(The following statement was released by the rating agency)

Overview

-- We are assigning our 'B+' long-term corporate credit rating to Trilogy

Energy Corp..

-- We are also assigning our 'B' issue-level rating to the company's

proposed offering of up to C$300 million senior unsecured notes, with a '5'

recovery rating.

-- The ratings reflect our view of Trilogy's operations in the highly

cyclical, capital-intensive industry; weak profitability compared with those

of peers; competitive cost profile; increasing liquids production; and

improving credit measures.

-- The stable outlook reflects our expectation that Trilogy's liquid

production and cash flow will rise in the next 12-18 months, lowering its

debt-to-EBITDAX measure below 2x through 2014.

Rating Action

On Nov. 30, 2012, Standard & Poor's Ratings Services assigned its 'B+'

long-term corporate credit rating to Calgary, Alta.-based independent oil and

gas exploration and production (E&P) company Trilogy Energy Corp. The outlook

is stable. At the same time, Standard & Poor's assigned its 'B' issue-level

rating to the company's proposed C$300 million senior unsecured notes with a

'5' recovery rating, indicating an expectation of modest (10%-30%) recovery

for debtholders in a default scenario.

Rationale

The rating on Trilogy reflects Standard & Poor's view of the company's 'weak'

business risk profile and 'aggressive' financial risk profile. We view the

company's management as 'fair'. The ratings also reflect our view of Trilogy's

operations in a highly cyclical, capital-intensive, and competitive industry;

weak profitability compared to its peers; and limited geographic and

operational diversity. We believe the company's competitive cost structure and

increasing liquids production offset these weaknesses somewhat. In our

opinion, Trilogy's aggressive financial risk profile reflects the company's

improving credit measures and high fixed costs.

Trilogy is a midsize E&P company (it had about 64 million barrels of oil

equivalent of gross proved reserves at year-end 2011 and about 33,400

barrels per day production for third-quarter 2012) that operates mostly

in Alberta. About 95% of the company's reserves and production are from the

Kaybob region in Alberta. Pro forma the proposed notes offering, Trilogy will

have about C$730 million in adjusted debt (our adjustments include asset

retirement obligations and operating leases).

The company's cash flow is exposed to the highly volatile and

capital-intensive oil and gas E&P industry. In peak periods, hydrocarbon

prices rise markedly and large profits result. Currently, E&P companies are

benefiting from elevated oil prices; however, in the long term, the risk

remains that oil prices could decline.

Trilogy's profitability (per boe)is weaker than that of its 'B+' rated peers.

Nevertheless, in the next 12-18 months we expect it to improve because we

forecast liquids, which are more profitable than gas, to be about 50% of the

company's 2013 production from 40% in 2012. However, we forecast Trilogy's

profitability to remain weak compared to peers due to the Canadian crude

discount to West Texas Intermediate (WTI) and pressure on lighter natural gas

liquids prices. At the same time, low natural gas prices will continue to

weigh on the company's profitability.

We believe Trilogy's limited operational diversity is a credit weakness. The

company's existing operations are focused in the Kaybob region of Alberta. Any

production downtime in the region would hurt the company's production, since

Trilogy would be unable to replace production from elsewhere. For example,

infrastructure delays in the area lowered the company's 2012 expected

production to 34,000 bpd compared with the original 40,000 bpd.

Trilogy has a competitive cost structure. We expect the company's cash

operating costs (includes operating, transportation, and general and

administrative costs) to remain competitive and stable as it increases its

liquids production. We also expect Trilogy's future levered costs (combination

of cash operating costs, depreciation and exploration costs, and interest

expense) to remain a competitive C$32 per boe, allowing it to continue to

generate positive netbacks. If the company cannot maintain its competitive

cost structure as it increases production, a negative rating action could

follow.

We view as credit positive Trilogy's increasing liquids production due to

their higher netbacks compared with those of gas, and rising contribution to

future cash flow. Between the Kaybob's Montney oil pool and South-Montney Gas

development, we expect 2013 liquids production to be about 19,000 bpd, up from

approximately 12,500 bpd in third-quarter 2012. Montney oil pool production

has high netbacks (above C$40 per boe) when compared with the company's

consolidated netback of C$18 per boe. Therefore, we expect Trilogy's EBITDA

and funds from operations (FFO) to improve significantly in 2013 as Trilogy

brings the Montney oil pool production online. We believe the completion of

the infrastructure in Kaybob region should allow the company to be able to

grow its production without any significant bottlenecks in the near term. The

presence of multiple geological formations within its geographically

concentrated reserves provides significant opportunities for growth in the

long term.

Under our July 2012 price scenario, and assuming the current correlations

between WTI prices and realized crude prices hold (about 15%-20% discount),

Standard & Poor's expects Trilogy to generate EBITDA of C$375 million-C$425

million in 2013 and 2014. We expect the company to end 2014 with its

debt-to-EBITDA below 2x and its (FFO-fixed charges)-to-debt at 20%-30%. Our

assumptions include the following:

-- Standard & Poor's WTI price assumptions are US$85 per boe for 2012,

US$80 for 2013, and US$75 for 2014; Henry Hub gas price assumptions are

US$2.50 per million BTU for 2012, US$3.00 for 2013, and US$3.50 for 2014.

-- Production in 2013 and 2014 will increase 15%-20% with gas remaining

at 50%-55% of total production.

-- Unit full-cycle costs will be unchanged.

-- Fixed costs (maintenance capex and dividends) for 2013 and 2014 are

C$200 million.

-- We expect that the company will fund its negative discretionary free

cash flow (free cash flow minus cash dividends) with debt.

Pro forma the proposed notes offering, we expect Trilogy's cash flow strength

to remain relatively strong compared with our guidelines for an 'aggressive'

financial risk profile (total adjusted debt-to-EBITDA of 3x and total adjusted

FFO-to-debt of 30%). Its fixed charges are high, in our view, and include a

maintenance capex (to keep production flat) of C$150 million-C$180 million and

dividend of about C$50 million. Taking these fixed charges into account,

Trilogy's (FFO-maintenance capex-cash dividends)-to-debt drops to below 0%. If

we remove cash dividends, FFO and maintenance capex-to-debt still remains near

0%, which we believe is weak. However, we believe the company's lower

balance-sheet debt compared with that of similarly rated peers is beneficial;

we believe it offsets the risks associated with Trilogy's lack of diversity

and seasonal limitations on annual production common to most Alberta-based

producers

Liquidity

We believe the company's liquidity is adequate, pro forma the C$300 million

notes offering. Our assessment of the liquidity profile incorporates the

following expectations and assumptions:

-- We expect Trilogy'ssources of liquidity, which includes funds from

operations, availability under the revolving facility, and proceeds from

notes, to be 1.2x total uses in the next

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