3. Acquisitions and Divestitures

On August 2, 2017, the Company closed on the purchase of an office building with an acquisition price approximating $10 million. The building will be primarily used for the Company’s headquarters and is located in Fort Worth, Texas.

On June 15, 2017, the Company closed an acquisition with Battlecat Oil & Gas, LLC (“Battlecat”) whereby the Company acquired oil and gas properties in the Eagle Ford Shale play in DeWitt, Gonzales and Karnes County, Texas (the “Battlecat Acquisition”). These assets are expected to significantly expand our asset base and drilling locations. The total purchase consideration of approximately $59.8 million consisted of $55.0 million in cash and 1,184,632 shares of Series B Convertible Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”) at a value of approximately $4.8 million. Allocation of the purchase consideration was as follows: $56.3 million to proved reserves; $2.9 million to unproved reserves and $0.6 million to unevaluated acreage and other assets. Additionally, the Company recorded an asset retirement obligation of approximately $0.2 million, resulting in fair value of net assets acquired of approximately $59.6 million. The Company accounted for the acquisition as a business combination under ASC Topic 805. Acquisition related costs of approximately $1.5 million were charged to Acquisition Costs in the Consolidated Statements of Operations & Comprehensive Income (Loss). The effective date of the acquisition was April 1, 2017.

On June 15, 2017, the Company closed an acquisition with SN Marquis LLC (a subsidiary of Sanchez Energy Corporation) (“Marquis”) whereby the Company acquired oil and gas properties in the Eagle Ford Shale play in Fayette, Gonzales and Lavaca County, Texas (the “Marquis Acquisition”). These assets are expected to significantly expand our asset base and production. The total purchase consideration of approximately $50.0 million consisted of $44.0 million in cash and 1,500,000 shares of Series B Preferred Stock at a value of approximately $6.0 million. Allocation of the purchase price was as follows: $48.0 million to proved reserves; $0.6 to unproved reserves and $1.4 million to land, building and other assets. Additionally, the Company recorded an asset retirement obligation of approximately $1.9 million, resulting in fair value of net assets acquired of approximately $48.1 million. The Company accounted for the acquisition as a business combination under ASC Topic 805. Acquisition related costs of approximately $1.2 million were charged to Acquisition Costs in the Consolidated Statements of Operations & Comprehensive Income (Loss). The effective date of the acquisition was January 1, 2017.

Pro Forma Operating Results

The following unaudited pro forma combined financial information for the three and nine months ended September 30, 2017 and 2016 is based on the historical consolidated financial statements of the Company adjusted to reflect as if the Battlecat Acquisition and the Marquis Acquisition had closed and related financing had occurred on January 1, 2016. The unaudited pro forma combined financial information includes adjustments primarily for revenues and expenses for the acquired properties, depreciation, depletion, amortization and accretion, and interest expense. The unaudited pro forma combined financial statements give effect to the events set forth below:

•

The issuance of 5,400 shares of Series A-1 Preferred Stock and 74,600 shares of Series A-2 Preferred Stock (each as defined below) to Chambers Energy Capital III, LP (“Chambers”) for $80 million to finance a portion of the Battlecat Acquisition and the Marquis Acquisition, at an initial conversion price of $6.00 per share, subject to certain adjustments.

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The borrowing of approximately $24 million on our Senior Secured Credit Facility to finance a portion of the Battlecat Acquisition and the Marquis Acquisition.

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The issuance of 1,500,000 shares of the Company’s Series B Preferred Stock to SN UR Holdings, LLC (a subsidiary of Sanchez Energy Corporation).

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The issuance of 1,184,632 shares of the Company’s Series B Preferred Stock to Battlecat Oil & Gas, LLC.

	Three months ended September 30, 2017
	Lonestar			Marquis		Battlecat		Pro Forma Adjustments			Pro Forma Lonestar
Revenues	$	26,883		$	—	$	—	$	—		$	26,883
Net income (loss) attributable to common stockholders		(8,585	)		—		—		—			(8,585	)
Net income (loss) per common share, basic and diluted		(0.39	)		—		—		—			(0.39	)


	Three months ended September 30, 2016
	Lonestar			Marquis		Battlecat		Pro Forma Adjustments			Pro Forma Lonestar
Revenues	$	15,538		$	7,318	$	1,090	$	—		$	23,946
Net income (loss) attributable to common stockholders		(11,260	)		4,127		516		(5,470	)		(12,088	)
Net income (loss) per common share, basic and diluted		(1.44	)		—		—		—			(1.54	)


	Nine months ended September 30, 2017
	Lonestar			Marquis		Battlecat		Pro Forma Adjustments			Pro Forma Lonestar
Revenues	$	62,634		$	11,983	$	1,802	$	—		$	76,419
Net income (loss) attributable to common stockholders		(28,977	)		7,688		603		922			(19,764	)
Net income (loss) per common share, basic and diluted		(1.33	)		—		—		—			(0.91	)


	Nine months ended September 30, 2016
	Lonestar			Marquis		Battlecat		Pro Forma Adjustments			Pro Forma Lonestar
Revenues	$	44,537		$	22,234	$	2,919	$	—		$	69,690
Net income (loss) attributable to common stockholders		(35,401	)		12,029		1,617		(10,561	)		(32,317	)
Net income (loss) per common share, basic and diluted		(4.64	)		—		—		—			(4.24	)

Pro forma adjustments to net income (loss) attributable to common stockholders consists of depreciation, depletion, amortization and accretion calculations, additional interest expense, adjustments for income tax (expense) benefit, and dividends on preferred stock issued to complete the acquisitions. The effect on net income (loss) per common share, basic and diluted, is a result of adjustments to Lonestar revenue and net income (loss) for revenue and expenses for acquired properties as well as the pro forma adjustments to arrive at pro forma Lonestar net income (loss) attributable to common stockholders.