528 81,929 (139,603)172,469 
Noncurrent liabilities:
Long-term debt320,000 139,539 150,802 (290,341)(f)1,151,336 
845,464 (f)
(14,128)(r)
Deferred tax liability15,731 — — — 15,731 
Asset retirement obligation15,471 8,796 27,430 (2,072)(e)49,625 
Derivative liability571 23,140 32,489 (55,629)(a)571 
Suspense payable— — 17,536 (17,536)(a)— 
Warrant liability— — 30,562 (30,562)(a)— 
Operating lease liabilities1,276 — — — 1,276 
Other noncurrent liabilities6,442 — — — 6,442 
Total noncurrent liabilities359,491 171,475 258,819 435,196 1,224,981 
Equity:
Members' Equity— 429,483 583,365 (1,012,848)(g)— 
Preferred stock— — — — (p)— 
Class A common stock53 — — 26 (h)79 
Class B common stock34 — — — 34 
Additional paid-in capital718,181 — — 335,480 (h)1,332,361 
278,700 (p)
Accumulated deficit(159,774)— — — (159,774)
Total Earthstone Energy, Inc. stockholders’ equity558,494 429,483 583,365 (398,642)1,172,700 
Noncontrolling interest487,767 — — — 487,767 
Total equity1,046,261 429,483 583,365 (398,642)1,660,467 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$1,556,367 $680,486 $924,113 $(103,049)$3,057,917 


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EARTHSTONE ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2021
(In thousands, except share and per share amounts)

Earthstone HistoricalIndependence
Historical
(1/1/21 - 1/7/21)		Tracker
Historical
(1/1/21 - 7/19/21)		Sequel
Historical
(1/1/21 - 7/19/21)		Xxxxxxxx Holdings HistoricalBighorn Historical (2/1/21 - 12/31/21) Transaction Accounting Adjustments NotesEarthstone
Pro Forma
Combined
REVENUES
Oil and natural gas revenues$419,643 $1,696 $17,365 $21,680 $216,463 $479,692 $— $1,156,539 
Unrealized loss - commodity derivatives— (1,861)— — — — 1,861 (i)— 
Total revenues419,643 (165)17,365 21,680 216,463 479,692 1,861 1,156,539 
OPERATING COSTS AND EXPENSES
Lease operating expense 49,321 423 2,341 1,970 37,858 95,403 — 187,316 
Production and ad valorem taxes26,409 135 1,063 1,652 19,088 31,648 — 79,995 
Depreciation, depletion, amortization and accretion107,432 578 4,112 — 71,148 54,347 12,907 (j)250,524 
Impairment expense— — — — 114,907 — (114,907)(o)— 
General and administrative expense 41,922 185 1,969 — 10,107 24,161 29 (i)78,373 
Equity-based compensation— 29 — — — — (29)(i)— 
Transaction costs4,875 — — — — — — 4,875 
Exploration expense341 — 100 — 50 — — 491 
Total operating costs and expenses230,300 1,350 9,585 3,622 253,158 205,559 (102,000)601,574 
Gain on sale of oil and gas properties738 — — — — — — 738 
Income (loss) from operations190,081 (1,515)7,780 18,058 (36,695)274,133 103,861 555,703 
OTHER INCOME (EXPENSE)
Interest expense, net (10,796)(127)(594)— (11,789)(9,332)(43,166)(k)(80,910)
(5,106)(l)
(Loss) gain on derivative contracts, net(116,761)— (3,069)— (78,293)(173,638)(1,861)(i)(373,622)
Other income (expense), net 841 — 1,627 — (539)(5,089)— (3,160)
Total other income (expense)(126,716)(127)(2,036)— (90,621)(188,059)(50,133)(457,692)
Income (loss) before income taxes63,365 (1,642)5,744 18,058 (127,316)86,074 53,728 98,011 
Income tax (expense) benefit(1,859)10 — — (3)(1,300)(690)(m)(3,842)

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Net income (loss)$61,506 $(1,632)$5,744 $18,058 $(127,319)$84,774 $53,038 $94,169 
Less: Net income (loss) attributable to noncontrolling interests26,022 — (44)— — — (1,899)(n)24,079 
Net income (loss) attributable to common stockholders$35,484 $(1,632)$5,788 $18,058 $(127,319)$84,774 $54,937 $70,090 
Net income per common share:
Basic$0.75 $0.71 
Diluted$0.71 $0.68 
Weighted average common shares outstanding:
Basic47,169,948 51,451,212 98,621,160 
Diluted49,952,093 53,524,518 103,476,611 




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

Note 1. Basis of Presentation

Although the accompanying pro forma condensed combined financial statements (the “Pro Forma Financial Statements”) were not 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, the methodology used to prepare these Pro Forma Financial Statements was based on the rules contemplated therein, with the exception of inclusion of the results presented in the historical consolidated statement of operations of Bighorn Permian Resources, LLC for the Period from February 2, 2021 to December 31, 2021, as opposed to the consolidated statement of operations for the year ended December 31, 2021.

The Pro Forma Financial Statements were prepared based on the historical consolidated and combined financial information of Earthstone, Independence, Tracker, Sequel, Xxxxxxxx Holdings and Bighorn. Although Earthstone is in the process of evaluating the accounting treatment of the Bighorn Acquisition, for the purposes of these Pro Forma Financial Statements, the Bighorn Acquisition has been accounted for herein as a business combination in accordance with ASC 805 using the acquisition method of accounting, with Earthstone identified as the acquirer. The preliminary allocation of the total purchase price in the Bighorn Acquisition is based upon management’s estimates of and assumptions related to the fair value of assets acquired and liabilities assumed.

The Xxxxxxxx Acquisition, completed on February 15, 2022, has been accounted for herein as a business combination in accordance with ASC 805 using the acquisition method of accounting, with Earthstone identified as the acquirer. The preliminary allocation of the total purchase price in the Bighorn Acquisition is based upon management’s estimates of and assumptions related to the fair value of assets acquired and liabilities assumed.

Certain transaction accounting adjustments have been made in order to show the effects of the Bighorn Acquisition on the combined historical financial information of Earthstone, Independence, Tracker, Sequel, Xxxxxxxx Holdings and Bighorn. The Bighorn Acquisition accounting adjustments are preliminary and based on estimates of the purchase consideration and estimates of fair value and useful lives of the assets acquired and liabilities assumed.

The Bighorn Acquisition 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 unaudited pro forma condensed combined statements do not purport to represent what Earthstone’s financial position or results of operations would have been if the Bighorn Acquisition had occurred on the dates indicated above, nor are they 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. These unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements and related notes of Earthstone, Independence, Tracker, Sequel, Xxxxxxxx Holdings and Bighorn for the periods presented.

The pro forma condensed combined balance sheet as of December 31, 2021 gives effect to the Xxxxxxxx Acquisition and the Bighorn Acquisition as if they had been completed on December 31, 2021. The pro forma condensed combined statement of operations for the year ended December 31, 2021 gives effect to the Acquisitions as if they had been completed on January 1, 2021.

Note 2. Accounting Policies and Presentation

The unaudited pro forma condensed combined balance sheet as of December 31, 2021 and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 and the year ended December 31, 2020 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 Independence, Tracker, Sequel, Xxxxxxxx Holdings and Bighorn 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 Transaction 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 December 31, 2021 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.

For the Xxxxxxxx Acquisition, the consideration transferred, fair value of assets acquired and liabilities assumed by Earthstone were initially recorded as follows (in thousands, except share amounts and stock price):
Xxxxxxxx
Consideration:
Shares of Earthstone Class A Common Stock issued19,417,476 
Earthstone Class A Common Stock price as of February 15, 2022$12.85 
Class A Common Stock consideration249,515 
Cash consideration384,664 
Total consideration transferred$634,179 
Fair value of assets acquired:
Oil and gas properties$642,757 
Amount attributable to assets acquired$642,757 
Fair value of liabilities assumed:
Accrued liabilities1,854 
Noncurrent liabilities - ARO6,724 
Amount attributable to liabilities assumed$8,578 
Total consideration was based on the terms of the Purchase Agreement. The consideration paid by Earthstone at closing consisted of 19,417,476 shares of Class A Common Stock and $384.7 million in cash due at closing.


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For the Bighorn Acquisition, the consideration transferred, fair value of assets acquired and liabilities assumed by Earthstone are expected to be recorded as follows (in thousands, except share amounts and stock price):
Bighorn
Consideration:
Shares of Earthstone Class A Common Stock issued6,808,511 
Earthstone Class A Common Stock price as of March 31, 2022$12.63 
Class A Common Stock consideration85,991 
Cash consideration770,000 
Total consideration transferred$855,991 
Fair value of assets acquired:
Oil and gas properties$883,421 
Amount attributable to assets acquired$883,421 
Fair value of liabilities assumed:
Noncurrent liabilities - ARO27,430 
Amount attributable to liabilities assumed$27,430 
Total consideration is based on the terms of the Purchase Agreement. The consideration expected to be paid by Earthstone at closing consists of 6,808,511 shares of Class A Common Stock with $770 million in cash due at closing.

The fair value measurements of assets acquired and liabilities assumed 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.

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 December 31, 2021 and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021:

(a)        Adjustment to remove items not acquired as part of the Acquisitions.
(b)        Adjustment to the historical book values of oil and gas properties of Xxxxxxxx Holdings and Bighorn as of December 31, 2021 to reflect those properties at their estimated fair values and eliminate their respective historical accumulated depreciation, depletion and amortization, in accordance with the acquisition method of accounting for business combinations.
(c)        Adjustment to reflect estimated deferred financing costs related to Earthstone's revolving credit facility to be recorded in connection with the Acquisitions, net of amortization.
(d)        Adjustment to remove the $30.5 million deposit related to the Xxxxxxxx Acquisition which would have been applied to the purchase price had the transaction occurred on January 1, 2021.
(e)        Adjustment to the historical book values of the asset retirement obligations of Xxxxxxxx Holdings and Bighorn as of December 31, 2021 to reflect their estimated fair values in accordance with the acquisition method of accounting for business combinations.

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(f)        Adjustment to reflect the elimination of outstanding historical debt and record cash consideration of $384.7 million to be conveyed to Xxxxxxxx Holdings and $770.0 million to be conveyed to Bighorn from $326.0 million in borrowings under Earthstone's revolving credit facility, $550.0 million from the issuance of high yield notes payable and $278.7 million from the issuance of preferred stock described in (h).
(g)        Adjustment to reflect the elimination of the Members’ Equity of Xxxxxxxx Holdings and Bighorn.
(h)        Adjustment to reflect the issuance of 26,225,987 shares of Class A Common Stock pursuant to the Purchase Agreements.
(i)        Adjustment to reflect certain reclassifications of historical line items to conform financial statement presentations.
(j)        Adjustments to reflect the depreciation, depletion and amortization expense that would have been recorded had the Acquisitions occurred on January 1, 2021 and the properties were adjusted in accordance with the acquisition method of accounting for business combinations.
(k)        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.
(l)        Adjustments to reflect the amortization of deferred financing costs related to the financing of the Acquisitions.
(m)        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, 2021. 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 0.75%, which represent the statutory rates in effect in those jurisdictions during the periods presented.
(n)        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, 2021.
(o)        Adjustment to reverse the historical asset impairments as, based on the purchase price contemplated by the Acquisitions, no impairments would have been recorded.
(p)        Adjustment to reflect the issuance of 280,000 shares of preferred stock, par value $0.001, with proceeds of $278.7 million, net of issuance cost, for which the par value rounds to zero herein.
(q)        Adjustment to reflect liabilities incurred in accordance with the terms of the Purchase Agreements.
(r)        Adjustment to reflect estimated financing costs related to high yield notes payable to be recorded in connection with the Acquisitions.

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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, 2021 for Earthstone, Independence, Tracker, Sequel, Xxxxxxxx and Bighorn. 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 Independence reserve information was prepared by Earthstone management. The reserve information of Tracker and Sequel was prepared by Tracker management and Sequel management, respectively. The reserve information of Xxxxxxxx was prepared by Xxxxxxxx management. The reserve information of Bighorn was prepared by Bighorn management. 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, 2021 for Earthstone, Independence, Tracker, Sequel, Xxxxxxxx and Bighorn.
As of December 31, 2021
Earthstone (1)
XxxxxxxxBighornCombined
Estimated Proved Developed Reserves:
Oil (MBbl)35,825 12,693 29,176 77,694 
Natural Gas (MMcf)190,999 36,475 373,519 600,993 
Natural Gas Liquids (MBbl)25,918 4,623 46,406 76,947 
Total (MBoe)(3)
93,576 23,395 137,835 254,806 
Estimated Proved Undeveloped Reserves:
Oil (MBbl)25,251 24,048 26,919 76,218 
Natural Gas (MMcf)93,882 54,633 118,676 267,191 
Natural Gas Liquids (MBbl)13,114 7,482 14,744 35,340 
Total (MBoe)(3)
54,012 40,636 61,442 156,090 
Estimated Proved Reserves:
Oil (MBbl)61,075 36,741 56,095 153,911 
Natural Gas (MMcf)284,881 91,108 492,195 868,184 
Natural Gas Liquids (MBbl)39,031 12,105 61,150 112,286 
Total (MBoe)(3)
147,586 64,031 199,278 410,895 
(1) As of December 31, 2021, holders of Earthstone's Class B Common Stock owned a non-controlling indirect interest of 24.7% of the estimated proved reserves, as adjusted for the impact of the Acquisitions.
(2) 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, 2021 for Earthstone, Independence, Tracker, Sequel, Xxxxxxxx and Bighorn. 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, 2021. The Independence, Tracker, Sequel, Xxxxxxxx and Bighorn 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, 2021.
Year Ended December 31, 2021
Earthstone (1)
Independence (2)
Tracker (3)
Sequel (3)
XxxxxxxxBighornCombined
Oil (MBbl)4,381 28 123 165 2,611 3,110 10,418 
Natural Gas (MMcf)14,505 52 1,686 2,014 6,254 32,935 57,446 
Natural Gas Liquids (MBbl)2,257 10 210 245 813 4,125 7,660 
Total (MBoe)(4)
9,055 47 614 746 4,466 12,724 27,652 
(1) As of December 31, 2021, holders of Earthstone's Class B Common Stock owned a non-controlling indirect interest of 24.7% of the estimated proved reserves, as adjusted for the impact of the Acquisitions.
(2) Based on the pro rata allocation of 6 days of January 2021 production from internal reports..
(3) Includes the pro rata allocation of 19 days of July 2021 production from internal reports.
(4) Assumes a ratio of 6 Mcf of natural gas per Boe.

The following unaudited combined estimated discounted future net cash flows reflect Earthstone, Independence, Tracker, Sequel, Xxxxxxxx and Bighorn as of December 31, 2021. The unaudited combined standardized measure of discounted future net cash flows are as follows (in thousands):
As of December 31, 2021
Earthstone (1)
XxxxxxxxBighornCombined
Future cash inflows$6,042,508 $3,091,008 $7,092,259 $16,225,775 
Future production costs(1,641,130)(1,085,242)(2,538,596)(5,264,968)
Future development costs(470,008)(381,580)(658,724)(1,510,312)
Future income tax expense(381,663)— (29,212)(410,875)
Future net cash flows3,549,707 1,624,186 3,865,727 9,039,620 
10% annual discount for estimated timing of cash flows(1,731,335)(738,765)(2,031,983)(4,502,083)
Standardized measure of discounted future net cash flows$1,818,372 $885,421 $1,833,744 $4,537,537 
(1) As of December 31, 2021, holders of Earthstone's Class B Common Stock owned a non-controlling indirect interest of 24.7% of the estimated proved reserves, as adjusted for the impact of the Acquisitions.


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Filed: April 6th, 2022
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