Sec Form 13D Filing - Warburg Pincus Private Equity (E&P) XI-A L.P. filing for EARTHSTONE ENERGY INC (ESTE) - 2021-01-19

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934

(Amendment No.    )*

Earthstone Energy, Inc.

(Name of Issuer)

Class A Common Stock, par value $0.001

(Title of Class of Securities)

27032D304

(CUSIP Number)

Robert B. Knauss

Managing Director and General Counsel

c/o Warburg Pincus LLC

450 Lexington Avenue

New York, NY 10017

(212) 878-0600

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

January 7, 2021

(Date of Event Which Requires Filing of This Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), Rule 13d-1(f) or Rule 13d-1(g), check the following box.  ☐

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

This statement on Schedule 13D (the “Schedule 13D”) relates to the shares of Class A Common Stock, par value $0.001 per share (the “Common Stock”), of Earthstone Energy, Inc., a Delaware corporation (the “Issuer”) whose principal executive office is located at 1400 Woodloch Forest Drive, Suite 300, The Woodlands, Texas 77380.

The Schedule 13D is being filed by the following entities (each a “Reporting Person” and collectively, the “Reporting Persons”):

Warburg Pincus Private Equity (E&P) XI – A, L.P. (“WP E&P XI A”)

Warburg Pincus XI (E&P) Partners – A, L.P. (“WP XI E&P Partners A”)

WP IRH Holdings, L.P. (“WP IRH Holdings”)

Warburg Pincus XI (E&P) Partners-B IRH, LLC (“WP XI E&P Partners B IRH”)

Warburg Pincus XI (E&P) Partners – B, L.P. (“WP XI E&P Partners B”)

Warburg Pincus (E&P) XI, L.P. (“WP XI E&P GP”)

Warburg Pincus (E&P) XI LLC (“WP XI E&P GP LLC”)

Warburg Pincus Partners (E&P) XI LLC (“WPP E&P XI”)

WP Energy IRH Holdings, L.P. (“WPE IRH Holdings”)

WP Energy Partners IRH Holdings, L.P. (“WPE Partners IRH Holdings”)

Warburg Pincus Energy (E&P) Partners-B IRH, LLC (“WPE E&P Partners B IRH”)

Warburg Pincus Energy (E&P) Partners-B, L.P. (“WPE E&P Partners B”)

Warburg Pincus Energy (E&P) Partners-A, L.P. (“WPE E&P Partners A”)

Warburg Pincus Energy (E&P)-A, L.P. (“WPE E&P A”)

Warburg Pincus (E&P) Energy GP, L.P. (“WPE E&P GP”)

Warburg Pincus (E&P) Energy LLC (“WPE E&P GP LLC”)

Warburg Pincus Partners II (US), L.P. (“WPP II US”)

Warburg Pincus & Company US, LLC (“WP & Co. US LLC”)

Warburg Pincus LLC (“WP LLC”)

Each of the Reporting Persons, except for WP & Co. US LLC and WP LLC, is organized under the laws of the state of Delaware. WP & Co. US LLC and WP LLC are organized under the laws of the state of New York.

The general partners and members (collectively, the “Related Persons”) of Warburg Pincus & Co. and WP LLC, respectively, are set forth in Schedule I hereto, including each Related Person’s present principal occupation, which is incorporated herein by reference. Except as otherwise set forth in Schedule I, the principal business addresses of the Related Persons is c/o Warburg Pincus LLC, 450 Lexington Avenue, New York, New York 10017.

By virtue of the agreements made pursuant to the Voting Agreement (as defined below), the Reporting Persons and EnCap Investments L.P. may be deemed to constitute a group for purposes of Rule 13d-3 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Shares beneficially owned by EnCap Investments L.P. and its affiliates are not the subject of this Schedule 13D. For a description of the relationship between the Reporting Persons and EnCap Investments L.P., see Item 4 below.

The principal business address of each of the Reporting Persons is c/o Warburg Pincus LLC, 450 Lexington Avenue, New York, New York 10017. The Reporting Persons are principally engaged in the business of investing in securities, including securities of the Issuer.

During the last five years, none of the Reporting Persons nor any Related Person (i) has been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

On January 7, 2021 (the “Closing Date”), pursuant to a purchase and sale agreement, dated as of December 17, 2020 (the “Purchase Agreement”), by and among the Issuer, Earthstone Energy Holdings, LLC, a subsidiary of the Issuer (“EEH”), Independence Resources Holding, LLC (“IRH”), and Independence Resources Manager, LLC (“IRM”), a subsidiary of IRH, IRH received (i) an aggregate amount of cash from EEH equal to approximately $135.2 million and (ii) 12,719,594 shares of newly issued Common Stock as consideration for the sale of all of the issued and outstanding limited liability company interests in certain wholly owned subsidiaries of IRH and IRM.

Also on the Closing Date, IRH purchased 638,744 shares of Common Stock from certain entities affiliated with EnCap Investments L.P. (collectively, the “EnCap entities”) at a price of $3.99 per share pursuant to a securities purchase agreement, dated as of December 17, 2020 (the “Securities Purchase Agreement”), by and among IRH and the EnCap entities.

Immediately following the completion of the transactions contemplated by the Purchase Agreement and the Securities Purchase Agreement, IRH distributed all shares of Common Stock held by it in a pro-rata distribution in-kind to its members, resulting in certain of the Reporting Persons acquiring 13,238,110 shares of Common Stock.

Voting Agreement

In connection with the Purchase Agreement, the Issuer, the Reporting Persons and EnCap Investments L.P. entered into a voting agreement (the “Voting Agreement”) granting the Reporting Persons the right to appoint one director to the Issuer’s Board of Directors (the

“Board”) and obligating the Reporting Persons and EnCap Investments L.P. to vote all of their shares of Common Stock for the Board’s nominees for election as directors at any meeting of the Issuer’s shareholders. The Voting Agreement will terminate upon the earliest to occur of: (a) the first date on which the Reporting Persons collectively beneficially own less than 8% of the Issuer’s outstanding Common Stock, (b) the first date on which the Reporting Persons collectively beneficially own less than 10% of the Issuer’s outstanding Common Stock as a result of a sale by the Reporting Persons (other than affiliate transfers) and (c) the date on which the Reporting Persons deliver written notice to the other parties terminating the Voting Agreement.

Registration Rights Agreement

In connection with the Purchase Agreement, the Issuer entered into a registration rights agreement (the “Registration Rights Agreement”) with IRH and the Reporting Persons pursuant to which the Issuer granted shelf registration rights and piggyback registration rights to such stockholders, for the resale under the Securities Act of 1933, as amended, of the Common Stock held by them, subject to certain conditions set forth therein.

Lock-Up Agreement

In connection with the Purchase Agreement, the Reporting Persons entered into a lock-up agreement (the “Lock-Up Agreement”) with the Issuer providing that the Reporting Persons will not transfer any of the shares received pursuant to the Purchase Agreement for a period of 120 days after the Closing Date, subject to certain exceptions.

The foregoing descriptions of the Voting Agreement, the Registration Rights Agreement and the Lock-Up Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of such agreements, each of which is attached as an exhibit to the Schedule 13D and is incorporated herein by reference.

General

The Reporting Persons acquired the securities described in this Schedule 13D in connection with the closing of the Purchase Agreement and the Securities Purchase Agreement and intend to review their investments in the Issuer on a continuing basis. Any actions the Reporting Persons might undertake may be made at any time and from time to time without prior notice and will be dependent upon the Reporting Persons’ review of numerous factors, including, but not limited to: an ongoing evaluation of the Issuer’s business, financial condition, operations and prospects; price levels of the Issuer’s securities; general market, industry and economic conditions; the relative attractiveness of alternative business and investment opportunities; and other future developments.

Subject to the Lock-Up Agreement, the Reporting Persons may acquire additional securities of the Issuer, or retain or sell all or a portion of the securities then held, in the open market or in privately negotiated transactions. In addition, subject to the terms of the Voting Agreement, the Reporting Persons may engage in discussions with management, the Board, and stockholders of the Issuer and other relevant parties or encourage, cause or seek to cause the Issuer or such persons to consider or explore extraordinary corporate transactions, such as: a merger, reorganization or take-private transaction that could result in the de-listing or de-registration of the Common Stock; sales or acquisitions of assets or businesses; changes to the capitalization or dividend policy of the Issuer; or other material changes to the Issuer’s business or corporate structure, including changes in management or the composition of the Board.

Other than as described above, the Reporting Persons do not currently have any plans or proposals that relate to, or would result in , any of the matters listed in Items 4(a)–(j) of Schedule 13D, although, depending on the factors discussed herein, the Reporting Persons may change their purpose or formulate different plans or proposals with respect thereto at any time.

(a) – (b)

The following sets forth, as of the date of this Schedule 13D, the aggregate number of shares of Common Stock and percentage of Common Stock beneficially owned by each of the Reporting Persons, as well as the number of shares of Common Stock as to which each Reporting Person has the sole power to vote or to direct the vote, shared power to vote or to direct the vote, sole power to dispose or to direct the disposition of, or shared power to dispose or to direct the disposition of, as of the date hereof, based on 42,930,343 shares of Common Stock outstanding as of January 7, 2021, consisting of (i) 30,210,749 shares of Common Stock outstanding as of October 29, 2020, based on the Issuer’s quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020, and (ii) 12,719,594 shares of Common Stock newly issued in connection with the Purchase Agreement:

WP E&P XI A is the record holder of 2,123,393 shares of Common Stock. WP XI E&P Partners A is the record holder of 163,270 shares of Common Stock. WP IRH Holdings is the record holder of 2,068,675 shares of Common Stock. WP XI E&P Partners B IRH is the record holder of 57,365 shares of Common Stock. WPE IRH Holdings is the record holder of 3,179,794 shares of Common Stock. WPE Partners IRH Holdings is the record holder of 260,350 shares of Common Stock. WPE E&P Partners B IRH is the record holder of 101,492 shares of Common Stock. WPE E&P Partners A is the record holder of 300,946 shares of Common Stock. WPE E&P A is the record holder of 4,982,825 shares of Common Stock.

WP XI E&P Partners B is the general partner of WP XI E&P Partners B IRH. WP XI E&P GP is the general partner of WP E&P XI A, WP XI E&P Partners A, WP IRH Holdings, and WP XI E&P Partners B. WP XI E&P GP LLC is the general partner of WP XI E&P GP. WPP E&P XI is the managing member of WP XI E&P GP LLC.

WPE E&P Partners B is the general partner of WPE E&P Partners B IRH. WPE E&P GP is the general partner of WPE IRH Holdings, WPE Partners IRH Holdings, WPE E&P Partners B, WPE E&P Partners A, and WPE E&P A. WPE E&P GP LLC is the general partner of WPE E&P GP.

WPP II US is the managing member of WPP E&P XI and WPE E&P GP LLC. WP & Co. US LLC is the general partner of WPP II US. WP LLC is a registered investment adviser, and the manager of WP E&P XI A, WP XI E&P Partners A, WPE E&P Partners A, and WPE E&P A.

As such, each of WP XI E&P GP, WP XI E&P GP LLC and WPP E&P XI may be deemed to share beneficial ownership of the shares held of record by each of WP E&P XI A, WP XI E&P Partners A, WP IRH Holdings, WP XI E&P Partners B IRH and WP XI E&P Partners B. WP XI E&P Partners B may be deemed to share beneficial ownership of the shares held of record by WP XI E&P Partners B IRH.

Each of WPE E&P GP, WPE E&P GP LL C, WPP II US and WP & Co. US LLC may be deemed to share beneficial ownership of the shares held of record by each of WPE IRH Holdings, WPE Partners IRH Holdings, WPE E&P Partners B IRH, WPE E&P Partners B, WPE E&P Partners A and WPE E&P A. WPE E&P Partners B may be deemed to share beneficial ownership of the shares held of record by WPE E&P Partners B IRH.

Each of WPP II US and WP & Co. US LLC may be deemed to share beneficial ownership of the shares held of record by the Reporting Persons. WP & Co. US LLC may be deemed to share beneficial ownership of the shares held of record by each of WP E&P XI A, WP XI E&P Partners A, WPE E&P Partners A, and WPE E&P A.

Each of such Reporting Persons disclaims any such beneficial ownership.

In addition, as discussed in Item 2 above, by virtue of the agreements made pursuant to the Voting Agreement, the Reporting Persons and EnCap Investments L.P. may be deemed to constitute a group for purposes of Rule 13d-3 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). In the aggregate, such group would beneficially own 51,806,442 shares of Common Stock, representing 67.4% of the outstanding Common Stock as of January 7, 2021 (calculated on the basis of an assumed combined total of 76,886,867 shares of Common Stock outstanding, consisting of (i) 30,210,749 shares of Common Stock outstanding as of October 29, 2020, (ii) 12,719,594 shares of Common Stock newly issued in connection with the Purchase Agreement, and (iii) 33,956,524 shares of the Issuer’s Class B common stock, $0.001 par value per share (“Class B Common Stock”) held by the EnCap entities, assuming that all of such shares of Class B Common Stock, along with an equivalent number of membership units of EEH, were exchanged for newly issued shares of Common Stock on a one-for- one basis).

The Reporting Persons expressly disclaim any beneficial ownership of shares of Common Stock beneficially owned by EnCap Investments L.P. and its affiliates and such shares are not the subject of this Schedule 13D.

(c)     Except as set forth in Items 3 and 4 above, during the past 60 days none of the Reporting Persons or Related Persons has effected any transactions in the Common Stock.

(d)     None.

(e)     Not applicable.

Item 4 above summarizes certain provisions of the Voting Agreement, Registration Rights Agreement and Lock-Up Agreement and is incorporated herein by reference. A copy of each of these agreement is attached as an exhibit to this Schedule 13D, and is incorporated herein by reference.

Except as set forth herein, none of the Reporting Persons nor any of the Related Persons has any contracts, arrangements, understandings or relationships (legal or otherwise) with any person with respect to any securities of the Issuer, including but not limited to any contracts, arrangements, understandings or relationships concerning the transfer or voting of such securities, finder’s fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or losses, or the giving or withholding of proxies.

SIGNATURES

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Date: January 19, 2021

Schedule I

Set forth below is the name, position and present principal occupation of each of the general partners of Warburg Pincus & Co. (“WP”) and members of Warburg Pincus LLC (including its subsidiaries, “WP LLC”). Except as otherwise indicated, the business address of each of such persons is 450 Lexington Avenue, New York, New York 10017, and each of such persons is a citizen of the United States.

GENERAL PARTNERS OF WP

MEMBERS OF WP LLC

As of January 15, 2021