Document

On February 15, 2022, Earthstone Energy, Inc. (“Earthstone” or the “Company”), Earthstone Energy Holdings, LLC, a subsidiary of the Company (“EEH”), Chisholm Energy Operating, LLC (“OpCo”) and Chisholm Energy Agent, Inc. (“Agent” and collectively with OpCo, “Chisholm”), collectively as seller, consummated the transactions contemplated in the Purchase and Sale Agreement dated December 15, 2021 by and among Earthstone, EEH and Chisholm (the “Transaction”). At the closing of the Transaction, among other things, EEH acquired interests in oil and gas leases and related property of Chisholm located in Lea County and Eddy County, New Mexico, for a purchase price (the “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 Chisholm, and 19,417,476 shares (the “Shares” and such issuance, the “Stock Issuance”) of Class A common stock, $0.001 par value per share, of Earthstone. At the closing of the Chisholm Acquisition, 4,441,748 of the Shares were deposited in a stock escrow account for indemnity obligations and 14,975,728 of the Shares were issued to Chisholm.

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 Chisholm 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 Transaction 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 Transaction 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 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 September 30, 2021 gives effect to the Transaction as if it had been completed on September 30, 2021. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2020 and the nine months ended September 30, 2021 give effect to the IRM Acquisition, the Tracker Acquisition, the Sequel Acquisition and the Transaction (collectively, the “Acquisitions”) as if they had been completed on January 1, 2020. 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 Transaction.

The unaudited pro forma condensed combined balance sheet does not purport to represent what Earthstone’s financial position would have been had the Transaction actually been consummated on September 30, 2021. The unaudited pro forma condensed combined statements of operations do not purport to represent what Earthstone’s results of operations would have been had the Acquisitions actually been consummated on January 1, 2020. 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.


ASSETS	Earthstone Historical		Chisholm Holdings Historical		Transaction Accounting Adjustments		Notes	Earthstone Pro Forma as Adjusted
Current assets:
Cash	$	441	$	12,437	$	(12,437)	(a)	$	441

Accounts receivable:
Oil and natural gas revenues	45,076		23,475		(23,475)		(a)	45,076
Joint interest billings and other, net of allowance	3,058		7,375		(7,375)		(a)	3,058
Due from affiliates	—		49		(49)		(a)	—
Derivative asset	17		—		—			17
Prepaid expenses and other current assets	1,565		965		(965)		(a)	1,565
Total current assets	50,157		44,301		(44,301)			50,157

Oil and gas properties, successful efforts method:
Proved properties	1,487,362		739,174		(154,850)		(b)	2,071,686


Unproved properties	235,232		234,497		(176,064)		(b)	293,665
Land (surface rights)	5,382		—		—			5,382
Total oil and gas properties	1,727,976		973,671		(330,914)			2,370,733

Accumulated depreciation, depletion, amortization and impairment	(367,000)		(363,671)		363,671		(b)	(367,000)
Net oil and gas properties	1,360,976		610,000		32,757			2,003,733

Other noncurrent assets:
Office and other equipment, net of accumulated depreciation	1,730		3,056		(3,056)		(a)	1,730
Derivative asset	453		—		—			453
Operating lease right-of-use assets	1,963		—		—			1,963
Other noncurrent assets	9,694		4,000		(4,000)		(a)	12,665
					2,971		(c)
TOTAL ASSETS	$	1,424,973	$	661,357	$	(15,629)		$	2,070,701
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	33,602	$	21,644	$	(21,644)	(a)	$	36,573
					2,971		(c)


Revenues and royalties payable	30,139		9,030		(9,030)		(a)	$	30,139
Accrued expenses	20,620		13,478		(13,478)		(a)	22,474
					1,854		(q)
Asset retirement obligation	543		362		(362)		(e)	543
Derivative liability	67,575		40,055		(40,055)		(a)	67,575
Advances	1,325		—		—			1,325
Operating lease liabilities	732		—		—			732

Other current liabilities	634		—		70,000		(d)	70,634

Total current liabilities	155,170		84,569		(9,744)			229,995

Noncurrent liabilities:
Long-term debt	278,253		152,259		(152,259)		(f)	592,917
					314,664		(f)
Deferred tax liability	13,764		—		—			13,764
Asset retirement obligation	14,965		5,027		1,697		(e)	21,689
Derivative liability	7,730		28,401		(28,401)		(a)	7,730
Operating lease liabilities	1,394		—		—			1,394

Other noncurrent liabilities	3,803		—		—			3,803
Total noncurrent liabilities	319,909		185,687		135,701			641,297

Equity:
Members' Equity	—		391,101		(391,101)		(g)	—

Class A common stock	51		—		19		(h)	70
Class B common stock	34		—		—			34
Additional paid-in capital	690,739		—		249,496		(h)	940,235
Accumulated deficit	(199,544)		—		—			(199,544)
Total Earthstone Energy, Inc. stockholders’ equity	491,280		391,101		(141,586)			740,795
Noncontrolling interest	458,614		—		—			458,614
Total equity	949,894		391,101		(141,586)			1,199,409

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,424,973	$	661,357	$	(15,629)		$	2,070,701


	Earthstone Historical		Independence Historical (1/1/21 - 1/7/21)		Tracker Historical (1/1/21 - 7/19/21)		Sequel Historical (1/1/21 - 7/19/21)		Chisholm Holdings Historical		Transaction Accounting Adjustments		Notes	Earthstone Pro Forma Combined
REVENUES
Oil and natural gas revenues	$	275,627	$	1,696	$	17,365	$	21,680	$	147,041	$	—		$	463,409

Unrealized loss - commodity derivatives	—		(1,861)		—		—		—		1,861		(i)	—
Total revenues	275,627		(165)		17,365		21,680		147,041		1,861			463,409

OPERATING COSTS AND EXPENSES
Lease operating expense	35,579		423		2,341		1,970		29,706		—			70,019
Production and ad valorem taxes	17,428		135		1,063		1,652		13,078		—			33,356
Depreciation, depletion, amortization and accretion	78,409		578		4,112		—		52,755		(1,837)		(j)	134,017
Impairment expense	—		—		—		—		114,907		(114,907)		(o)	—
General and administrative expense	25,200		185		1,969		—		8,891		29		(i)	36,274
Equity-based compensation	—		29		—		—		—		(29)		(i)	—
Transaction costs	2,906		—		—		—		—		—			2,906
Exploration expense	326		—		100		—		47		—			473
Total operating costs and expenses	159,848		1,350		9,585		3,622		219,384		(116,744)			277,045

(Loss) gain on sale of oil and gas properties	740		—		—		—		—		—			740

Income (loss) from operations	116,519		(1,515)		7,780		18,058		(72,343)		118,605			187,104

OTHER INCOME (EXPENSE)
Interest expense, net	(7,668)		(127)		(594)		—		(8,708)		(1,303)		(k)	(19,104)
											(704)		(l)
(Loss) gain on derivative contracts, net	(117,566)		—		(3,069)		—		(84,397)		(1,861)		(i)	(206,893)

Other income (expense), net	823		—		1,627		—		(70)		—			2,380
Total other income (expense)	(124,411)		(127)		(2,036)		—		(93,175)		(3,868)			(223,617)

(Loss) income before income taxes	(7,892)		(1,642)		5,744		18,058		(165,518)		114,737			(36,513)
Income tax benefit (expense)	343		10		—		—		(3)		244		(m)	594


Net (loss) income	$	(7,549)	$	(1,632)	$	5,744	$	18,058	$	(165,521)	$	114,981		$	(35,919)

Less: Net loss attributable to noncontrolling interests	(3,263)		—		(44)		—		—		(8,575)		(n)	(11,882)
Net (loss) income attributable to common stockholders	$	(4,286)	$	(1,632)	$	5,788	$	18,058	$	(165,521)	$	123,556		$	(24,037)

Net income (loss) per common share:
Basic	$	(0.09)												$	(0.37)
Diluted	$	(0.09)												$	(0.37)

Weighted average common shares outstanding:
Basic	45,406,952										19,417,476			64,824,428
Diluted	45,406,952										19,417,476			64,824,428


	Earthstone Historical		Independence Historical		Tracker Historical		Sequel Historical		Chisholm Holdings Historical		Transaction Accounting Adjustments		Notes	Earthstone Pro Forma Combined
REVENUES
Oil and natural gas revenues	$	144,523	$	80,473	$	25,570	$	36,793	$	91,303	$	—		$	378,662
Realized gain (loss) - commodity derivatives	—		28,585		—		—		—		(28,585)		(i)	—
Unrealized (loss) gain - commodity derivatives	—		(1,109)		—		—		—		1,109		(i)	—
Loss on sale of oil and gas properties	—		—		(73)		—		—		73		(i)	—
Other revenues	—		56		—		—		—		(56)		(i)	—
Total revenues	144,523		108,005		25,497		36,793		91,303		(27,459)			378,662

OPERATING COSTS AND EXPENSES
Lease operating expense	29,131		16,473		5,378		6,960		26,896		517		(i)	85,355
Production and ad valorem taxes	9,411		5,154		1,381		3,014		8,122		—			27,082
Marketing expenses	—		—		573		—		—		(573)		(i)	—
Rig termination expense	426		(24)		—		—		1,934		—			2,336
Depreciation, depletion, amortization and accretion	96,721		47,507		18,982		—		70,082		(45,501)		(j)	187,791
Impairment expense	64,498		—		273,838		—		—		(273,838)		(o)	64,498
General and administrative expense	28,233		8,735		4,940		—		10,990		1,799		(i)	54,697
Equity-based compensation	—		1,799		—		—		—		(1,799)		(i)	—
Transaction costs	622		—		—		—		—		12,381		(p)	13,003
Exploration expense	298		—		130		—		67		—			495
Total operating costs and expenses	229,340		79,644		305,222		9,974		118,091		(307,014)			435,257

Gain (loss) on sale of oil and gas properties	204		—		—		—		—		(73)		(i)	131

Income (loss) from operations	(84,613)		28,361		(279,725)		26,819		(26,788)		279,482			(56,464)

OTHER INCOME (EXPENSE)
Interest expense, net	(5,232)		(9,845)		(1,907)		—		(11,353)		1,924		(k)	(27,351)
											(938)		(l)
Gain on derivative contracts, net	59,899		—		5,962		—		18,282		27,476		(i)	111,619


Loss on disposal of asset	—		—		(277)		—		—		—			(277)
Other income (expense) , net	400		—		22		—		(2,078)		—			(1,656)
Total other income (expense)	55,067		(9,845)		3,800		—		4,851		28,462			82,335

(Loss) income before income taxes	(29,546)		18,516		(275,925)		26,819		(21,937)		307,944			25,871
Income tax benefit (expense)	112		(340)		—		—		—		(1,269)		(m)	(1,497)
Net (loss) income	$	(29,434)	$	18,176	$	(275,925)	$	26,819	$	(21,937)	$	306,675		$	24,374

Less: Net loss attributable to noncontrolling interests	(15,887)		—		(2,754)		—		—		26,915		(n)	8,274
Net (loss) income attributable to common stockholders	$	(13,547)	$	18,176	$	(273,171)	$	26,819	$	(21,937)	$	279,760		$	16,100

Net income (loss) per common share:
Basic	$	(0.45)												$	0.24
Diluted	$	(0.45)												$	0.24

Weighted average common shares outstanding:
Basic	29,911,625										38,337,070			68,248,695
Diluted	29,911,625										38,337,070			68,248,695

The accompanying pro forma condensed combined 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, Independence, Tracker, Sequel and Chisholm Holdings. The Transaction 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 Transaction 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 Transaction on the combined historical financial information of Earthstone, Independence, Tracker, Sequel and Chisholm Holdings. The transaction 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 transaction 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 Transaction 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 and Chisholm Holdings for the periods presented.

The pro forma condensed combined balance sheet as of September 30, 2021 gives effect to the Transaction as if it had been completed on September 30, 2021. The pro forma condensed combined statements of operations for the year ended December 31, 2020 and the nine months ended September 30, 2021 give effect to the Acquisitions as if they had been completed on January 1, 2020.

The unaudited pro forma condensed combined balance sheet as of September 30, 2021 and the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 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 and Chisholm Holdings presented herein to conform to Earthstone’s historical presentation.

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 September 30, 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.


	Chisholm
Consideration:
Shares of Earthstone Class A Common Stock issued	19,417,476
Earthstone Class A Common Stock price as of February 15, 2022	$	12.85
Class A Common Stock consideration	249,515
Cash consideration	384,664

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 liabilities	1,854
Noncurrent liabilities - ARO	6,724
Amount attributable to liabilities assumed	$	8,578

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.

(c) Adjustment to reflect estimated deferred financing costs to be recorded in connection with the Transaction, net of amortization. These pro forma condensed combined financial statements assume all borrowings are under Earthstone’s senior secured revolving credit facility. In the event Earthstone seeks alternative financing, $8.8 million in additional deferred financing costs would be recorded. See additional discussion on the impact of alternative financing in (k) below.

(f) Adjustment to reflect the elimination of outstanding historical debt and record initial cash consideration to be conveyed to Chisholm of $314.7 million from borrowings under Earthstone's revolving credit facility or from the issuance of high yield notes payable. The remaining $70.0 million of cash consideration will be deferred and paid over the following twelve months based on the terms of the Purchase Agreement.

(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 Transaction. These pro forma condensed combined financial statements assume all borrowings are under Earthstone’s senior secured revolving credit facility. In the event Earthstone seeks alternative financing, based on an estimated interest rate of 8%, the impact on these pro forma financial statements would be as follows:


	For the Nine Months Ended September 30, 2021				For the Year Ended December 31, 2020
(in thousands, except per share amounts)	As Disclosed		Under Alternative Financing		As Disclosed		Under Alternative Financing
Interest expense, net	$	(19,104)	$	(33,464)	$	(27,351)	$	(48,949)
Net (loss) income	$	(35,919)	$	(50,279)	$	24,374	$	2,776
Net (loss) income attributable to Earthstone Energy, Inc. common stockholders	$	(24,037)	$	(33,647)	$	16,100	$	1,835
Net income (loss) per common share - basic and diluted	$	(0.37)	$	(0.52)	$	0.24	$	0.03

(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, 2020. 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.


	EEH Units Held By Earthstone and Lynden US	%		EEH Units Held By Others	%		Total EEH Units Outstanding
Weighted Average Units Outstanding for the Year Ended December 31, 2020	29,911,625	46.0	%	35,077,712	54.0	%	64,989,337
EEH Units assumed issued in connection with the IRM Acquisition on January 1, 2020	12,719,594			—			12,719,594
EEH Units assumed issued in connection with the Tracker Acquisition on January 1, 2020	4,700,000			—			4,700,000
EEH Units assumed issued in connection with the Sequel Acquisition on January 1, 2020	1,500,000			—			1,500,000
EEH Units assumed issued in connection with the Chisholm Acquisition on January 1, 2020	19,417,476			—			19,417,476
Pro Forma Weighted Average Units Outstanding for the Year Ended December 31, 2020	68,248,695	66.1	%	35,077,712	33.9	%	103,326,407


	EEH Units Held By Earthstone and Lynden US	%		EEH Units Held By Others	%		Total EEH Units Outstanding
Weighted Average Units Outstanding for the Nine Months Ended September 30, 2021	31,309,034	47.6	%	34,426,767	52.4	%	65,735,801
EEH Units assumed issued in connection with the IRM Acquisition on January 1, 2020	12,719,594			—			12,719,594
EEH Units assumed issued in connection with the Tracker Acquisition on January 1, 2020	4,700,000			—			4,700,000
EEH Units assumed issued in connection with the Sequel Acquisition on January 1, 2020	1,500,000			—			1,500,000
EEH Units assumed issued in connection with the Chisholm Acquisition on January 1, 2020	19,417,476			—			19,417,476
Pro Forma Weighted Average Units Outstanding for the Nine Months Ended September 30, 2021	69,646,104	66.9	%	34,426,767	33.1	%	104,072,871

(p) Represents estimated nonrecurring transaction costs related to the acquisition of Independence, Tracker, Sequel and Chisholm that are expected to be incurred by Earthstone, including advisory, legal, regulatory, accounting, valuation and other professional fees that are not capitalized as part of the Acquisitions. These transaction costs are based on preliminary estimates and the final amounts and the resulting effect on Earthstone’s financial position and results of operations may differ significantly.

The following table sets forth information with respect to the historical and combined estimated oil and natural gas reserves as of December 31, 2020 for Earthstone, Independence, Tracker, Sequel and Chisholm. The Earthstone reserve data presented below was derived from the independent engineering report of Cawley, Gillespie & Associates, Inc. (“CG&A”), Earthstone’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 Chisholm was prepared by Chisholm 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, 2020 for Earthstone, Independence, Tracker, Sequel and Chisholm.


	As of December 31, 2020
	Earthstone (1)	Independence (2)	Tracker	Sequel	Chisholm	Combined
Estimated Proved Developed Reserves:
Oil (MBbl)	18,876	13,713	1,673	1,398	12,024	47,684
Natural Gas (MMcf)	55,752	49,157	24,237	15,186	41,779	186,111
Natural Gas Liquids (MBbl)	10,123	—	4,009	2,491	—	16,623
Total (MBoe)(3)	38,291	21,906	9,721	6,419	18,987	95,324
Estimated Proved Undeveloped Reserves:
Oil (MBbl)	21,212	19,993	10,641	—	12,262	64,108
Natural Gas (MMcf)	55,450	31,368	97,386	—	22,475	206,679
Natural Gas Liquids (MBbl)	10,123	—	16,598	—	—	26,721
Total (MBoe)(3)	40,577	25,221	43,470	—	16,008	125,276
Estimated Proved Reserves:
Oil (MBbl)	40,088	33,706	12,314	1,398	24,286	111,792
Natural Gas (MMcf)	111,202	80,525	121,623	15,186	64,254	392,790
Natural Gas Liquids (MBbl)	20,246	—	20,607	2,491	—	43,344
Total (MBoe)(3)	78,868	47,127	53,192	6,419	34,995	220,601
(1) As of December 31, 2020, holders of Earthstone's Class B Common Stock owned a non-controlling indirect interest of 33.8% of the estimated proved reserves, as adjusted for the impact of the Acquisitions.
(2) The historical results of Independence are presented with natural gas and natural gas liquids combined within Natural Gas (MMcf).
(3) Assumes a ratio of 6 Mcf of natural gas per Boe.

The following table sets forth summary information with respect to historical and combined oil and natural gas production for the year ended December 31, 2020 for Earthstone, Independence, Tracker, Sequel and Chisholm. 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, 2020. The Independence, Tracker, Sequel and Chisholm 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, 2020.


	Year Ended December 31, 2020
	Earthstone (1)	Independence (2)	Tracker	Sequel	Chisholm	Combined
Oil (MBbl)	3,180	1,993	440	665	2,276	8,554
Natural Gas (MMcf)	7,282	4,769	3,089	3,645	7,350	26,135
Natural Gas Liquids (MBbl)	1,198	—	495	589	55	2,337
Total (MBoe)(3)	5,592	2,788	1,449	1,862	3,556	15,247
(1) As of December 31, 2020, holders of Earthstone's Class B Common Stock owned a non-controlling indirect interest of 33.8% of the estimated proved reserves, as adjusted for the impact of the Acquisitions.
(2) The historical results of Independence are presented with natural gas and natural gas liquids combined within Natural Gas (MMcf).
(3) Assumes a ratio of 6 Mcf of natural gas per Boe.


	As of December 31, 2020
	Earthstone (1)		Independence		Tracker		Sequel		Chisholm		Combined
Future cash inflows	$	1,902,073	$	1,433,588	$	724,574	$	94,087	$	1,035,770	$	5,190,092
Future production costs	(633,248)		(491,740)		(282,631)		(43,592)		(441,486)		(1,892,697)
Future development costs	(285,088)		(250,836)		(239,999)		(3,226)		(156,447)		(935,596)
Future income tax expense	(35,557)		(1,582)		(1,834)		(355)		—		(39,328)
Future net cash flows	948,180		689,430		200,110		46,914		437,837		2,322,471
10% annual discount for estimated timing of cash flows	(487,327)		(426,942)		(153,160)		(11,937)		(219,160)		(1,298,526)
Standardized measure of discounted future net cash flows	$	460,853	$	262,488	$	46,950	$	34,977	$	218,677	$	1,023,945
(1) As of December 31, 2020, holders of Earthstone's Class B Common Stock owned a non-controlling indirect interest of 33.8% of the estimated proved reserves, as adjusted for the impact of the Acquisitions.