TEXT-S&P affirms 2 Glenn Pool Oil & Gas Trusts ratings

Wed Nov 28, 2012 12:17pm EST

OVERVIEW
     -- Glenn Pool Oil & Gas Trust I's senior secured loan and Glenn Pool Oil 
& Gas Trust II's senior secured notes are both backed by the overriding 
royalty interest in the production of gas, oil, and natural gas liquid (NGL) 
from Chesapeake Exploration LLC's portfolio of wells located in Oklahoma.
     -- We affirmed our 'BBB (sf)' ratings on Glenn Pool Oil & Gas Trust I's 
senior secured loans and Glenn Pool Oil & Gas Trust II's senior secured notes.
     -- The affirmations reflect our opinion of the likelihood of timely 
interest payment in the operator's nondefault scenario and ultimate interest 
and principal payments on or before the legal final maturity under our 'BBB' 
level stresses; each transaction's mortgage on the excess production from the 
portfolio of wells backing the volumetric production payments; the updated 
independent forecasts of production received bi-annually from one independent 
petroleum engineering firm; and the commodity hedges provided by Barclays Bank 
PLC to mitigate the risk of price volatility, among other factors.
    
    Nov. 28 - Standard & Poor's Ratings Services today affirmed its 'BBB (sf)'
ratings on Glenn Pool Oil & Gas Trust I's senior secured loan and Glenn Pool Oil
& Gas Trust II's senior secured notes.

Glenn Pool Oil & Gas Trust I and Glenn Pool Oil & Gas Trust II are both 
volumetric production payment (VPP) transactions backed by the overriding 
royalty interest in the production of gas, oil, and natural gas liquid (NGL) 
from Chesapeake Exploration LLC's portfolio of wells located in Oklahoma. The 
two trusts are entitled to a prorated share of the production, with Glenn Pool 
Oil & Gas Trust I's share comprising 65% of production and Glenn Pool Oil & 
Gas Trust II's share comprising 35% of production for the first five years. 
Afterwards, Glenn Pool Oil & Gas Trust I will terminate and Glenn Pool Oil & 
Gas Trust II will be entitled to the full production amount for an additional 
five years.

The affirmations reflect our opinion of:

     -- Under our 'BBB' level stress, the likelihood of timely interest 
payment in a scenario where Chesapeake does not suffer bankruptcy and ultimate 
interest and principal payments on or before the legal final maturity. 
     -- Each transaction's mortgage on the excess production from the 
portfolio of wells backing the VPP. 
     -- Updated independent forecasts of production received bi-annually from 
one independent petroleum engineering firm. As wells are close to delivery 
points and are seasoned, production is more stable and relatively easy to 
predict.
     -- Commodity hedges provided by Barclays Bank PLC to mitigate the risk of 
price volatility. Our ratings on the two trusts are capped at the rating on 
this commodity hedge counterparty.
     -- The interest rate cap provided by Barclays Bank PLC to mitigate the 
risk of interest rate volatility (which only applies to Glenn Pool Oil & Gas 
Trust I as its loan pays floating-rate interest).
     -- The remote possibility of a Chesapeake bankruptcy occurring in a high 
oil, gas, and NGL price environment.  
 
At closing, the transactions had an overproduction rate (the production amount 
compared with the delivery amount) of 1.31x based on the projected production 
estimated by an independent engineering firm. According to the most recent 
independent engineer report in April 2012, the estimated production for the 
remaining life of the transactions declined by approximately 4% compared with 
the estimated production for the same period at closing. According to the 
independent engineer firm, the 4% reduction generally resulted from 
Chesapeake's recent operating decisions (e.g., to shut down uneconomic wells 
due to gas pricing environment) in adherence to prudent operator practices. 
Therefore, in our analysis, we reduced the production projection by 4%, and 
both transactions can still withstand our 'BBB' stress, albeit with a smaller 
cushion. 
  
Standard & Poor's will continue to review whether, in its view, the ratings 
currently assigned to the transactions remain consistent with the credit 
enhancement available to support them and take rating actions as it deems 
necessary. 

STANDARD & POOR'S 17G-7 DISCLOSURE REPORT

SEC Rule 17g-7 requires an NRSRO, for any report accompanying a credit rating 
relating to an asset-backed security as defined in the Rule, to include a 
description of the representations, warranties and enforcement mechanisms 
available to investors and a description of how they differ from the 
representations, warranties and enforcement mechanisms in issuances of similar 
securities. The Rule applies to in-scope securities initially rated (including 
preliminary ratings) on or after Sept. 26, 2011. 

If applicable, the Standard & Poor's 17g-7 Disclosure Report included in this 
credit rating report is available at 
"RELATED CRITERIA AND RESEARCH
Related Criteria
     -- Principles Of Credit Ratings, Feb. 16, 2011
     -- Volumetric Production Payments (VPPs) for U.S. Oil and Gas Exploration 
and Production Companies, Jan. 30, 2009
Related Research 
     -- Credit FAQ: Chesapeake Energy Corp.'s Recent Troubles Have Minimal 
Impact On Three Volumetric Production Payment Transactions, June 19, 2012
     -- New Issue: Glenn Pool Oil & Gas Trust I, May 24, 2011
     -- New Issue: Glenn Pool Oil & Gas Trust II, May 24, 2011
     -- Credit FAQ: Volumetric Production Payments for U.S. Oil and Gas 
Companies, April 14, 2005
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