earthstone energy incfilings.irdirect.net/data/10254/000156459015001399/este... · 2015. 3. 6. ·...

SECURITIES & EXCHANGE COMMISSION EDGAR FILING

EARTHSTONE ENERGY INC

Form: 8-K/A

Date Filed: 2015-03-06

Corporate Issuer CIK: 10254Symbol: ESTESIC Code: 1311Fiscal Year End: 03/31

© Copyright 2015, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to theterms of use.

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934

Date of Report: December 19, 2014 (Date of earliest event reported)

(Exact name of registrant as specified in its charter)

Delaware 001-35049 84-0592823

(State or other jurisdiction of incorporation) (Commission File Number) (IRS Employer Identification No.)

1400 Woodloch Forest Drive, Suite 300The Woodlands, Texas 77380

(Address of principal executive offices) (Zip Code)

(281) 298-4246(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant underany of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.

EXPLANATORY NOTE

As previously disclosed in its Current Report on Form 8-K filed on December 29, 2014 (the “Prior 8-K”), with the U.S. Securities andExchange Commission (the “SEC”), on December 19, 2014, Earthstone Energy, Inc., a Delaware corporation (“Earthstone” or the“Company”), completed the transactions, whereby the Company acquired from Oak Valley Resources, LLC, a Delaware limitedliability company (“OVR”) its three wholly owned subsidiaries, pursuant to the Exchange Agreement dated May 15, 2014 and asamended September 26, 2014 between the Company and OVR (the “Exchange Agreement”), and acquired an additional 20%undivided ownership interest in certain oil and gas properties (the “2014 Eagle Ford Acquisition Properties”) pursuant to theContribution Agreement dated October 16, 2014 (the “Contribution Agreement”) by and among the Company, OVR, Sabine RiverEnergy, LLC, Oak Valley Operating, LLC, Parallel Resource Partners, LLC and Flatonia Energy, LLC.

The Company is filing this amendment to its Prior 8-K for the purpose of providing unaudited pro forma financial statements givingeffect to both the Exchange Agreement and the Contribution Agreement, as required by Item 9.01(b) of Form 8-K. Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The unaudited consolidated financial statements of OVR as of and for the three and nine months ended September 30, 2014 and2013 and audited consolidated financial statements of OVR for the years ended December 31, 2013, 2012 and 2011 were previouslyfiled as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on December 29, 2014.

The unaudited statements of revenues and direct operating expenses for the 2014 Eagle Ford Acquisition Properties for the ninemonths ended September 30, 2014 and 2013 and audited statements of revenues and direct operating expenses for these propertiesfor the years ended December 31, 2013 and 2012 are attached hereto as Exhibit 99.4 and are incorporated by reference.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed consolidated combined balance sheet of the Company as of September 30, 2014 and theunaudited pro forma condensed consolidated combined statements of operations for the twelve months ended December 31, 2013and the nine months ended September 30, 2014 are attached hereto as Exhibit 99.1 and are incorporated herein by reference.

(d) Exhibits. The following exhibits are filed as part of this Current Report on Form 8-K/A: Exhibit No. Description

99.1 Unaudited pro forma condensed consolidated combined balance sheet of Earthstone Energy, Inc. as of September 30,2014, and unaudited pro forma condensed consolidated combined statements of operations of Earthstone Energy, Inc.for the twelve months ended December 31, 2013 and the nine months ended September 30, 2014.

99.4 Audited statements of revenues and direct operating expenses for the years ended December 31, 2013 and 2012 andunaudited statements of revenues and direct operating expenses for the nine months ended September 30, 2014 and2013.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned hereunto duly authorized. EARTHSTONE ENERGY, INC. Date: March 6, 2015 By: /s/ Frank A. Lodzinski Frank A. Lodzinski President and Chief Executive Officer


EXHIBIT INDEX Exhibit No. Description

99.1 Unaudited pro forma condensed consolidated combined balance sheet of Earthstone Energy, Inc. as of September 30,2014, and unaudited pro forma condensed consolidated combined statements of operations of Earthstone Energy, Inc.for the twelve months ended December 31, 2013 and the nine months ended September 30, 2014.

99.4 Audited statements of revenues and direct operating expenses for the years ended December 31, 2013 and 2012 andunaudited statements of revenues and direct operating expenses for the nine months ended September 30, 2014 and2013.


EXHIBIT 99.1

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTSFOR EARTHSTONE ENERGY, INC.

Introduction

On December 19, 2014, Earthstone Energy, Inc., a Delaware corporation (the “Company”), and Oak Valley Resources, LLC,a Delaware limited liability company (“OVR”), closed the transactions contemplated by the Exchange Agreement dated May 15, 2014and as amended September 26, 2014 between the Company and OVR (the “Exchange Agreement”) whereby OVR contributed tothe Company the membership interests of its three wholly-owned subsidiaries, Oak Valley Operating, LLC (“Oak Valley Operator”),EF Non-OP, LLC (“EF Non-Op”) and Sabine River Energy, LLC (“Sabine”), each a Texas limited liability company (collectively “OakValley”), inclusive of producing assets, undeveloped acreage and substantially all of its cash of approximately $139 million pro formaas of September 30, 2014, inclusive of approximately $107 million in cash received from members’ capital commitments receivedimmediately prior to the Exchange (as defined below), in exchange for the issuance of approximately 9.1 million shares of commonstock, $0.001 par value per share (the “Common Stock”), of the Company, to OVR (the “Exchange”). The Exchange resulted in achange of control of the Company. The Exchange has been accounted for as a reverse acquisition whereby Oak Valley is consideredthe acquirer for accounting purposes and the Company is the acquiree.

Prior to the Exchange, OVR, the parent company of Oak Valley, had on its balance sheet cash, the membership interests of OakValley, borrowings under its credit facility, associated deferred financing costs and commodity derivative instruments. In theExchange, the credit facility of the Company was paid in full and terminated. OVR’s credit facility was refinanced under theCompany’s newly executed Credit Agreement. OVR also assigned to the Company its commodity derivative contracts, which wereprovided for under the OVR credit facility. As noted above, OVR contributed to the Company the membership interest of Oak Valleyand substantially all remaining cash on hand. Subsequent to the Exchange, OVR holds approximately 9.1 million of the newly issuedshares of Common Stock and retains no other significant assets or liabilities.

Immediately following the Exchange, Flatonia Energy, LLC (“Flatonia”), Parallel Resource Partners, LLC (“Parallel”), and a whollyowned subsidiary of the Company, Sabine, closed the transactions contemplated by the Contribution Agreement dated October 16,2014 (the “Contribution Agreement”), by and among the Company, OVR, Sabine, Oak Valley Operator, Parallel, andFlatonia, whereby Parallel contributed 28.57% of the oil and gas property interests held by Flatonia, a wholly owned subsidiary ofParallel, in consideration for approximately 2.95 million shares of Common Stock (the “Contribution”). The assets subject to theContribution Agreement were certain oil and gas property interests in producing wells and acreage in the Eagle Ford trend of Texas(the “2014 Eagle Ford Acquisition Properties”). Oak Valley Operator is the operator of the 2014 Eagle Ford Acquisition Properties.The only relationship that Flatonia or Parallel had with Oak Valley or the Company prior to the transaction was that Oak ValleyOperator was the operator of the 2014 Eagle Ford Acquisition Properties. The Contribution is being accounted for as a businesscombination in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)805, Business Combinations, which among other things requires assets acquired and liabilities assumed to be measured at their fairvalues as of the acquisition date.

The following unaudited pro forma condensed consolidated combined financial statements reflect the historical consolidated resultsof the Company and Oak Valley, on a pro forma basis to give effect to the following transactions, which are described in further detailbelow, as if they had occurred on September 30, 2014 for pro forma balance sheet purposes, and on January 1, 2013 for pro formastatements of operations purposes:

· Purchase Accounting Adjustments. Although the Company (the public company) was the legal acquirer in the Exchange,Oak Valley (the private company) is the accounting acquirer. Accordingly, the assets and liabilities of the Company arerecorded at their fair values.

· Method of Accounting. Prior to the Exchange, the Company followed the Full Cost method of accounting. Subsequent to theExchange, the Company adopted the Successful Efforts method of accounting, the method followed by Oak Valley. Due to thechange in method of accounting, the Purchase Accounting Adjustments include adjustments related to depletion. For furtherinformation see Note 1 Basis of Presentation to the Unaudited Pro Forma Condensed Consolidated Combined FinancialStatements.

· The Eagle Ford Acquisition. In July 2013 and August 2013, Sabine and Flatonia jointly purchased producing wells andundeveloped acreage in the Eagle Ford shale trend of Texas (the “Eagle Ford Properties”). The total consideration paid forthe Eagle Ford Properties by Sabine was approximately $87.0 million (the “Eagle Ford Acquisition”).

· The Contribution Agreement and 2014 Eagle Ford Acquisition Properties. As part of the closing of the ContributionAgreement, Flatonia received approximately 2.95 million shares of Common Stock in exchange for 28.57% of the oil and gas

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properties held by Flatonia in the Eagle Ford Properties. Oak Valley Operator, one of the subsidiaries included in theExchange, is the operator of the majority of these properties.

· Exchange Related Transactions. Pursuant to the terms of Exchange, Oak Valley Operator, EF Non-Op, and Sabine becamedirect subsidiaries of the Company and, as a result, are now subject to U.S. federal and state income taxes as a subchapter Ccorporation under the Internal Revenue Code of 1986, as amended. In addition, a portion of the cash contributed by OVR wasused to repay all of the Company’s outstanding indebtedness at the closing of the Exchange.

· Successful Efforts. As noted above, the Company adopted the Successful Efforts method of accounting. Exchange RelatedTransactions includes adjustments related to the expensing of costs previously capitalized by the Company under the Full Costmethod of accounting.

The Company’s fiscal year end was previously March 31 and Oak Valley’s fiscal year end is December 31. After the Exchange, theCompany changed its fiscal year end to December 31; however, pursuant to Rule 11-02(c)(3) of Regulation S-X, the fiscal years arenot being conformed for the purpose of presenting pro forma condensed consolidated combined financial statements, because thetwo fiscal year ends are not separated by more than 93 days.

The unaudited pro forma condensed consolidated combined balance sheet of the Company is based on the unaudited historicalconsolidated balance sheets of the Company and Oak Valley as of September 30, 2014. The balance sheet includes pro formaadjustments to give effect to the 2014 Eagle Ford Acquisition Properties, the Purchase Accounting Adjustments and ExchangeRelated Transactions as if they had occurred on September 30, 2014.

The unaudited pro forma condensed consolidated combined statements of operations of the Company are based on (i) the unauditedhistorical consolidated statements of operations of the Company and Oak Valley for the nine months ended September 30, 2014,having given effect to the Purchase Accounting Adjustments, the 2014 Eagle Ford Acquisition and the Exchange as if they hadoccurred on January 1, 2013; (ii) the audited historical consolidated statement of operations of the Company for the twelve monthsended March 31, 2014 and the audited historical consolidated statement of operations of Oak Valley for the twelve months endedDecember 31, 2013, having given effect to the Purchase Accounting Adjustments, the 2014 Eagle Ford Acquisition, the Eagle FordAcquisition and the Exchange as if they had occurred on January 1, 2013; (iii) the historical statements of revenues and directoperating expenses of the Eagle Ford Properties and the 2014 Eagle Ford Acquisition Properties; and (iv) the historical accountingrecords of the Company and Oak Valley. The Company’s historical information included in the unaudited pro forma condensedconsolidated combined statement of operations for the nine months ended September 30, 2014 is derived by subtracting Company’sunaudited consolidated statement of operations for the nine months ended December 31, 2013 from its audited historicalconsolidated statement of operations for the twelve months ended March 31, 2014 and adding the unaudited consolidated statementof operations for the six months ended September 30, 2014.

The unaudited pro forma data presented reflects events directly attributable to the described transactions and certain assumptionsthe Company believes are reasonable. The unaudited pro forma data is not necessarily indicative of financial results that would havebeen attained had the described transactions occurred on the dates indicated above or which may be achieved in the future. Theadjustments are based on currently available information and certain estimates and assumptions. Therefore, the actual adjustmentsmay differ from the pro forma adjustments. However, management believes that the assumptions provide a reasonable basis forpresenting the significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect tothose assumptions and are properly applied in the unaudited pro forma financial statements.

The unaudited pro forma condensed consolidated combined financial statements are provided for illustrative purposes only and arenot intended to represent or be indicative of the consolidated results of operations or financial position of the Company that wouldhave been recorded had the Exchange been completed as of the dates presented and should not be taken as representative offuture results of operations or financial position of the Company. The unaudited pro forma condensed consolidated combinedfinancial statements do not reflect the impact of any potential operational efficiencies, asset dispositions, cost savings or economiesof scale that the Company may achieve with respect to the combined operations. Additionally, the pro forma statements of operationsdo not include non-recurring charges or credits and the related tax effects which result directly from the Exchange. Certainreclassifications for the nine and twelve month periods ended September 30, 2014 and March 31, 2014, respectively, have beenmade to the Company’s historical consolidated financial statements to conform to Oak Valley’s historical presentation. Certainworkover expenses previously included in the lease operating expense line item on the Company’s Condensed ConsolidatedStatement of Operations have been reclassified to the line item workover, well service and water-disposal expense. Certainreclassifications for the nine and twelve month periods ended September 30, 2014 and December 31, 2013, respectively, have beenmade to Oak Valley’s historical presentation: operating expenses related to gathering activities have been reclassified from leaseoperating expense to the line item workover, well service and water-disposal expense on the Condensed Consolidated CombinedStatement of Operations.

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Earthstone Energy, Inc.Unaudited Pro Forma Condensed Consolidated Combined Balance Sheet

As of September 30, 2014 Purchase 2014 Eagle Ford Exchange Earthstone Oak Valley Accounting Acquisition Related Pro Forma ASSETS Historical Historical Adjustments Properties Transactions Combined

CURRENT ASSETS (a) (b) Cash and cash equivalents $ 2,687,000 $ 31,971,000 $ - $ - $ 100,020,000 (c)$134,678,000 Accounts receivable:

Oil and gas 4,058,000 15,865,000 - - - 19,923,000 Joint interest owners and other 321,000 18,256,000 - - - 18,577,000

Short-term derivative instruments - 963,000 - - - 963,000 Prepaid expenses and other currentassets 1,174,000 416,000 - - - 1,590,000

Total current assets 8,240,000 67,471,000 - - 100,020,000 175,731,000 PROPERTY, PLANT ANDEQUIPMENT, AT COST Oil and natural gas properties:

Proved Properties 71,301,000 234,844,000 (47,331,000) 34,588,000 - 293,402,000 Unproved Properties 643,000 46,828,000 4,857,000 22,000,000 - 74,328,000 Accumulated depreciation, depletionand amortization (33,769,000) (92,604,000) 33,769,000 - - (92,604,000)

Total oil and natural gas properties,net 38,175,000 189,068,000 (8,705,000 ) 56,588,000 - 275,126,000

Other property, plant and equipment, net 555,000 1,021,000 (2,000) - - 1,574,000 Total property, plant and equipment,net 38,730,000 190,089,000 (8,707,000 ) 56,588,000 - 276,700,000

NONCURRENT ASSETS Long-term derivative instruments - 147,000 - - - 147,000 Goodwill - - 15,017,000 - - 15,017,000 Other long term assets 192,000 727,000 - - (70,000) (c) 849,000

Total noncurrent assets 192,000 874,000 15,017,000 - (70,000) 16,013,000 TOTAL ASSETS $ 47,162,000 $258,434,000 $ 6,310,000 $ 56,588,000 $ 99,950,000 $468,444,000

LIABILITIES AND STOCKHOLDERS'EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 6,207,000 $ 51,729,000 $ - $ - $ 1,753,000 (f) $ 59,689,000 Revenue and royalties payable - 20,693,000 - - - 20,693,000 Asset retirement obligations 291,000 67,000 - - - 358,000 Advances - 14,547,000 - - - 14,547,000

Total current liabilities 6,498,000 87,036,000 - - 1,753,000 95,287,000 NONCURRENT LIABILITIES Long-term debt 7,000,000 10,825,000 - - (7,000,000 ) (c) 10,825,000 Asset retirement obligations 2,170,000 3,167,000 - 163,000 - 5,500,000 Deferred tax liability 4,902,000 - (553,000) - 23,476,000 (e) 27,825,000

Total noncurrent liabilities 14,072,000 13,992,000 (553,000) 163,000 16,476,000 44,150,000 EQUITY Members' equity - 157,406,000 - - (157,406,000) (d) - Common stock 18,000 - 2,000 3,000 - 14,000

(18,000) 9,000 (d) Additional paid-in capital 23,525,000 - 33,913,000 56,422,000 157,397,000 (d) 354,752,000

(23,525,000) 107,020,000 (c) Treasury Stock (460,000) - - - - (460,000)Accumulated earnings (deficit) 3,509,000 - (3,509,000 ) - (70,000) (c) (25,299,000)

(23,476,000) (e) (1,753,000 ) (f)

Total stockholders' equity 26,592,000 157,406,000 6,863,000 56,425,000 81,721,000 329,007,000 TOTAL LIABILITIES ANDSTOCKHOLDERS' EQUITY $ 47,162,000 $258,434,000 $ 6,310,000 $ 56,588,000 $ 99,950,000 $468,444,000

See accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Combined Financial Statements


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Earthstone Energy, Inc.Unaudited Pro Forma Condensed Consolidated Combined Statement of Operations

For the Nine Months Ended September 30, 2014 Purchase 2014 Eagle Ford Exchange Earthstone Oak Valley Accounting Acquisition Related Pro Forma Historical Historical Adjustments Properties Transactions Combined

REVENUES (g) (i) Oil sales $13,140,000 $25,292,000 $ - $ 13,776,000 $ - $52,208,000 Natural gas and natural gas liquidsales 1,977,000 10,301,000 - 786,000 - 13,064,000 Well service and water-disposalrevenue 87,000 293,000 - - - 380,000 Total revenues 15,204,000 35,886,000 - 14,562,000 - 65,652,000 OPERATING EXPENSES Lease operating expenses 2,831,000 6,907,000 - 1,351,000 33,000 (k) 11,122,000 Exploration expense - 83,000 - - 201,000 (k) 284,000 Production taxes 1,347,000 1,479,000 - 691,000 - 3,517,000 Workover, well service and water-disposal 670,000 627,000 - 50,000 - 1,347,000 Depreciation, depletion andamortization 3,409,000 13,031,000 (1,481,000) 1,463,000 (j) - 16,422,000 General and administrativeexpenses 2,677,000 4,816,000 - - (1,511,000) (l) 5,982,000 Accretion of asset retirementobligations 159,000 229,000 - 10,000 (j) - 398,000

Total operating expenses 11,093,000 27,172,000 (1,481,000) 3,565,000 (1,277,000) 39,072,000

OPERATING INCOME 4,111,000 8,714,000 1,481,000 10,997,000 1,277,000 26,580,000

OTHER INCOME (EXPENSE) Interest expense, net (162,000) (446,000) - - 162,000 (m) (446,000)Net gain on derivative contracts - 186,000 - - - 186,000 Other income 17,000 30,000 - - - 47,000 Total other income (expense), net (145,000) (230,000) - - 162,000 (213,000)INCOME BEFORE INCOMETAXES 3,966,000 8,484,000 1,481,000 10,997,000 1,439,000 26,367,000 INCOME TAX EXPENSE (766,000) - (545,000) (o) (3,959,000 ) (o) (530,000) (n) (9,533,000 ) (3,733,000) (o) NET INCOME (LOSS) $ 3,200,000 $ 8,484,000 $ 936,000 $ 7,038,000 $ (2,824,000) $ 16,834,000

NET INCOME PER COMMONSHARE

Basic $ 1.86 $ 1.22 Diluted $ 1.85 $ 1.22

WEIGHTED AVERAGE COMMONSHARES OUTSTANDING

Basic 1,719,003 13,800,743 Diluted 1,727,804 13,809,544


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Earthstone Energy, Inc.Unaudited Pro Forma Condensed Consolidated Combined Statement of Operations

For the Twelve Months Ended December 31, 2013

Purchase Eagle Ford 2014 Eagle Ford Exchange Earthstone Oak Valley Accounting Acquisition Acquisition Related Pro Forma Historical Historical Adjustments Adjustments Properties Transactions Combined

REVENUES (g) (h) (i) Oil sales $15,633,000 $ 16,038,000 $ - $17,914,000 $ 18,230,000 $ - $67,815,000 Natural gas and natural gasliquid sales 1,807,000 13,596,000 - 434,000 643,000 - 16,480,000 Well service and water-disposal revenue 74,000 430,000 - - - - 504,000 Total revenues 17,514,000 30,064,000 - 18,348,000 18,873,000 - 84,799,000 OPERATING EXPENSES Lease operating expenses 3,268,000 8,097,000 - 1,478,000 1,812,000 13,000 (k) 14,668,000 Exploration expense - 2,490,000 - 390,000 260,000 173,000 (k) 3,313,000 Production taxes 1,582,000 1,225,000 - 855,000 885,000 - 4,547,000 Workover, well service andwater-disposal 789,000 454,000 - 50,000 88,000 - 1,381,000 Depreciation, depletion andamortization 3,881,000 17,111,000 (2,176,000 ) 3,136,000 (j) 1,754,000 (j) - 23,706,000 Impairment expense - 12,298,000 - - - 12,298,000 General and administrativeexpenses 2,628,000 7,750,000 - - - - 10,378,000 Accretion of assetretirement obligations 202,000 217,000 - 10,000 (j) 13,000 (j) - 442,000 Total operating expenses 12,350,000 49,642,000 (2,176,000 ) 5,919,000 4,812,000 186,000 70,733,000 OPERATING INCOME 5,164,000 (19,578,000) 2,176,000 12,429,000 14,061,000 (186,000) 14,066,000 LOSS ON SALE OF OILAND GAS PROPERTY - (122,000) - - - - (122,000)OTHER INCOME(EXPENSE) Interest expense, net (173,000) (486,000) - - - 173,000 (m) (486,000)Net gain on derivativecontracts - 296,000 - - - - 296,000 Other income 73,000 15,000 - - - - 88,000 Total other income(expense), net (100,000) (175,000) - - - 173,000 (102,000)INCOME (LOSS) BEFOREINCOME TAXES 5,064,000 (19,875,000) 2,176,000 12,429,000 14,061,000 (13,000) 13,842,000 INCOME TAX (EXPENSE)BENEFIT (1,125,000 ) - (803,000) (o) (4,474,000 ) (o) (5,062,000 ) (o) 5,000 (n) (5,081,000 ) 6,378,000 (o) NET INCOME (LOSS) $ 3,939,000 $(19,875,000) $ 1,373,000 $ 7,955,000 $ 8,999,000 $ 6,370,000 $ 8,761,000

NET INCOME PERCOMMON SHARE

Basic $ 2.27 $ 0.63 Diluted $ 2.27 $ 0.63

WEIGHTED AVERAGECOMMON SHARESOUTSTANDING

Basic 1,731,812 13,813,552 Diluted 1,731,812 13,813,552


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Notes to the Unaudited Pro Forma Condensed Consolidated Combined Financial Statements

1. Basis of Presentation

The unaudited pro forma condensed consolidated combined balance sheet as of September 30, 2014 is based on the unauditedconsolidated balance sheets of the Company and Oak Valley as of September 30, 2014, adjusted to reflect the following items asthough they had occurred on September 30, 2014 (the “Transaction”):

· The purchase accounting adjustments were made based on values assigned to the Company’s assets acquired and liabilitiesassumed;

· The issuance of approximately 9.1 million shares of Common Stock to OVR in exchange for all of OVR’s membership interests inOak Valley Operator, EF Non-Op and Sabine;

· The issuance of approximately 2.95 million shares of Common Stock to Flatonia for the contribution of the 2014 Eagle FordAcquisition Properties and correlating purchase accounting adjustments made based on values assigned to the assets; and

· The repayment of the Company’s total debt outstanding upon closing of the Exchange.

The unaudited pro forma condensed consolidated combined statement of operations for the nine months ended September 30, 2014is based on Oak Valley’s unaudited consolidated statement of operations for such period, and on the Company’s (i) auditedconsolidated statement of operations for the year ended March 31, 2014; less its (ii) unaudited consolidated statement of operationsfor the nine months ended December 31, 2013; plus its (iii) unaudited consolidated statement of operations for the six months endedSeptember 30, 2014, with adjustments made to recast such historical operations as if the Exchange occurred on January 1, 2013.

The unaudited pro forma condensed consolidated combined statement of operations for the twelve months ended December 31,2013 is based on Oak Valley’s audited consolidated statement of operations for such period, and on the Company’s auditedconsolidated statement of operations for the year ended March 31, 2014, with adjustments made to recast such historical operationsas if the Exchange occurred on January 1, 2013. The Company’s fiscal year end was March 31 and Oak Valley’s fiscal year end isDecember 31. After the Exchange, the Company adopted Oak Valley’s fiscal year end of December 31; however, pursuant to Rule11-02(c)(3) of Regulation S-X the fiscal years are not being conformed for the purpose of presenting pro forma condensedconsolidated combined financial statements because the two fiscal year ends are not separated by more than 93 days.

The unaudited pro forma condensed consolidated combined financial statements are presented under the Successful Efforts methodof accounting. Under this method, exploration activities and the cost of unsuccessful exploratory wells are expensed as incurred whileunder the Full Cost method, exploration activities and the cost of unsuccessful exploratory wells are capitalized. The SuccessfulEfforts method requires that the capitalized lease acquisition costs and development costs from successful wells be amortized on aunits-of-production basis at the field level based on total proved reserves and proved developed reserves, respectively. Under the FullCost method, the capitalized costs of successful and unsuccessful exploratory and developmental wells plus the estimated futuredevelopment costs on a single cost center basis per country is amortized on a unit-of-production basis against total proved reserves.

2. Pro Forma Adjustments

The following adjustments were made in the preparation of the unaudited pro forma condensed consolidated combined balance sheetand unaudited pro forma condensed consolidated combined statements of operations:

(a) Adjustments to reflect the elimination of Additional Paid-In Capital, Treasury Stock, and Accumulated Earnings of the Company,the value of consideration paid by the Company in the Exchange and to adjust, where required, the historical book values of theCompany’s assets and liabilities as of September 30, 2014 to fair value, in accordance with the Acquisition method of accounting.

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Notes to the Unaudited Pro Forma Condensed Consolidated Combined Financial Statements The following table reflects the fair value of the consideration transferred in exchange for the assets acquired and the liabilitiesassumed and the resulting goodwill based on the fair value of the Company’s net assets on the date of the Exchange: Shares of Common Stock outstanding before the Exchange 1,734,988 Company director and officer restricted shares vesting in the Exchange 18,400 Shares of Common Stock issued in the Exchange 9,124,452 Total shares of Common Stock outstanding following the Exchange 10,877,840 Shares of Common Stock issued as consideration 1,753,388 Closing price of Common Stock (1) $ 19.08 Total purchase price $ 33,455,000

Estimated Fair Value of Liabilities Assumed:

Current liabilities $ 6,498,000 Long-term debt 7,000,000 Deferred tax liability (2) 4,349,000 Asset retirement obligation 2,170,000 Amount attributable to liabilities assumed 20,017,000

Total purchase price plus liabilities assumed $ 53,472,000

Estimated Fair Value of Assets Acquired:

Cash $ 2,687,000 Other current assets 5,553,000 Proved oil and natural gas properties 23,970,000 Unproved oil and natural gas properties 5,500,000 Other non-current assets 745,000 Amount attributable to assets acquired $ 38,455,000

Goodwill (3) $ 15,017,000

(1) The share price used for the determination of the purchase price was the adjusted closing price of the Common Stock onDecember 19, 2014.

(2) Amount represents the book value to tax basis difference in oil and natural gas properties as of the date of the Exchange on a taxeffected basis of approximately 37%.

(3) Goodwill was determined as the excess consideration exchanged over the fair value of the Company’s net assets on December19, 2014.

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Notes to the Unaudited Pro Forma Condensed Consolidated Combined Financial Statements (b) The following table reflects the fair value of the consideration paid to acquire the properties and the amount of assets acquired and

liabilities assumed as of the acquisition date for the 2014 Eagle Ford Acquisition Properties: Shares of Common Stock issued as consideration in the Contribution 2,957,288 Closing price of Common Stock (1) $ 19.08 Total purchase price $ 56,425,000

Estimated Fair Value of Liabilities Assumed:

Asset retirement obligation $ 163,000 Amount attributable to liabilities assumed 163,000

Total purchase price plus liabilities assumed $ 56,588,000

Estimated Fair Value of Assets Acquired:

Proved oil and natural gas properties $ 34,588,000 Unproved oil and natural gas properties 22,000,000 Amount attributable to assets acquired $ 56,588,000

Goodwill (2) $ -

(1) The share price used for the determination of the purchase price was the adjusted closing price of Common Stock on December19, 2014, the day the Contribution Agreement closed.

(2) Since there was not an excess consideration contributed over the fair value of the 2014 Eagle Ford Acquisition Properties onDecember 19, 2014 goodwill was determined to be zero.

(c) Adjustments to reflect (i) the contractually obligated capital contributed in the Exchange, of $107,020,000 that was contributed bythe members of OVR less the use of $7,000,000 of the cash to repay the Company’s outstanding long-term debt and (ii) the write-off of all related unamortized debt issuance costs of the Company in the amount of $70,000 as of the closing of the Exchange.

(d) Adjustments to reflect the recapitalization of OVR upon the closing of the Exchange. OVR was issued approximately 9,124,000shares of Common Stock. OVR’s existing members’ equity less the par value of the Common Stock was reclassified to AdditionalPaid-In Capital.

After the Exchange and closing of the Contribution, the shares of Common Stock were as follows: Shares of Common Stock outstanding before the Exchange 1,734,988 12.5%Director and officer restricted shares 18,400 0.1%Shares of Common Stock issued in the Exchange 9,124,452 66.0%Shares of Common Stock issued in the Contribution 2,957,288 21.4%Total shares of Common Stock outstanding immediately following the Exchange and the Contribution 13,835,128 100%(e) Adjustments to reflect the change in long-term deferred tax liabilities for temporary differences between the historical cost basis

and the tax basis of Oak Valley’s assets and liabilities as the result of its change in tax status to a subchapter C corporation. Acorresponding charge to earnings for Oak Valley’s change in tax status has not been reflected in the unaudited pro formacondensed consolidated combined statements of operations, as the charge is non-recurring.

(f) Adjustments to reflect the accrual of approximately $1.75 million in accounting, legal, advisory fees and other expenses directlyrelated to the Exchange and the Contribution that were not reflected in the Company’s or Oak Valley’s historical consolidatedfinancial statements.

(g) Adjustments to reflect the change in depreciation, depletion, and amortization under the Successful Efforts method of accountingthat would have been recorded with respect to the change in basis of the Company’s net assets to fair value, had the Exchangeoccurred on January 1, 2013.

(h) Unless otherwise noted, adjustments represent the historical statements of revenues and direct operating expenses relating to theEagle Ford Properties for the period from January 1, 2013 to the closing dates of the Eagle Ford Acquisition. The Eagle FordAcquisition was completed by Oak Valley during 2013. This was a separate acquisition from the 2014 Eagle Ford Acquisition.

(i) Unless otherwise noted, adjustments represent the historical statements of revenues and direct operating expenses relating to the2014 Eagle Ford Acquisition Properties for the twelve months ended December 31, 2013 and the nine months ended September30, 2014, as included in Exhibit 99.4 of this filing.

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Notes to the Unaudited Pro Forma Condensed Consolidated Combined Financial Statements (j) Adjustments to reflect additional depreciation, depletion, and amortization and accretion expense that would have been recorded

with respect to the Eagle Ford Properties and the 2014 Eagle Ford Acquisition Properties, had such acquisitions occurred onJanuary 1, 2013.

(k) Adjustments to reflect the recording of the following historical costs previously capitalized by the Company under the Full Costmethod of accounting, which have been expensed to conform to the Successful Efforts method of accounting applied by OakValley:

Twelve Months Nine Months Ended Ended March 31, 2014 September 30, 2014

Delay rentals $ 13,000 $ 33,000 Geological and geophysical costs 94,000 140,000 Exploratory dry hole cost and other exploration costs 79,000 61,000

Company's exploration expenses $ 186,000 $ 234,000

(l) Adjustments to eliminate the non-recurring accounting, legal, advisory fees and other expenses directly related to the Exchangeand the Contribution that were incurred during the nine month period ended September 30, 2014.

(m)Adjustments reflect the reduction of interest expense for the repayment of the Company’s long-term debt outstanding upon closingof the Exchange. Oak Valley’s interest expense was not eliminated because the Oak Valley credit facility was refinanced and thebalance transferred to a revised credit facility for use by the Company. The Company’s credit facility that was in place prior to theExchange was terminated in connection with the repayment of the outstanding balance.

(n) Reflects the estimated incremental income tax (expense) benefit associated with and the pro forma adjustments assuming all ofthe combined company’s earnings had been subject to federal income tax as a subchapter C corporation using an effective taxrate of approximately 37%. This rate is inclusive of federal and state income taxes.

(o) Reflects the estimated incremental tax provision associated with (i) Oak Valley’s historical results of operations and pro formaadjustments assuming Oak Valley’s earnings had been subject to federal income tax as a subchapter C corporation using aneffective tax rate of approximately 36%; and (ii) pro forma adjustments related to the Company’s estimated annual effective taxrate had the Exchange occurred on January 1, 2013.

3. Unaudited Pro Forma Supplemental Disclosure of Oil and Natural Gas Operations

The following pro forma standardized measure of the discounted net future cash flows and changes applicable to the combinedcompany’s proved reserves reflect the effect of income taxes. Oak Valley and the Eagle Ford Acquisition are not subject to federaland state income taxes; the pro forma effect of federal and state income taxes on the standardized measure for Oak Valley and theEagle Ford Acquisition has been reflected in the Corporate Reorganization column. The future cash flows are discounted at 10% peryear and assume continuation of existing economic conditions.

The pro forma standardized measure of discounted future net cash flows, in management’s opinion, should be examined withcaution. The basis for this table is the reserve studies prepared by independent petroleum engineering consultants, which containimprecise estimates of quantities and rates of production of reserves. Revisions of previous year estimates can have a significantimpact on these results. Also, exploration costs in one year may lead to significant discoveries in later years and may significantlychange previous estimates of proved reserves and their valuation. Therefore, the pro forma standardized measure of discountedfuture net cash flow is not necessarily indicative of the fair value of the combined company’s proved oil and natural gas properties.

The data presented should not be viewed as representing the expected cash flow from, or current value of, existing proved reservessince the computations are based on estimates and assumptions. Reserve quantities cannot be measured with precision and theirestimation requires many judgmental determinations and frequent revisions. Actual future prices and costs are likely to besubstantially different from the prices and costs utilized in the computation of reported amounts. The following table provides a proforma roll-forward of the total proved reserves for the twelve months ended December 31, 2013, as well as pro forma proveddeveloped and proved undeveloped reserves at the beginning and at the end of the year, as if the Exchange, the Eagle FordAcquisition and the 2014 Eagle Ford Acquisition occurred on January 1, 2013 (in barrel of oil equivalent or BOE):

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Notes to the Unaudited Pro Forma Condensed Consolidated Combined Financial Statements

EarthstoneHistorical

Oak ValleyHistorical

Eagle FordAcquisition

2014Eagle FordAcquisitionProperties

Pro FormaAdjusted

Proved reserves: Balance, beginning of year 2,921,333 2,593,925 - 2,475,252 7,990,510 Revisions of previous estimates (47,166) 2,394,696 (629,978) (846,266) 871,286 Extensions and discoveries 454,333 4,812,060 817,369 2,784,866 8,868,628 Sales of reserves in place - (14,589) - - (14,589)Purchase of reserves - 2,382,771 - - 2,382,771 Production (205,667) (736,759) (187,391) (198,952) (1,328,769) Balance, end of year 3,122,833 11,432,104 - 4,214,900 18,769,837

Proved developed reserves: Balance, beginning of year 1,585,000 1,938,869 - 1,108,821 4,632,690 Balance, end of year 1,821,500 3,706,132 - 842,957 6,370,589

Proved undeveloped reserves: Balance, beginning of year 1,336,333 655,056 - 1,366,431 3,357,820 Balance, end of year 1,301,333 7,725,972 - 3,371,943 12,399,248

The pro forma standardized measure of discounted estimated future net cash flows as of December 31, 2013 was as follows:



2014Eagle FordAcquisitionProperties

CorporateReorganization

Pro FormaAdjusted

Future cash inflows $246,908,000 $ 718,049,000 $ 373,052,000 $ - $1,338,009,000 Future cash outflows: Production cost (91,392,000) (202,957,000) (90,164,000) - (384,513,000)Development cost (25,563,000) (220,829,000) (121,785,000) - (368,177,000)Future income taxes (28,829,000) - (22,191,000) (58,879,000) (109,899,000) Future net cash flows 101,124,000 294,263,000 138,912,000 (58,879,000) 475,420,000

Adjustment to discount future annual net cashflows at 10% (52,069,000) (168,906,000) (84,882,000) 33,662,000 (272,195,000) Standardized measure of discounted future netcash flows $ 49,055,000 $ 125,357,000 $ 54,030,000 $(25,217,000) $ 203,225,000

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Notes to the Unaudited Pro Forma Condensed Consolidated Combined Financial Statements The changes in the pro forma standardized measure of discounted estimated future net cash flows for the twelve months endedDecember 31, 2013 were as follows:



Eagle FordAcquisition

2014 Eagle FordAcquisitionProperties

CorporateReorganization

Pro FormaAdjusted

Standardized measure, beginningof period $ 31,616,000 $ 25,132,000 $ - $ 52,856,000 $ - $109,604,000 Sales of oil and gas, net ofproduction cost (11,901,000) (20,288,000) (15,965,000) (16,089,000) - (64,243,000)Net change in sales prices, net ofproduction cost 10,126,000 241,000 (3,230,000) (6,991,000) - 146,000 Discoveries, extensions andimproved recoveries, net of futuredevelopment cost 6,021,000 48,006,000 9,062,000 27,848,000 - 90,937,000 Change in future developmentcosts - (22,966,000) - 5,000 - (22,961,000)Development costs incurred during the period that reduced futuredevelopment cost 9,955,000 3,227,000 10,950,000 2,903,000 - 27,035,000 Sales of reserves in place - (380,000) - - - (380,000)Revisions of quantity estimates (1,487,000) 26,259,000 (2,688,000) (17,970,000) - 4,114,000 Accretion of discount 5,729,000 2,513,000 5,695,000 8,194,000 - 22,131,000 Net change in income taxes (941,000) - - 3,818,000 (25,217,000) (22,340,000)Purchase of reserves - 56,069,000 - - - 56,069,000 Changes in timing of rates ofproduction (63,000) 7,544,000 (3,824,000) (544,000) - 3,113,000 Standardized measure, end ofperiod $ 49,055,000 $125,357,000 $ - $ 54,030,000 $(25,217,000) $203,225,000

F-11


EXHIBIT 99.4

2014 EAGLE FORD ACQUISITION PROPERTIES

Statements of Revenues and Direct Operating Expenses

Years Ended December 31, 2013 and 2012

and

Nine Months Ended September 30, 2014 and 2013 (Unaudited)


EAGLE FORD ACQUISITION PROPERTIES

TABLE OF CONTENTS Page

Report of Independent Registered Public Accounting Firm 1

Statements of Revenues and Direct Operating Expenses of the 2014 Eagle Ford Acquisition Properties for the years endedDecember 31, 2013 and 2012 and for the nine months ended September 30, 2014 and 2013 (Unaudited)

2

Notes to Statements of Revenues and Direct Operating Expenses of the 2014 Eagle Ford Acquisition Properties 3

Supplemental Oil and Gas Reserve Information (Unaudited) 4


Report of Independent Registered Public Accounting Firm

To the Members ofSabine River Energy, LLC

We have audited the accompanying statements of revenues and direct operating expenses of the 2014 Eagle Ford AcquisitionProperties for the years ended December 31, 2013 and 2012. These financial statements are the responsibility of Sabine RiverEnergy, LLC’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and direct operatingexpenses of the 2014 Eagle Ford Acquisition Properties described in Note 1 for the years ended December 31, 2013 and 2012, inconformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements are not intended to be a complete presentation of the financial position, results of operations,or cash flows of the 2014 Eagle Ford Acquisition Properties.

Hein & Associates LLPHouston, TexasSeptember 16, 2014

1


2014 EAGLE FORD ACQUISITION PROPERTIES

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES Nine Months Ended Year Ended September 30, December 31,

2014 2013 2013 2012

(Unaudited) Oil and gas revenues

Oil $ 13,776,222 $ 15,248,202 $ 18,230,166 $ 11,350,494 Natural gas and natural gas liquids 785,944 466,641 642,964 322,081

14,562,166 15,714,843 18,873,130 11,672,575 Direct operating expenses

Production costs: Lease operating expense 1,351,421 1,457,776 1,811,836 777,758 Severance taxes 690,951 735,187 884,760 546,270

Re-engineering and workovers 49,750 74,740 87,700 39,116 Exploration expense - - 259,740 -

2,092,122 2,267,703 3,044,036 1,363,144 Excess of revenues over direct operating expenses $ 12,470,044 $ 13,447,140 $ 15,829,094 $ 10,309,431

See Notes to Statements of Revenues and Direct Operating Expenses

2


2014 Eagle Ford Acquisition Properties

Notes to Statements of Revenues and Direct Operating Expenses

Note 1—Properties and Basis of Presentation

The accompanying statements represent the interests in the revenues and direct operating expenses of the oil and natural gasproducing properties to be acquired by Sabine River Energy, LLC (“Sabine”) and Earthstone Energy, Inc. (“Earthstone”). Sabine iscurrently a subsidiary of Oak Valley Resources, LLC (“Oak Valley”). In the Exchange Agreement between Oak Valley andEarthstone, which for accounting purposes is characterized as a reserve merger, Oak Valley will exchange its membership interest inSabine and two other subsidiaries for approximately 9,124,000 common shares of Earthstone stock. Upon the closing of the mergerthe seller, Flatonia Energy, LLC (“Flatonia”), will receive approximately 2,958,000 shares of common stock in Earthstone in exchangefor approximately 28.57% of the interests held by Flatonia in the properties jointly acquired by Oak Valley and Flatonia in 2013. OakValley and one of its subsidiaries is current operator of the majority of these properties. The effective date of the Contribution is July1, 2014. The properties are referred to herein as the “2014 Eagle Ford Acquisition Properties” and are located in the Fayette andGonzales counties in Texas.

The statements of revenues and direct operating expenses have been derived from Halcón Resources Corporation’s and Oak ValleyResource’s historical financial records and prepared on the accrual basis of accounting. Revenues and direct operating expensesrelate to the historical net revenue interests and net working interests to be acquired by Sabine and Earthstone. Oil, natural gas andnatural gas liquids revenues are recognized on the sales method when production is sold to a purchaser at a fixed or determinableprice, when delivery has occurred and title has transferred, and if collectability of the revenue is probable. Revenues are reported netof overriding and other royalties due to third parties. Direct operating expenses include lease operating expenses, production and advalorem taxes, transportation and all other direct operating costs associated with the properties. Direct operating expenses do notinclude corporate overhead, interest expense and income taxes.

The statements of revenues and direct operating expenses are not indicative of the financial condition or results of operations of the2014 Eagle Ford Acquisition Properties going forward due to the omission of various operating expenses. During the periodspresented, the 2014 Eagle Ford Acquisition Properties were not accounted for by Halcón or Oak Valley as a separate business unit.As such, certain costs, such as depreciation, depletion and amortization of oil and gas properties, accretion of asset retirementobligations, general and administrative expenses, interest expense and income taxes were not allocated to the 2014 Eagle FordAcquisition Properties.

The preparation of statements of revenues and direct operating expenses in conformity with accounting principles generally acceptedin the United States of America requires management to make certain estimates and assumptions that affect the reported amounts ofrevenues and expenses during the reporting periods. Although these estimates are based on management’s best availableknowledge of current and future events, actual results could be different from those estimates. Note 2—Omitted Financial Information

Historical financial statements reflecting financial position, results of operations and cash flows required by accounting principlesgenerally accepted in the United States of America are not presented as such information was not available on a property-by-property basis, nor is it practicable to obtain such information in these circumstances. Historically, no allocation of general andadministrative, interest expense, corporate taxes, accretion of asset retirement obligations, and depreciation, depletion andamortization of oil and gas properties was made to the 2014 Eagle Ford Acquisition Properties. Accordingly, the statements ofrevenues and direct operating expenses are presented in lieu of the financial statements required under Rule 3-01 and Rule 3-02 ofthe Securities and Exchange Commission’s Regulation S-X.

3


Supplemental Oil and Gas Reserve Information (Unaudited)

Oil and Gas Reserve Information

The following tables summarize the net ownership interests in estimated quantities of proved, proved developed and provedundeveloped (“PUD”) oil and natural gas reserves of the 2014 Eagle Ford Acquisition Properties for the periods indicated, estimatedby Oak Valley’s petroleum engineers, and the related summary of changes in estimated quantities of net remaining proved reservesduring the periods indicated. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise thanthose of producing oil and gas properties. Accordingly, reserve estimates are expected to change as additional performance databecomes available.

Natural Gas and Natural Oil Gas Liquids Total

(Bbl) (Mcf) (BOE) (1) Balance - January 1, 2012 518,871 387,622 583,475 Extension and discoveries 1,875,449 1,400,601 2,108,883 Production (116,213) (63,908) (126,864)Revision to previous estimates (76,147) (84,582) (90,242) Balance - December 31, 2012 2,201,960 1,639,733 2,475,252 Extension and discoveries 2,463,433 1,928,597 2,784,866 Production (176,970) (131,891) (198,952)Revision to previous estimates (795,604) (303,973) (846,266) Balance - December 31, 2013 3,692,819 3,132,466 4,214,900 Proved developed reserves December 31, 2012 978,157 783,966 1,108,821 December 31, 2013 712,320 783,803 842,957 Proved undeveloped reserves December 31, 2012 1,223,803 855,767 1,366,431 December 31, 2013 2,980,499 2,348,663 3,371,943 (1) Barrel of oil equivalent (BOE); assumes a ratio of 6 MCF of natural gas per barrel of oil

In 2012, the revision decrease in estimated oil, natural gas and natural gas liquids was 90,242 BOE; this downward revision resultedfrom removal of several PUD wells that were determined to be uneconomic based on well performance data from offsetting wells. In2013, the revision decrease in estimated oil, natural gas and natural gas liquids was 846,266 BOE; this downward revision resultedfrom removal of several PUD wells that were determined to be uneconomic based on well performance data from offsetting wells.

Proved reserves are estimated quantities of oil and natural gas which geological and engineering data demonstrate, with reasonablecertainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions (i.e., prices andcosts) existing at the time the estimate is made. Proved developed reserves are proved reserves that can be expected to berecovered through existing wells and equipment in place and under operating methods being utilized at the time the estimates weremade.

4


Supplemental Oil and Gas Reserve Information (Unaudited)

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves.

The following table sets forth the computation of the standardized measure of discounted future net cash flows relating to proved oiland gas reserves and the changes in standardized measure of discounted future net cash flows of the 2014 Eagle Ford AcquisitionProperties in accordance with ASC 932, Extractive Activities—Oil and Gas and based on oil and natural gas reserve and productionvolumes. Future cash inflows as of December 31, 2013 and 2012 were computed by applying average fiscal-year prices (calculatedas the unweighted arithmetic average of the first-day-of-the-month oil and gas prices for each month within the 12-month periodended December 31, 2013 and 2012) to estimated future production. Future production and development costs are computed byestimating the expenditures to be incurred in developing and producing the proved oil and natural gas reserves at year-end, based onyear-end costs and assuming the continuation of existing economic conditions. Price changes based on inflation, federal regulatorychanges and supply and demand are not considered. Estimated future production costs related to period-end reserves are based onperiod-end costs. Such costs include, but are not limited to, production taxes and direct operating costs. Inflation and otheranticipatory costs are not considered until the actual cost change takes effect. In accordance with the ASC 932, a discount rate of10% is applied to the annual future net cash flows.

The prices, calculated as described above, were $96.94 per barrel of oil and $3.67 per MMBtu of natural gas at December 31, 2013and $94.71 per barrel of oil and $2.75 per MMBtu of natural gas at December 31, 2012. The prices were based on index prices, whichhave been adjusted for historical average location and quality differentials. Future cash inflows were reduced by estimated futuredevelopment, abandonment and production costs based on period-end costs resulting in net cash flow before tax. Future income taxexpense was estimated based on an estimated effective tax rate of 35.8%.

The Standardized Measure is not intended to be representative of the fair market value of the proved reserves. The calculations ofrevenues and costs do not necessarily represent the amounts to be received or expended. Accordingly, the estimates of future netcash flows from proved reserves and the present value thereof may not be materially correct when judged against actual subsequentresults. Further, since prices and costs do not remain static, and no price or cost changes have been considered, and futureproduction and development costs are estimates to be incurred in developing and producing the estimated proved oil and gasreserves, the results are not necessarily indicative of the fair market value of estimated proved reserves, and the results may not becomparable to estimates disclosed by other oil and gas producers. December 31,

2013 2012

Future cash inflows $ 373,051,946 $ 235,731,250 Future production costs (90,164,203) (51,564,134)Future development costs (121,785,001) (47,764,350)Future income tax (22,190,523) (25,257,228) Future net cash flows 138,912,219 111,145,538 10% annual discount for estimated timing of cash flows (84,882,270) (58,289,448) Standardized measure of discounted future cash flows $ 54,029,949 $ 52,856,090

5


Supplemental Oil and Gas Reserve Information (Unaudited) Changes in the Standardized Measure are as follows: December 31,

2013 2012

Beginning of the year $ 52,856,090 $ 13,819,159 Sales of oil and gas produced, net of production costs (16,088,834) (10,309,431)Net changes in prices and production costs (6,991,114) 54,380 Extensions, discoveries and improved recoveries 27,848,141 52,708,180 Previously estimated development cost incurred during the period 2,902,671 5,600,000 Net changes in future development costs 4,722 - Revision of previous quantity estimates (17,970,199) (2,137,259)Accretion of discount 8,193,794 1,381,916 Net change in income tax 3,818,398 (12,226,941)Changed in timing of estimated cash flows and others (543,720) 3,966,086 End of the year $ 54,029,949 $ 52,856,090

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