Toronto, December 05, 2012 -- Moody's Investors Service downgraded Lone Pine Resources Inc.'s (Lone Pine) Corporate Family Rating (CFR) and Probability of Default Rating (PDR) to Caa1 from B3. The Caa2 rating on Lone Pine's senior unsecured notes was affirmed. The Speculative Grade Liquidity was changed to SGL-4 from SGL-3 and the rating outlook was changed to negative from stable.

RATING RATIONALE

"The Caa1 CFR and negative outlook reflect Lone Pine's strained liquidity and sharply declining production and reserves," said Terry Marshall, Moody's Senior Vice President. "Lone Pine's cash flow cannot cover capital expenditures required to maintain production, although there is underlying value and liquidity in their two main assets: Narraway and Evi."

The SGL-4 Speculative Grade Liquidity rating reflects weak liquidity. Pro-forma for the closing of the Wild River asset sale in December 2012 with asset sales reducing revolver drawings, we expect that Lone Pine will have minimal cash and approximately C$125 million available under its estimated C$275 million borrowing base revolver, which matures in March 2016. The revolver's borrowing base could be subject to downward revision in 2013 as production and reserves decline. We expect Lone Pine to generate negative free cash flow of about US$30 million in 2013, which will be funded under the revolver. We expect Lone Pine to breach the one financial covenant under its revolver (total debt to consolidated EBITDA of 4:1) in 2013, absent renegotiation of this covenant. There are no debt maturities until 2017. Lone Pine may be able to generate liquidity from the sale of all or part of one of its core assets - Narraway or Evi.

The US$200 million senior unsecured notes are rated one notch below the Caa1 CFR due to the existence in the capital structure of the prior-ranking borrowing base revolver.

The rating could be downgraded if liquidity weakens to the point that Lone Pine appears unable to meet its funding obligations over the next twelve to fifteen month period. The rating might be upgraded if liquidity improves to the point that the company is able to fund its cash obligations over an 18 to 24 month period , including the funding of sufficient capex to stabilize production. Lone Pine would also need to produce about 10,000 barrels of oil equivalent (boe) per day with an LFCR above 1x and retained cash flow to debt above 20%.

Downgrades:

..Issuer: Lone Pine Resources Inc.

.... Probability of Default Rating, Downgraded to Caa1 from B3

.... Speculative Grade Liquidity Rating, Downgraded to SGL-4 from SGL-3

.... Corporate Family Rating, Downgraded to Caa1 from B3

Upgrades:

..Issuer: Lone Pine Resources Canada Ltd.

....Senior Unsecured Regular Bond/Debenture, Upgraded to LGD5, 81% from LGD5, 83%

Outlook Actions:

..Issuer: Lone Pine Resources Canada Ltd.

....Outlook, Changed To Negative From Stable

..Issuer: Lone Pine Resources Inc.

....Outlook, Changed To Negative From Stable

Lone Pine is a Calgary, Alberta-based exploration and production company with about 14,000 boe of daily production and proved developed and total proved reserves of 367 million and 676 million boe, respectively.

The principal methodology used in rating Lone Pine Resources Inc. was the Global Independent Exploration and Production Industry published in December 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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Terry Marshall Senior Vice President Corporate Finance Group Moody'sCanada Inc.70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada(416) 214-1635Donald S. Carter, CFA MD - Corporate Finance Corporate Finance Group(416) 214-1635 Releasing Office: Moody's Canada Inc.70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada(416) 214-1635(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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