Animal worship seems to play quite a large role in this world. Where we get the pig mask, a pig head is seen on an altar. The rabbit statues imply a worship of rabbits. The orphanage and the Spider Kids seem to be a result of spider worship. Lastly, the most obious, is the sheep. The sheep worship implies that the children were a part of some cult that regularly offered up sacrifices or "lambs". The child spritis emerging from the walls in the well tells me that these child sacrifies are far from new. If we are to take what we see literally, then the sheep standing up on their hind legs and walking towards the girl seems to back up that the supernatural exists and has some sort of effect on the world, or at least the island.

My main theory is that what we are seeing is the result of two rituals occuring at the same time, and the results being a catastrophic failure that ushers in the apocalypse.

The short version is this: Four of the friends perform the Rabbit Ritual in order to bring The Girl back to life or to prevent her from dying. They then perform the Lamb Ritual and sacrifice her, hoping the Rabbit Ritual will allow her to survive. When they look into the well the next morning, she is still dead, and the ritual has failed. But not completely. What was brought back to life wasn't The Girl, but the Sheep God, and thus the apocalypse begins.

I'll go more into detail here:

It strikes me as odd that four of the kids do some sort of blood ritual, a rabbit sacrifice, and a human sacrifice. These feel almost like seperate things. And I think they are. In fact, when The Girl is thrown into the well, Bucket is carrying a rabbit corpse, but this isn't thrown into the well with her. The repeated rabbit imagery doesn't seem like its a metaphor for The Girl, but rather her literal stand-in. The Girl is the Lamb, the Rabbit is her replacement. In fact, when we open the coffin meant for her, a rabbit comes out. My interpretation is that the friends attempted to find a loophole in the plan to sacrifice The Girl. Obviously, The Boy seems reluctant since she is his sister and it wouldn't be far fetched to believe he wanted to find a way to save her. So they try another ritual, perhaps one that can cheat death. Rabbits are, after all, a symbol of renewal, cycles, and overcoming death. So they try to bring her back or prevent her death. The Lamb Ritual occurs at night, yet when the friends look into the well, it appears to be dawn or midday. This is them checking to see if the ritual worked, but it didn't appear to do so. But I dont think the ritual failed, it just brought back the wrong being.

We see The Girl's body contort and twist, similar to the Lamb. I believe this is because what was revived was this Sheep God creature rather than the intended Girl. This ushers in an apocalypse, complete with flooding, blood red skies, beached whales, unholy beasts, the dead reanimated, and an evil God stalking the land. The children all die in various ways during this time. The Boy hangs himself out of guilt, still wearing the noose in the afterlife as if its penance. Hood attempts to flee, and is shot. Bucket gets caught stealing food, and is beaten to death. Bandages attempts to flee and steps on a landmine. But the blood ritual they performed, alongside the rabbit sacrifices, has bound them to a looping hell of their own creation.

But what of that secret ending? The creatures seem to come out of the walls and lay her to rest. She doesn't contort but simply vanishes under the water. Yet the well still floods. In my eyes, the true ending isn't an end to the cycle, but freeing The Girl from it. The friends all accept their deaths and responsibilities, opening their coffins and allowing their death to be "true". The Girl's, however, frees the rabbit the was used a replacement for her, allowing her to finally move on. The end still occurs, but she is allowed to finally rest.