CHESAPEAKE GRANITE WASH TRUST 10-Q

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Oil, Natural Gas and NGL Price Risk. The Trust’s primary asset and source of income is the Royalty Interests, which generally entitles the Trust to receive a portion of the net proceeds from the sales of oil, natural gas and NGL from the Underlying Properties. The Trust is significantly exposed to fluctuations in the prices received for oil, natural gas and NGL produced and sold. Credit Risk Associated With the Operator. The Trust is highly dependent on the Operator for multiple services, including the operation of wells, remittance of net proceeds generated by the interests in specified oil and natural gas properties located within the AMI and administrative services performed on behalf of the Trust. The Operator's ability to perform its obligations to the Trust will depend on its future results of operations, financial condition, liquidity and ability to comply with the financial covenants contained in its debt instruments, which in turn will depend upon the supply and demand for oil, natural gas and NGL, prevailing economic conditions and financial, business and other factors, many of which are beyond the Operator’s control. In the event of a bankruptcy of the Operator or its wholly-owned subsidiaries, the Operator could be unable to provide support to the Trust through loans and performance of its management duties.