8-K/A

UNITED STATES

SECURITIES 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: May 9, 2017 (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 300

The 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 under any of the following provisions:

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

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

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

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

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.  ☐

EXPLANATORY NOTE

As previously disclosed in its Current Report on Form 8-K filed on May 12, 2017 (the “Prior 8-K”) with the U.S. Securities and Exchange Commission (the “SEC”), on May 9, 2017, Earthstone Energy, Inc. (the “Company”), completed the Contribution Agreement dated as of November 7, 2016, and as amended on March 21, 2017 (the “Contribution Agreement”) by and among the Company, Earthstone Energy Holdings, LLC, a Delaware limited liability company (“EEH”), Lynden USA, Inc., a Utah corporation, Lynden USA Operating, LLC, a Texas limited liability company, Bold Energy Holdings, LLC, a Texas limited liability company (“Bold Holdings”), and Bold Energy III LLC, a Texas limited liability company (“Bold”).

The Company is filing this amendment to the Prior 8-K for the purpose of providing unaudited pro forma financial statements giving effect to 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.

Audited consolidated financial statements of Bold as of and for the years ended December 31, 2016 and 2015, audited consolidated financial statements of Bold as of and for the years ended December 31, 2015 and 2014 (collectively the “Audited Financial Statements”) and the unaudited interim consolidated financial statements of Bold as of and for the three months ended March 31, 2017 (the “Interim Financial Statements”) are filed herein as Exhibit 99.2, 99.3 and 99.4, respectively. The Audited Financial Statements and the Interim Financial Statements are incorporated herein by reference.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined balance sheet of the Company as of March 31, 2017 and the unaudited pro forma condensed combined statements of operations for the twelve months ended December 31, 2016 and the three months ended March 31, 2017 are attached hereto as Exhibit 99.1 and are incorporated herein by reference. These unaudited pro forma financial statements give effect to the Contribution Agreement on May 9, 2017, on the basis, and subject to the assumptions, set forth in accordance with Article 11 of Regulation S-X.

(d) Exhibits. The following exhibits are included with this Current Report on Form 8-K/A:

Exhibit No.	Description
23.1	Consent of Weaver and Tidwell, L.L.P., an independent registered public accounting firm.
99.1	Unaudited pro forma condensed combined balance sheet of Earthstone Energy, Inc. as of March 31, 2017, and unaudited pro forma condensed combined statements of operations of Earthstone Energy, Inc. for the twelve months ended December 31, 2016 and the three months ended March 31, 2017.
99.2	Audited consolidated financial statements of Bold Energy III LLC as of and for the years ended December 31, 2016 and 2015.
99.3	Audited consolidated financial statements of Bold Energy III LLC as of and for the years ended December 31, 2015 and 2014.
99.4	Unaudited interim consolidated financial statements of Bold Energy III LLC as of and for the three months ended March 31, 2017.

SIGNATURE

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 hereunto duly authorized.

	EARTHSTONE ENERGY, INC.
Date:  June 2, 2017	By:	/s/ Tony Oviedo
		Tony Oviedo
		Executive Vice President - Accounting and Administration

EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of Weaver and Tidwell, L.L.P., an independent registered public accounting firm.
99.1	Unaudited pro forma condensed combined balance sheet of Earthstone Energy, Inc. as of March 31, 2017, and unaudited pro forma condensed combined statements of operations of Earthstone Energy, Inc. for the twelve months ended December 31, 2016 and the three months ended March 31, 2017.
99.2	Audited consolidated financial statements of Bold Energy III LLC as of and for the years ended December 31, 2016 and 2015.
99.3	Audited consolidated financial statements of Bold Energy III LLC as of and for the years ended December 31, 2015 and 2014.
99.4	Unaudited interim consolidated financial statements of Bold Energy III LLC as of and for the three months ended March 31, 2017.

EX-23.1

Exhibit 23.1

Consent of Independent Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements of Earthstone Energy, Inc. (Form S-3 File No. 333-205466, 333-213543 and 333-218277, Form S-8 File No. 333-210734) of our report dated March 10, 2017, relating to the consolidated financial statements of Bold Energy III LLC for the years ended December 31, 2016 and 2015 and our report dated April 21, 2016, relating to the consolidated financial statements of Bold Energy III LLC for the years ended December 31, 2015 and 2014, which are included in the Current Report on Form 8-K/A of Earthstone Energy, Inc. filed on June 2, 2017.

/s/ WEAVER AND TIDWELL, L.L.P.

Midland, Texas

June 2, 2017

AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL WEAVER AND TIDWELL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS 400 WEST ILLINOIS, SUITE 1550, MIDLAND, TX 79701 P:432.683.5226F:432.683.9182

EX-99.1

EXHIBIT 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

FOR EARTHSTONE ENERGY, INC.

Earthstone Energy, Inc., a Delaware corporation (“Earthstone” or the “Company”), Earthstone Energy Holdings, LLC, a Delaware limited liability company (“EEH”), Lynden USA Inc., a Utah corporation (“Lynden”), Lynden USA Operating, LLC, a Texas limited liability company (“Lynden Sub”), Bold Energy Holdings, LLC, a Texas limited liability company (“Bold Holdings”), and Bold Energy III LLC, a Texas limited liability company (“Bold”), entered into a contribution agreement dated as of November 7, 2016 and as amended on March 21, 2017 (the “Contribution Agreement”). The purpose of the Contribution Agreement was to provide for, among other things described below, the business combination between EEH and Bold, which owns significant developed and undeveloped oil and natural gas properties in the Midland Basin of Texas (the “Transaction”).

The Transaction was structured in a manner commonly known as an “Up-C.” Under this structure and the Contribution Agreement, (i) Earthstone recapitalized its common stock into two classes – Class A common stock, $0.001 par value per share (the “Class A Common Stock”), and Class B common stock, $0.001 par value per share (the “Class B Common Stock”), and all of Earthstone’s existing outstanding common stock, $0.001 par value per share (the “Common Stock”), was recapitalized on a one-for-one basis for Class A Common Stock (the “Recapitalization”); (ii) Earthstone transferred all of its membership interests in Earthstone Operating, LLC, Sabine River Energy, LLC, EF Non-Op, LLC and Earthstone Legacy Properties, LLC (formerly Earthstone GP, LLC) and $36,071 in cash from the sale of Class B Common Stock to Bold Holdings (collectively, the “Earthstone Assets”) to EEH, in exchange for 16,791,296 membership units of EEH (the “EEH Units”); (iii) Lynden transferred all of its membership interests in Lynden Sub to EEH in exchange for 5,865,328 EEH Units; (iv) Bold Holdings transferred all of its membership interests in Bold to EEH in exchange for 36,070,828 EEH Units and purchased 36,070,828 shares of Class B Common Stock issued by Earthstone for $36,071; and (v) Earthstone granted an aggregate of 150,000 fully vested shares of Class A Common Stock under Earthstone’s 2014 Long-Term Incentive Plan, as amended (the “Plan”), to certain employees of Bold. Each EEH Unit held by Bold Holdings or its permitted transferees, together with one share of Class B Common Stock, are convertible into Class A Common Stock on a one-for-one basis.

The Transaction closed on May 9, 2017 and Bold Holdings owned approximately 61.3% of the outstanding shares of Class A Common Stock, on a fully diluted, as converted basis. The EEH Units and the shares of Class B Common Stock issued to Bold Holdings were not registered under the Securities Act of 1933, as amended (the “Securities Act”), but were issued by EEH and Earthstone in reliance on the exemption provided under Section 4(a)(2) of the Securities Act.

The Class A Common Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “ESTE.” The closing sale price of the Common Stock on May 9, 2017 was $13.58 per share.

As previously disclosed in its Current Report on Form 8-K filed on May 24, 2016 with the Securities and Exchange Commission (the
“SEC”), on May 18, 2016, Earthstone completed the acquisition (the “Lynden Acquisition”) of Lynden Energy Corp. (“Lynden Corp.”). Earthstone filed a Form 8-K/A on June 3, 2016 for the purpose of providing unaudited pro forma condensed combined financial statements giving effect to Lynden Acquisition, as required by Item 9.01(b) of Form 8-K.

The following unaudited pro forma condensed combined financial information as of March 31, 2017 and for the three months then ended is derived from the historical consolidated financial statements of Earthstone and Bold, and has been adjusted to reflect the acquisition of Bold by Earthstone. Certain of Bold’s historical amounts have been reclassified to conform to Earthstone’s financial statement presentation. The unaudited pro forma condensed combined balance sheet as of March 31, 2017 gives effect to the Transaction as if it had occurred on March 31, 2017. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2017 and for the year ended December 31, 2016 give effect to the Transaction and Lynden Acquisition as if they had occurred on January 1, 2016.

F-1

The unaudited pro forma condensed combined financial statements reflect pro forma adjustments based on available information and certain assumptions that Earthstone believes are reasonable which include the following:

• Earthstone’s acquisitions of Bold and Lynden are accounted for using the acquisition method of accounting for business combinations;

• Liabilities are recognized for transaction related costs;

• Depreciation, depletion and amortization and accretion expense are adjusted due to the fair value adjustments to oil and gas properties and asset retirement obligations in connection with the Transaction and the Lynden Acquisition;

• Estimated tax impacts of the pro forma adjustments; and

• In the case of the unaudited pro forma condensed combined financial statements of operations data, the Lynden Acquisition as described in Note 3 to the historical consolidated financial statements of Earthstone’s Annual Report on Form 10-K for the year ended December 31, 2016.

Assumptions and estimates underlying the pro forma adjustments are more fully described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial information does not purport to represent what Earthstone’s financial position would have been had the Transaction actually been consummated on March 31, 2017, or what Earthstone’s financial position would have been had the Transaction and the Lynden Acquisition actually been consummated on January 1, 2016. The unaudited pro forma condensed combined financial information is not indicative of Earthstone’s future financial position or results of operations and does not reflect future events that may occur after the Transaction, including, but not limited to, the anticipated realization of ongoing savings from operating efficiencies, or offsetting unforeseen incremental costs. The unaudited pro forma condensed combined financial statements have been derived from and should be read in conjunction with the historical consolidated financial statements and accompanying notes contained in the Earthstone Annual Report on Form 10-K for the year ended December 31, 2016, Earthstone’s Quarterly Report on Form 10-Q for the three months ended March 31, 2017 incorporated herein by reference, and the historical financial statements of Bold as of December 31, 2016 and for the three years then ended, and as of March 31, 2017 and the three months then ended included in this report.

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting for business combinations with Earthstone treated as the acquiring entity. Accordingly, the aggregate value of the consideration paid by Earthstone to complete the Transaction was allocated to the assets acquired and liabilities assumed from the Transaction based upon their estimated fair values on the closing date of the Transaction. Earthstone has not completed the detailed valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed in the Transaction and the related allocations of purchase price, nor has Earthstone identified all adjustments necessary to conform Bold’s accounting policies to Earthstone’s accounting policies. Additionally, a final determination of the fair value of assets acquired and liabilities assumed in the Transaction will be based on the actual net tangible and intangible assets and liabilities of Bold that existed as of the closing date of the Transaction. Accordingly, the pro forma purchase price adjustments presented herein are preliminary, and may not reflect any final purchase price adjustments. Earthstone estimated the fair value of Bold’s assets and liabilities based on preliminary work performed by third-party valuation specialists. As the final valuations are performed, increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments that may result in material differences from the information presented herein.

Below is the unaudited pro forma condensed combined financial information and related notes thereto which give effect to the Transaction and the Lynden Acquisition. The following unaudited pro forma condensed combined financial information sets forth:

(i) Pro forma adjustments giving effect to the Transaction and the Lynden Acquisition as if such transactions had been completed on January 1, 2016, the beginning of the earliest period presented, for purposes of the unaudited pro forma condensed combined statements of operations. The pro forma adjustments made are (1) directly attributable to the Transaction and the Lynden Acquisition, (2) factually supportable, and (3) expected to have a continuing impact on the consolidated results, and

(ii) Earthstone and Lynden Corp. have fiscal year ends on December 31 and June 30, respectively.

The unaudited pro forma condensed combined balance sheet as of March 31, 2017 has been derived from:

• the unaudited historical condensed consolidated balance sheet of Earthstone as of March 31, 2017; and

• the unaudited historical condensed consolidated balance sheet of Bold as of March 31, 2017.

F-2

The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2017 has been derived from:

• the unaudited historical consolidated statement of operations of Earthstone for the three months ended March 31, 2017; and

• the unaudited historical consolidated statement of operations of Bold for the three months ended March 31, 2017.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016 has been derived from:

• the audited historical consolidated statement of operations of Earthstone for the year ended December 31, 2016;

• the unaudited historical condensed consolidated interim statement of income (loss) and comprehensive income (loss) of Lynden Corp. for the three months ended March 31, 2016; and

• the audited historical consolidated statement of operations of Bold for the year ended December 31, 2016.

F-3

EARTHSTONE ENERGY INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF MARCH 31, 2017

(In thousands, except share and per share amounts)

	Earthstone Historical			Bold Historical			Pro Forma Adjustments			Notes	Earthstone Pro Forma Combined as Adjusted
ASSETS
Current assets:
Cash	$	10,006		$	399		$	36		(a)	$	10,441
Accounts receivable:
Oil, natural gas, and natural gas liquids revenues		8,479			6,026			—				14,505
Joint interest billings and other, net of allowance		2,346			891			—				3,237
Derivative asset		—			—			—				—
Prepaid expenses and other current assets		659			299			—				958
Total current assets		21,490			7,615			36				29,141
Oil and gas properties, successful efforts method:
Proved properties		364,758			206,032			85,488		(b)		656,278
Unproved properties		51,887			104,175			149,404		(b)		305,466
Total oil and gas properties		416,645			310,207			234,892				961,744
Accumulated depreciation, depletion and amortization		(153,152	)		(59,284	)		59,284		(c)		(153,152	)
Net oil and gas properties		263,493			250,923			294,176				808,592
Other noncurrent assets:
Land (surface rights)		—			3,718			—				3,718
Goodwill		17,620			—			—				17,620
Office and other equipment, net of accumulated depreciation		1,337			35			—				1,372
Derivative asset		1			—			—				1
Other noncurrent assets		553			—			547		(d)		1,100
TOTAL ASSETS	$	304,494		$	262,291		$	294,759			$	861,544
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	6,131		$	8,660		$	4,600		(e)	$	19,391
Revenues and royalties payable		5,608			5,603			—				11,211
Accrued expenses		7,139			4,763			—				11,902
Asset retirement obligation					108			(22	)	(f)		86
Derivative liability		799			—			—				799
Advances		4,997			—			—				4,997
Current portion of long-term debt		1,634			—			—				1,634
Total current liabilities		26,308			19,134			4,578				50,020
Noncurrent liabilities:
Long-term debt		12,272			45,095			305		(g)		57,672
Asset retirement obligation		6,186			867			(486	)	(f)		6,567
Derivative liability		326			—			—				326
Deferred tax liability		15,738			—			—				15,738
Other noncurrent liabilities		167			—			—				167
Total noncurrent liabilities		34,689			45,962			(181	)			80,470
Equity:
Members' equity		—			197,195			(197,195	)	(h)		—
Preferred stock, $0.001 par value, 20,000,000 shares    authorized; none issued or outstanding		—			—			—				—
Common stock, $0.001 par value, 22,559,695 shares		23			—			(23	)	(i)
Class A common stock, $0.001 par value, 22,559,695    shares		—			—			23		(i)		23
Class B common stock, $0.001 par value, 36,070,828 shares		—			—			36		(a)		36
Additional paid-in capital		455,513			—			2,037		(j)		457,550
Accumulated deficit		(211,579	)		—			(4,358	)	(k)		(215,937	)
Treasury stock, 15,357 shares		(460	)		—			—				(460	)
Total Earthstone Energy, Inc. stockholders’ equity		243,497			197,195			(199,480	)			241,212
Noncontrolling interest		—			—			489,842		(l)		489,842
Total equity		243,497			197,195			290,362				731,054
TOTAL LIABILITIES AND EQUITY	$	304,494		$	262,291		$	294,759			$	861,544

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

F-4

EARTHSTONE ENERGY INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2017

(In thousands, except share and per share amounts)

	Earthstone Historical			Bold Historical			Pro Forma Adjustments			Notes	Earthstone Pro Forma Combined
REVENUES
Oil	$	12,519		$	15,654		$	—			$	28,173
Natural gas and Natural gas liquids		2,824			2,266			—				5,090
Total revenues		15,343			17,920			—				33,263
OPERATING COSTS AND EXPENSES
Lease operating expense		4,339			1,211			—				5,550
Severance taxes		790			887			—				1,677
Depreciation, depletion and amortization		7,889			4,711			(1,209	)	(r)		11,391
Impairment expense		—			800			—				800
General and administrative expense		3,492			1,637			—				5,129
Stock-based compensation		1,311			—			—				1,311
Transaction costs		803			—			(803	)	(s)		—
Accretion of asset retirement obligation		152			13			—				165
Total operating costs and expenses		18,776			9,259			(2,012	)			26,023
(Loss) income from operations		(3,433	)		8,661			2,012				7,240
OTHER INCOME (EXPENSE)												—
Interest expense, net		(337	)		(452	)		—				(789	)
Gain on derivative contracts, net		4,460			—			—				4,460
Other income, net		1			—			—				1
Total other income (expense)		4,124			(452	)		—				3,672
Income before income taxes		691			8,209			2,012				10,912
Income tax benefit		38			—			—		(w)		38
Net income	$	729		$	8,209		$	2,012			$	10,950
Net income attributable to noncontrolling    interests		—			—			6,696		(t)		6,696
Net income attributable to Earthstone    Energy, Inc. common stockholders	$	729		$	8,209		$	(4,684	)		$	4,254
Net income per common share:
Basic	$	0.03									$	0.19
Diluted	$	0.03									$	0.19
Weighted average common shares outstanding:
Basic		22,276,996						150,000		(v)		22,426,996
Diluted		22,585,474						150,000		(v)		22,735,474

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

F-5

EARTHSTONE ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2016

(In thousands, except share and per share amounts)

	Earthstone Historical			Lynden Corp. Historical (1)			Lynden Corp. Pro Forma Adjustments			Notes	Earthstone Pro Forma Results adjusted for Lynden Corp. Acquisition			Bold Historical			Bold Pro Forma Adjustments			Notes	Earthstone Pro Forma Combined
REVENUES
Oil	$	34,358		$	3,007		$	—			$	37,365		$	15,792		$	—			$	53,157
Natural gas and Natural gas liquids		7,911			953			—				8,864			3,695			—				12,559
Total revenues		42,269			3,960			—				46,229			19,487			—				65,716
OPERATING COSTS AND EXPENSES
Lease operating expense		13,415			2,532			—				15,947			2,680			—				18,627
Severance taxes		2,198			202			—				2,400			1,004			—				3,404
Rig idle and contract termination expense		5,059			—			—				5,059			—			—				5,059
Re-engineering and workovers		1,652			—			—				1,652			—			—				1,652
Impairment expense		24,283			(24	)		—				24,259			11,380			—				35,639
Depreciation, depletion and amortization		25,937			3,457			(826	)	(m)		28,568			9,496			(4,184	)	(r)		33,880
General and administrative expense		9,414			697			—				10,111			6,023			—				16,134
Stock-based compensation		3,301			—			—				3,301			—			—				3,301
Transaction costs		2,483			1,515			(2,445	)	(n)		1,553			625			(2,178	)	(s)		—
Accretion of asset retirement obligation		551			11			1		(o)		563			39			—				602
Exploration expense		5			—			—				5			—			—				5
Total operating costs and expenses		88,298			8,390			(3,270	)			93,418			31,247			(6,362	)			118,303
Gain on sale of oil and gas properties		8			—			—				8			—			—				8
Loss from operations		(46,021	)		(4,430	)		3,270				(47,181	)		(11,760	)		6,362				(52,579	)
OTHER INCOME (EXPENSE)
Interest expense, net		(1,282	)		(335	)		(4	)	(p)		(1,621	)		(661	)		—				(2,282	)
(Loss) gain on derivative contracts, net		(6,638	)		120			—				(6,518	)		—			—				(6,518	)
Other (expense) income, net		(72	)		—			—				(72	)		—			—				(72	)
Total other income (expense)		(7,992	)		(215	)		(4	)			(8,211	)		(661	)		—				(8,872	)
Loss before income taxes		(54,013	)		(4,645	)		3,266				(55,392	)		(12,421	)		6,362				(61,451	)
Income tax (expense) benefit		(528	)		673			(923	)	(q)		(778	)		—			—		(w)		(778	)
Net loss	$	(54,541	)	$	(3,972	)	$	2,343			$	(56,170	)	$	(12,421	)	$	6,362			$	(62,229	)
Net loss attributable to noncontrolling interests		—			—			—				—			—			(37,894	)	(t)		(37,894	)
Net loss attributable to Earthstone Energy,    Inc. common stockholders	$	(54,541	)	$	(3,972	)	$	2,343			$	(56,170	)	$	(12,421	)	$	44,256			$	(24,335	)
Net loss per common share:
Basic and diluted	$	(2.92	)								$	(2.52	)								$	(1.09	)
Weighted average common shares outstanding:
Basic and diluted		18,651,582						3,622,238		(u)		22,273,820						150,000		(v)		22,423,820

(1) Represents historical Lynden Corp. results from January 1, 2016 to May 18, 2016, the date when Earthstone completed the Lynden Acquisition.

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

F-6

EARTHSTONE ENERGY INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1.  Basis of Presentation

Financial Accounting Standards Board (“FASB”)’s Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values, as determined in accordance with ASC 820, Fair Value Measurements, as of the acquisition date. In addition, the applicable accounting literature requires that consideration transferred be measured at the closing date of the acquisition, which may be different than the amount of consideration assumed in this unaudited pro forma condensed combined financial information.

The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the Lynden Acquisition and the Transaction, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations expected to have a continuing impact on the consolidated results following the business combination. The pro forma adjustments that are described in the accompanying notes and are based on available information and certain assumptions that Earthstone believes are reasonable; however, actual results may differ from those reflected in these statements. The unaudited pro forma condensed combined statements do not purport to represent what Earthstone’s financial position or results of operations would have been if the Lynden Acquisition and the Transaction had occurred on the dates indicated above, nor are they indicative of Earthstone’s future financial position or results of operations. Certain information normally included in financial statements and the accompanying notes prepared has been condensed or omitted. These unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements and related notes of Earthstone and Bold for the periods presented.

Under the acquisition method of accounting for business combinations, the assets acquired and liabilities assumed will be recorded as of the completion of the Transaction, primarily at their respective fair values and added to those of Earthstone. The results of operations of Bold will be reflected in the financial statements and reported results of operations of Earthstone from the date of the completion of the acquisition and Earthstone’s financial statements will not be retroactively restated to reflect the historical financial position or results of operations of Bold.

Note 2. Accounting Policies and Presentation

The unaudited pro forma condensed combined balance sheet as of March 31, 2017 and the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2017 and the year ended December 31, 2016 have been compiled in a manner consistent with the accounting policies adopted by Earthstone. Certain reclassifications and adjustments have been made to Bold’s historical financial information presented herein to conform to Earthstone’s historical presentation.

Note 3.  Preliminary Purchase Price Allocation

The preliminary allocation of the total purchase price in the Transaction is based upon management’s estimates of and assumptions related to the fair value of assets to be acquired and liabilities to be assumed as of March 31, 2017 using currently available information. Because the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included herein.

The preliminary purchase price allocation is subject to change due to several factors, including but not limited to changes in the estimated fair value of Bold’s assets acquired and liabilities assumed as of the closing date of the Transaction, which could result from changes in future oil and natural gas commodity prices, reserve estimates, interest rates, as well as other factors.

The consideration transferred, fair value of assets acquired and liabilities assumed by us as follows (in thousands, except unit and share amounts and stock price):

F-7

EARTHSTONE ENERGY INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Consideration:
Shares of Earthstone Class A Common Stock issued pursuant to the Contribution    Agreement to certain employees of Bold		150,000
EEH Units issued to Bold Holdings		36,070,828
Total equity interests issued in the Transaction		36,220,828
Earthstone Common Stock price as of May 9, 2017	$	13.58
Total consideration transferred (1)	$	491,879
Fair value of assets acquired:
Cash and cash equivalents	$	399
Other current assets		7,216
Oil and gas properties (2)		545,099
Other non-current assets		3,753
Amount attributable to assets acquired	$	556,467
Fair value of liabilities assumed:
Long-term debt	$	45,095
Current liabilities		19,112
Noncurrent asset retirement obligations		381
Amount attributable to liabilities assumed	$	64,588

(1) Based on the terms of the Contribution Agreement, the consideration paid by Earthstone at closing consisted of 150,000 shares of Class A Common Stock, 36,070,828 EEH Units and 36,070,828 shares of Class B Common Stock. Each EEH Unit held by Bold Holdings or its permitted transferees, together with one share of Class B Common Stock, is convertible into Class A Common Stock on a one-for-one basis. The total purchase price is based upon the fair value of the Common Stock which was determined using the closing price of $13.58 per share on May 9, 2017, and the number of shares of Common Stock issued.

(2) The pro forma fair value of oil and gas properties was determined using estimated future oil and gas prices as of March 31, 2017 and other fair value considerations such as current acreage and production market indicators.  

Note 4.  Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

The following adjustments were made in the preparation of the unaudited pro forma condensed combined balance sheet:

(a) Adjustment to reflect the $36 thousand received for the 36,070,828 shares of Class B Common Stock, $0.001 par value per share, issued to Bold Holdings.

(b) Adjustment to the historical book values of Bold’s oil and gas properties as of March 31, 2017 to reflect those properties at their estimated fair values, in accordance with the acquisition method of accounting for business combinations.

(c) Adjustment to reflect the elimination of Bold’s historical accumulated depreciation, depletion and amortization, in accordance with the acquisition method of accounting for business combinations.

F-8

EARTHSTONE ENERGY INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(d) Adjustments related to deferred financing costs as follows:

To reclassify deferred financing costs from Long-term debt in Bold’s financial    statements to Other noncurrent assets as a component of Noncurrent assets    to conform to Earthstone's accounting policy	$	305
To eliminate deferred financing costs related to Bold's credit facility that was    terminated in connection with the closing of the Transaction		(305	)
To eliminate deferred financing costs related to Earthstone's credit    facility that was terminated in connection with the closing of the Transaction		(553	)
To record deferred financing costs related to the credit facility that    was entered into in connection with the closing of the Transaction		1,100
Total adjustment	$	547

(e) Adjustments to reflect the accrual of $3.5 million in investment banking and other professional fees directly related to the Transaction, as well as $1.1 million in deferred financing costs related to the credit facility that was entered into in connection with the closing of the Transaction.

(f) Adjustment to asset retirement obligations due to the fair value adjustments as a result of applying the acquisition method of accounting for business combinations.

(g) To reclassify deferred financing costs from Long-term debt in Bold’s financial statements to Other noncurrent assets as a component of Noncurrent liabilities to conform to Earthstone accounting policy as described in (d).

(h) Adjustments to reflect the elimination of Bold’s Members’ Equity.

(i) Adjustments to reflect the elimination of Earthstone’s historical Common Stock and the issuance of Class A Common Stock as part of the Recapitalization.

(j) Adjustment to reflect 150,000 shares of Class A Common Stock issued to certain employees of Bold pursuant to the terms of the Contribution Agreement valued at $13.58 per share.

(k) Adjustment to accumulated deficit to reflect the adjustments recorded in (d), (e), and (g).

(l) Adjustment to reflect 36,070,828 shares of Class B Common Stock issued to Bold Holdings valued at $13.58 per share.

Note 5. Adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations

The following adjustments were made in the preparation of the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2017 and the year ended December 31, 2016:

(m) Adjustments to reflect the decreased depreciation, depletion, and amortization expense that would have been recorded with respect to the Lynden Corp. properties, had the closing of the Lynden Acquisition occurred on January 1, 2016 and the Lynden Corp. properties been adjusted to estimated fair value.

(n) Adjustments to reflect the elimination of approximately $2.4 million for the five months ended May 18, 2016 in non-recurring transaction costs that were directly related to the Lynden Acquisition.

(o) Adjustments to reflect additional accretion expense that would have been recorded with respect to Lynden Corp. properties, had the Lynden Acquisition occurred on January 1, 2016.

(p) Adjustments to reflect the difference in interest expense that would have been recorded with respect to Lynden Corp.’s debt, had the Lynden Acquisition occurred on January 1, 2016.

F-9

EARTHSTONE ENERGY INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(q) Adjustment to reflect the estimated incremental income tax benefit (expense) associated with the Lynden Corp. pro forma adjustments assuming all of the combined company’s earnings had been subject to federal income tax using an effective tax rate of approximately 34.5%. This rate is inclusive of federal and state income taxes.

(r) Adjustments to reflect the decreased depreciation, depletion and amortization expense that would have been recorded with respect to the Bold properties, had the Transaction occurred on January 1, 2016 and the properties were adjusted to estimated fair value.

(s) Adjustments to reflect the elimination of non-recurring transaction costs for the year ended December 31, 2016 that were directly related to the Transaction and are not expected to have a continuing impact.

(t) The noncontrolling interest for the three months ended March 31, 2017 and for the year ended December 31, 2016 was 61.4% and 61.6%, respectively.

(u) Adjustment to reflect issuance of shares of Common Stock related to the Lynden Arrangement assuming it occurred on January 1, 2016.

(v) Adjustment to reflect 150,000 shares of Class A Common Stock issued to certain employees of Bold pursuant to the Contribution Agreement.

(w) As the Transaction was structured as an “Up-C” transaction which is structured to be a tax-free transaction, no income tax impact has been recorded.

F-10

EX-99.2

Exhibit 99.2

Bold Energy III LLC

Consolidated Financial Report

December 31, 2016

F-1

C O N T E N T S

	Page
INDEPENDENT AUDITOR’S REPORT	F-3
CONSOLIDATED FINANCIAL STATEMENTS	F-5
Consolidated Balance Sheets	F-6
Consolidated Statements of Operations	F-8
Consolidated Statements of Changes in Members’ Equity	F-9
Consolidated Statements of Cash Flows	F-10
Notes to Consolidated Financial Statements	F-12

F-2

Independent Auditor’s Report

To the Members of

Bold Energy III LLC

Midland, Texas

We have audited the accompanying consolidated financial statements of Bold Energy III LLC and subsidiary (the Company), which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in members’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL WEAVER AND TIDWELL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS 400 WEST ILLINOIS, SUITE 1550, MIDLAND, TX 79701 P:432.683.5226F:432.683.9182

F-3

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bold Energy III LLC as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.

WEAVER AND TIDWELL, L.L.P.

Midland, Texas

March 10, 2017

F-4

Consolidated Financial Statements

F-5

Bold Energy III LLC

Consolidated Balance Sheets

December 31, 2016 and 2015

	2016			2015
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	186,301		$	111,404
Accounts receivable
Oil and natural gas sales		4,397,258			1,178,516
Joint interest owners		1,151,300			52,237
Prepaid expenses		68,702			121,635
Field inventory		142,922			136,596
Total current assets		5,946,483			1,600,388
OIL AND GAS PROPERTIES, successful efforts
Proved properties		155,048,784			122,378,888
Unproved properties		103,145,473			71,389,449
Wells in progress		24,318,094			10,735,804
Total oil and gas properties		282,512,351			204,504,141
Less: accumulated depletion, depreciation, amortization and impairment		(54,583,985	)		(47,065,444	)
Total oil and gas properties, net		227,928,366			157,438,697
OTHER ASSETS
Land		1,356,438			947,719
Other property and equipment, net		45,566			99,418
Total other assets		1,402,004			1,047,137
TOTAL ASSETS	$	235,276,853		$	160,086,222

The Notes to Consolidated Financial Statements are an integral part of these statements.

F-6

	2016		2015
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		4,906,514		397,782
Revenue payable		2,117,275		878,104
Asset retirement obligation		78,054		—
Accrued liabilities		8,132,713		809,313
Total current liabilities		15,234,556		2,085,199
NON-CURRENT LIABILITIES
Line of credit, net		30,208,043		12,964,007
Asset retirement obligation		848,095		630,351
Total non-current liabilities		31,056,138		13,594,358
MEMBERS’ EQUITY		188,986,159		144,406,665
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	235,276,853	$	160,086,222

F-7

Bold Energy III LLC

Consolidated Statements of Operations

Years Ended December 31, 2016 and 2015

	2016			2015
REVENUES
Oil sales	$	15,792,569		$	17,314,099
Natural gas sales		3,694,787			3,771,995
Total revenues		19,487,356			21,086,094
EXPENSES
Oil and gas production costs		2,679,439			1,922,280
Oil and gas production taxes		1,004,345			1,081,092
Depreciation, depletion, and amortization		9,496,065			14,798,544
Impairment of oil and gas properties		—			4,007,922
Accretion of asset retirement obligation		38,598			24,166
Abandonment		11,380,049			—
General and administrative expenses		6,648,198			7,402,929
Total expenses		31,246,694			29,236,933
Loss from operations		(11,759,338	)		(8,150,839	)
OTHER INCOME (EXPENSE)
Interest income		76			76
Interest expense		(661,370	)		(348,905	)
Other expense, net		(661,294	)		(348,829	)
NET LOSS	$	(12,420,632	)	$	(8,499,668	)

The Notes to Consolidated Financial Statements are an integral part of these statements.

F-8

Bold Energy III LLC

Consolidated Statements of Changes in Members’ Equity

Years Ended December 31, 2016 and 2015

BALANCE, January 1, 2015	$	138,299,868
Equity contributions		14,606,465
Net loss		(8,499,668	)
BALANCE, December 31, 2015		144,406,665
Equity contributions		57,000,126
Net loss		(12,420,632	)
BALANCE, December 31, 2016	$	188,986,159

The Notes to Consolidated Financial Statements are an integral part of these statements.

F-9

Bold Energy III LLC

Consolidated Statements of Cash Flows

Years Ended December 31, 2016 and 2015

	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(12,420,632	)	$	(8,499,668	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation, depletion, and amortization		9,430,338			14,666,275
Depreciation of other property and equipment		65,727			132,269
Impairment of oil and gas properties		—			4,007,922
Abandonment		11,380,049			—
Accretion of asset retirement obligation		38,598			24,166
Amortization of deferred financing costs		146,220			74,838
Changes in operating assets and liabilities
Accounts receivable		(4,317,805	)		1,896,811
Prepaid expenses		52,933			(81,556	)
Field inventory		(6,326	)		(136,596	)
Accounts payable		4,508,732			(699,900	)
Accrued liabilities		(64,800	)		268,124
Revenue payable		1,239,171			409,295
Net cash provided by operating activities		10,052,205			12,061,980
CASH FLOWS FROM INVESTING ACTIVITIES
Leasehold acquisitions and costs		(38,531,827	)		(2,964,760	)
Capital expenditures - drilling and development		(38,264,209	)		(28,839,063	)
Capital expenditures - lease and well equipment		(7,307,870	)		(5,101,072	)
Acquisition of land		(408,719	)		(947,719	)
Additions to other property, plant and equipment		(11,875	)		—
Proceeds from sale of leasehold properties		449,250			—
Net cash used in investing activities		(84,075,250	)		(37,852,614	)
CASH FLOWS FROM FINANCING ACTIVITIES
Equity contributions		57,000,126			14,606,465
Proceeds from borrowing - line of credit		63,900,000			50,200,000
Payments - line of credit		(46,700,000	)		(38,900,000	)
Deferred financing fees		(102,184	)		(245,749	)
Net cash provided by financing activities		74,097,942			25,660,716
Net increase (decrease) in cash		74,897			(129,918	)
CASH, beginning of period		111,404			241,322
CASH, end of period	$	186,301		$	111,404

The Notes to Consolidated Financial Statements are an integral part of these statements.

F-10

Bold Energy III LLC

Consolidated Statements of Cash Flows (Continued)

Years Ended December 31, 2016 and 2015

	2016		2015
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Capital expenditures accrued in accrued liabilities at year-end	$	7,752,500	$	364,300
Addition to proved properties for increase in asset retirement obligations	$	272,733	$	390,028
OTHER SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	508,731	$	280,705

The Notes to Consolidated Financial Statements  are an integral part of these statements.

F-11

Note 1.   Summary of Significant Accounting Policies

Organization and Nature of Operations

Bold Energy III LLC (the Company) is a Texas limited liability company formed on April 5, 2013. The Company is a Midland, Texas based oil and gas company focused on the acquisition, exploration and development of natural gas and crude oil properties as an operating interest owner. The properties are primarily located in West Texas.  

The Company is owned by EnCap Energy Capital Fund IX, L.P. (95.94%, EnCap), Bold Energy Management III LLC (3.46%, Management Member) and Bold Energy Management Holdings III LLC (0.60%) (collectively, with Bold Energy Management III LLC, the Management Group, and together with EnCap, the Investor Group). Management Member manages the Company on behalf of the other members. A Board of Managers governs the actions of the Company. The Board of Managers is comprised of three members elected by EnCap and two members by Management Member. Under the terms of the Limited Liability Company Agreement (the Agreement), the Investor Group has committed to contribute up to $276.5 million to the Company. Of this commitment amount, the Investor Group had contributed approximately $241.7 million through December 31, 2016. Under the terms of the Agreement, the Company may dissolve either through the election of the Board of Managers or disposition of all assets of the Company.  

Bold Operating, LLC is a wholly owned subsidiary of the Company and acts as the operator of the properties owned by the Company.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Bold Energy III LLC, and its wholly owned subsidiary, Bold Operating, LLC. All inter-company accounts and transactions have been eliminated in consolidation.

Oil and Gas Properties

The Company uses the successful efforts method of accounting for its oil and gas exploration and production activities. Costs incurred by the Company related to the acquisition of oil and gas properties and the cost of drilling development wells and successful exploratory wells are capitalized, while the costs of unsuccessful exploratory wells are expensed when determined to be unsuccessful. 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 sales of properties are generally included as income.  

Capitalized acquisition costs attributable to proved oil and gas properties will be depleted by formation or field using the unit-of-production method based on proved reserves. Capitalized exploration well costs and development costs, including asset retirement obligations, will be amortized by producing unit, based on proved developed reserves. The Company had wells in progress of $24,318,094 and $10,735,804 at December 31, 2016 and 2015, respectively, comprised of $4,445,792 and $2,445,641 of lease and well equipment, respectively; $19,830,109 and $8,290,163 of intangible drilling costs, respectively; and asset retirement costs of $42,193 and $0, respectively. As wells in progress represent wells which were not complete at year end, these costs were excluded from amortization for the years ended December 31, 2016 and 2015.

F-12

Capitalized costs are evaluated for impairment in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets (ASC Top 360), whenever events or changes in circumstances indicate that an asset's carrying amount may not be recoverable.  

The fair values of proved properties are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. Significant inputs used to determine the fair values of proved properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with applicable forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that Company management believes will impact realizable prices.

To determine if a depletable unit is impaired, the carrying value of the depletable unit is compared to the undiscounted future net cash flows by applying management's estimates of future oil and gas prices to the estimated future production of oil and gas reserves over the economic life of the property and deducting future costs. Future net cash flows are based upon third party reservoir engineers' estimates of proved reserves and internal management estimates for probable and possible reserves. For a property determined to be impaired, an impairment loss equal to the difference between the carrying value and the estimated fair value of the impaired property will be recognized. Fair value, on a depletable unit basis, is estimated to be the present value of the aforementioned expected future net cash flows. Each part of this calculation is subject to a large degree of judgment, including the determination of the depletable units’ estimated reserves, future net cash flows and fair value. Impairment expense of $0 and $4,007,922 was recognized for the years ended December 31, 2016 and 2015, respectively.  

Costs of unproved properties at December 31, 2016 and 2015 represent leasehold costs. Unproved oil and gas leases are generally for a term of three to five years. In most cases, the term of the unproved leases can be extended by paying delay rentals, meeting contractual drilling obligations or by producing reserves on the leases. As properties are evaluated through exploration, they will be included in the amortization base. Unproved properties are assessed periodically to determine whether they have been impaired. The prospects and their related costs are evaluated individually.

Properties Accounted for as Business Combinations

The Company accounts for the acquisition of oil and gas properties under the requirements of FASB ASC Topic 805, Business Combinations (ASC Topic 805). ASC Topic 805 requires an acquiring entity to recognize all assets acquired and liabilities assumed at fair value under the acquisition method of accounting, provided they qualify for acquisition accounting under the standard. The Company accounts for all property acquisitions that include working interests in proved leasehold, both operated and non-operated, that would generate more than an immaterial balance of goodwill as business combinations. The Company does not apply acquisition accounting to the purchase of oil and gas properties entirely comprised of unproved leasehold, which is in compliance with ASC Topic 805.

F-13

In accordance with the provisions of ASC Topic 805, the Company has conducted an assessment of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred. The Company uses relevant market assumptions, many of which are unobservable, to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment. Many of the assumptions are unobservable.  

Revenue Recognition

Oil and gas revenue is recognized when the product is sold to a purchaser, delivery has occurred, written evidence of an arrangement exists, pricing is fixed and determinable and collectibility of the revenue is reasonably assured. As of December 31, 2016 and 2015, the Company had no significant imbalance asset or liability. The Company incurred production taxes of $1,004,345 and $1,081,092 for the years ended December 31, 2016 and 2015, respectively.

Fair Value of Financial Instruments

The carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximates their fair values due to the short maturity of these instruments. The indebtedness under the revolving line of credit was estimated to have a fair value approximating the carrying amount based on the variability of the interest rates being reflective of market rates.

Accounts Receivable

The Company sells oil and gas to various customers and participates with other parties in the drilling, completion and operation of oil and gas wells. Joint interest receivables and oil and gas sales receivables related to these operations are generally unsecured. The Company determines joint interest operations accounts receivable allowances based on management’s assessment of the creditworthiness of the joint interest owners and the Company’s ability to realize the receivables through netting of anticipated future production revenues. The Company had no allowance for doubtful accounts at December 31, 2016 and 2015 based on the expectation that all receivables will be collected. The Company has not realized bad debt expense on joint interest billings during the years ended December 31, 2016 and 2015. The Company had receivables related to oil and gas sales of $4,397,258 and $1,178,516 at December 31, 2016 and 2015, respectively. Additionally, the Company had receivables related to joint interest billings of $1,151,300 and $52,237 at December 31, 2016 and 2015, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents.

Prepaid Expenses

Prepaid expenses include funds which have been advanced for general business and control of well insurance.

F-14

Deferred Financing Costs

Deferred financing costs consist of fees incurred to secure debt financing and are amortized over the life of the related loans using the straight line method. Deferred financing costs were $291,957 and $335,993, net of accumulated amortization of $253,489 and $107,269 at December 31, 2016 and 2015, respectively, and were included with Line of credit, net, on the balance sheet.  Amortization of deferred financing costs totaled $146,220 and $74,838 for the years ended December 31, 2016 and 2015, respectively, and were recorded in interest expense in the consolidated statements of operations.

Other Property and Equipment

Other property and equipment consists primarily of computer equipment, software, leasehold improvements, and furniture and fixtures. These items are recorded at cost, and depreciable assets are depreciated under the straight-line method over expected useful lives ranging from three to seven years. Other property and equipment totaled $45,566 and $99,418, net of accumulated depreciation of $529,693 and $463,966 at December 31, 2016 and 2015, respectively. Depreciation expense for other property and equipment totaled $65,727 and $132,269 for the years ended December 31, 2016 and 2015, respectively.

Accounts Payable, Revenue Payable and Accrued Liabilities

Accounts payable include obligations incurred in the ordinary operation of the business for services performed and products received. Accrued liabilities primarily include accrued expenses related to capital expenditures on oil and gas properties. Revenue payable relates to revenue distributions due to royalty and joint interest owners.

Asset Retirement Obligation

The Company accounts for its asset retirement obligations in accordance with FASB ASC Topic 410, Asset Retirement and Environmental Obligations (ASC Topic 410). Asset retirement obligations consist of estimated costs of dismantlement, removal, site reclamation and similar activities associated with oil and gas properties. A liability is recorded when the fair value of the asset retirement obligation can be reasonably estimated and recognized in the period a legal obligation is incurred. The liability amounts are based on retirement cost estimates and incorporate many assumptions, such as expected economic recoveries of oil and gas, time to abandonment, future inflation rates and the credit-adjusted risk-free rate of interest.  

The retirement obligation is recorded at its estimated present value as of the obligation’s inception with an offsetting increase to proved lease and well equipment in the consolidated balance sheets. This addition to proved lease and well equipment represents a non-cash investing activity for presentation in the consolidated statements of cash flows and is subject to depreciation. After initially recording the liability, it accretes for the passage of time and the related discount rate, with the increase reflected as accretion expense in the consolidated statements of operations.

Income Taxes

The Company is a limited liability company, and therefore is treated as a flow-through entity for federal income tax purposes. As a result, the net taxable income of the Company and any related tax credits, for federal income tax purposes, are deemed to pass to the members and are included in their tax returns even though such net taxable income or tax credits may not have actually been distributed. Accordingly, no federal tax provision has been made in the consolidated financial statements of the Company.

F-15

At December 31, 2016 and 2015, the Company had no taxable margin and, therefore, recorded no Texas Margin Tax liability.

The Company follows the provisions of FASB ASC Topic 740, Income Taxes (ASC Topic 740), relating to accounting for uncertainties in income taxes. ASC Topic 740 provides the accounting for uncertainties in income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the consolidated financial statements. ASC Topic 740 requires the Company to recognize in its consolidated financial statements the financial effects of a tax position, if that position is more likely than not of being sustained upon examination, including resolution of any appeals or litigation processes, based upon the technical merits of the position.

ASC Topic 740 also provides guidance on measurement, classification, interest and penalties and disclosure. Tax positions taken related to the Company’s pass-through status and those taken in determining state income tax liability, including deductibility of expenses, have been reviewed and management is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recorded an income tax liability.

Estimates and Uncertainties

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant assumptions are required in the valuation of proved oil and gas reserves which may affect the amount at which oil and gas properties are recorded, provisions for depreciation, depletion, and amortization, and impairment of oil and gas properties. Estimation of asset retirement obligations is based on estimates regarding the timing and cost of future asset abandonments. Estimation of production volumes near year-end is required in order to determine the amount of oil and gas revenue receivable at year end. Estimation of oil and gas property accruals is required in order to determine the amounts payable at year end. It is possible these estimates could be revised in the near-term and these revisions could be material.

Recent Accounting Pronouncements

In January 2017, with Accounting Standards Update 2017-01, the FASB clarified the definition of a business under Business Combinations (Topic 805). Currently, Topic 805 does not specify the minimum inputs and processes required for a set to meet the definition of a business. That lack of clarity led to broad interpretations of the definition of a business. The amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present.

F-16

The amendments in this update are effective for annual reporting periods beginning after December 15, 2017. Companies can begin to adopt the standard early for transactions with acquisition dates occurring before the issuance date of this amendment only when the transaction has not been previously reported in financial statements. The Company has elected to adopt this standard effective for January 1, 2017.

The FASB and the International Accounting Standards Board (IASB) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. The FASB has amended the FASB ASC and created the new Topic 606, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The amendments in this update are effective for annual reporting periods beginning after December 15, 2018. Companies can begin to adopt the standard early for annual reporting periods beginning after December 15, 2016. The Company is evaluating the effect of this pronouncement on the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous GAAP and this update is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The update is effective for financial statements with fiscal years beginning after December 15, 2018 for public entities and for financial statements with fiscal years beginning after December 15, 2019 for all other entities, with early adoption permitted. The Company is still evaluating the potential impact on the Company’s consolidated financial statements.

Subsequent Events

The Company evaluates subsequent events for potential recognition and/or disclosure through the date the consolidated financial statements are available to be issued.

Reclassifications

Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation.

F-17

Note 2.   Acquisition of Oil and Gas Properties

2016 Acquisitions

On May 6, 2016, the Company acquired 2,944 undeveloped net mineral acres primarily in Upton County (95%) as well as Reagan County, Texas in exchange for $33 million in cash.  This acreage is 100% operated with an average working interest of approximately 84% and an average net revenue interest of approximately 72% (86% to the 8/8ths interest).  The effective date of the acquisition was April 1, 2016.

The Company closed various other acquisitions during the year ended December 31, 2016, none of which were material to the Company individually or in the aggregate.

2015 Acquisitions

On July 31, 2015, the Company acquired 1,200 net mineral acres and 12 wells (including 10 producing wells) in Reagan County, Texas in exchange for $1,946,444 in cash, 640 net mineral acres in Irion County, Texas worth $2,569,494, and a credit of $119,208 related to the acquired assets, resulting in a total purchase price of $4,635,146. The acquisition was accounted for as a business combination in accordance with ASC Topic 805, which among other things, requires assets acquired and liabilities assumed to be measured at fair value as of the effective date of the acquisition. The effective date of the acquisition was August 1, 2015.

The following table summarizes the consideration paid to acquire the properties and the amounts of the assets acquired and liabilities assumed as of the acquisition date. The purchase price was subject to customary closing adjustments that occur between the effective date of the acquisition and the closing date of the acquisition. As the purchase price is further adjusted for post-closing items, the final purchase price allocation may result in a different allocation.

Proved oil and natural gas properties	$	764,643
Unproved oil and natural gas properties		4,062,653
Lease and well equipment		123,000
Asset retirement obligations assumed		(315,150	)
Purchase price, net	$	4,635,146

The Company closed various other acquisitions of unproved leasehold adjacent to or additional working interests in existing prospects during the year ended December 31, 2015, none of which were individually material to the Company.

F-18

Note 3.   Oil and Gas Properties

Oil and gas properties consist of the following at December 31, 2016 and 2015:

	2016			2015
Proved leasehold	$	6,856,656		$	4,030,572
Wells and related equipment - proved properties		19,461,449			13,967,526
Intangible drilling costs - proved properties		127,911,378			103,777,568
Asset retirement costs - proved properties		819,301			603,222
Proved properties		155,048,784			122,378,888
Unproved leasehold		103,145,473			71,389,449
Wells and related equipment - wells in progress		4,445,792			2,445,641
Intangible drilling costs - wells in progress		19,830,109			8,290,163
Asset retirement costs - wells in progress		42,193			—
Wells in progress		24,318,094			10,735,804
Accumulated depletion, depreciation, amortization, and impairment		(54,583,985	)		(47,065,444	)
	$	227,928,366		$	157,438,697

Note 4.   Other Property and Equipment

Other property and equipment consists of the following at December 31, 2016 and 2015:

	2016			2015
Office equipment and furniture	$	436,119		$	424,244
Computer software		52,545			52,545
Leasehold improvements		86,595			86,595
		575,259			563,384
Accumulated depreciation		(529,693	)		(463,966	)
	$	45,566		$	99,418

F-19

Note 5.   Related Party Transactions

EnCap Energy Capital Fund IX, L.P., Bold Operating, LLC, Bold Energy II LLC, Bold Energy Management III LLC, Bold Energy Management Holdings III LLC, and members of Management Group are considered related parties under FASB ASC Topic 850, Related Party Disclosures.

Certain members of Management Group are employees of the Company and are compensated based upon employment agreements. These agreements provide for a base salary, incentive compensation, and health benefits.

The Company receives a management fee from Bold Energy II LLC in consideration of the services and general and administrative expenses incurred by the Company on behalf of Bold Energy II LLC. The Company received fees of $120,000 during each of the years ended December 31, 2016 and 2015, related to these services.

Note 6.   Fair Value Measurements

FASB ASC Topic 820, Fair Value Measurement (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. 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 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 years ended December 31, 2016 and 2015.

F-20

Fair Value Measurements on a Nonrecurring Basis

Asset Impairment

Oil and gas properties are measured at fair value on a nonrecurring basis. The impairment charge reduces the oil and gas properties’ 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.

The Company recorded asset impairments of $0 and $4,007,922 on proved properties during the years ended December 31, 2016 and 2015, respectively.

Business Combinations

The Company records identifiable assets acquired and liabilities assumed at fair value at the date of acquisition. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and include estimates of future oil and gas production, commodity prices based on commodity futures price strips as of the date of the estimate, operating and development costs, and a risk-adjusted discount rate. Significant Level 3 assumptions associated with the calculation of discounted cash flows used in the determination of fair value of the acquisition include the Company’s estimate of future natural gas and crude oil prices, operating and development costs, anticipated production of proved reserves, appropriate risk-adjusted discount rates and other relevant data. The Company’s acquisitions are disclosed in Note 2.

Asset Retirement Obligation

The asset retirement obligation estimates are derived from historical costs and management's expectation of future cost environments and, therefore, the Company has designated these liabilities as Level 3 measurements. The significant inputs to this fair value measurement include estimates of plugging, abandonment and remediation costs, well life, inflation and credit-adjusted risk free rate. See Note 7 for a reconciliation of the beginning and ending balances of the liability for the Company's asset retirement obligations.

F-21

Note 7.   Asset Retirement Obligations

The following are changes in the asset retirement obligation for the years ended December 31, 2016 and 2015:

Balance, December 31, 2014	$	216,157
Liability incurred upon acquiring and drilling new wells		390,028
Accretion expense		24,166
Balance, December 31, 2015		630,351
Liability incurred upon acquiring and drilling new wells		272,733
Settlement of asset retirement obligation		(15,533	)
Accretion expense		38,598
Balance, December 31, 2016		926,149

Based on the expected timing of settlement, $78,054 of the liability is classified as current.

Note 8.   Significant Concentrations

For the years ended December 31, 2016 and 2015, substantially all of the Company’s operations and business efforts were related to the oil and gas industry. This concentration may impact the Company’s business risk, either positively or negatively, in that commodity prices, customers and suppliers may be similarly affected by changes in economic, political or other conditions related to the industry. The Company sold production to three purchasers whose purchases each comprised 10% or more of total net oil and natural gas revenues during the years ended December 31, 2016 and 2015. When combined, the sales to these purchasers accounted for more than 90% of total net oil and natural gas revenues during both 2016 and 2015. In addition, the Company sold production to two and four purchasers whose balances each comprised 10% or more of oil and natural gas sales receivables as of December 31, 2016 and December 31, 2015, respectively. When combined, the balances of these purchasers accounted for more than 80% and 90% of oil and natural gas sales receivables at December 31, 2016 and 2015, respectively. The Company does not believe that the loss of a purchaser would have an adverse effect on its ability to sell its crude oil and natural gas production due to the competitive nature of the oil and gas industry and availability of marketing alternatives. Additionally, the Company had outstanding accounts payable balances to one and three vendors which each comprised greater than 10% or more of the total accounts payable balance at December 31, 2016 and 2015, respectively. The Company does not believe that this concentration would have a significant impact on operations as there are many oil and gas service providers.

The Company regularly maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses with respect to the related risks to cash and cash equivalents and does not believe its exposure to such risk is more than nominal.  

F-22

Note 9.   Commitments and Contingencies

Legal Matters

In the ordinary course of business, the Company may at times be subject to claims and legal actions. Management does not believe the impact of such matters will have a material adverse effect on the Company’s financial position or results of operation. The Company had no legal matters requiring specific disclosure or recognition of a liability as of December 31, 2016 and 2015.

Environmental

The Company is subject to extensive federal, state and local environmental laws and regulations which may materially affect its operations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.

In the Company’s acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards 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 such a violation could still fall upon the Company.

Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that related to an existing condition caused by past operations and that have no future economic benefits are expensed as incurred. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable, and the cost can be reasonably estimated.

No claim has been made, nor is the Company aware of any liability which the Company may have, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations relating thereto. The Company maintains comprehensive insurance coverage that it believes is adequate to mitigate the risk of any adverse financial effects associated with these risks.

Operating Leases

The Company leases office space facilities under an operating lease. In 2014, the Company renewed this lease, which expires in May 2017. Rent expense under this lease for the years ended December 31, 2016 and 2015 was $351,532 and $325,995, respectively, and is recorded in general and administrative expenses.

Future minimum non-cancelable rental payments for the remainder of the lease are as follows:

Year Ending
2017	$	153,130
2018 and thereafter		—
	$	153,130

F-23

Note 10.   Defined Contribution Plan

The Company sponsors a 401(k) defined contribution plan for the benefit of all employees through Charles Schwab Bank. The plan is intended to provide participating employees with benefits upon retirement, in compliance with the Internal Revenue Code. Employees could contribute up to $18,000 and $18,000 with an additional “catch up” amount of $6,000 and $6,000 for employees over 50 years of age or older for the years ended December 31, 2016 and 2015, respectively. The Company matched 100% of employee contributions up to 8% of compensation through September 2015 and has contributed $0 and $307,586 for the years ended December 31, 2016 and 2015, respectively. Both employee and employer contributions are fully vested at all times.

Note 11.   Bank Credit Facility

The Company entered into a bank credit facility on August 14, 2013. Pursuant to the credit agreement, from time to time, the Company may borrow the lesser of the available borrowing base, as determined by the credit agreement, or $250 million, which is the maximum borrowing capacity of the bank credit facility. As of December 31, 2016 and 2015, the Company had borrowing bases of $45 million and $42 million respectively, and outstanding balances of $30.5 million and $13.3 million, respectively. The bank credit facility is secured by substantially all of the Company’s oil and gas properties where it has established production. The Company had outstanding letters of credit, with a separate lending institution, which totaled $100,000 at both December 31, 2016 and 2015.

The Company may elect that borrowings be comprised of any combination of alternate base rate (ABR) loans or Eurodollar loans, although Eurodollar loans must be a minimum of $500,000. The Company pays interest on the unpaid principal amount of each loan until such principal amount is repaid in full.  Prior to the most recent determination of the Company’s borrowing base in December 2016, interest on these loans was determined as follows:

• with respect to ABR loans, the alternate base rate equals the highest of the prime rate, the Federal funds effective rate plus 0.50%, or the three-month London interbank rate (“LIBOR”) plus 1.00%, plus an applicable margin ranging from and including 0.75% and 1.75% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn, or

• with respect to Eurodollar loans, one-, three- or six-month LIBOR plus an applicable margin ranging from and including 1.75% and 2.75% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn.

In conjunction with a regularly scheduled redetermination of its borrowing base in April 2015, the Company and its lenders amended its credit agreement to include a non-conforming borrowing base in addition to its conforming borrowing base. The non-conforming borrowing base provided additional borrowing capacity of 15% to 20% above the conforming borrowing base. Of the $42 million borrowing base at December 31, 2015, $36 million was conforming and $6 million was non-conforming. If debt balances under the credit agreement were higher than the conforming borrowing base, the applicable margins for ABR and Eurodollar loans could increase to as much as 2.75% and 3.75%, respectively, determined by the percentage of the borrowing base that was drawn. The non-conforming borrowing base expired on April 1, 2016, which reduced the total borrowing base down from $42 million to $36 million.  The Company’s conforming borrowing base was subsequently redetermined and reduced to $27 million on June 24, 2016.

F-24

In conjunction with the most recent redetermination and amendment to the Company’s credit agreement, the Company’s conforming borrowing base was increased from $27 million to $45 million on December 22, 2016.  In addition, upon the satisfactory review by the Company’s lenders of 30 days of production from three operated horizontal wells in Midland and Upton Counties, Texas that initiated production in December 2016, the conforming borrowing base would be eligible to be increased during the first quarter of 2017 to $62.5 million.  The applicable margins on the Company’s ABR and Eurodollar loans are as follows:

• with respect to ABR loans, the applicable margin ranges from and includes 1.25% and 2.25% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn, prior to April 1, 2017, with the applicable margin ranging from and including 1.50% and 2.50% per annum starting on April 1, 2017, and  

• with respect to Eurodollar loans, the applicable margin ranges from and includes 2.25% and 3.25% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn, prior to April 1, 2017, with the applicable margin ranging from and including 2.50% and 3.50% per annum starting on April 1, 2017.

In addition, the Company pays a commitment fee ranging from 0.375% to 0.50% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn, on the average daily amount of the unused amount of the borrowing base. These commitment fees are also considered interest expense. The effective interest rate on the credit facility was 3.55% and 2.43% at December 31, 2016 and 2015, respectively. Interest expense, excluding amortization of deferred financing costs, for the years ended December 31, 2016 and 2015 was $515,150 and $274,067, respectively.

All outstanding principal amounts are due at maturity. The credit facility matures on August 14, 2018. The Company is subject to certain non-financial and financial covenants under the bank credit facility, including a minimum current ratio of 1:1 and a maximum total debt to EBITDAX ratio of 4:1. As of December 31, 2016 and 2015, the Company was in compliance with its financial covenants.

Note 12.   Members’ Equity Accounts

Equity contributions are based on capital calls, to be determined by the Board of Managers. Contribution requests to the members will be based on their personal equity commitment as indicated by the member at the formation of the Management Group. Cash earnings on profits and any items in nature of income or gain will be applied to the members’ capital account in accordance with their earnings interest, as defined by the Agreement.

The Company has three classes of members’ equity, Classes A, B and C Units. Class A and B units have all the rights, privileges, preferences and obligations provided for in the Agreement, which are consistent with an ordinary equity ownership interest. Class A Units are a class of up to 2,666,500 membership units to be issued to EnCap. Class B Units are a class of up to 98,100 membership units to be issued to the Management Group. The purchase price per each Class A and Class B Unit is $100. At December 31, 2016 and 2015, EnCap had purchased 2,318,440 and 1,757,236.34 Class A Units for a total of $231,844,000, and $175,723,634, respectively, and the Management Group had purchased 98,092.72 and 89,295.13 Class B interests for a total of $9,809,272 and $8,929,513, respectively.

F-25

Class C units do not have voting rights and holders are not required to make any form of contribution to the Company. Class C unit holders do not have a risk of loss and will only be entitled to share in distributions and allocations if and to the extent the Board of Managers makes such distributions and applicable thresholds have been met. As such, the Units are treated as a profit sharing arrangement accounted for under FASB ASC Topic 710, Compensation – General (ASC Topic 710), which will be expensed to compensation as declared.

Note 13. Subsequent Events

The Company has evaluated events subsequent to the consolidated balance sheet date, December 31, 2016 through March 10, 2017, the date the consolidated financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events, other than as noted herein:

Pending Combination with Earthstone Energy, Inc.

On November 8, 2016, Earthstone Energy, Inc., a Delaware corporation (NYSE MKT: ESTE, “Earthstone”) and the Company entered into a Contribution Agreement (the “Agreement”) to facilitate a strategic combination of Bold and Earthstone (the “Transaction”). The Transaction has been organized in a manner commonly known as an "Up-C" structure. Under this structure and the Agreement, Earthstone will recapitalize its common stock into two classes, Class A and Class B, with all its existing outstanding common stock being converted into Class A common stock. Bold will purchase approximately 36.1 million shares of Earthstone's Class B common stock for nominal consideration (par value totaling $36,071), with the Class B common stock having no economic rights in Earthstone other than voting rights on a pari passu basis with the Class A common stock. In addition, Earthstone has formed Earthstone Energy Holdings, LLC, a Delaware limited liability company ("EEH"). At closing, the Investor Group will transfer all of its membership interests in Bold into a new Texas limited liability company, Bold Energy Holdings, LLC (“Bold Holdings”) for all of the membership interests in Bold Holdings. Also at closing, EEH will issue approximately 22.3 million of its membership units to Earthstone and one of Earthstone's wholly-owned subsidiaries, in the aggregate, and 36.1 million membership units to Bold Holdings in exchange for each of the parties transferring the ownership interests of Bold and various subsidiaries of Earthstone that hold its oil and gas properties to EEH, effectively making Bold and the various subsidiaries of Earthstone subsidiaries of EEH. Each membership unit in EEH held by Bold Holdings, together with one share of Earthstone's Class B common stock, will be convertible by Bold Holdings (or members of the Investor Group if Earthstone’s Class B common shares and EEH membership units are distributed to the Investor Group by Bold Holdings) into Class A common stock of Earthstone on a one-for-one basis. In addition, upon the closing of the Transaction, Earthstone will issue 150,000 additional shares of Class A common stock to certain members of the Investor Group.  

Accordingly, upon the closing of the Transaction, stockholders of Earthstone and the Investor Group are expected to own approximately 39% and 61%, respectively, of the combined company's then outstanding Class A and Class B common stock on a fully diluted basis. After closing, Earthstone will conduct its activities through EEH and be its sole managing member. The Transaction is expected to close during the second quarter of 2017.

Borrowing Base Increase

As discussed in Note 11, after the satisfactory review by the Company’s lenders of 30 days of production from three operated horizontal wells in Midland and Upton Counties, Texas that initiated production in December 2016, the Company’s conforming borrowing base under its credit agreement was increased from $45 million to $62.5 million on February 3, 2017.

F-26

Note 14. Supplemental Information on Oil and Gas Producing Activities (Unaudited)

The following tables summarize the net ownership interest in the proved oil and gas reserves and the standardized measure of discounted future net cash flows related to the proved oil and gas reserves for the Company. Natural gas volumes include natural gas liquids.

Proved reserves as of December 31, 2016 and 2015 were estimated by qualified petroleum engineers of the Company using historical data. Numerous uncertainties are inherent in establishing quantities or proved reserves. The following reserve data represents estimates only, and should not be deemed exact. In addition, the standardized measure of discounted future net cash flows should not be construed as the current market value of the Company’s oil and natural gas properties or their cost that would be incurred to obtain equivalent reserves.

All information set forth herein relating to the proved reserves as of December 31, 2016 and 2015, including the estimated future net cash flows and present values, from that date, is taken or derived from the records of the Company. These estimates were based upon review of historical production data and other geological, economic, ownership, and engineering data provided and related to the reserves. No reports on these reserves have been filed with any federal agency. In accordance with the SEC’s guidelines estimates of proved reserves, and the future net revenues from which present values are derived, are based on an un-weighted 12-month average of the first-day-of-the-month price for the period, held constant throughout the life of the properties. Operating costs, development costs, and certain production-related taxes, which are based on current information and held constant, were deducted in arriving at estimated future net revenues.

The proved reserves, all held within the United States, as of December 31, 2016 and 2015, together with the changes therein, are as follows:

	Crude Oil Bbl			Natural Gas Mcf			Total BOE
Quantities of proved reserves:
Balance December 31, 2014		983,743			1,939,764			1,307,037
Revisions		127,631			4,348,423			852,368
Extensions		3,342,461			8,779,907			4,805,779
Acquisition of reserves		45,934			187,840			77,241
Production		(377,124	)		(1,167,443	)		(571,698	)
Balance December 31, 2015		4,122,645			14,088,491			6,470,727
Revisions		684,540			4,377,473			1,414,119
Extensions		4,572,008			11,766,859			6,533,151
Acquisition of reserves		29,825			57,842			39,465
Production		(372,879	)		(1,180,153	)		(569,571	)
Balance December 31, 2016		9,036,139			29,110,512			13,887,891

F-27

	Crude Oil Bbl		Natural Gas Mcf		Total BOE
Proved developed reserves
December 31, 2014		983,743		1,939,764		1,307,037
December 31, 2015		1,756,516		7,457,872		2,999,495
December 31, 2016		3,537,069		13,865,122		5,847,923
Proved undeveloped reserves
December 31, 2014		—		—		—
December 31, 2015		2,366,129		6,630,619		3,471,232
December 31, 2016		5,499,070		15,245,390		8,039,968

Standardized measures of discounted future net cash flows relating to proved reserves as December 31, 2016 and 2015 were as follows:

	2016			2015
Future cash inflows	$	452,511,594		$	230,341,953
Future production and development costs:
Production		138,031,750			80,649,578
Development		98,518,672			55,417,602
Future income tax expense		2,375,686			1,209,295
Future net cash flows		213,585,486			93,065,478
10% discount for estimated timing of cash flows.		(133,522,670	)		(53,915,367	)
Standardized measure of discounted future net cash flows	$	80,062,816		$	39,150,111

Future cash inflows are computed by applying a 12-month average commodity price adjusted for location and quality differentials to year-end quantities of proved reserves, except in those instances where fixed and determinable price changes are provided by contractual arrangements at year-end. Future development costs include future asset retirement costs.  Future production costs do not include any general and administrative expenses. The standardized measure presented here does not include the effects of federal income taxes as the Company is treated as a flow-through entity for federal income tax purposes. A discount factor of 10% was used to reflect the timing of future net cash flows.  The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair value of the properties. The discounted future cash flow estimates do not include the effects of derivative instruments.

The standardized measure is based on the following oil and natural gas prices over the life of the properties prior to adjustments for differentials:

	2016		2015
Crude Oil per Bbl	$	42.75	$	50.28
Natural Gas per MMBTU	$	2.49	$	2.58

F-28

Oil and natural gas prices used consist of the unweighted arithmetic average first-day-of-the-month West Texas Intermediate crude oil price and the unweighted arithmetic average first-day-of-the-month Henry Hub natural gas price.

The principal changes in standardized measure of discounted future net cash flows were as follows for the years ended December 31, 2016 and 2015:

	2016			2015
Standardized measure of discounted future net cash flows - beginning of year	$	39,150,111		$	39,020,047
Changes from:
Production, net of production costs		(15,803,572	)		(18,082,722	)
Net change in prices and production costs		(2,413,952	)		(21,707,158	)
Net change in future development costs		(6,455,433	)		—
Acquisition of reserves		292,372			606,290
Extensions and discoveries		51,435,656			28,729,502
Previously estimated development costs incurred		5,288,990			—
Revisions of previous quantity estimates		8,265,790			6,109,436
Accretion of discount		3,979,734			3,930,783
Net change in taxes		(467,256	)		(359,444	)
Change in timing and other		(3,209,624	)		903,377
Standardized measure of discounted future net cash flows - end of year	$	80,062,816		$	39,150,111

F-29

EX-99.3

Exhibit 99.3

BOLD ENERGY III LLC

CONSOLIDATED FINANCIAL REPORT

DECEMBER 31, 2015

C O N T E N T S

	Page
INDEPENDENT AUDITOR’S REPORT		F-1
CONSOLIDATED FINANCIAL STATEMENTS		F-3
Consolidated Balance Sheets		F-4
Consolidated Statements of Operations		F-6
Consolidated Statements of Changes in Members’ Equity		F-7
Consolidated Statements of Cash Flows		F-8
Notes to Consolidated Financial Statements		F-10

INDEPENDENT AUDITOR’S REPORT

To the Members of

Bold Energy III LLC

Midland, Texas

We have audited the accompanying consolidated financial statements of Bold Energy III LLC (the Company), which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in members’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL WEAVER AND TIDWELL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS 400 WEST ILLINOIS, SUITE 1550, MIDLAND, TX 79701 P: 432.683.5226     F: 432.683.9182

F-1

To the Members of

Bold Energy III LLC

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bold Energy III LLC as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.

WEAVER AND TIDWELL, L.L.P.

Midland, Texas

April 21, 2016

F-2

CONSOLIDATED FINANCIAL STATEMENTS

F-3

BOLD ENERGY III LLC

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2015 AND 2014

	2015			2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	111,404		$	241,322
Accounts receivable
Oil and natural gas sales		1,178,516			2,137,701
Joint interest owners		52,237			989,863
Prepaid expenses		121,635			40,079
Field inventory		136,596			—
Total current assets		1,600,388			3,408,965
OIL AND GAS PROPERTIES, successful efforts
Proved properties		122,378,888			85,652,908
Unproved properties		71,389,449			70,578,630
Wells in progress		10,735,804			11,568,180
Total oil and gas properties		204,504,141			167,799,718
Less: accumulated depletion, depreciation, amortization and impairment		(47,065,444	)		(28,391,247	)
Total oil and gas properties, net		157,438,697			139,408,471
OTHER ASSETS
Deferred financing costs, net		335,993			165,082
Land		947,719			—
Other property and equipment, net		99,418			231,687
Total other assets		1,383,130			396,769
TOTAL ASSETS	$	160,422,215		$	143,214,205

The Notes to Consolidated Financial Statements are an integral part of these statements.

F-4

	2015		2014
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	397,782	$	1,097,682
Revenue payable		878,104		468,809
Accrued liabilities		809,313		1,131,689
Total current liabilities		2,085,199		2,698,180
NON-CURRENT LIABILITIES
Line of credit		13,300,000		2,000,000
Asset retirement obligations		630,351		216,157
Total non-current liabilities		13,930,351		2,216,157
MEMBERS’ EQUITY		144,406,665		138,299,868
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	160,422,215	$	143,214,205

F-5

BOLD ENERGY III LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2015 AND 2014

	2015			2014
REVENUES
Oil sales	$	17,314,099		$	8,315,817
Natural gas sales		3,771,995			1,193,077
Total revenues		21,086,094			9,508,894
EXPENSES
Oil and gas production costs		1,922,280			552,908
Oil and gas production taxes		1,081,092			472,130
Depreciation, depletion, and amortization		14,798,544			11,036,275
Impairment of oil and gas properties		4,007,922			17,575,226
Accretion of asset retirement obligation		24,166			2,963
Abandonment		—			66,289
General and administrative expenses		7,402,929			7,007,356
Total expenses		29,236,933			36,713,147
Loss from operations		(8,150,839	)		(27,204,253	)
OTHER INCOME (EXPENSE)
Interest income		76			21,353
Interest expense		(348,905	)		(29,091	)
Other expense, net		(348,829	)		(7,738	)
NET LOSS	$	(8,499,668	)	$	(27,211,991	)

The Notes to Consolidated Financial Statements are an integral part of these statements.

F-6

BOLD ENERGY III LLC

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY

YEARS ENDED DECEMBER 31, 2015 AND 2014

BALANCE, December 31, 2013	$	66,868,774
Equity contributions		98,643,085
Net loss		(27,211,991	)
BALANCE, December 31, 2014		138,299,868
Equity contributions		14,606,465
Net loss		(8,499,668	)
BALANCE, December 31, 2015	$	144,406,665

The Notes to Consolidated Financial Statements are an integral part of these statements.

F-7

BOLD ENERGY III LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2015 AND 2014

	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(8,499,668	)	$	(27,211,991	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation, depletion, and amortization		14,666,275			10,816,021
Depreciation of other property and equipment		132,269			220,254
Impairment of oil and gas properties		4,007,922			17,575,226
Abandonment		—			66,289
Accretion of asset retirement obligation		24,166			2,963
Amortization of deferred financing costs		74,838			22,452
Changes in operating assets and liabilities
Accounts receivable		1,896,811			(3,076,417	)
Accounts receivable - related parties		—			687,992
Prepaid expenses		(81,556	)		13,004
Field inventory		(136,596	)		—
Accounts payable		(699,900	)		943,583
Accrued liabilities		268,124			176,889
Revenue payable		409,295			468,809
Net cash provided by operating activities		12,061,980			705,074
CASH FLOWS FROM INVESTING ACTIVITIES
Leasehold acquisitions and costs		(2,964,760	)		(30,930,373	)
Capital expenditures - drilling and development		(28,839,063	)		(82,879,451	)
Capital expenditures - lease and well equipment		(5,101,072	)		(11,224,336	)
Acquisition of land		(947,719	)		—
Additions to other property, plant and equipment		—			(69,174	)
Proceeds from sale of leasehold properties		—			193,992
Net cash (used in) investing activities		(37,852,614	)		(124,909,342	)
CASH FLOWS FROM FINANCING ACTIVITIES
Equity contributions		14,606,465			98,643,085
Proceeds from borrowing - line of credit		50,200,000			2,800,000
Payments - line of credit		(38,900,000	)		(800,000	)
Deferred financing fees		(245,749	)		(107,705	)
Net cash provided by financing activities		25,660,716			100,535,380
Net decrease in cash		(129,918	)		(23,668,888	)
CASH, beginning of period		241,322			23,910,210
CASH, end of period	$	111,404		$	241,322

The Notes to Consolidated Financial Statements are an integral part of these statements.

F-8

BOLD ENERGY III LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2015 AND 2014

(CONTINUED)

	2015		2014
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Capital expenditures accrued in accrued liabilities at year-end	$	364,300	$	954,800
Addition to proved properties for increase in asset retirement obligations	$	390,028	$	213,194
OTHER SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	280,705	$	—

The Notes to Consolidated Financial Statements are an integral part of these statements.

F-9

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Bold Energy III LLC (the Company) is a Texas limited liability company formed on April 5, 2013. The Company is a Midland, Texas based oil and gas company focused on the acquisition, exploration and development of natural gas and crude oil properties as an operating interest owner. The properties are primarily located in West Texas.

The Company is owned by EnCap Energy Capital Fund IX, L.P. (95.16%, EnCap), Bold Energy Management III LLC (4.12%, Management Member) and Bold Energy Management Holdings III LLC (0.72%) (collectively, with Bold Energy Management III LLC, the Management Group, and together with EnCap, the Investor Group). Management Member manages the Company on behalf of the other members. A Board of Managers governs the actions of the Company. The Board of Managers is comprised of 3 members elected by EnCap and 2 members by Management Member. Under the terms of the Limited Liability Company Agreement (the Agreement), the Investor Group has committed to contribute up to $226.5 million to the Company. Of this commitment amount, the Investor Group had contributed approximately $184.7 million through December 31, 2015. Under the terms of the Agreement, the Company may dissolve either through the election of the Board of Managers or disposition of all assets of the Company.

Bold Operating, LLC is a wholly owned subsidiary of the Company and acts as the operator of the properties owned by the Company.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Bold Energy III LLC, and its wholly owned subsidiary, Bold Operating, LLC. All inter-company accounts and transactions have been eliminated in consolidation.

Oil and Gas Properties

The Company uses the successful efforts method of accounting for its oil and gas exploration and production activities. Costs incurred by the Company related to the acquisition of oil and gas properties and the cost of drilling development wells and successful exploratory wells are capitalized, while the costs of unsuccessful exploratory wells are expensed when determined to be unsuccessful. 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 sales of properties are generally included as income.

F-10

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Oil and Gas Properties – Continued

Capitalized acquisition costs attributable to proved oil and gas properties will be depleted by formation or field using the unit-of-production method based on proved reserves. Capitalized exploration well costs and development costs, including asset retirement obligations, will be amortized by producing unit, based on proved developed reserves. The Company had wells in progress of $10,735,804 and $11,568,180 at December 31, 2015 and 2014, respectively, comprised of $2,445,641 and $2,267,017 of lease and well equipment, respectively, and $8,290,163 and $9,301,163 of intangible drilling costs, respectively. As wells in progress represent wells which were not complete at year end, these costs were excluded from amortization for the years ended December 31, 2015 and 2014.

Capitalized costs are evaluated for impairment in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable.

The fair values of proved properties are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. Significant inputs used to determine the fair values of proved properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with applicable forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that Company management believes will impact realizable prices.

To determine if a depletable unit is impaired, the carrying value of the depletable unit is compared to the undiscounted future net cash flows by applying management’s estimates of future oil and gas prices to the estimated future production of oil and gas reserves over the economic life of the property and deducting future costs. Future net cash flows are based upon third party reservoir engineers’ estimates of proved reserves and internal management estimates for probable and possible reserves. For a property determined to be impaired, an impairment loss equal to the difference between the carrying value and the estimated fair value of the impaired property will be recognized. Fair value, on a depletable unit basis, is estimated to be the present value of the aforementioned expected future net cash flows. Each part of this calculation is subject to a large degree of judgment, including the determination of the depletable units’ estimated reserves, future net cash flows and fair value. Impairment expense of $4,007,922 and $17,575,226 and was recognized for the years ended December 31, 2015 and 2014, respectively.

F-11

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Oil and Gas Properties – Continued

Costs of unproved properties at December 31, 2015 and 2014 represent leasehold costs. Unproved oil and gas leases are generally for a term of three to five years. In most cases, the term of the unproved leases can be extended by paying delay rentals, meeting contractual drilling obligations or by producing reserves on the leases. As properties are evaluated through exploration, they will be included in the amortization base. Unproved properties are assessed periodically to determine whether they have been impaired. The prospects and their related costs are evaluated individually. During the years ended December 31, 2015 and 2014, the Company recognized expense of $0 and $66,289, respectively, related to abandoned prospects, which is included in abandonment expense in the accompanying consolidated statements of operations.

Properties Accounted for as Business Combinations

The Company accounts for the acquisition of oil and gas properties under the requirements of FASB ASC Topic 805, Business Combinations (ASC Topic 805). ASC Topic 805 requires an acquiring entity to recognize all assets acquired and liabilities assumed at fair value under the acquisition method of accounting, provided they qualify for acquisition accounting under the standard. The Company accounts for all property acquisitions that include working interests in proved leasehold, both operated and non-operated, that would generate more than an immaterial balance of goodwill as business combinations. The Company does not apply acquisition accounting to the purchase of oil and gas properties entirely comprised of unproved leasehold, which is in compliance with ASC Topic 805.

In accordance with the provisions of ASC Topic 805, the Company has conducted an assessment of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred. The Company uses relevant market assumptions, many of which are unobservable, to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment. Many of the assumptions are unobservable.

Revenue Recognition

Oil and gas revenue is recognized when the product is sold to a purchaser, delivery has occurred, written evidence of an arrangement exists, pricing is fixed and determinable and collectibility of the revenue is reasonably assured. As of December 31, 2015 and 2014, the Company had no significant imbalance asset or liability. The Company incurred severance and production taxes of $1,081,092 and $472,130 for the years ended December 31, 2015 and 2014, respectively.

F-12

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Fair Value of Financial Instruments

The carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximates their fair values due to the short maturity of these instruments. The indebtedness under the revolving line of credit was estimated to have a fair value approximating the carrying amount based on the variability of the interest rates being reflective of market rates.

Accounts Receivable

The Company sells oil and gas to various customers and participates with other parties in the drilling, completion and operation of oil and gas wells. Joint interest receivables and oil and gas sales receivables related to these operations are generally unsecured. The Company determines joint interest operations accounts receivable allowances based on management’s assessment of the creditworthiness of the joint interest owners and the Company’s ability to realize the receivables through netting of anticipated future production revenues. The Company had no allowance for doubtful accounts at December 31, 2015 and 2014 based on the expectation that all receivables will be collected. The Company has not realized bad debt expense on joint interest billings during the years ended December 31, 2015 and 2014. The Company had receivables related to oil and gas sales of $1,178,516 and $2,137,701 at December 31, 2015 and 2014, respectively. Additionally, the Company had receivables related to joint interest billings of $52,237 and $989,863 at December 31, 2015 and 2014, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents.

Prepaid Expenses

Prepaid expenses include funds which have been advanced for general business and control of well insurance.

Deferred Financing Costs

Deferred financing costs consist of fees incurred to secure debt financing and are amortized over the life of the related loans using the straight line method. Deferred financing costs were $335,993 and $165,082, net of accumulated amortization of $107,269 and $32,431 at December 31, 2015 and 2014, respectively. Amortization of deferred financing costs totaled $74,838 and $22,452 for the years ended December 31, 2015 and 2014, respectively, and were recorded in interest expense in the consolidated statements of operations.

F-13

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Other Property and Equipment

Other property and equipment consists primarily of computer equipment, software, leasehold improvements, and furniture and fixtures. These items are recorded at cost, and depreciable assets are depreciated under the straight-line method over expected useful lives ranging from three to seven years. Other property and equipment totaled $99,418 and $231,687, net of accumulated depreciation of $463,966 and $331,697 at December 31, 2015 and 2014, respectively. Depreciation expense for other property and equipment totaled $132,269 and $220,254 for the years ended December 31, 2015 and 2014, respectively.

Accounts Payable, Revenue Payable and Accrued Liabilities

Accounts payable include obligations incurred in the ordinary operation of the business for services performed and products received. Accrued liabilities primarily include accrued expenses related to capital expenditures on oil and gas properties. Revenue payable relates to revenue distributions due to royalty and joint interest owners.

Asset Retirement Obligation

The Company accounts for its asset retirement obligations in accordance with FASB ASC Topic 410, Asset Retirement and Environmental Obligations (ASC Topic 410). Asset retirement obligations consist of estimated costs of dismantlement, removal, site reclamation and similar activities associated with oil and gas properties. A liability is recorded when the fair value of the asset retirement obligation can be reasonably estimated and recognized in the period a legal obligation is incurred. The liability amounts are based on retirement cost estimates and incorporate many assumptions, such as expected economic recoveries of oil and gas, time to abandonment, future inflation rates and the credit-adjusted risk-free rate of interest.

The retirement obligation is recorded at its estimated present value as of the obligation’s inception with an offsetting increase to proved lease and well equipment in the consolidated balance sheets. This addition to proved lease and well equipment represents a non-cash investing activity for presentation in the consolidated statements of cash flows and is subject to depreciation. After initially recording the liability, it accretes for the passage of time and the related discount rate, with the increase reflected as accretion expense in the consolidated statements of operations.

F-14

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Income Taxes

The Company is a limited liability company, and therefore is treated as a flow-through entity for federal income tax purposes. As a result, the net taxable income of the Company and any related tax credits, for federal income tax purposes, are deemed to pass to the members and are included in their tax returns even though such net taxable income or tax credits may not have actually been distributed. Accordingly, no federal tax provision has been made in the consolidated financial statements of the Company.

At December 31, 2015 and 2014, the Company had no taxable margin and, therefore, recorded no Texas Margin Tax liability.

The Company follows the provisions of FASB ASC Topic 740, Income Taxes (ASC Topic 740), relating to accounting for uncertainties in income taxes. ASC Topic 740 provides the accounting for uncertainties in income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the consolidated financial statements. ASC Topic 740 requires the Company to recognize in its consolidated financial statements the financial effects of a tax position, if that position is more likely than not of being sustained upon examination, including resolution of any appeals or litigation processes, based upon the technical merits of the position.

ASC Topic 740 also provides guidance on measurement, classification, interest and penalties and disclosure. Tax positions taken related to the Company’s pass-through status and those taken in determining state income tax liability, including deductibility of expenses, have been reviewed and management is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recorded an income tax liability for uncertain tax benefits. The tax returns for fiscal years 2013 and thereafter remain subject to examination by appropriate taxing authorities.

Estimates and Uncertainties

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant assumptions are required in the valuation of proved oil and gas reserves which may affect the amount at which oil and gas properties are recorded, provisions for depreciation, depletion, and amortization, and impairment of oil and gas properties. Estimation of asset retirement obligations is based on estimates regarding the timing and cost of future asset abandonments. Estimation of production volumes near year-end is required in order to determine the amount of oil and gas revenue receivable at year end. Estimation of oil and gas property accruals is required in order to determine the amount payable at year end. It is possible these estimates could be revised in the near-term and these revisions could be material.

F-15

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Recent Accounting Pronouncements

In April 2015, the FASB issued an update regarding debt issuance costs in order to reduce complexity in the accounting standards. The current recognition of debt issuance costs as a deferred charge (as a separate asset), is different from the guidance in International Financial Reporting Standards (IFRS), which requires that transaction costs be deducted from the carrying value of the financial liability. As part of the update, debt issuance costs related to a recognized debt liability will be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The debt issuance costs are not affected by the amendments to the update. The amendments of the update are effective for financial statements issued for fiscal periods beginning after December 15, 2015 and early adoption is available for financial statements which have not be previously issued. The new guidance is to be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. The Company does not believe the adoption of this standard in 2016 will have a material impact on the consolidated financial statements.

The FASB and the International Accounting Standards Board (IASB) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. The FASB has amended the FASB ASC and created the new Topic 606, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The amendments in this update are effective for annual reporting periods beginning after December 15, 2017. Companies can begin to adopt the standard early for annual reporting periods beginning after December 15, 2016. The Company is evaluating the effect of this pronouncement on the consolidated financial statements.

F-16

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

Subsequent Events

The Company evaluates subsequent events for potential recognition and/or disclosure through the date the consolidated financial statements are available to be issued.

Reclassifications

Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation.

NOTE  2. ACQUISITION OF OIL AND GAS PROPERTIES

On July 31, 2015, the Company acquired 1,200 net mineral acres and 12 wells (including 10 producing wells) in Reagan County, Texas in exchange for $1,946,444 in cash, 640 net mineral acres in Irion County, Texas worth $2,569,494, and a credit of $119,208 related to the acquired assets, resulting in a total purchase price of $4,635,146. The acquisition was accounted for as a business combination in accordance with ASC Topic 805, which among other things, requires assets acquired and liabilities assumed to be measured at fair value as of the effective date of the acquisition. The effective date of the acquisition was August 1, 2015.

The following table summarizes the consideration paid to acquire the properties and the amounts of the assets acquired and liabilities assumed as of the acquisition date. The purchase price was subject to customary closing adjustments that occur between the effective date of the acquisition and the closing date of the acquisition. As the purchase price is further adjusted for post-closing items, the final purchase price allocation may result in a different allocation.

Proved oil and natural gas properties	$	764,643
Unproved oil and natural gas properties		4,062,653
Lease and well equipment		123,000
Asset retirement obligations assumed		(315,150	)
Purchase price, net	$	4,635,146

The Company closed various other acquisitions of unproved leasehold adjacent to or additional working interests in existing prospects during the year ended December 31, 2015, none of which were individually material to the Company.

Effective January 2014, the Company completed the acquisition of 3,524 net mineral acres in Reagan County, Texas. The Company paid approximately $17.6 million for 100% working interest in the property. The property consisted of unproved leasehold.

F-17

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. ACQUISITION OF OIL AND GAS PROPERTIES – CONTINUED

Effective May 2014, the Company completed the acquisition of 709 net mineral acres in Midland County, Texas, subject to the drilling and completion of two carried interest (22.4% working interest) wells by May 2017. The Company will earn 67.1% working interest in the acreage with total capitalized unproved leasehold of $5.2 million. One of these carried interest wells was drilled and completed during the year ended December 31, 2015.

The Company closed various other acquisitions of unproved leasehold adjacent to or additional working interests in existing prospects during the year ended December 31, 2014, none of which were individually material to the Company.

NOTE 3. OIL AND GAS PROPERTIES

Oil and gas properties consist of the following at December 31, 2015 and 2014:

	2015			2014
Proved leasehold	$	4,030,572		$	1,865,106
Wells and related equipment - proved properties		13,967,526			9,255,777
Intangible drilling costs - proved properties		103,777,568			74,318,831
Asset retirement costs		603,222			213,194
Proved properties		122,378,888			85,652,908
Unproved leasehold		71,389,449			70,578,630
Wells and related equipment - wells in progress		2,445,641			2,267,017
Intangible drilling costs - wells in progress		8,290,163			9,301,163
Wells in progress		10,735,804			11,568,180
Accumulated depletion, depreciation, amortization, and impairment		(47,065,444	)		(28,391,247	)
	$	157,438,697		$	139,408,471

F-18

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. OTHER PROPERTY AND EQUIPMENT

Other property and equipment consists of the following at December 31, 2015 and 2014:

	2015			2014
Office equipment and furniture	$	424,244		$	424,244
Computer software		52,545			52,545
Leasehold improvements		86,595			86,595
		563,384			563,384
Accumulated depreciation		(463,966	)		(331,697	)
	$	99,418		$	231,687

NOTE 5. RELATED PARTY TRANSACTIONS

EnCap Energy Capital Fund IX, L.P., Bold Operating, LLC, Bold Energy II LLC, Bold Energy Management III LLC, Bold Energy Management Holdings III LLC, and members of Management Group are considered related parties under FASB ASC Topic 850, Related Party Disclosures.

Certain members of Management Group are employees of the Company and are compensated based upon employment agreements. These agreements provide for a base salary, incentive compensation, and health benefits.

The Company receives a management fee from Bold Energy II LLC in consideration of the services and general and administrative expenses incurred by the Company on behalf of Bold Energy II LLC. The Company received fees of $120,000 and $907,920 during the years ended December 31, 2015 and 2014, respectively, related to these services.

F-19

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. FAIR VALUE MEASUREMENTS

FASB ASC Topic 820, Fair Value Measurements and Disclosure (“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. 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 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 years ended December 31, 2015 and 2014.

F-20

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. FAIR VALUE MEASUREMENTS – CONTINUED

Fair Value on a Nonrecurring Basis

Asset Impairment

Oil and gas properties are measured at fair value on a nonrecurring basis. The impairment charge reduces the oil and gas properties’ 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.

The Company recorded asset impairments of $4,007,922 and $17,575,226 on proved properties during the years ended December 31, 2015 and 2014, respectively.

Business Combinations

The Company records identifiable assets acquired and liabilities assumed at fair value at the date of acquisition. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and include estimates of future oil and gas production, commodity prices based on commodity futures price strips as of the date of the estimate, operating and development costs, and a risk-adjusted discount rate. Significant Level 3 assumptions associated with the calculation of discounted cash flows used in the determination of fair value of the acquisition include the Company’s estimate of future natural gas and crude oil prices, operating and development costs, anticipated production of proved reserves, appropriate risk-adjusted discount rates and other relevant data. The Company’s acquisitions are disclosed in Note 2.

Asset Retirement Obligation

The asset retirement obligation estimates are derived from historical costs and management’s expectation of future cost environments and, therefore, the Company has designated these liabilities as Level 3 measurements. The significant inputs to this fair value measurement include estimates of plugging, abandonment and remediation costs, well life, inflation and credit-adjusted risk free rate. See Note 7 for a reconciliation of the beginning and ending balances of the liability for the Company’s asset retirement obligations.

F-21

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. ASSET RETIREMENT OBLIGATIONS

The following are changes in the asset retirement obligation for the years ended December 31, 2015 and 2014:

Balance, December 31, 2013	$	—
Liability incurred upon drilling new wells		213,194
Accretion expense		2,963
Balance, December 31, 2014		216,157
Liability incurred upon acquiring and drilling new wells		390,028
Accretion expense		24,166
Balance, December 31, 2015		630,351

Based on the expected timing of settlement, all amounts are classified as non-current.

NOTE 8. SIGNIFICANT CONCENTRATIONS

For the years ended December 31, 2015 and 2014, substantially all of the Company’s operations and business efforts were related to the oil and gas industry. This concentration may impact the Company’s business risk, either positively or negatively, in that commodity prices, customers and suppliers may be similarly affected by changes in economic, political or other conditions related to the industry. The Company sold production to three purchasers whose purchases each comprised 10% or more of total net oil and natural gas revenues during the years ended December 31, 2015 and 2014. When combined, the sales to these three purchasers accounted for more than 90% of total net oil and natural gas revenues during both 2015 and 2014. In addition, the Company sold production to four and three purchasers whose balances each comprised 10% or more of oil and natural gas sales receivables as of December 31, 2015 and December 31, 2014, respectively. When combined, the balances of these purchasers accounted for more than 95% of oil and natural gas sales receivables at December 31, 2015 and December 31, 2014. The Company does not believe that the loss of a purchaser would have an adverse effect on its ability to sell its crude oil and natural gas production due to the competitive nature of the oil and gas industry and availability of marketing alternatives. Additionally, the Company had outstanding accounts payable balances to three vendors which comprised greater than 10% or more of the total accounts payable balance each. The Company does not believe that this concentration would have a significant impact on operations as there are many oil and gas service providers.

The Company regularly maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses with respect to the related risks to cash and cash equivalents and does not believe its exposure to such risk is more than nominal.

F-22

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. COMMITMENTS AND CONTINGENCIES

Legal Matters

In the ordinary course of business, the Company may at times be subject to claims and legal actions. Management does not believe the impact of such matters will have a material adverse effect on the Company’s financial position or results of operation. The Company had no legal matters requiring specific disclosure or recognition of a liability as of December 31, 2015 and 2014.

Environmental

The Company is subject to extensive federal, state and local environmental laws and regulations which may materially affect its operations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.

In the Company’s acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards 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 such a violation could still fall upon the Company.

Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that related to an existing condition caused by past operations and that have no future economic benefits are expensed as incurred. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable, and the cost can be reasonably estimated.

No claim has been made, nor is the Company aware of any liability which the Company may have, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations relating thereto. The Company maintains comprehensive insurance coverage that it believes is adequate to mitigate the risk of any adverse financial effects associated with these risks.

F-23

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. COMMITMENTS AND CONTINGENCIES – CONTINUED

Operating Leases

The Company leases office space facilities under an operating lease. In 2014, the Company renewed this lease, which expires in May 2017. Rent expense under this lease for the years ended December 31, 2015 and 2014 was $325,995 and $292,284, respectively, and is recorded in general and administrative expenses.

Future minimum non-cancelable rental payments for the remainder of the lease are as follows:

Year Ending
2016	$	351,532
2017		153,130
	$	504,662

NOTE 10. DEFINED CONTRIBUTION PLAN

The Company sponsors a 401(k) defined contribution plan for the benefit of all employees through Charles Schwab Bank. The plan is intended to provide participating employees with benefits upon retirement, in compliance with the Internal Revenue Code. Employees could contribute up to $18,000 and $17,500 with an additional “catch up” amount of $6,000 and $5,500 for employees over 50 years of age or older for the years ended December 31, 2015 and 2014, respectively. The Company matched 100% of employee contributions up to 8% of compensation through September 2015 and has contributed $307,586 and $345,896 for the years ended December 31, 2015 and 2014, respectively. Both employee and employer contributions are fully vested at all times.

NOTE 11. BANK CREDIT FACILITY

The Company entered into a bank credit facility on August 14, 2013. Pursuant to the credit agreement, from time to time, the Company may borrow the lesser of the available borrowing base, as determined by the credit agreement, or $250 million, which is the maximum borrowing capacity of the bank credit facility. As of December 31, 2015 and 2014, the Company had a borrowing base of $42,000,000 and $12,000,000, respectively, and an outstanding balance of $13,300,000 and $2,000,000, respectively. The bank credit facility is secured by substantially all of the Company’s oil and gas properties where it has established production. The Company has outstanding letters of credit, with a separate lending institution, which totaled $100,000 at both December 31, 2015 and 2014.

F-24

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. BANK CREDIT FACILITY – CONTINUED

The Company may elect that borrowings be comprised of any combination of alternate base rate (ABR) loans or Eurodollar loans, although Eurodollar loans must be a minimum of $500,000. The Company pays interest on the unpaid principal amount of each loan until such principal amount is repaid in full. Interest on the loans is determined as follows:

• with respect to ABR loans, the alternate base rate equals the highest of the prime rate, the Federal funds effective rate plus 0.50%, or the three-month London interbank rate (“LIBOR”) plus 1.00%, plus an applicable margin ranging from and including 0.75% and 1.75% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn, or

• with respect to any Eurodollar loans, one-, three- or six-month LIBOR plus an applicable margin ranging from and including 1.75% and 2.75% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn.

In conjunction with a regularly scheduled redetermination of its borrowing base in April 2015, the Company and its lenders amended its credit agreement to include a non-conforming borrowing base in addition to its conforming borrowing base. The non-conforming borrowing base provides additional borrowing capacity of 15% to 20% above the conforming borrowing base. Of the $42 million borrowing base at December 31, 2015, $36 million was conforming and $6 million was non-conforming. If debt balances under the credit agreement are higher than the conforming borrowing base, the applicable margins for ABR and Eurodollar loans can increase to as much as 2.75% and 3.75%, respectively, determined by the percentage of the borrowing base that is drawn. Per the credit agreement, the non-conforming borrowing base expires on April 1, 2016.

In addition, the Company pays a commitment fee ranging from 0.375% to 0.50% per annum, determined by the percentage of the borrowing base then in effect that is drawn, on the average daily amount of the unused amount of the borrowing base. These commitment fees are also considered interest expense. The effective interest rate on the credit facility was 2.43% and 1.92% at December 31, 2015 and 2014, respectively. Interest expense, excluding amortization of deferred financing costs, for the years ended December 31, 2015 and 2014 was $274,067 and $6,639, respectively.

By April 30 (120 days after fiscal year end), the Company must present audited consolidated financial statements to the lender. Additionally, unaudited consolidated financial statements are due within 60 days of quarter end. Based on information provided in such statements, as well as information provided in the third party and/or internal reserve reports, the lender can make determinations as to changes in the borrowing base.

F-25

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. BANK CREDIT FACILITY – CONTINUED

All outstanding principal amounts are due at maturity. The credit facility matures on August 14, 2018. The Company is subject to certain non-financial and financial covenants under the bank credit facility, including a minimum current ratio of 1:1 and a maximum total debt to EBITDAX ratio of 4:1. As of December 31, 2015 and 2014, the Company was in compliance with its financial covenants.

NOTE 12. MEMBERS’ EQUITY ACCOUNTS

Capital contributions are based on capital calls, to be determined by the Board of Managers. Contribution requests to the members will be based on their personal equity commitment as indicated by the member at the formation of the Management Group. Cash earnings on profits and any items in nature of income or gain will be applied to the members’ capital account in accordance with their earnings interest, as defined by the Agreement.

The Company has three classes of members’ equity, Classes A, B and C Units. Class A and B units have all the rights, privileges, preferences and obligations provided for in the Agreement, which are consistent with an ordinary equity ownership interest. Class A Units are a class of up to 2,166,500 membership units to be issued to EnCap. Class B Units are a class of up to 98,100 membership units to be issued to the Management Group. The purchase price per each Class A and Class B Unit is $100. At December 31, 2015 and 2014, EnCap had purchased 1,757,236.34 and 1,623,300.98 Class A Units for a total of $175,723,634 and $162,330,098, respectively, and the Management Group had purchased 89,295.13 and 77,165.83 Class B interests for a total of $8,929,513 and $7,716,583, respectively. Class C units do not have voting rights. Class C units will only be entitled to share in distributions and allocations if and to the extent applicable thresholds have been met. Class C Units are discussed further in Note 13 – Equity Based Compensation.

NOTE 13. EQUITY BASED COMPENSATION

FASB ASC Topic 718, Compensation – Stock Compensation, addresses the accounting for share-based payment transactions in which a company receives goods or services in exchange for: (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. ASC Topic 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.

F-26

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. EQUITY BASED COMPENSATION – CONTINUED

The Company was required to implement the provisions of ASC Topic 718 when the Board of Managers issued to Management Group 100,000 Class C Incentive units (Class C Units), entitling holders to contractual distributions after certain targeted investment returns are achieved as detailed in the Company Agreement for Bold Energy III LLC. This agreement calls for the holders of Class C Units to receive an estimated 11.9% of additional distributions after an initial targeted investment return is achieved up to the achievement of a second, higher targeted investment return. After the second targeted investment return is achieved, the percentage of additional distributions allocated to Class C Units increases. This process continues until a fourth targeted investment return is achieved, after which the percentage allocation of additional distributions to Class C units remains constant at an estimated 34.2%. The Class C Units are accounted for consistent with the requirements of ASC Topic 718 due to the payouts being consistent with equity ownership of the Company based on the substantive terms of the instruments. A total of 100,000 Class C Units are authorized under the Agreement, do not have an exercise price and do not expire until the Company is dissolved.

The Class C Units represent non-voting equity interests and do not entitle the holders to voting rights. Members holding Class C Units shall be subject in all respects to the Agreement, including provisions relating to the distributions of such profits, information rights with respect to the Company, and competition and confidentiality. All authorized Class C Units are issued and outstanding at December 31, 2015 and 2014. The Class C Units vest over 25 months from the date of first issuance per the terms of the vesting schedule in the Company Agreement of Bold Energy Management III LLC, although all Class C Units will be deemed vested upon the sale of substantially all of the Company’s assets or other similar exit event. No distributions were made to Class C Unit holders for the years ended December 31, 2015 and 2014.

Based on the relevant terms that define the Class C Units, these instruments should be treated as an equity ownership interest of the Company, with no value attributed and no expense recognized. Similar instruments that qualify as equity-based compensation instruments (such as stock options and restricted stock) with similar performance metrics are considered performance vested instruments with no expense recognized until the Company’s achievement of such metrics are deemed “probable”, as defined by ASC Topic 718.

Given the aggressive metrics set forth by the Agreement and the history of the Company as well as the practical scenarios under which similar instruments are typically realized (units typically do not have value until a major asset liquidation occurs, which cannot be deemed “probable” under ASC Topic 718 until it has occurred), the realization of these units is not probable at the date of grant.

F-27

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. SUBSEQUENT EVENTS

The Company has evaluated events subsequent to the consolidated balance sheet date, December 31, 2015 through April 21, 2016, the date the consolidated financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events, other than as noted herein:

• On April 1, 2016, per the Company’s credit agreement, the Company’s $6 million non-conforming borrowing base expired, reducing its total borrowing base from $42 million to $36 million. The Company and its lenders also started its regularly scheduled redetermination process of its conforming borrowing base during March 2016. As of April 21, 2016, the outstanding balance under the Company’s credit agreement was $17.2 million.

• On April 8, 2016, the Company signed a purchase and sale agreement to acquire approximately 2,935 net mineral acres primarily in Upton County, Texas for $33 million, and subsequently paid a 10% performance deposit of $3.3 million to the seller. This acquisition is expected to close on or about May 6, 2016.

• In conjunction with this acquisition, on April 11, 2016, the Company made equity capital requests to members of the Investor Group for $33 million, with requests totaling $32,120,366 to EnCap and $879,634 to members of the Management Group. Funding for these requests is due on or before May 4, 2016.

• On April 12, 2016, EnCap, Management Group and the Board of Managers executed an expansion of EnCap’s total equity commitment to the Company of $50 million. As such, the number of Class A Units that can be issued to EnCap expanded to 2,666,500 Units, with EnCap’s equity commitment now totaling $266.65 million and the Investor Group’s equity commitment now totaling $276.5 million.

NOTE 15. SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

The following tables summarize the net ownership interest in the proved oil and gas reserves and the standardized measure of discounted future net cash flows related to the proved oil and gas reserves for the Company. Natural gas volumes include natural gas liquids.

Proved reserves as of December 31, 2015 and 2014 were estimated by qualified petroleum engineers of the Company using historical data. Numerous uncertainties are inherent in establishing quantities or proved reserves. The following reserve data represents estimates only, and should not be deemed exact. In addition, the standardized measure of discounted future net cash flows should not be construed as the current market value of the Company’s oil and natural gas properties or their cost that would be incurred to obtain equivalent reserves.

F-28

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) - CONTINUED

All information set forth herein relating to the proved reserves as of December 31, 2015 and 2014, including the estimated future net cash flows and present values, from that date, is taken or derived from the records of the Company. These estimates were based upon review of historical production data and other geological, economic, ownership, and engineering data provided and related to the reserves. No reports on these reserves have been filed with any federal agency. In accordance with the SEC’s guidelines estimates of proved reserves, and the future net revenues from which present values are derived, are based on an un-weighted 12-month average of the first-day-of-the-month price for the period, held constant throughout the life of the properties. Operating costs, development costs, and certain production-related taxes, which are based on current information and held constant, were deducted in arriving at estimated future net revenues.

The proved reserves, all held within the United States, as of December 31, 2015 and 2014 together with the changes therein are as follows:

	Crude Oil			Natural Gas			Total
	Bbl			Mcf			BOE
Quantities of proved reserves:
Balance December 31, 2013		—			—			—
Revisions		—			—			—
Extensions		1,102,118			2,152,702			1,460,902
Acquisition of reserves		—			—			—
Production		(118,375	)		(212,938	)		(153,865	)
Balance December 31, 2014		983,743			1,939,764			1,307,037
Revisions		127,631			4,348,423			852,368
Extensions		3,342,461			8,779,907			4,805,779
Acquisition of reserves		45,934			187,840			77,241
Production		(377,124	)		(1,167,443	)		(571,698	)
Balance December 31, 2015		4,122,645			14,088,491			6,470,727

F-29

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) - CONTINUED

	Crude Oil		Natural Gas		Total
	Bbl		Mcf		BOE
Proved developed reserves
December 31, 2013		—		—		—
December 31, 2014		983,743		1,939,764		1,307,037
December 31, 2015		1,756,516		7,457,872		2,999,495
Proved undeveloped reserves
December 31, 2013		—		—		—
December 31, 2014		—		—		—
December 31, 2015		2,366,129		6,630,619		3,471,232

Standardized measures of discounted future net cash flows relating to proved reserves as December 31, 2015 and 2014 were as follows:

	2015			2014
Future cash inflows	$	230,341,953		$	98,518,672
Future production and development costs:
Production		80,649,578			39,214,317
Development		55,417,602			—
Future income tax expense		1,209,295			517,223
Future net cash flows		93,065,478			58,787,132
10% discount for estimated timing of cash flows.		(53,915,367	)		(19,767,085	)
Standardized measure of discounted future net cash flows	$	39,150,111		$	39,020,047

Future cash inflows are computed by applying a 12-month average commodity price adjusted for location and quality differentials to year-end quantities of proved reserves, except in those instances where fixed and determinable price changes are provided by contractual arrangements at year-end. Future development costs include future asset retirement costs. Future production costs do not include any general and administrative expenses. The standardized measure presented here does not include the effects of federal income taxes as the Company is treated as a flow-through entity for federal income tax purposes. A discount factor of 10% was used to reflect the timing of future net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair value of the properties. The discounted future cash flow estimates do not include the effects of derivative instruments.

F-30

BOLD ENERGY III LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) - CONTINUED

The standardized measure is based on the following oil and natural gas prices over the life of the properties prior to adjustments for differentials:

	2015		2014
Crude Oil per Bbl	$	50.28	$	94.99
Natural Gas per MMBTU	$	2.58	$	4.35

Oil and natural gas prices used consist of the unweighted arithmetic average first-day-of-the-month West Texas Intermediate crude oil price and the unweighted arithmetic average first-day-of-the-month Henry Hub natural gas price.

The principal changes in standardized measure of discounted future net cash flows were as follows for the years ended December 31, 2015 and 2014:

	2015			2014
Standardized measure of discounted future net cash flows - beginning of year	$	39,020,047		$	—
Changes from:
Production, net of production costs		(18,082,722	)		(8,483,856	)
Net change in prices and production costs		(21,707,158	)		—
Net change in future development costs		—			—
Acquisition of reserves		606,290			—
Extensions and discoveries		28,729,502			47,791,686
Previously estimated development costs incurred		—			—
Revisions of previous quantity estimates		6,109,436			—
Accretion of discount		3,930,783			—
Net change in taxes		(359,444	)		(287,789	)
Change in timing and other		903,377			6
Standardized measure of discounted future net cash flows – end of year	$	39,150,111		$	39,020,047

F-31

EX-99.4

Exhibit 99.4

Bold Energy III LLC

Consolidated Financial Report

March 31, 2017

C O N T E N T S

	Page
Consolidated Financial Statements
Consolidated Balance Sheets	3
Consolidated Statements of Operations (Unaudited)	5
Consolidated Statements of Changes in Members’ Equity (Unaudited)	6
Consolidated Statements of Cash Flows (Unaudited)	7
Notes to Consolidated Financial Statements (Unaudited)	8

Consolidated Financial Statements

Bold Energy III LLC

Consolidated Balance Sheets

March 31, 2017 and December 31, 2016

	March 31, 2017 (Unaudited)			December 31, 2016
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	399,286		$	186,301
Accounts receivable
Oil and natural gas sales		6,026,103			4,397,258
Joint interest owners		891,173			1,151,300
Prepaid expenses		155,214			68,702
Field inventory		142,922			142,922
Total current assets		7,614,698			5,946,483
OIL AND GAS PROPERTIES, successful efforts
Proved properties		189,020,132			155,048,784
Unproved properties		104,174,938			103,145,473
Wells in progress		17,011,891			24,318,094
Total oil and gas properties		310,206,961			282,512,351
Accumulated depletion, depreciation, amortization and impairment		(59,284,582	)		(54,583,985	)
Total oil and gas properties, net		250,922,379			227,928,366
OTHER ASSETS
Land		3,718,433			1,356,438
Other property and equipment, net		35,470			45,566
Total other assets		3,753,903			1,402,004
TOTAL ASSETS	$	262,290,980		$	235,276,853

The Notes to Consolidated Financial Statements are an integral part of these statements.

3

	March 31, 2017 (Unaudited)		December 31, 2016
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	8,660,017	$	4,906,514
Revenue payable		5,602,549		2,117,275
Asset retirement obligation		107,852		78,054
Accrued liabilities		4,762,917		8,132,713
Total current liabilities		19,133,335		15,234,556
NON-CURRENT LIABILITIES
Line of credit, net		45,095,199		30,208,043
Asset retirement obligation		867,072		848,095
Total non-current liabilities		45,962,271		31,056,138
MEMBERS' EQUITY		197,195,374		188,986,159
TOTAL LIABILITIES AND MEMBERS' EQUITY	$	262,290,980	$	235,276,853

4

Bold Energy III LLC

Consolidated Statements of Operations (Unaudited)

Three Months Ended March 31, 2017 and 2016

	Three Months Ended March 31,
	2017			2016
REVENUES
Oil sales	$	15,653,932		$	2,080,245
Natural gas sales		2,265,667			670,012
Total revenues		17,919,599			2,750,257
EXPENSES
Oil and gas production costs		1,211,317			506,846
Oil and gas production taxes		887,138			146,118
General and administrative expenses		1,636,588			1,499,784
Depreciation, depletion, amortization and accretion		4,723,987			2,836,406
Abandonment		799,437			—
Total operating expenses		9,258,467			4,989,154
Income (loss) from operations		8,661,132			(2,238,897	)
OTHER INCOME (EXPENSE)
Interest income		25			19
Interest expense		(451,942	)		(147,127	)
Other expense, net		(451,917	)		(147,108	)
NET INCOME (LOSS)	$	8,209,215		$	(2,386,005	)

The Notes to Consolidated Financial Statements are an integral part of these statements.

5

Bold Energy III LLC

Consolidated Statements of Changes in Members’ Equity (Unaudited)

Three Months Ended March 31, 2017 and 2016

BALANCE, December 31, 2015	$	144,406,665
Net loss		(2,386,005	)
BALANCE, March 31,2016 (unaudited)	$	142,020,660
BALANCE, December 31, 2016	$	188,986,159
Net income		8,209,215
BALANCE, March 31,2017 (unaudited)	$	197,195,374

The Notes to Consolidated Financial Statements are an integral part of these statements.

6

Bold Energy III LLC

Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended March 31, 2017 and 2016

	Three Months Ended March 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	8,209,215		$	(2,386,005	)
Adjustments to reconcile net income (loss)    to net cash provided by operating activities
Depreciation, depletion, amortization and accretion		4,723,987			2,836,406
Amortization of deferred financing costs		50,529			31,499
Abandonment		799,437			—
Changes in operating assets and liabilities
Accounts receivable		(1,368,718	)		141,940
Prepaid expenses		(86,512	)		15,277
Accounts payable		3,753,500			(8,499	)
Accrued liabilities		220,904			(239,031	)
Revenue payable		3,485,274			(330,476	)
Net cash provided by operating activities		19,787,616			61,111
CASH FLOWS FROM INVESTING ACTIVITIES
Leasehold acquisitions and costs		(2,922,184	)		(120,623	)
Acquisition of land		(2,361,995	)		—
Capital expenditures - lease and well equipment		(4,216,595	)		(314,934	)
Capital expenditures - drilling and development		(24,910,484	)		(408,493	)
Additions to other property, plant and equipment		—			(11,875	)
Proceeds from sale of leasehold properties		—			449,250
Net cash used in investing activities		(34,411,258	)		(406,675	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing - line of credit		33,400,000			3,700,000
Payments - line of credit		(18,500,000	)		(3,300,000	)
Deferred financing fees		(63,373	)		—
Net cash provided by financing activities		14,836,627			400,000
Net increase in cash		212,985			54,436
CASH, beginning of period		186,301			111,404
CASH, end of period	$	399,286		$	165,840
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES
Addition to proved properties for recording    asset retirement obligation liabilities	$	35,482		$	—
Capital expenditures accrued in accrued    liabilities at period-end	$	4,161,800		$	400,750
OTHER SUPPLEMENTAL CASH FLOW
INFORMATION
Interest paid	$	389,347		$	115,628

The Notes to Consolidated Financial Statements are an integral part of these statements.

7

Bold Energy III LLC

Notes to Consolidated Financial Statements (Unaudited)

Note 1.   Summary of Significant Accounting Policies

Organization and Nature of Operations

Bold Energy III LLC (the Company) is a Texas limited liability company formed on April 5, 2013. The Company is a Midland, Texas based oil and gas company focused on the acquisition, exploration, and development of natural gas and crude oil properties as an operating interest owner. The properties are primarily located in West Texas.  

The Company is owned by EnCap Energy Capital Fund IX, L.P. (95.94%, “EnCap”), Bold Energy Management III LLC (3.46%, “Management Member”), and Bold Energy Management Holdings III LLC (0.60%) (collectively, with Bold Energy Management III LLC, the “Management Group”, and together with EnCap, the “Investor Group”). The Management Member manages the Company on behalf of the other members. A Board of Managers governs the actions of the Company. The Board of Managers is comprised of 3 members elected by EnCap and 2 members by the Management Member. Under the terms of the Limited Liability Company Agreement (the Agreement), the Investor Group has committed to contribute up to $276.5 million to the Company. The Investor Group had contributed approximately $241.7 million through March 31, 2017. Under the terms of the Agreement, the Company may dissolve either through the election of the Board of Managers or disposition of all assets of the Company.

Bold Operating, LLC is a wholly owned subsidiary of the Company and acts as the operator of the properties owned by the Company.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Bold Energy III LLC, and its wholly owned subsidiary, Bold Operating, LLC. All inter-company accounts and transactions have been eliminated in consolidation.

Oil and Gas Properties

The Company uses the successful efforts method of accounting for its oil and gas exploration and production activities. Costs incurred by the Company related to the acquisition of oil and gas properties and the cost of drilling development wells and successful exploratory wells are capitalized, while the costs of unsuccessful exploratory wells are expensed when determined to be unsuccessful. 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 sales of properties are generally included as income.  

Capitalized acquisition costs attributable to proved oil and gas properties are depleted by formation or field using the unit-of-production method based on proved reserves. Capitalized exploration well costs and development costs, including asset retirement obligations, are amortized by producing unit, based on proved developed reserves. The Company had wells in progress of $17,011,891 and $24,318,094 at March 31, 2017 and December 31, 2016, respectively, comprised of $3,836,959 and $4,445,792, respectively, of lease and well equipment, $13,148,542 and $19,830,109, respectively of intangible drilling costs, and $26,391 and $42,193, respectively, of asset retirement costs. As wells in progress represent wells which were not complete at period end, these costs were excluded from amortization.

Capitalized costs are evaluated for impairment in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances indicate that an asset's carrying amount may not be recoverable.

The fair values of proved properties are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. Significant inputs used to determine the fair values of proved properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with applicable forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that Company management believes will impact realizable prices.

8

Bold Energy III LLC

Notes to Consolidated Financial Statements (Unaudited)

To determine if a depletable unit is impaired, the carrying value of the depletable unit is compared to the undiscounted future net cash flows by applying management's estimates of future oil and gas prices to the estimated future production of oil and gas reserves over the economic life of the property and deducting future costs. Future net cash flows are based upon third party reservoir engineers' estimates of proved reserves and internal management estimates for probable and possible reserves. For a property determined to be impaired, an impairment loss equal to the difference between the carrying value and the estimated fair value of the impaired property will be recognized. Fair value, on a depletable unit basis, is estimated to be the present value of the aforementioned expected future net cash flows. Each part of this calculation is subject to a large degree of judgment, including the determination of the depletable units’ estimated reserves, future net cash flows and fair value.  

Costs of unproved properties at March 31, 2017 and December 31, 2016 represent leasehold costs. Unproved oil and gas leases are generally for a term of three to five years. In most cases, the term of the unproved leases can be extended by paying delay rentals, meeting contractual drilling obligations or by producing reserves on the leases. As properties are evaluated through exploration, they will be included in the amortization base. Unproved properties are assessed periodically to determine whether they have been impaired. The prospects and their related costs are evaluated individually.

Properties Accounted for as Business Combinations

The Company accounts for the acquisition of oil and gas properties under the requirements of FASB ASC Topic 805, Business Combinations (ASC Topic 805). ASC Topic 805 requires an acquiring entity to recognize all assets acquired and liabilities assumed at fair value under the acquisition method of accounting, provided they qualify for acquisition accounting under the standard. The Company accounted for all property acquisitions that include working interests in proved leaseholds, both operated and non-operated, that would generate more than an immaterial balance of goodwill as business combinations. The Company does not apply acquisition accounting to the purchase of oil and gas properties entirely comprised of unproved leasehold, which is in compliance with ASC Topic 805.

In accordance with the provisions of ASC Topic 805, the Company has conducted an assessment of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisitions are expensed as incurred. The Company uses relevant market assumptions, many of which are unobservable, to determine fair value and allocate purchase price, such as future commodity pricing for purchased hydrocarbons, market multiples for similar transactions and replacement value for certain equipment. Many of the assumptions are unobservable.  Beginning on January 1, 2017, the Company has elected to adopt an amendment to ASC Topic 805, as described under Recent Accounting Pronouncements below, which impacts the treatment of acquisitions undertaken after January 1, 2017.

Revenue Recognition

Oil and gas revenue is recognized when the product is sold to a purchaser, delivery has occurred, written evidence of an arrangement exists, pricing is fixed or determinable, and collectibility of the revenue is reasonably assured. As of March 31, 2017 and December 31, 2016, the Company had no significant imbalance asset or liability.  The Company incurred production taxes of $887,138 and $146,118 for the three months ended March 31, 2017 and 2016, respectively.

Fair Value of Financial Instruments

The carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximates their fair values due to the short maturity of these instruments. The indebtedness under the revolving line of credit was estimated to have a fair value approximating the carrying amount based on the variability of the interest rates being reflective of market rates.

Accounts Receivable

The Company sells oil and gas to various customers and participates with other parties in the drilling, completion and operation of oil and gas wells. Joint interest receivables and oil and gas sales receivables related to these operations are generally unsecured. The Company determines joint interest operations accounts receivable allowances based on management’s assessment of the creditworthiness of the joint interest owners and the Company’s ability to realize the receivables through netting of anticipated future production revenues. The Company had no allowance for doubtful accounts at March 31, 2017 and December 31, 2016 based on the expectation that all receivables will be collected. The Company has not realized bad debt expense on joint interest billings during the periods ended March 31, 2017 and 2016.

9

Bold Energy III LLC

Notes to Consolidated Financial Statements (Unaudited)

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents.

Deferred Financing Costs

Deferred financing costs consist of fees incurred to secure debt financing and are amortized over the life of the related loans using the straight line method, which approximates the interest method. Deferred financing costs were $304,801 and $291,957, net of accumulated amortization of $304,018 and $253,489 at March 31, 2017 and December 31, 2016, respectively. Deferred financing costs are presented with Line of credit, net, on the consolidated balance sheets, as a reduction to the carrying amount of the credit facility.

Accounts Payable, Revenue Payable and Accrued Liabilities

Accounts payable include obligations incurred in the ordinary operation of the business for services performed and products received. Accrued liabilities primarily include accrued expenses related to capital expenditures on oil and gas properties. Revenue payable relates to revenue distributions due to royalty and joint interest owners.

Asset Retirement Obligation

The Company accounts for its asset retirement obligations in accordance with FASB ASC Topic 410, Asset Retirement and Environmental Obligations (ASC Topic 410). Asset retirement obligations consist of estimated costs of dismantlement, removal, site reclamation and similar activities associated with oil and gas properties. A liability is recorded when the fair value of the asset retirement obligation can be reasonably estimated and recognized in the period a legal obligation is incurred. The liability amounts are based on retirement cost estimates and incorporate many assumptions, such as expected economic recoveries of oil and gas, time to abandonment, future inflation rates and the credit-adjusted risk-free rate of interest.  

The retirement obligation is recorded at its estimated fair value as of the obligation’s inception with an offsetting increase to proved lease and well equipment in the consolidated balance sheets. This addition to proved lease and well equipment represents a non-cash investing activity for presentation in the consolidated statements of cash flows and is subject to depreciation. After initially recording the liability, it accretes for the passage of time and the related discount rate, with the increase reflected as accretion expense in the consolidated statements of operations.

Income Taxes

The Company is a limited liability company, and therefore is treated as a flow-through entity for federal income tax purposes. As a result, the net taxable income of the Company and any related tax credits, for federal income tax purposes, are deemed to pass to the members and are included in their tax returns even though such net taxable income or tax credits may not have actually been distributed. Accordingly, no federal tax provision has been made in the consolidated financial statements of the Company.

For the three months ended March 31, 2017 and 2016, the Company had no taxable margin and, therefore, recorded no Texas Margin Tax liability.

The Company follows the provisions of FASB ASC Topic 740, Income Taxes (ASC Topic 740), relating to accounting for uncertainties in income taxes. ASC Topic 740 provides the accounting for uncertainties in income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the consolidated financial statements.

ASC Topic 740 requires the Company to recognize in its consolidated financial statements the financial effects of a tax position, if that position is more likely than not of being sustained upon examination, including resolution of any appeals or litigation processes, based upon the technical merits of the position.

10

Bold Energy III LLC

Notes to Consolidated Financial Statements (Unaudited)

ASC Topic 740 also provides guidance on measurement, classification, interest and penalties and disclosure. Tax positions taken related to the Company’s pass-through status and those taken in determining state income tax liability, including deductibility of expenses, have been reviewed and management is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recorded an income tax liability for uncertain tax benefits.  

Estimates and Uncertainties

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant assumptions are required in the valuation of proved oil and gas reserves which may affect the amount at which oil and gas properties are recorded, provisions for depreciation, depletion, and amortization, and impairment of oil and gas properties. Estimation of asset retirement obligations is based on estimates regarding the timing and cost of future asset abandonments. Estimation of production volumes near the end of a period is required in order to determine the amount of oil and gas revenue receivable at the end of a period. Estimation of oil and gas property accruals is required in order to determine the amount payable at the end of a period. It is possible these estimates could be revised in the near-term and these revisions could be material.

Recent Accounting Pronouncements

In January 2017, with Accounting Standards Update 2017-01, the FASB clarified the definition of a business under ASC Topic 805. ASC Topic 805 did not specify the minimum inputs and processes required for a set to meet the definition of a business. That lack of clarity led to broad interpretations of the definition of a business. The amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present.

The amendments in this update are effective for annual reporting periods beginning after December 15, 2017. Companies can begin to adopt the standard early for transactions with acquisition dates occurring before the issuance date of this amendment only when the transaction has not been previously reported in financial statements. The Company has elected to adopt this standard effective for January 1, 2017.

The FASB and the International Accounting Standards Board (IASB) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. The FASB has amended the FASB ASC and created the new Topic 606, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

11

Bold Energy III LLC

Notes to Consolidated Financial Statements (Unaudited)

The amendments in this update are effective for annual reporting periods beginning after December 15, 2018. Companies can begin to adopt the standard early for annual reporting periods beginning after December 15, 2016. The Company is evaluating the effect of this pronouncement on the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous GAAP and this update is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The update is effective for the Company beginning after December 15, 2019, with early adoption permitted. The Company is still evaluating the potential impact on the Company’s consolidated financial statements.

Subsequent Events

The Company evaluates subsequent events for potential recognition and/or disclosure through May 25, 2017, the date the consolidated financial statements are available to be issued.

Note 2.   Acquisitions

The Company closed various acquisitions during the three months ended March 31, 2017 and 2016, none of which were material to the Company individually or in the aggregate.

Note 3.   Oil and Gas Properties

Oil and gas properties consist of the following:

	March 31, 2017			December 31, 2016
	(Unaudited)
Proved leasehold	$	8,137,065		$	6,856,656
Wells and related equipment - proved properties		23,275,880			19,461,449
Intangible drilling costs - proved properties		156,736,602			127,911,378
Asset retirement costs - proved properties		870,585			819,301
Proved properties		189,020,132			155,048,784
Unproved leasehold		104,174,938			103,145,473
Wells and related equipment - wells in progress		3,836,958			4,445,792
Intangible drilling costs - wells in progress		13,148,542			19,830,109
Asset retirement costs - wells in progress		26,391			42,193
Wells in progress		17,011,891			24,318,094
Accumulated depletion, depreciation,amortization, and impairment		(59,284,582	)		(54,583,985	)
	$	250,922,379		$	227,928,366

12

Bold Energy III LLC

Notes to Consolidated Financial Statements (Unaudited)

Note 4.   Other Property and Equipment

Other property and equipment consists of the following:

	March 31, 2017
	(Unaudited)			December 31, 2016
Office equipment and furniture	$	436,119		$	436,119
Computer software		52,545			52,545
Leasehold improvements		86,595			86,595
		575,259			575,259
Accumulated depreciation		(539,789	)		(529,693	)
	$	35,470		$	45,566

Note 5.   Related Party Transactions

EnCap Energy Capital Fund IX, L.P., Bold Operating, LLC, Bold Energy II LLC, Bold Energy Management III LLC, Bold Energy Management Holdings III LLC, and members of Management Group are considered related parties under FASB ASC Topic 850, Related Party Disclosures.

Certain members of Management Group are employees of the Company and are compensated based upon employment agreements. These agreements provide for a base salary, incentive compensation, and health benefits.

The Company receives a management fee from Bold Energy II LLC in consideration of the services and general and administrative expenses incurred by the Company on behalf of Bold Energy II LLC. The Company received fees of $30,000 relating to these services during each of the three month periods ended March 31, 2017 and 2016.

Note 6.   Fair Value Measurements

FASB ASC Topic 820, Fair Value Measurements and Disclosure (“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. 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 ASC Topic 820 is as follows:

Level 1 inputs: 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: 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 inputs: 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.

13

Bold Energy III LLC

Notes to Consolidated Financial Statements (Unaudited)

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 endedMarch 31, 2017 and 2016.

Fair Value on a Nonrecurring Basis

Business Combinations

The Company records identifiable assets acquired and liabilities assumed at fair value at the date of acquisition. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and include estimates of future oil and gas production, commodity prices based on commodity futures price strips as of the date of the estimate, operating and development costs, and a risk-adjusted discount rate. Significant Level 3 assumptions associated with the calculation of discounted cash flows used in the determination of fair value of acquisitions include the Company’s estimate of future natural gas and crude oil prices, operating and development costs, anticipated production of proved reserves, appropriate risk-adjusted discount rates and other relevant data.

Asset Retirement Obligation

The asset retirement obligation estimates are derived from historical costs and management's expectation of future cost environments and, therefore, the Company has designated these initial measurements as Level 3 measurements. The significant inputs to this fair value measurement include estimates of plugging, abandonment and remediation costs, well life, inflation and credit-adjusted risk free rate. See Note 7 for a reconciliation of the beginning and ending balances of the liability for the Company's asset retirement obligations.

Note 7.   Asset Retirement Obligations

The following are changes in the asset retirement obligation for the three months ended March 31, 2017:

Balance, December 31, 2016	$	926,149
Liability incurred upon acquiring and drilling new wells		35,482
Accretion expense		13,293
Balance, March 31, 2017 (unaudited)	$	974,924

Based on the expected timing of settlement, $107,852 of the liability is classified as current.

Note 8.   Commitments and Contingencies

Legal Matters

In the ordinary course of business, the Company may at times be subject to claims and legal actions. Management does not believe the impact of such matters will have a material adverse effect on the Company’s financial position or results of operation. The Company had no legal matters requiring specific disclosure or recognition of a liability as of March 31, 2017 and December 31, 2016.

14

Bold Energy III LLC

Notes to Consolidated Financial Statements (Unaudited)

Environmental

The Company is subject to extensive federal, state and local environmental laws and regulations which may materially affect its operations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.

In the Company’s acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards 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 such a violation could still fall upon the Company.

Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that related to an existing condition caused by past operations and that have no future economic benefits are expensed as incurred. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable, and the cost can be reasonably estimated.

No claim has been made, nor is the Company aware of any liability which the Company may have, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations relating thereto. The Company maintains comprehensive insurance coverage that it believes is adequate to mitigate the risk of any adverse financial effects associated with these risks.

Operating Leases

The Company leases office space facilities under an operating lease, which expires in May 2017. Rental payments for the remainder of the lease are $61,252.

Note 9.   Bank Credit Facility

The Company entered into a bank credit facility on August 14, 2013. Pursuant to the credit agreement, from time to time, the Company may borrow the lesser of the available borrowing base, as determined by the credit agreement, or $250 million, which is the maximum borrowing capacity of the bank credit facility. As of March 31, 2017 and December 31, 2016, the Company had a borrowing base of $62.5 million and $45 million, respectively, and an outstanding balance of $ 45.4 million and $30.5 million, respectively. Deferred financing costs, defined in Note 1, are included as a reduction to the carrying amount on the balance sheets. The bank credit facility is secured by substantially all of the Company’s oil and gas properties where it has established production. The Company had outstanding letters of credit with a separate lending institution, which totaled $166,505 and $100,000 at March 31, 2017 and December 31, 2016, respectively.

The Company may elect that borrowings be comprised of any combination of alternate base rate (ABR) loans or Eurodollar loans, although Eurodollar loans must be a minimum of $500,000. The Company pays interest on the unpaid principal amount of each loan until such principal amount is repaid in full. Prior to the most recent determination of the Company’s borrowing base in December 2016, interest on these loans was determined as follows:

• with respect to ABR loans, the alternate base rate equals the highest of the prime rate, the Federal funds effective rate plus 0.50%, or the three-month London interbank rate (“LIBOR”) plus 1.00%, plus an applicable margin ranging from and including 0.75% and 1.75% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn; or

• with respect to any Eurodollar loans, one-, three- or six-month LIBOR plus an applicable margin ranging from and including 1.75% and 2.75% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn.

15

Bold Energy III LLC

Notes to Consolidated Financial Statements (Unaudited)

In conjunction with a regularly scheduled redetermination of its borrowing base in April 2015, the Company and its lenders amended its credit agreement to include a non-conforming borrowing base in addition to its conforming borrowing base. The non-conforming borrowing base provided additional borrowing capacity of 15% to 20% above the conforming borrowing base. Of the $42 million borrowing base at December 31, 2015, $36 million was conforming and $6 million was non-conforming. If debt balances under the credit agreement were higher than the conforming borrowing base, the applicable margins for ABR and Eurodollar loans could have increased to as much as 2.75% and 3.75%, respectively, determined by the percentage of the borrowing base that was drawn. The non-conforming borrowing base expired on April 1, 2016, which reduced the total borrowing base down from $42 million to $36 million. The Company’s borrowing base was subsequently redetermined and reduced to $27 million on June 24, 2016.

In conjunction with the most recent redetermination and amendment to the Company’s credit agreement, the Company’s conforming borrowing base was increased from $27 million to $45 million on December 22, 2016. In addition, after the satisfactory review by the Company’s lenders of 30 days of production from three operated horizontal wells in Midland and Upton Counties, Texas that initiated production in December 2016, the conforming borrowing base was increased on February 3, 2017 to $62.5 million. The applicable margins on the Company’s ABR and Eurodollar loans are as follows:

• with respect to ABR loans, the applicable margin ranges from and includes 1.25% and 2.25% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn, prior to April 1, 2017, with the applicable margin ranging from and including 1.50% and 2.50% per annum starting on April 1, 2017, and  

• with respect to Eurodollar loans, the applicable margin ranges from and includes 2.25% and 3.25% per annum, determined by the percentage of the conforming borrowing base then in effect that is drawn, prior to April 1, 2017, with the applicable margin ranging from and including 2.50% and 3.50% per annum starting on April 1, 2017.

In addition, the Company pays a commitment fee ranging from 0.375% to 0.50% per annum, determined by the percentage of the borrowing base then in effect that is drawn, on the average daily amount of the unused amount of the borrowing base. These commitment fees are also considered interest expense. The effective interest rate on the credit facility was 3.85% and 3.55% at March 31, 2017 and December 31, 2016, respectively. Interest expense, excluding amortization of deferred financing costs, for the three months ended March 31, 2017 and March 31, 2016 was $401,413 and $115,628, respectively.

All outstanding principal amounts are due at maturity. The credit facility matures on August 14, 2018. The Company is subject to certain non-financial and financial covenants under the bank credit facility, including a minimum current ratio of 1:1 and a maximum total debt to EBITDAX ratio of 4:1. As of March 31, 2017 and December 31, 2016, the Company was in compliance with its financial covenants.

Note 10.   Defined Contribution Plan

The Company sponsors a 401(k) defined contribution plan for the benefit of all employees through Charles Schwab Bank. The plan is intended to provide participating employees with benefits upon retirement, in compliance with the Internal Revenue Code. Employees could contribute up to $18,000 with an additional “catch up” amount of $6,000 for employees 50 years of age or over for the years ending December 31, 2016 and ended December 31, 2015. The Company matched 100% of employee contributions up to 8% of compensation through September 2015 and has not made any contributions for the three months ended March 31, 2017 and March 31, 2016.

Note 11.   Members’ Equity Accounts

Equity contributions are based on capital calls, to be determined by the Board of Managers. Contribution requests to the members will be based on their personal equity commitment as indicated by the member at the formation of the Management Group. Cash earnings on profits and any items in nature of income or gain will be applied to the members’ capital account in accordance with their earnings interest, as defined by the Agreement.

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Bold Energy III LLC

Notes to Consolidated Financial Statements (Unaudited)

The Company has three classes of members’ equity, Classes A, B and C Units. Class A and B Units have all the rights, privileges, preferences and obligations provided for in the Agreement, which are consistent with an ordinary equity ownership interest. Class A Units are a class of up to 2,666,500 membership units to be issued to EnCap. Class B Units are a class of up to 98,100 membership units to be issued to the Management Group. The purchase price per each Class A and Class B Unit is $100. At March 31, 2017 and December 31, 2016, EnCap had purchased 2,318,440 Class A Units for a total of $231,844,000, and the Management Group had purchased 98,092.72 Class B Units for a total of $9,809,272.

Class C Units do not have voting rights and holders are not required to make any form of contribution to the Company. Class C Unit holders do not have a risk of loss and will only be entitled to share in distributions and allocations if and to the extent the Board of Managers makes such distributions and applicable thresholds have been met. As such, these Units are treated as a profit sharing arrangement accounted for under FASB ASC Topic 710, Compensation – General (ASC Topic 710), which will be expensed to compensation as declared.

Note 12. Subsequent Events

The Company has evaluated events subsequent to the consolidated balance sheet date, March 31, 2017 through May 25, 2017, the date the consolidated financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events, other than as noted herein:

Combination with Earthstone Energy, Inc.

On November 8, 2016, Earthstone Energy, Inc., a Delaware corporation (NYSE MKT: ESTE, “Earthstone”) and the Company entered into a Contribution Agreement (the “Agreement”) to facilitate a strategic combination of Bold and Earthstone (the “Transaction”). The Transaction, which closed on May 9, 2017, was organized in a manner commonly known as an "Up-C" structure. Under this structure and the Agreement, Earthstone recapitalized its common stock into two classes, Class A and Class B, with all of its previously existing outstanding common stock converted into Class A common stock. Bold purchased approximately 36.1 million shares of Earthstone's Class B common stock for nominal consideration (par value totaling $36,071), with the Class B common stock having no economic rights in Earthstone other than voting rights on a pari passu basis with the Class A common stock. In addition, Earthstone has formed Earthstone Energy Holdings, LLC, a Delaware limited liability company ("EEH"). At closing, the Investor Group contributed all of its membership interests in Bold into a new Texas limited liability company, Bold Energy Holdings, LLC (“Bold Holdings”) in exchange for all of the membership interests in Bold Holdings. Also at closing, EEH issued approximately 22.7 million of its membership units to Earthstone and one of Earthstone's wholly-owned subsidiaries, in the aggregate, and approximately 36.1 million membership units to Bold Holdings in exchange for each of the parties transferring the ownership interest of Bold and various subsidiaries of Earthstone that hold its oil and gas properties to EEH, making Bold and the various subsidiaries of Earthstone subsidiaries of EEH. Each membership unit in EEH held by Bold Holdings, together with one share of Earthstone's Class B common stock, will be convertible by Bold Holdings (or members of the Investor Group as Earthstone’s Class B common shares and EEH membership units are distributed to the Investor Group by Bold Holdings) into one share of Earthstone Class A common stock. In addition, upon the closing of the Transaction, Earthstone issued 150,000 additional shares of Class A common stock to certain members of the Management Group.  

In addition, at the closing of the Transaction, Earthstone established a new credit facility secured by Bold’s and Earthstone’s oil and natural gas assets.  Accordingly, Earthstone paid all remaining principal and interest owed by Bold under its credit facility, and Bold’s credit facility was cancelled.

Finally, after the closing of the Transaction, stockholders of Earthstone and the Investor Group own approximately 39% and 61%, respectively, of the combined company's outstanding Class A and Class B common stock on a fully diluted basis. Since closing, Earthstone has conducted its activities through EEH and is its sole managing member.

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