While we acknowledge that we have certain risk factors, smaller“smaller reporting companiescompanies” are not required to provide information under this Item.  Therefore, the absence of reporting under this Item should not be construed to indicate that we have no risk factors.  Instead, we recognize that we have the same or similar risk factors as other comparable companies within our industry;industry, especially companies with similar market capitalization and/or employee census.

Specific production data relative to our oil and natural gas producing properties can be found in the Selected Financial Information table in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

AtAs of March 31, 2010,2011, our estimated proved developed and undeveloped oil and natural gas reserves in barrels of oil equivalent (BOE)(“BOE”) was 970,000,1,137,000, a 22.2%17% increase from the prior year’syear end’s estimated proved developed oil and natural gas reserves of 794,000970,000 BOE.  This increase was primarily caused byreflects the addition of new wells, along with an increase in the 12 month averagelife of the price ofexisting wells due to an increase in oil and natural gas on the first day of each month during fiscal 2010 when compared to the price on  March 31 2009.prices.

Geographically, our reserves are located in three primary areas: the Williston basin in North Dakota and Montana, the Denver-Julesburg (D-J)(“D-J”) basin in Colorado and on-shoreonshore south Texas.  The following table summarizes the estimated proved developed and undeveloped oil and natural gas reserves divided between operated and non-operated properties for these three areas as of March 31, 2010:2011:

 

All of the proved producing reserves attributable to producing wells and/or reservoirs were estimated by performance methods.  These performance methods used are limited to decline curve analysis which utilized extrapolations of historical production data.   All proved undeveloped reserves were estimated by analogy.  This is done by consideration of the assumptions, data, methods and analytical procedures.

Oil and gas reserves and the estimates of the present value of future net revenues were determined based on prices and costs as prescribed by SEC and FASB guidelines.  Reserve calculations involve the estimate of future net recoverable reserves of oil and gas and the timing and amount of future net revenues to be received.  Such estimates are not precise and are based on assumptions regarding a variety of factors, many of which are variable and uncertain.  Proved oil and gas reserves are the estimated quantities of oil and gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.  Proved developed oil and gas reserves are those expected to be recovered through existing wells with existing equipment and operating methods.  Proved reserves were estimated in accordance with guidelines established by the SEC and FASB, which require that reservereserves estimates be prepared under existing economic and operating conditions with no provision for price and cost escalations except by contractual arrangements.

The following table sets forth certain information regarding estimates of our oil and gas reserves as of March 31, 2010.2011.  All of our reserves are located in the United States.

 

 

 

AtAs of March 31, 2010,2011, we had 91,000 barrels ofno proved undeveloped reserves, which will require future capital expenditures of approximately $991,000 to develop. At March 31, 2009 we had one proved undeveloped property. During fiscal 2010 this property was re-classified to the proved and developed category.  Approximately $490,000 was spent in this development effort. None of the proved undeveloped reserves at March 31, 2010 have been on our reserve report for more than five years.reserves.

 

 

The following table sets forth our gross and net working interests in exploratory and development wells drilled during the three years ended March 31, 2010:2011, 2010, and 2009, respectively:

We lease the rights to explore for and produce oil and gas from mineral owners.  Leases (quantified in acres) expire after their primary term unless oil or gas production is established.  Prior to establishing production, leases are generally considered undeveloped.  After production is established, leases are considered developed or “held-by-production.”  Our acreage is comprised of developed and undeveloped acreage as follows:

We currently lease approximately 4,000 square feet of office space in downtown Denver, Colorado from an independent third party for approximately $5,853$6,000 per month plus maintenance fees escalating at a rate of approximately $170 at the end of each year.  The lease term is for a five-year period ending April 30, 2013.  For additional information see Note 76 to the Consolidated Financial Statements.consolidated financial statements.

Our common stock is currently quoted on the NASDAQ Global Select Market under the ticker symbol “ESTE.”  Prior to January 26, 2011, our stock was traded on the Over-the-Counter Bulletin Board (“OTCBB”).  The OTCBB is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks,” as well as volume information. Our shares are quoted on the OTCBB under the symbol “BSIC.”

The following table sets forth the range of high and low bid quotations forof our common stock for each of the periods indicated below as reported by the OTCBB.  These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.  The closing bid price on June 18, 2010 was $1.30.

As of June 18, 2010,10, 2011, we had approximately 3,9191,964 shareholders of record.  We have never paid a cash dividend on our common stock. Our loan agreement has a covenant prohibiting the payment of dividends to stockholders without our lender’s prior written consent.  Any future dividend on common stock will be at the discretion of the Board of Directors and will be dependent upon the Company’s earnings and financial condition, receipt of our lender’s consent and other factors.  Our Board of Directors presently has no plans to pay any dividends in the foreseeable future.

Not applicable.

The following table contains information with respect to our Director Compensation Plan as of the end of our fiscal year ended March 31, 2010.2011.

The Board adopted a Director Compensation Plan (the “Plan”("the Plan”), effective April 1, 2007, which provides for a combination of cash and equity incentive compensation to attract and retain qualified and experienced director candidates.  Under the Plan, each independent, non-employee director receives an annual grant of restricted stockshares having a fair market value equal to $36,000 on April 1 of each year.year as further described below.  The number of shares included in each annual grant is determined based upon the average closing price of the ten trading days preceding April 1 of each year. Up

The Plan allows up to 507,27650,728 shares of the Company’s common stock mayto be issued to directors under the Plan, subject to certain restrictions and vesting. vesting, of which 9,270 shares were granted during the year ended March 31, 2011, for a total of 30,012 shares that have been granted as of March 31, 2011.  Accordingly, as of the year ended March 31, 2011, 20,716 shares of common stock remain available for issuance under the Plan.

Grants of shares of restricted stock vest one-third each year over three years.

In addition, on April 1, 2011, each directorof the three non-employee directors was granted 43,5841,867 shares of restricted stock on April 1, 2010,2011, subject to vesting and forfeiture.forfeiture, resulting in 15,115 shares of common stock remaining available for issuance under the Plan as of June 10, 2011.  All restricted shares are considered issued and outstanding shares of the Company’s common stock at the grant date and have the same dividend and voting rights as other common stock.

SmallerAs a “smaller reporting companiescompany,” we are not required to provide the information required by this Item.information.

The following discussion and analysis should be read in conjunction with our financial statements and related notes and the other information appearing in this report.  As used in this report, unless the context otherwise indicates, references to “we,” “our,” “ours,” and “us” refer to Earthstone Energy, Inc. and its subsidiary collectively.

We have received numerous inquiries regarding the possibility of funding our efforts through equity contributions or debt instruments.  Given strong cash flows, and the relatively modest nature of our current drilling projects, we have thus far declined these overtures.  Our primary concern in this area is the dilution of our existing shareholders.  However, going forward, given that one of the key components of our growth strategy is to expand our oil and natural gas reserve base through drilling and/or acquisitions, if we were presented with a significant opportunity and available cash and bank debt financing were insufficient, it is possible we would consider alternative forms of additional financing.