Related Party Transactions

12 Months Ended

Dec. 31, 2022

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 three significant shareholders that consist of various investment funds managed by each of the three 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 a transaction to a portfolio company of a Significant Shareholder (not under common control) for cash consideration of approximately $0.4 million.

As discussed in Note 4. 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 4. 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.

As discussed in Note 4. Acquisitions and Divestitures, the Chisholm Acquisition was consummated on February 15, 2022, whereby the Company acquired the Chisholm Assets for a purchase price of $377.5 million in cash, net of customary purchase price adjustments, and approximately 19.4 million shares of Class A Common Stock. A Significant Shareholder was the majority owner of Chisholm as of the closing of the Chisholm Acquisition. The deferred payment of $70 million as of March 31, 2022 was paid on April 15, 2022 and included in Deferred acquisition payment – Chisholm in the Condensed Consolidated Balance Sheet as of March 31, 2022. The issuance of approximately 19.4 million shares of Class A Common Stock in connection with the closing of the Chisholm Agreement was (1) approved by a majority of the voting power of all outstanding

disinterested shares of the Common Stock and (2) increased the Significant Stockholder's beneficial ownership of Class A Common Stock from approximately 25% to 36% as of February 15, 2022.

On January 30, 2022, Earthstone entered into the SPA with certain affiliates of EnCap and Post Oak (collectively, the “Investors”) to issue 220,000 shares and 60,000 shares, respectively, of the Series A Convertible Preferred Stock. On April 14, 2022, the SPA was consummated resulting in the issuance of the total of 280,000 shares of the Series A Convertible Preferred Stock in exchange for cash proceeds of $279.3 million, net of offering costs.

On July 6, 2022, the Series A Convertible Preferred Stock automatically converted into 25,225,225 shares of Class A Common Stock.

The Company paid $0.5 million to one of its Significant Shareholders for reimbursement of certain costs associated with the Bighorn Acquisition and related SPA.

On October 11, 2022, Earthstone repurchased an aggregate of 3,000,000 shares of Class A Common Stock, held by affiliates of Warburg in a private transaction, for an aggregate purchase price of approximately $43.7 million, or $14.58 per share (the “Repurchase”). Additionally, on October 11, 2022, affiliates of Warburg sold 3,750,000 shares of Class A Common Stock to an unrelated party for $14.58 per share (collectively with the Repurchase, the “Warburg Sales”). Immediately preceding the Warburg Sales, Warburg owned approximately 18.7% of the outstanding Class A Common Stock and 14.1% of the Class A Common Stock and Class B Common Stock combined. Immediately following the Warburg Sales and through December 31, 2022, Warburg owned approximately 12.3% of the Class A Common Stock and 9.3% of the Class A Common Stock and Class B Common Stock combined.