RYDER SCOTTCOMPANY


PETROLEUM CONSULTANTS






TBPE REGISTERED ENGlNEERING FIRM F-1580


621 SEVENTEENTH STREET SUITE 1645


DENVER. Colorado80293


TELEPHONE (303) 623-9147






May 12, 2011





Earthstone Energy, Inc.


633 17thStreet, Suite 1645


Denver, Colorado 80202






Gentlemen:




At your request, we have prepared an estimate of the reserves, future production, and income attributable to certain leasehold and royalty interests of Earthstone Energy, Inc. ("Earthstone") as of March 31, 2011. The subject properties are located in the states of Colorado, Louisiana, Montana, North Dakota, and Texas. The reserves and income data were estimated based on the definitions and disclosure guidelines of the United States Securities and Exchange Commission (SEC) contained in Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register (SEC regulations). Our third party study completed on May 12, 2011 and presented herein, was prepared for public disclosure by Earthstone in filings made with the SEC in accordance with the disclosure requirements set forth in the SEC regulations.




The properties evaluated by Ryder Scott account for a portion of Earthstone's total net proved reserves as of March 31, 2011. Based on information provided by Earthstone, the third party estimate conducted by Ryder Scott addresses 91.4 percent of the total proved developed net liquid hydrocarbon reserves and 89.0 percent of the total proved developed net gas reserves.




The estimated reserves and future net income amounts presented in this report, as of March 31, 2011 are related to hydrocarbon prices. The hydrocarbon prices used in the preparation of this report are based on the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements, as required by the SEC regulations. Actual future prices may vary significantly from the prices required by SEC regulations; therefore, volumes of reserves actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented in this report. The results of this study are summarized below.





SEC PARAMETERS


Estimated Net Reserves and Income Data


Certain Leasehold and Royalty Interests of


Earthstone Energy, Inc.


As of March 31, 2011




ProvedDeveloped


TotalProducing


ProvedNet Remaining ReservesOil/Condensate -Barrels


926,921 654



926,921 654Gas-MMCF


654



654Future Gross Revenue

$
67,957,222


$
67,957,222Deductions


29,760,442



29,760,442Future Net Income (FNI)

$
38,196,780


$
38,196,780Discounted FNI@ 10%

$
18,927,033


$
18,927,033








1100 LOUISIANA. SUITE 3800
HOUSTON, TEXAS 77002-5218
TEL (713) 651-9191
FAX (713) 651-08491015 4TH STREET S.W. SUITE 600
CALGARY, ALBERTA T2R 1J4
TEL (403) 262-2799
FAX (403) 262-2790























Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas volumes are reported on an "as sold basis" expressed in millions of cubic feet (MMCF) at the official temperature and pressure bases of the areas in which the gas reserves are located.




The estimates of the reserves, future production, and income attributable to properties in this report were prepared using the economic software package PowerTools, a copyrighted program of IHS Energy. The program was used at the request of Earthstone. Ryder Scott has found this program to be generally acceptable, but notes that certain summaries and calculations may vary due to rounding and may not exactly match the sum of the properties being summarized. Furthermore, one line economic summaries may vary slightly from the more detailed cash flow projections of the same properties, also due to rounding. The rounding differences are not material.




The future gross revenue is after the deduction of production taxes. The deductions incorporate the normal direct costs of operating the wells. The future net income is before the deduction of state and federal income taxes and general administrative overhead, and has not been adjusted for outstanding loans that may exist nor does it include any adjustment for cash on hand or undistributed income. Liquid hydrocarbon reserves account for approximately 96 percent and gas reserves account for the remaining 4 percent of total future gross revenue from proved reserves.




The discounted future net income shown above was calculated using a discount rate of 10 percent per annum compounded monthly. Future net income was discounted at four other discount rates which were also compounded monthly. These results are shown in summary form as follows.




Discounted Future Net IncomeAs of March 31, 2011Discount Rate

TotalPercent

Proved20

$
12,847,65530

$
9,918,79140

$
8,193,55850

$
7,052,687




The results shown above are presented for your information and should not be construed as our estimate of fair market value.








Reserves Included in This Report




The proved reserves included herein conform to the definition as set forth in the Securities and Exchange Commission's Regulations Part 210.4-10(a). An abridged version of the SEC reserves definitions from 210.4-10(a) entitled "Petroleum Reserves Definitions" is included as an attachment to this report.




The various proved reserve status categories are defined under the attachment entitled "Petroleum Reserves Definitions" in this report.




No attempt was made to quantify or otherwise account for any accumulated gas production imbalances that may exist. The proved gas volumes included herein do not attribute gas consumed in operations as reserves.












Reserves are "estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations." All reserve estimates involve an assessment of the uncertainty relating the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves, and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. At Earthstone's request, this report addresses only the proved reserves attributable to the properties evaluated herein.




Proved oil and gas reserves are those quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward. The proved reserves included herein were estimated using deterministic methods. If deterministic methods are used, the SEC has defined reasonable certainty for proved reserves as a "high degree of confidence that the quantities will be recovered."




Proved reserve estimates will generally be revised only as additional geologic or engineering data become available or as economic conditions change. For proved reserves, the SEC states that "as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to the estimated ultimate recovery (EUR) with time, reasonably certain EURis much more likely to increase or remain constant than to decrease." Moreover, estimates of proved reserves may be revised as a result of future operations, effects of regulation by governmental agencies or geopolitical or economic risks. Therefore, the proved reserves included in this report are estimates only and should not be construed as being exact quantities, and if recovered, the revenues therefrom, and the actual costs related thereto, could be more or less than the estimated amounts.




Earthstone's operations may be subject to various levels of governmental controls and regulations. These controls and regulations may include, but may not be limited to, matters relating to land tenure and leasing, the legal rights to produce hydrocarbons, drilling and production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax and are subject to change from time to time. Such changes in governmental regulations and policies may cause volumes of proved reserves actually recovered and amounts of proved income actually received to differ significantly from the estimated quantities.




The estimates of proved reserves presented herein were based upon a detailed study of the properties in which Earthstone owns an interest; however, we have not made any field examination of the properties. No consideration was given in this report to potential environmental liabilities that may exist nor were any costs included for potential liabilities to restore and clean up damages, if any, caused by past operating practices.












EstimatesofReserves




The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable oil and gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions set forth by the Securities and Exchange Commission's Regulations Part 210.4-10(a). The process of estimating the quantities of recoverable oil and gas reserves relies on the use of certain generally accepted analytical procedures. These analytical procedures fall into three broad categories or methods: (1) performance-based methods, (2) volumetric-based methods and (3) analogy. These methods may be used singularly or in combination by the reserve evaluator in the process of estimating the quantities of reserves. The reserve evaluator must select the method or combination of methods which in their professional judgment is most appropriate given the nature and amount of reliable geoscience and engineering data available at the time of the estimate, the established or anticipated performance characteristics of the reservoir being evaluated and the stage of development or producing maturity of the property.




In many cases, the analysis of the available geoscience and engineering data and the subsequent interpretation of this data may indicate a range of possible outcomes in an estimate, irrespective of the method selected by the evaluator. When a range in the quantity of reserves is identified, the evaluator must determine the uncertainty associated with the incremental quantities of the reserves. If the reserve quantities are estimated using the deterministic incremental approach, the uncertainty for each discrete incremental quantity of the reserves is addressed by the reserve category assigned by the evaluator. Therefore, it is the categorization of reserve quantities as proved, probable and/or possible that addresses the inherent uncertainty in the estimated quantities reported. For proved reserves, uncertainty is defined by the SEC as reasonable certainty wherein the "quantities actually recovered are much more likely than not to be achieved." The SEC states that "probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered." The SEC states that "possible reserves are those additional reserves that are less certain to be recovered than probable reserves and the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves." All quantities of reserves within the same reserve category must meet the SEC definitions as noted above.




Estimates of reserves quantities and their associated reserve categories may be revised in the future as additional geoscience or engineering data become available. Furthermore, estimates of reserves quantities and their associated reserve categories may also be revised due to other factors such as changes in economic conditions, results of future operations, effects of regulation by governmental agencies or geopolitical or economic risks as previously noted herein.




The proved reserves for the properties included herein were estimated by performance methods. One hundred percent of the proved producing reserves attributable to producing wells were estimated by performance methods. The performance method utilized was decline curve analysis which utilized extrapolations of historical production data. The data utilized in this analysis were supplied to Ryder Scott by Earthstone and were considered sufficient for the purpose thereof.




To estimate economically recoverable proved oil and gas reserves and related future net cash flows, we consider many factors and assumptions including, but not limited to, the use of reservoir parameters derived from geological, geophysical and engineering data which cannot be measured directly, economic criteria based on current costs and SEC pricing requirements, and forecasts of future production rates. Under the SEC regulations 210.4-10(a)(22)(v) and (26), proved reserves must be





Earthstone Energy, Inc.


May 12, 2011


Page 5






anticipated to be economically producible from a given date forward based on existing economic conditions including the prices and costs at which economic producibility from a reservoir is to be determined. While it may reasonably be anticipated that the future prices received for the sale of production and the operating costs and other costs relating to such production may increase or decrease from those under existing economic conditions, such changes were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation.




Earthstone has informed us that they have furnished us all of the material accounts, records, geological and engineering data, and reports and other data required for this investigation. In preparing our forecast of future proved production and income, we have relied upon data furnished by Earthstone with respect to property interests owned, production and well tests from examined wells, normal direct costs of operating the wells or leases, ad valorem and production taxes, product prices based on the SEC regulations, and adjustments or differentials to product prices. Ryder Scott reviewed such factual data for its reasonableness; however, we have not conducted an independent verification of the data supplied by Earthstone. We consider the factual data used in this report appropriate and sufficient for the purpose of preparing the estimates of reserves and future net revenues herein.




In summary, we consider the assumptions, data, methods and analytical procedures used in this report appropriate for the purpose hereof, and we have used ail such methods and procedures that we consider necessary and appropriate to prepare the estimates of reserves herein. The proved reserves included herein were determined in conformance with the United States Securities and Exchange Commission (SEC) Modernization of Oil and Gas Reporting; Final Rule, including all references to Regulation S-X and Regulation S-K, referred to herein collectively as the "SEC Regulations." In our opinion, the proved reserves presented in this report comply with the definitions, guidelines and disclosure requirements as required by the SEC regulations.




Future Production Rates




For wells currently on production, our forecasts of future production rates are based on historical performance data. An estimated rate of decline was then applied to depletion of the reserves. This trend was used as the basis for estimating future production rates.




The future production rates from wells currently on production may be more or less than estimated because of changes including, but not limited to, reservoir performance, operating conditions related to surface facilities, compression and artificial lift, pipeline capacity and/or operating conditions, producing market demand and/or allowable or other constraints set by regulatory bodies.




Hydrocarbon Prices




The hydrocarbon prices used herein are based on SEC price parameters using the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements. For hydrocarbon products sold under contract, the contract prices, including fixed and determinable escalations, exclusive of inflation adjustments, were used until expiration of the contract. Upon contract expiration, the prices were adjusted to the 12-month unweighted arithmetic average as previously described.











Earthstone Energy, Inc.
 May 12, 2011
 Page 6




Earthstone furnished us with the above mentioned average prices in effect on March 31, 2011. These initial SEC hydrocarbon prices were determined using the 12-month average first-day-of-the­ month benchmark prices appropriate to the geographic area where the hydrocarbons are sold. These benchmark prices are prior to the adjustments for differentials as described herein. The table below summarizes the "benchmark prices" and "price reference" used for the geographic area included in the report. In certain geographic areas, the price reference and benchmark prices may be defined by contractual arrangements.




The product prices which were actually used to determine the future gross revenue for each property reflect adjustments to the benchmark prices for gravity, quality, local conditions, gathering and transportation fees and/or distance from market, referred to herein as "differentials." The differentials used in the preparation of this report were furnished to us by Earthstone. The differentials furnished to us were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification of the data used by Earthstone to determine these differentials.




In addition, the table below summarizes the net volume weighted benchmark prices adjusted for differentials and referred to herein as the "average realized prices." The average realized prices shown in the table below were determined from the total future gross revenue before production taxes and the total net reserves for the geographic area and presented in accordance with SEC disclosure requirements for each of the geographic areas included in the report.


Geographic Area
Product
Price Reference
Avg Benchmark Prices
Avg Realized PricesUnited States
Oil/Condensate
WTI Cushing
$83.54/Bbl
$76.58/BblGas
Henry Hub
$4.11/MMBTU
$5.03/MCF





The effects of derivative instruments designated as price hedges of oil and gas quantities are not reflected in our individual property evaluations.




Costs




Operating costs for the leases and wells in this report are based on the operating expense reports of Earthstsone and include only those costs directly applicable to the leases or wells. The operating costs include a portion of general and administrative costs allocated directly to the leases and wells. The operating costs for non-operated properties include the COPAS overhead costs that are allocated directly to the leases and wells under terms of operating agreements. The operating costs furnished to us were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification of the operating cost data used by Earthstone. No deduction was made for loan repayments, interest expenses, or exploration and development prepayments that were not charged directly to the leases or wells.




Earthstone's estimates of zero abandonment costs after salvage value for onshore properties were used in this report. Ryder Scott has not performed a detailed study of the abandonment costs or the salvage value and makes no warranty for Earthstone's estimate.




Current costs used by Earthstone were held constant throughout the life of the properties.





Earthstone Energy, Inc.


May 12, 2011


Page 7






Standards of independence and Professional Qualification




Ryder Scott is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world for over seventy years. Ryder Scott is employee owned and maintains offices in Houston, Texas; Denver, Colorado; and Calgary, Alberta, Canada. We have over eighty engineers and geoscientists on our permanent staff. By virtue of the size of our firm and the large number of clients for which we provide services, no single client or job represents a material portion of our annual revenue. We do not serve as officers or directors of any privately owned or publicly-traded oil and gas company and are separate and independent from the operating and investment decision-making process of our clients. This allows us to bring the highest level of independence and objectivity to each engagement for our services.




Ryder Scott actively participates in industry-related professional societies and organizes an annual public forum focused on the subject of reserves evaluations and SEC regulations. Many of our staff have authored or co-authored technical papers on the subject of reserves related topics. We encourage our staff to maintain and enhance their professional skills by actively participating in ongoing continuing education.




Prior to becoming an officer of the Company, Ryder Scott requires that staff engineers and geoscientists have received professional accreditation in the form of a registered or certified professional engineer's license or a registered or certified professional geoscientist's license, or the equivalent thereof, from an appropriate governmental authority or a recognized self-regulating professional organization.




We are independent petroleum engineers with respect to Earthstone. Neither we nor any of our employees have any interest in the subject properties and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed.




The results of this study, presented herein, are based on technical analysis conducted by teams of geoscientists and engineers from Ryder Scott. The professional qualifications of the undersigned, the technical person primarily responsible for overseeing the evaluation of the reserves information discussed in this report, are included as an attachment to this letter.





Terms of Usage




The results of our third party study, presented in report form herein, were prepared in accordance with the disclosure requirements set forth in the SEC regulations and intended for public disclosure as an exhibit in filings made with the SEC by Earthstone Energy, Inc.




Earthstone Energy, Inc. makes periodic filings on Form 10-K with the SEC under the 1934 Exchange Act.




We have provided Earthstone Energy, Inc. with a digital version of the original signed copy of this report letter. In the event there are any differences between the digital version included in filings made by Earthstone Energy, Inc. and the original signed report letter, the original signed report letter shall control and supersede the digital version.









Earthstone Energy, Inc.
 May 12, 2011
 Page 8





The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service.






Very truly yours,RYDER SCOTT COMPANY, L.P.TBPE Firm Registration No. F-1580(Professional Engineer Seal Graphic Omitted)Richard J. Marshall, P.E.Colorado License No. 23260Vice PresidentRYDER SCOTT COMPANY, L. P.TBPE Firm Registration No. F-1580(Professional Engineer Seal Graphic Omitted)Scott J. Wilson P.E. MBATBPE License No. 106681Senior Vice President















Professional Qualifications of Primary Technical Person




The conclusions presented in this report are the result of technical analysis conducted by teams of geoscientists and engineers from Ryder Scott Company, L.P. Richard J.Marshall was the primary technical person responsible for overseeing the estimate of the future net reserves and income.




Marshall, an employee of Ryder Scott Company L.P. (Ryder Scott) beginning in 1981, is a Vice President responsible for coordinating and supervising staff and consulting engineers of the company in ongoing reservoir evaluation studies. Before joining Ryder Scott, Marshall served in a number of engineering positions with Texaco, Phillips Petroleum, and others. For more information regarding Mr. Marshall's geographic and job specific experience, please refer to the Ryder Scott Company website at www.ryderscott.com/Experience/Employees.




Marshall earned a B.S. in Geology from the University of Missouri in 1974 and a M.S. in Geological Engineering from the University of Missouri at Rolla in 1976. Marshall is a registered Professional Engineer in the State of Colorado. He is a member of the Society of Petroleum Engineers, Wyoming Geological Association, Rocky Mountain Association of Geologists and the Society of Petroleum Evaluation Engineers.




Based on Marshall's educational background, professional training and more than 30 years of practical experience in the estimation and evaluation of petroleum reserves, Marshall has attained the professional qualifications as a Reserves Estimator and Reserves Auditor as set forth in Article ill of the "Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information" promulgated by the Society of Petroleum Engineers as of February 19, 2007.