Related Party Transactions

9 Months Ended

Sep. 30, 2021

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

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. The Audit Committee of the Board of Directors of Earthstone 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. On February 12, 2020, the Company sold certain of its interests in oil and natural gas leases and wells in an arm’s length transaction to a portfolio company of one of the aforementioned shareholder (not under common control) (the “Significant Shareholder”) for cash consideration of approximately $0.4 million.

In connection with the Olenik v. Lodzinski et al. lawsuit described below in Note 13. Commitments and Contingencies, the Significant Shareholder was also named in the lawsuit. As a result of a settlement agreement relating to the lawsuit, the Company agreed with its insurance carrier regarding an allocation of defense costs and settlement contributions above its deductible for all the parties named in the lawsuit. In connection with the Court approved settlement, the Significant Shareholder was billed approximately $1.1 million in fiscal 2020 and all amounts have been received.

As discussed in Note 4. Acquisitions, on March 31, 2021, the Company entered into the Tracker/Sequel Purchase Agreements. The Tracker/Sequel Acquisitions were consummated on July 20, 2021, whereby the Company acquired the Tracker Assets for a purchase price of $22.5 million in cash and 4.7 million shares of Earthstone’s Class A Common Stock. The Significant Shareholder owned approximately 49% of Tracker as of the closing of the Tracker Acquisition. A majority of the non-affiliated stockholders of Earthstone approved the issuance of 6.2 million shares of Class A Common Stock in connection with the closing of the Tracker/Sequel Purchase Agreements at Earthstone’s Annual Meeting of Stockholders held on July 20, 2021.

As discussed in Note 4. Acquisitions, during the second quarter of 2021, the Company completed the Eagle Ford Acquisitions for a purchase price of approximately $48.0 million in cash. The Significant Shareholder controlled one of the four sellers. After participating in a competitive sales process, the Company acquired the aforementioned assets for $8.2 million in cash from that related party entity.