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Page 1: ESTE Investor Presentation 6.01.16 - Earthstone Energy, Inc.€¦ · personnel and services; unavailability of gathering systems, pipelines and processing facilities; the possibility

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Investor Presentation

June 2016

Page 2: ESTE Investor Presentation 6.01.16 - Earthstone Energy, Inc.€¦ · personnel and services; unavailability of gathering systems, pipelines and processing facilities; the possibility

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Disclaimer

Forward-Looking Statements

This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not strictly historical statements constitute forward-lookingstatements and may often, but not always, be identified by the use of such words such as “expects,” “believes,” “intends,” “anticipates,” “plans,” “estimates,”“potential,” “possible,” or “probable” or statements that certain actions, events or results “may,” “will,” “should,” or “could” be taken, occur or be achieved.The forward-looking statements include statements about oil and gas pricing assumptions, future operations, estimates of reserve and production volumes,estimates of capital expenditures, expansion of production and reserves, future growth potential, possible acquisitions, and the ability to raise future capital.Forward-looking statements are based on expectations and assumptions and analyses made by Earthstone Energy, Inc. (“Earthstone”) in light ofexperience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under thecircumstances. However, whether actual results and developments will conform with expectations is subject to a number of risks and uncertainties, includingadverse changes in oil and gas prices or protracted periods of low oil and gas prices; problems that may arise in the integration of businesses or assets; therisks of the oil and gas industry (for example, operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertaintiesinvolving geology of oil and gas deposits); the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to future production,costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety andenvironmental risks and risks related to weather; inability of management to execute its plans to meet its goals; shortages of drilling equipment, oil fieldpersonnel and services; unavailability of gathering systems, pipelines and processing facilities; the possibility that government policies may change; and thatforeign production rates may change. Earthstone’s annual report on Form 10-K for the year ended December 31, 2015 and other Securities and ExchangeCommission (“SEC”) filings discuss some of the important risk factors identified that may affect Earthstone’s business, results of operations, and financialcondition. Earthstone undertakes no obligation to revise or update publicly any forward-looking statements except as required by law.

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Investment Highlights

Prudently Managed Balance Sheet Adequate liquidity on hand to fund growth plans Simple and unburdened capital structure—no term debt

outstanding Traditional reserve-based credit facility with standard

covenants

Proven Management Team Four prior successful public entities Operational excellence Repeat institutional and high net worth investors Market recognition from investors and sellside research

analysts

Diversified Shale Play Exposurewith Growing Inventory

Presence in the most prolific, domestic oil-bearing shale plays—Eagle Ford, Midland Basin, and Bakken

Growth through drill bit and significant acquisitions ~600 total gross drilling locations across core plays Upside from down-spacing and other formations

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Track Record

2001 – 2004 AROC, Inc. (Private) Gulf Coast, Permian Basin, Mid-Con.Preferred investors – 17% IRRInitial investors – 4x return

2005 – 2007 Southern Bay Energy, LLC (Private)Gulf Coast, Permian BasinInitial investors – 40% IRR

1997 – 2001 Texoil, Inc. (“TXLI”)Gulf Coast, Permian BasinPreferred investors – 2.5x returnFollow-on investors – 3x returnInitial investors – 10x return

1992 – 1996 Hampton Resources Corp. (“HPTR”)Gulf CoastPreferred investors – 30% IRRInitial investors – 7x return

• Management team has consistently created shareholder value‐ Repeated success with multiple entities over 20+ years‐ Results have created long-term and recurring shareholders‐ Extensive industry and financial relationships ‐ Technical and operational excellence Multi-basin experience Resource & conventional expertise Complex Gulf Coast drilling & horizontal resource proficiency Efficient and low-cost operator Proven acquisition and exploitation results

2007 – 2012 GeoResources, Inc. (“GEOI”) Eagle Ford, Bakken, Gulf CoastInitial investors – 35% IRRInitial investors – 4.8x return

Initial Southern Bay investors achieved a combined 7.4x ROI upon the merger with GeoResources and subsequent sale in 2012

Note: “Initial investors” refers to (i) in the case of private entities, investors that participated in the initial capitalization or recapitalization of the entity at the time a change in management occurred, or (ii) in the case of public entities, public shareholders existing at the date the transaction was announced to the public. Past performance is not necessarily indicative of future results.

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Management• Strong management and technical team with demonstrated ability and prior success• Equity investors—interests are clearly aligned with shareholders

Years of Experience

Years Working Together

Responsibility

Frank Lodzinski 44 26 President and CEO

Robert Anderson 30 12 Corporate Development and Reservoir Engineering

Steve Collins 28 20 Completions and Operations

Chris Cottrell 33 18 Land and Marketing

Tim Merrifield 37 15 Geological and Geophysical

Francis Mury 42 26 Drilling and Development

Ray Singleton 38 1 Operations and A&D, Northern Region

Neil Cohen 13 4 Finance

Bret Wonson 15 6 Accounting

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Strategic Objectives

Corporate StrategyAsset Strategy

• Optimize Existing Properties‐ Implement operational improvements and

efficiencies‐ Drive down costs related to drilling,

completion, and production‐ Fully define geological and engineering upside

• Enhance Production / Cash Flow‐ Acquire producing assets‐ Pursue tactical operated acquisitions in

proximity to existing properties/fields‐ Divest non-core properties

• Growth Through the Drill Bit‐ Acquire acreage at favorable terms‐ Continue to generate and de-risk high-impact

drilling opportunities‐ Execute multi-year development drilling

program

• Deliver superior returns to shareholders• Maintain financial flexibility and a strong balance

sheet to facilitate additional acquisitions• Diversified exposure to the Eagle Ford, Midland

Basin, and Bakken• Achieve low development, operating, and G&A

cost structure• Consistently improve operating margins• Generate significant cash flow and net income

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Earthstone – A Platform for Steady Growth

December 2014

Eagle Ford Asset Acquisition

1,024 Boepd2

December 2014

Strategic Combination

Eagle Ford Operator2,627 Boepd2

Q2/Q3 2015

Eagle Ford Acreage Acquisitions

3,100 Gross Acres Karnes and Gonzales

Counties, TX

Q2 2016

Midland Basin1,329 Boepd3

• Since December 2014, Earthstone has evolved from a micro cap, non-op Bakken company to a small cap, multi-basin operator with additional exposure to the Eagle Ford and Midland Basin‐ Production has increased 7.4x

Acquisitions

November 2014

Bakken662 Boepd1

Q2 2016

Eagle FordMidland Basin

Bakken4,905 Boepd3

Notes:1 Total Earthstone production for the three month period ended September 30, 20142 Daily production average for December 20143 Daily production for the three month period ended March 31, 2016

3

662

4,905

CQ3 '14 CQ1 '16

Production (Boepd)

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Earthstone Acquires Lynden

• Closed on May 18, 2016• 3.7mm ESTE shares issued to Lynden Energy Corp. (“LVL”) stockholders• Existing ESTE stockholders to own 79% and LVL stockholders to own 21%

‐ 17.535mm total shares of common stock outstanding upon closing the transaction

Transaction Summary

NYSE MKT: “ESTE”

12.6 MMBoe1

82% Liquids / 68% PD

79% Ownership in Combined Company

TSX Ventures: “LVL.V” / OTC Pink: “LVLEF”

5.3 MMBoe2

78% Liquids / 79% PD

21% Ownership in Combined Company

Notes: Proved reserves determined utilizing SEC price methodology effective December 31, 20151 Proved reserves associated with Earthstone’s properties as estimated by Cawley, Gillespie & Associates, Inc.2 Proved reserves associated with Lynden’s properties as estimated by Earthstone management

No proved reserves assigned to horizontal drilling locations in the Midland Basin

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Lynden Acquisition Benefits

• Entry into Midland Basin, diversifying and expanding its existing exposure to the Eagle Ford and Bakken• Working interests in 122 gross / 49.2 net vertical wells targeting the Wolfberry play• Working interests in 2 gross / 0.9 net horizontal Wolfcamp wells in Glasscock County and 2 gross / 0.4 net

horizontal wells in Martin County (1 Lower Spraberry well, 1 Wolfcamp well)• Significant, de-risked upside with over 150 proved vertical Wolfberry locations on 20 to 40 acre spacing,

with potential for over 50 horizontal Wolfcamp A and B gross wells and additional upside in other horizontal targets

• Additional float and trading volume and potentially greater access to capital

Benefits to ESTE Stockholders

• Proved management team with operational expertise• Stock consideration enables further upside to be captured• Greater market recognition with enhanced financial scale and flexibility• Platform to fully develop existing Midland Basin asset base• Diversification to the Eagle Ford and Bakken

Benefits to LVL Stockholders

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Combined Core Asset Map1

Northern Region1P Reserves (MMBoe) 3.1% PD 78%% Oil 71%PV‐10 ($mm) 25.5Production (Boepd) 816

Southern Region1P Reserves (MMBoe) 14.8% PD 70%% Oil 68%PV‐10 ($mm) 120.4Production (Boepd) 4,089

TexasEagle Ford

Midland Basin

North DakotaBakken/Three Forks

Total Company1P Reserves (MMBoe) 17.9% PD 71%% Oil 68%PV‐10 ($mm) 145.9Production (Boepd) 4,905

Notes: Proved reserves determined utilizing SEC price methodology effective December 31, 20151 Proved reserves associated with Northern Region and Southern Region-Eagle Ford/Austin Chalk properties as estimated by Cawley, Gillespie & Associates, Inc.

Proved reserves associated with Southern Region-Midland Basin properties as estimated by Earthstone managementNo proved reserves assigned to horizontal drilling locations in the Midland BasinProduction for the three month period ended March 31, 2016PV-10 is a non-GAAP financial measure. Please see Appendix A for further disclosures

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Core Asset Summary

Project Area South Texas Williston Basin Midland Basin

Objective Eagle Ford, Austin Chalk

Bakken,Three Forks

Spraberry,Wolfcamp

Counties Karnes, Gonzales, Fayette

McKenzie, Dunn Glasscock, Midland, Martin, Howard

Proved Reserves (MMBoe, % Oil)1 8.2 MMBoe; 86% Oil 2.9 MMBoe; 70% Oil 5.3 MMBoe; 54% Oil

Production2 1,808 663 1,329

Gross Producing Well Count 76 136 122

Net Acres 18,600 5,900 5,883

Working Interest 33% to 50% 4% 20% to 44%

Gross Drilling Locations 240 140 200

Total Company Production = 4,905 Boepd, 60% Oil

Notes: Proved reserves determined utilizing SEC price methodology effective December 31, 20151 Proved reserves associated with Northern Region and Southern Region-Eagle Ford/Austin Chalk properties as estimated by Cawley, Gillespie & Associates, Inc.

Proved reserves associated with Southern Region-Midland Basin properties as estimated by Earthstone managementNo proved reserves assigned to horizontal drilling locations in the Midland Basin

2 Production for the three month period ended March 31, 2016

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Oil60%

Gas25%

NGL15%

PDP75%

PDNP15%

PUD10%

Oil68%

Gas19%

NGL13%

PDP57%

PDNP15%

PUD28%

Proved Reserves by Commodity1Proved Reserves by Category1

Production by Commodity3PV-10 by Category1,2

17.9 MMBoe

4,905 Boepd$145.9mm

17.9 MMBoe

Combined Asset Summary – 12/31/15 SEC Pricing1

Notes: Proved reserves determined utilizing SEC price methodology effective December 31, 20151 Proved reserves associated with Northern Region and Southern Region-Eagle Ford/Austin Chalk properties as estimated by Cawley, Gillespie & Associates, Inc.

Proved reserves associated with Southern Region-Midland Basin properties as estimated by Earthstone managementNo proved reserves assigned to horizontal drilling locations in the Midland Basin

2 PV-10 is a non-GAAP financial measure. Please see Appendix A for further disclosures3 Production for the three month period ended March 31, 2016

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Investor Sponsor Ownership

Earthstone ManagementFriends and Family

52.0%

16.9%

JVL Advisors 3.9%

Equity OwnershipEarthstone is Backed By Top-Tier Investors

17.535mm shares outstanding

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Oak Valley Resources, LLC owns 52.0% of Earthstone. Oak Valley’s investors include:

Earthstone Management• Significant equity investors• CEO has over 40 years of experience • Executive officers average over 30 years of industry

experience• Senior executives have worked together in multiple

successful entities

EnCap Investments L.P.• Leading provider of private equity to the independent

E&P sector• 25-year history of providing capital • Repeat investors • Long relationship with Management

Vlasic Group• Partnered with Management for

26 consecutive years• Former investor and director of

GeoResources and predecessor entities

• Previously affiliated with Vlasic Foods prior to sale to Campbell Soup

Wells Fargo Energy Capital• Part of Wells Fargo Energy Group,

a $30bn capital provider to the North American energy industry

• Predecessor entities have previously invested with Management

Friends and Family• Many repeat investors • Long-term investment horizons• Petroleum engineers, geologists,

portfolio managers, endowments, family trusts, investment bankers, lawyers, and other accredited persons

• Source of incremental deal flow and advice

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Midland Basin

County Gross Acres Leasehold Interest (%) Net Acres Production (Boepd)1

Martin 1,757 43.75% 7691,127 20.00% 225

Midland 640 43.75% 280Glasscock 4,480 43.75% 1,960Howard 6,121 40.63% 2,487

640 25.39% 162Total 14,765 5,883 1,329

Eagle Ford

County Gross Acres Leasehold Interest (%) Net Acres Production (Boepd)1

Karnes/Gonzales/Fayette 38,000 48.95% 18,600 1,808La Salle 25,400 11.42% 2,900 645Total 63,400 21,500 2,453Note:1         As of the three month period ended March 31, 2016

Midland Basin and Eagle Ford Position Overview

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Midland Basin – Acreage Position Overview

County Gross Acres

Net Interest(%) Net Acres

Martin1,757 43.750 769

1,127 20.000 225

Midland 640 43.750 280

Glasscock 4,480 43.750 1,960

Howard6,121 40.625 2,487

640 25.390 162

Total: 14,765 5,883

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• Horizontal development in the Midland Basin is exceeding original expectations

• Increasing industry activity de-risking play

• Production data from these wells supports strong EURs and returns

• Vertical Wolfberry confirms quality of acreage

• Prospective in 8+ separate horizons

Midland Basin – Horizontal Potential in Multiple Horizons

• Several horizontal resource plays being delineated

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Initial Horizontal Locations

Producing Vertical WellPotential Vertical Well Location

Glasscock County – Wind Farms Prospect Area

• 4,480 gross / 1,960 net acres prospective for the Wolfcamp‐ Leasehold interest of ~44%

• Earthstone’s first two horizontal Wolfcamp wells in Glasscock County were drilled during June and July 2015‐ Mallard 23 #1H well

‐ Lateral length of ~6,900 feet, 35 fracstages

‐ Gross production for the first 60 days averaged 505 Boepd (91% oil)

‐ McDaniel 2413 #1H‐ Lateral length of ~9,500 feet, 48 frac

stages‐ Gross production for the first 60 days

averaged 600 Boepd (91% oil)• Contiguous acreage block allows for efficient

layout of long laterals

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• 6,761 gross / 2,640 net acres prospective for the Wolfcamp‐ Leasehold interest of 25% to 41%

• First horizontal well planned for August 2016• Increasing vertical and horizontal well activity

by other operators in Howard County‐ Offset by Encana and Oxy

• Contiguous acreage block allows for efficient layout of long laterals

• Ongoing vertical well program to perpetuate leases

• Improvements in vertical well completion practices

Howard County – Tubb Prospect Area

Map Location Operator Well Name 24 Hr IP 

(BOEPD)30 Day IP (BOEPD) Lateral Length % Oil

1 Encana (Athlon) Tubb 39 #5H 2,351 1,594 6,705’ 73%

2 Encana Catcher 40 #5H 1,133 695 6,939’ 97%

3 Encana Tubb 39 3908I Waiting on completion data to be released

4 Encana Tubb 39 3909I Waiting on completion data to be released

5 Oxy Patterson 2702 WA Waiting on completion data to be released

Earthstone Producing Vertical Well

1

2

3

45

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• Unique opportunity in terms of size, contiguous nature, and significant geological potential

• Covers 165 square miles on Eastern Shelf• 50% working interest in ~104,000 gross and net

acre lease Coke, Mitchell, and Sterling Counties

• Several high-impact resource play targets Clearfork, Wolfcamp, Cline, Mississippian

• Typically shallower than 8,000 feet

Mitchell Ranch

Eastern Shelf – Mitchell Ranch Overview

Mitchell Ranch

Midland Basin to Eastern Shelf Simplified Stratigraphic Section

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Eagle Ford – Summary• Operated Fayette, Gonzales, and Karnes

Counties

‐ 38,000 gross / 18,600 net leasehold acres

‐ Working interests range from 33% to 50%

‐ 60% held-by-production

• 64 gross producing wells (62 operated / 2 non-op)

• April 2016 average gross production of ~4,100 Boepd (97% operated)

• Approximately 240 identified gross Eagle Ford drilling locations

• Majority of acreage covered by 173 square mile 3-D seismic shoot

‐ Avoid faulting for steering Eagle Ford wells

‐ Indicate natural fractures

‐ Delineate other prospective opportunities

• Other Potential: Upper Eagle Ford, Austin Chalk, Buda, Wilcox, and Edwards

• Non-operated La Salle County

‐ 25,400 gross / 2,900 net leasehold acres

‐ Working interests range from 10% to 15%

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Frio

JacksonYegua-Cockfield

WechesQueen City

ReklawCarrizo Sand

Wilcox Sands

Midway Shale

Navarro / Taylor Shale

Pecan Gap / Anacacho Chalk Pecan Gap Shale

Upper Eagle Ford ShaleEagle Ford Carbonate

Lower Eagle Ford Shale

Taylor Sands

Formation

Buda LimestoneDel Rio Shale

Georgetown Limestone

Edwards Limestone

Glenrose Limestone

Travis Peak / Cotton Valley

Smackover

Louann Salt

UpperAsh Mkr

Vicksburg

Pre Louann Salt

Missing / ErodedSection

Stratigraphic ColumnS.W. Fayette & N.E. Gonzales Co.’s, Texas

Navarro Sands

UPPER AUSTIN CHALK TARGET

LOWER AUSTIN CHALK TARGET

EAGLE FORD TARGET

7750’ – 11000’

8250’ – 11600’

8300’ – 11650’Gidding

s Au

stin Cha

lk Field In

terval

Eagleville Field 

Interval

Southe

rn 

Bay Eagle 

Ford 

Interval

Eagle Ford and Austin Chalk Intervals Across the Acreage

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Recent Eagle Ford Acquisitions – Karnes and Gonzales Counties

• Acquired 3,050 gross / 1,185 net acres in Karnes and Southern Gonzales Counties

• Potential for 33+ gross Eagle Ford locations

• Laterals of 5,000 feet to 7,000 feet

• Operational control with 33% to 50% working interest

• In Q4 2015, drilled four well pad in Karnes County, with first production expected in H2 2016

• No near-term lease obligations

‐ HBP acreage

‐ 2017 to 2018 expirations

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Upper Austin Chalk – Naturally Fractured Reservoir• March 2016 average gross production of ~500

Boepd (95% operated)

• 9 gross producing wells (8 operated / 1 non-op)

‐ 7,880 gross acres held by production

• Brought 4 gross wells on line in 2014 and 2 gross wells on line in 2015; 1 well brought on line in February 2016

• Pending well performance, ability to add 7 new locations that can hold significant acreage for future Eagle Ford development

• D&C of $4.3mm per well; 13,000 feet of lateral length (two opposing laterals)

• Integrating regional geology with 3-D seismic-defined fracture indications

ESTE‐Operated Producing Well

ESTE‐Operated Drilling Location

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Williston Basin – Bakken/Three Forks Play

• Expand acreage• Acquire production• Establish operating presence

• 5,900 net core acres predominantly in McKenzie and Dunn Counties of North Dakota that are prospective for the Bakken/Three Forks formation

• 136 gross wells producing‐ Average working interest of ~4%‐ 35 gross wells currently being drilled or

completed• ~140 potential gross drilling locations• Primary operators include: Statoil, Oasis,

ConocoPhillips/Burlington, Continental, ExxonMobil/XTO, Marathon, SM Energy

• Majority of units in McKenzie County, ND

‐ Banks Field

Largest development area

Interest in 22 spacing units

Operators down-spacing to 6-7 wells per unit in the Bakken

‐ Indian Hill Field

Near-Term StrategySummary

Note: Estimated number of locations include proved undeveloped as well as management’s estimates of additional potential. Actual locations drilled and quantities that may be ultimately recovered from Earthstone’s interests could differ substantially from management’s estimates.

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380,000270,000

120,000

2016Q2‐Q4

2017Full Year

2018Full Year

Swap PositionsOil Production Hedged (Bbls)

Period Oil / Gas QuantityOil – BBls/moGas – MMBtu/mo

Fixed Price

Q2 2016 Oil 36,667 52.15

Q3 2016 Oil 45,000 49.35

Q4 2016 Oil 45,000 49.35

FY 2017 Oil 22,500 47.87

FY 2018 Oil 10,000 50.78

Q2 2016 Gas 76,667 2.517

Q3 2016 Gas 80,000 2.511

Q4 2016 Gas 80,000 2.511

FY 2017 Gas 60,000 2.810

Hedging Summary

Gas Production Hedged (MMBtu)

560,000720,000

02016Q2‐Q4

2017Full Year

2018Full Year

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2016 Capital Expenditure Budget

Capex by Project AreaCurrent Budget

Drilling and Completion $mm

Gross Well Count

Drilled Completed

Non-Operated Bakken 7.0 10 35

Operated Eagle Ford 4.0 0 4

Non-Operated Midland Basin –Horizontal 3.1 1 1

Non-Operated Mitchell Ranch 1.8 4 4

Operated Austin Chalk 1.1 1 1

Non-Operated Midland Basin –Vertical 1.0 1 1

Subtotal 18.0 17 46

Land 2.0

Total 20.0

35%

20%

15%

9%

6%5%10%

Non‐Operated Bakken Operated Eagle FordNon‐Operated Midland Basin ‐ HZ Non‐Operated Mitchell RanchOperated Austin Chalk Non‐Operated Midland Basin ‐ VTLand

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Appendix A – PV-10

Present Value Discounted at 10% (“PV-10”) is a non-GAAP financial measure that differs from the GAAP measure “standardized measure ofdiscounted future net cash flows” in that PV-10 is calculated without regard to future income taxes. Earthstone management believes that thepresentation of the PV-10 value is relevant and useful to investors because it presents the estimated discounted future net cash flows attributable toour estimated proved reserves independent of our income tax attributes, thereby isolating the intrinsic value of the estimated future cash flowsattributable to our reserves. Because many factors that are unique to each individual company impact the amount of future income taxes to be paid,Earthstone management believes the use of a pre-tax measure provides greater comparability of assets when evaluating companies. PV-10 does notnecessarily represent the fair market value of oil and natural gas properties. PV-10 is not a measure of financial or operational performance underGAAP, nor should it be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows as defined underGAAP.

PV-10s as of December 31, 2015 utilized SEC price methodology and were based on $50.28 per barrel of oil and $2.590 per MMBTU for natural gas.

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Frank Lodzinski President and CEO

Robert Anderson EVP, Corporate Development and Engineering

Neil Cohen VP, Finance, and Treasurer

Corporate Headquarters

Houston 1400 Woodloch Forest Drive | Suite 300 | The Woodlands, TX 77380 | (281) 298-4246

Denver 633 17th Street | Suite 2320 | Denver, CO 80202 | (303) 296-3076

Website www.earthstoneenergy.com

Contact Information