• maintain a strong balance sheet and financial flexibility. • extensive horizontal development potential in one of the most oil rich basins of the United States; • experienced management team with substantial technical and operational expertise and a history of successful acquisition and merger transactions; • operating control over the majority of our production and development activities; and • conservative balance sheet. Our Strengths Recent Developments Terminated Contribution Agreement Midland Basin Acreage Trade Bold Transaction We believe that the following strengths will be beneficial in achieving our business goals: As previously disclosed in our Current Report on Form 8-K filed on October 17, 2018 with the SEC, on October 17, 2018, Earthstone, Earthstone Energy Holdings, LLC (“EEH”) and Sabalo Holdings, LLC (“Sabalo Holdings”) entered into a contribution agreement (the “Contribution Agreement”) which provided for the contribution by Sabalo Holdings of all its interests in Sabalo Energy, LLC (“Sabalo Energy”) and Sabalo Energy, Inc. to EEH (the “Sabalo Acquisition”). On December 21, 2018, Earthstone, EEH and Sabalo Holdings entered into a termination agreement (the “Termination Agreement”), pursuant to which the parties mutually terminated the Contribution Agreement. In connection with the Termination Agreement, Earthstone, EEH and Sabalo Holdings also agreed to release each other from certain claims and liabilities arising out of or related to the Contribution Agreement and the transactions contemplated therein or thereby. In addition, we estimated total transaction costs to be approximately $13.4 million, including payment to Sabalo Holdings of $1.6 million for reimbursement of its expenses. All other related agreements were also terminated in conjunction with the termination of the Contribution Agreement. On October 5, 2018, we closed a transaction in the Midland Basin that included producing properties and undeveloped acreage (the "Exchange"). Under the terms of the Exchange, we acquired 3,899 net operated acres in Reagan County with virtually a 100% working interest, in exchange for 1,222 net non-operated acres in Glasscock County with an average working interest of 39% and $27.8 million in cash, subject to customary closing adjustments. The effective date of the transaction was September 1, 2018. Along with the net increase of 2,677 acres, the Exchange also resulted in a net production increase of approximately 350 Boe/d. The producing wells acquired in the Exchange are connected into a third-party crude oil pipeline gathering system, which will assure flow capacity for this production as well as any volumes from future wells on this acreage. With these acreage acquisitions, our total net acreage in the Midland Basin increased to approximately 29,500 acres, of which approximately 22,800 acres are operated by us. For further discussion, see  Note 3. Acquisitions and Divestitures in the Notes to Consolidated Financial Statements included in this report. 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.  On May 9, 2017, Earthstone completed a contribution agreement dated as of November 7, 2016 and as amended on March 21, 2017 (the “Bold Contribution Agreement”), by and among Earthstone, EEH, Lynden USA Inc., a Utah corporation ("Lynden US"), Lynden USA Operating, LLC, a Texas limited liability company (“Lynden Op”), Bold Energy Holdings, LLC, a Texas limited liability company (“Bold Holdings”), and Bold Energy III LLC, a Texas limited liability company (“Bold”). The purpose of the Bold Contribution Agreement was to provide for, among other things described below, the business combination between Earthstone and Bold, which owned significant developed and undeveloped oil and natural gas properties in the Midland Basin of Texas (the “Bold Transaction”). The Bold Transaction was structured in a manner commonly known as an “Up-C.” Under this structure and the Bold 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 9