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EARTHSTONE ENERGY INC - Quarter Report: 2023 March (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________ 
FORM 10-Q
_________________________________________________________ 
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2023
Or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-35049  
earthstone_logoa30.jpg
_________________________________________________________ 
EARTHSTONE ENERGY, INC.
(Exact name of registrant as specified in its charter)
 _________________________________________________________ 
 
Delaware 84-0592823
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1400 Woodloch Forest Drive, Suite 300
The Woodlands, Texas 77380
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:  (281) 298-4246
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per shareESTENew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒  No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer 
☐
  Accelerated filer ☒
Non-accelerated filer 
☐
  Smaller reporting company 
☐
Emerging growth company   
☐
    
 

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐   No  ☒
As of April 25, 2023, there were 140,457,315 shares of common stock outstanding, including 106,197,674 shares of Class A Common Stock, $0.001 par value per share, and 34,259,641 shares of Class B Common Stock, $0.001 par value per share.

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
 March 31,December 31,
ASSETS20232022
Current assets:  
Cash$— $— 
Accounts receivable:
Oil, natural gas, and natural gas liquids revenues133,633 161,531 
Joint interest billings and other, net of allowance of $19 and $19 at March 31, 2023 and December 31, 2022, respectively
27,518 34,549 
Derivative asset14,444 31,331 
Prepaid expenses and other current assets24,658 18,854 
Total current assets200,253 246,265 
Oil and gas properties, successful efforts method:
Proved properties4,195,206 3,987,901 
Unproved properties282,228 282,589 
Land5,482 5,482 
Total oil and gas properties4,482,916 4,275,972 
Accumulated depreciation, depletion and amortization(729,318)(619,196)
Net oil and gas properties3,753,598 3,656,776 
Other noncurrent assets:
Office and other equipment, net of accumulated depreciation and amortization of $5,657 and $5,273 at March 31, 2023 and December 31, 2022, respectively
5,571 5,394 
Derivative asset73 9,117 
Operating lease right-of-use assets6,573 4,569 
Other noncurrent assets17,407 15,280 
TOTAL ASSETS$3,983,475 $3,937,401 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$40,148 $91,815 
Revenues and royalties payable194,900 163,368 
Accrued expenses123,704 80,942 
Asset retirement obligation881 948 
Derivative liability3,864 14,053 
Advances8,242 7,312 
Operating lease liabilities890 842 
Finance lease liabilities880 802 
Other current liabilities11,447 16,202 
Total current liabilities384,956 376,284 
Noncurrent liabilities:
Long-term debt, net991,855 1,053,879 
Deferred tax liability156,937 138,336 
Asset retirement obligation29,941 29,611 
Derivative liability3,698 — 
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Operating lease liabilities3,758 3,889 
Finance lease liabilities865 876 
Other noncurrent liabilities3,735 10,509 
Total noncurrent liabilities1,190,789 1,237,100 
Commitments and Contingencies (Note 13)
Equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued or outstanding
— — 
Class A Common Stock, $0.001 par value, 200,000,000 shares authorized; 106,303,568 and 105,547,139 issued and outstanding at March 31, 2023 and December 31, 2022, respectively
106 106 
Class B Common Stock, $0.001 par value, 50,000,000 shares authorized; 34,259,641 and 34,259,641 issued and outstanding at March 31, 2023 and December 31, 2022, respectively
34 34 
Additional paid-in capital1,343,965 1,346,463 
Retained earnings353,259 292,711 
Total Earthstone Energy, Inc. equity1,697,364 1,639,314 
Noncontrolling interest710,366 684,703 
Total equity2,407,730 2,324,017 
TOTAL LIABILITIES AND EQUITY$3,983,475 $3,937,401 
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
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EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts) 
Three Months Ended
 March 31,
 20232022
REVENUES 
Oil$317,378 $137,752 
Natural gas30,018 22,958 
Natural gas liquids65,740 35,440 
Total revenues413,136 196,150 
OPERATING COSTS AND EXPENSES
Lease operating expense87,978 21,631 
Production and ad valorem taxes33,153 13,315 
Depreciation, depletion and amortization110,750 34,326 
General and administrative expense17,579 12,306 
Transaction costs193 10,742 
Accretion of asset retirement obligation629 397 
Exploration expense466 92 
Total operating costs and expenses250,748 92,809 
Loss on sale of oil and gas properties(3,140)— 
Income from operations159,248 103,341 
OTHER INCOME (EXPENSE)
Interest expense, net(22,856)(5,318)
Write-off of deferred financing costs(5,109)— 
Loss on derivative contracts, net(26,464)(151,480)
Other income, net(7)47 
Total other income (expense)(54,436)(156,751)
Income (loss) before income taxes104,812 (53,410)
Income tax (expense) benefit (18,601)1,533 
Net income (loss)86,211 (51,877)
Less: Net income (loss) attributable to noncontrolling interest25,663 (18,399)
Net income (loss) attributable to Earthstone Energy, Inc.$60,548 $(33,478)
Net income (loss) per common share attributable to Earthstone Energy, Inc.:
Basic$0.57 $(0.53)
Diluted$0.56 $(0.53)
Weighted average common shares outstanding:
Basic105,972,734 63,445,649 
Diluted107,525,017 63,445,649 
 
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
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EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(In thousands, except share amounts)

 Issued Shares       
 Class A Common StockClass B Common StockClass A Common StockClass B Common StockAdditional Paid-in CapitalRetained EarningsTotal Earthstone Energy, Inc. EquityNoncontrolling InterestTotal Equity
At December 31, 2022105,547,139 34,259,641 $106 $34 $1,346,463 $292,711 $1,639,314 $684,703 $2,324,017 
Stock-based compensation expense— — — — 3,844 — 3,844 — 3,844 
Vesting of restricted stock units, net of taxes paid756,429 — — — — — — — — 
Class A Shares retained by the Company in exchange for payment of recipient mandatory tax withholdings460,473 — — — (6,342)— (6,342)— (6,342)
Cancellation of Treasury shares(460,473)— — — — — — — — 
Net income— — — — — 60,548 60,548 25,663 86,211 
At March 31, 2023106,303,568 34,259,641 $106 $34 $1,343,965 $353,259 $1,697,364 710,366 $2,407,730 

 Issued Shares       
Class A Common StockClass B Common StockClass A Common StockClass B Common StockAdditional Paid-in Capital(Accumulated Deficit)Total Earthstone Energy, Inc. EquityNoncontrolling InterestTotal Equity
At December 31, 202153,467,307 34,344,532 $53 $34 $718,181 $(159,774)$558,494 $487,767 $1,046,261 
Stock-based compensation expense - equity portion— — — — 2,301 — 2,301 — 2,301 
Shares issued in connection with Chisholm Acquisition19,417,476 — 19 — 249,496 — 249,515 — 249,515 
Vesting of restricted stock units, net of taxes paid483,251 — 1 — (1)— — — — 
Class A Shares retained by the Company in exchange for payment of recipient mandatory tax withholdings286,892 — — — (3,898)— (3,898)— (3,898)
Cancellation of Treasury shares(286,892)— — — — — — — — 
Class B Common Stock converted to Class A Common Stock72,766 (72,766)— — 1,014 — 1,014 (1,014)— 
Net loss— — — — — (33,478)(33,478)(18,399)(51,877)
At March 31, 202273,440,800 34,271,766 $73 $34 $967,093 $(193,252)$773,948 $468,354 $1,242,302 

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
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EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)  
 For the Three Months Ended
March 31,
 20232022
Cash flows from operating activities: 
Net income (loss)$86,211 $(51,877)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization110,750 34,326 
Accretion of asset retirement obligations629 397 
Settlement of asset retirement obligations(539)(201)
Loss on sale of oil and gas properties3,140 — 
Gain on sale of office and other equipment(33)(22)
Total loss on derivative contracts, net26,464 151,480 
Operating portion of net cash paid in settlement of derivative contracts(7,025)(31,686)
Stock-based compensation - equity and liability awards4,618 5,830 
Deferred income taxes18,601 (1,327)
Write-off of deferred financing costs5,109 — 
Amortization of deferred financing costs1,769 627 
Changes in assets and liabilities:
(Increase) decrease in accounts receivable34,955 (48,735)
(Increase) decrease in prepaid expenses and other current assets(5,752)(1,896)
Increase (decrease) in accounts payable and accrued expenses(53,028)18,254 
Increase (decrease) in revenues and royalties payable31,532 14,932 
Increase (decrease) in advances929 (7,100)
Net cash provided by operating activities258,330 83,002 
Cash flows from investing activities:
Acquisition of oil and gas properties, net of cash acquired(737)(324,198)
Additions to oil and gas properties(181,569)(55,925)
Additions to office and other equipment(291)(590)
Proceeds from sales of oil and gas properties1,843 — 
Net cash used in investing activities(180,754)(380,713)
Cash flows from financing activities:
Proceeds from borrowings under Credit Agreement958,360 582,498 
Repayments of borrowings under Credit Agreement(776,338)(278,269)
Repayment of term loan(250,000)— 
Cash paid related to the exchange and cancellation of Class A Common Stock(6,342)(3,898)
Cash paid for finance leases(204)— 
Deferred financing costs(3,052)(6,151)
Net cash (used in) provided by financing activities(77,576)294,180 
Net decrease in cash— (3,531)
Cash at beginning of period— 4,013 
Cash at end of period$— $482 

 The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
Earthstone Energy, Inc., a Delaware corporation (“Earthstone” and together with its consolidated subsidiaries, the “Company”), is a growth-oriented independent oil and natural gas development and production company. In addition, the Company is active in corporate mergers and the acquisition of oil and natural gas properties that have production and future development opportunities. The Company's operations are all in the upstream segment of the oil and natural gas industry and all its properties are onshore in Texas and New Mexico.
Earthstone is the sole managing member of Earthstone Energy Holdings, LLC, a Delaware limited liability company (together with its wholly-owned consolidated subsidiaries, “EEH”), with a controlling interest in EEH. Earthstone, together with its wholly-owned subsidiary, Lynden Energy Corp., a corporation organized under the laws of British Columbia (“Lynden Corp”), and Lynden Corp’s wholly-owned consolidated subsidiary, Lynden USA Inc., a Utah corporation (“Lynden US”), collectively own a 75.6% interest in EEH. The Company consolidates the financial results of EEH and presents a noncontrolling interest in the Condensed Consolidated Financial Statements representing the economic interests of EEH’s members other than Earthstone and Lynden US. Each of the outstanding shares of Class A common stock, $0.001 par value per share of Earthstone (the “Class A Common Stock”), has a corresponding unit of limited liability company interests denominated as a common unit in EEH (an “EEH Unit”). Each of the outstanding shares of Class B common stock, $0.001 par value per share of Earthstone (the “Class B Common Stock” and with the Class A Common Stock, “Common Stock”), has a corresponding EEH Unit and collectively represent the noncontrolling interests in the Condensed Consolidated Financial Statements.
At any time, at the holder’s discretion, a holder of an EEH Unit and a share of Class B Common Stock may receive a share of Class A Common Stock in exchange for an EEH Unit and a corresponding share of Class B Common Stock, resulting in the immediate cancellation of both the EEH Unit and share of Class B Common Stock exchanged. As of March 31, 2023, outstanding common shares of Earthstone, along with the equal number of corresponding outstanding EEH Units, were approximately 140.6 million, consisting of 106.3 million shares of Class A Common Stock and 34.3 million shares of Class B Common Stock.
The accompanying unaudited Condensed Consolidated Financial Statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial statements. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. The accompanying unaudited Condensed Consolidated Financial Statements and notes should be read in conjunction with the financial statements and notes included in Earthstone’s 2022 Annual Report on Form 10-K.
The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for the fair presentation of the Company's financial position, results of operations and cash flows for the periods presented. Any such adjustments are of a normal, recurring nature. The Company’s Condensed Consolidated Balance Sheet as of December 31, 2022 is derived from the audited Condensed Consolidated Financial Statements at that date.
Note 2. Noncontrolling Interest
Earthstone consolidates the financial results of EEH and its subsidiaries and records a noncontrolling interest for the economic interest in Earthstone held by the members of EEH other than Earthstone and Lynden US. Net income (loss) attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 represents the portion of net income (loss) attributable to the economic interest in the Company held by the members of EEH other than Earthstone and Lynden US. Noncontrolling interest in the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 represents the portion of net assets of the Company attributable to the members of EEH other than Earthstone and Lynden US.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents the changes in noncontrolling interest for the three months ended March 31, 2023: 
 EEH Units Held
By Earthstone
and Lynden US		%EEH Units Held
By Others		%Total EEH
Units
Outstanding
As of December 31, 2022105,547,139 75.5 %34,259,641 24.5 %139,806,780 
EEH Units issued in connection with the vesting of restricted stock units and performance-based units756,429 — 756,429 
As of March 31, 2023106,303,568 75.6 %34,259,641 24.4 %140,563,209 
Note 3. Fair Value Measurements
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 provides a framework for measuring fair value, establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and requires consideration of the counterparty’s creditworthiness when valuing certain assets.
The three-level fair value hierarchy for disclosure of fair value measurements defined by FASB ASC Topic 820 is as follows:
Level 1 – Unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. An active market is defined as a market where transactions for the financial instrument occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Inputs, other than quoted prices within Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 – Prices or valuations that require unobservable inputs that are both significant to the fair value measurement and unobservable. Valuation under Level 3 generally involves a significant degree of judgment from management.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instrument’s complexity. The Company reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level. There were no transfers between fair value hierarchy levels for the three months ended March 31, 2023.
Fair Value on a Recurring Basis
Derivative Financial Instruments
Derivative financial instruments are carried at fair value and measured on a recurring basis. The derivative financial instruments consist of fixed price swaps, basis swaps, costless collars and deferred premium put options. The Company’s commodity price hedges are valued based on discounted future cash flow models that are primarily based on published forward commodity price curves; thus, these inputs are designated as Level 2 within the valuation hierarchy.
The fair values of derivative instruments in asset positions include measures of counterparty nonperformance risk, and the fair values of derivative instruments in liability positions include measures of the Company’s nonperformance risk. These measurements were not material to the Condensed Consolidated Financial Statements.
Share-based Compensation Liability
Certain of our performance-based stock awards (“PSUs” or “performance units”) may be payable in cash. The Company classifies the awards that may be settled in cash as liability awards. These awards are valued quarterly utilizing the Monte Carlo Simulation pricing model, which calculates multiple potential outcomes for an award and establishes grant date fair value based on the most likely outcome. The inputs for the Monte Carlo model are designated as Level 2 within the valuation hierarchy. The share-based compensation liability related to the PSU liability awards is included in Other noncurrent liabilities in the Condensed Consolidated Balance Sheet as of March 31, 2023.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the fair value of the Company’s financial assets and liabilities, by level within the fair-value hierarchy (in thousands):
March 31, 2023Level 1Level 2Level 3Total
Financial assets    
Derivative asset - current$— $14,444 $— $14,444 
Derivative asset - noncurrent— 73 — 73 
Total financial assets$— $14,517 $— $14,517 
Financial liabilities
Derivative liability - current$— $3,864 $— $3,864 
Derivative liability - noncurrent— 3,698 — 3,698 
Share-based compensation liability - current— 9,563 — 9,563 
Share-based compensation liability - noncurrent— 1,440 — 1,440 
Total financial liabilities$— $18,565 $— $18,565 
December 31, 2022
Financial assets    
Derivative asset - current$— $31,331 $— $31,331 
Derivative asset - noncurrent— 9,117 — 9,117 
Total financial assets$— $40,448 $— $40,448 
Financial liabilities
Derivative liability - current$— $14,053 $— $14,053 
Share-based compensation liability - current— 14,411 — 14,411 
Share-based compensation liability - noncurrent— 10,357 — 10,357 
Total financial liabilities$— $38,821 $— $38,821 
Other financial instruments include cash, accounts receivable and payable, and revenue royalties. The carrying amount of these instruments approximates fair value because of their short-term nature. The Company’s long-term debt obligation bears interest at floating market rates, therefore carrying amounts and fair value are approximately equal.
Fair Value on a Nonrecurring Basis
The Company applies the provisions of the fair value measurement standard on a non-recurring basis to its non-financial assets and liabilities, including oil and gas properties, business combinations and asset retirement obligations. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments if events or changes in certain circumstances indicate that adjustments may be necessary. No triggering events that require assessment were observed during the three months ended March 31, 2023. See further discussion in Note 6. Oil and Natural Gas Properties.
Items Not Recorded at Fair Value
The carrying amounts reported on the unaudited consolidated balance sheets for cash, accounts receivable, prepaid expenses, other current assets accounts payable, revenues and royalties payable, accrued expenses and other current liabilities approximate their fair values.
The Company has not elected to account for its debt instruments at fair value. Borrowings under the revolving tranche and term loan tranche of the Company’s credit facility bear interest at floating market rates, therefore the carrying amounts and fair values were approximately equal as of March 31, 2023 and December 31, 2022. The carrying value of EEH’s 8.000% Senior Notes due 2027, net of $10.3 million of deferred financing costs, of $539.7 million and accrued interest of $20.3 million had an estimated fair value of $542.2 million as of March 31, 2023. There were no other debt instruments outstanding at December 31, 2022.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4. Derivative Financial Instruments
Commodity Derivative Instruments
The Company’s hedging activities primarily consist of derivative instruments entered into in order to hedge against changes in oil and natural gas prices through the use of fixed price swap agreements, costless collars and deferred premium put options. Swaps exchange floating price risk in the future for a fixed price at the time of the hedge. Costless collars set both a maximum (sold ceiling) and a minimum (bought floor) future price. A deferred premium put option represents a bought floor except, unlike a standard put option, the premium is not paid until the expiration of the option. Consistent with its hedging policy, the Company has entered into a series of derivative instruments to hedge a portion of its expected oil and natural gas production through December 31, 2024 and maintains certain natural gas basis swaps through December 31, 2025. Typically, these derivative instruments require payments to (receipts from) counterparties based on specific indices as required by the derivative agreements. Although not risk free, the Company believes these instruments reduce its exposure to oil and natural gas price fluctuations and, thereby, allow the Company to achieve a more predictable cash flow. The Company does not enter into derivative instruments for trading or other speculative purposes.
The Company’s derivative instruments are cash flow hedge transactions in which it is hedging the variability of cash flow related to a forecasted transaction. These transactions are recorded in the Condensed Consolidated Financial Statements in accordance with FASB ASC Topic 815. The Company has accounted for these transactions using the mark-to-market accounting method. Generally, the Company incurs accounting losses on derivatives during periods where prices are rising and gains during periods where prices are falling which may cause significant fluctuations in the Condensed Consolidated Balance Sheets and Consolidated Statements of Operations.
The Company nets its derivative instrument fair value amounts executed with each counterparty pursuant to an International Swap Dealers Association Master Agreement (“ISDA”), which provides for net settlement over the term of the contract. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.
The following table sets forth the Company's open crude oil and natural gas derivative contracts as of March 31, 2023. When aggregating multiple contracts, the weighted average contract price is disclosed.
 Price Swaps
PeriodCommodityVolume
(Bbls / MMBtu)		Weighted Average Price
($/Bbl / $/MMBtu)
Q2 - Q4 2023Crude Oil1,237,500 $76.94 
Q2 - Q4 2023Crude Oil Basis Swap (1)7,103,500 $0.92 
Q2 - Q4 2023Natural Gas3,437,500 $3.35 
Q2 - Q4 2023Natural Gas Basis Swap (2)38,500,000 $(1.67)
Q1 - Q4 2024Natural Gas Basis Swap (2)36,600,000 $(1.05)
Q1 - Q4 2025Natural Gas Basis Swap (2)14,600,000 $(0.74)
(1)The basis differential price is between WTI Midland Crude and the WTI NYMEX.
(2)The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.
 Costless Collars
PeriodCommodityVolume
(Bbls / MMBtu)		Bought Floor
($/Bbl / $/MMBtu)		Sold Ceiling
($/Bbl / $/MMBtu)
Q2 - Q4 2023Crude Oil Costless Collar2,117,500 $62.47 $87.56 
Q2 - Q4 2023Natural Gas Costless Collar14,797,500 $3.37 $5.61 
 Deferred Premium Puts
PeriodCommodityVolume
(Bbls / MMBtu)		$/Bbl (Put Price)$/Bbl (Net of Premium)
Q2 - Q4 2023Crude Oil1,364,500 $69.67 $64.24 
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the location and fair value amounts of all derivative instruments in the Condensed Consolidated Balance Sheets as well as the gross recognized derivative assets, liabilities, and amounts offset in the Condensed Consolidated Balance Sheets (in thousands): 
  March 31, 2023December 31, 2022
Derivatives not
designated as hedging
contracts under ASC
Topic 815		Balance Sheet LocationGross
Recognized
Assets /
Liabilities		Gross
Amounts
Offset		Net
Recognized
Assets /
Liabilities		Gross
Recognized
Assets /
Liabilities		Gross
Amounts
Offset		Net
Recognized
Assets /
Liabilities
Commodity contractsDerivative asset - current$34,046 $(19,602)$14,444 $51,803 $(20,472)$31,331 
Commodity contractsDerivative liability - current$23,466 $(19,602)$3,864 $34,525 $(20,472)$14,053 
Commodity contractsDerivative asset - noncurrent$462 $(389)$73 $9,117 $— $9,117 
Commodity contractsDerivative liability - noncurrent$4,087 $(389)$3,698 $— $— $— 
The following table summarizes the location and amounts of the Company’s realized and unrealized gains and losses on derivatives instruments in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows (in thousands): 
Derivatives not designated as hedging contracts under ASC Topic 815Three Months Ended
March 31,
Statement of Cash Flows LocationStatement of Operations Location20232022
Unrealized lossNot separately presentedNot separately presented$(19,439)$(119,794)
Realized lossOperating portion of net cash paid in settlement of derivative contractsNot separately presented(7,025)(31,686)
Total (gain) loss on derivative contracts, netGain (loss) on derivative contracts, net$(26,464)$(151,480)
Note 5. Acquisitions and Divestitures
Titus Agreement
On June 27, 2022, Earthstone and EEH, together as buyer, and Titus Oil & Gas Production, LLC, a Delaware limited liability company, Titus Oil & Gas Corporation, a Delaware corporation, Lenox Minerals, LLC, a Delaware limited liability company and Lenox Mineral Title Holdings, Inc., a Delaware corporation (collectively, “Titus I”), as seller, entered into a purchase and sale agreement (the “Titus I Purchase Agreement”) which provided that EEH or its designated wholly-owned subsidiary would acquire (the “Titus I Acquisition”) interests in oil and gas leases and related property of Titus I located in the Northern Delaware Basin of New Mexico (the “Titus I Assets”). Also on June 27, 2022, Earthstone and EEH, as buyer, and Titus Oil & Gas Production II, LLC, a Delaware limited liability company, Lenox Minerals II, LLC, a Delaware limited liability company and Lenox Mineral Holdings II, Inc., a Delaware limited liability company (collectively, “Titus II” and together with Titus I, “Titus”), as seller, entered into a purchase and sale agreement (the “Titus II Purchase Agreement” and together with the Titus I Purchase Agreement, the “Titus Purchase Agreements”) which provided that EEH or its designated wholly-owned subsidiary would acquire (the “Titus II Acquisition” and together with the Titus I Acquisition, the “Titus Acquisition”) interests in oil and gas leases and related property of Titus II located in the Northern Delaware Basin of New Mexico (the “Titus II Assets” and together with the Titus I Assets, the “Titus Assets”).
On August 10, 2022, the transactions contemplated in the Titus Purchase Agreements were consummated whereby EEH acquired the Titus Assets for aggregate consideration of approximately $568.5 million in cash, net of customary purchase price adjustments, and 3,857,015 shares Class A Common Stock (the “Titus Acquisition”).
The Titus Acquisition was accounted for as an asset acquisition. The consideration paid by us and allocation of that amount to the underlying assets acquired, on a relative fair value basis, was recorded on our books as of the date of the closing of the Titus Acquisition. Additionally, costs directly related to the Titus Acquisition were capitalized as a component of the purchase price. The consideration transferred, assets acquired and liabilities assumed by the Company were recorded as follows (in thousands, except share amounts and stock price):
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consideration:
Shares of Class A Common Stock issued3,857,015 
Class A Common Stock price as of August 10, 2022$13.89 
Class A Common Stock consideration53,574 
Cash consideration567,288 
Direct transaction costs1,173 
Total consideration transferred$622,035 
Assets acquired:
Oil and gas properties$634,877 
Amount attributable to assets acquired$634,877 
Liabilities assumed:
Current liabilities$11,928 
Noncurrent liabilities - ARO914 
Amount attributable to liabilities assumed$12,842 
Bighorn Acquisition
On January 30, 2022, Earthstone, EEH, as buyer, and Bighorn Asset Company, LLC, a Delaware limited liability company (“Bighorn”), as seller, entered into a purchase and sale agreement (the “Bighorn Agreement”). Pursuant to the Bighorn Agreement, EEH acquired (the “Bighorn Acquisition”) interests in oil and gas leases and related property of Bighorn located in the Midland Basin, Texas (the “Bighorn Assets”).
On April 14, 2022, Earthstone, EEH and Bighorn consummated the transactions contemplated in the Bighorn Agreement whereby EEH acquired the Bighorn Assets for aggregate consideration of approximately $628.2 million in cash, net of customary purchase price adjustments, and 5,650,977 shares Class A Common Stock.
The Bighorn Acquisition was accounted for as an asset acquisition. The consideration paid by us and allocation of that amount to the underlying assets acquired, on a relative fair value basis, was recorded on our books as of the date of the closing of the Bighorn Acquisition. Additionally, costs directly related to the Bighorn Acquisition were capitalized as a component of the purchase price. The consideration transferred, assets acquired and liabilities assumed by the Company were recorded as follows (in thousands, except share amounts and stock price):
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consideration:
Shares of Class A Common Stock issued5,650,977 
Class A Common Stock price as of April 14, 2022$13.76 
Class A Common Stock consideration77,757 
Cash consideration625,888 
Direct transaction costs2,352 
Total consideration transferred$705,997 
Assets acquired:
Current assets$769 
Oil and gas properties746,167 
Amount attributable to assets acquired$746,936 
Liabilities assumed:
Suspense payable$25,710 
Other current liabilities2,035 
Noncurrent liabilities - ARO13,194 
Amount attributable to liabilities assumed$40,939 
Chisholm Acquisition
On December 15, 2021, Earthstone, EEH, as buyer, Chisholm Energy Operating, LLC (“OpCo”) and Chisholm Energy Agent, Inc. (“Agent” and collectively with OpCo, “Chisholm”), collectively as seller, entered into a Purchase and Sale Agreement (the “Chisholm Agreement”), which provided that EEH would acquire (the “Chisholm Acquisition”) interests in oil and gas leases and related property of Chisholm located in Lea County and Eddy County, New Mexico (the “Chisholm Assets”).
On February 15, 2022, Earthstone, EEH and Chisholm consummated the transactions contemplated in the Chisholm Agreement whereby EEH acquired the Chisholm Assets for aggregate consideration consisting of: (i) approximately $313.9 million in cash, net of customary purchase price adjustments, paid at the closing of the Chisholm Acquisition, (ii) $70 million in cash paid on April 15, 2022 and (iii) 19,417,476 shares of the Class A Common Stock. The fair value of each share of Class A Common Stock was determined using the closing sales price of $12.85 per share on February 15, 2022. A Significant Shareholder, as identified below, was the majority shareholder of Chisholm as of the closing of the Chisholm Acquisition. See Note 12. Related Party Transactions for further discussion.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Chisholm Acquisition has been accounted for as a business combination using the acquisition method of accounting, with Earthstone identified as the acquirer. The consideration transferred, fair value of assets acquired and liabilities assumed by Earthstone were recorded as follows (in thousands, except share amounts and stock price):
Consideration:
Shares of Class A Common Stock issued19,417,476 
Class A Common Stock price as of February 15, 2022$12.85 
Class A Common Stock consideration249,515 
Cash consideration383,877 
Total consideration transferred$633,392 
Fair value of assets acquired:
Oil and gas properties$642,391 
Amount attributable to assets acquired$642,391 
Fair value of liabilities assumed:
Other current liabilities$3,028 
Asset retirement obligation - noncurrent5,971 
Amount attributable to liabilities assumed$8,999 
The fair value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair value of oil and gas properties and asset retirement obligations were measured using the discounted cash flow technique of valuation.
Significant inputs to the valuation of oil and gas properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, (iv) future plugging and abandonment costs, (v) estimated future cash flows, and (vi) a market-based weighted average cost of capital rate. These inputs require significant judgments and estimates and are the most sensitive and subject to change.
Divestitures
During the three months ended March 31, 2023, the Company sold certain non-core properties for approximately $1.8 million in cash, resulting in net losses of approximately $3.1 million recorded in Loss on sale of oil and gas properties, net in the Condensed Consolidated Statements of Operations.
There were no material divestitures during the three months ended March 31, 2022.
Note 6. Oil and Natural Gas Properties
The Company follows the successful efforts method of accounting for its oil and natural gas properties. Under this method, costs to acquire oil and natural gas properties, drill and equip exploratory wells that find proved reserves, and drill and equip development wells are capitalized. Exploration costs, including unsuccessful exploratory wells and geological and geophysical costs, are charged to operations as incurred. Upon sale or retirement of oil and natural gas properties, the costs and related accumulated depreciation, depletion and amortization are eliminated from the accounts and the resulting gain or loss is recognized.
Costs incurred to maintain wells and related equipment, lease and well operating costs, and other exploration costs are charged to expense as incurred. Gains and losses arising from the sale of properties are included in Income from operations in the Condensed Consolidated Statements of Operations.
The Company’s lease acquisition costs and development costs of proved oil and natural gas properties are amortized using the units-of-production method, at the field level, based on total proved reserves and proved developed reserves, respectively. For the three months ended March 31, 2023, depletion expense for oil and gas producing property and related equipment was $110.3 million. For the three months ended March 31, 2022, depletion expense for oil and gas producing property and related equipment was $34.1 million.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Our accrual basis capital expenditures for the three months ended March 31, 2023, were as follows (in thousands):
Three Months Ended March 31, 2023
Development costs$201,384 
Leasehold costs888 
Total capital expenditures$202,272 
Proved Properties
Proved oil and natural gas properties are reviewed for impairment on a nonrecurring basis. The impairment charge reduces the carrying values to their estimated fair values. These fair value measurements are classified as Level 3 measurements and include many unobservable inputs. Fair value is calculated as the estimated discounted future net cash flows attributable to the assets. The Company’s primary assumptions in preparing the estimated discounted future net cash flows to be recovered from oil and gas properties are based on (i) proved reserves, (ii) forward commodity prices and assumptions as to costs and expenses, and (iii) the estimated discount rate that would be used by potential purchasers to determine the fair value of the assets.
Unproved Properties
Unproved properties consist of costs incurred to acquire undeveloped leases. Unproved oil and gas leases are generally for a primary term of three to five years. In most cases, the term of the unproved leases can be extended by paying a lease renewal fee, meeting contractual drilling obligations, or by the presence of producing wells on the leases. Unproved costs related to successful drilling on unproved leases are reclassified to proved properties.
The Company reviews its unproved properties periodically for impairment. In determining whether an unproved property is impaired, the Company considers numerous factors including, but not limited to, current exploration and development plans, favorable or unfavorable exploration activity on the property being evaluated and/or adjacent properties, the Company’s geologists' evaluation of the property, and the remaining months in the lease term for the property.
Impairments to Oil and Natural Gas Properties
No impairments were recorded to the Company's oil and natural gas properties during the three months ended March 31, 2023 or 2022.
Note 7. Net Income (Loss) Per Common Share
Net income (loss) per common share—basic is calculated by dividing Net income (loss) by the weighted average number of shares of common stock outstanding during the period. Net income (loss) per common share—diluted assumes the conversion of all potentially dilutive securities and is calculated by dividing Net income (loss) by the sum of the weighted average number of shares of common stock, as defined above, outstanding plus potentially dilutive securities. Net income (loss) per common share—diluted considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares, as defined above, would have an anti-dilutive effect.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
A reconciliation of Net income (loss) per common share is as follows:
 Three Months Ended
March 31,
(In thousands, except per share amounts)20232022
Net income (loss) attributable to Earthstone Energy, Inc.$60,548 $(33,478)
Net income (loss) per common share attributable to Earthstone Energy, Inc.:
Basic$0.57 $(0.53)
Diluted$0.56 $(0.53)
Weighted average common shares outstanding
Basic105,972,734 63,445,649 
Add potentially dilutive securities:
Unvested restricted stock units (1)
335,455 — 
Unvested performance units (1)
1,216,828 — 
Diluted weighted average common shares outstanding107,525,017 63,445,649 
(1)For the three months ended March 31, 2022, there were no dilutive effects related to unvested restricted stock units or performance units due to the loss for the period.
The Class B Common Stock has been excluded, as its conversion would eliminate noncontrolling interest and net income attributable to noncontrolling interest of $25.7 million for the three months ended March 31, 2023 would be added back to Net income attributable to Earthstone Energy, Inc. for the periods then ended, having an antidilutive effect on Net income per common share attributable to Earthstone Energy, Inc.
The Class B Common Stock has been excluded, as its conversion would eliminate noncontrolling interest and net loss attributable to noncontrolling interest of $18.4 million for the three months ended March 31, 2022 would be added back to Net loss attributable to Earthstone Energy, Inc. for the periods then ended, having no dilutive effect on Net loss per common share attributable to Earthstone Energy, Inc.
Note 8. Common Stock
Class A Common Stock
At March 31, 2023 and December 31, 2022, there were 106,303,568 and 105,547,139 shares of Class A Common Stock issued and outstanding, respectively.
During the three months ended March 31, 2023, as a result of the vesting and settlement of performance units and restricted stock units under the Earthstone Energy, Inc. Amended and Restated 2014 Long-Term Incentive Plan, as amended (the “2014 Plan”), Earthstone issued 1,216,902 shares of Class A Common Stock, of which 460,473 shares of Class A Common Stock were retained as treasury stock and canceled to satisfy the related employee income tax liability. For further discussion, see Note 9. Stock-Based Compensation.
During the three months ended March 31, 2022, as a result of the vesting and settlement of performance units and restricted stock units under the 2014 Plan, Earthstone issued 770,143 shares of Class A Common Stock, of which 286,892 shares of Class A Common Stock were retained as treasury stock and canceled to satisfy the related employee income tax liability. In connection with the Chisholm Acquisition, on February 15, 2022, Earthstone issued 19,417,476 shares of Class A Common Stock valued at approximately $249.5 million on that date.
Class B Common Stock
At both March 31, 2023 and December 31, 2022, there were 34,259,641 shares of Class B Common Stock issued and outstanding. Each share of Class B Common Stock, together with one EEH Unit, is convertible into one share of Class A Common Stock. There were no conversions of shares of Class B Common Stock during the three months ended March 31, 2023. During the three months ended March 31, 2022, 72,766 shares of Class B Common Stock and EEH Units were exchanged for an equal number of shares of Class A Common Stock.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9. Stock-Based Compensation
Restricted Stock Units
The 2014 Plan, allows, among other things, for the grant of restricted stock units (“RSUs”). As of March 31, 2023, the maximum number of shares of Class A Common Stock that may be issued under the 2014 Plan was 12.0 million shares.
Each RSU represents the contingent right to receive one share of Class A Common Stock. The holders of outstanding RSUs do not have voting rights prior to vesting and settlement. Holders of outstanding RSUs granted prior to December 1, 2022 do not have dividend rights prior to vesting and settlement. Holders of outstanding RSUs granted subsequent to December 1, 2022 do have dividend rights. The Company determines the fair value of granted RSUs based on the market price of the Class A Common Stock on the date of the grant. Compensation expense for granted RSUs is recognized on a straight-line basis over the vesting period and is net of forfeitures, as incurred. Stock-based compensation is included in General and administrative expense in the Condensed Consolidated Statements of Operations and is recorded with a corresponding increase in Additional paid-in capital within the Condensed Consolidated Balance Sheets.
The table below summarizes RSU award activity for the three months ended March 31, 2023:
 SharesWeighted-Average Grant Date Fair Value
Unvested RSUs at December 31, 2022869,978 $11.40 
Granted404,955 $13.38 
Forfeited(15,100)$12.33 
Vested(173,102)$10.87 
Unvested RSUs at March 31, 20231,086,731 $12.21 
As of March 31, 2023, there was $12.7 million of unrecognized compensation expense related to the RSU awards which will be recognized over a weighted average period of 1.14 years.
For the three months ended March 31, 2023, Stock-based compensation related to RSUs was $1.8 million. For the three months ended March 31, 2022, Stock-based compensation related to RSUs was $1.2 million.
Performance Units
Performance units include both performance-based stock units (“PSUs”) and performance-based restricted stock units (“PRSUs”). The table below summarizes performance unit activity for the three months ended March 31, 2023:
 SharesWeighted-Average Grant Date Fair Value
Unvested Performance Units at December 31, 20222,616,085 $10.21 
Granted559,325 $18.86 
Vested(1,043,800)$5.36 
Unvested Performance Units at March 31, 20232,131,610 $14.85 
On January 6, 2023, the Board of Directors of Earthstone (the “Board”) granted 258,150 PRSUs (the “2023 RTSR PRSUs”) to certain officers pursuant to the 2014 Plan. The 2023 RTSR PRSUs are payable in cash or shares of Class A Common Stock upon the achievement by Earthstone over a period commencing on January 1, 2023 and ending on December 31, 2025 (the “2023 Performance Period”) of certain performance criteria established by the Board. The Company classifies these awards that will be settled in cash as liability awards. PRSU grants to be settled in shares are classified as equity awards. The holders of 2023 RTSR PRSUs do not have any voting rights with respect to such PRSUs until vesting and settlement; however, such holders do have dividend rights.
The number of shares of Class A Common Stock that may be earned will be determined based on the TSR (as defined below) achieved by Earthstone relative to the TSR of each of the companies in the predetermined peer group during the Performance Period. Between 0x to 2.0x of the PRSUs are eligible to be earned based on Earthstone’s ranking relative to the companies in the predetermined peer group. In the event that greater than 1.0x of the 2023 RTSR PRSUs are earned, such additional PRSUs may be paid in cash rather than the issuance of shares of Class A Common Stock
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Total shareholder return is generally determined by dividing (A) the volume weighted average price of a share of stock for the trading days during the thirty calendar days ending on and including the last calendar day of the applicable performance period minus the volume weighted average price of a share of stock for the trading days during the thirty calendar days ending on and including the first day of the applicable performance period plus cash dividends paid over the applicable performance period by (B) the volume weighted average price of a share of stock for the trading days during the thirty calendar days ending on and including the first day of the applicable performance period (“TSR”).
The Company accounts for the 2023 RTSR PRSU awards as market-based awards which are valued utilizing the Monte Carlo Simulation pricing model, which calculates multiple potential outcomes for an award and establishes grant date fair value based on the most likely outcome. For the 2023 RTSR PRSUs, assuming a risk-free rate of 3.89% and volatilities ranging from 40.6% to 142.5%, the Company calculated the weighted average grant date fair value per PRSU to be $20.06.
On January 6, 2023, the Board granted 301,175 PRSUs (the “2023 ATSR PRSUs”) to certain officers pursuant to the 2014 Plan. The 2023 ATSR PRSUs are payable in cash or shares of Class A Common Stock upon the achievement by Earthstone over the 2023 Performance Period of certain performance criteria established by the Board. The Company classifies these awards that will be settled in cash as liability awards. PRSU grants to be settled in shares are classified as equity awards. The holders of 2023 ATSR PRSUs do not have any voting rights with respect to such PRSUs until vesting and settlement; however, such holders do have dividend rights.
The 2023 ATSR PRSUs are eligible to be earned based on the annualized TSR of the Class A Common Stock during the 2023 Performance Period. Between 0x to 2.0x of the Performance Units are eligible to be earned based on Earthstone achieving an annualized TSR based on the following pre-established goals:
Earthstone’s Annualized TSRTSR Multiplier
23.9% or greater
2.0
14.5%1.0
8.4%0.5
Less than 8.4%
0.0
In the event that greater than 1.0x of the 2023 ATSR PRSUs are earned, such additional PRSUs may be paid in cash rather than the issuance of shares of Class A Common Stock.
The Company accounts for the 2023 ATSR PRSUs as market-based awards which are valued utilizing the Monte Carlo Simulation pricing model, which calculates multiple potential outcomes for an award and establishes grant date fair value based on the most likely outcome. For the 2023 ATSR PRSUs, assuming a risk-free rate of 3.89% and volatility of 77%, the Company calculated the weighted average grant date fair value per PRSU to be $17.84.
On January 30, 2020, the Board granted 1,043,800 PSUs (the “2020 PSUs”) to certain officers pursuant to the 2014 Plan (the “2020 Grant”).
The 2020 PSUs were settled on January 31, 2023 resulting in the issuance of 1,043,800 shares of Class A Common Stock and cash payments totaling approximately $14.5 million.
As of March 31, 2023, there was $20.6 million of unrecognized compensation expense related to all PSU awards which will be amortized over a weighted average period of 0.96 years.
For the three months ended March 31, 2023 and 2022, Stock-based compensation related to all PSUs was approximately $2.8 million. and $4.6 million, respectively.
The Company classifies awards that will be settled in cash as liability awards. PSU grants to be settled in shares are classified as equity awards. Corresponding liabilities of $9.6 million and $14.4 million related to the PSUs were included in Other current liabilities and Accrued expenses, respectively, in the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively. Additionally, corresponding liabilities of $1.4 million and $10.4 million related to the PSUs were included in Other noncurrent liabilities in the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10. Long-Term Debt
The Company's long-term debt consisted of the following (in thousands):
March 31, 2023December 31, 2022
Revolving credit facility(1)
$452,159 $270,136 
Term loan under credit facility due 2027— 250,000 
8.000% Senior notes due 2027
550,000 550,000 
1,002,159 1,070,136 
Unamortized debt issuance costs on term loan— (5,309)
Unamortized debt issuance costs on 8.000% Senior notes
(10,304)(10,948)
Long-term debt, net$991,855 $1,053,879 
(1)Related to the borrowings under the revolving credit facility, the Company had debt issuance costs of $17.4 million and $15.3 million, net of accumulated amortization of $7.5 million and $6.5 million, as of March 31, 2023 and December 31, 2022, respectively. Unamortized deferred financing costs on the borrowings under the revolving credit facility are included in Other noncurrent assets in the Condensed Consolidated Balance Sheets.
Credit Agreement
On November 21, 2019, Earthstone, EEH (the “Borrower”), Wells Fargo Bank, National Association, as Administrative Agent and Issuing Bank (“Wells Fargo”), BOKF, NA dba Bank of Texas, as Issuing Bank with respect to Existing Letters of Credit, Royal Bank of Canada, as Syndication Agent, Truist Bank, as successor by merger to SunTrust Bank, as Documentation Agent, and the Lenders party thereto (collectively, the “Parties”) entered into a credit agreement (together with all amendments or other modifications, the “Credit Agreement”), which replaced the prior credit facility, which was terminated on November 21, 2019.
On March 30, 2023, Earthstone, EEH, Wells Fargo, the lenders party thereto (the “Lenders”) and the guarantors party thereto entered into an amendment (the “Amendment”) to the Credit Agreement. Among other things, the Amendment (i) increased elected commitments from $1.2 billion to $1.4 billion, (ii) settled the $250 million term loan tranche under the Credit Agreement (the “Term Loan”) through an elected revolving commitment, (iii) redetermined the borrowing base at $1.65 billion as a part of the regularly scheduled redetermination, (iv) added new banks to the lending group, and (v) made certain administrative changes.
The next regularly scheduled redetermination of the borrowing base is expected to occur on or around October 1, 2023. Subsequent redeterminations are expected to occur on or about each May 1st and November 1st thereafter. The amounts borrowed under the Credit Agreement bear annual interest rates at either (a) the adjusted SOFR Rate (as customarily defined) (the “Adjusted Term SOFR Rate”) plus 2.25% to 3.25% or (b) the sum of (i) the greatest of (A) the prime rate of Wells Fargo, (B) the federal funds rate plus ½ of 1.0%, and (C) the Adjusted Term SOFR Rate for an interest rate period of one month plus 1.0%, (ii) plus 1.25% to 2.25%, depending on the amount borrowed under the Credit Agreement. Principal amounts outstanding under the Credit Agreement are due and payable in full at maturity on June 2, 2027. All of the obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of EEH’s assets. Additional payments due under the Credit Agreement include paying a commitment fee of 0.375% to 0.50% per year, depending on the amount borrowed under the Credit Agreement, to the Lenders in respect of the unutilized commitments thereunder. EEH is also required to pay customary letter of credit fees.
The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, EEH’s ability to incur additional indebtedness, create liens on assets, make investments, pay dividends and distributions or repurchase its limited liability interests, engage in mergers or consolidations, sell certain assets, sell or discount any notes receivable or accounts receivable and engage in certain transactions with affiliates.
In addition, the Credit Agreement requires EEH to maintain the following financial covenants: a current ratio, (as such term is defined in the Credit Agreement) of not less than 1.0 to 1.0 and a consolidated leverage ratio of not greater than 3.5 to 1.0. Consolidated leverage ratio means the ratio of (i) the aggregate debt of EEH and its consolidated subsidiaries as at the last day of the fiscal quarter to (ii) EBITDAX for the applicable period, which was calculated as EBITDAX for the four consecutive fiscal quarters ending on such date. The term “EBITDAX” means, for any period, the sum of consolidated net income (loss) for such period plus (a) the following expenses or charges to the extent deducted from consolidated net income (loss) in such period: (i) interest, (ii) taxes, (iii) depreciation, (iv) depletion, (v) amortization, (vi) certain distributions to employees related to the stock compensation, (vii) certain transaction related expenses, (viii) reimbursed indemnification expenses related to certain dispositions and investments, (ix) non-cash extraordinary, usual, or nonrecurring expenses or losses, (x) other non-cash charges
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
and minus (b) to the extent included in consolidated net income (loss) in such period: (i) non-cash income, (ii) gains on asset dispositions, disposals and abandonments outside of the ordinary course of business and (iii) to the extent not otherwise deducted from consolidated net income (loss), the aggregate amount of any pass-through cash distributions received by Borrower during such period in an amount equal to the aggregate amount of pass-through cash distributions actually made by Borrower during such period.
The Credit Agreement contains customary affirmative covenants and defines events of default to include failure to pay principal or interest, breach of covenants, breach of representations and warranties, insolvency, judgment default and a change in control. Upon the occurrence and continuance of an event of default, the Lenders have the right to accelerate repayment of the loans and exercise their remedies with respect to the collateral. As of March 31, 2023, EEH was in compliance with the covenants under the Credit Agreement.
As of March 31, 2023, $452.2 million of borrowings were outstanding under the revolving tranche of the Credit Agreement, bearing annual interest of 7.768%, resulting in an additional $947.8 million of borrowing base availability under the Credit Agreement. Upon settlement of the Term Loan, $5.1 million of remaining unamortized financing costs were written off. At December 31, 2022, $270.1 million and $250.0 million of borrowings were outstanding under the revolving tranche and the term loan tranche of the Credit Agreement, respectively.
For the three months ended March 31, 2023, the interest rate on borrowings under the revolving tranche of the Credit Agreement averaged 7.43% per annum, which excluded commitment fees of $0.7 million, and amortization of deferred financing costs of $0.9 million. For the three months ended March 31, 2023, interest on borrowings under the term loan tranche of the Credit Agreement averaged 8.10% per annum, which excluded amortization of deferred financing costs of $0.2 million. For the three months ended March 31, 2022, interest on borrowings under the Credit Agreement averaged 3.67% per annum, which excluded commitment fees of $0.2 million, and amortization of deferred financing costs of $0.6 million.
During the three months ended March 31, 2023, the Company capitalized $3.1 million of costs associated with the revolving tranche of the Credit Agreement. There were no costs associated with the term loan tranche of the Credit Agreement to capitalize during the three months ended March 31, 2023. During the three months ended March 31, 2022, the Company capitalized $5.9 million, of costs associated with the Credit Agreement. The Company’s policy is to capitalize the financing costs associated with its debt and amortize those costs on a straight-line basis over the term of the associated debt, which approximates the effective interest method over the term of the related debt.
8.000% Senior Notes
At March 31, 2023, there were $550.0 million of outstanding senior notes due 2027 (the “Notes”). The Notes will mature on April 15, 2027 with interest accruing at a rate of 8.000% per annum payable semi-annually in cash in arrears on April 15 and October 15 of each year. The Notes are guaranteed on a senior unsecured basis by the Company and its subsidiaries (the “Guarantors”) and may be guaranteed by certain of EEH’s future restricted subsidiaries. The Notes are unsecured, rank equally in right of payment with all existing and future senior unsecured indebtedness of EEH and the Guarantors and rank senior in right of payment to any future subordinated indebtedness of EEH and the Guarantors. The Notes will rank effectively junior to all secured indebtedness of EEH and the Guarantors, including indebtedness under the Credit Agreement, to the extent of the value of the assets securing such indebtedness. The Notes will rank structurally junior in right of payment to all indebtedness and other liabilities, including trade payables, of any future subsidiary of EEH that are not guarantors. The indenture dated April 12, 2022 under which the Notes were issued also contains certain restrictive covenants, redemption rights, events of default and other customary provisions.
As of March 31, 2023, accrued interest of $20.3 million associated with the Notes was included in Accrued expenses in the Condensed Consolidated Balance Sheets.
Note 11. Asset Retirement Obligations
The Company has asset retirement obligations associated with the future plugging and abandonment of oil and gas properties and related facilities. Revisions to the liability typically occur due to changes in the estimated abandonment costs, well economic lives, and the discount rate.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the Company’s asset retirement obligation transactions recorded during the three months ended March 31, 2023 (in thousands): 
 2023
Beginning asset retirement obligations$30,559 
Liabilities incurred22 
Liabilities settled(539)
Acquisitions— 
Accretion expense629 
Divestitures(90)
Revision of estimates241 
Ending asset retirement obligations$30,822 
Note 12. 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”).
As discussed in Note 5. Acquisitions, the Chisholm Acquisition was consummated on February 15, 2022, whereby the Company acquired the Chisholm Assets for a purchase price of $383.9 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 Acquisition 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.
Note 13. Commitments and Contingencies
Legal
George Assad, et. al. v. EnCap Investments L.P., et. al.: On September 12, 2022, a complaint (the “Complaint”) styled as a “derivative action” was filed in the Delaware Court of Chancery (the “Court”) by George Assad (the “plaintiff”) a purported holder of a small number of shares of Class A Common Stock against Earthstone, six of its 10 directors and EnCap, a principal stockholder. The Complaint alleges that a majority of Earthstone’s directors were conflicted and, along with EnCap, breached their fiduciary duties in approving the sale of shares of Series A Convertible Preferred Stock that is convertible into Class A Common Stock pursuant to the Securities Purchase Agreement dated as of January 30, 2022, by and among Earthstone and the Investors. The plaintiff requested the Court to declare that the defendants breached their fiduciary duties, award of unspecified monetary damages, including interest and costs, and/ or rescind the stock purchase transaction. On October 14, 2022, the defendants filed a motion to dismiss the amended Complaint. Earthstone believes the Complaint is completely without merit and intends to contest vigorously the allegations made therein and to seek reimbursement for its costs and expenses in so doing. Earthstone carries insurance for the claims asserted against it and the officer and director defendants in the Complaint, and the carrier has accepted coverage subject to applicable self-retentions and limits of liability. The Company does not expect this case to have a material adverse effect on the results of operations, financial position or cash flows of the Company.
From time to time, the Company may be involved in other various legal proceedings and claims in the ordinary course of business.
Environmental and Regulatory
As of March 31, 2023, there were no known environmental or other regulatory matters related to the Company’s operations that are reasonably expected to result in a material liability to the Company.
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 14. Income Taxes
The Company’s corporate structure requires the filing of two separate U.S. Federal income tax returns and one Canadian income tax return which include Lynden US, Earthstone, and Lynden Corp, respectively. As such, taxable income of Earthstone cannot be offset by tax attributes, including net operating losses, of Lynden US, nor can taxable income of Lynden US be offset by tax attributes of Earthstone. Earthstone and Lynden US record a tax provision, respectively, for their share of the book income or loss of EEH, net of the non-controlling interest. As EEH is treated as a partnership for U.S. Federal income tax purposes, it is not subject to income tax at the federal level and only recognizes the Texas Margin Tax.
On February 15, 2022, the Company completed the Chisholm Acquisition which included the issuance of 19,417,476 shares of Class A Common Stock, which resulted in an ownership change within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). As a result of the ownership change, the Company’s ability to utilize net operating losses (“NOLs”) and credits generated prior to the ownership change date may be limited to offset taxable income incurred after the ownership change date (the “382 Limitation”).
As of both March 31, 2023 and December 31, 2022, current liabilities of $1.8 million are included in Other current liabilities in the Condensed Consolidated Balance Sheets related solely to current Texas Margin Tax payable.
During the three months ended March 31, 2023, the Company recorded income tax expense of approximately $18.6 million comprised of (1) deferred federal income tax expense for Earthstone of $15.8 million resulting from its share of the distributable income from EEH, (2) a deferred federal income tax expense for Lynden US of $0.9 million as a result of its share of the distributable loss from EEH and (3) income tax expense of $1.9 million related to deferred state income taxes. Lynden Corp incurred no material income or loss, or related income tax expense or benefit, for the three months ended March 31, 2023.
During the three months ended March 31, 2022, the Company recorded income tax benefit of approximately $1.5 million which included (1) a deferred income tax benefit for Lynden US of $0.7 million as a result of its share of the distributable loss from EEH, (2) no net income tax benefit for Earthstone as the $6.6 million income tax benefit resulting from its share of the distributable loss from EEH had a full valuation allowance recorded against it as future realization of the net deferred tax asset cannot be assured and (3) deferred income tax benefit of $0.8 million related to the Texas Margin Tax. Lynden Corp incurred no material income or loss, or related income tax expense or benefit, for the three months ended March 31, 2022.
Note 15. Supplemental Disclosures
Accounts Payable
The following table summarizes the Company’s current accounts payable at March 31, 2023 and December 31, 2022 (in thousands):
 March 31,December 31,
20232022
Accounts payable related to vendors$28,798 $76,044 
Accounts payable related to severance taxes8,554 10,380 
Other2,796 5,391 
Total accounts payable$40,148 $91,815 
Revenue and Royalties Payable
The following table summarizes the Company’s current revenues and royalties payable at March 31, 2023 and December 31, 2022 (in thousands):
 March 31,December 31,
20232022
Revenue held in suspense$126,248 $101,838 
Revenue and royalties payable68,652 61,530 
Total revenue and royalties payable$194,900 $163,368 
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EARTHSTONE ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accrued Expenses
The following table summarizes the Company’s current accrued expenses at March 31, 2023 and December 31, 2022 (in thousands):
 March 31,December 31,
20232022
Accrued capital expenditures$68,333 $38,482 
Accrued lease operating expenses12,818 14,173 
Accrued interest20,883 10,995 
Accrued general and administrative expense3,958 7,351 
Accrued ad valorem taxes11,041 4,243 
Other6,671 5,698 
Total accrued expenses$123,704 $80,942 

Supplemental Cash Flow Information
The following table provides supplemental disclosures of cash flow information for the three months ended March 31, 2023 and 2022, (in thousands):
 For the Three Months Ended
March 31,
20232022
Cash paid for:
Interest$11,198 $4,580 
Income taxes$285 $— 
Non-cash investing and financing activities:
Class A Common Stock issued in Chisholm Acquisition$— $249,515 
Deferred acquisition payment - Chisholm$— $70,000 
Accrued capital expenditures$77,150 $49,853 
Lease asset additions - ASC 842$271 $678 
Asset retirement obligations$262 $86 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Statement Regarding Forward-Looking Information
This discussion and other items in this Quarterly Report on Form 10-Q contain forward-looking statements and information that are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. When used in this document, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “may,” “will,” “project,” “forecast,” “plan,” and similar expressions are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. These statements are subject to numerous risks, uncertainties and assumptions. Certain of these risks are summarized in this report and under “Item 1A. Risk Factors” in our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), which you should read carefully in connection with our forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated. We undertake no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
You should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with the corresponding sections and our audited Condensed Consolidated Financial Statements for the year ended December 31, 2022, which are included in our 2022 Annual Report on Form 10-K.
Overview
Earthstone Energy, Inc., a Delaware corporation (“Earthstone” and together with its consolidated subsidiaries, the “Company,” “our,” “we,” “us,” or similar terms), is a growth-oriented independent oil and gas company engaged in the acquisition and development of oil and gas reserves through activities that include the acquisition, drilling and development of undeveloped leases, asset and corporate acquisitions and mergers. Our operations are all in the upstream segment of the oil and natural gas industry and all our properties are onshore in the United States. At present, our assets are located primarily in the Delaware Basin in New Mexico and in the Midland Basin in West Texas.
As of March 31, 2023, outstanding common shares of Earthstone, along with the equal number of corresponding outstanding EEH Units, were approximately 140.6 million, consisting of 106.3 million shares of Class A Common Stock and 34.3 million shares of Class B Common Stock. The following diagram indicates our simplified ownership structure as of the date of this report. This diagram is provided for illustrative purposes only and does not represent all legal entities affiliated with us.
Screenshot 2023-04-24 151135.jpg
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Recent Developments
Credit Agreement
On March 30, 2023, Earthstone, Earthstone Energy Holdings, LLC, a subsidiary of the Company (“EEH” or the “Borrower”), Wells Fargo Bank, National Association (“Wells Fargo”) as Administrative Agent and Issuing Bank, the lenders party thereto (the “Lenders”) and the guarantors party thereto entered into an amendment (the “Amendment”) to the Credit Agreement dated November 21, 2019, by and among EEH, as Borrower, Earthstone, as Parent, Wells Fargo as Administrative Agent and Issuing Bank, Royal Bank of Canada, as Syndication Agent, Truist Bank, Citizens Bank, N.A., KeyBank National Association, U.S. Bank National Association, Fifth Third Bank, PNC Bank, National Association, Bank of America, N.A., Mizuho Bank, Ltd., and Capital One, National Association, as Documentation Agents, and the Lenders party thereto (together with all amendments or other modifications, the “Credit Agreement”). Among other things, the Amendment (i) increased elected commitments from $1.2 billion to $1.4 billion, (ii) settled the $250 million term loan tranche under the Credit Agreement (the “Term Loan”) through an elected revolving commitment, (iii) redetermined the borrowing base at $1.65 billion as a part of the regularly scheduled redetermination, (iv) added new banks to the lending group, and (v) made certain administrative changes.
Natural Gas Takeaway Capacity
The Permian Basin has been experiencing a lack of sufficient pipeline transportation that is connected to markets which are purchasing the gas. This has resulted in negative gas prices at times, whereby the seller is actually paying the purchaser to take the gas. If these depressed natural gas prices continue in the region, our natural gas revenues will be negatively impacted.
Inflation
Inflation has increased costs associated with our capital program and production operations. We have experienced increases in the costs of many of the materials, supplies, equipment and services used in our operations and we expect inflation to continue based on current economic circumstances. In addition, the attempts to reduce inflation by the Federal Reserve have resulted in increased interest rates on debt and contributed to debt and equity market volatility. We continue to closely monitor costs and take all reasonable steps to mitigate the inflationary effect on our cost structure and also work to enhance our efficiency to minimize additional cost increases where possible.
Areas of Operation
Our primary focus is concentrated in the Delaware Basin in New Mexico and in the Midland Basin in West Texas, both containing high oil and liquids rich resources which provides us with multiple horizontal targets with proven production results, long-lived reserves and historically high drilling success rates.
Consolidation Focus
We continue to pursue value-accretive and scale-enhancing consolidation opportunities, as we believe we are in a position to operate effectively despite the volatility in commodity prices. We are focusing our attention on acquisition and corporate merger opportunities that would increase the scale of our operations. In addition, we believe the current industry environment presents unique opportunities which could provide us with the potential for further consolidation because of our financial strength. At the same time, we will seek to block up acreage in close proximity to our existing acreage that would allow for longer horizontal laterals providing higher economic returns, increased operated inventory and greater operating efficiency. In short, we believe we are well qualified to continue to be a consolidator which could increase the scale of our operations and add value to our shareholders.
Operations Update
The Company operated a five-rig drilling program in the first quarter of 2023 with three rigs in the Delaware Basin and two in the Midland Basin.
Delaware Basin Highlights
In the Delaware Basin, during the first quarter of 2023, Earthstone commenced drilling ten gross (8.4 net) wells, brought six gross (3.8 net) wells online, and had six gross (5.2 net) drilled but uncompleted (“DUC”) wells at quarter end in the Delaware Basin.
Earthstone completed the Jade 34-3 Fed Com pad on acreage acquired from Chisholm in the northern Delaware Basin in Lea County, New Mexico. The wells targeted the First and Second Bone Spring intervals. The four wells had an average peak IP-30 rate of 1,240 Boepd from laterals averaging approximately 9,900 feet with an average oil percentage of 91%.
In Eddy County, New Mexico, the Company completed the Dark Canyon 15-22 State Com. The 2-well pad had an average peak IP-30 of 1,422 Boepd and was approximately 69% oil. The average lateral length of the two wells was about 7,100 feet,
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and both wells are producing from the Wolfcamp A zone. The Dark Canyon 15-22 State Com pad is located on acreage acquired through the Chisholm acquisition.
At the Company’s El Campeon project, acquired in the Titus acquisition, Earthstone is currently operating two drilling rigs on the six-well project. The lateral lengths for the six wells will range from 9,400 to 10,000 feet. The Company expects the wells to start producing in August. These will be the first wells completed across the New Mexico-Texas state line.
Midland Basin Highlights
During the first quarter of 2023, the Company began drilling six gross (3.9 net) wells, brought nine gross (nine net) wells online, and had two gross (1.3 net) DUC wells at quarter end in the Midland Basin.
In Reagan County, Texas, the WTG 5-234 two-well pad is producing from the Wolfcamp Upper and Lower B zones. These wells were drilled with a lateral length of approximately 9,850 feet and had an average peak IP-30 rate of about 945 Boepd with a production stream of approximately 77% oil.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to use our judgment to make estimates and assumptions that affect certain amounts reported in our financial statements. As additional information becomes available, these estimates and assumptions are subject to change and thus impact amounts reported in the future. Critical accounting policies are those accounting policies that involve judgment and uncertainties affecting the application of those policies and the likelihood that materially different amounts would be reported under different conditions or using differing assumptions. We periodically update our estimates used in the preparation of the financial statements based on our latest assessment of the current and projected business and general economic environment. There have been no significant changes to our critical accounting policies during the three months ended March 31, 2023.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are expected to have a material impact on our financial statements.
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Results of Operations
Three Months Ended March 31, 2023, compared to the Three Months Ended March 31, 2022
 Three Months Ended
March 31,		 
 20232022Change
Sales volumes:   
Oil (MBbl)4,153 1,417 193 %
Natural gas (MMcf)16,811 5,639 198 %
Natural gas liquids (MBbl)2,445 839 191 %
Barrels of oil equivalent (MBoe)9,400 3,196 194 %
Average Daily Production (Boepd)104,450 35,509 194 %
Average prices:  
Oil (per Bbl)$76.42 $97.24 (21)%
Natural gas (per Mcf)$1.79 $4.07 (56)%
Natural gas liquids (per Bbl)$26.88 $42.22 (36)%
Average prices adjusted for realized derivatives settlements:
Oil ($/Bbl)$75.32 $75.61 — %
Natural gas ($/Mcf)$1.64 $3.89 (58)%
Natural gas liquids ($/Bbl)$26.88 $42.22 (36)%
(In thousands)  
Oil revenues$317,378 $137,752 130 %
Natural gas revenues$30,018 $22,958 31 %
Natural gas liquids revenues$65,740 $35,440 85 %
Lease operating expense$87,978 $21,631 307 %
Production and ad valorem taxes$33,153 $13,315 149 %
Depreciation, depletion and amortization$110,750 $34,326 223 %
General and administrative expense (excluding stock-based compensation)$12,961 $6,476 100 %
Stock-based compensation - equity and liability awards$4,618 $5,830 (21)%
General and administrative expense$17,579 $12,306 43 %
Transaction costs$193 $10,742 (98)%
Loss on sale of oil and gas properties$(3,140)$— NM
Interest expense, net$(22,856)$(5,318)330 %
Write-off of deferred financing costs$(5,109)$— NM
Unrealized gain (loss) on derivative contracts$(19,439)$(119,794)(84)%
Realized loss on derivative contracts$(7,025)$(31,686)(78)%
Loss on derivative contracts, net$(26,464)$(151,480)(83)%
Income tax (expense) benefit$(18,601)$1,533 (1,313)%
NM – Not Meaningful
Results of Operations Highlights
The Titus Acquisition, Bighorn Acquisition and Chisholm Acquisition (collectively, the “Acquisitions”) have had a significant impact on our results of operations for the three months ended March 31, 2023 as compared to the corresponding period in 2022. Below is a discussion highlighting the impact of our recent acquisitions.
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Oil revenues
For the three months ended March 31, 2023, oil revenues increased by $179.6 million, or 130%, relative to the comparable period in 2022. Of the increase, $209.1 million was attributable to an increase in volume, partially offset by $29.5 million attributable to a decrease in our realized prices. Our average realized price per Bbl decreased from $97.24 for the three months ended March 31, 2022 to $76.42, or 21%, for the three months ended March 31, 2023. Additionally, we had a net increase in the volume of oil sold of 2,737 MBbls, or 193%, which included an increase of 2,790 MBbls related to the wells acquired in the Acquisitions and a decrease of 53 MBbls in our other wells primarily resulting from natural declines.
Natural gas revenues
For the three months ended March 31, 2023, natural gas revenues increased by $7.1 million, or 31%, relative to the comparable period in 2022. Of the increase, $20.0 million was due to increased sales volume, partially offset by $12.9 million attributable to a decrease in realized prices. Our average realized price per Mcf decreased 56% from $4.07 for the three months ended March 31, 2022 to $1.79 for the three months ended March 31, 2023. The total volume of natural gas produced and sold increased 11,172 MMcf, or 198%, which included an increase of 11,742 MMcf related to the wells acquired in the Acquisitions, partially offset by a decrease of 570 MMcf in our other wells primarily resulting from natural declines.
Natural gas liquids revenues
For the three months ended March 31, 2023, natural gas liquids revenues increased by $30.3 million, or 85%, relative to the comparable period in 2022. Of the increase, $43.2 million was attributable to increased volume, partially offset by $12.9 million attributable to a decrease in our realized prices. Our average realized price per Bbl decreased 36% from $42.22 for the three months ended March 31, 2022 to $26.88 for the three months ended March 31, 2023. The volume of natural gas liquids produced and sold increased by 1,606 MBbls, or 191%, primarily resulting from an increase of 1,658 MBbls related to the wells acquired in the Acquisitions, partially offset by a decrease of 52 MBbls in our other wells primarily resulting from natural declines.
Lease operating expense (“LOE”)
LOE increased by $66.3 million, or 307%, for the three months ended March 31, 2023 relative to the comparable period in 2022, due to a $64.2 million increase resulting from the LOE of the properties acquired in the Acquisitions and a $2.1 million increase resulting from both higher production volumes from new wells coming online and inflationary factors experienced in the current year period.
Production and ad valorem taxes
Production and ad valorem taxes for the three months ended March 31, 2023 increased by $19.8 million, or 149%, relative to the comparable period in 2022 due to a $22.2 million increase resulting from the properties acquired in the Acquisitions, partially offset by a $2.4 million decrease related to our other wells resulting from lower commodity prices.
Depreciation, depletion and amortization (“DD&A”)
DD&A for the three months ended March 31, 2023 increased by $76.4 million, or 223%, relative to the comparable period in 2022 primarily due to a $75.8 million increase in DD&A related to the assets acquired in the Acquisitions and a $0.6 million increase in DD&A driven by higher production volumes and increased depletable costs related to the development of our properties.
General and administrative expense (“G&A”)
G&A for the three months ended March 31, 2023 increased by $5.3 million, or 43%, relative to the comparable period in 2022, due to an increase of $4.7 million in payroll and employee costs associated with increased headcount, $1.8 million primarily related to an increase in professional fees due to overall increased operating activity of the Company, offset by a $1.2 million decrease in stock-based compensation.
Transaction Costs
For the three months ended March 31, 2023, transaction costs decreased by $10.5 million primarily due to legal and professional fees associated with the Chisholm Acquisition in the prior year period.
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Loss on sale of oil and gas properties, net
During the three months ended March 31, 2023, we sold certain non-core properties for approximately $1.8 million in cash, resulting in net losses of approximately $3.1 million. There were no material divestitures during the three months ended March 31, 2022.
Interest expense, net
Interest expense increased from $5.3 million for the three months ended March 31, 2022 to $22.9 million for the three months ended March 31, 2023, due to higher average borrowings outstanding compared to the prior year period primarily resulting from borrowings related to the Acquisitions and higher effective interest rates resulting from the issuance of the 8.000% Senior Notes and higher interest rates on borrowings under the Credit Agreement. See Note 10. Long-Term Debt in the Notes to Unaudited Condensed Consolidated Financial Statements.
Write-off of deferred financing costs
On March 30, 2023, we settled the $250.0 million term loan tranche of borrowings under the Credit Agreement through an elected revolving commitment and $5.1 million of remaining unamortized deferred financing costs were written off.
Loss on derivative contracts, net
For the three months ended March 31, 2023, we recorded a net loss on derivative contracts of $26.5 million, consisting of unrealized mark-to-market losses of $19.4 million related to our commodity hedges, along with net realized losses on settlements of our commodity hedges of $7.0 million. For the three months ended March 31, 2022, we recorded a net loss on derivative contracts of $151.5 million, consisting of unrealized mark-to-market losses of $119.8 million related to our commodity hedges, along with net realized losses on settlements of our commodity hedges of $31.7 million.
Income tax (expense) benefit
During the three months ended March 31, 2023, we recorded income tax expense of approximately $18.6 million comprised of (1) deferred federal income tax expense for Earthstone of $15.8 million resulting from its share of the distributable income from EEH, (2) a deferred federal income tax expense for Lynden US of $0.9 million as a result of its share of the distributable loss from EEH and (3) income tax expense of $1.9 million related to deferred state income taxes. Lynden Corp incurred no material income or loss, or related income tax expense or benefit, for the three months ended March 31, 2023.
Liquidity and Capital Resources
Sources of Cash
With three drilling rigs operating in the Delaware Basin and two drilling rigs operating in the Midland Basin we expect total 2023 capital expenditures of $725 to $775 million which we expect to be funded by cash flows from operations. During the three months ended March 31, 2023, we generated $258.3 million of cash flows from operating activities. We incurred $202.3 million of capital expenditures on an accrual basis during the three months ended March 31, 2023. As of March 31, 2023, we had available borrowings under our Credit Agreement of approximately $947.8 million.
Although we expect cash flows and capacity under our Credit Agreement to be sufficient to fund our expected 2023 capital program, we may also elect to raise funds through new debt or equity offerings or from other sources of financing. All of our sources of liquidity can be affected by the general conditions of the broader economy, force majeure events, challenging environmental regulations and fluctuations in commodity prices, operating costs and volumes produced, all of which affect us and our industry. We have no control over market prices for natural gas, NGLs or oil, although we may be able to influence the amount of realized revenues through the use of derivative contracts as part of our commodity price risk management.
We believe we will have sufficient liquidity with cash flows from operations and borrowings under our Credit Agreement to meet our capital requirements for the next 12 months.
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Working Capital
Working capital (presented below) was a deficit of $184.7 million as of March 31, 2023. Of the $184.7 million working capital deficit, $10.6 million relates to our derivative contracts expected to settle in the next 12 months (subsequent to March 31, 2023) resulting from increased oil price futures as of March 31, 2023. However, commodity hedges are settled in proximity of the receipt of the revenues to which they relate. Additionally, we are hedged at less than 100% of our production. As such, our commodity hedges are expected to settle at an amount less than the additional revenues received as a result of increased commodity prices. When removed, the remaining working capital deficit of $195.3 million is $752.5 million less than our available borrowings as of March 31, 2023 of $947.8 million. The components of working capital are presented below:
 March 31,December 31,
(In thousands)20232022
Current assets:  
Cash$— $— 
Accounts receivable:
Oil, natural gas, and natural gas liquids revenues133,633 161,531 
Joint interest billings and other, net of allowance of $19 and $19 at March 31, 2023 and December 31, 2022, respectively27,518 34,549 
Derivative asset14,444 31,331 
Prepaid expenses and other current assets24,658 18,854 
Total current assets200,253 246,265 
Current liabilities:
Accounts payable$40,148 $91,815 
Revenues and royalties payable194,900 163,368 
Accrued expenses123,704 80,942 
Asset retirement obligation881 948 
Derivative liability3,864 14,053 
Advances8,242 7,312 
Operating lease liabilities890 842 
Finance lease liabilities880 802 
Other current liabilities11,447 16,202 
Total current liabilities384,956 376,284 
Working Capital$(184,703)$(130,019)
Cash Flows from Operating Activities
Cash flows provided by operating activities for the three months ended March 31, 2023 increased to $258.3 million compared to $83.0 million for the three months ended March 31, 2022, primarily due to the impact of oil and natural gas property acquisitions and the timing of payments and receipts partially offset by the cash settlement of derivative contracts compared to the prior year period.
Cash Flows from Investing Activities
Cash flows used in investing activities for the three months ended March 31, 2023 decreased to $180.8 million from $380.7 million for the three months ended March 31, 2022, due to the impact of approximately $324 million in prior year quarter acquisition of oil and gas properties, partially offset by increased current year quarter spending related to the execution of our drilling program.
Cash Flows from Financing Activities
Cash flows used in financing activities of $77.6 million for the three months ended March 31, 2023 primarily resulted from the use of operating cash flows and borrowings under the revolving tranche of the Credit Agreement to pay off $250 million in
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term loan borrowings. Cash flows provided by financing activities of $294.2 million for the three months ended March 31, 2022 primarily resulted from net borrowings used to finance the acquisition of oil and natural gas properties.
Capital Expenditures
Our accrual basis capital expenditures for the three months ended March 31, 2023 were as follows (in thousands):
Three Months Ended March 31, 2023
Drilling and completions$201,384 
Leasehold costs888 
Total capital expenditures$202,272 
Hedging Activities
The following table sets forth our outstanding derivative contracts at March 31, 2023. When aggregating multiple contracts, the weighted average contract price is disclosed.
 Price Swaps
PeriodCommodityVolume
(Bbls / MMBtu)		Weighted Average Price
($/Bbl / $/MMBtu)
Q2 - Q4 2023Crude Oil1,237,500 $76.94 
Q2 - Q4 2023Crude Oil Basis Swap (1)7,103,500 $0.92 
Q2 - Q4 2023Natural Gas3,437,500 $3.35 
Q2 - Q4 2023Natural Gas Basis Swap (2)38,500,000 $(1.67)
Q1 - Q4 2024Natural Gas Basis Swap (2)36,600,000 $(1.05)
Q1 - Q4 2025Natural Gas Basis Swap (2)14,600,000 $(0.74)
(1)The basis differential price is between WTI Midland Crude and the WTI NYMEX.
(2)The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.
 Costless Collars
PeriodCommodityVolume
(Bbls / MMBtu)		Bought Floor
($/Bbl / $/MMBtu)		Sold Ceiling
($/Bbl / $/MMBtu)
Q2 - Q4 2023Crude Oil Costless Collar2,117,500 $62.47 $87.56 
Q2 - Q4 2023Natural Gas Costless Collar14,797,500 $3.37 $5.61 
 Premium Puts
PeriodCommodityVolume
(Bbls / MMBtu)		$/Bbl (Put Price)$/Bbl (Net of Premium)
Q2 - Q4 2023Crude Oil1,364,500 $69.67 $64.24 

The following table sets forth our outstanding derivative contracts at May 1, 2023. When aggregating multiple contracts, the weighted average contract price is disclosed.
 Price Swaps
PeriodCommodityVolume
(Bbls / MMBtu)		Weighted Average Price
($/Bbl / $/MMBtu)
Q2 - Q4 2023Crude Oil1,102,500 $76.94 
Q2 - Q4 2023Crude Oil Basis Swap (1)6,308,500 $0.92 
Q2 - Q4 2023Natural Gas3,062,500 $3.35 
Q2 - Q4 2023Natural Gas Basis Swap (2)34,300,000 $(1.67)
Q1 - Q4 2024Natural Gas Basis Swap (2)36,600,000 $(1.05)
Q1 - Q4 2025Natural Gas Basis Swap (2)14,600,000 $(0.74)
(1)The basis differential price is between WTI Midland Crude and the WTI NYMEX.
(2)The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.
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 Costless Collars
PeriodCommodityVolume
(Bbls / MMBtu)		Bought Floor
($/Bbl / $/MMBtu)		Sold Ceiling
($/Bbl / $/MMBtu)
Q2 - Q4 2023Crude Oil Costless Collar2,346,500 $62.96 $86.51 
Q1 - Q4 2024Crude Oil Costless Collar915,000 $65.00 $82.20 
Q2 - Q4 2023Natural Gas Costless Collar13,066,500 $3.37 $5.59 
 Deferred Premium Puts
PeriodCommodityVolume
(Bbls / MMBtu)		$/Bbl (Put Price)$/Bbl (Net of Premium)
Q2 - Q4 2023Crude Oil1,175,500 $69.74 $64.31 

Obligations and Commitments
There have been no material changes from the obligations and commitments disclosed in the Obligations and Commitments section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report on Form 10-K other than those described in Note 13. Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements.
Environmental Regulations
Our operations are subject to risks normally associated with the drilling for and the production of oil and natural gas, including blowouts, fires, and environmental risks such as oil spills or natural gas leaks that could expose us to liabilities associated with these risks.
In our acquisition of existing or previously drilled well bores, we may not be aware of prior environmental safeguards, if any, that were taken at the time such wells were drilled or during such time the wells were operated.
However, should it be determined that a liability exists with respect to any environmental cleanup or restoration, the liability to cure or remediate such a violation could still accrue to us or our existing insurance may not be adequate to insure against such liabilities. No claim has been made, nor are we aware of any liability which we may have, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations relating thereto.
Recently Issued Accounting Standards
There are no recent accounting pronouncements that are expected to have a material impact on our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks associated with interest rate risks, commodity price risk and credit risk. We have established risk management processes to monitor and manage these market risks.

Commodity Price Risk, Derivative Instruments and Hedging Activity
We are exposed to various risks including energy commodity price risk. When oil, natural gas and natural gas liquid prices decline significantly our ability to finance our capital budget and operations may be adversely impacted. We expect energy prices to remain volatile and unpredictable. Our hedging activities consist of derivative instruments entered into in order to hedge against changes in oil and natural gas prices through the use of fixed price swaps, basis swaps, costless collars and deferred premium put options. Swaps exchange floating price risk in the future for a fixed price at the time of the hedge. Costless collars set both a maximum (sold ceiling) and a minimum (bought floor) future price. A deferred premium put option represents a bought floor except, unlike a standard put option, the premium is not paid until the expiration of the option.
We have entered into a series of derivative instruments to hedge a portion of its expected oil and natural gas production through December 31, 2024 and maintain certain natural gas basis swaps through December 31, 2025. Typically, these derivative instruments require payments to (receipts from) counterparties based on specific indices as required by the derivative agreements. Although not risk free, we believe these instruments reduce our exposure to oil and natural gas price fluctuations and, thereby, allow us to achieve a more predictable cash flow.

The following is a summary of our open oil and natural gas derivative contracts as of March 31, 2023:
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 Price Swaps
PeriodCommodityVolume
(Bbls / MMBtu)		Weighted Average Price
($/Bbl / $/MMBtu)
Q2 - Q4 2023Crude Oil1,237,500 $76.94 
Q2 - Q4 2023Crude Oil Basis Swap (1)7,103,500 $0.92 
Q2 - Q4 2023Natural Gas3,437,500 $3.35 
Q2 - Q4 2023Natural Gas Basis Swap (2)38,500,000 $(1.67)
Q1 - Q4 2024Natural Gas Basis Swap (2)36,600,000 $(1.05)
Q1 - Q4 2025Natural Gas Basis Swap (2)14,600,000 $(0.74)
(1)The basis differential price is between WTI Midland Crude and the WTI NYMEX.
(2)The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.
 Costless Collars
PeriodCommodityVolume
(Bbls / MMBtu)		Bought Floor
($/Bbl / $/MMBtu)		Sold Ceiling
($/Bbl / $/MMBtu)
Q2 - Q4 2023Crude Oil Costless Collar2,117,500 $62.47 $87.56 
Q2 - Q4 2023Natural Gas Costless Collar14,797,500 $3.37 $5.61 
 Premium Puts
PeriodCommodityVolume
(Bbls / MMBtu)		$/Bbl (Put Price)$/Bbl (Net of Premium)
Q2 - Q4 2023Crude Oil1,364,500 $69.67 $64.24 
Changes in fair value of commodity derivative instruments are reported in earnings in the period in which they occur. Our open commodity derivative instruments were in a net asset position with a fair value of $7.0 million at March 31, 2023. Based on the published commodity futures price curves for the underlying commodity as of March 31, 2023, a 10% increase in per unit commodity prices would cause the total fair value of our commodity derivative financial instruments to decrease by approximately $1.1 million to an overall net asset position of $8.1 million. A 10% decrease in per unit commodity prices would cause the total fair value of our commodity derivative financial instruments to increase by approximately $1.1 million to an overall net asset position of $5.9 million. There would also be a similar increase or decrease in loss on derivative contracts, net in the Condensed Consolidated Statements of Operations.

Interest Rate Sensitivity
We are also exposed to market risk related to adverse changes in interest rates. Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are based on SOFR and the prime rate and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.
At March 31, 2023, the combined outstanding borrowings under the revolving tranche and term loan tranche of the Credit Agreement were $452.2 million bearing interest at rates described in Note 10. Long-Term Debt in the Notes to Unaudited Condensed Consolidated Financial Statements. Fluctuations in interest rates will cause our annual interest costs to fluctuate. At March 31, 2023, the weighted average interest rate on borrowings under the revolving tranche and term loan tranche of the Credit Agreement was 7.768% per year. If borrowings were to remain constant, a 10% change in interest rates would impact our future cash flows by approximately $3.5 million per year.

Disclosure of Limitations
Because the information above included only those exposures that existed at March 31, 2023, it does not consider those exposures or positions which could arise after that date. As a result, our ultimate realized gain or loss with respect to commodity price fluctuations and interest expense incurred with respect to interest rate fluctuations will depend on the exposures that arise during future periods.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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In accordance with Exchange Act, Rules 13a-15(e) and 15d-15(e), we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Principal Accounting Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Principal Accounting Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in various legal proceedings and claims in the ordinary course of business. The Company’s threshold for disclosing material environmental legal proceedings involving a governmental authority where potential monetary sanctions are involved is $1 million. As of March 31, 2023, and through the filing date of this report, we do not believe the ultimate resolution of any such actions or potential actions of which we are currently aware will have a material effect on our consolidated financial position or results of operations.
See Note 13. Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements under Part I, Item 1 of this report, which is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this report, including the risk factor set forth below, you should carefully consider the risk factors and other cautionary statements described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022.
Macroeconomic conditions could have a materially adverse impact on our business, financial condition or results of operations.
Macroeconomic conditions, such as high inflation, changes to monetary policy, increasing interest rates, concerns about the stability and liquidity of certain financial institutions, and global or local recessions can adversely impact demand for oil and natural gas, which could negatively impact our business, financial condition, or results of operations.
Adverse developments that affect financial institutions, transactional counterparties, or other third parties, or concerns or rumors about these events, have in the past and may in the future lead to market-wide liquidity problems. For example, in March 2023, banking regulators closed two U.S. banks and appointed the Federal Deposit Insurance Corporation (“FDIC”) to act as receiver. Similarly, other institutions have been and may continue to be swept into receivership. We have no borrowing or deposit exposure to directly impacted institutions and have not experienced an adverse impact to our liquidity or to our business operations, financial condition, or results of operations as a result of these recent events. However, we do maintain our cash at financial institutions in balances that exceed the current FDIC insurance limits and uncertainty may remain over liquidity concerns in the broader financial services industry, and there may be unpredictable impacts to our business and our industry. Moreover, liquidity concerns among certain financial institutions could cause lending and credit availability to contract, which in turn could negatively impact the economy as a whole, including the demand for, and price of, oil and natural gas. Sustained economic weakness as a result of credit and liquidity issues in the global financial system could negatively impact the price we receive for our oil and natural gas production, which in turn could adversely impact our business, financial condition and results of operations.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. As a result, any reduction in our borrowing base could, among other risks, adversely impact our business, financial condition, or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sale of Equity Securities
We sold no unregistered equity securities during the three months ended March 31, 2023.
Repurchase of Equity Securities
The following table sets forth information regarding our acquisition of shares of Class A Common Stock for the periods presented:
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Total Number of Shares Purchased (1)
Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Programs
January 2023— $— — — 
February 2023— — — — 
March 202353,065 $13.01 — — 
(1)All of the shares were surrendered by employees (via net settlement) in satisfaction of tax obligations upon the vesting of restricted stock unit awards and performance unit awards. The acquisition of the surrendered shares was not part of a publicly announced program to repurchase shares of our Class A Common Stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
Exhibit No. Description Filed Herewith Furnished Herewith
31.1  X  
31.2  X  
32.1    X
32.2    X
101 Interactive Data Files (formatted as Inline XBRL). X  
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). X  

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
    EARTHSTONE ENERGY, INC.
     
Date:May 3, 2023 By:/s/ Tony Oviedo
   Tony Oviedo
   Executive Vice President – Accounting and Administration