PART I Item 1. Business Overview Earthstone Energy, Inc., a Delaware corporation (“Earthstone” and together with our consolidated subsidiaries, the “Company,” “our,” “we,” “us,” or similar terms), is a growth-oriented independent oil and gas company engaged in the acquisition and development of oil and gas reserves through activities that include the acquisition, drilling and development of undeveloped leases, asset and corporate acquisitions and mergers. Our operations are all in the upstream segment of the oil and natural gas industry and all our properties are onshore in the United States. At present, our primary assets are located in the Midland Basin of west Texas and the Eagle Ford Trend of south Texas. Our primary focus is concentrated in the Midland Basin of west Texas, a high oil and liquids rich resource basin which provides us with multiple horizontal targets with proven production results, long-lived reserves and historically high drilling success rates. During 2018, we used one drilling rig and successfully drilled 16 wells in the Midland Basin with an average working interest of 89%. We completed 19 Midland Basin wells during 2018, including three wells that came online at the end of December 2018. With 866 potential gross horizontal drilling locations in the Midland Basin, we are focused on developmental drilling and completion operations in the area. We currently plan to maintain a one-rig drilling program on our operated acreage in the Midland Basin and expect to drill approximately 16 wells in 2019. Additionally, we continue to pursue acreage trades in the southern Midland Basin with the intent of increasing our operated acreage and drilling inventory, drilling and completing longer laterals and realizing greater operating efficiency. We also own certain assets in the Eagle Ford Trend of south Texas where we have locations in the Eagle Ford and Austin Chalk formations. During 2018, we drilled five Eagle Ford wells with an average working interest of 17% and completed 11 wells (five wells with a 17% working interest and six wells with a 25% working interest). We expect to drill seven wells, with an average working interest of 22%, in this area during 2019 and may consider additional drilling based on improvements in oil and natural gas commodity prices. We have 67 potential gross operated drilling locations in the Eagle Ford Trend for future development. We have approximately 29,500 net acres in the core of the Midland Basin, of which 77% is operated and 23% is non-operated. Upon finalization of documents for an agreed-upon mineral lease in Reagan County, which is expected to occur in the first quarter of 2019, we will have approximately 30,200 net acres in the core of the Midland Basin. We hold an approximate 94% working interest in our operated acreage and an approximate 40% working interest in our non-operated acreage. Our operated acreage in the Midland Basin is primarily located in Reagan, Upton and Midland counties. Our non-operated acreage in the Midland Basin is located primarily in Howard, Glasscock, Martin, Midland and Reagan counties. In total, we have an interest in 192 gross producing wells in the Midland Basin. We have approximately 14,300 net leasehold acres in the Eagle Ford Trend, which primarily consists of approximately 14,100 operated net leasehold acres in the crude oil window in Fayette, Gonzales and Karnes counties, with working interests ranging from approximately 17% to 67%. We have an interest in 106 gross operated producing wells and six gross non- operated producing wells in the Eagle Ford Trend. At December 31, 2018, our estimated proved oil and natural gas reserves were approximately 98,847 MBOE based on the reserve report prepared by Cawley, Gillespie & Associates, Inc. (“CG&A”), our independent petroleum engineers. Based on this report, at December 31, 2018, our proved reserve quantities were approximately 60% oil, 19% natural gas, 21% NGLs with 24% of those reserves classified as proved developed. The calculated percentages include proved developed non-producing reserves. Of these interests, approximately 54,628 MBOE are attributable to noncontrolling interests. See  Note 9. Noncontrolling Interest  in the Notes to Consolidated Financial Statements. Our Business Strategy Our current business strategy is to focus on the economic development of our existing acreage, increase our acreage and horizontal well locations in the Midland Basin and increase stockholder value through the following: • pursue value-accretive acquisition and corporate merger opportunities, which could increase the scale of our operations; • profitably increase cash flows, production and reserves by selectively developing our acreage base; • expand our acreage positions and drilling inventory in our areas of primary interest through acquisitions and farm-in opportunities, with an emphasis on operated positions; • block up acreage to allow for 10,000-foot (or longer) horizontal lateral drilling locations which provide higher economic returns; • maintain operating control over the majority of our production, development and undeveloped acreage; and 8