Basis of Presentation

Organization and Nature of Operations

Lonestar Resources US Inc. (“Lonestar” or the "Company") is a Delaware corporation whose common stock is listed and traded on the Nasdaq Global Select Market under the symbol “LONE”. Lonestar is an independent oil and natural gas company focused on the exploration, development and production of unconventional oil, natural gas liquids and natural gas in the Eagle Ford Shale play in South Texas.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of Lonestar Resources US Inc., and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These financial statements and the notes thereto should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 13, 2019 (the “Form 10-K”). Unless indicated otherwise or the context requires, the terms “we,” “our,” “us,” “Company” or “Lonestar,” refer to Lonestar Resources US Inc. and its subsidiaries.

The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the year. In management’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of our consolidated financial position as of September 30, 2019 and our consolidated results of operations for the three and nine months ended September 30, 2019 and 2018.

Net Income (Loss) per Common Share

The two-class method is utilized to compute earnings per common share as our Class A Participating Preferred Stock (the "Preferred Stock") is considered a participating security. Under the two-class method, losses are allocated only to those securities that have a contractual obligation to share in the losses of the Company. The Preferred Stock is not obligated to absorb Company losses and accordingly is not allocated losses. Net income attributable to common stockholders is allocated between common stock and participating securities based on the weighted average number of common shares and participating securities outstanding for the period.

Basic earnings per share is computed by dividing the allocated net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Diluted earnings per share is computed similarly except that the denominator is increased to include dilutive potential common shares. Potential common shares consist of warrants, equity compensation awards and Preferred Stock. In certain circumstances adjustment to the numerator is also required for changes in income or loss resulting from the potential common shares. Basic weighted average common shares exclude shares of non-vested restricted stock. As these restricted shares vest, they will be included in the shares outstanding used to calculate basic earnings per share.

The following is a reconciliation of basic and diluted earnings per share:



In thousands, except shares and per-share data	Three Months Ended September 30,						Nine Months Ended September 30,
In thousands, except shares and per-share data	2019			2018			2019			2018
Numerator - Basic
Net income (loss) attributable to common stockholders	$	14,058		$	(21,685	)	$	(35,394	)	$	(63,636	)
Less: allocation to participating securities	(5,494		)	—			—			—
Net income (loss) allocated to common stockholders - basic	$	8,564		$	(21,685	)	$	(35,394	)	$	(63,636	)

Numerator - Diluted
Net income (loss) allocated to common stockholders - basic	$	8,564		$	(21,685	)	$	(35,394	)	$	(63,636	)
Restricted stock unit compensation gain, net of tax	(80		)	—			—			—
Net income (loss) allocated to common stockholders - diluted	$	8,484		$	(21,685	)	$	(35,394	)	$	(63,636	)

Denominator
Weighted average number of common shares - basic	24,933,853			24,599,744			24,852,994			24,598,816
Restricted stock units converted under the treasury stock method	397,957			—			—			—
Weighted average number of common shares - diluted	25,331,810			24,599,744			24,852,994			24,598,816

Earnings per share
Basic	$	0.34		$	(0.88	)	$	(1.42	)	$	(2.59	)
Diluted	$	0.33		$	(0.88	)	$	(1.42	)	$	(2.59	)

The following weighted average securities could potentially dilute earnings per share for the periods indicated, but were excluded from the computation of diluted net income (loss) per share, as their effect would have been antidilutive:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Preferred stock	15,997,411	14,635,078	15,649,269	14,316,581
Warrants	760,000	760,000	760,000	760,000
Stock appreciation rights	1,010,000	1,017,500	1,010,000	901,108
Restricted stock units	—	1,037,209	1,457,701	890,744

Recent Accounting Pronouncements

Leases. In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, Leases ("ASU 2016-02"). The standard requires lessees to recognize a right of use asset ("ROU asset") and lease liability on the balance sheet for the rights and obligations created by leases. ASU 2016-02 also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11"), which provides for an alternative transition method by allowing entities to initially apply the new leases standard at the adoption date, January 1, 2019, and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Comparative periods presented in the financial statements continue to be in accordance with ASC Topic 840, Leases.

In the normal course of business, the Company enters into lease agreements to support its exploration and development operations and lease assets, such as drilling rigs, field services, well equipment, office space and other assets. The Company adopted the new standard on the effective date of January 1, 2019, using a modified retrospective approach as permitted under ASU 2018-11.

The new standard provides a number of optional practical expedients in transition. The Company:

• elected the package of 'practical expedients', which permits the Company not to reassess, under the new standard, its prior conclusions about lease identification, lease classification and initial direct costs;

• elected the practical expedient pertaining to land easements and plan to account for existing land easements under the Company's current accounting policy;

• elected the short-term lease recognition exemption for all leases that qualify and, as such, no ROU asset or lease liability has been recorded on the balance sheet and no transition adjustment has been required for short-term leases; and

• elected the practical expedient to not separate lease and non-lease components for all of the Company's leases.

The Company did not elect the hindsight practical expedient in determining the lease term and assessing impairment of ROU assets when transitioning to ASU 2016-02.

Upon adoption, the Company recognized additional operating lease liabilities of approximately $0.3 million with corresponding ROU assets. See Note 4. Leases for more information.