About Earthstone Energy

Earthstone Energy, Inc. operates as an independent oil and gas company. The company engages in the acquisition and development of oil and gas reserves through activities that include drilling and development of undeveloped leases, as well as asset and corporate acquisitions and mergers. Its operations are all in the upstream segment of the oil and natural gas industry and all its properties are onshore in the United States. The company’s primary assets are located in the Midland Basin in West Texas and the Delaware Basin in New Mexico. The company closed the Titus (Titus I (Titus Oil & Gas Production, LLC, Titus Oil & Gas Corporation, Lenox Minerals, LLC, and Lenox Mineral Title Holdings, Inc.) and Titus II (Titus Oil & Gas Production II, LLC, Lenox Minerals II, LLC, and Lenox Mineral Holdings II, LLC)) acquisition in the Delaware Basin on August 10, 2022. The company also closed the Bighorn (Bighorn Asset Company, LLC) acquisition in the Midland Basin on April 14, 2022; and closed the Chisholm (Chisholm Energy Operating, LLC and Chisholm Energy Agent, Inc.) acquisition in the Delaware Basin on February 15, 2022. As a producer of oil, natural gas and natural gas liquids, the company is recognized as an essential business under various federal, state and local regulations related to COVID-19. Properties As operator, across the majority of the company’s acreage in the Midland and Delaware basins, the company manages and is able to directly influence development and production of the company’s operated properties. Independent contractors engaged by the company provides all the equipment and personnel associated with drilling and completion activities. Midland Basin As of December 31, 2022, the company had approximately 167,000 net acres in the Midland Basin that are highly contiguous on a project-by-project basis, which allow the company to drill multi-well pads. Of this acreage, 95% is operated and 5% is non-operated. Approximately 99% of the Midland Basin net acreage is held by production. The company holds an approximate 96% working interest in the company’s operated acreage and an approximate 45% working interest in the company’s non-operated acreage. The company is operating two drilling rigs in the Midland Basin, both of which are drilling in Reagan County, Texas. Delaware Basin As of December 31, 2022, the company had approximately 45,000 net acres in the Delaware Basin in New Mexico that are highly contiguous on a project-by-project basis which allow the company to drill multi-well pads. Of this acreage, 92% is operated and 8% is non-operated. Approximately 90% of the Delaware Basin net acreage is held by production. The company holds an approximate 60% working interest in the company’s operated acreage and an approximate 26% working interest in the company’s non-operated acreage. The company is operating three drilling rigs in the Delaware Basin, all of which are drilling in Lea County, New Mexico. Business Strategy The company continues to pursue value-accretive and scale-enhancing consolidation opportunities. The company’s business strategy is to focus on the economic development of its existing acreage, increase the company’s acreage and horizontal well locations in the Midland and Delaware basins and increase stockholder value through developing the company’s acreage and profitably growing the company’s production; operating the company’s properties efficiently; drilling multi-well pads, reducing drilling times and increasing completions per day; operating the company’s assets in a safe and environmentally sensitive manner; pursuing value-accretive acquisition and corporate merger opportunities, which could increase the scale and profitability of the company’s operations; expanding the company’s acreage positions and drilling inventory in the company’s primary areas of interest through acquisitions and farm-in opportunities, with an emphasis on operated positions; and blocking up acreage to allow for longer horizontal lateral drilling locations which provide higher economic returns. Marketing and Customers The company markets the majority of the production from properties the company operates for both its account and the account of the other working interest owners in these properties. The company sells its production to purchasers at market prices. The company normally sells production to a relatively small number of customers, as is customary in the exploration, development and production business. Transportation and Gathering During the planning stage of the company’s prospective and productive units and acreage, the company considers required flow-lines, gathering and delivery infrastructure. The company’s oil is transported from the wellhead to the company’s tank batteries or delivery points through the company’s flow-lines or gathering systems. Purchasers of the company’s oil take delivery at a pipeline delivery point or at the company’s tank batteries for transport by truck. The company’s natural gas is transported from the wellhead to the purchaser’s meter and pipeline interconnection point through the company’s gathering systems. The company has implemented a Leak Detection and Repair program, or LDAR, to locate and repair leaking components, including valves, pumps and connectors in order to minimize the emission of fugitive volatile organic compounds and hazardous air pollutants. In addition, the company installs vapor recovery units in its newly installed tank batteries which also reduces emissions. The company’s produced salt water is generally moved by pipeline connected to the company’s operated saltwater disposal wells or by pipeline to commercial disposal facilities. Seasonality of Business Demand for natural gas is typically higher during the winter, resulting in higher natural gas prices for the company’s natural gas production during the company’s first and fourth fiscal quarters (year ended December 2022). Operational Regulations The Federal Energy Regulatory Commission (FERC) regulates interstate natural gas transportation rates and service conditions, which affects the marketing of natural gas that the company produce, as well as the revenues the company receive for sales of the company’s natural gas. Environmental Regulations The company’s operations are subject to stringent federal, state and local laws regulating the discharge and emission of materials into the environment or otherwise relating to health and safety or the protection of the environment. Numerous governmental agencies, such as the United States Environmental Protection Agency (the ‘EPA’) issue regulations to implement and enforce these laws, which often require difficult and costly compliance measures. From time to time, releases of materials or wastes have occurred at locations the company owns or at which the company has operations. These properties and the materials or wastes released thereon may be subject to CERCLA, RCRA and analogous state laws. Under these laws, the company have been required to remove or remediate such materials or wastes. The company is in substantial compliance with the ESA and the MBTA. The company is subject to federal and state hazard communication and community right to know statutes and regulations. These regulations, including, but not limited to, the federal Emergency Planning & Community Right-to-Know Act, govern record keeping and reporting of the use and release of hazardous substances and may require that information be provided to state and local government authorities, as well as the public. The company is subject to a number of federal and state laws and regulations, including OSHA, and comparable state statutes that regulate the protection of the health and safety of workers. In addition, OSHA hazard communication standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and citizens. History Earthstone Energy, Inc. was founded in 1969. The company was incorporated in 1969.