UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-35191

LONE PINE RESOURCES INC.

(Exact name of registrant as specified in its charter)

Delaware		27-3779606
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

Suite 1100, 640-5th Avenue SW Calgary, Alberta Canada		T2P 3G4
(Address of Principal Executive Offices)		(Zip Code)

(403) 292-8000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of November 4, 2013, there were 86,859,497 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

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LONE PINE RESOURCES INC.

INDEX TO FORM 10-Q

September 30, 2013

Monetary Amounts and Exchange Rate Data	iii
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012	1
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012	2
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012	2
Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2013 and 2012	3
Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2013	4
Notes to Condensed Consolidated Financial Statements	5
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3 - Quantitative and Qualitative Disclosures About Market Risk	46
Item 4 - Controls and Procedures	47
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings	48
Item 1A - Risk Factors	49
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3 - Defaults Upon Senior Securities	51
Item 4 - Mine Safety Disclosures	51
Item 5 - Other Information	51
Item 6 - Exhibits	51
Signatures	52
Exhibit Index	53

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MONETARY AMOUNTS AND EXCHANGE RATE DATA

In this Quarterly Report on Form 10-Q for the three- and nine-month periods ended September 30, 2013 (the “Quarterly Report”), references to “dollars,” “$” or “Cdn$” are to Canadian dollars and references to “U.S. dollars” or “US$” are to United States dollars. The noon-day Canadian to U.S. dollar exchange rates for Cdn$1.00, as reported by the Bank of Canada, were:

	Three Months Ended September 30,		Nine Months Ended September 30,		Year Ended December 31,
	2013	2012	2013	2012	2012
	US$	US$	US$	US$	US$
Highest rate during the period	0.9768	1.0299	1.0164	1.0299	1.0299
Lowest rate during the period	0.9455	0.9790	0.9455	0.9599	0.9599
Average noon spot rate during the period(1)	0.9629	1.0047	0.9770	0.9977	1.0004
Rate at the end of the period	0.9723	1.0166	0.9723	1.0166	1.0051

(1) Determined by averaging the rates on each business day during the respective period.

On November 4, 2013, the noon-day exchange rate was US$0.9602 for Cdn$1.00.

iii

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

LONE PINE RESOURCES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Under Creditor Protection Proceedings as of September 25, 2013 — See Notes 1, 2, 6 and 13)

(Unaudited)

(In thousands of Canadian dollars, except number of shares)

	September 30, 2013			December 31, 2012
ASSETS
Current assets:
Cash	$	8,308		$	28
Accounts receivable	11,591			16,502
Derivative instruments	—			4,409
Prepaid expenses and other current assets	6,911			4,947
Total current assets	26,810			25,886
Property and equipment, at cost:
Oil and natural gas properties, full cost method of accounting:
Proved, net of accumulated depletion of $1,641,670 and $1,590,015	344,579			376,203
Unproved	146,872			148,956
Net oil and natural gas properties	491,451			525,159
Other property and equipment, net of accumulated depreciation and amortization of $13,379 and $10,658	62,523			65,096
Net property and equipment	553,974			590,255
Other assets	2,223			6,662
	$	583,007		$	622,803
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank overdraft	$	—		$	4,872
Accounts payable and accrued liabilities	—			32,468
Accrued interest	—			7,742
Current portion of long-term debt - secured	182,477			—
Capital lease obligation - secured	1,309			1,217
Other current liabilities	983			2,564
Total current liabilities not subject to compromise	184,769			48,863

Current liabilities subject to compromise (Note 2)	222,588			—

Long-term debt	—			340,310
Asset retirement obligations	13,982			12,839
Capital lease obligation — secured	2,547			4,521
Other liabilities	1,222			1,308
Total long-term liabilities not subject to compromise	17,751			358,978
Stockholders’ equity:
Common stock, 86,859,497 and 85,192,955 shares issued and outstanding	852			835
Capital surplus	986,450			984,438
Accumulated deficit	(829,527		)	(770,494		)
Accumulated other comprehensive income	124			183
Total stockholders’ equity	157,899			214,962
	$	583,007		$	622,803

See accompanying notes to condensed consolidated financial statements.

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LONE PINE RESOURCES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Under Creditor Protection Proceedings as of September 25, 2013 — See Notes 1, 2, 6 and 13)

(Unaudited)

(In thousands of Canadian dollars, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012

Revenues:
Oil and natural gas	$	26,366		$	38,188		$	86,254		$	124,937
Interest and other	6			8			11			18
Total revenues	26,372			38,196			86,265			124,955
Costs, expenses and other:
Lease operating expenses	7,732			11,961			24,651			40,570
Production and property taxes	703			831			1,842			2,516
Transportation and processing	3,035			3,510			9,716			11,974
General and administrative	2,486			4,050			14,706			13,996
Depreciation, depletion and amortization	17,228			30,236			54,473			88,548
Ceiling test write-down of oil and natural gas properties	—			142,879			—			271,749
Interest expense	7,674			8,181			22,716			22,174
Accretion of asset retirement obligations	337			350			861			1,027
Foreign currency exchange (gains) losses	(4,383		)	(6,996		)	6,613			(3,023		)
Losses (gains) on derivative instruments	4,233			7,278			7,634			(10,990		)
Other, net	232			138			78			190
Reorganization costs	2,082			—			2,082			—
Total costs, expenses and other	41,359			202,418			145,372			438,731
Loss before income taxes	(14,987		)	(164,222		)	(59,107		)	(313,776		)
Income tax recovery	—			(39,921		)	(74		)	(74,932		)
Net loss	$	(14,987	)	$	(124,301	)	$	(59,033	)	$	(238,844	)
Basic and diluted loss per common share	$	(0.17	)	$	(1.46	)	$	(0.69	)	$	(2.81	)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Under Creditor Protection Proceedings as of September 25, 2013 — See Notes 1, 2, 6 and 13)

(Unaudited)

(In thousands of Canadian dollars)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012

Net loss	$	(14,987	)	$	(124,301	)	$	(59,033	)	$	(238,844	)
Other comprehensive income (loss):
Amortization of accumulated actuarial loss, net of tax	5			4			(59		)	14
Total other comprehensive income (loss)	5			4			(59		)	14
Comprehensive loss	$	(14,982	)	$	(124,297	)	$	(59,092	)	$	(238,830	)

See accompanying notes to condensed consolidated financial statements.

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LONE PINE RESOURCES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Under Creditor Protection Proceedings as of September 25, 2013 — See Notes 1, 2, 6 and 13)

(Unaudited)

(In thousands of Canadian dollars)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012

Operating activities:
Net loss	$	(14,987	)	$	(124,301	)	$	(59,033	)	$	(238,844	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	17,228			30,236			54,473			88,548
Ceiling test write-down of oil and natural gas properties	—			142,879			—			271,749
Amortization of deferred costs	660			648			1,921			1,750
Accretion of asset retirement obligations	337			350			861			1,027
Deferred income tax recovery	—			(39,921		)	(74		)	(74,932		)
Unrealized foreign currency exchange (gains) losses	(4,545		)	(6,963		)	6,515			(3,031		)
Unrealized losses (gains) on derivative instruments	(254		)	15,412			4,409			11,041
Stock-based compensation	231			1,141			3,009			2,861
Other, net	864			327			(2,928		)	(390		)
Changes in operating assets and liabilities:
Accounts receivable	132			1,587			4,913			11,938
Prepaid expenses and other current assets	187			(423		)	156			765
Accounts payable and accrued liabilities	(1,544		)	4,228			(9,838		)	(17,524		)
Accrued interest and other liabilities	4,813			(5,307		)	5,046			2,843
Net cash provided by operating activities	3,122			19,893			9,430			57,801
Investing activities:
Capital expenditures for property and equipment:
Exploration, development and acquisition costs	(2,877		)	(30,196		)	(39,965		)	(160,451		)
Other fixed assets	(65		)	(425		)	(148		)	(2,074		)
Proceeds from divestiture of assets, net	28			8,238			16,208			8,518
Net cash used in investing activities	(2,914		)	(22,383		)	(23,905		)	(154,007		)
Financing activities:
Repayment of long-term debt	—			—			(4,589		)	—
Net proceeds from issuance of long-term debt	—			—			—			192,052
Debt issuance costs	(189		)	—			(275		)	(1,295		)
Proceeds from bank borrowings	208,477			924,000			1,228,477			2,390,000
Repayments of bank borrowings	(204,000		)	(916,000		)	(1,194,000		)	(2,484,000		)
Change in bank overdrafts	—			(5,847		)	(4,872		)	454
Issuance of common stock	2			—			17			—
Capital lease payments	(1,281		)	(369		)	(1,882		)	(1,107		)
Other, net	27			1			(121		)	1
Net cash provided by financing activities	3,036			1,785			22,755			96,105
Net increase (decrease) in cash	3,244			(705		)	8,280			(101		)
Cash at beginning of period	5,064			880			28			276
Cash at end of period	$	8,308		$	175		$	8,308		$	175

See accompanying notes to condensed consolidated financial statements.

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LONE PINE RESOURCES INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Under Creditor Protection Proceedings as of September 25, 2013 — See Notes 1, 2, 6 and 13)

(Unaudited)

(In thousands of Canadian dollars, except number of shares)

										Accumulated
										Other			Total
	Common Stock			Capital			Accumulated			Comprehensive			Stockholders’
	Shares	Amount		Surplus			Deficit			Income(Loss)			Equity
	(In thousands)
Balances at December 31, 2012	85,193	$	835	$	984,438		$	(770,494	)	$	183		$	214,962
Issuance of common stock, net of tax	1,666	17		3,449			—			—			3,466
Amortization of stock-based compensation	—	—		2,608			—			—			2,608
Capital surplus related to vested stock-based compensation	—	—		(4,045		)	—			—			(4,045		)
Comprehensive income (loss):
Net loss	—	—		—			(59,033		)	—			(59,033		)
Other comprehensive (loss)	—	—		—			—			(59		)	(59		)
Balances at September 30, 2013	86,859	$	852	$	986,450		$	(829,527	)	$	124		$	157,899

See accompanying notes to condensed consolidated financial statements.

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LONE PINE RESOURCES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Under Creditor Protection Proceedings as of September 25, 2013 — See Notes 1, 2, 6 and 13)

(Unaudited)

(1) ORGANIZATION AND BASIS OF PRESENTATION

Organization

Lone Pine Resources Inc., a Delaware corporation (the “Company”), is an independent oil and natural gas exploration, development and production company with operations in Canada. Its reserves, producing properties and exploration prospects are located in the provinces of Alberta, British Columbia and Quebec, and in the Northwest Territories. The Company conducts operations in one industry segment, liquids and natural gas exploration, development and production, and in one country, Canada. The Company’s operations are primarily carried out by its wholly owned operating subsidiary, Lone Pine Resources Canada Ltd., an Alberta corporation (“LPR Canada”). Unless otherwise indicated or the context otherwise requires, references to “Lone Pine” refer to the Company and its consolidated subsidiaries, including LPR Canada.

Basis of Presentation

These condensed consolidated financial statements are presented in conformity with U.S. generally accepted accounting principles (“GAAP”) and, unless otherwise indicated, all amounts are expressed in Canadian dollars. Certain amounts from prior periods’ condensed consolidated financial statements have been reclassified to conform to the current period’s condensed consolidated financial statement presentation.

In connection with the commencement of the Creditor Protection Proceedings (as defined below), the Company adopted Accounting Standards Codification (“ASC”) No. 852 — Reorganization (“ASC 852”) during the third quarter of 2013. ASC 852 requires, among other things, the segregation of reorganization costs directly related to the Creditor Protection Proceedings and related proceedings, other related disclosures such as the use of statement headers (Under Creditor Protection Proceedings as of September 25, 2013 — See Notes 1,2,6 and 13) and the classification of balance sheet obligations, based on available information, as either subject to compromise, secured or if determinable, as under-secured.

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q as prescribed by the U.S. Securities and Exchange Commission (“SEC”). The Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Annual Report”) also includes a summary of significant accounting policies and should be read in conjunction with these financial statements. All adjustments that, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been reflected. The results for the three- and nine-month periods ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year or for any other period.

(2) CREDITOR PROTECTION PROCEEDINGS, LIQUIDITY AND GOING CONCERN

Creditor Protection Proceedings

On September 25, 2013, the Company commenced proceedings under the Companies’ Creditors Arrangement Act (“CCAA”) in the Court of Queen’s Bench of Alberta (the “CCAA Court”) and ancillary proceedings under Chapter 15 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “U.S. Bankruptcy Court”). The Company, LPR Canada and all other subsidiaries of the Company are parties to the CCAA and Chapter 15 proceedings (collectively, the “Creditor Protection Proceedings”).

The Creditor Protection Proceedings were filed to implement a plan of restructuring in accordance with Support Agreements (the “Support Agreements”), dated September 24, 2013, among the Company, LPR Canada and the Company’s other subsidiaries and

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certain holders of LPR Canada’s outstanding 10.375% Senior Notes due 2017 (the “Senior Notes”), who in the aggregate hold approximately 75% of the Senior Notes (the “Supporting Noteholders”). Pursuant to the Support Agreements, the Company has agreed to pursue a restructuring through a plan of compromise and arrangement under the CCAA, which will be subject to creditor and CCAA Court approval, and ancillary proceedings under Chapter 15 of the United States Bankruptcy Code for recognition of the CCAA proceedings. Subject to the terms and conditions of the Support Agreement, each of the Supporting Noteholders has agreed to support the restructuring plan and vote their claims under the Senior Notes in favor of its approval at any meeting of creditors to be held for that purpose.

Event of Default, Stay and Operation and Implication of the Creditor Protection Proceedings

The commencement of the Creditor Protection Proceedings constituted an event of default with respect to the following debt instruments:

· Indenture, dated February 14, 2012, among LPR Canada, as issuer, the other loan parties thereto, as guarantors, and U.S. National Bank Association, as trustee, under which approximately US$207.4 million principal and accrued interest was outstanding on the Senior Notes as of September 25, 2013; and

· Credit Agreement, dated March 18, 2011, among the Company, LPR Canada, JPMorgan Chase Bank, N.A., Toronto Branch as Administrative Agent and the other agents and lenders party thereto, as amended, under which approximately Cdn$180.0 million was outstanding as of September 25, 2013.

As a result of such event of default, all obligations under such instruments, by the terms thereof, became due and payable. However, under the CCAA and the United States Bankruptcy Code, initiation of the Creditor Protection Proceedings automatically stays most actions against a debtor, including most actions to collect indebtedness incurred prior to the initial CCAA filing date or to exercise control over property of a debtor. Accordingly, although commencement of the Creditor Protection Proceedings triggered defaults under these instruments, any efforts to enforce such payment obligations are stayed and the creditors’ rights of enforcement in respect thereof are subject to the applicable provisions of the CCAA and the United States Bankruptcy Code. Absent an order of the CCAA Court, substantially all pre-filing liabilities are subject to compromise under a plan of compromise and arrangement. As a result of the Creditor Protection Proceedings, the realization of assets and the satisfaction of liabilities are subject to uncertainty. For example, the Company may, subject to the terms of the Support Agreements and approval of the CCAA Court, sell or otherwise dispose of assets and liquidate or compromise liabilities for amounts other than those reflected in the consolidated financial statements. Further, a confirmed plan of compromise and arrangement may materially change the amounts and classifications in the Company’s historical consolidated financial statements.

In connection with the initial order of the CCAA Court (the “CCAA Initial Order”), the Company received approval from the CCAA Court to pay or otherwise honor certain pre-filing obligations generally designed to stabilize the Company’s operations including payment to certain critical suppliers and joint venture partners. The Company is paying, and intends to continue paying, claims arising after the initial CCAA filing date in the ordinary course of business. The Company has retained, pursuant to the Initial CCAA Initial Order, legal and financial professionals to advise the Company on the Creditor Protection Proceedings and certain other professionals to provide services and advice to the Company in the ordinary course of business. From time to time, the Company may seek CCAA Court approval to retain additional professionals.

The Company has incurred and expects to continue to incur significant costs associated with the restructuring and the Creditor Protection Proceedings. The amount of these expenses is expected to significantly affect the Company’s financial position and results of operations, but the Company cannot accurately predict the effect the Creditor Protection Proceedings will have on the Company’s business at this time.

Plan of Compromise and Arrangement

For the Company to successfully emerge from the Creditor Protection Proceedings, it must obtain the CCAA Court’s approval of a plan of compromise and arrangement, which will enable the Company to transition from the Creditor Protection Proceedings into ordinary course operations out of creditor protection. In connection with the plan of compromise and arrangement, the Company must also obtain a new credit facility, or “exit financing.” The Company’s ability to obtain such approval and financing will depend on, among other things, the timing and outcome of various ongoing matters in the Creditor Protection Proceedings. A plan of compromise and arrangement determines the rights and treatment of claims of various creditors and security holders, and is subject to the ultimate outcome of negotiations and CCAA Court decisions ongoing through the date on which the plan of compromise and arrangement is sanctioned.

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Although the Company has not filed a plan of compromise or arrangement or a related disclosure statement with the CCAA Court, the Company intends to propose a plan in accordance with the terms of the Support Agreements (the “Proposed Plan”). The Proposed Plan provides for the cancellation of all outstanding shares of Lone Pine common stock, the conversion of all Senior Notes into new common shares, and a new equity investment of US$100 million by holders of the Senior Notes (“Noteholders”) through an offering to eligible affected creditors (including the Noteholders), of convertible preferred shares (the “Share Offering”). The Company anticipates filing the Proposed Plan on or before November 29, 2013, unless otherwise extended by agreement of the Supporting Noteholders. Following submission of the Proposed Plan, the Company expects to take all actions necessary to obtain approval for it from the Company’s affected creditors and the CCAA Court on or before December 31, 2013. Under the Support Agreement, the outside date for implementation of the Proposed Plan is January 31, 2014, as contemplated by the terms of the Support Agreement. Generally, the Proposed Plan will provide, among other things, mechanisms for (i) settlement of claims against the Company; (ii) treatment of the Company’s existing equity and debt holders (including those treatments noted above); (iii) provision for exit financing; and (iv) certain corporate governance and administrative matters pertaining to the reorganized company.

The Company continues to have ongoing discussions with the Supporting Noteholders and PricewaterhouseCoopers Inc., in its capacity as the CCAA Court-appointed monitor of Lone Pine regarding the Proposed Plan and will continue to do so until the Proposed Plan is filed with the CCAA Court. The Proposed Plan is subject to revision prior to submission to the CCAA Court based upon those continuing discussions, and thereafter in response to those continuing discussions as well as creditor claims and objections and the requirements of the CCAA Court or the CCAA. There can be no assurance that the Company will be able to secure approval of the Proposed Plan by the CCAA Court, or that the Proposed Plan will be accepted by the Company’s creditors.

Financing During Pendency of the Creditor Protection Proceedings

During the pendency of the Creditor Protection Proceedings, the Company is funding operations pursuant to an order of the CCAA Court permitting the Company’s use of cash balances, working capital and available borrowings under a $10 million DIP Credit Facility (as defined and discussed below). As of November 4, 2013, the Company had not borrowed any amounts under the DIP Credit Facility.

Since approval of the DIP Credit Facility, the Company has focused on executing its strategic and operating initiatives and ensuring the smooth transition and maintenance of its business in creditor protection. However, there can be no assurance that cash on hand, cash generated through operations and other available funds will be sufficient to meet the Company’s restructuring or ongoing cash needs or that the Company will remain in compliance with all the necessary terms and conditions of the DIP Credit Agreement (as defined below) or that the lending commitments under the DIP Credit Agreement will not be terminated by the lenders.

Going Concern

The Company’s financial liquidity condition and the resulting commencement of the Creditor Protection Proceedings cast substantial doubt about the Company’s ability to continue as a going concern. Due to ongoing liquidity issues, the Company has failed to meet certain financial obligations and liabilities, including a significant interest payment on the Senior Notes. The Company is dependent on the outcome of the Creditor Protection Proceedings and requires additional financing in order to finance its business activities on an ongoing basis both during and following the Creditor Protection Proceedings.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the 12-month period following the date of these consolidated financial statements. The Company’s ability to continue as a going concern is contingent upon its ability to comply with the financial and other covenants contained in the DIP Credit Agreement, the CCAA Court’s approval of a plan of compromise and arrangement and the Company’s ability to successfully implement such plan and obtain exit financing, among other things. As a result of the Creditor Protection Proceedings, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating under the Creditor Protection Proceedings, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the terms of the Support Agreements and the approval of the CCAA Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the DIP Credit Agreement and the Support Agreements), for amounts other than those reflected in the accompanying condensed consolidated financial statements. Further, the plan of compromise and arrangement could materially change the amounts and classifications of assets and liabilities reported in the historical consolidated financial statements. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of certain liabilities that may result should the Company be unable to continue as a going concern or as a consequence of the Creditor Protection Proceedings.

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Financial Reporting in Reorganization

As outlined in Basis of Presentation (above), liabilities that are subject to compromise primarily represent unsecured pre-CCAA filing obligations of the Company that may be subject to impairment and settlement at lesser amounts through the Creditor Protection Proceedings. Under the terms of the CCAA Initial Order, dated September 25, 2013, and orders of the U.S. Bankruptcy Court, any actions to enforce or otherwise effect payment of these liabilities was stayed during the Creditor Protection Proceedings. As at September 30, 2013, these liabilities were classified separately as liabilities subject to compromise on the Company’s consolidated balance sheet at their unadjusted carrying values. The CCAA claim process is currently in early stages of progress. The extent of compromise, if any, is not determinable and is subject to future events, including completion of the CCAA claim process and the Creditor Protection Proceedings. Post-CCAA filing liabilities as at September 30, 2013 that are subject to the Creditor Protection Proceedings have not been segregated by the Company on the consolidated balance sheet due to the amounts not being material for the six-day period ended September 30, 2013.

As at September 30, 2013, current liabilities subject to compromise consisted of the following:

Accounts payable and accrued liabilities	$	15,101
Senior Notes	194,831
Pre-filing accrued interest on Senior Notes	12,656

Total current liabilities subject to compromise	$	222,588

During the Creditor Protection Proceedings, the Company has continued, and expects to continue, with its day-to-day operations, and employee obligations and any trade payables incurred after September 25, 2013 are expected to be paid or satisfied in the ordinary course.

The Company has reclassified all indebtedness outstanding under the Existing Credit Facility (as defined below) as a current liability in this Quarterly Report. As a result of the Creditor Protection Proceedings and in accordance with counterparty agreements, all financial instruments and related agreements were terminated with early settlements effective on or about September 26, 2013. The resulting realized loss in the amount of $2.5 million has been recognized in the third quarter and is classified as long-term debt - current portion as at September 30, 2013 pursuant to the provisions of the Existing Credit Facility.

Exchange Listing

Trading in the Company’s common stock on the Toronto Stock Exchange (“TSX”) was halted on September 25, 2013, and the Company’s common stock was subsequently delisted on October 31, 2013. Trading in the Company’s common stock on the New York Stock Exchange (“NYSE”) was suspended on September 16, 2013, and the Company’s common stock was subsequently removed from listing and registration on the NYSE on October 22, 2013. As a result of the Company’s financial position and the Creditor Protection Proceedings, the Company believes that its outstanding equity securities will likely have no value and will be canceled under any plan of compromise and arrangement including the Proposed Plan. As a result, the Company urges that caution be exercised with respect to existing and future investments in any of its currently outstanding securities.

See also Part I, “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, “Item 1A — Risk Factors”.

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(3) SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies have not changed from those reported in its 2012 Annual Report except for the adoption of ASC 852 discussed above. Other new standards adopted in 2013, are discussed below.

Recent Accounting Pronouncements

Standards Adopted in 2013

In the first quarter of 2013, the Company adopted Accounting Standards Update 2011-11, Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities and Accounting Standards Update 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which require disclosure of both gross and net information about certain financial instruments and transactions eligible for offset in the balance sheet or subject to an agreement similar to a master netting agreement. The adoption of these amendments did not have a material impact on the Company’s financial statements.

In the first quarter of 2013, the Company adopted Accounting Standards Update 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires enhanced disclosures about significant amounts reclassified out of accumulated other comprehensive income. The Company determined that its amounts reclassified out of accumulated other comprehensive income were not significant and, therefore, the amendments did not affect the Company’s financial statements.

Future Accounting Pronouncements

In the second quarter of 2013, the U.S. Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2013-07, Liquidation Basis of Accounting (“ASU 2013-07”), which requires entities to prepare their financial statements using the liquidation basis of accounting when the likelihood is remote that the entity will return from liquidation. This pronouncement is effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein, and are to be applied prospectively. The Company does not expect ASU 2013-07 to impact its accounting and disclosure requirements as the Company continues to present its financial statements, subject to the Creditor Protection Proceedings, on a going concern basis. The Company is monitoring possible future impacts and application.

In the first quarter of 2013, the FASB issued Accounting Standards Update 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date (“ASU 2013-04”), which clarifies guidance for the recognition, measurement and disclosure of liabilities resulting from joint and several liability arrangements. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and is to be applied retrospectively. If the Company enters into obligations affected by ASU 2013-04, the accounting and disclosure requirements will be applied.

In the first quarter of 2013, the FASB issued Accounting Standards Update 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”), which clarifies the applicable guidance for certain transactions that result in the release of the cumulative translation adjustment into net earnings. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and is to be applied prospectively. If the Company enters into any transactions affected by ASU 2013-05, the accounting and disclosure requirements will be applied.

(4) DISPOSITIONS

In the first and second quarters of 2013, Lone Pine completed the divestiture of certain non-core properties for proceeds of $13.7 million and $2.5 million, respectively, after closing adjustments and costs of disposition. The proceeds reduced the net book value of the oil and natural gas properties. No gain or loss was recognized in net earnings for the sales.

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(5) PROPERTY AND EQUIPMENT

Full Cost Method of Accounting

The Company uses the full cost method of accounting for oil and natural gas activities. The Company capitalizes all costs incurred in the acquisition, exploration and development of properties (including costs of surrendered and abandoned leaseholds, dry holes and overhead directly related to exploration and development activities), and the fair value of estimated future costs of site restoration, dismantlement and abandonment activities.

Under the full cost method, the Company performs a ceiling test calculation each quarter using prices that are based on the average of the first-day-of-the-month prices during the 12-month period prior to the reporting date. The full cost ceiling test is a limitation on capitalized costs prescribed by SEC Regulation S-X Rule 4-10. If the net capitalized costs for a cost center exceed the sum of SEC-prescribed calculated components, a ceiling test write-down is recognized to the extent of the excess capitalized costs.

No write-down was required for the three and nine months ended September 30, 2013. However, during 2012, as a result of a decline in the 12-month average trailing natural gas price, the Company’s internal estimate of its proved undeveloped natural gas volumes decreased significantly at June 30 and September 30, 2012 compared to December 31, 2011. This decrease in natural gas volumes reduced the Company’s internal estimate of the present value of future net revenue from proved reserves and resulted in the Company recognizing ceiling test write-downs of $142.9 million and $271.7 million before tax for the three and nine months ended September 30, 2012, respectively.

(6) LONG-TERM DEBT

The commencement of the Creditor Protection Proceedings constituted an event of default with respect to the following debt instruments:

· Indenture governing the Senior Notes, dated February 14, 2012, among LPR Canada, as issuer, the other loan parties thereto, as guarantors, and U.S. National Bank Association, as trustee, under which approximately US$207.4 million principal and accrued interest was outstanding on the Senior Notes as of September 25, 2013; and

In addition, all outstanding derivative instruments were terminated at the counterparties’ option upon the commencement of the Creditor Protection Proceedings. The net loss on the termination of these contracts has been applied to the outstanding Existing Credit Facility balance effective as of the date of termination.

As a result of the event of default, all obligations under these instruments, by the terms thereof, became due and payable. Any efforts to enforce such payment obligations are stayed as a result of the commencement of the Creditor Protection Proceedings and the creditors’ rights of enforcement in respect thereof are subject to the applicable provisions of the CCAA and the United States Bankruptcy Code. Accordingly, all other Existing Credit Facility covenants as at September 30, 2013 are no longer enforceable.

All indebtedness outstanding under the Existing Credit Facility is classified as a current liability in this Quarterly Report. The Senior Notes are included in liabilities subject to compromise as at September 30, 2013. See also Note 2 — Creditor Protection Proceedings, Liquidity and Going Concern.

As at the dates indicated, the components of the Company’s long-term debt and current portions were as follows.

	At September 30, 2013									At December 31, 2012
	(In thousands)
	Principal			Unamortized Discount			Total			Principal		Unamortized Discount		Total
Existing Credit Facility — secured	$	182,477		$	—		$	182,477		$	148,000	$	—	$	148,000
Senior Notes — subject to compromise	200,558			5,727			194,831			198,985		6,675		192,310
	383,035			5,727			377,308			346,985		6,675		340,310
Current portion of long-term debt	(182,477		)	—			(182,477		)	—		—		—

Current portion of long-term debt— liabilities subject to compromise (Note 2)	(200,558		)	(5,727		)	(194,831		)	—		—		—
Long-term debt	$	—		$	—		$	—		$	346,985	$	6,675	$	340,310

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Existing Credit Facility - Secured

Lone Pine maintains a $500 million credit facility (the “Existing Credit Facility”) with a syndicate of banks led by JPMorgan Chase Bank, N.A., Toronto Branch. The Existing Credit Facility was to mature on March 18, 2016 and its availability was governed by a borrowing base. Acceleration of the maturity of the indebtedness under the Existing Credit Facility occurs automatically in the case of a bankruptcy or insolvency event. Effective September 25, 2013 and upon commencement of the Creditor Protection Proceedings, maturity of the Existing Credit Facility was accelerated, which led to a cross default under the Indenture and an acceleration of the maturity of the Senior Notes, and the Company has no further ability to borrow thereunder. See also Note 2 — Creditor Protection Proceedings, Liquidity and Going Concern.

The borrowing base under the Existing Credit Facility was $185 million at September 30, 2013 (December 31, 2012 - $275 million). At September 30, 2013, the Company had $183 million outstanding (including financial derivative termination settlements) (December 31, 2012 - $148 million), at a weighted average interest rate of 4.7%.

Senior Notes — Subject to Compromise

On February 14, 2012, LPR Canada issued US$200 million aggregate principal amount of Senior Notes. The Senior Notes were issued pursuant to an indenture, dated February 14, 2012 (the “Indenture”), among LPR Canada, certain guarantors and U.S. Bank National Association, as trustee.

DIP Credit Facility — Subject to Creditor Protection Proceedings

In connection with the Creditor Protection Proceedings and in order to provide liquidity during the Creditor Protection Proceedings, on October 24, 2013, the Company and LPR Canada entered into a credit agreement (the “DIP Credit Agreement”) with respect to a $10 million debtor-in-possession credit facility (the “DIP Credit Facility”). Certain of the lenders under the Existing Credit Facility are lenders under the DIP Credit Facility, and the agent under the Existing Credit Facility serves as administrative agent under the DIP Credit Facility. Pursuant to the terms of the DIP Credit Agreement, (i) the lenders agreed to lend LPR Canada up to $10 million, which loans will bear interest at the Canadian Prime Rate (as defined in the DIP Credit Agreement), plus 5.00%, (ii) the Company and each Restricted Subsidiary (as defined in the DIP Credit Agreement) agreed to guarantee LPR Canada’s obligations thereunder, and (iii) the Obligations (as defined in the DIP Credit Agreement) are and shall be at all times secured by the liens in all collateral created by the DIP Charge (as defined in the DIP Credit Agreement) and all such liens shall be first priority liens subject only to the Administration Charge (as defined in the DIP Credit Agreement). LPR Canada is obligated to pay the agent an upfront fee of 2% and the lenders a commitment fee of 0.75% of unutilized commitments. Proceeds of loans under the DIP Credit Facility may be used to provide for working capital, capital expenditures and other expenditures during the course of the Creditor Protection Proceedings, in accordance with the terms of the DIP Credit Agreement. The DIP Credit Facility matures on March 25, 2014.

In addition to customary affirmative covenant obligations, the DIP Credit Agreement provides for certain information delivery requirements to each lender and the agent, including (i) quarterly and annual financial statements, (ii) weekly delivery of actual receipts and disbursements with a variance analysis against the cash flow model most recently filed with the CCAA Court and (iii) monthly financial results. LPR Canada is also obligated to obtain, on or before November 13, 2013, a fully executed commitment letter from a replacement lender (or lenders) providing for credit facilities, which together with the proceeds of the Share Offering contemplated in the Proposed Plan, would be sufficient to repay in full all obligations outstanding under the Existing Credit Facility.

The DIP Credit Agreement also contains a financial covenant, which requires that for any particular week in which any amounts are outstanding under the DIP Credit Agreement, at the end of such week there will be no negative variance in LPR Canada’s actual net change in cash flow from that set out in the cash flow model most recently filed with the CCAA Court in excess of: (i) for such week, the greater of $500,000 or 15% and (ii) in the aggregate from the date of the CCAA Initial Order through such week, the greater of $1,000,000 and 15%; provided, however, that any newly filed cash flow model shall not, absent approval of lenders holding at least 66 2/3%

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of the loan commitments, contain a Material Adverse Change (as defined in the DIP Credit Agreement) in aggregate revenues or expenses from the cash flow model most recently filed with the CCAA Court.

The DIP Credit Agreement also contains customary negative covenants restricting certain of the Company and LPR Canada’s activities, including restrictions on their ability to incur indebtedness, incur liens, consummate certain fundamental changes, make investments, dispose of assets, enter into sale and lease transactions, enter into hedging agreements, make restricted payments and enter into transactions with affiliates. Furthermore, the DIP Credit Agreement contains customary events of default, which include a plan of compromise and arrangement not being sanctioned by the CCAA Court prior to December 31, 2013 and certain other insolvency proceeding-related events of default. LPR Canada’s ability to access the commitments under the DIP Credit Facility may be impaired in the event that it or the Company does not comply with the covenant requirements or if it defaults on its obligations under the DIP Credit Agreement.

(7) DERIVATIVE INSTRUMENTS

Commodity Derivatives

Lone Pine has historically entered into derivative instruments to manage its exposure to commodity price risk caused by fluctuations in commodity prices, which have served to protect and provide certainty on a portion of the Company’s cash flows. Lone Pine’s commodity derivative instruments have generally served as effective economic hedges of commodity price exposure. Lone Pine elected not to designate its derivatives as hedging instruments for accounting purposes and recognized all changes in fair value of its derivative instruments as unrealized gains or losses on derivative instruments in the Condensed Consolidated Statements of Operations.

Effective September 25, 2013 in conjunction with the Creditor Protection Proceedings (see Note 2), all derivative instrument agreements were terminated, and final realized settlements have been recognized in this Quarterly Report.

The table below shows the amounts reported in the Condensed Consolidated Statements of Operations as gains and losses on derivative instruments for the periods indicated.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013		2012
	(In thousands)
Realized (gains) losses on derivative instruments	$	4,487		$	(8,134	)	$	3,225	$	(22,031	)
Unrealized (gains) losses on derivative instruments	(254		)	15,412			4,409		11,041
Losses (gains) on derivative instruments	$	4,233		$	7,278		$	7,634	$	(10,990	)

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(8) FAIR VALUE MEASUREMENTS

FASB’s Accounting Standards Codification 820 Fair Value Measurement establishes a three-tier fair value hierarchy that prioritizes the inputs used to measure fair value. These tiers consist of: Level 1, defined as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs used when little or no market data exists, therefore requiring an entity to develop its own assumptions. The carrying amounts and fair values of Lone Pine’s financial instruments are summarized below.

	Fair Value	At September 30, 2013				At December 31, 2012
	Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Assets:
Cash	—	$	8,308	$	8,308	$	28	$	28
Accounts receivable	—	11,591		11,591		16,502		16,502
Derivative instruments	2	—		—		5,703		5,703
Liabilities:
Bank overdraft	—	—		—		4,872		4,872
Accounts payable and accrued liabilities	—	—		—		32,468		32,468
Accrued interest	—	—		—		7,742		7,742
Derivative instruments	2	—		—		1,294		1,294
Current portion of long-term debt (Existing Credit Facility)	2	182,477		182,477		—		—

Current liabilities subject to compromise:
Accounts payable and accrued liabilities	—	15,101		15,101		—		—
Accrued interest	—	12,656		12,656		—		—
Current portion of long-term debt (Senior Notes)	1	194,831		120,903		—		—
Total current liabilities subject to compromise		222,588		148,660		—		—

Long-term debt:
Existing Credit Facility	2	—		—		148,000		148,000
Senior Notes	1	—		—		192,310		186,046
Total long-term debt		—		—		340,310		334,046
Capital lease obligation	2	3,856		3,856		5,738		5,738

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The Company uses various assumptions and methods in estimating the fair values of its financial instruments. All of the estimates of fair value were determined using significant other observable inputs (Level 2), except for the fair value of the Senior Notes, which was determined based on the unadjusted quoted price in an active market (Level 1) given that the Senior Notes are actively traded in a private market with an independent quoted price available from a third party. The carrying amount of the Senior Notes has been reduced by the original issue discount and commissions, while the fair value of the Senior Notes at September 30, 2013 is based on its face amount of US$195 million (December 31, 2012 - US$200 million) and market price of US$60.313 per US$100 face amount (December 31, 2012 - US$93.50 per US$100). The carrying amount of the Existing Credit Facility approximates fair value since the borrowings bear interest at variable market rates. The carrying amount of the capital lease obligation approximates fair value, as interest rates have not materially changed since the lease was executed.

The valuation of the current liabilities subject to compromise is subject to the Creditor Protection Proceedings, which are currently in their early stages. Accordingly, future adjustments to the September 30, 2013 carrying amounts and fair values are not determinable at this time.

The Company’s derivative instrument assets and liabilities are commodity derivatives. See Note 7 for additional information on these instruments. The Company utilized present value techniques to value its derivatives. Inputs to the valuations include published forward prices and credit risk considerations, including the incorporation of published interest rates and credit spreads. All of the significant inputs were observable, therefore the Company’s derivative instruments were included within the Level 2 fair value hierarchy.

The fair values of the other financial instruments, including cash, accounts receivable, bank overdraft, accounts payable and accrued liabilities, and accrued interest approximate their carrying amount due to their short-term nature.

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(9) LOSS PER SHARE

The Company calculates basic and diluted loss per share of common stock as follows.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(In thousands)
Net loss	$	(14,987	)	$	(124,301	)	$	(59,033	)	$	(238,844	)
Net earnings attributable to participating securities	—			—			—			—
Net loss attributable to common stock for basic and diluted earnings per share	$	(14,987	)	$	(124,301	)	$	(59,033	)	$	(238,844	)
Weighted average number of shares of common stock outstanding during the period for basic earnings per share	86,584			85,016			86,089			85,008
Dilutive effects of potential shares of common stock	—			—			—			—
Weighted average number of shares of common stock outstanding during the period, including the effects of dilutive potential shares of common stock, for diluted earnings per share	86,584			85,016			86,089			85,008
Basic loss per share of common stock	$	(0.17	)	$	(1.46	)	$	(0.69	)	$	(2.81	)
Diluted loss per share of common stock	$	(0.17	)	$	(1.46	)	$	(0.69	)	$	(2.81	)

At September 30, 2013, approximately 1.2 million (September 30, 2012 — 1.8 million) potential shares of common stock were excluded from the diluted loss per share of common stock calculation as the effect was anti-dilutive.

(10) STOCK-BASED COMPENSATION

The following table reconciles the change in number of units outstanding for each of the Company’s long-term incentive plans for the nine months ended September 30, 2013.

	Phantom Stock Units — Stock		Phantom Stock Units — Cash or Cash or Stock		Performance Units		Stock Options		Restricted Stock		Total
Outstanding as of December 31, 2012	979,530		400,551		—		644,706		67,935		2,092,722
Awarded	636,166		4,790,081		2,671,171		—		271,740		8,369,158
Vested	(910,380	)	(1,631,977	)	(1,254,330	)	—		(67,935	)	(3,864,622	)
Forfeited	(96,669	)	(420,786	)	—		(67,224	)	—		(584,679	)
Cancelled	—		—		—		(255,188	)	—		(255,188	)
Outstanding as of September 30, 2013	608,647		3,137,869		1,416,841		322,294		271,740		5,757,391
Outstanding as of September 30, 2012	1,014,132		460,208		—		646,856		67,935		2,189,131

At September 30, 2013, the Company had 322,294 stock options outstanding, of which 112,538 had vested with the majority being exercisable no later than the first quarter of 2017.

Subsequent to September 30, 2013, the Company’s common stock was delisted on both the NYSE and TSX. Accordingly, stock based compensation programs are subject to future amendments or cancellation, and are currently being evaluated. An estimated related non-cash expense of approximately $3.0 million for unrecognized stock-based compensation amounts at September 30, 2013 is expected to be recorded in a future period.

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(11) EMPLOYEE TERMINATION BENEFITS

In the first half of 2013, Lone Pine implemented a cost-reduction measure to reduce its ongoing general and administrative expenses. As a result, in the nine months ended September 30, 2013, Lone Pine recorded charges totaling approximately $3.2 million in general and administrative expenses in the Condensed Consolidated Statements of Operations for wages and benefits related to employee terminations, including cash payments of approximately $2.7 million.

(12) INCOME TAXES

The Company’s combined Canadian federal and provincial statutory income tax rate was 25% for each of the three- and nine-month periods ended September 30, 2013 and 2012. The effective income tax rate for each of the three- and nine-month periods ended September 30, 2013 was 0% (2012 — 24% and 24%, respectively).

(13) REORGANIZATION COSTS

The Company has segregated certain costs that are directly related to the Creditor Protection Proceedings in this Quarterly Report in accordance with ASC 852. For the three and nine months ended September 30, 2013, the total reorganization costs were $2.1 million and was comprised of $1.8 million of professional fees and $0.3 million for the Retention Program (as defined below). As at September 30, 2013 approximately $1.1 million of reorganization costs is included in accrued liabilities.

On September 11, 2013, the compensation committee of the board of directors of the Company implemented an employee retention program (the “Retention Program”) for key employees of LPR Canada, including the Company’s named executive officers. The Retention Program was put in place following staff reductions completed in the first half of 2013, and is intended to incentivize key employees and executive officers to remain employed with LPR Canada until at least January 31, 2014. Pursuant to the Retention Program, eligible participants will receive a cash retention award on the earlier of (1) January 31, 2014 and (2) the date on which the Company terminates the participant’s employment without cause (as determined in accordance with the Company’s policies and applicable law). In the event that a retention award is paid prior to January 31, 2014 as a result of a termination without cause, the amount payable will be prorated to the date of termination. On September 25, 2013, the Retention Program was approved in the CCAA Initial Order.

(14) CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Senior Notes are guaranteed on a senior unsecured basis by the Company (the “Parent Guarantor”) and all of the Company’s subsidiaries, other than LPR Canada (the “Subsidiary Guarantors”, and together with the Parent Guarantor, the “Guarantors”). These guarantees are full and unconditional, and joint and several among the Guarantors. See Note 6 for further information on the Senior Notes.

A Subsidiary Guarantor’s guarantee may be released automatically under the following customary circumstances: (i) in the event the Subsidiary Guarantor is sold or disposed of (whether by merger, amalgamation, consolidation, the sale of a sufficient amount of its capital stock so that it no longer qualifies as a “Subsidiary” (as defined in the Indenture) of the Parent Guarantor or the sale of all or substantially all of its assets (other than by lease)) to a person which is not the Parent Guarantor or a “Restricted Subsidiary” (as defined in the Indenture); (ii) at such time as such Subsidiary Guarantor ceases to guarantee any other indebtedness of LPR Canada (the “Subsidiary Issuer”), the Parent Guarantor or another Subsidiary Guarantor that resulted in the obligation of such Subsidiary Guarantor to guarantee the Senior Notes, except a discharge or release by or as a result of payment under such guarantee; (iii) if the Parent Guarantor designates that Subsidiary Guarantor as an unrestricted subsidiary in accordance with the applicable provisions of the Indenture; or (iv) upon covenant defeasance, legal defeasance or satisfaction and discharge of the Senior Notes as provided in the Indenture. The Parent Guarantor will be released from its obligations under the Indenture only in connection with any such legal defeasance or satisfaction and discharge of the Senior Notes as provided in the Indenture.

The following financial information reflects consolidating financial information of the Subsidiary Issuer and the Guarantors on a combined basis, prepared on the equity basis of accounting. The Parent Guarantor has no independent assets or operations. The Subsidiary Issuer and the Guarantors other than Lone Pine Resources Inc. (the “Combined Guarantor Subsidiaries”), are 100% owned by the Parent Guarantor. The information is presented in accordance with the requirements of SEC Rule 3-10 of Regulation S-X. The information may not necessarily be indicative of results of operations, cash flows or financial position had the Guarantors operated as independent entities. The Company has not presented separate financial narrative information for each of the Guarantors because it believes such financial and narrative information would not provide any additional information that would be material in evaluating the sufficiency of the guarantees provided by the Guarantors.

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CONDENSED CONSOLIDATING BALANCE SHEET

(In thousands of Canadian dollars)

	At September 30, 2013
	Parent Guarantor			Combined Guarantor Subsidiaries		Subsidiary Issuer			Eliminations			Consolidated

ASSETS
Current assets:
Cash	$	30		$	—	$	8,278		$	—		$	8,308
Accounts receivable	1,099			492		11,214			(1,214		)	11,591
Prepaid expenses and other current assets	423			—		6,488			—			6,911
Total current assets	1,552			492		25,980			(1,214		)	26,810
Property and equipment, at cost:
Oil and natural gas properties, full cost method of accounting:
Proved, net of accumulated depletion	—			—		344,579			—			344,579
Unproved	—			—		146,872			—			146,872
Net oil and natural gas properties	—			—		491,451			—			491,451
Other property and equipment, net of accumulated depreciation and amortization	—			—		62,523			—			62,523
Net property and equipment	—			—		553,974			—			553,974
Investment in affiliate	55,356			58,063		—			(113,419		)	—
Other assets	—					2,223			—			2,223
	$	56,908		$	58,555	$	582,177		$	(114,633	)	$	583,007
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	—		$	—	$	—		$	—		$	—
Current portion of long-term debt — secured	—			—		182,477			—			182,477
Capital lease obligation - secured	—			—		1,309			—			1,309
Other current liabilities	33			—		950			—			983
Total current liabilities not subject to compromise	33			—		184,736			—			184,769
Current liabilities subject to compromise (note 2)	184			—		223,618			(1,214		)	222,588
Long-term debt	—			—		—			—			—
Asset retirement obligations	—			—		13,982			—			13,982
Capital lease obligation - secured	—			—		2,547			—			2,547
Other liabilities	23			—		1,199			—			1,222
Total long-term liabilities not subject to compromise	23			—		17,728			—			17,751
Stockholders’ equity:
Common stock	852			39,135		832,750			(871,885		)	852
Capital surplus	367,003			19,027		143,138			457,282			986,450
Retained earnings (accumulated deficit)	(311,592		)	393		(819,512		)	301,184			(829,527		)
Accumulated other comprehensive income (loss)	405			—		(281		)	—			124
Total stockholders’ equity	56,668			58,555		156,095			(113,419		)	157,899
	$	56,908		$	58,555	$	582,177		$	(114,633	)	$	583,007

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CONDENSED CONSOLIDATING BALANCE SHEET

(In thousands of Canadian dollars)

	At December 31, 2012
	Parent Guarantor			Combined Guarantor Subsidiaries		Subsidiary			Eliminations			Consolidated
ASSETS
Current assets:
Cash	$	—		$	—	$	28		$	—		$	28
Accounts receivable	3,198			486		16,129			(3,311		)	16,502
Derivative instruments	—			—		4,409			—			4,409
Prepaid expenses and other current assets	148			—		4,799			—			4,947
Total current assets	3,346			486		25,365			(3,311		)	25,886
Property and equipment, at cost:
Oil and natural gas properties, full cost method of accounting:
Proved, net of accumulated depletion	—			—		376,203			—			376,203
Unproved	—			—		148,956			—			148,956
Net oil and natural gas properties	—			—		525,159			—			525,159
Other property and equipment, net of accumulated depreciation and amortization	—			—		65,096			—			65,096
Net property and equipment	—			—		590,255			—			590,255
Investment in affiliate	110,882			58,063		—			(168,945		)	—
Other assets	—			—		6,662			—			6,662
	$	114,228		$	58,549	$	622,282		$	(172,256	)	$	622,803
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank overdraft	$	44		$	—	$	4,828		$	—		$	4,872
Accounts payable and accrued liabilities	241			—		35,538			(3,311		)	32,468
Accrued interest	—			—		7,742			—			7,742
Capital lease obligation - secured	—			—		1,217			—			1,217
Other current liabilities	164			—		2,400			—			2,564
Total current liabilities not subject to compromise	449			—		51,725			(3,311		)	48,863
Current liabilities subject to compromise	—			—		—			—			—

Long-term debt	—			—		340,310			—			340,310
Asset retirement obligations	—			—		12,839			—			12,839
Capital lease obligation - secured	—			—		4,521			—			4,521
Other liabilities	107			—		1,201			—			1,308
Total long-term liabilities not subject to compromise	107			—		358,871			—			358,978
Stockholders’ equity:
Common stock	835			39,135		832,750			(871,885		)	835
Capital surplus	364,991			19,027		143,138			457,282			984,438
Retained earnings (accumulated deficit)	(252,559		)	387		(763,980		)	245,658			(770,494		)
Accumulated other comprehensive income (loss)	405			—		(222		)	—			183
Total stockholders’ equity	113,672			58,549		211,686			(168,945		)	214,962
	$	114,228		$	58,549	$	622,282		$	(172,256	)	$	622,803

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(In thousands of Canadian dollars)

	Three Months Ended September 30, 2013
	Parent Guarantor			Combined Guarantor Subsidiaries			Subsidiary Issuer			Eliminations			Consolidated

Revenues:
Oil and natural gas	$	—		$	—		$	26,366		$	—		$	26,366
Interest and other	—			—			6			—			6
Total revenues	—			—			26,372			—			26,372
Costs, expenses and other:
Lease operating expenses	—			—			7,732			—			7,732
Production and property taxes	—			—			703			—			703
Transportation and processing	—			—			3,035			—			3,035
General and administrative	839			5			1,642			—			2,486
Depreciation, depletion and amortization	—			—			17,228			—			17,228
Interest expense	—			—			7,674			—			7,674
Accretion of asset retirement obligations	—			—			337			—			337
Foreign currency exchange losses (gains)	20			10			(4,413		)	—			(4,383		)
Loss (gains) on derivative instruments	—			—			4,233			—			4,233
Equity loss in affiliates	14,128			—			—			(14,128		)	—
Reorganization costs	—			—			2,082						2,082
Other, net	—			—			232			—			232
Total costs, expenses and other	14,987			15			40,485			(14,128		)	41,359
Earnings (loss) before income taxes	(14,987		)	(15		)	(14,113		)	14,128			(14,987		)
Income tax expense	—			—			—			—			—
Net earnings (loss)	$	(14,987	)	$	(15	)	$	(14,113	)	$	14,128		$	(14,987	)

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands of Canadian dollars)

	Three Months Ended September 30, 2013
	Parent Guarantor			Combined Guarantor Subsidiaries			Subsidiary Issuer			Eliminations		Consolidated

Net earnings (loss)	$	(14,987	)	$	(15	)	$	(14,113	)	$	14,128	$	(14,987	)
Other comprehensive income:
Amortization of accumulated actuarial loss, net of tax	—			—			5			—		5
Total other comprehensive income	—			—			5			—		5
Comprehensive (loss) income	$	(14,987	)	$	(15	)	$	(14,108	)	$	14,128	$	(14,982	)

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(In thousands of Canadian dollars)

	Three Months Ended September 30, 2012
	Parent Guarantor			Combined Guarantor Subsidiaries			Subsidiary Issuer			Eliminations			Consolidated

Revenues:
Oil and natural gas	$	—		$	—		$	38,188		$	—		$	38,188
Interest and other	—			—			8			—			8
Total revenues	—			—			38,196			—			38,196
Costs, expenses and other:
Lease operating expenses	—			—			11,961			—			11,961
Production and property taxes	—			—			831			—			831
Transportation and processing	—			—			3,510			—			3,510
General and administrative	1,089			2			2,959			—			4,050
Depreciation, depletion and amortization	—			—			30,236			—			30,236
Ceiling test write-down of oil and natural gas properties	—			—			142,879			—			142,879
Interest expense	—			—			8,181			—			8,181
Accretion of asset retirement obligations	—			—			350			—			350
Foreign currency exchange losses (gains)	29			17			(7,042		)	—			(6,996		)
Gains on derivative instruments	—			—			7,278			—			7,278
Equity loss in affiliates	123,180			—			—			(123,180		)	—
Other, net	3			—			135			—			138
Total costs, expenses and other	124,301			19			201,278			(123,180		)	202,418
Earnings (loss) before income taxes	(124,301		)	(19		)	(163,082		)	123,180			(164,222		)
Income tax recovery	—			—			(39,921		)	—			(39,921		)
Net earnings (loss)	$	(124,301	)	$	(19	)	$	(123,161	)	$	123,180		$	(124,301	)

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands of Canadian dollars)

	Three Months Ended September 30, 2012
	Parent Guarantor			Combined Guarantor Subsidiaries			Subsidiary Issuer			Eliminations		Consolidated

Net earnings (loss)	$	(124,301	)	$	(19	)	$	(123,161	)	$	123,180	$	(124,301	)
Other comprehensive income:
Amortization of accumulated actuarial loss, net of tax	—			—			4			—		4
Total other comprehensive income	—			—			4			—		4
Comprehensive (loss) income	$	(124,301	)	$	(19	)	$	(123,157	)	$	123,180	$	(124,297	)

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CONDENSED CONSOLIDATING SCHEDULE OF OPERATIONS

(In thousands of Canadian dollars)

	Nine Months Ended September 30, 2013
	Parent Guarantor			Combined Guarantor Subsidiaries			Subsidiary Issuer			Eliminations			Consolidated

Revenues:
Oil and natural gas	$	—		$	—		$	86,254		$	—		$	86,254
Interest and other	—			—			11			—			11
Total revenues	—			—			86,265			—			86,265
Costs, expenses and other:
Lease operating expenses	—			—			24,651			—			24,651
Production and property taxes	—			—			1,842			—			1,842
Transportation and processing	—			—			9,716			—			9,716
General and administrative	3,595			10			11,101			—			14,706
Depreciation, depletion and amortization	—			—			54,473			—			54,473
Interest expense	—			—			22,716			—			22,716
Accretion of asset retirement obligations	—			—			861			—			861
Foreign currency exchange losses (gains)	(88		)	(16		)	6,717			—			6,613
Losses on derivative instruments	—			—			7,634			—			7,634
Equity loss in affiliates	55,526			—			—			(55,526		)	—
Reorganization costs	—			—			2,082			—			2,082
Other, net	—			—			78			—			78
Total costs, expenses and other	59,033			(6		)	141,871			(55,526		)	145,372
Earnings (loss) before income taxes	(59,033		)	6			(55,606		)	55,526			(59,107		)
Income tax recovery	—			—			(74		)	—			(74		)
Net earnings (loss)	$	(59,033	)	$	6		$	(55,532	)	$	55,526		$	(59,033	)

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands of Canadian dollars)

	Nine Months Ended September 30, 2013
	Parent Guarantor			Combined Guarantor Subsidiaries		Subsidiary Issuer			Eliminations		Consolidated

Net earnings (loss)	$	(59,033	)	$	6	$	(55,532	)	$	55,526	$	(59,033	)
Other comprehensive income (loss):
Amortization of accumulated actuarial loss, net of tax	—			—		(59		)	—		(59		)
Total other comprehensive income	—			—		(59		)	—		(59		)
Comprehensive (loss) income	$	(59,033	)	$	6	$	(55,591	)	$	55,526	$	(59,092	)

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(In thousands of Canadian dollars)

	Nine Months Ended September 30, 2012
	Parent Guarantor			Combined Guarantor Subsidiaries			Subsidiary Issuer			Eliminations			Consolidated

Revenues:
Oil and natural gas	$	—		$	—		$	124,937		$	—		$	124,937
Interest and other	—			—			18			—			18
Total revenues	—			—			124,955			—			124,955
Costs, expenses and other:
Lease operating expenses	—			—			40,570			—			40,570
Production and property taxes	—			—			2,516			—			2,516
Transportation and processing	—			—			11,974			—			11,974
General and administrative	2,854			5			11,137			—			13,996
Depreciation, depletion and amortization	—			—			88,548			—			88,548
Ceiling test write-down of oil and natural gas properties	—			—			271,749			—			271,749
Interest expense	—			—			22,174			—			22,174
Accretion of asset retirement obligations	—			—			1,027			—			1,027
Foreign currency exchange losses (gains)	66			16			(3,105		)	—			(3,023		)
Gains on derivative instruments	—			—			(10,990		)	—			(10,990		)
Equity loss in affiliates	235,871			—			—			(235,871		)	—
Other, net	53			—			137			—			190
Total costs, expenses and other	238,844			21			435,737			(235,871		)	438,731
Earnings (loss) before income taxes	(238,844		)	(21		)	(310,782		)	235,871			(313,776		)
Income tax recovery	—			—			(74,932		)	—			(74,932		)
Net earnings (loss)	$	(238,844	)	$	(21	)	$	(235,850	)	$	235,871		$	(238,844	)

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands of Canadian dollars)

	Nine Months Ended September 30, 2012
	Parent Guarantor			Combined Guarantor Subsidiaries			Subsidiary Issuer			Eliminations		Consolidated

Net earnings (loss)	$	(238,844	)	$	(21	)	$	(235,850	)	$	235,871	$	(238,844	)
Other comprehensive income:
Amortization of accumulated actuarial loss, net of tax	—			—			14			—		14
Total other comprehensive income	—			—			14			—		14
Comprehensive (loss) income	$	(238,844	)	$	(21	)	$	(235,836	)	$	235,871	$	(238,830	)

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In thousands of Canadian dollars)

	Three Months Ended September 30, 2013
	Parent Guarantor			Combined Guarantor Subsidiaries			Subsidiary Issuer			Eliminations			Consolidated

Operating activities:
Net earnings (loss)	$	(14,987	)	$	(15	)	$	(14,113	)	$	14,128		$	(14,987	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization	—			—			17,228			—			17,228
Amortization of deferred costs	—			—			660			—			660
Accretion of asset retirement obligations	—			—			337			—			337
Unrealized foreign currency exchange gains	—			—			(4,545		)	—			(4,545		)
Unrealized gains on derivative instruments	—			—			(254		)	—			(254		)
Stock-based compensation	141			—			90			—			231
Equity loss in affiliates	14,128			—			—			(14,128		)	—
Other, net	—			—			864			—			864
Changes in operating assets and liabilities:
Accounts receivable	13			—			119			—			132
Prepaid expenses and other current assets	200			—			(13		)	—			187
Accounts payable and accrued liabilities	(282		)	—			(1,262		)	—			(1,544		)
Accrued interest and other current liabilities	—			—			4,813			—			4,813
Net cash provided by (used in) operating activities	(787		)	(15		)	3,924			—			3,122
Investing activities:
Capital expenditures for property and equipment:
Exploration, development and acquisition costs	—			—			(2,877		)	—			(2,877		)
Other fixed assets	—			—			(65		)	—			(65		)
Proceeds from divestiture of assets, net	—			—			28			—			28
Net cash used in investing activities	—			—			(2,914		)	—			(2,914		)
Financing activities:
Repayment of long-term debt	—			—			—			—			—
Debt issuance costs	—			—			(189		)	—			(189		)
Proceeds from bank borrowings	—			—			208,477			—			208,477
Repayments of bank borrowings	—			—			(204,000		)	—			(204,000		)
Change in intercompany balances	803			15			(818		)	—			—
Change in bank overdrafts	—			—			—			—			—
Issuance of common stock	2			—			—			—			2
Capital lease payments	—			—			(1,281		)	—			(1,281		)
Other, net	—			—			27			—			27
Net cash provided by (used in) financing activities	805			15			2,216			—			3,036
Net increase in cash	18			—			3,226			—			3,244
Cash at beginning of period	12			—			5,052			—			5,064
Cash at end of period	$	30		$	—		$	8,278		$	—		$	8,308

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In thousands of Canadian dollars)

	Three Months Ended September 30, 2012
	Parent Guarantor			Combined Guarantor Subsidiaries			Subsidiary Issuer			Eliminations		Consolidated

Operating activities:
Net earnings (loss)	$	(124,301	)	$	(19	)	$	(123,161	)	$	123,180	$	(124,301	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:

Lone Pine Resources Inc. 10-Q