Acquisitions and Divestitures (Tables)

9 Months Ended

Sep. 30, 2016

Schedule of Consideration Paid to Acquire Net Assets and Estimated Values of Net Assets

The following table summarizes the consideration transferred, fair value of assets acquired and liabilities assumed and resulting goodwill (in thousands, except share and share price amount):

Consideration:
Shares of Earthstone common stock issued in the Arrangement		3,700,279
Closing price of Earthstone common stock as of May 18, 2016	$	12.35
Total consideration to Lynden shareholders	$	45,698
Fair Value of Liabilities Assumed:
Credit facility ⁽⁴⁾	$	36,597
Current liabilities		1,895
Deferred tax liability⁽¹⁾		664
Asset retirement obligations		250
Total consideration plus liabilities assumed	$	85,104
Fair Value of Assets Acquired:
Cash and cash equivalents ⁽⁴⁾	$	5,263
Current assets		2,108
Proved oil and gas properties ⁽²⁾⁽³⁾		48,116
Unproved oil and gas properties		26,600
Amount attributable to assets acquired	$	82,087
Goodwill ⁽⁵⁾	$	3,017

1.	This amount represents the recorded book value to tax difference in the oil and natural gas properties as of the date of the Arrangement on a tax effected basis of approximately 34.5%.

The weighted average commodity prices utilized in the determination of the fair value of oil and natural gas properties was $64.73 per barrel of oil, $3.68 per Mcf of natural gas and $19.34 per barrel of oil equivalent for natural gas liquids, after adjustments for transportation fees and regional price differentials.

The market assumptions as to the future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of the future development and operating costs, projecting of future rates of production, expected recovery rate and risk adjusted discount rates used by the Company to estimate the fair value of the oil and natural gas properties represent Level 3 inputs; see Note 4 Fair Value Measurements, below.

4.	Concurrent with closing the Arrangement, the Company paid off the outstanding balance of $36.6 million on the Lynden credit facility. The settlement of the debt and the cash acquired is equal to the $31.3 million net cash outflow associated with the Arrangement.

Goodwill was determined to be the excess consideration exchanged over the fair value of the net assets of Lynden on May 18, 2016. The goodwill resulted from the expected synergies of the management team and balance sheet of the Company combined with the key assets acquired in the Midland Basin area. The goodwill recognized will not be deductible for tax purposes.

Schedule of Unaudited Pro forma Revenues and Expenses of Assets Acquired and Liabilities Assumed

The following unaudited supplemental pro forma condensed results of operations present consolidated information as though the Arrangement had been completed as of January 1, 2015. The unaudited supplemental pro forma financial information was derived from the historical consolidated and combined statements of operations for the Company and Lynden and adjusted to include: (i) depletion expense applied to the adjusted basis of the properties acquired, (ii) accretion expense associated with the asset retirement obligations recorded using the Company’s assumptions about the future liabilities and (iii) interest expense based on the combined debt of the Company post-acquisition. These unaudited supplemental pro forma results of operations are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future. Future results may vary significantly from the results reflected in this unaudited pro forma financial information (in thousands, except per share amounts).

	Three Months Ended September 30,		Nine Months Ended September 30,
	2015		2016			2015
(Unaudited)
Revenue	$	16,473	$	32,677		$	52,792
Income (loss) before taxes	$	1,698	$	(20,603	)	$	142
Income (loss) available to Earthstone common stockholders	$	1,165	$	(21,696	)	$	80
Pro Forma net income (loss) per common share:
Basic and diluted	$	0.07	$	(1.12	)	$	0.00

Other Acquisitions [Member]

Business Acquisition [Line Items]

Schedule of Consideration Paid to Acquire Net Assets and Estimated Values of Net Assets

The following table summarizes the consideration paid to acquire the properties and the estimated fair values of the assets acquired and liabilities assumed (in thousands):

Purchase price	$	4,066
Estimated fair value of assets acquired:
Proved oil and natural gas properties	$	588
Unproved oil and natural gas properties		3,496
Total assets acquired	$	4,084
Estimated fair value of liabilities assumed:
Asset retirement obligations	$	13
Other liabilities		5
Total liabilities assumed	$	18
Consideration paid	$	4,066