Acquisitions and Divestitures (Tables)

12 Months Ended

Dec. 31, 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		1,915
Deferred tax liability⁽¹⁾		15,157
Asset retirement obligations		250
Total consideration plus liabilities assumed	$	99,617
Fair Value of Assets Acquired:
Cash and cash equivalents ⁽⁴⁾	$	5,263
Current assets		2,018
Proved oil and gas properties ⁽²⁾⁽³⁾		48,116
Unproved oil and gas properties		26,600
Amount attributable to assets acquired	$	81,997
Goodwill ⁽⁵⁾	$	17,620

(1)

This amount represents the difference between the recorded book value and the tax basis of the oil and natural gas properties as of the date of the closing of the Lynden Arrangement, tax-effected using a tax rate of approximately 34.5%.

(2)

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.

(3)

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 Lynden 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 Lynden Arrangement.

(5)

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 results of operations present consolidated information assuming the Lynden Arrangement had been completed as of January 1, 2014. 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).

	Years ended December 31,
	2016			2015			2014
	(Unaudited)
Revenue	$	47,679		$	62,817		$	112,370
(Loss) income before taxes	$	(53,510	)	$	(148,609	)	$	32,912
Net (loss) income available to Earthstone common stockholders	$	(54,744	)	$	(122,598	)	$	19,518
Pro Forma net (loss) income per common share:
Basic	$	(2.73	)	$	(6.99	)	$	1.11
Diluted	$	(2.73	)	$	(6.99	)	$	1.11

Earthstone Energy Reverse Acquisition [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 legacy Earthstone net assets and the estimated values of those net assets (in thousands, except share and share price amounts):

Shares of Common Stock issued as consideration		1,753,388
Closing price of Common Stock as of December 19, 2014	$	19.08
Total purchase price	$	33,455
Estimated Fair Value of Liabilities Assumed:
Current liabilities	$	7,631
Long-term debt		7,000
Deferred tax liability ⁽¹⁾		2,880
Asset retirement obligation		1,035
Amount attributable to liabilities assumed		18,546
Total purchase price plus liabilities assumed	$	52,001
Estimated Fair Value of Assets Acquired:
Cash ⁽²⁾	$	2,920
Other current assets		3,466
Proved oil and natural gas properties ^{(3) (4)}		21,813
Unproved oil and natural gas properties		5,524
Other non-current assets		746
Amount attributable to assets acquired	$	34,469
Goodwill ⁽⁵⁾	$	17,532

(1)

This amount represents the difference between the recorded book value and the tax basis of the oil and natural gas properties as of the date of the closing of the Exchange, tax-effected using a tax rate of approximately 35%.

(2)

Net cash flow related to the Exchange was an outflow of $4.2 million which consisted of the $7.1 million repayment of long-term debt (plus accrued interest) less the cash acquired of $2.9 million.

(3)

The weighted average commodity prices utilized in the determination of the fair value of oil and natural gas properties was $51.62 per barrel of oil and $4.58 per Mcf of natural gas after adjustments for transportation fees and regional price differentials.

(4)

The market assumptions as to future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of future development and operating costs, projections of future rates of production, expected recovery rates 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. For additional information on Level 3 inputs, see Note 4. Fair Value Measurements.

(5)

Goodwill was determined to be the excess consideration exchanged over the fair value of the Company’s net assets on December 19, 2014. In 2016, due to the commodity price environment, the Company determined that the amount recorded was no longer recoverable and recognized a full impairment charge to Goodwill of $17.5 million in the Consolidated Statement of Operations. See Note 7.Goodwill.

2014 Eagle Ford Properties [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 2014 Eagle Ford Acquisition Properties and the estimated values of those net assets (in thousands, except share and share price amounts):

Shares of Common Stock issued as consideration in the Contribution		2,957,288
Closing price of Common Stock as of December 19, 2014	$	19.08
Total purchase price	$	56,425

Estimated Fair Value of Liabilities Assumed:
Deferred tax liability ⁽¹⁾	$	1,547
Asset retirement obligation		173
Amount attributable to liabilities assumed		1,720
Total purchase price plus liabilities assumed	$	58,145

Estimated Fair Value of Assets Acquired:
Proved oil and natural gas properties ^{(2) (3)}	$	34,745
Unproved oil and natural gas properties		21,853
Amount attributable to assets acquired	$	56,598
Goodwill ⁽⁴⁾	$	1,547

(1)

This amount represents the difference between the recorded book value and the tax basis of the oil and natural gas properties as of the date of the closing of the Flatonia Contribution Agreement, tax-effected using a tax rate of approximately 34%.

(2)

The weighted average commodity prices utilized in the determination of the fair value of oil and natural gas properties was $56.36 per barrel of oil and $3.36 per Mcf of natural gas after adjustments for transportation fees and regional price differentials.

(3)

(4)

Goodwill was determined as the excess consideration exchanged over the fair value of the 2014 Eagle Ford Acquisition Properties on December 19, 2014. In 2015, due to the commodity price environment, the Company determined that the goodwill balance was not recoverable and therefore fully impaired it, recording a goodwill impairment charge of $1.5 million. See Note 7.Goodwill.

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