Related Party Transactions

12 Months Ended

Dec. 31, 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 independently reviews and approves all related party transactions.

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

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 a Significant Shareholder (not under common control) for cash consideration of approximately $0.4 million.

In connection with the Olenik v. Lodzinski et al. lawsuit described below in Note 15. Commitments and Contingencies, a 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 3. Acquisitions and Divestitures, 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 $18.8 million in cash and 4.7 million shares of Class A Common Stock. A Significant Shareholder owned approximately 49% of Tracker as of the closing of the Tracker Acquisition. A majority of the stockholders of Earthstone not affiliated with the Significant Shareholder 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 3. Acquisitions and Divestitures, during the second quarter of 2021, the Company completed the Eagle Ford Acquisitions for a purchase price of approximately $45.2 million in cash. A 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.On February 15, 2022, Earthstone, EEH, Chisholm Energy Operating, LLC (“OpCo”) and Chisholm Energy Agent, Inc. (“Agent” and collectively with OpCo, “Chisholm”), as seller, consummated the transaction (the “Chisholm Closing”) contemplated in that certain Purchase and Sale Agreement dated December 15, 2021 (the “Chisholm Agreement”) by and among Earthstone, EEH and Chisholm. At the closing of the Chisholm Agreement, among other things, EEH acquired (the “Chisholm Acquisition”) interests in oil and gas leases and related property of Chisholm located in Lea County and Eddy County, New Mexico, for aggregate consideration consisting of: (i) approximately $314.7 million in cash, net of preliminary and customary purchase price adjustments and remains subject to post-closing settlement between EEH and Chisholm paid at the closing of the Chisholm Acquisition, (ii) $70 million in cash to be paid as follows: $40 million to be paid six months after the closing of the Chisholm Acquisition and $30 million to be paid 12 months after the closing of the Chisholm Acquisition, subject to acceleration in the event that Earthstone receives gross proceeds of more than $450 million from a high yield bond offering or more than $50 million in gross proceeds from an offering of Class A Common Stock or preferred stock; and (iii) 19,417,476 shares of Class A Common Stock. On December 17, 2021, in accordance with the Chisholm Agreement and prior to the Chisholm Closing, Earthstone provided a deposit in the amount of $30.5 million which was recorded in Other noncurrent assets in the Consolidated Balance Sheeet as of December 31, 2021, as well as included in Acquisition of oil and gas properties in Cash flows from investing activities in the Consolidated Statements of Cash Flows for the year then ended. A Significant Shareholder was the majority owner of Chisholm as of the closing of the Chisholm Acquisition. A majority of the stockholders of Earthstone not affiliated with the Significant Shareholder approved the issuance of 19,417,476 shares of Class A Common Stock in connection with the closing of the Chisholm Acquisition.