Exhibit 99.3

INDEPENDENT AUDITORS REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of Penn West Petroleum Ltd.

We have audited
the accompanying consolidated financial statements of Penn West Petroleum Ltd., which comprise the Consolidated Balance Sheet as at December 31, 2015, and the Consolidated Statements of Loss, Changes in Shareholders Equity and Cash Flows
for the year then ended, and a summary of significant accounting policies and other explanatory information.

Managements responsibility for
the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.

Auditors responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We
believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Penn West Petroleum Ltd.
as at December 31, 2015, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Other Matter

We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), Penn West Petroleum Ltd.s internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), and our report dated March 9, 2016 expressed an unqualified opinion on Penn West Petroleum Ltd.s internal control
over financial reporting.

signed Ernst & Young LLP

Chartered Professional Accountants

Calgary, Canada

March 9, 2016



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2015 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  1



---

INDEPENDENT AUDITORS REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROLS UNDER STANDARDS OF
THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (UNITED STATES)

To the Shareholders of Penn West Petroleum Ltd.

We have audited Penn West Petroleum Ltd.s internal control over financial reporting as of December 31, 2015, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, (2013 Framework), (the COSO criteria). Penn West Petroleum Ltd.s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Penn West Petroleum Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31,
2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Consolidated Balance Sheet of Penn West Petroleum Ltd. as of December 31, 2015 and the Consolidated Statements of Loss, Changes in Shareholders Equity and Cash Flows for the year ended December 31, 2015 and our report
dated March 9, 2016 expressed an unqualified opinion thereon.

signed Ernst & Young LLP

Chartered Professional Accountants

Calgary, Canada

March 9, 2016



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2015 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  2



---

INDEPENDENT AUDITORS REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors of Penn West Petroleum Ltd.

We have audited the accompanying consolidated financial statements of Penn West Petroleum Ltd., which comprise the consolidated balance sheet as at
December 31, 2014, the consolidated statement of loss, cash flow and changes in shareholders equity for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Managements Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

Auditors Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, we consider internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated
financial statements present fairly, in all material respects, the consolidated financial position of Penn West Petroleum Ltd. as at December 31, 2014, and its consolidated financial performance and its consolidated cash flows for the year then
ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

signed
KPMG LLP

Chartered Professional Accountants

March 11,
2015

Calgary, Canada



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2015 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  3



---

Penn West Petroleum Ltd.

Consolidated Balance Sheets



|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|------------------------------------------ |  | ---- | -- |  | ----------------- | - | ------ | ----------------- |  | - | ------ | -
|(CAD millions)                             |  | Note |    |  | December 31, 2015 |   |        | December 31, 2014 | 
|                                           |  |      |   
|Assets                                     |  |      |    |  |                   |   |        |                   |  |   |        |  
|Current                                    |  |      |    |  |                   |   |        |                   |  |   |        |  
|Cash                                       |  |      | 4  |  |                   | $ | 2      |                   |  | $ | 67     |  
|Accounts receivable                        |  |      | 4  |  |                   |   | 154    |                   |  |   | 182    |  
|Other                                      |  |      | 4  |  |                   |   | 42     |                   |  |   | 46     |  
|Deferred funding assets                    |  |      | 5  |  |                   |   | 63     |                   |  |   | 84     |  
|Risk management                            |  |      | 11 |  |                   |   | 44     |                   |  |   | 31     |  
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|                                           |  |      |    |  |                   |   | 305    |                   |  |   | 410    |  
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|Non-current                                |  |      |    |  |                   |   |        |                   |  |   |        |  
|Deferred funding assets                    |  |      | 5  |  |                   |   | 168    |                   |  |   | 195    |  
|Exploration and evaluation assets          |  |      | 6  |  |                   |   | 243    |                   |  |   | 505    |  
|Property, plant and equipment              |  |      | 7  |  |                   |   | 5,145  |                   |  |   | 7,906  |  
|Goodwill                                   |  |      | 8  |  |                   |   |       |                   |  |   | 734    |  
|Risk management                            |  |      | 11 |  |                   |   | 63     |                   |  |   | 102    |  
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|                                           |  |      |    |  |                   |   | 5,619  |                   |  |   | 9,442  |  
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|Total assets                               |  |      |    |  |                   | $ | 5,924  |                   |  | $ | 9,852  |  
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|                                           |  |      |   
|Liabilities and Shareholders Equity       |  |      |    |  |                   |   |        |                   |  |   |        |  
|Current                                    |  |      |    |  |                   |   |        |                   |  |   |        |  
|Accounts payable and accrued liabilities   |  |      | 4  |  |                   | $ | 380    |                   |  | $ | 529    |  
|Dividends payable                          |  |      | 15 |  |                   |   |       |                   |  |   | 70     |  
|Current portion of long-term debt          |  |      | 9  |  |                   |   | 222    |                   |  |   | 283    |  
|Decommissioning liability                  |  |      | 10 |  |                   |   | 21     |                   |  |   | 52     |  
|Risk management                            |  |      | 11 |  |                   |   | 3      |                   |  |   | 9      |  
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|                                           |  |      |    |  |                   |   | 626    |                   |  |   | 943    |  
|                                           |  |      |   
|Non-current                                |  |      |    |  |                   |   |        |                   |  |   |        |  
|Long-term debt                             |  |      | 9  |  |                   |   | 1,718  |                   |  |   | 1,866  |  
|Decommissioning liability                  |  |      | 10 |  |                   |   | 376    |                   |  |   | 533    |  
|Risk management                            |  |      | 11 |  |                   |   |       |                   |  |   | 10     |  
|Deferred tax liability                     |  |      | 12 |  |                   |   | 266    |                   |  |   | 914    |  
|Other non-current liabilities              |  |      | 14 |  |                   |   | 3      |                   |  |   | 4      |  
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|                                           |  |      |    |  |                   |   | 2,989  |                   |  |   | 4,270  |  
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|                                           |  |      |   
|Shareholders equity                       |  |      |    |  |                   |   |        |                   |  |   |        |  
|Shareholders capital                      |  |      | 13 |  |                   |   | 8,994  |                   |  |   | 8,983  |  
|Other reserves                             |  |      | 13 |  |                   |   | 92     |                   |  |   | 89     |  
|Deficit                                    |  |      |    |  |                   |   | (6,151 | )                 |  |   | (3,490 | )
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|                                           |  |      |    |  |                   |   | 2,935  |                   |  |   | 5,582  |  
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  
|Total liabilities and shareholders equity |  |      |    |  |                   | $ | 5,924  |                   |  | $ | 9,852  |  
|                                           |  |      |    |  |                   |   |        |                   |  |   |        |  

Subsequent events (Notes 11, 14 and 19)

Commitments and contingencies (Note 19)

See accompanying notes
to the consolidated financial statements.

Approved on behalf of the Board of Directors of Penn West Petroleum Ltd.:



|                  |  |                    
|----------------- |  | -------------------
|signed          |  | signed           
|                  | 
|Richard L. George |  | Raymond D. Crossley
|Chairman          |  | Director           



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2015 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  4



---

Penn West Petroleum Ltd.

Consolidated Statements of Loss



|                                               |  |                        |    |  |      |   |        |      |  |   |        |  
|---------------------------------------------- |  | ---------------------- | -- |  | ---- | - | ------ | ---- |  | - | ------ | -
|                                               |  | Year ended December 31 |   
|(CAD millions, except per share amounts)       |  | Note                   |    |  | 2015 |   |        | 2014 | 
|                                               |  |                        |   
|Oil and natural gas sales and other income     |  |                        |    |  |      | $ | 1,187  |      |  | $ | 2,433  |  
|Royalties                                      |  |                        |    |  |      |   | (128   | )    |  |   | (374   | )
|                                               |  |                        |    |  |      |   |        |      |  |   |        |  
|                                               |  |                        |    |  |      |   | 1,059  |      |  |   | 2,059  |  
|                                               |  |                        |   
|Risk management gain                           |  |                        | 11 |  |      |   | 206    |      |  |   | 62     |  
|                                               |  |                        |    |  |      |   |        |      |  |   |        |  
|                                               |  |                        |    |  |      |   | 1,265  |      |  |   | 2,121  |  
|                                               |  |                        |    |  |      |   |        |      |  |   |        |  
|                                               |  |                        |   
|Expenses                                       |  |                        |    |  |      |   |        |      |  |   |        |  
|Operating                                      |  |                        | 21 |  |      |   | 597    |      |  |   | 729    |  
|Transportation                                 |  |                        |    |  |      |   | 46     |      |  |   | 45     |  
|General and administrative                     |  |                        | 21 |  |      |   | 92     |      |  |   | 131    |  
|Restructuring                                  |  |                        |    |  |      |   | 33     |      |  |   | 17     |  
|Share-based compensation                       |  |                        | 14 |  |      |   | 6      |      |  |   | 12     |  
|Depletion, depreciation and impairment         |  |                        | 7  |  |      |   | 2,367  |      |  |   | 1,384  |  
|Impairment of goodwill                         |  |                        | 8  |  |      |   | 706    |      |  |   | 1,100  |  
|Loss (gain) on dispositions                    |  |                        | 7  |  |      |   | (85    | )    |  |   | 190    |  
|Foreign exchange loss                          |  |                        | 9  |  |      |   | 310    |      |  |   | 155    |  
|Exploration and evaluation                     |  |                        | 6  |  |      |   | 259    |      |  |   | 16     |  
|Financing                                      |  |                        | 9  |  |      |   | 162    |      |  |   | 157    |  
|Accretion                                      |  |                        | 10 |  |      |   | 37     |      |  |   | 36     |  
|                                               |  |                        |    |  |      |   |        |      |  |   |        |  
|                                               |  |                        |    |  |      |   | 4,530  |      |  |   | 3,972  |  
|                                               |  |                        |    |  |      |   |        |      |  |   |        |  
|Loss before taxes                              |  |                        |    |  |      |   | (3,265 | )    |  |   | (1,851 | )
|                                               |  |                        |    |  |      |   |        |      |  |   |        |  
|                                               |  |                        |   
|Deferred tax recovery                          |  |                        | 12 |  |      |   | 619    |      |  |   | 118    |  
|                                               |  |                        |    |  |      |   |        |      |  |   |        |  
|                                               |  |                        |   
|Net and comprehensive loss                     |  |                        |    |  |      | $ | (2,646 | )    |  | $ | (1,733 | )
|                                               |  |                        |    |  |      |   |        |      |  |   |        |  
|                                               |  |                        |   
|Net loss per share                             |  |                        |    |  |      |   |        |      |  |   |        |  
|Basic                                          |  |                        | 16 |  |      | $ | (5.27  | )    |  | $ | (3.51  | )
|Diluted                                        |  |                        | 16 |  |      | $ | (5.27  | )    |  | $ | (3.51  | )
|Weighted average shares outstanding (millions) |  |                        |    |  |      |   |        |      | 
|Basic                                          |  |                        | 16 |  |      |   | 502.0  |      |  |   | 493.7  |  
|Diluted                                        |  |                        | 16 |  |      |   | 502.0  |      |  |   | 493.7  |  
|                                               |  |                        |    |  |      |   |        |      |  |   |        |  

See accompanying notes to the consolidated financial statements.



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2015 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  5



---

Penn West Petroleum Ltd.

Consolidated Statements of Cash Flows



|                                             |  |                        |    |  |      |   |        |      |  |   |        |  
|-------------------------------------------- |  | ---------------------- | -- |  | ---- | - | ------ | ---- |  | - | ------ | -
|                                             |  | Year ended December 31 |   
|(CAD millions)                               |  | Note                   |    |  | 2015 |   |        | 2014 | 
|                                             |  |                        |   
|Operating activities                         |  |                        |    |  |      |   |        |      |  |   |        |  
|Net loss                                     |  |                        |    |  |      | $ | (2,646 | )    |  | $ | (1,733 | )
|Depletion, depreciation and impairment       |  |                        | 7  |  |      |   | 2,367  |      |  |   | 1,384  |  
|Impairment of goodwill                       |  |                        | 8  |  |      |   | 706    |      |  |   | 1,100  |  
|Loss (gain) on dispositions                  |  |                        | 7  |  |      |   | (91    | )    |  |   | 190    |  
|Exploration and evaluation                   |  |                        | 6  |  |      |   | 259    |      |  |   | 16     |  
|Accretion                                    |  |                        | 10 |  |      |   | 37     |      |  |   | 36     |  
|Deferred tax recovery                        |  |                        | 12 |  |      |   | (617   | )    |  |   | (118   | )
|Share-based compensation                     |  |                        | 14 |  |      |   | 4      |      |  |   | 10     |  
|Unrealized risk management loss (gain)       |  |                        | 11 |  |      |   | 10     |      |  |   | (102   | )
|Unrealized foreign exchange loss             |  |                        | 9  |  |      |   | 151    |      |  |   | 152    |  
|Decommissioning expenditures                 |  |                        | 10 |  |      |   | (36    | )    |  |   | (55    | )
|Change in non-cash working capital           |  |                        | 17 |  |      |   | 31     |      |  |   | (32    | )
|                                             |  |                        |    |  |      |   |        |      |  |   |        |  
|                                             |  |                        |    |  |      |   | 175    |      |  |   | 848    |  
|                                             |  |                        |    |  |      |   |        |      |  |   |        |  
|Investing activities                         |  |                        |    |  |      |   |        |      |  |   |        |  
|Capital expenditures                         |  |                        |    |  |      |   | (470   | )    |  |   | (732   | )
|Property dispositions (acquisitions), net    |  |                        |    |  |      |   | 800    |      |  |   | 560    |  
|Change in non-cash working capital           |  |                        | 17 |  |      |   | (134   | )    |  |   | 59     |  
|                                             |  |                        |    |  |      |   |        |      |  |   |        |  
|                                             |  |                        |    |  |      |   | 196    |      |  |   | (113   | )
|                                             |  |                        |    |  |      |   |        |      |  |   |        |  
|Financing activities                         |  |                        |    |  |      |   |        |      |  |   |        |  
|Increase (decrease) in long-term debt        |  |                        | 9  |  |      |   | 462    |      |  |   | (403   | )
|Repayment of senior notes                    |  |                        | 9  |  |      |   | (982   | )    |  |   | (62    | )
|Issue of equity                              |  |                        |    |  |      |   |       |      |  |   | 11     |  
|Realized foreign exchange loss on repayments |  |                        | 9  |  |      |   | 159    |      |  |   | 3      |  
|Dividends paid                               |  |                        |    |  |      |   | (75    | )    |  |   | (217   | )
|                                             |  |                        |    |  |      |   |        |      |  |   |        |  
|                                             |  |                        |    |  |      |   | (436   | )    |  |   | (668   | )
|                                             |  |                        |    |  |      |   |        |      |  |   |        |  
|                                             |  |                        |   
|Change in cash                               |  |                        |    |  |      |   | (65    | )    |  |   | 67     |  
|Cash, beginning of year                      |  |                        |    |  |      |   | 67     |      |  |   |       |  
|                                             |  |                        |    |  |      |   |        |      |  |   |        |  
|Cash, end of year                            |  |                        |    |  |      | $ | 2      |      |  | $ | 67     |  
|                                             |  |                        |    |  |      |   |        |      |  |   |        |  

See accompanying notes to the consolidated financial statements.



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2015 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  6



---

Penn West Petroleum Ltd.

Statements of Changes in Shareholders Equity



|                                     |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  
|------------------------------------ |  | ---- | -- |  | -------------------- | - | ----- | ------------- |  | - | ------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                     |  | Note |    |  | ShareholdersCapital |   |       | OtherReserves |  |   | Deficit |   |  | Total |       
|                                     |  |      |    |  |                     
|Balance at January 1, 2015           |  |      |    |  |                      | $ | 8,983 |               |  | $ | 89      |   |  | $     | (3,490 | ) |  | $ | 5,582  |  
|Net and comprehensive loss           |  |      |    |  |                      |   |      |               |  |   |        |   |  |       | (2,646 | ) |  |   | (2,646 | )
|Share-based compensation             |  |      | 14 |  |                      |   |      |               |  |   | 4       |   |  |       |       |   |  |   | 4      |  
|Issued on exercise of options        |  |      | 13 |  |                      |   | 1     |               |  |   | (1      | ) |  |       |       |   |  |   |       |  
|Issued to dividend reinvestment plan |  |      | 13 |  |                      |   | 10    |               |  |   |        |   |  |       |       |   |  |   | 10     |  
|Dividends declared                   |  |      | 15 |  |                      |   |      |               |  |   |        |   |  |       | (15    | ) |  |   | (15    | )
|                                     |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  
|Balance at December 31, 2015         |  |      |    |  |                      | $ | 8,994 |               |  | $ | 92      |   |  | $     | (6,151 | ) |  | $ | 2,935  |  
|                                     |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  



|                                               |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  
|---------------------------------------------- |  | ---- | -- |  | -------------------- | - | ----- | ------------- |  | - | ------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                               |  | Note |    |  | ShareholdersCapital |   |       | OtherReserves |  |   | Deficit |   |  | Total |       
|                                               |  |      |    |  |                     
|Balance at January 1, 2014                     |  |      |    |  |                      | $ | 8,913 |               |  | $ | 80      |   |  | $     | (1,480 | ) |  | $ | 7,513  |  
|Net and comprehensive loss                     |  |      |    |  |                      |   |      |               |  |   |        |   |  |       | (1,733 | ) |  |   | (1,733 | )
|Share-based compensation                       |  |      | 14 |  |                      |   |      |               |  |   | 10      |   |  |       |       |   |  |   | 10     |  
|Issued on exercise of options and share rights |  |      | 13 |  |                      |   | 12    |               |  |   | (1      | ) |  |       |       |   |  |   | 11     |  
|Issued to dividend reinvestment plan           |  |      | 13 |  |                      |   | 58    |               |  |   |        |   |  |       |       |   |  |   | 58     |  
|Dividends declared                             |  |      | 15 |  |                      |   |      |               |  |   |        |   |  |       | (277   | ) |  |   | (277   | )
|                                               |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  
|Balance at December 31, 2014                   |  |      |    |  |                      | $ | 8,983 |               |  | $ | 89      |   |  | $     | (3,490 | ) |  | $ | 5,582  |  
|                                               |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  

See accompanying notes to the consolidated financial statements.



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|PENN WEST 2015 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  7



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Notes to the Consolidated Financial Statements

(All tabular amounts are in CAD millions except numbers of common shares, per share amounts,

percentages and various figures in Note 11)

1. Structure of Penn West

Penn West Petroleum Ltd.
(Penn West or the Company) is a senior exploration and production company and is governed by the laws of the Province of Alberta, Canada. The Company operates in one segment, to explore for, develop and hold interests in oil
and natural gas properties and related production infrastructure in the Western Canada Sedimentary Basin directly and through investments in securities of subsidiaries holding such interests. Penn Wests portfolio of assets is managed at an
enterprise level, rather than by separate operating segments or business units. The Company assesses its financial performance at the enterprise level and resource allocation decisions are made on a project basis across Penn Wests portfolio of
assets, without regard to the geographic location of projects.Penn West owns the petroleum and natural gas assets or 100 percent of the equity, directly or indirectly, of the entities that carry on the remainder of the oil and natural gas
business of Penn West, except for an unincorporated joint arrangement (the Peace River Oil Partnership) in which Penn Wests wholly owned subsidiaries hold a 55 percent interest.

Penn West operates under the trade names of Penn West and Penn West Exploration.

2. Basis of presentation and statement of compliance

a) Statement of Compliance

These annual consolidated
financial statements are prepared in compliance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

The annual consolidated financial statements have been prepared on a historical cost basis, except risk management assets and liabilities which are recorded
at fair value as discussed in Note 11.

The annual consolidated financial statements of the Company for the year ended December 31, 2015 were
approved for issuance by the Board of Directors on March 9, 2016.

b) Basis of Presentation

The annual consolidated financial statements include the accounts of Penn West, its wholly owned subsidiaries and its proportionate interest in partnerships.
Results from acquired properties are included in Penn Wests reported results subsequent to the closing date and results from properties sold are included until the closing date.

All intercompany balances, transactions, income and expenses are eliminated on consolidation.

Certain comparative figures have been reclassified to correspond with current period presentation.



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|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  8



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3. Significant accounting policies

a) Critical accounting judgments and key estimates

The
preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the recorded amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses for the period. These and other estimates are subject to measurement uncertainty and the effect on the consolidated financial statements of changes in these estimates
could be material.

Management also makes judgments while applying accounting policies that could affect amounts recorded in its consolidated financial
statements. Significant judgments include the identification of cash generating units (CGUs) for impairment testing purposes, determining whether a CGU or Exploration and Evaluation (E&E) asset has an impairment indicator
and determining whether an E&E asset is technically feasible and commercially viable.

The following are the estimates that management has made in
applying the Companys accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements.

i) Reserve estimates

Commercial petroleum reserves are
determined based on estimates of petroleum-in-place, recovery factors and future oil and natural gas prices and costs. Penn West engages an independent qualified reserve evaluator to audit or evaluate all of the Companys oil and natural gas
reserves at each year-end.

Reserve adjustments are made annually based on actual oil and natural gas volumes produced, the results from capital programs,
revisions to previous estimates, new discoveries and acquisitions and dispositions made during the year and the effect of changes in forecast future crude oil and natural gas prices. There are a number of estimates and assumptions that affect the
process of evaluating reserves.

Proved reserves are the estimated quantities of crude oil, natural gas and natural gas liquids determined to be
economically recoverable under existing economic and operating conditions with a high degree of certainty (at least 90 percent) those quantities will be exceeded. Proved plus probable reserves are the estimated quantities of crude oil, natural gas
and natural gas liquids determined to be economically recoverable under existing economic and operating conditions with a 50 percent certainty those quantities will or will not be exceeded. Penn West reports production and reserve quantities in
accordance with Canadian practices and specifically in accordance with Standards of Disclosure for Oil and Gas Activities (NI 51-101).

The estimate of proved plus probable reserves is an essential part of the depletion calculation, the impairment test and hence the recorded amount of oil and
gas assets.

Contingent Resources are defined in the COGE Handbook as those quantities of petroleum estimated to be potentially recoverable from known
accumulations using established technology or technology under development, but which do not currently qualify as Reserves or commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal,
environmental, political and regulatory matters or a lack of markets. The estimate of contingent resources may be included as part of the recoverable amount in the impairment test.

Penn West cautions users of this information that the process of estimating crude oil and natural gas reserves is subject to a level of uncertainty. The
reserves are based on current and forecast economic and operating conditions; therefore, changes can be made to future assessments as a result of a number of factors, which can include commodity prices, new technology, changing economic conditions,
future reservoir performance and forecast development activity.



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|-------------- |  | ---------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  9



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ii) Recoverability of asset carrying values

Penn West assesses its property, plant and equipment (PP&E) and goodwill for impairment by comparing the carrying amount to the recoverable
amount of the underlying assets. The determination of the recoverable amount involves estimating the higher of an assets fair value less costs to sell or its value-in-use, the latter of which is based on its discounted future cash flows using
an applicable discount rate. Future cash flows are calculated based on estimates of future commodity prices and inflation and are discounted based on managements current assessment of market conditions.

iii) Recoverability of exploration and evaluation assets

E&E assets are assessed for impairment by comparing the carrying amount to the recoverable amount. The assessment of the recoverable amount involves a
number of assumptions, including the timing, likelihood and amount of commercial production, further resource assessment plans, and future revenue and costs expected from the asset, if any.

iv) Decommissioning liability

Penn West recognizes a
provision for future abandonment activities in the consolidated financial statements at the net present value of the estimated future expenditures required to settle the estimated obligation at the balance sheet date. The measurement of the
decommissioning liability involves the use of estimates and assumptions including the discount rate, the amount and expected timing of future abandonment costs and the inflation rate related thereto. The estimates were made by management and
external consultants considering current costs, technology and enacted legislation.

v) Fair value calculation on share-based payments

The fair value of share-based payments is calculated using a Black-Scholes model. There are a number of estimates used in the calculation such as the expected
future forfeiture rate, the expected period the share-based compensation is outstanding and the future price volatility of the underlying security all of which can vary from expectations. The factors applied in the calculation are managements
estimates based on historical information and future forecasts.

vi) Fair value of risk management contracts

Penn West records risk management contracts at fair value with changes in fair value recognized in income. The fair values are determined using external
counterparty information which is compared to observable market data.

vii) Taxation

The calculation of deferred income taxes is based on a number of assumptions including estimating the future periods in which temporary differences and other
tax credits will reverse and the general assumption that substantively enacted future tax rates at the balance sheet date will be in effect when differences reverse.

viii) Litigation

Penn West records provisions related to
legal matters if it is probable that the Company will not be successful in defending the claim and if an amount can be reasonably estimated. Determining the probability of a claim being defended is subject to considerable judgment. Additionally, the
potential claim is generally a wide range of figures and a single estimate must be made when recording a provision. Contingencies will only be resolved or unfounded when one or more future events occur. The assessment of contingencies involves
significant judgment and estimates of the potential outcome of future events.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  10



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ix) Basis of Presentation

In the preparation of Financial Statements, Management is required to identify when events or conditions indicate that significant doubt may exist about the
Companys ability continue as a going concern.

Significant doubt about the Companys ability to continue as a going concern would
exist when relevant conditions and events, considered in the aggregate, indicate that it is probable that the Company will not be able to meet its obligations as they become due for a period at least, but not limited to twelve months from
the balance sheet date. When the Company identifies conditions or events that raise potential for significant doubt about its ability to continue as a going concern, the Company considers whether its plans that are intended to
mitigate those relevant conditions or events will alleviate the potential significant doubt. The mitigating effect of managements plans are considered to the extent that; i) it is probable that the plans will be effectively implemented
and, if so, ii) it is probable that the plans will mitigate the conditions or events that raise significant doubt about the companys ability to continue as a going concern.

In order to address the Companys liquidity issues, management is actively addressing this as follows:

The Companys Board of Directors recently approved a capital budget of $50 million for fiscal 2016. This budget responds to the significant decline
in commodity prices and includes capital spending levels 90 per cent lower than the 2015 planned capital program and limits total expenditures to funds flow from operations.

As a result of continued declines in commodity price forecasts, if current strip pricing continues, the Company anticipates it will not be in compliance with
its existing financial covenants by the end of the second quarter of 2016. The Company is considering several options that address the risk of default, including engaging its lenders to amend its financial covenants, reaching agreements on
additional non-core property dispositions or securing additional subordinated debt and/or equity capital from strategic investors. Additionally, due to an active hedging program, the Company has a number of favorable hedging positions which could be
monetized if approved by its lenders.

After considering its plans to mitigate the going concern risk, Management has concluded that there are no material
uncertainties related to events or conditions that may cast significant doubt upon the Companys ability to continue as a going concern. Furthermore, the estimates made by management in reaching this conclusion are based on information
available as of the date these financial statements were authorized for issuance. Accordingly, actual circumstances will differ from those estimates and the variation may be material.

b) Business combinations

Penn West uses the acquisition
method to account for business combinations. The net identifiable assets and liabilities acquired in transactions are generally measured at their fair value on the acquisition date. The acquisition date is the closing date of the business
combination. Acquisition costs incurred by Penn West to complete a business combination are expensed in the period incurred except for costs related to the issue of any debt or equity securities, which are recognized based on the nature of the
related financing instrument.

Revisions may be made to the initial recognized amounts determined during the measurement period, which shall not exceed
one year after the close date of the acquisition.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  11



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c) Goodwill

Penn West recognizes goodwill on a business combination when the total purchase consideration exceeds the net identifiable assets acquired and liabilities
assumed of the acquired entity. Following initial recognition, goodwill is recognized at cost less any accumulated impairment losses.

Goodwill is not
amortized and the carrying amount is assessed for impairment on an annual basis at December 31, or more frequently if circumstances arise that indicate impairment may have occurred. To test for impairment, the carrying amount of the CGU
including goodwill, if any, associated with the CGU, is compared to the recoverable amount of the CGU or group of CGUs to which the goodwill is associated. If the recoverable amount of the CGU exceeds the carrying value, then no impairment exists.
If the carrying value of the CGU exceeds the recoverable amount of the CGU, then an impairment loss shall be recorded. The determination ofthe recoverable amount involves estimating the higher of an assets fair value less costs to sell
and its value-in-use. Goodwill impairment losses are not reversed in subsequent periods.

d) Revenue

Penn West generally recognizes oil and natural gas revenue when title passes from Penn West to the purchaser or, in the case of services, as contracted
services are performed.

Revenue is measured at the fair value of the consideration received or receivable. Revenue from the sale of crude oil, natural
gas and natural gas liquids (prior to deduction of transportation costs) is recognized when all the following conditions have been satisfied:



| |  |  | The significant risks and rewards of ownership of the goods have been transferred to the buyer;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | There is no continuing managerial involvement to the degree usually associated with ownership or effective control over the goods sold;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The amount of revenue can be reliably measured;
| | - |  | -----------------------------------------------



| |  |  | It is probable that the economic benefits associated with the transaction will flow to Penn West; and
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | The costs incurred or to be incurred in respect of the transaction can be reliably measured.
| | - |  | --------------------------------------------------------------------------------------------

e) Joint
arrangements

The consolidated financial statements include Penn Wests proportionate interest of jointly controlled assets and liabilities and
its proportionate interest of the revenue, royalties and operating expenses. A significant portion of Penn Wests exploration and development activities are conducted jointly with others and involve jointly controlled assets. Under such
arrangements, Penn West has the exclusive rights to its proportionate interest in the assets and the economic benefits generated from its share of the assets. Income from the sale or use of Penn Wests interest in jointly controlled assets and
its share of expenses is recognized when it is probable that the economic benefits associated with the transactions will flow to/from Penn West and the amounts can be reliably measured.

The Peace River Oil Partnership is a joint operation and Penn West records its 55 percent interest of revenues, expenses, assets and liabilities.

f) Transportation expense

Transportation costs are paid
by Penn West for the shipping of natural gas, crude oil and natural gas liquids from the wellhead to the point of title transfer to buyers. These costs are recognized as services are received.



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|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  12



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g) Foreign currency translation

Penn West and each of its subsidiaries use the Canadian dollar as their functional currency. Monetary items, such as accounts receivable and long-term debt,
are translated to Canadian dollars at the rate of exchange in effect at the balance sheet date. Non-monetary items, such as PP&E, are translated to Canadian dollars at the rate of exchange in effect when the associated transactions occurred.
Revenues and expenses denominated in foreign currencies are translated at the exchange rate on the date of the transaction. Foreign exchange gains or losses on translation are included in income.

h) E&E

i) Measurement and recognition

E&E assets are initially measured at cost. Items included in E&E primarily relate to exploratory drilling, geological & geophysical activities,
acquisition of mineral rights and technical studies. These expenditures are classified as E&E assets until the technical feasibility and commercial viability of extracting oil and natural gas from the assets has been determined.

ii) Transfer to PP&E

E&E assets are transferred
to PP&E when they are technically feasible and commercially viable which is generally when proved reserves have been assigned to the asset. If proved reserves will not be established through the completion of E&E activities and there are no
plans for development activity in a field, based on their recoverable amount, the E&E assets are charged to income as E&E expense. Any revenue, royalties, operating expenses and depletion prior to transfer are recognized in the statement of
income (loss).

iii) Pre-license costs

Pre-license
expenditures incurred before Penn West has obtained the legal rights to explore for hydrocarbons in a specific area are expensed.

iv) Impairment

E&E assets are tested for impairment when facts or circumstances indicate that a possible impairment may exist and prior to reclassification to
PP&E. E&E impairment losses may be reversed in subsequent periods.

i) PP&E

i) Measurement and recognition

Oil & Gas properties
are included in PP&E at cost, less accumulated depletion and depreciation and any impairment losses. The cost of PP&E includes costs incurred initially to acquire or construct the item and betterment costs.

Capital expenditures are recognized as PP&E when it is probable that future economic benefits associated with the investment will flow to Penn West and
the cost can be reliably measured. PP&E includes capital expenditures incurred in the development phases, acquisition and disposition of PP&E, costs transferred from E&E and additions to the decommissioning liability.



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|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  13



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ii) Depletion and Depreciation

Except for components with a useful life shorter than the reserve life of the associated property, resource properties are depleted using the
unit-of-production method based on production volumes before royalties in relation to total proved plus probable reserves. Natural gas volumes are converted to equivalent oil volumes based upon the relative energy content of six thousand cubic feet
of natural gas to one barrel of oil. In determining its depletion base, Penn West includes estimated future costs to develop proved plus probable reserves and excludes estimated equipment salvage values. Changes to reserve estimates are included in
the depletion calculation prospectively.

Components of PP&E that are not depleted using the unit-of-production method are depreciated on a
straight-line basis over their useful life. The turnaround component has an estimated useful life of three to five years and the corporate asset component has an estimated useful life of 10 years.

iii) Derecognition

The carrying amount of an item of
PP&E is derecognized when no future economic benefits are expected from its use or upon sale to a third party. The gain or loss arising from derecognition is included in income and is measured as the difference between the net proceeds, if any,
and the carrying amount of the asset.

iv) Major maintenance and repairs

Ongoing costs to maintain properties are generally expensed as incurred. These costs include the cost of labour, consumables and small parts. The costs of
material replacement parts, turnarounds and major inspections are capitalized provided it is probable that future economic benefits in excess of cost will be realized and such benefits are expected to extend beyond the current operating period. The
carrying amount of a replaced part is derecognized in accordance with Penn Wests derecognition policies.

v) Impairment of oil and natural gas
properties

Penn West reviews oil and gas properties for circumstances that indicate its assets may be impaired at the end of each reporting period.
These indicators can be internal (i.e. reserve changes) or external (i.e. market conditions) in nature. If an indication of impairment exists, Penn West completes an impairment test, which compares the estimated recoverable amount to the carrying
value. The estimated recoverable amount is defined under IAS 36 (Impairment of Assets) as the higher of an assets or CGUs fair value less costs to sell and its value-in-use.

Where the recoverable amount is less than the carrying amount, the CGU is considered to be impaired. Impairment losses identified for a CGU are allocated on a
pro rata basis to the asset categories within the CGU. The impairment loss is recognized as an expense in income.

Value-in-use is computed as the present
value of future cash flows expected to be derived from production. Present values are calculated using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Under the fair
value less cost to sell method the recoverable amount is determined using various factors, which can include external factors such as observable market conditions and comparable transactions and internal factors such as discounted cash flows related
to reserve and resource studies and future development plans.

Impairment losses related to PP&E can be reversed in future periods if the estimated
recoverable amount of the asset exceeds the carrying value. The impairment recovery is limited to a maximum of the estimated depleted historical cost if the impairment had not been recognized. The reversal of the impairment loss is recognized in
depletion, depreciation and impairment.



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|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  14



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vi) Other Property, Plant and Equipment

Penn Wests corporate assets include computer hardware and software, office furniture, buildings and leasehold improvements and are depreciated on a
straight-line basis over their useful lives. Corporate assets are tested for impairment separately from oil and gas assets.

j)
Share-based payments

The fair value of options granted under the Stock Option Plan (the Option Plan) are recognized as compensation
expense with a corresponding increase to other reserves in shareholders equity over the term of the options based on a graded vesting schedule. Penn West measures the fair value of options granted under these plans at the grant date using the
Black-Scholes option-pricing model. The fair value is based on market prices and considers the terms and conditions of the share options granted.

The
fair value of awards granted under the Restricted Share Unit Plan (RSU), the Deferred Share Unit Plan (DSU) and the Performance Share Unit Plan (PSU) are based on a fair value calculation on each reporting date
using the awards outstanding and Penn Wests share price from the Toronto Stock Exchange (TSX) on each balance sheet date. The fair value of the awards is expensed over the vesting period based on a graded vesting schedule.
Subsequent increases and decreases in the underlying share price result in increases and decreases, respectively, to the accrued obligation until the related instruments are settled.

k) Provisions

i) General

Provisions are recognized based on an estimate of expenditures required to settle present obligations at the end of the reporting period. The provision is risk
adjusted to take into account any uncertainties. When the effect of the time value of money is material, the amount of a provision is calculated as the present value of the future expenditures required to settle the obligations. The discount rate
reflects the current assessment of the time value of money and risks specific to the liability when those risks have not already been reflected as an adjustment to future cash flows.

ii) Decommissioning liability

The decommissioning
liability is the present value of Penn Wests future costs of obligations for property, facility and pipeline abandonment and site restoration. The liability is recognized on the balance sheet with a corresponding increase to the carrying
amount of the related asset. The recorded liability increases over time to its future amount through accretion charges to income. Revisions to the estimated amount or timing of the obligations are reflected prospectively as increases or decreases to
the recorded liability and the related asset. Actual decommissioning expenditures, up to the recorded liability at the time, are charged to the liability as the costs are incurred. Amounts capitalized to the related assets are amortized to income
consistent with the depletion or depreciation of the underlying asset.

l) Leases

A lease is classified as an operating lease if it does not transfer substantially all of the risks and rewards incidental to ownership of the related asset to
the lessee. Operating lease payments are expensed on a straight-line basis over the life of the lease.



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|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  15



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m) Share capital

Common shares are classified as equity. Share issue costs are recorded in shareholders equity, net of applicable taxes. Dividends are paid at the
discretion of the Board of Directors and are deducted from retained earnings.

If issued, preferred shares would be classified as equity and could be
issued in one or more series.

n) Earnings per share

Earnings per share is calculated by dividing net income or loss attributable to the shareholders by the weighted average number of common shares outstanding
during the period. Penn West computes the dilutive impact of equity instruments other than common shares assuming the proceeds received from the exercise of in-the-money share options are used to purchase common shares at average market prices.

o) Taxation

Income taxes are based on taxable income in
a taxation year. Taxable income normally differs from income reported in the consolidated statement of income as it excludes items of income or expense that are taxable or deductible in other years or are not taxable or deductible for income tax
purposes.

Penn West uses the liability method of accounting for deferred income taxes. Temporary differences are calculated assuming that the financial
assets and liabilities will be settled at their carrying amount. Deferred income taxes are computed on temporary differences using substantively enacted income tax rates expected to apply when deferred income tax assets and liabilities are realized
or settled.

p) Financial instruments

Financial
instruments are measured at fair value and recorded on the balance sheet upon initial recognition of an instrument. Subsequent measurement and changes in fair value will depend on initial classification, as follows:



| |  |  | Fair value through profit or loss financial assets and liabilities and derivative instruments classified as held for trading or designated as fair value through profit or loss are measured at fair value and subsequent
changes in fair value are recognized in income;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loans and receivablesare non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are initially measured at fair value with subsequent changes at amortized
cost;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in equity until the instrument or a portion thereof is derecognized or impaired at which time the amounts would be
recognized in income;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Held to maturity financial assets and loans and receivables are initially measured at fair value with subsequent measurement at amortized cost using the effective interest method. The effective interest method
calculates the amortized cost of a financial asset and allocates interest income or expense over the applicable period. The rate used discounts the estimated future cash flows over either the expected life of the financial asset or liability or a
shorter time-frame if it is deemed appropriate; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other financial liabilities are initially measured at fair value with subsequent changes to fair value measured at amortized cost.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



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|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  16



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Penn Wests current classifications are as follows:



| |  |  | Cash and cash equivalents and accounts receivable are designated as loans and receivables;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Accounts payable and accrued liabilities, dividends payable and long-term debt are designated as other financial liabilities; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | Risk management contracts are derivative financial instruments measured at fair value through profit or loss.
| | - |  | -------------------------------------------------------------------------------------------------------------

Penn West assesses each financial instrument, except those valued at fair value through profit or loss, for impairment at the reporting date and records the
gain or loss in income during the period.

q) Embedded derivatives

An embedded derivative is a component of a contract that affects the terms of another factor, for example, rent costs that fluctuate with oil prices. These
hybrid contracts are considered to consist of a host contract plus an embedded derivative. The embedded derivative is separated from the host contract and accounted for as a derivative if the following conditions are met:



| |  |  | The economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The embedded item, itself, meets the definition of a derivative; and
| | - |  | --------------------------------------------------------------------



| |  |  | The hybrid contract is not measured at fair value or designated as held for trading.
| | - |  | ------------------------------------------------------------------------------------

At December 31,
2015, Penn West had an embedded derivative related to a crude oil assignment contract; please refer to note 11 for details.

r) Classification of debt
or equity

Penn West classifies financial liabilities and equity instruments in accordance with the substance of the contractual arrangement and the
definitions of a financial liability or an equity instrument.

Penn Wests debt instruments currently have requirements to deliver cash at the end of
the term thus are classified as liabilities.

s) Enhanced oil recovery

The value of proprietary injectants is not recognized as revenue until produced and sold to third parties. The cost of injectants purchased from third parties
for enhanced oil recovery projects is included in PP&E. Injectant costs are depleted over the period of expected future economic benefit on a unit-of-production basis. Costs associated with the production of proprietary injectants are expensed.

t) Future accounting pronouncements

The IASB issued
IFRS 15 Revenue from Contracts with Customers which replaces IAS 18 Revenue. IAS 15 specifies revenue recognition criteria and expanded disclosures for revenue. The new standard is effective for annual periods beginning on or
after January 1, 2018 and early adoption is permitted. Penn West is currently assessing the impact of the standard.

The IASB completed the final
sections of IFRS 9 Financial Instruments which replaces IAS 39 Financial Statement: Recognition and Measurement. IFRS 9 provides guidance on the recognition and measurement, impairment and derecognition on financial
instruments. The new standard is effective for annual periods beginning on or after January 1, 2018 and early adoption is permitted. Penn West is currently assessing the impact of the standard.



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|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  17



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The IASB issued IFRS 16 Leases in January 2016 which replaces IAS 17 Leases. IFRS 16
outlines several new requirements in regards to the recognition, measurement and disclosure of leases. A key principle within the standard includes a single lessee accounting model which requires lessees to recognise assets and liabilities for all
leases which have a term more than 12 months. The accounting for lessors, which classify leases as either operating or finance, remains substantially unchanged from the previous standard. The new standard is effective for annual reporting periods
beginning on or after January 1, 2019. Penn West is currently assessing the impact of the standard.

4. Working capital



|                                                       |  |                   |     |  |      |   |     | 
|------------------------------------------------------ |  | ----------------- | --- |  | ---- | - | --- | 
|                                                       |  | As at December 31 |    
|                                                       |  | 2015              |     |  | 2014 |  
|Cash                                                   |  | $                 | 2   |  |      | $ | 67  | 
|                                                       |  |                   |     |  |      |   |     | 
|Components of accounts receivable                      |  |                   |     |  |      |   |     | 
|Trade                                                  |  | $                 | 84  |  |      | $ | 55  | 
|Accruals                                               |  |                   | 70  |  |      |   | 127 | 
|                                                       |  |                   |     |  |      |   |     | 
|                                                       |  | $                 | 154 |  |      | $ | 182 | 
|                                                       |  |                   |     |  |      |   |     | 
|Components of other assets                             |  |                   |     |  |      |   |     | 
|Prepaid expenses                                       |  | $                 | 37  |  |      | $ | 41  | 
|Other                                                  |  |                   | 5   |  |      |   | 5   | 
|                                                       |  |                   |     |  |      |   |     | 
|                                                       |  | $                 | 42  |  |      | $ | 46  | 
|                                                       |  |                   |     |  |      |   |     | 
|Components of accounts payable and accrued liabilities |  |                   |     |  |      |   |     | 
|Accounts payable                                       |  | $                 | 140 |  |      | $ | 79  | 
|Royalty payable                                        |  |                   | 58  |  |      |   | 82  | 
|Capital accrual                                        |  |                   | 65  |  |      |   | 195 | 
|Operating accrual                                      |  |                   | 76  |  |      |   | 102 | 
|Share-based compensation liability                     |  |                   | 4   |  |      |   | 5   | 
|Other                                                  |  |                   | 37  |  |      |   | 66  | 
|                                                       |  |                   |     |  |      |   |     | 
|                                                       |  | $                 | 380 |  |      | $ | 529 | 
|                                                       |  |                   |     |  |      |   |     | 

Accounts receivable

Penn West
continuously monitors credit risk and maintains credit policies to ensure collection risk is limited. Receivables are primarily with customers in the oil and gas industry and are subject to normal industry credit risk. Receivables over 90 days are
classified as past due and are assessed for collectability. If an amount is deemed to be uncollectible, it is expensed through income.

As at
December 31, based on Penn Wests credit assessments, provisions have been made for amounts deemed uncollectible. As at December 31, the following accounts receivable amounts were outstanding.



|     |  |         |     |  |            |   |    |          |  |   |       |  |  |   |     | 
|---- |  | ------- | --- |  | ---------- | - | -- | -------- |  | - | ----- |  |  | - | --- | 
|     |  | Current |     |  | 30-90 days |   |    | 90+ days |  |   | Total | 
|2015 |  | $       | 102 |  |            | $ | 35 |          |  | $ | 17    |  |  | $ | 154 | 
|2014 |  | $       | 159 |  |            | $ | 16 |          |  | $ | 7     |  |  | $ | 182 | 



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  18



---

5. Deferred funding assets

Deferred funding amounts relate to Penn Wests share of capital and operating expenses to be funded by Penn Wests partner in the Peace River Oil
Partnership and Penn Wests share of capital expenditures to be funded by Penn Wests partner in the Cordova Joint Venture. Amounts expected to be settled within the next 12 months are classified as current.



|                            |  |                   |     |  |      |   |     | 
|--------------------------- |  | ----------------- | --- |  | ---- | - | --- | 
|                            |  | As at December 31 |    
|                            |  | 2015              |     |  | 2014 |  
|Peace River Oil Partnership |  | $                 | 149 |  |      | $ | 195 | 
|Cordova Joint Venture       |  |                   | 82  |  |      |   | 84  | 
|                            |  |                   |     |  |      |   |     | 
|Total                       |  | $                 | 231 |  |      | $ | 279 | 
|                            |  |                   |     |  |      |   |     | 
|                            |  |                  
|Current portion             |  | $                 | 63  |  |      | $ | 84  | 
|Long-term portion           |  |                   | 168 |  |      |   | 195 | 
|                            |  |                   |     |  |      |   |     | 
|Total                       |  | $                 | 231 |  |      | $ | 279 | 
|                            |  |                   |     |  |      |   |     | 

6. Exploration and evaluation assets



|                               |  |                        |      |   |      |   |      |  
|------------------------------ |  | ---------------------- | ---- | - | ---- | - | ---- | -
|                               |  | Year ended December 31 |     
|                               |  | 2015                   |      |   | 2014 |  
|Balance, beginning of year     |  | $                      | 505  |   |      | $ | 645  |  
|Capital expenditures           |  |                        | 10   |   |      |   | 92   |  
|Joint venture, carried capital |  |                        |     |   |      |   | 16   |  
|Expensed                       |  |                        | (7   | ) |      |   | (16  | )
|Impairment                     |  |                        | (252 | ) |      |   |     |  
|Transfers to PP&E              |  |                        | (13  | ) |      |   | (232 | )
|                               |  |                        |      |   |      |   |      |  
|Balance, end of year           |  | $                      | 243  |   |      | $ | 505  |  
|                               |  |                        |      |   |      |   |      |  

On December 31, 2015 as a result of a decrease in commodity price forecasts and an associated reduction in Penn
Wests planned future capital expenditures, Penn West assessed its E&E plays for impairment indicators. Due to minimal capital activity planned in its natural gas weighted properties within the Cordova area of British Columbia, the Company
completed an impairment test on this property and concluded that the carrying amount exceeded its fair value which resulted in an impairment charge of $185 million ($252 million before-tax). In the future, as commodity price forecasts fluctuate, the
Company will assess its plans in the area which could lead to an increase in the recoverable amount and the potential for a reversal of the impairment.

At December 31, 2014, no impairment existed related to exploration and evaluation assets. An impairment test was completed on amounts reclassified into
PP&E during 2014 at which time the estimated fair value exceeded the carrying amount and no impairment was indicated.

Penn Wests non-cash
E&E expense primarily relates to land expiries and minor properties not expected to be continued into the development phase.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  19



---

7. Property, plant and equipment

Cost



|                                 |  |                   |        |   |            |   |       |             |  |   |                 |  |  |       |     |  |  |   |        |  
|-------------------------------- |  | ----------------- | ------ | - | ---------- | - | ----- | ----------- |  | - | --------------- |  |  | ----- | --- |  |  | - | ------ | -
|                                 |  | Oil and gasassets |        |   | Facilities |   |       | Turnarounds |  |   | Corporateassets |  |  | Total |    
|Balance at January 1, 2014       |  | $                 | 12,356 |   |            | $ | 5,450 |             |  | $ | 15              |  |  | $     | 153 |  |  | $ | 17,974 |  
|Capital expenditures             |  |                   | 397    |   |            |   | 232   |             |  |   |                |  |  |       | 11  |  |  |   | 640    |  
|Joint venture, carried capital   |  |                   | 13     |   |            |   |      |             |  |   |                |  |  |       |    |  |  |   | 13     |  
|Acquisitions                     |  |                   | 10     |   |            |   | 2     |             |  |   |                |  |  |       |    |  |  |   | 12     |  
|Dispositions                     |  |                   | (1,133 | ) |            |   | (283  | )           |  |   |                |  |  |       |    |  |  |   | (1,416 | )
|Transfers from E&E               |  |                   | 186    |   |            |   | 46    |             |  |   |                |  |  |       |    |  |  |   | 232    |  
|Net decommissioning additions    |  |                   | 1      |   |            |   |      |             |  |   |                |  |  |       |    |  |  |   | 1      |  
|                                 |  |                   |        |   |            |   |       |             |  |   |                 |  |  |       |     |  |  |   |        |  
|Balance at December 31, 2014     |  | $                 | 11,830 |   |            | $ | 5,447 |             |  | $ | 15              |  |  | $     | 164 |  |  | $ | 17,456 |  
|Capital expenditures             |  |                   | 288    |   |            |   | 167   |             |  |   |                |  |  |       | 5   |  |  |   | 460    |  
|Joint venture, carried capital   |  |                   | 31     |   |            |   |      |             |  |   |                |  |  |       |    |  |  |   | 31     |  
|Acquisitions                     |  |                   | 6      |   |            |   | 1     |             |  |   |                |  |  |       |    |  |  |   | 7      |  
|Dispositions                     |  |                   | (1,231 | ) |            |   | (308  | )           |  |   |                |  |  |       |    |  |  |   | (1,539 | )
|Transfers from E&E               |  |                   | 10     |   |            |   | 3     |             |  |   |                |  |  |       |    |  |  |   | 13     |  
|SR&ED tax credits (note 12)      |  |                   | (29    | ) |            |   |      |             |  |   |                |  |  |       |    |  |  |   | (29    | )
|Net decommissioning dispositions |  |                   | (189   | ) |            |   |      |             |  |   |                |  |  |       |    |  |  |   | (189   | )
|                                 |  |                   |        |   |            |   |       |             |  |   |                 |  |  |       |     |  |  |   |        |  
|Balance at December 31, 2015     |  | $                 | 10,716 |   |            | $ | 5,310 |             |  | $ | 15              |  |  | $     | 169 |  |  | $ | 16,210 |  
|                                 |  |                   |        |   |            |   |       |             |  |   |                 |  |  |       |     |  |  |   |        |  

Accumulated depletion, depreciation and impairment



|                             |  |                   |       |   |            |   |       |             |  |   |                 |  |  |       |    |  |  |   |        |  
|---------------------------- |  | ----------------- | ----- | - | ---------- | - | ----- | ----------- |  | - | --------------- |  |  | ----- | -- |  |  | - | ------ | -
|                             |  | Oil and gasAssets |       |   | Facilities |   |       | Turnarounds |  |   | Corporateassets |  |  | Total |   
|Balance at January 1, 2014   |  | $                 | 6,947 |   |            | $ | 1,873 |             |  | $ | 12              |  |  | $     | 67 |  |  | $ | 8,899  |  
|Depletion and depreciation   |  |                   | 576   |   |            |   | 160   |             |  |   | 1               |  |  |       | 13 |  |  |   | 750    |  
|Impairments                  |  |                   | 413   |   |            |   | 221   |             |  |   |                |  |  |       |   |  |  |   | 634    |  
|Dispositions                 |  |                   | (586  | ) |            |   | (147  | )           |  |   |                |  |  |       |   |  |  |   | (733   | )
|                             |  |                   |       |   |            |   |       |             |  |   |                 |  |  |       |    |  |  |   |        |  
|Balance at December 31, 2014 |  | $                 | 7,350 |   |            | $ | 2,107 |             |  | $ | 13              |  |  | $     | 80 |  |  | $ | 9,550  |  
|Depletion and depreciation   |  |                   | 503   |   |            |   | 149   |             |  |   | 1               |  |  |       | 14 |  |  |   | 667    |  
|Impairments                  |  |                   | 1,360 |   |            |   | 340   |             |  |   |                |  |  |       |   |  |  |   | 1,700  |  
|Dispositions                 |  |                   | (682  | ) |            |   | (170  | )           |  |   |                |  |  |       |   |  |  |   | (852   | )
|                             |  |                   |       |   |            |   |       |             |  |   |                 |  |  |       |    |  |  |   |        |  
|Balance at December 31, 2015 |  | $                 | 8,531 |   |            | $ | 2,426 |             |  | $ | 14              |  |  | $     | 94 |  |  | $ | 11,065 |  
|                             |  |                   |       |   |            |   |       |             |  |   |                 |  |  |       |    |  |  |   |        |  

Net book value



|      |  |                   |       |  |      |   |       | 
|----- |  | ----------------- | ----- |  | ---- | - | ----- | 
|      |  | As at December 31 |      
|      |  | 2015              |       |  | 2014 |  
|Total |  | $                 | 5,145 |  |      | $ | 7,906 | 
|      |  |                   |       |  |      |   |       | 

In 2015, Penn West recorded a net gain on dispositions of $85 million (2014 - $190 million loss), which included $6 million
expense related to advisory fees (2014  nil).



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  20



---

Due to decreases in commodity price forecasts from September 30, 2015, Penn West determined that there were
indicators of impairment at December 31, 2015 and completed impairment tests on all CGUs and consequently recorded an $632 million impairment charge ($866 million before-tax). On a CGU basis, the after-tax impairment charges were as
follows: Swan Hills ($228 million), Slave Point ($133 million), Cardium ($130 million), Edmonton ($73 million), Fort St. John ($42 million) and Wainwright ($26 million). The impairments recorded in areas outside the Cardium were primarily due to
lower commodity price forecasts compared to September 30, 2015, lower estimated reserve recoveries and minimal future development capital planned in these areas. The impairment in the Cardium was due to lower commodity price forecasts compared
to September 30, 2015 and a reduction in future development costs to align with the Companys current year capital budget. The Company will continue to assess its development plans in all areas as commodity prices fluctuate which could
result in an increase in the recoverable amount and the potential for a reversal of the impairment.

The recoverable amounts used in the impairment tests
were based on either the fair value less cost to sell or the value-in-use method depending on the CGU and were calculated using proved plus probable reserves and incremental development drilling locations supported by contingent resource studies at
a pre-tax discount rate of 10 percent. The incremental development drilling location value was based on managements internal estimates considering well performance and recent well and type curve assumptions. The contingent resources were based
on external contingent resource evaluations and were updated to reflect the current cost structure of the Company and the benchmark prices and assumptions as outlined below.

The following table outlines benchmark prices the Company used in the impairment tests as at December 31, 2015:



|                                  |  |               |       |   |                |   |      |                                  |  |   |      | 
|--------------------------------- |  | ------------- | ----- | - | -------------- | - | ---- | -------------------------------- |  | - | ---- | 
|                                  |  | WTI($US/ bbl) |       |   | AECO($CAD/mcf) |   |      | Exchange rate ($USequals $1 CAD) | 
|2016                              |  | $             | 45.00 |   |                | $ | 2.25 |                                  |  | $ | 0.75 | 
|2017                              |  |               | 60.00 |   |                |   | 2.95 |                                  |  |   | 0.80 | 
|2018                              |  |               | 70.00 |   |                |   | 3.42 |                                  |  |   | 0.83 | 
|2019                              |  |               | 80.00 |   |                |   | 3.91 |                                  |  |   | 0.85 | 
|2020                              |  |               | 81.20 |   |                |   | 4.20 |                                  |  |   | 0.85 | 
|2021  2026                       |  | $             | 85.57 |   |                | $ | 4.47 |                                  |  | $ | 0.85 | 
|Thereafter (inflation percentage) |  |               | 1.5   | % |                |   | 1.5  | %                                |  |   |     | 

During the third quarter of 2015, Penn West recorded a $318 million impairment charge ($435 million before-tax) related to
certain properties in the Fort St. John area of northeastern British Columbia and in the Swan Hills and Wainwright areas of Alberta primarily as a result of decreases in commodity price forecasts. Also, as a result of entering into two definitive
sale agreements during the third quarter of 2015, at September 30, 2015, the Company classified certain non-core assets located in the Mitsue area of Central Alberta and in the Weyburn area of Southeast Saskatchewan as assets held for sale and
recorded a $291 million impairment ($399 million before-tax). During the fourth quarter of 2015, the Mitsue disposition closed for total proceeds of $193 million and the Weyburn disposition closed for total proceeds of $205 million, subject to
post-closing adjustments.

On December 31, 2014, Penn West recorded a $473 million impairment charge ($634 million after-tax) primarily related to
certain properties in the Fort St. John area of northeastern British Columbia, in the Swan Hills area of Alberta and in certain properties in Manitoba. This was mainly due to lower commodity price forecasts compared to the prior year and minimal
future development capital planned in these areas. The recoverable amounts used in the impairment tests, based on fair value less cost to sell, related to these CGUs were calculated using proved plus probable reserves and incremental development
drilling locations at a pre-tax discount rate of 10 percent.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  21



---

8. Goodwill



|                           |  |                       |      |   |      |   |        |  
|-------------------------- |  | --------------------- | ---- | - | ---- | - | ------ | -
|                           |  | Year endedDecember 31 |     
|                           |  | 2015                  |      |   | 2014 |  
|Balance, beginning of year |  | $                     | 734  |   |      | $ | 1,912  |  
|Dispositions               |  |                       | (28  | ) |      |   | (78    | )
|Impairment                 |  |                       | (706 | ) |      |   | (1,100 | )
|                           |  |                       |      |   |      |   |        |  
|Balance, end of year       |  | $                     |     |   |      | $ | 734    |  
|                           |  |                       |      |   |      |   |        |  

Penn Wests opening goodwill balance is primarily associated with a group of CGUs which represent light-oil properties in
the Cardium, Slave Point, Swan Hills and Edmonton areas of Alberta and the Viking primarily within Saskatchewan.

Penn West completed a goodwill
impairment test on the group of CGUs at December 31, 2015 and the carrying value exceeded the recoverable amount resulting in an impairment charge of $684 million. The recoverable amount was determined based on the fair value less cost to sell
method. The key assumptions used in determining the recoverable amount include the forecasted commodity prices, future development costs, future cash flows using reserve and resource forecasts, discount rates, foreign exchange rates and inflation
rates estimated by independent reserve engineers and other internal estimates based on historical experiences and trends.

These values were based on
future cash flows of proved plus probable reserves discounted at a rate of pre-tax 10 percent (2014  10 percent). The future cash flows also consider, when appropriate, past capital activities, competitor analysis, observable market
conditions, comparable transactions and future development costs primarily based on anticipated development capital programs.

Additionally during 2015,
the Company recorded $22 million of goodwill impairment as a result of classifying certain non-core assets as assets held for sale during the third quarter.

On December 31, 2014, Penn West completed a goodwill impairment test and the carrying value exceeded the recoverable, thus an impairment was recorded.
The recoverable amount was determined based on the fair value less cost to sell method.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  22



---

9. Long-term debt



|                                                  |  |                   |       |  |      |   |       | 
|------------------------------------------------- |  | ----------------- | ----- |  | ---- | - | ----- | 
|                                                  |  | As at December 31 |      
|                                                  |  | 2015              |       |  | 2014 |  
|Bankers acceptances and prime rate loans         |  | $                 | 462   |  |      | $ |      | 
|                                                  |  |                  
|U.S. Senior secured notes  2007 Notes (1)        |  |                   |       |  |      |   |       | 
|6.18%, US$160 million, matured May 31, 2015       |  |                   |      |  |      |   | 185   | 
|7.30%, US$98 million, maturing May 31, 2017       |  |                   | 136   |  |      |   | 180   | 
|7.40%, US$85 million, maturing May 31, 2019       |  |                   | 118   |  |      |   | 162   | 
|7.55%, US$10 million, maturing May 31, 2022       |  |                   | 14    |  |      |   | 23    | 
|Senior secured notes  2008 Notes (1)             |  |                   |       |  |      |   |       | 
|7.62%, US$118 million, maturing May 29, 2016      |  |                   | 164   |  |      |   | 177   | 
|7.66%, CAD$30 million, maturing May 29, 2018      |  |                   | 30    |  |      |   | 30    | 
|7.80%, US$180 million, maturing May 29, 2018      |  |                   | 249   |  |      |   | 323   | 
|7.90%, US$36 million, maturing May 29, 2020       |  |                   | 49    |  |      |   | 57    | 
|UK Senior secured notes  UK Notes (1)            |  |                   |       |  |      |   |       | 
|6.95%, £35 million, maturing July 31, 2018 (2)    |  |                   | 71    |  |      |   | 103   | 
|Senior secured notes  2009 Notes (1)             |  |                   |       |  |      |   |       | 
|10.39%, US$18 million, maturing May 5, 2016       |  |                   | 24    |  |      |   | 40    | 
|10.82%, US$32 million, maturing May 5, 2019       |  |                   | 44    |  |      |   | 39    | 
|10.39%, US$15 million, maturing May 5, 2019 (3)   |  |                   | 20    |  |      |   | 29    | 
|9.15%, £14 million, maturing May 5, 2019 (4)      |  |                   | 29    |  |      |   | 36    | 
|9.22%, 6 million, maturing May 5, 2019 (5)       |  |                   | 9     |  |      |   | 14    | 
|Senior secured notes  2010 Q1 Notes (1)          |  |                   |       |  |      |   |       | 
|4.53%, US$28 million, matured March 16, 2015      |  |                   |      |  |      |   | 32    | 
|4.88%, CAD$50 million, matured March 16, 2015     |  |                   |      |  |      |   | 50    | 
|6.79%, US$51 million, maturing March 16, 2017     |  |                   | 71    |  |      |   | 75    | 
|7.35%, US$74 million, maturing March 16, 2020     |  |                   | 103   |  |      |   | 132   | 
|7.45%, US$13 million, maturing March 16, 2022     |  |                   | 17    |  |      |   | 29    | 
|7.60%, US$10 million, maturing March 16, 2025     |  |                   | 14    |  |      |   | 23    | 
|Senior secured notes  2010 Q4 Notes (1)          |  |                   |       |  |      |   |       | 
|5.94%, CAD$7 million, matured December 2, 2015    |  |                   |      |  |      |   | 10    | 
|5.67%, US$18 million, maturing December 2, 2017   |  |                   | 25    |  |      |   | 21    | 
|6.88%, CAD$27 million, maturing December 2, 2020  |  |                   | 27    |  |      |   | 50    | 
|6.38%, US$60 million, maturing December 2, 2020   |  |                   | 83    |  |      |   | 98    | 
|6.48%, US$18 million, maturing December 2, 2022   |  |                   | 25    |  |      |   | 21    | 
|6.73%, US$25 million, maturing December 2, 2025   |  |                   | 35    |  |      |   | 58    | 
|Senior secured notes  2011 Q4 Notes (1)          |  |                   |       |  |      |   |       | 
|5.14%, US$20 million, maturing November 30, 2016  |  |                   | 27    |  |      |   | 29    | 
|5.73%, US$3 million, maturing November 30, 2018   |  |                   | 4     |  |      |   | 14    | 
|6.13%, CAD$16 million, maturing November 30, 2018 |  |                   | 16    |  |      |   | 30    | 
|6.29%, US$53 million, maturing November 30, 2021  |  |                   | 74    |  |      |   | 79    | 
|                                                  |  |                   |       |  |      |   |       | 
|Total long-term debt                              |  | $                 | 1,940 |  |      | $ | 2,149 | 
|                                                  |  |                   |       |  |      |   |       | 



|(1) | Interest rate per note can fluctuate based on consolidated debt to EBITDA ratio which expires on March 30, 2017, the date the covenant relief period ends with the bank syndicate and noteholders.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | These notes bear interest at 8.45 percent in Pounds Sterling, however, contracts were entered into which fixed the interest rate at 6.95 percent in Canadian dollars and to fix the exchange rate on the repayment (refer
to Note 11).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | This portion of the 2009 Notes has equal repayments, which began in 2013 with a repayment of US$5 million, and extend over the remaining six years.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | These notes bear interest at 10.65 percent in Pounds Sterling, however, contracts were entered into which fixed the interest rate at 9.15 percent in Canadian dollars and to fix the exchange rate on the repayment (refer
to Note 11).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | These notes bear interest at 10.72 percent in Euros, however, contracts were entered into which fixed the interest rate at 9.22 percent in Canadian dollars and to fix the exchange rate on the repayment (refer to Note
11).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  23



---

There were no senior notes issued in either 2015 or 2014.

The split between current and non-current long-term debt is as follows:



|                  |  |                   |       |  |      |   |       | 
|----------------- |  | ----------------- | ----- |  | ---- | - | ----- | 
|                  |  | As at December 31 |      
|                  |  | 2015              |       |  | 2014 |  
|Current portion   |  | $                 | 222   |  |      | $ | 283   | 
|Long-term portion |  |                   | 1,718 |  |      |   | 1,866 | 
|                  |  |                   |       |  |      |   |       | 
|Total             |  | $                 | 1,940 |  |      | $ | 2,149 | 
|                  |  |                   |       |  |      |   |       | 

Additional information on Penn Wests senior secured notes was as follows:



|                                        |  |                   |     |   |      |  |     |  
|--------------------------------------- |  | ----------------- | --- | - | ---- |  | --- | -
|                                        |  | As at December 31 |    
|                                        |  | 2015              |     |   | 2014 | 
|Weighted average remaining life (years) |  |                   | 3.1 |   |      |  | 3.7 |  
|Weighted average interest rate (1)      |  |                   | 7.6 | % |      |  | 6.0 | %



|(1) | Includes the effect of cross currency swaps (refer to note 11).
|--- | ---------------------------------------------------------------

The estimated fair values of the principal
and interest obligations of the outstanding senior secured notes were as follows:



|              |  |                   |       |  |      |   |       | 
|------------- |  | ----------------- | ----- |  | ---- | - | ----- | 
|              |  | As at December 31 |      
|              |  | 2015              |       |  | 2014 |  
|2007 Notes    |  | $                 | 249   |  |      | $ | 560   | 
|2008 Notes    |  |                   | 470   |  |      |   | 612   | 
|UK Notes      |  |                   | 66    |  |      |   | 106   | 
|2009 Notes    |  |                   | 123   |  |      |   | 183   | 
|2010 Q1 Notes |  |                   | 183   |  |      |   | 339   | 
|2010 Q4 Notes |  |                   | 176   |  |      |   | 239   | 
|2011 Notes    |  |                   | 101   |  |      |   | 141   | 
|              |  |                   |       |  |      |   |       | 
|Total         |  | $                 | 1,368 |  |      | $ | 2,180 | 
|              |  |                   |       |  |      |   |       | 

At December 31, 2015, the Company had a secured, revolving syndicated bank facility with an aggregate borrowing limit of
$1.2 billion maturing on May 6, 2019. The syndicated bank facility contains provisions for stamping fees on bankers acceptances and LIBOR loans and standby fees on unutilized credit lines that vary depending on certain consolidated financial
ratios. At December 31, 2015, the Company had $689 million of unused credit capacity available.

Drawings on the Companys bank facility are
subject to fluctuations in short-term money market rates as they are generally held as short-term borrowings. As at December 31, 2015, 24 percent (2014  none) of Penn Wests long-term debt instruments were exposed to changes in
short-term interest rates.

Letters of credit totalling $49 million were outstanding on December 31, 2015 (2014  $30 million) that reduce the
amount otherwise available to be drawn on the bank facility.

During 2015, Penn West repaid senior notes in an aggregate amount of US$193 million and $57
million as part of normal maturities and additional amounts of US$445 million, $40 million, £28 million and 4 million of senior notes were prepaid as a result of the offers made at par to its noteholders using asset disposition proceeds.
In 2015, Penn West also repaid a total of $147 million outstanding under its syndicated bank facility using asset disposition proceeds. Penn West records unrealized foreign exchange gains or losses on its senior notes as amounts are translated into
Canadian dollars at the rate of exchange in effect at the balance sheet date.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  24



---

The split between realized and unrealized foreign exchange is as follows:



|                                                    |  |                        |      |   |      |   |      |  
|--------------------------------------------------- |  | ---------------------- | ---- | - | ---- | - | ---- | -
|                                                    |  | Year ended December 31 |     
|                                                    |  | 2015                   |      |   | 2014 |  
|Realized foreign exchange loss on debt maturities   |  | $                      | (36  | ) |      | $ | (3   | )
|Realized foreign exchange loss on debt pre-payments |  |                        | (123 | ) |      |   |     |  
|Unrealized foreign exchange loss                    |  |                        | (151 | ) |      |   | (152 | )
|                                                    |  |                        |      |   |      |   |      |  
|Foreign exchange loss                               |  | $                      | (310 | ) |      | $ | (155 | )
|                                                    |  |                        |      |   |      |   |      |  

The Company is subject to certain financial covenants under its syndicated bank facility and senior notes. These types of
financial covenants are typical for senior lending arrangements and include senior debt and total debt to EBITDA and senior debt and total debt to capitalization, as more specifically defined in the applicable lending agreements. At
December 31, 2015, the Company was in compliance with all of its financial covenants under such lending agreements.

In May 2015, the Company
finalized amending agreements with the lenders under its syndicated bank facility and with the holders of its senior notes to, among other things, amend its financial covenants as follows:



| |  | the maximum Senior Debt to EBITDA and Total Debt to EBITDA ratio will be less than or equal to 5:1 for the period January 1, 2015 through and including June 30, 2016, decreasing to less than or equal to 4.5:1
for the quarter ending September 30, 2016 and decreasing to less than or equal to 4:1 for the quarter ending December 31, 2016;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the Senior Debt to EBITDA ratio will decrease to less than or equal to 3:1 for the period from and after January 1, 2017; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------



| |  | the Total Debt to EBITDA ratio will remain at less than or equal to 4:1 for all periods after September 30, 2016.
|- |  | -----------------------------------------------------------------------------------------------------------------

The Company also agreed to the following:



| |  | to temporarily grant floating charge security over all of its property in favor of the lenders and the noteholders on a pari passu basis, which security will be fully released upon the Company achieving both (i) a
Senior Debt to EBITDA ratio of 3:1 or less for four consecutive quarters, and (ii) an investment grade rating on its senior secured debt;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | to cancel the $500 million tranche of the Companys existing $1.7 billion syndicated bank facility that was set to expire on June 30, 2016, the remaining $1.2 billion tranche of the syndicated bank facility
remains available to the Company in accordance with the terms of the agreements governing such facility;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | to temporarily reduce its quarterly dividend commencing in the first quarter of 2015 to $0.01 per share or less until the earlier of (i) the Senior Debt to EBITDA being less than 3:1 for two consecutive quarters ending
on or after September 30, 2015, and (ii) March 30, 2017; and
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | until March 30, 2017, to use net proceeds from any asset dispositions to repay at par $650 million of the outstanding principal amounts owing to noteholders, with corresponding pro rata amounts from such asset
dispositions to be used to repay any outstanding amounts drawn under its syndicated bank facility. During 2015, Penn West had closed $800 million in asset dispositions with the proceeds used for debt prepayments to its noteholders and syndicated
bank facility.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  25



---

As a result of continued declines in commodity price forecasts, if current strip pricing continues, the Company
anticipates it will not be in compliance with its existing financial covenants by the end of the second quarter of 2016. The Company is considering several options that address the risk of default, including engaging its lenders to amend its
financial covenants, reaching agreements on additional non-core property dispositions or securing additional subordinated debt and/or equity capital from strategic investors. Additionally, due to an active hedging program, the Company has a number
of favorable hedging positions which could be monetized if approved by its lenders.

10. Decommissioning liability

The decommissioning liability is based upon the present value of Penn Wests net share of estimated future costs of obligations to abandon and reclaim all
wells, facilities and pipelines. These estimates were made by management using information from internal analysis and external consultants assuming current costs, technology and enacted legislation.

The decommissioning liability was determined by applying an inflation factor of 2.0 percent (2014 - 2.0 percent) and the inflated amount was discounted using
a credit-adjusted rate of 7.5 percent (2014  6.5 percent) over the expected useful life of the underlying assets, currently extending over 50 years into the future.

The split between current and non-current decommissioning liability is as follows:



|                  |  |                   |     |  |      |   |     | 
|----------------- |  | ----------------- | --- |  | ---- | - | --- | 
|                  |  | As at December 31 |    
|                  |  | 2015              |     |  | 2014 |  
|Current portion   |  | $                 | 21  |  |      | $ | 52  | 
|Long-term portion |  |                   | 376 |  |      |   | 533 | 
|                  |  |                   |     |  |      |   |     | 
|Total             |  | $                 | 397 |  |      | $ | 585 | 
|                  |  |                   |     |  |      |   |     | 

Changes to the decommissioning liability were as follows:



|                                                    |  |                        |      |   |      |   |     |  
|--------------------------------------------------- |  | ---------------------- | ---- | - | ---- | - | --- | -
|                                                    |  | Year ended December 31 |     
|                                                    |  | 2015                   |      |   | 2014 |  
|Balance, beginning of year                          |  | $                      | 585  |   |      | $ | 603 |  
|Net liabilities disposed (1)                        |  |                        | (61  | ) |      |   | (75 | )
|Increase (decrease) due to changes in estimates (2) |  |                        | (128 | ) |      |   | 76  |  
|Liabilities settled                                 |  |                        | (36  | ) |      |   | (55 | )
|Accretion charges                                   |  |                        | 37   |   |      |   | 36  |  
|                                                    |  |                        |      |   |      |   |     |  
|Balance, end of year                                |  | $                      | 397  |   |      | $ | 585 |  
|                                                    |  |                        |      |   |      |   |     |  



|(1) | Includes additions from drilling activity, facility capital spending and disposals from net property dispositions.
|--- | ------------------------------------------------------------------------------------------------------------------

|(2) | Includes $153 million decrease as a result of the increase in the discount rate (2014  nil).
|--- | ---------------------------------------------------------------------------------------------



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  26



---

11. Risk management

Financial instruments consist of accounts receivable, fair values of derivative financial instruments, accounts payable and accrued liabilities, dividends
payable and long-term debt. Except for the senior notes described in Note 9, the fair values of these financial instruments approximate their carrying amounts due to the short-term maturity of the instruments, the mark to market values recorded for
the financial instruments and the market rate of interest applicable to the syndicated bank facility.

The fair values of all outstanding financial,
commodity, power, interest rate and foreign exchange contracts are reflected on the balance sheet with the changes during the period recorded in income as unrealized gains or losses.

As at December 31, 2015 and 2014, the only asset or liability measured at fair value on a recurring basis was the risk management asset and liability,
which was valued based on Level 2 inputs being quoted prices in markets that are not active or based on prices that are observable for the asset or liability.

A comparison of the carrying value to the fair value of the financial instruments included in the balance sheet was as follows:



|                                          |  |                        |  |                |       |  |            |   |       |      |  |   |       |  |  |   |       | 
|----------------------------------------- |  | ---------------------- |  | -------------- | ----- |  | ---------- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                          |  |                        |  | Carrying value |       |  | Fair value |  
|                                          |  | Classification         |  | 2015           |       |  | 2014       |   |       | 2015 |  |   | 2014  | 
|Accounts receivable                       |  | Loans and receivables  |  | $              | 154   |  |            | $ | 182   |      |  | $ | 154   |  |  | $ | 182   | 
|Derivative financial assets               |  | FV through profit/loss |  |                | 107   |  |            |   | 133   |      |  |   | 107   |  |  |   | 133   | 
|Derivative financial liabilities          |  | FV through profit/loss |  |                | 3     |  |            |   | 19    |      |  |   | 3     |  |  |   | 19    | 
|Accounts payable and accrued liabilities  |  | Financial liabilities  |  |                | 380   |  |            |   | 529   |      |  |   | 380   |  |  |   | 529   | 
|Dividends payable                         |  | Financial liabilities  |  |                |      |  |            |   | 70    |      |  |   |      |  |  |   | 70    | 
|Bankers acceptances and prime rate loans |  | Financial liabilities  |  |                | 462   |  |            |   |      |      |  |   | 462   |  |  |   |      | 
|Senior notes (1)                          |  | Financial liabilities  |  | $              | 1,478 |  |            | $ | 2,149 |      |  | $ | 1,368 |  |  | $ | 2,180 | 



|(1) | Calculated as the present value of the interest and principal payments at December 31.
|--- | --------------------------------------------------------------------------------------

The following
table reconciles the changes in the fair value of financial instruments outstanding:



|                                                        |  |                        |     |   |      |   |     |  
|------------------------------------------------------- |  | ---------------------- | --- | - | ---- | - | --- | -
|                                                        |  | Year ended December 31 |    
|Risk management asset (liability)                       |  | 2015                   |     |   | 2014 |  
|Balance, beginning of year                              |  | $                      | 114 |   |      | $ | 12  |  
|Unrealized gain (loss) on financial instruments:        |  |                        |     |   |      |   |     |  
|Commodity collars, swaps and assignments                |  |                        | 13  |   |      |   | 51  |  
|Electricity swaps                                       |  |                        | 6   |   |      |   | (2  | )
|Interest rate swaps                                     |  |                        |    |   |      |   | 1   |  
|Foreign exchange forwards                               |  |                        | (47 | ) |      |   | 48  |  
|Cross currency swaps                                    |  |                        | 18  |   |      |   | 4   |  
|                                                        |  |                        |     |   |      |   |     |  
|Total fair value, end of year                           |  | $                      | 104 |   |      | $ | 114 |  
|                                                        |  |                        |     |   |      |   |     |  
|                                                        |  |                       
|Total fair value consists of the following:             |  |                        |     |   |      |   |     |  
|Fair value, end of year  current asset portion         |  | $                      | 44  |   |      | $ | 31  |  
|Fair value, end of year  current liability portion     |  |                        | (3  | ) |      |   | (9  | )
|Fair value, end of year  non-current asset portion     |  |                        | 63  |   |      |   | 102 |  
|Fair value, end of year  non-current liability portion |  |                        |    |   |      |   | (10 | )
|                                                        |  |                        |     |   |      |   |     |  
|Total fair value, end of year                           |  | $                      | 104 |   |      | $ | 114 |  
|                                                        |  |                        |     |   |      |   |     |  



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  27



---

Penn West records its risk management assets and liabilities on a net basis in the consolidated balance sheets.
Excluding offsetting of counterparty positions, Penn Wests risk management assets and liabilities were as follows:



|                      |  |                   |    |   |      |   |     |  
|--------------------- |  | ----------------- | -- | - | ---- | - | --- | -
|                      |  | As at December 31 |   
|                      |  | 2015              |    |   | 2014 |  
|Risk management       |  |                   |    |   |      |   |     |  
|Current asset         |  | $                 | 44 |   |      | $ | 31  |  
|Non-current asset     |  |                   | 63 |   |      |   | 102 |  
|Current liability     |  |                   | (3 | ) |      |   | (9  | )
|Non-current liability |  | $                 |   |   |      | $ | (10 | )

Penn West had the following financial instruments outstanding as at December 31, 2015. Fair values are determined using
external counterparty information, which is compared to observable market data. Penn West limits its credit risk by executing counterparty risk procedures which include transacting only with institutions within Penn Wests credit facility or
companies with high credit ratings and by obtaining financial security in certain circumstances.



|                                          |  |                 |  |                 |  |         |                                    |     |                      |   |     |  
|----------------------------------------- |  | --------------- |  | --------------- |  | ------- | ---------------------------------- | --- | -------------------- | - | --- | -
|                                          |  | Notional
volume |  | Remaining
term  |  | Pricing |                                    |     | Fair value(millions) |  
|Natural gas                               |  |                 |  |                 |  |         |                                    |     |                      |   |     |  
|AECO Swaps                                |  | 19,000 mcf/d    |  | Jan/16  Dec/16 |  | $       | 3.08/mcf                           |     |                      | $ | 4   |  
|                                          |  |                 |  |                
|Crude Oil                                 |  |                 |  |                 |  |         |                                    |     |                      |   |     |  
|WTI Swaps                                 |  | 5,000 bbl/d     |  | Jan/16  Dec/16 |  | $       | 72.08/bbl                          |     |                      |   | 27  |  
|WTI Swaps                                 |  | 4,500 bbl/d     |  | Jan/16  Mar/16 |  | $       | 73.67/bbl                          |     |                      |   | 8   |  
|WTI Swaps                                 |  | 2,000 bbl/d     |  | Apr/16  Jun/16 |  | $       | 68.25/bbl                          |     |                      |   | 2   |  
|WTI Swaps                                 |  | 1,000 bbl/d     |  | Jul/16  Sep/16 |  | $       | 66.05/bbl                          |     |                      |   | 1   |  
|WTI Swaps                                 |  | 1,000 bbl/d     |  | Oct/16  Dec/16 |  | $       | 67.05/bbl                          |     |                      |   | 1   |  
|WTI Swaps                                 |  | 3,000 bbl/d     |  | Jan/17  Mar/17 |  | $       | 69.37/bbl                          |     |                      |   | 2   |  
|                                          |  |                 |  |                
|Electricity swaps                         |  |                 |  |                 |  |         |                                    |     |                      |   |     |  
|Alberta Power Pool                        |  | 25 MW           |  | Jan/16  Dec/16 |  | $       | 49.90/MWh                          |     |                      |   | (4  | )
|                                          |  |                 |  |                
|Crude oil assignment                      |  |                 |  |                 |  |         |                                    |     |                      |   |     |  
|18  month term                           |  | 10,000 boe/d    |  | Jan/16  May/16 |  |         | Differential WCS (Edmvs. WCS (USGC | ) ) |                      |   | 2   |  
|                                          |  |                
|Foreign exchange forwards on senior notes |  |                 |  |                 |  |         |                                    |    
|3 to 15-year initial term                 |  | US$140          |  | 2016  2019     |  |         | 0.9951 CAD/USD                     |     |                      |   | 51  |  
|Short-term (< 1 year)                     |  | US$9            |  | 2016            |  |         | 1.3883 CAD/USD                     |     |                      |   |    |  
|                                          |  |                 | 
|Cross currency swaps                      |  |                 |  |                 |  |         |                                    |     |                      |  
|10-year initial term                      |  | £57             |  | 2018            |  |         | 2.0075 CAD/GBP, 6.95%              |     |                      |   | 4   |  
|10-year initial term                      |  | £20             |  | 2019            |  |         | 1.8051 CAD/GBP, 9.15%              |     |                      |   | 6   |  
|10-year initial term                      |  | 10             |  | 2019            |  |         | 1.5870 CAD/EUR, 9.22%              |     |                      |   |    |  
|                                          |  |                 |  |                 |  |         |                                    |     |                      |   |     |  
|Total                                     |  |                 |  |                 |  |         |                                    |     |                      | $ | 104 |  
|                                          |  |                 |  |                 |  |         |                                    |     |                      |   |     |  



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  28



---

Based on December 31, 2015 pricing, a $1.00 change in the price per barrel of liquids would have changed
pre-tax unrealized risk management by $3 million and a $0.10 change in the price per mcf of natural gas would change pre-tax unrealized risk management by $1 million.

Subsequent to December 31, 2015, the Company entered into additional gas swaps as follows: 4,700 mcf per day of production from February to December of
2016 at AECO $2.69 per mcf and 4,700 mcf per day of production in 2017 at AECO $2.96 per mcf.

The components of risk management on the Consolidated
Statements of Loss are as follows:



|                                             |  |                        |     |   |      |   |     |  
|-------------------------------------------- |  | ---------------------- | --- | - | ---- | - | --- | -
|                                             |  | Year ended December 31 |    
|                                             |  | 2015                   |     |   | 2014 |  
|Realized                                     |  |                        |     |   |      |   |     |  
|Settlement of commodity contracts/assignment |  | $                      | 63  |   |      | $ | (42 | )
|Monetization of commodity contracts          |  |                        | 18  |   |      |   |    |  
|Settlement of foreign exchange contracts     |  |                        | 40  |   |      |   | 2   |  
|Monetization of foreign exchange contracts   |  |                        | 95  |   |      |   |    |  
|                                             |  |                        |     |   |      |   |     |  
|Total realized risk management gain (loss)   |  |                        | 216 |   |      |   | (40 | )
|                                             |  |                       
|Unrealized                                   |  |                        |     |   |      |   |     |  
|Commodity contracts                          |  |                        | 21  |   |      |   | 53  |  
|Electricity swaps                            |  |                        | 6   |   |      |   | (2  | )
|Interest rate swaps                          |  |                        |    |   |      |   | 1   |  
|Crude oil assignment                         |  |                        | (8  | ) |      |   | (2  | )
|Foreign exchange contracts                   |  |                        | (47 | ) |      |   | 48  |  
|Cross-currency swaps                         |  |                        | 18  |   |      |   | 4   |  
|                                             |  |                        |     |   |      |   |     |  
|Total unrealized risk management gain (loss) |  |                        | (10 | ) |      |   | 102 |  
|                                             |  |                        |     |   |      |   |     |  
|Risk management gain                         |  | $                      | 206 |   |      | $ | 62  |  
|                                             |  |                        |     |   |      |   |     |  

A realized loss of $16 million (2014 - $6 million loss) on electricity contracts has been included in operating expenses for
2015.

Market Risks

Penn West is exposed to normal market
risks inherent in the oil and natural gas business, including, but not limited to, commodity price risk, foreign currency rate risk, credit risk, interest rate risk and liquidity risk. The Company seeks to mitigate these risks through various
business processes and management controls and from time to time by using financial instruments.

Commodity Price Risk

Commodity price fluctuations are among the Companys most significant exposures. Crude oil prices are influenced by worldwide factors such as OPEC
actions, world supply and demand fundamentals and geopolitical events. Natural gas prices are influenced by the price of alternative fuel sources such as oil or coal and by North American natural gas supply and demand fundamentals including the
levels of industrial activity, weather, storage levels and liquefied natural gas activity. In accordance with policies approved by Penn Wests Board of Directors, the Company may, from time to time, manage these risks through the use of swaps,
collars or other financial instruments up to a maximum of 50 percent of forecast sales volumes, net of royalties, for the balance of any current year plus one additional year forward and up to a maximum of 25 percent, net of royalties, for one
additional year thereafter. Risk management limits included in Penn Wests policies may be exceeded with specific approval from the Board of Directors.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  29



---

Foreign Currency Rate Risk

Prices received for crude oil are referenced to US dollars, thus Penn Wests realized oil prices are impacted by Canadian dollar to US dollar exchange
rates. A portion of the Companys debt capital is denominated in US dollars, thus the principal and interest payments in Canadian dollars are also impacted by exchange rates. When considered appropriate, the Company may use financial
instruments to fix or collar future exchange rates to fix the Canadian dollar equivalent of crude oil revenues or to fix US denominated long-term debt principal repayments.

In 2015, the Company monetized a total of US$404 million of foreign exchange forward contracts on senior notes and settled foreign exchange forward contracts
as part of normal course maturities and on prepayments made to its noteholders. At December 31, 2015, the following foreign currency forward contracts were outstanding:



|               |  |                 |      |  |               |  |               | 
|-------------- |  | --------------- | ---- |  | ------------- |  | ------------- | 
|Nominal Amount |  | Settlement date |      |  | Exchange rate | 
|Buy US$9       |  |                 | 2016 |  |               |  | 1.388 CAD/USD | 
|Buy US$70      |  |                 | 2017 |  |               |  | 0.999 CAD/USD | 
|Buy US$70      |  |                 | 2019 |  |               |  | 0.991 CAD/USD | 

At December 31, 2015, Penn West had US dollar denominated debt with a face value of approximately US$800 million (2014 -
US$1.0 billion) on which the repayment of the principal amount in Canadian dollars was not fixed.

Credit Risk

Credit risk is the risk of loss if purchasers or counterparties do not fulfill their contractual obligations. The Companys accounts receivable are
principally with customers in the oil and natural gas industry and are generally subject to normal industry credit risk, which includes the ability to recover unpaid receivables by retaining the partners share of production when Penn West is
the operator. For oil and natural gas sales and financial derivatives, a counterparty risk procedure is followed whereby each counterparty is reviewed on a regular basis for the purpose of assigning a credit limit and may be requested to provide
security if determined to be prudent. For financial derivatives, the Company normally transacts with counterparties who are members of its banking syndicate or other counterparties that have investment grade bond ratings. Credit events related to
all counterparties are monitored and credit exposures are reassessed on a regular basis. As necessary, provisions for potential credit related losses are recognized.

As at December 31, 2015, the maximum exposure to credit risk was $261 million (2014  $315 million) which comprised of $154 million (2014 - $182
million) being the carrying value of the accounts receivable and $107 million (2014  $133 million) related to the fair value of the derivative financial assets.

Interest Rate Risk

A portion of the Companys debt capital
can be held in floating-rate bank facilities, which results in exposure to fluctuations in short-term interest rates, which remain at lower levels than longer-term rates. From time to time, Penn West may increase the certainty of its future interest
rates by entering fixed interest rate debt instruments or by using financial instruments to swap floating interest rates for fixed rates or to collar interest rates. As at December 31, 2015, 24 percent of the Companys long-term debt
instruments were exposed to changes in short-term interest rates (2014  none).

As at December 31, 2015, a total of $1.5 billion (2014 
$2.1 billion) of fixed interest rate debt instruments was outstanding with an average remaining term of 3.1 years (2014  3.7 years) and an average interest rate of 7.6 percent (2014  6.0 percent).



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  30



---

Liquidity Risk

Liquidity risk is the risk that the Company will be unable to meet its financial liabilities as they come due. Management utilizes short and long-term
financial and capital forecasting programs to ensure credit facilities are sufficient relative to forecast debt levels, dividend and capital program levels are appropriate, and that financial covenants will be met. Management also regularly reviews
capital markets to identify opportunities to optimize the debt capital structure on a cost effective basis. In the short term, liquidity is managed through daily cash management activities, short-term financing strategies and the use of swaps,
collars and other financial instruments to increase the predictability of cash flow from operating activities. Refer to Note 9 for further discussion on liquidity risk.

The following table outlines estimated future obligations for non-derivative financial liabilities as at December 31, 2015:



|                                         |  |      |     |  |      |   |     |      |  |   |      |  |  |      |     |  |            |   |     |  |  |   |     | 
|---------------------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  | ---------- | - | --- |  |  | - | --- | 
|                                         |  | 2016 |     |  | 2017 |   |     | 2018 |  |   | 2019 |  |  | 2020 |     |  | Thereafter |  
|Senior secured notes                     |  | $    | 222 |  |      | $ | 238 |      |  | $ | 375  |  |  | $    | 201 |  |            | $ | 263 |  |  | $ | 179 | 
|Accounts payable and accrued liabilities |  |      | 376 |  |      |   |    |      |  |   |     |  |  |      |    |  |            |   |    |  |  |   |    | 
|Share-based compensation accrual         |  |      | 4   |  |      |   | 3   |      |  |   |     |  |  |      |    |  |            |   |    |  |  |   |    | 
|                                         |  |      |     |  |      |   |     |      |  |   |      |  |  |      |     |  |            |   |     |  |  |   |     | 
|Total                                    |  | $    | 602 |  |      | $ | 241 |      |  | $ | 375  |  |  | $    | 201 |  |            | $ | 263 |  |  | $ | 179 | 
|                                         |  |      |     |  |      |   |     |      |  |   |      |  |  |      |     |  |            |   |     |  |  |   |     | 

12. Income taxes

The
provision for income taxes is as follows:



|                      |  |                        |      |   |      |   |      |  
|--------------------- |  | ---------------------- | ---- | - | ---- | - | ---- | -
|                      |  | Year ended December 31 |     
|                      |  | 2015                   |      |   | 2014 |  
|Deferred tax recovery |  | $                      | (619 | ) |      | $ | (118 | )

The provision for income taxes reflects an effective tax rate that differs from the combined federal and provincial statutory
tax rate as follows:



|                                       |  |                        |        |   |      |   |        |  
|-------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                       |  | Year ended December 31 |       
|                                       |  | 2015                   |        |   | 2014 |  
|Loss before taxes                      |  | $                      | (3,265 | ) |      | $ | (1,851 | )
|Combined statutory tax rate (1)        |  |                        | 26.2   | % |      |   | 25.4   | %
|Computed income tax recovery           |  | $                      | (855   | ) |      | $ | (470   | )
|Increase (decrease) resulting from:    |  |                        |        |   |      |   |        |  
|Share-based compensation               |  |                        | 1      |   |      |   | 2      |  
|Non-deductible foreign exchange losses |  |                        | 54     |   |      |   | 39     |  
|Disposition of goodwill                |  |                        | 7      |   |      |   | 20     |  
|Non-deductible impairment              |  |                        | 185    |   |      |   | 279    |  
|Changes in tax rates                   |  |                        | 41     |   |      |   |       |  
|Adjustments related to prior years     |  |                        | (53    | ) |      |   |       |  
|Other                                  |  |                        | 1      |   |      |   | 12     |  
|                                       |  |                        |        |   |      |   |        |  
|Deferred tax recovery                  |  | $                      | (619   | ) |      | $ | (118   | )
|                                       |  |                        |        |   |      |   |        |  



|(1) | The tax rate represents the combined federal and provincial statutory tax rates for the Company and its subsidiaries for the years ended December 31, 2015 and December 31, 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Penn West has income tax filings that are subject to audit by taxation authorities, which may impact its deferred tax liability. Penn West does not anticipate
adjustments arising from these audits and believes it has adequately provided for income taxes based on available information, however, adjustments that arise could be material.

During the second quarter, the corporate tax rate increased in Alberta from 10 percent to 12 percent which resulted in an increase in the Companys
deferred tax liability.



|               |  |                                             
|-------------- |  | --------------------------------------------
|PENN WEST 2015 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  31



---

During 2015, with the Canada Revenue Agency (CRA) approval of the 2012 and 2013 SR&ED Investment
Tax Credit (ITC) claims, the Company recognized $29 million of SR&ED ITCs against the deferred tax liability and a reduction of PP&E assets.

The net deferred income tax liability is comprised of the following:



|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  
|--------------------------------- |  | ---------------------- | ----- | - | ---------------------------- | - | ---- | ----------------------------------------- |  | - | ------------------------ | - |  | - | ----- | -
|                                  |  | BalanceJanuary 1, 2015 |       |   | Provision(Recovery)in Income |   |      | Recognized inProperty, Plantand Equipment |  |   | BalanceDecember 31, 2015 |  
|Deferred tax liabilities (assets) |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  
|PP&E                              |  | $                      | 1,623 |   |                              | $ | (465 | )                                         |  | $ | (29                      | ) |  | $ | 1,129 |  
|Risk management                   |  |                        | 29    |   |                              |   | (17  | )                                         |  |   |                         |   |  |   | 12    |  
|Decommissioning liability         |  |                        | (148  | ) |                              |   | 41   |                                           |  |   |                         |   |  |   | (107  | )
|Share-based compensation          |  |                        | (2    | ) |                              |   |     |                                           |  |   |                         |   |  |   | (2    | )
|Non-capital losses                |  |                        | (588  | ) |                              |   | (178 | )                                         |  |   |                         |   |  |   | (766  | )
|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  
|Net deferred tax liability        |  | $                      | 914   |   |                              | $ | (619 | )                                         |  | $ | (29                      | ) |  | $ | 266   |  
|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  



|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  
|--------------------------------- |  | ---------------------- | ----- | - | ---------------------------- | - | ---- | ----------------------------------------- |  | - | ------------------------ | - |  | - | ----- | -
|                                  |  | BalanceJanuary 1, 2014 |       |   | Provision(Recovery)in Income |   |      | Recognized inProperty, Plantand Equipment |  |   | BalanceDecember 31, 2014 |  
|Deferred tax liabilities (assets) |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  
|PP&E                              |  | $                      | 1,940 |   |                              | $ | (309 | )                                         |  | $ | (8                       | ) |  | $ | 1,623 |  
|Risk management                   |  |                        | 3     |   |                              |   | 26   |                                           |  |   |                         |   |  |   | 29    |  
|Decommissioning liability         |  |                        | (153  | ) |                              |   | 5    |                                           |  |   |                         |   |  |   | (148  | )
|Share-based compensation          |  |                        | (5    | ) |                              |   | 3    |                                           |  |   |                         |   |  |   | (2    | )
|Non-capital losses                |  |                        | (745  | ) |                              |   | 157  |                                           |  |   |                         |   |  |   | (588  | )
|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  
|Net deferred tax liability        |  | $                      | 1,040 |   |                              | $ | (118 | )                                         |  | $ | (8                       | ) |  | $ | 914   |  
|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  

At December 31, 2015, Penn West had non-capital losses of $2.8 billion available for carry forward which expire in the
years 2026 through 2030.

A deferred tax asset has not been recognized with respect to certain realized and unrealized capital losses in the amount of
$223 million as these losses may only be applied against future capital gains.

13. Shareholders equity

a) Authorized

i) An unlimited number of Common Shares.

ii) 90,000,000 preferred shares issuable in one or more series.

Previously, Penn West had a Dividend Reinvestment and Optional Share Purchase Plan (the DRIP) that provided eligible shareholders the opportunity
to reinvest quarterly cash dividends into additional common shares at a potential discount.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  32



---

If issued, preferred shares of each series would rank on parity with the preferred shares of other series with
respect to accumulated dividends and return on capital. Preferred shares would have priority over the Common shares with respect to the payment of dividends or the distribution of assets.

b) Issued



|                                                |  |              |             |  |        |   |       | 
|----------------------------------------------- |  | ------------ | ----------- |  | ------ | - | ----- | 
|Shareholders capital                           |  | CommonShares |             |  | Amount |  
|Balance, January 1, 2014                        |  |              | 489,077,284 |  |        | $ | 8,913 | 
|Issued on exercise of equity compensation plans |  |              | 1,067,000   |  |        |   | 12    | 
|Issued to dividend reinvestment plan            |  |              | 7,175,803   |  |        |   | 58    | 
|                                                |  |              |             |  |        |   |       | 
|Balance, January 1, 2015                        |  |              | 497,320,087 |  |        | $ | 8,983 | 
|Issued on exercise of equity compensation plans |  |              |            |  |        |   | 1     | 
|Issued to dividend reinvestment plan            |  |              | 4,843,076   |  |        |   | 10    | 
|                                                |  |              |             |  |        |   |       | 
|Balance, December 31, 2015                      |  |              | 502,163,163 |  |        | $ | 8,994 | 
|                                                |  |              |             |  |        |   |       | 



|                                    |  |                        |    |   |      |   |    |  
|----------------------------------- |  | ---------------------- | -- | - | ---- | - | -- | -
|                                    |  | Year ended December 31 |   
|Other Reserves                      |  | 2015                   |    |   | 2014 |  
|Balance, beginning of year          |  | $                      | 89 |   |      | $ | 80 |  
|Share-based compensation expense    |  |                        | 4  |   |      |   | 10 |  
|Net benefit on options exercised(1) |  |                        | (1 | ) |      |   | (1 | )
|                                    |  |                        |    |   |      |   |    |  
|Balance, end of year                |  | $                      | 92 |   |      | $ | 89 |  
|                                    |  |                        |    |   |      |   |    |  



|(1) | Upon exercise of options, the net benefit is recorded as a reduction of other reserves and an increase to shareholders capital.
|--- | --------------------------------------------------------------------------------------------------------------------------------

Preferred Shares

No Preferred Shares were issued or
outstanding.

14. Share-based compensation

Stock
Option Plan

Penn West has an Option Plan that allows Penn West to issue options to acquire common shares to officers, employees and other service
providers. The current plan came into effect on January 1, 2011.

Under the terms of the plan, at December 31, 2015, the number of options
reserved for issuance under the Option Plan shall not exceed nine percent of the aggregate number of issued and outstanding common shares of Penn West. Subsequent to year-end, in March 2016, the Option Plan was amended by the Board of Directors
so that the number of options reserved for issuance under the Option Plan shall not exceed 5.25 percent of the aggregate number of issued and outstanding common shares of Penn West. The grant price of options is equal to the volume-weighted average
trading price of the common shares on the TSX for a five-trading-day period immediately preceding the date of grant. Options granted to date vest over a four-year period and expire five years after the date of grant.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  33



---

|                               |  |                  |            |   |                               |   |       |                        |  |  |                               |   |  |   |       | 
|------------------------------ |  | ---------------- | ---------- | - | ----------------------------- | - | ----- | ---------------------- |  |  | ----------------------------- | - |  | - | ----- | 
|                               |  |                  |            |   |                               |   |       | Year ended December 31 | 
|                               |  | 2015             |            |   | 2014                          |  
|Options                        |  | Number ofOptions |            |   | WeightedAverageExercise Price |   |       | Number ofOptions       |  |  | WeightedAverageExercise Price |  
|Outstanding, beginning of year |  |                  | 14,460,158 |   |                               | $ | 13.91 |                        |  |  | 14,951,830                    |   |  | $ | 17.63 | 
|Granted                        |  |                  | 5,122,600  |   |                               |   | 1.85  |                        |  |  | 8,332,400                     |   |  |   | 8.84  | 
|Exercised                      |  |                  |           |   |                               |   |      |                        |  |  | (1,067,000                    | ) |  |   | 9.80  | 
|Forfeited                      |  |                  | (8,987,030 | ) |                               |   | 11.39 |                        |  |  | (7,757,072                    | ) |  |   | 16.20 | 
|                               |  |                  |            |   |                               |   |       |                        |  |  |                               |   |  |   |       | 
|Outstanding, end of year       |  |                  | 10,595,728 |   |                               | $ | 10.21 |                        |  |  | 14,460,158                    |   |  | $ | 13.91 | 
|                               |  |                  |            |   |                               |   |       |                        |  |  |                               |   |  |   |       | 
|Exercisable, end of year       |  |                  | 3,907,426  |   |                               | $ | 17.21 |                        |  |  | 4,162,904                     |   |  | $ | 20.14 | 
|                               |  |                  |            |   |                               |   |       |                        |  |  |                               |   |  |   |       | 



|                      |  |                   |            |  |                              |   |       |                                          |  |  |                   |  |  |                              |           |  |  |   |       | 
|--------------------- |  | ----------------- | ---------- |  | ---------------------------- | - | ----- | ---------------------------------------- |  |  | ----------------- |  |  | ---------------------------- | --------- |  |  | - | ----- | 
|                      |  |                   |            |  | Options Outstanding          |   |       | Options Exercisable                      | 
|Range of Grant Prices |  | NumberOutstanding |            |  | WeightedAverageExercisePrice |   |       | WeightedRemainingContractualLife (years) |  |  | NumberExercisable |  |  | WeightedAverageExercisePrice |          
|$  1.00 - $  7.99     |  |                   | 3,780,150  |  |                              | $ | 2.29  |                                          |  |  | 4.2               |  |  |                              | 148,238   |  |  | $ | 4.76  | 
|$  8.00 - $14.99      |  |                   | 4,649,800  |  |                              |   | 10.21 |                                          |  |  | 2.7               |  |  |                              | 1,840,250 |  |  |   | 10.74 | 
|$15.00 - $21.99       |  |                   | 1,134,590  |  |                              |   | 20.80 |                                          |  |  | 1.2               |  |  |                              | 887,750   |  |  |   | 20.72 | 
|$22.00 - $27.99       |  |                   | 1,031,188  |  |                              |   | 27.55 |                                          |  |  | 0.3               |  |  |                              | 1,031,188 |  |  |   | 27.55 | 
|                      |  |                   |            |  |                              |   |       |                                          |  |  |                   |  |  |                              |           |  |  |   |       | 
|                      |  |                   | 10,595,728 |  |                              | $ | 10.21 |                                          |  |  | 1.9               |  |  |                              | 3,907,426 |  |  | $ | 17.21 | 
|                      |  |                   |            |  |                              |   |       |                                          |  |  |                   |  |  |                              |           |  |  |   |       | 

Restricted Share Unit (RSU) plan

Under the RSU plan (formerly named the Long-term Retention and Incentive Plan LTRIP), Penn West employees receive consideration that fluctuates
based on Penn Wests share price on the TSX and, at the discretion of the Board, is paid in either cash or shares. Eligible employees receive a grant of a specific number of units (each of which notionally represents a common share) that vest
over a three-year period with the value paid to the employee in either cash or shares on each vesting date. If the service requirements are met, the cash or share consideration paid is based on the number of units vested and the five-day weighted
average trading price of the common shares prior to the vesting date plus dividends declared by Penn West during the period preceding the vesting date.



|                                         |  |                        |            |   |      |  |            |  
|---------------------------------------- |  | ---------------------- | ---------- | - | ---- |  | ---------- | -
|                                         |  | Year ended December 31 |           
|RSU awards (number of shares equivalent) |  | 2015                   |            |   | 2014 | 
|Outstanding, beginning of year           |  |                        | 3,166,476  |   |      |  | 2,813,769  |  
|Granted                                  |  |                        | 9,156,290  |   |      |  | 2,749,440  |  
|Vested and paid                          |  |                        | (1,281,077 | ) |      |  | (1,132,029 | )
|Forfeited                                |  |                        | (4,715,735 | ) |      |  | (1,264,704 | )
|                                         |  |                        |            |   |      |  |            |  
|Outstanding, end of year                 |  |                        | 6,325,954  |   |      |  | 3,166,476  |  
|                                         |  |                        |            |   |      |  |            |  

At December 31, 2015, RSU obligations of $3 million were classified as a current liability (2014 - $4 million) included
in accounts payable and accrued liabilities and $2 million were classified as a non-current liability (2014 - $3 million) included in other non-current liabilities.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  34



---

Deferred Share Unit (DSU) plan

The DSU plan became effective January 1, 2011, allowing Penn West to grant DSUs in lieu of cash fees to non-employee directors providing a right to
receive, upon retirement, a cash payment based on the volume-weighted-average trading price of the common shares on the TSX for the five trading days immediately prior to the day of payment. Management directors are not eligible to participate in
the DSU Plan. At December 31, 2015, 457,398 DSUs (2014  181,873) were outstanding and $1 million was recorded as a current liability (2014  $1 million).

Performance Share Unit (PSU) plan

The PSU
plan became effective February 13, 2013, allowing Penn West to grant PSUs to employees of Penn West. Upon meeting the vesting conditions, the employee could receive a cash payment based on performance factors determined by the Board of
Directors and the share price. Members of the Board of Directors are not eligible for the PSU Plan.



|                                         |  |                        |           |   |      |  |          |  
|---------------------------------------- |  | ---------------------- | --------- | - | ---- |  | -------- | -
|                                         |  | Year ended December 31 |          
|PSU awards (number of shares equivalent) |  | 2015                   |           |   | 2014 | 
|Outstanding, beginning of year           |  |                        | 771,020   |   |      |  | 969,723  |  
|Granted                                  |  |                        | 1,483,000 |   |      |  | 620,000  |  
|Vested                                   |  |                        | (294,567  | ) |      |  | (570,770 | )
|Forfeited                                |  |                        | (336,572  | ) |      |  | (247,933 | )
|                                         |  |                        |           |   |      |  |          |  
|Outstanding, end of year                 |  |                        | 1,622,881 |   |      |  | 771,020  |  
|                                         |  |                        |           |   |      |  |          |  

The PSU obligation is classified as a liability due to the cash settlement feature. The change in the fair value of
outstanding PSU awards is charged to income based on the common share price at the end of each reporting period plus accumulated dividends multiplied by a performance factor determined by the Board of Directors. At December 31, 2015, $1 million
was classified as a non-current liability (December 31, 2014  $1 million) and included in other non-current liabilities.

Share-based
compensation

Share-based compensation is based on the fair value of the options at the time of grant under the Option Plan, which is amortized over
the remaining vesting period on a graded vesting schedule. Share-based compensation under the RSU, DSU and PSU is based on the fair value of the awards outstanding at the reporting date and is amortized based on a graded vesting schedule.
Share-based compensation consisted of the following:



|                         |  |                        |   |  |      |   |    | 
|------------------------ |  | ---------------------- | - |  | ---- | - | -- | 
|                         |  | Year ended December 31 |  
|                         |  | 2015                   |   |  | 2014 |  
|Options                  |  | $                      | 4 |  |      | $ | 10 | 
|RSU                      |  |                        | 2 |  |      |   | 2  | 
|                         |  |                        |   |  |      |   |    | 
|Share-based compensation |  | $                      | 6 |  |      | $ | 12 | 
|                         |  |                        |   |  |      |   |    | 

In 2015, both the DSU and PSU expense was insignificant (2014  insignificant). During 2015, there was nil PSU expense
(2014 - $1 million) accelerated and reclassified from share-based compensation to restructuring expense in the Consolidated Statement of Income (Loss) as it related to the severance of former executives.

The share price used in the fair value calculation of the RSU, PSU and DSU obligations at December 31, 2015 was $1.17 (2014  $2.43).



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  35



---

A Black-Scholes option-pricing model was used to determine the fair value of options granted under the Option
Plan with the following fair value per option and weighted average assumptions:



|                                                  |  |                        |      |   |      |   |      |  
|------------------------------------------------- |  | ---------------------- | ---- | - | ---- | - | ---- | -
|                                                  |  | Year ended December 31 |     
|                                                  |  | 2015                   |      |   | 2014 |  
|Average fair value of options granted (per share) |  | $                      | 0.63 |   |      | $ | 1.14 |  
|Expected life of options (years)                  |  |                        | 4.0  |   |      |   | 4.0  |  
|Expected volatility (average)                     |  |                        | 43.7 | % |      |   | 35.3 | %
|Risk-free rate of return (average)                |  |                        | 0.6  | % |      |   | 1.4  | %
|Dividend yield (average)                          |  |                        | 2.0  | % |      |   | 5.5  | %

Employee retirement savings plan

Penn West has an employee retirement savings plan (the savings plan) for the benefit of all employees. Under the savings plan, employees may elect
to contribute up to 10 percent of their salary and Penn West matches these contributions at a rate of $1.50 for each $1.00 of employee contribution. Both the employees and Penn Wests contributions are used to acquire Penn West common
shares or are placed in low-risk investments. Shares are purchased in the open market at prevailing market prices.

15. Dividends

Dividends were previously paid quarterly at the discretion of the Board of Directors and were deducted from retained earnings as declared.

In 2015, Penn West paid dividends of $85 million or $0.17 per share (2014 - $275 million or $0.56 per share). In September 2015, Penn West suspended the
Dividend plan effective after the October 15, 2015 payment until further notice.

16. Per share amounts

The number of incremental shares included in diluted earnings per share is computed using the average volume-weighted market price of shares for the period. In
addition, contracts that could be settled in cash or shares are assumed to be settled in shares if share settlement is more dilutive.



|                             |  |                        |        |   |      |   |        |  
|---------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                             |  | Year ended December 31 |       
|                             |  | 2015                   |        |   | 2014 |  
|Net loss  basic and diluted |  | $                      | (2,646 | ) |      | $ | (1,733 | )

The weighted average number of shares used to calculate per share amounts is as follows:



|                  |  |                        |             |  |      |  |             | 
|----------------- |  | ---------------------- | ----------- |  | ---- |  | ----------- | 
|                  |  | Year ended December 31 |            
|                  |  | 2015                   |             |  | 2014 | 
|Basic and Diluted |  |                        | 501,977,401 |  |      |  | 493,668,553 | 

For 2015, 10.6 million shares (2014  14.5 million) that would be issued under the Option Plan were excluded in
calculating the weighted average number of diluted shares outstanding as they were considered anti-dilutive.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  36



---

17. Changes in non-cash working capital (increase) decrease



|                                             |  |                        |      |   |      |   |     |  
|-------------------------------------------- |  | ---------------------- | ---- | - | ---- | - | --- | -
|                                             |  | Year ended December 31 |     
|                                             |  | 2015                   |      |   | 2014 |  
|Accounts receivable                          |  | $                      | 28   |   |      | $ | 83  |  
|Other current assets                         |  |                        | 4    |   |      |   | 11  |  
|Deferred funding obligation                  |  |                        | 17   |   |      |   | 15  |  
|Accounts payable and accrued liabilities (1) |  |                        | (152 | ) |      |   | (82 | )
|                                             |  |                        |      |   |      |   |     |  
|                                             |  | $                      | (103 | ) |      | $ | 27  |  
|                                             |  |                        |      |   |      |   |     |  
|Operating activities                         |  | $                      | 31   |   |      | $ | (32 | )
|Investing activities                         |  |                        | (134 | ) |      |   | 59  |  
|                                             |  |                        |      |   |      |   |     |  
|                                             |  | $                      | (103 | ) |      | $ | 27  |  
|                                             |  |                        |      |   |      |   |     |  
|                                             |  |                       
|Interest paid                                |  | $                      | 167  |   |      | $ | 158 |  
|Income taxes recovered                       |  | $                      | 2    |   |      | $ |    |  
|                                             |  |                        |      |   |      |   |     |  



|(1) | Includes long-term share-based payment plans.
|--- | ---------------------------------------------

18. Capital management

Penn West manages its capital to provide a flexible structure to support capital programs, dividend policies, production maintenance and other operational
strategies. Attaining a strong financial position enables the capture of business opportunities and supports Penn Wests business strategy of providing strong shareholder returns.

Penn West defines capital as the sum of shareholders equity and long-term debt. Shareholders equity includes shareholders capital, other
reserves and retained earnings (deficit). Long-term debt includes bank loans and senior secured notes.

Management continuously reviews Penn Wests
capital structure to ensure the objectives and strategies of Penn West are being met. The capital structure is reviewed based on a number of key factors including, but not limited to, current market conditions, hedging positions, trailing and
forecast debt to capitalization ratios, debt to EBITDA and other economic risk factors. Dividends are paid quarterly at the discretion of the Board of Directors. In September 2015, Penn West suspended the Dividend plan effective after the
October 15, 2015 payment until further notice.

The Company is subject to certain quarterly financial covenants under its secured, syndicated credit
facility and the senior secured notes. These financial covenants are typical for senior secured lending arrangements and include senior debt and total debt to EBITDA and senior debt and total debt to capitalization as defined in Penn Wests
lending agreements. As at December 31, 2015, the Company was in compliance with all of its financial covenants under such lending agreements.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  37



---

|                                                  |  |                        |       |   |      |   |       |  
|------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | -
|                                                  |  | Year ended December 31 |      
|(millions, except ratio amounts)                  |  | 2015                   |       |   | 2014 |  
|Components of capital                             |  |                        |       |   |      |   |       |  
|Shareholders equity                              |  | $                      | 2,935 |   |      | $ | 5,582 |  
|Long-term debt                                    |  | $                      | 1,940 |   |      | $ | 2,149 |  
|                                                  |  |                        |       |   |      |   |       |  
|Ratios                                            |  |                        |       |   |      |   |       |  
|Senior debt to EBITDA (1)                         |  |                        | 4.6   |   |      |   | 2.1   |  
|Total debt to EBITDA (2)                          |  |                        | 4.6   |   |      |   | 2.1   |  
|Senior debt to capitalization (3)                 |  |                        | 40    | % |      |   | 28    | %
|Total debt to capitalization (4)                  |  |                        | 40    | % |      |   | 28    | %
|Priority debt to consolidated tangible assets (5) |  |                        |      |   |      |   |      |  
|                                                  |  |                        |       |   |      |   |       |  
|EBITDA (6)                                        |  | $                      | 427   |   |      | $ | 1,022 |  
|                                                  |  |                       
|Credit facility debt and senior notes             |  | $                      | 1,940 |   |      | $ | 2,149 |  
|Letters of credit (7)                             |  |                        | 15    |   |      |   | 5     |  
|                                                  |  |                        |       |   |      |   |       |  
|Senior debt and total debt                        |  |                        | 1,955 |   |      |   | 2,154 |  
|Total shareholders equity                        |  |                        | 2,935 |   |      |   | 5,582 |  
|                                                  |  |                        |       |   |      |   |       |  
|Total capitalization                              |  | $                      | 4,890 |   |      | $ | 7,736 |  
|                                                  |  |                        |       |   |      |   |       |  



|(1) | Less than 5:1 and not to exceed 5.5:1 in the event of a material acquisition.
|--- | -----------------------------------------------------------------------------

|(2) | Less than 5:1.
|--- | --------------

|(3) | Not to exceed 50 percent.
|--- | -------------------------

|(4) | Not to exceed 55 percent.
|--- | -------------------------

|(5) | Priority debt not to exceed 15% of consolidated tangible assets.
|--- | ----------------------------------------------------------------

|(6) | EBITDA is calculated in accordance with Penn Wests lending agreements wherein unrealized risk management and impairment provisions are excluded.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Letters of credit defined as financial covenants under the lending agreements are included in the calculation.
|--- | --------------------------------------------------------------------------------------------------------------

In May 2015, the Company finalized amending agreements with the lenders under its syndicated bank facility and with the holders of its senior notes to,
among other things, amend its financial covenants. Please refer to Note 9 for discussion.

The Company intends to continue to actively identify and
evaluate hedging opportunities in order to reduce its exposure to fluctuations in commodity prices and protect its future cash flows and capital programs.

19. Commitments and contingencies

Penn West is committed
to certain payments over the next five calendar years and thereafter as follows:



|                          |  |      |     |  |      |   |     |      |  |   |      |  |  |      |     |  |            |   |     |  |  |   |     | 
|------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  | ---------- | - | --- |  |  | - | --- | 
|                          |  | 2016 |     |  | 2017 |   |     | 2018 |  |   | 2019 |  |  | 2020 |     |  | Thereafter |  
|Long-term debt            |  | $    | 222 |  |      | $ | 238 |      |  | $ | 375  |  |  | $    | 663 |  |            | $ | 263 |  |  | $ | 179 | 
|Transportation            |  |      | 27  |  |      |   | 59  |      |  |   | 75   |  |  |      | 76  |  |            |   | 76  |  |  |   | 296 | 
|Power infrastructure      |  |      | 19  |  |      |   | 9   |      |  |   | 9    |  |  |      | 9   |  |            |   | 9   |  |  |   | 7   | 
|Drilling rigs             |  |      | 11  |  |      |   | 7   |      |  |   |     |  |  |      |    |  |            |   |    |  |  |   |    | 
|Interest obligations      |  |      | 125 |  |      |   | 92  |      |  |   | 73   |  |  |      | 37  |  |            |   | 17  |  |  |   | 21  | 
|Office lease              |  |      | 65  |  |      |   | 62  |      |  |   | 62   |  |  |      | 63  |  |            |   | 63  |  |  |   | 280 | 
|Decommissioning liability |  | $    | 21  |  |      | $ | 21  |      |  | $ | 20   |  |  | $    | 19  |  |            | $ | 18  |  |  | $ | 298 | 

Penn Wests syndicated bank facility has $1.2 billion due for renewal on May 6, 2019. In addition, Penn West has an
aggregate of $1.5 billion in senior notes maturing between 2016 and 2025.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  38



---

Penn Wests commitments relate to the following:



| |  |  | Transportation commitments relate to costs for future pipeline access. In 2014, Penn West temporarily assigned a portion of its commitment (35,000 boe per day) on the Flanagan South line for terms of 18 and 30 months.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Power infrastructure commitments pertain to electricity contracts.
| | - |  | ------------------------------------------------------------------



| |  |  | Drilling rigs are contracts held with service companies to ensure Penn West has access to specific drilling rigs at the required times.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest obligations are the estimated future interest payments related to Penn Wests debt instruments.
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Office leases pertain to total leased office space. A portion of this office space has been sub-leased to other parties to minimize Penn Wests net exposure under the leases. The future office lease commitments
above will be reduced by sublease recoveries totaling $337 million. For 2015, lease costs, net of recoveries totaled $19 million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The decommissioning liability represents the inflated, discounted future reclamation and abandonment costs that are expected to be incurred over the life of the properties.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In February 2016, Penn West announced it had entered into agreements to settle all class action proceedings in Canada and United States against the
Company related to damages alleged to have been incurred due to a decline in share price related to the restatement of certain of Penn Wests historical financial statements and related MD&A in 2014. The settlement agreements provide for a
payment of $53 million split evenly between Canadian and US investors that will be fully funded by insurance coverage maintained by Penn West. As a result, the payment will not impact the Companys cash or financial position. The proposed
settlements are subject to the satisfaction of the conditions stated in the settlement documents as well as the receipt of court approval in each of Alberta, Ontario and Quebec and in New York. There can be no assurance that these conditions
will be satisfied or that the settlements will be approved by the courts. The receipt of such court approvals is dependent on a number of factors and therefore the timing thereof cannot be predicted at this time.

20. Related-party transactions

Operating entities

The consolidated financial statements include the results of Penn West Petroleum Ltd. and its wholly-owned subsidiaries, notably the Penn West
Petroleum Partnership. Transactions and balances between Penn West Petroleum Ltd. and all of its subsidiaries are eliminated upon consolidation.

Compensation of key management personnel

Key management
personnel include the President and Chief Executive Officer, Executive Vice Presidents, Senior Vice-Presidents and the Board of Directors. The Human Resources & Compensation Committee makes recommendations to the Board of Directors who approves
the appropriate remuneration levels for management based on performance and current market trends. Compensation levels of the Board of Directors are recommended by the Corporate Governance committee of the Board. The remuneration of the directors
and key management personnel of Penn West during the year is below.



|                             |  |                        |   |  |      |   |    | 
|---------------------------- |  | ---------------------- | - |  | ---- | - | -- | 
|                             |  | Year ended December 31 |  
|                             |  | 2015                   |   |  | 2014 |  
|Salary and employee benefits |  | $                      | 4 |  |      | $ | 4  | 
|Termination benefits         |  |                        | 1 |  |      |   | 6  | 
|Share-based payments (1)     |  |                        |  |  |      |   | 2  | 
|                             |  |                        |   |  |      |   |    | 
|                             |  | $                      | 5 |  |      | $ | 12 | 
|                             |  |                        |   |  |      |   |    | 



|(1) | Includes changes in the fair value of PSUs and non-cash charges related to the Option Plan and DSU for key management personnel.
|--- | --------------------------------------------------------------------------------------------------------------------------------



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  39



---

21. Supplemental Items

In the consolidated financial statements, compensation costs are included in both operating and general and administrative expenses. For 2015, employee
compensation costs of $61 million (2014 - $70 million) were included in operating expenses and $87 million (2014 - $118 million) were included in general and administrative expenses.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2015 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  40