Exhibit 99.3

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 sheets as at
December 31, 2014 and December 31, 2013, the consolidated statements of loss, cash flow and changes in shareholders equity for the years 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 audits. We conducted our audits 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 in our audits 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 December 31, 2013, and its consolidated financial performance and its consolidated cash flows
for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2014 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  1



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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, 2014, based on the criteria established in Internal Control  Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March 11, 2015 expressed an unmodified (unqualified) opinion on the effectiveness of Penn West Petroleum Ltd.s internal control over financial reporting.

signed KPMG LLP

Chartered Accountants

March 11, 2015

Calgary, Canada



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2014 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  2



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors of Penn West Petroleum Ltd.

We have audited Penn West Petroleum Ltd.s internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control  Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company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 Managements Annual Report on Internal Control over Financial Reporting in the Companys annual report on Form 40-F for the
year ended December 31, 2014. 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, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included 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, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2014, based on criteria established in Internal Control  Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets as at December 31, 2014 and December 31, 2013, the consolidated statements of loss, cash flow and changes in shareholders equity for the years then ended, and our report dated
March 11, 2015 expressed an unmodified (unqualified) opinion on those consolidated financial statements.

signed KPMG LLP

Chartered Accountants

March 11, 2015

Calgary, Canada



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2014 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  3



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Penn West Petroleum Ltd.

Consolidated Balance Sheets



|                                           |  |      |  |                   |        |   |                   |   |        |  
|------------------------------------------ |  | ---- |  | ----------------- | ------ | - | ----------------- | - | ------ | -
|(CAD millions)                             |  | Note |  | December 31, 2014 |        |   | December 31, 2013 |  
|Assets                                     |  |      |  |                   |        |   |                   |   |        |  
|Current                                    |  |      |  |                   |        |   |                   |   |        |  
|Cash                                       |  |      |  | $                 | 67     |   |                   | $ |       |  
|Accounts receivable                        |  | 4    |  |                   | 182    |   |                   |   | 265    |  
|Other                                      |  | 4    |  |                   | 46     |   |                   |   | 57     |  
|Deferred funding assets                    |  | 5    |  |                   | 84     |   |                   |   | 139    |  
|Risk management                            |  | 11   |  |                   | 31     |   |                   |   | 2      |  
|                                           |  |      |  |                   |        |   |                   |   |        |  
|                                           |  |      |  |                   | 410    |   |                   |   | 463    |  
|                                           |  |      |  |                   |        |   |                   |   |        |  
|Non-current                                |  |      |  |                   |        |   |                   |   |        |  
|Deferred funding assets                    |  | 5    |  |                   | 195    |   |                   |   | 184    |  
|Exploration and evaluation assets          |  | 6    |  |                   | 505    |   |                   |   | 645    |  
|Property, plant and equipment              |  | 7    |  |                   | 7,906  |   |                   |   | 9,075  |  
|Goodwill                                   |  | 8    |  |                   | 734    |   |                   |   | 1,912  |  
|Risk management                            |  | 11   |  |                   | 102    |   |                   |   | 50     |  
|                                           |  |      |  |                   |        |   |                   |   |        |  
|                                           |  |      |  |                   | 9,442  |   |                   |   | 11,866 |  
|                                           |  |      |  |                   |        |   |                   |   |        |  
|Total assets                               |  |      |  | $                 | 9,852  |   |                   | $ | 12,329 |  
|                                           |  |      |  |                   |        |   |                   |   |        |  
|Liabilities and Shareholders Equity       |  |      |  |                   |        |   |                   |   |        |  
|Current                                    |  |      |  |                   |        |   |                   |   |        |  
|Accounts payable and accrued liabilities   |  | 4    |  | $                 | 529    |   |                   | $ | 598    |  
|Dividends payable                          |  | 15   |  |                   | 70     |   |                   |   | 68     |  
|Current portion of long-term debt          |  | 9    |  |                   | 283    |   |                   |   | 64     |  
|Decommissioning liability                  |  | 10   |  |                   | 52     |   |                   |   | 75     |  
|Risk management                            |  | 11   |  |                   | 9      |   |                   |   | 24     |  
|                                           |  |      |  |                   |        |   |                   |   |        |  
|                                           |  |      |  |                   | 943    |   |                   |   | 829    |  
|Non-current                                |  |      |  |                   |        |   |                   |   |        |  
|Long-term debt                             |  | 9    |  |                   | 1,866  |   |                   |   | 2,394  |  
|Decommissioning liability                  |  | 10   |  |                   | 533    |   |                   |   | 528    |  
|Risk management                            |  | 11   |  |                   | 10     |   |                   |   | 16     |  
|Deferred tax liability                     |  | 12   |  |                   | 914    |   |                   |   | 1,040  |  
|Other non-current liabilities              |  | 14   |  |                   | 4      |   |                   |   | 9      |  
|                                           |  |      |  |                   |        |   |                   |   |        |  
|                                           |  |      |  |                   | 4,270  |   |                   |   | 4,816  |  
|                                           |  |      |  |                   |        |   |                   |   |        |  
|Shareholders equity                       |  |      |  |                   |        |   |                   |   |        |  
|Shareholders capital                      |  | 13   |  |                   | 8,983  |   |                   |   | 8,913  |  
|Other reserves                             |  | 13   |  |                   | 89     |   |                   |   | 80     |  
|Deficit                                    |  |      |  |                   | (3,490 | ) |                   |   | (1,480 | )
|                                           |  |      |  |                   |        |   |                   |   |        |  
|                                           |  |      |  |                   | 5,582  |   |                   |   | 7,513  |  
|                                           |  |      |  |                   |        |   |                   |   |        |  
|Total liabilities and shareholders equity |  |      |  | $                 | 9,852  |   |                   | $ | 12,329 |  
|                                           |  |      |  |                   |        |   |                   |   |        |  
|Subsequent events (Notes 9, 15 and 18)     |  |      |  |                   |        |   |                   |   |        |  
|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 |  | James C. Smith
|Chairman          |  | Director      



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2014 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  4



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Penn West Petroleum Ltd.

Consolidated Statements of Loss



|                                               |  |                        |  |      |        |   |      |   |        |  
|---------------------------------------------- |  | ---------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                               |  | Year ended December 31 | 
|(CAD millions, except per share amounts)       |  | Note                   |  | 2014 |        |   | 2013 |  
|Oil and natural gas sales                      |  |                        |  | $    | 2,433  |   |      | $ | 2,855  |  
|Royalties                                      |  |                        |  |      | (374   | ) |      |   | (406   | )
|                                               |  |                        |  |      |        |   |      |   |        |  
|                                               |  |                        |  |      | 2,059  |   |      |   | 2,449  |  
|Risk management gain (loss)                    |  |                        |  |      |        |   |      |   |        |  
|Realized                                       |  |                        |  |      | (42    | ) |      |   | 8      |  
|Unrealized                                     |  | 11                     |  |      | 51     |   |      |   | (94    | )
|                                               |  |                        |  |      |        |   |      |   |        |  
|                                               |  |                        |  |      | 2,068  |   |      |   | 2,363  |  
|                                               |  |                        |  |      |        |   |      |   |        |  
|Expenses                                       |  |                        |  |      |        |   |      |   |        |  
|Operating                                      |  |                        |  |      | 729    |   |      |   | 1,025  |  
|Transportation                                 |  |                        |  |      | 45     |   |      |   | 55     |  
|General and administrative                     |  |                        |  |      | 131    |   |      |   | 160    |  
|Restructuring                                  |  |                        |  |      | 17     |   |      |   | 38     |  
|Share-based compensation                       |  | 14                     |  |      | 12     |   |      |   | 32     |  
|Depletion, depreciation and impairment         |  | 7                      |  |      | 1,384  |   |      |   | 1,693  |  
|Impairment of goodwill                         |  | 8                      |  |      | 1,100  |   |      |   | 48     |  
|Loss on dispositions                           |  |                        |  |      | 190    |   |      |   | 5      |  
|Exploration and evaluation                     |  | 6                      |  |      | 16     |   |      |   | 44     |  
|Unrealized risk management gain                |  | 11                     |  |      | (51    | ) |      |   | (48    | )
|Unrealized foreign exchange loss               |  |                        |  |      | 152    |   |      |   | 126    |  
|Financing                                      |  | 9                      |  |      | 158    |   |      |   | 184    |  
|Accretion                                      |  | 10                     |  |      | 36     |   |      |   | 43     |  
|                                               |  |                        |  |      |        |   |      |   |        |  
|                                               |  |                        |  |      | 3,919  |   |      |   | 3,405  |  
|                                               |  |                        |  |      |        |   |      |   |        |  
|Loss before taxes                              |  |                        |  |      | (1,851 | ) |      |   | (1,042 | )
|                                               |  |                        |  |      |        |   |      |   |        |  
|Deferred tax recovery                          |  | 12                     |  |      | (118   | ) |      |   | (233   | )
|                                               |  |                        |  |      |        |   |      |   |        |  
|Net and comprehensive loss                     |  |                        |  | $    | (1,733 | ) |      | $ | (809   | )
|                                               |  |                        |  |      |        |   |      |   |        |  
|Net loss per share                             |  |                        |  |      |        |   |      |   |        |  
|Basic                                          |  | 16                     |  | $    | (3.51  | ) |      | $ | (1.67  | )
|Diluted                                        |  | 16                     |  | $    | (3.51  | ) |      | $ | (1.67  | )
|Weighted average shares outstanding (millions) |  |                        |  |      |        |   |      |   |        |  
|Basic                                          |  | 16                     |  |      | 493.7  |   |      |   | 485.8  |  
|Diluted                                        |  | 16                     |  |      | 493.7  |   |      |   | 485.8  |  

See accompanying notes to the consolidated financial statements.



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2014 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  5



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Penn West Petroleum Ltd.

Consolidated Statements of Cash Flows



|                                          |  |                        |  |      |        |   |      |   |       |  
|----------------------------------------- |  | ---------------------- |  | ---- | ------ | - | ---- | - | ----- | -
|                                          |  | Year ended December 31 | 
|(CAD millions)                            |  | Note                   |  | 2014 |        |   | 2013 |  
|Operating activities                      |  |                        |  |      |        |   |      |   |       |  
|Net loss                                  |  |                        |  | $    | (1,733 | ) |      | $ | (809  | )
|Depletion, depreciation and impairment    |  | 7                      |  |      | 1,384  |   |      |   | 1,693 |  
|Impairment of goodwill                    |  | 8                      |  |      | 1,100  |   |      |   | 48    |  
|Loss on dispositions                      |  |                        |  |      | 190    |   |      |   | 5     |  
|Exploration and evaluation                |  |                        |  |      | 16     |   |      |   | 44    |  
|Accretion                                 |  |                        |  |      | 36     |   |      |   | 43    |  
|Deferred tax recovery                     |  |                        |  |      | (118   | ) |      |   | (226  | )
|Share-based compensation                  |  |                        |  |      | 10     |   |      |   | 15    |  
|Unrealized risk management loss (gain)    |  | 11                     |  |      | (102   | ) |      |   | 46    |  
|Unrealized foreign exchange loss          |  |                        |  |      | 152    |   |      |   | 126   |  
|Decommissioning expenditures              |  | 10                     |  |      | (55    | ) |      |   | (66   | )
|Change in non-cash working capital        |  | 17                     |  |      | (32    | ) |      |   | 49    |  
|                                          |  |                        |  |      |        |   |      |   |       |  
|                                          |  |                        |  |      | 848    |   |      |   | 968   |  
|                                          |  |                        |  |      |        |   |      |   |       |  
|Investing activities                      |  |                        |  |      |        |   |      |   |       |  
|Capital expenditures                      |  |                        |  |      | (732   | ) |      |   | (704  | )
|Property dispositions (acquisitions), net |  |                        |  |      | 560    |   |      |   | 540   |  
|Change in non-cash working capital        |  | 17                     |  |      | 59     |   |      |   | (100  | )
|                                          |  |                        |  |      |        |   |      |   |       |  
|                                          |  |                        |  |      | (113   | ) |      |   | (264  | )
|                                          |  |                        |  |      |        |   |      |   |       |  
|Financing activities                      |  |                        |  |      |        |   |      |   |       |  
|Decrease in long-term debt                |  |                        |  |      | (403   | ) |      |   | (351  | )
|Repayment of senior notes                 |  |                        |  |      | (59    | ) |      |   | (5    | )
|Issue of equity                           |  |                        |  |      | 11     |   |      |   | 12    |  
|Dividends paid                            |  |                        |  |      | (217   | ) |      |   | (360  | )
|                                          |  |                        |  |      |        |   |      |   |       |  
|                                          |  |                        |  |      | (668   | ) |      |   | (704  | )
|                                          |  |                        |  |      |        |   |      |   |       |  
|Change in cash                            |  |                        |  |      | 67     |   |      |   |      |  
|Cash, beginning of year                   |  |                        |  |      |       |   |      |   |      |  
|                                          |  |                        |  |      |        |   |      |   |       |  
|Cash, end of year                         |  |                        |  | $    | 67     |   |      | $ |      |  
|                                          |  |                        |  |      |        |   |      |   |       |  

See accompanying notes to the consolidated financial statements.



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2014 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  6



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Penn West Petroleum Ltd.

Statements of Changes in Shareholders Equity



|                                               |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  
|---------------------------------------------- |  | ---- | -- |  | -------------------- | - | ----- | ------------- |  | - | ------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                               |  | 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                             |  |      |    |  |                      |   |      |               |  |   |        |   |  |       | (277   | ) |  |   | (277   | )
|                                               |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  
|Balance at December 31, 2014                   |  |      |    |  |                      | $ | 8,983 |               |  | $ | 89      |   |  | $     | (3,490 | ) |  | $ | 5,582  |  
|                                               |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  
|                                               |  |      |    |  |                     
|                                               |  | Note |    |  | ShareholdersCapital |   |       | OtherReserves |  |   | Deficit |   |  | Total |       
|Balance at January 1, 2013                     |  |      |    |  |                      | $ | 8,774 |               |  | $ | 97      |   |  | $     | (277   | ) |  | $ | 8,594  |  
|Net and comprehensive loss                     |  |      |    |  |                      |   |      |               |  |   |        |   |  |       | (809   | ) |  |   | (809   | )
|Share-based compensation                       |  |      | 14 |  |                      |   |      |               |  |   | 15      |   |  |       |       |   |  |   | 15     |  
|Issued on exercise of options and share rights |  |      | 13 |  |                      |   | 44    |               |  |   | (32     | ) |  |       |       |   |  |   | 12     |  
|Issued to dividend reinvestment plan           |  |      | 13 |  |                      |   | 95    |               |  |   |        |   |  |       |       |   |  |   | 95     |  
|Dividends declared                             |  |      |    |  |                      |   |      |               |  |   |        |   |  |       | (394   | ) |  |   | (394   | )
|                                               |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  
|Balance at December 31, 2013                   |  |      |    |  |                      | $ | 8,913 |               |  | $ | 80      |   |  | $     | (1,480 | ) |  | $ | 7,513  |  
|                                               |  |      |    |  |                      |   |       |               |  |   |         |   |  |       |        |   |  |   |        |  

See accompanying notes to the consolidated financial statements.



|               |  |                                            
|-------------- |  | -------------------------------------------
|PENN WEST 2014 |  | ANNUAL CONSOLIDATED FINANCIAL STATEMENTS  7



---

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, 2014 were
approved for issuance by the Board of Directors on March 11, 2015.

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.

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.



|               |  |                                              
|-------------- |  | ---------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  8



---

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.

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.

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.



|               |  |                                              
|-------------- |  | ---------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  9



---

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 or a Binomial Lattice option-pricing model, depending on the characteristics of the share-based payment. 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 has been named as a defendant
in potential class action lawsuits. 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.

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 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  10



---

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 of the 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.
| | - |  | --------------------------------------------------------------------------------------------

Certain
comparative figures within revenue have been reclassified to correspond with current year presentation.

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.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  11



---

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.

Certain comparative figures within transportation expense have been reclassified to
correspond with current year presentation.

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 at the operating segment level 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.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  12



---

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.

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.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  13



---

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.

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), and the Restricted Options and Share rights governed
under the Common Share Rights Incentive Plan (CSRIP) 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 an option-pricing model. The fair value is based on market prices and considers the terms and conditions of the share options granted. All options under
the CSRIP expired by December 31, 2014.

The fair value of awards granted under the Long-Term Retention and Incentive Plan (LTRIP), the
Deferred Share Unit Plan (DSU), the Performance Share Unit Plan (PSU) and Restricted Rights governed by the CSRIP 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.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  14



---

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.

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 receivables are 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  15



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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,
2014, Penn West had an embedded derivative related to a crude oil assignment contract (2013  none). 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) New accounting policies

During the first quarter
of 2014, Penn West adopted the following standards:

IAS 32, Financial Instruments: Presentation, which clarifies the requirements for
offsetting financial assets and liabilities. The amendments clarify when an entity has a legally enforceable right to offset and certain other requirements that are necessary to present a net financial asset or liability. There was no impact to Penn
West on adoption of this standard.

IFRIC 21 Levies provides guidance on accounting for levies in accordance with the requirements of IAS 37,
Provisions, Contingent Liabilities and Contingent Assets.There was no impact to Penn West on adoption of this standard.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  16



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u) 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, 2017 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.

4. Working capital



|                                                       |  |                   |     |  |      |   |     | 
|------------------------------------------------------ |  | ----------------- | --- |  | ---- | - | --- | 
|                                                       |  | As at December 31 |    
|                                                       |  | 2014              |     |  | 2013 |  
|Cash                                                   |  | $                 | 67  |  |      | $ |    | 
|                                                       |  |                   |     |  |      |   |     | 
|Components of accounts receivable                      |  |                   |     |  |      |   |     | 
|Trade                                                  |  | $                 | 55  |  |      | $ | 68  | 
|Accruals                                               |  |                   | 127 |  |      |   | 197 | 
|                                                       |  |                   |     |  |      |   |     | 
|                                                       |  | $                 | 182 |  |      | $ | 265 | 
|                                                       |  |                   |     |  |      |   |     | 
|Components of other assets                             |  |                   |     |  |      |   |     | 
|Prepaid expenses                                       |  | $                 | 41  |  |      | $ | 50  | 
|Other                                                  |  |                   | 5   |  |      |   | 7   | 
|                                                       |  |                   |     |  |      |   |     | 
|                                                       |  | $                 | 46  |  |      | $ | 57  | 
|                                                       |  |                   |     |  |      |   |     | 
|Components of accounts payable and accrued liabilities |  |                   |     |  |      |   |     | 
|Accounts payable                                       |  | $                 | 79  |  |      | $ | 149 | 
|Royalty payable                                        |  |                   | 82  |  |      |   | 76  | 
|Capital accrual                                        |  |                   | 195 |  |      |   | 130 | 
|Operating accrual                                      |  |                   | 102 |  |      |   | 180 | 
|Share-based compensation liability                     |  |                   | 5   |  |      |   | 12  | 
|Other                                                  |  |                   | 66  |  |      |   | 51  | 
|                                                       |  |                   |     |  |      |   |     | 
|                                                       |  | $                 | 529 |  |      | $ | 598 | 
|                                                       |  |                   |     |  |      |   |     | 

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 | 
|2014 |  | $       | 159 |  |            | $ | 16 |          |  | $ | 7     |  |  | $ | 182 | 
|2013 |  | $       | 210 |  |            | $ | 40 |          |  | $ | 15    |  |  | $ | 265 | 



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  17



---

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 |    
|                            |  | 2014              |     |  | 2013 |  
|Peace River Oil Partnership |  | $                 | 195 |  |      | $ | 235 | 
|Cordova Joint Venture       |  |                   | 84  |  |      |   | 88  | 
|                            |  |                   |     |  |      |   |     | 
|Total                       |  | $                 | 279 |  |      | $ | 323 | 
|                            |  |                   |     |  |      |   |     | 
|Current portion             |  | $                 | 84  |  |      | $ | 139 | 
|Long-term portion           |  |                   | 195 |  |      |   | 184 | 
|                            |  |                   |     |  |      |   |     | 
|Total                       |  | $                 | 279 |  |      | $ | 323 | 
|                            |  |                   |     |  |      |   |     | 

6. Exploration and evaluation assets



|                               |  |                        |      |   |      |   |     |  
|------------------------------ |  | ---------------------- | ---- | - | ---- | - | --- | -
|                               |  | Year ended December 31 |     
|                               |  | 2014                   |      |   | 2013 |  
|Balance, beginning of year     |  | $                      | 645  |   |      | $ | 609 |  
|Capital expenditures           |  |                        | 92   |   |      |   | 18  |  
|Joint venture, carried capital |  |                        | 16   |   |      |   | 62  |  
|Expensed                       |  |                        | (16  | ) |      |   | (44 | )
|Transfers to PP&E              |  |                        | (232 | ) |      |   |    |  
|                               |  |                        |      |   |      |   |     |  
|Balance, end of year           |  | $                      | 505  |   |      | $ | 645 |  
|                               |  |                        |      |   |      |   |     |  

On December 31, 2014 and 2013 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 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  18



---

7. Property, plant and equipment

Cost



|                                 |  |                   |        |   |            |   |       |             |  |   |                 |  |  |       |     |  |  |   |        |  
|-------------------------------- |  | ----------------- | ------ | - | ---------- | - | ----- | ----------- |  | - | --------------- |  |  | ----- | --- |  |  | - | ------ | -
|                                 |  | Oil and gasassets |        |   | Facilities |   |       | Turnarounds |  |   | Corporateassets |  |  | Total |    
|Balance at January 1, 2013       |  | $                 | 13,107 |   |            | $ | 5,382 |             |  | $ | 14              |  |  | $     | 143 |  |  | $ | 18,646 |  
|Capital expenditures             |  |                   | 318    |   |            |   | 341   |             |  |   | 1               |  |  |       | 10  |  |  |   | 670    |  
|Joint venture, carried capital   |  |                   | 22     |   |            |   |      |             |  |   |                |  |  |       |    |  |  |   | 22     |  
|Acquisitions                     |  |                   | 14     |   |            |   | 4     |             |  |   |                |  |  |       |    |  |  |   | 18     |  
|Dispositions                     |  |                   | (1,098 | ) |            |   | (275  | )           |  |   |                |  |  |       |    |  |  |   | (1,373 | )
|Net decommissioning additions    |  |                   | (7     | ) |            |   | (2    | )           |  |   |                |  |  |       |    |  |  |   | (9     | )
|                                 |  |                   |        |   |            |   |       |             |  |   |                 |  |  |       |     |  |  |   |        |  
|Balance at December 31, 2013     |  | $                 | 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 dispositions |  |                   | 1      |   |            |   |      |             |  |   |                |  |  |       |    |  |  |   | 1      |  
|                                 |  |                   |        |   |            |   |       |             |  |   |                 |  |  |       |     |  |  |   |        |  
|Balance at December 31, 2014     |  | $                 | 11,830 |   |            | $ | 5,447 |             |  | $ | 15              |  |  | $     | 164 |  |  | $ | 17,456 |  
|                                 |  |                   |        |   |            |   |       |             |  |   |                 |  |  |       |     |  |  |   |        |  

Accumulated depletion, depreciation and impairment



|                             |  |                   |       |   |            |   |       |             |  |   |                 |  |  |       |    |  |  |   |       |  
|---------------------------- |  | ----------------- | ----- | - | ---------- | - | ----- | ----------- |  | - | --------------- |  |  | ----- | -- |  |  | - | ----- | -
|                             |  | Oil and gasAssets |       |   | Facilities |   |       | Turnarounds |  |   | Corporateassets |  |  | Total |   
|Balance at January 1, 2013   |  | $                 | 6,137 |   |            | $ | 1,848 |             |  | $ | 11              |  |  | $     | 56 |  |  | $ | 8,052 |  
|Depletion and depreciation   |  |                   | 817   |   |            |   | 194   |             |  |   | 1               |  |  |       | 11 |  |  |   | 1,023 |  
|Impairments                  |  |                   | 670   |   |            |   |      |             |  |   |                |  |  |       |   |  |  |   | 670   |  
|Dispositions                 |  |                   | (677  | ) |            |   | (169  | )           |  |   |                |  |  |       |   |  |  |   | (846  | )
|                             |  |                   |       |   |            |   |       |             |  |   |                 |  |  |       |    |  |  |   |       |  
|Balance at December 31, 2013 |  | $                 | 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 |  
|                             |  |                   |       |   |            |   |       |             |  |   |                 |  |  |       |    |  |  |   |       |  

Net book value



|      |  |                   |       |  |      |   |       | 
|----- |  | ----------------- | ----- |  | ---- | - | ----- | 
|      |  | As at December 31 |      
|      |  | 2014              |       |  | 2013 |  
|Total |  | $                 | 7,906 |  |      | $ | 9,075 | 



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  19



---

On December 31, 2014, Penn West recorded a $634 million impairment charge 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 as they are non-core in nature. 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.

On December 31, 2013, Penn West recorded a $670 million
impairment charge related to certain non-core, natural gas properties in British Columbia and Alberta, primarily due to limited planned development capital. Additionally, lower estimated reserve recoveries forecasted for properties located in
Manitoba contributed to the impairment. 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.

Impairment losses have been included within depletion, depreciation and impairment. As a result of
Penn Wests strategic review process and ongoing asset disposition activity, the Company re-aligned certain of its CGUs with its current asset base in 2014.

The following table outlines benchmark prices adjusted for differentials specific to the Company as at December 31, 2014 used in the impairment tests:



|                                  |  |              |       |   |                |   |      |                                  |  |  |      | 
|--------------------------------- |  | ------------ | ----- | - | -------------- | - | ---- | -------------------------------- |  |  | ---- | 
|                                  |  | WTI($US/bbl) |       |   | AECO($CAD/mcf) |   |      | Exchange rate ($USequals $1 CAD) | 
|2015                              |  | $            | 55.00 |   |                | $ | 3.32 |                                  |  |  | 0.85 | 
|2016                              |  |              | 80.00 |   |                |   | 3.71 |                                  |  |  | 0.87 | 
|2017                              |  |              | 90.00 |   |                |   | 3.90 |                                  |  |  | 0.87 | 
|2018                              |  |              | 91.35 |   |                |   | 4.47 |                                  |  |  | 0.87 | 
|2019                              |  |              | 92.72 |   |                |   | 5.05 |                                  |  |  | 0.87 | 
|2020  2024                       |  | $            | 96.98 |   |                | $ | 5.31 |                                  |  |  | 0.87 | 
|Thereafter (inflation percentage) |  |              | 1.5   | % |                |   | 1.5  | %                                |  |  |     | 



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  20



---

8. Goodwill



|                           |  |                        |        |   |      |   |       |  
|-------------------------- |  | ---------------------- | ------ | - | ---- | - | ----- | -
|                           |  | Year ended December 31 |       
|                           |  | 2014                   |        |   | 2013 |  
|Balance, beginning of year |  | $                      | 1,912  |   |      | $ | 1,966 |  
|Dispositions               |  |                        | (78    | ) |      |   | (6    | )
|Impairment                 |  |                        | (1,100 | ) |      |   | (48   | )
|                           |  |                        |        |   |      |   |       |  
|Balance, end of year       |  | $                      | 734    |   |      | $ | 1,912 |  
|                           |  |                        |        |   |      |   |       |  

Penn Wests goodwill balance is primarily associated with a group of CGUs which represent key light-oil properties in the
Cardium, Slave Point and Viking areas.

Penn West completed a goodwill impairment test for the balance related to the above mentioned group of CGUs at
December 31, 2014 and the carrying value exceeded the recoverable amount by $1,100 million. As a result, an impairment was recorded. 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 future cash flows using reserve and resource forecasts, forecasted commodity prices, discount rates, foreign exchange rates, inflation rates and future development costs estimated by independent
reserve engineers and other internal estimates based on historical experiences and trends.

The values assigned to the future cash flows, forecasted
commodity prices and future development costs were obtained from Penn Wests year-end reserve report, which was evaluated or audited by its independent reserve engineers. These values were based on future cash flows of proved plus probable
reserves discounted at a rate of 10 percent (2013  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.

The value of resources incremental to the reserve report was obtained from internal
analysis completed by Penn West most notably through the review of its drilling program results and competitor analysis and outlined in its current five-year plan. This was further supported by contingent resource studies that were compiled by
independent reserve engineers. Based on this internal analysis, Penn West identified and risked potential drilling locations that were not assigned any proved plus probable reserves. The value of these additional drilling locations was included in
the recoverable amount, based on the net present value of proved undeveloped locations within the same resource play from the Companys most recent annual reserve report. A discount rate of 10 percent (2013  10 percent) was applied to
determine an estimate of the present value of the future cash flows.

At December 31, 2013, Penn West completed a goodwill impairment test on its
Wainwright CGU, to which goodwill is allocated and recorded an impairment charge in the amount of $48 million, which was the total carrying value of the goodwill attributed to the CGU. The recoverable amount was based on the fair value less cost to
sell consistent with the methodology applied above, which was primarily based on the proved plus probable reserves value, discounted at 10 percent.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  21



---

9. Long-term debt



|                                                  |  |                   |       |  |      |   |       | 
|------------------------------------------------- |  | ----------------- | ----- |  | ---- | - | ----- | 
|                                                  |  | As at December 31 |      
|                                                  |  | 2014              |       |  | 2013 |  
|Bankers acceptances and prime rate loans         |  | $                 |      |  |      | $ | 401   | 
|                                                  |  |                  
|U.S. Senior unsecured notes  2007 Notes          |  |                   |       |  |      |   |       | 
|5.68%, US$160 million, maturing May 31, 2015      |  |                   | 185   |  |      |   | 170   | 
|5.80%, US$155 million, maturing May 31, 2017      |  |                   | 180   |  |      |   | 165   | 
|5.90%, US$140 million, maturing May 31, 2019      |  |                   | 162   |  |      |   | 149   | 
|6.05%, US$20 million, maturing May 31, 2022       |  |                   | 23    |  |      |   | 21    | 
|Senior unsecured notes  2008 Notes               |  |                   |       |  |      |   |       | 
|6.12%, US$153 million, maturing May 29, 2016      |  |                   | 177   |  |      |   | 162   | 
|6.16%, CAD$30 million, maturing May 29, 2018      |  |                   | 30    |  |      |   | 30    | 
|6.30%, US$278 million, maturing May 29, 2018      |  |                   | 323   |  |      |   | 296   | 
|6.40%, US$49 million, maturing May 29, 2020       |  |                   | 57    |  |      |   | 53    | 
|UK Senior unsecured notes  UK Notes              |  |                   |       |  |      |   |       | 
|6.95%, £57 million, maturing July 31, 2018 (1)    |  |                   | 103   |  |      |   | 100   | 
|Senior unsecured notes  2009 Notes               |  |                   |       |  |      |   |       | 
|8.29%, US$50 million, maturing May 5, 2014        |  |                   |      |  |      |   | 53    | 
|8.89%, US$35 million, maturing May 5, 2016        |  |                   | 40    |  |      |   | 37    | 
|9.32%, US$34 million, maturing May 5, 2019        |  |                   | 39    |  |      |   | 36    | 
|8.89%, US$25 million, maturing May 5, 2019 (2)    |  |                   | 29    |  |      |   | 32    | 
|9.15%, £20 million, maturing May 5, 2019 (3)      |  |                   | 36    |  |      |   | 35    | 
|9.22%, 10 million, maturing May 5, 2019 (4)      |  |                   | 14    |  |      |   | 15    | 
|7.58%, CAD$5 million, maturing May 5, 2014        |  |                   |      |  |      |   | 5     | 
|Senior unsecured notes  2010 Q1 Notes            |  |                   |       |  |      |   |       | 
|4.53%, US$28 million, maturing March 16, 2015     |  |                   | 32    |  |      |   | 29    | 
|4.88%, CAD$50 million, maturing March 16, 2015    |  |                   | 50    |  |      |   | 50    | 
|5.29%, US$65 million, maturing March 16, 2017     |  |                   | 75    |  |      |   | 69    | 
|5.85%, US$112 million, maturing March 16, 2020    |  |                   | 132   |  |      |   | 120   | 
|5.95%, US$25 million, maturing March 16, 2022     |  |                   | 29    |  |      |   | 27    | 
|6.10%, US$20 million, maturing March 16, 2025     |  |                   | 23    |  |      |   | 21    | 
|Senior unsecured notes  2010 Q4 Notes            |  |                   |       |  |      |   |       | 
|4.44%, CAD$10 million, maturing December 2, 2015  |  |                   | 10    |  |      |   | 10    | 
|4.17%, US$18 million, maturing December 2, 2017   |  |                   | 21    |  |      |   | 19    | 
|5.38%, CAD$50 million, maturing December 2, 2020  |  |                   | 50    |  |      |   | 50    | 
|4.88%, US$84 million, maturing December 2, 2020   |  |                   | 98    |  |      |   | 89    | 
|4.98%, US$18 million, maturing December 2, 2022   |  |                   | 21    |  |      |   | 19    | 
|5.23%, US$50 million, maturing December 2, 2025   |  |                   | 58    |  |      |   | 53    | 
|Senior unsecured notes  2011 Q4 Notes            |  |                   |       |  |      |   |       | 
|3.64%, US$25 million, maturing November 30, 2016  |  |                   | 29    |  |      |   | 27    | 
|4.23%, US$12 million, maturing November 30, 2018  |  |                   | 14    |  |      |   | 13    | 
|4.63%, CAD$30 million, maturing November 30, 2018 |  |                   | 30    |  |      |   | 30    | 
|4.79%, US$68 million, maturing November 30, 2021  |  |                   | 79    |  |      |   | 72    | 
|                                                  |  |                   |       |  |      |   |       | 
|Total long-term debt                              |  | $                 | 2,149 |  |      | $ | 2,458 | 
|                                                  |  |                   |       |  |      |   |       | 



|(1) | These notes bear interest at 7.78 percent in Pounds Sterling, however, contracts were entered into which fixed the interest rate at 6.95 percent in Canadian dollars.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | This portion of the 2009 Notes has equal repayments, which began in 2013 with a repayment of $5 million, over the remaining six years.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

|(3) | These notes bear interest at 9.49 percent in Pounds Sterling, however, contracts were entered into which fixed the interest rate at 9.15 percent in Canadian dollars.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | These notes bear interest at 9.52 percent in Euros, however, contracts were entered into which fixed the interest rate at 9.22 percent in Canadian dollars.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  22



---

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



|                  |  |                   |       |  |      |   |       | 
|----------------- |  | ----------------- | ----- |  | ---- | - | ----- | 
|                  |  | As at December 31 |      
|                  |  | 2014              |       |  | 2013 |  
|Current portion   |  | $                 | 283   |  |      | $ | 64    | 
|Long-term portion |  |                   | 1,866 |  |      |   | 2,394 | 
|                  |  |                   |       |  |      |   |       | 
|Total             |  | $                 | 2,149 |  |      | $ | 2,458 | 
|                  |  |                   |       |  |      |   |       | 

There were no senior unsecured notes issued in either 2014 or 2013. In 2014, the Company repaid $59 million of senior
unsecured notes as they matured.

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



|                                        |  |                   |     |   |      |  |     |  
|--------------------------------------- |  | ----------------- | --- | - | ---- |  | --- | -
|                                        |  | As at December 31 |    
|                                        |  | 2014              |     |   | 2013 | 
|Weighted average remaining life (years) |  |                   | 3.7 |   |      |  | 4.5 |  
|Weighted average interest rate (1)      |  |                   | 6.0 | % |      |  | 6.1 | %



|(1) | Includes the effect of cross currency swaps.
|--- | --------------------------------------------

During the second quarter of 2014, the Company renewed its
unsecured, revolving syndicated bank facility and voluntarily reduced its aggregate borrowing capacity from $3.0 billion to $1.7 billion. The new bank facility consists of two tranches: tranche one has a $1.2 billion borrowing limit and an
extendible five-year term (May 6, 2019 maturity date) and tranche two has a $500 million borrowing limit and a June 30, 2016 maturity date. The 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, 2014, the Company had $1.7 billion of unused credit capacity available as there were no drawings on its bank facility.

In March 2015, subsequent to year-end, the Company reached agreements in principle with the lenders under its syndicated bank facility and with the holders of
its senior, unsecured notes to, among other things, amend the financial covenants in the bank facility and notes. As a result, the $500 million tranche of the Companys existing $1.7 billion revolving, syndicated bank facility that was set to
expire on June 30, 2016 will be cancelled. The remaining $1.2 billion tranche of the revolving bank facility remains available to the Company in accordance with the terms of the agreements governing such facility. Further information is
provided in Note 18.

Drawings on the Companys bank facility are subject to fluctuations in short-term money market rates as they are generally held
in short-term money market instruments. As at December 31, 2014, none (2013  none) of Penn Wests long-term debt instruments were exposed to changes in short-term interest rates.

Letters of credit totalling $30 million were outstanding on December 31, 2014 (2013  $7 million) that reduce the amount otherwise available to be
drawn on the bank facility.

Realized gains and losses on the interest rate swaps are recorded as financing costs. For 2014, income of $1 million (2013
 $9 million loss) was recorded to reflect that the floating interest rate was lower than the fixed interest rate transacted under Penn Wests interest rate swaps.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  23



---

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



|              |  |                   |       |  |      |   |       | 
|------------- |  | ----------------- | ----- |  | ---- | - | ----- | 
|              |  | As at December 31 |      
|              |  | 2014              |       |  | 2013 |  
|2007 Notes    |  | $                 | 560   |  |      | $ | 546   | 
|2008 Notes    |  |                   | 612   |  |      |   | 592   | 
|UK Notes      |  |                   | 106   |  |      |   | 103   | 
|2009 Notes    |  |                   | 183   |  |      |   | 239   | 
|2010 Q1 Notes |  |                   | 339   |  |      |   | 336   | 
|2010 Q4 Notes |  |                   | 239   |  |      |   | 247   | 
|2011 Notes    |  |                   | 141   |  |      |   | 142   | 
|              |  |                   |       |  |      |   |       | 
|Total         |  | $                 | 2,180 |  |      | $ | 2,205 | 
|              |  |                   |       |  |      |   |       | 

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 (2013 - 2.0 percent) and the inflated amount was discounted using
a credit-adjusted rate of 6.5 percent (2013  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 |    
|                  |  | 2014              |     |  | 2013 |  
|Current portion   |  | $                 | 52  |  |      | $ | 75  | 
|Long-term portion |  |                   | 533 |  |      |   | 528 | 
|                  |  |                   |     |  |      |   |     | 
|Total             |  | $                 | 585 |  |      | $ | 603 | 
|                  |  |                   |     |  |      |   |     | 

Changes to the decommissioning liability were as follows:



|                                                  |  |                        |     |   |      |   |     |  
|------------------------------------------------- |  | ---------------------- | --- | - | ---- | - | --- | -
|                                                  |  | Year ended December 31 |    
|                                                  |  | 2014                   |     |   | 2013 |  
|Balance, beginning of year                        |  | $                      | 603 |   |      | $ | 635 |  
|Net liabilities disposed (1)                      |  |                        | (75 | ) |      |   | (90 | )
|Increase in liability due to changes in estimates |  |                        | 76  |   |      |   | 81  |  
|Liabilities settled                               |  |                        | (55 | ) |      |   | (66 | )
|Accretion charges                                 |  |                        | 36  |   |      |   | 43  |  
|                                                  |  |                        |     |   |      |   |     |  
|Balance, end of year                              |  | $                      | 585 |   |      | $ | 603 |  
|                                                  |  |                        |     |   |      |   |     |  



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



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  24



---

11. Risk management

Financial instruments included in the balance sheets 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, unsecured 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 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, 2014 and 2013, 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         |  | 2014           |       |  | 2013       |   |       | 2014 |  |   | 2013  | 
|Accounts receivable                       |  | Loans and receivables  |  | $              | 182   |  |            | $ | 265   |      |  | $ | 182   |  |  | $ | 265   | 
|Derivative financial assets               |  | FV through profit/loss |  |                | 133   |  |            |   | 52    |      |  |   | 133   |  |  |   | 52    | 
|Derivative financial liabilities          |  | FV through profit/loss |  |                | 19    |  |            |   | 40    |      |  |   | 19    |  |  |   | 40    | 
|Accounts payable and accrued liabilities  |  | Financial liabilities  |  |                | 529   |  |            |   | 598   |      |  |   | 529   |  |  |   | 598   | 
|Dividends payable                         |  | Financial liabilities  |  |                | 70    |  |            |   | 68    |      |  |   | 70    |  |  |   | 68    | 
|Bankers acceptances and prime rate loans |  | Financial liabilities  |  |                |      |  |            |   | 401   |      |  |   |      |  |  |   | 401   | 
|Senior notes (1)                          |  | Financial liabilities  |  | $              | 2,149 |  |            | $ | 2,057 |      |  | $ | 2,180 |  |  | $ | 2,205 | 



|(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)                       |  | 2014                   |     |   | 2013 |  
|Balance, beginning of year                              |  | $                      | 12  |   |      | $ | 58  |  
|Unrealized gain (loss) on financial instruments:        |  |                        |     |   |      |   |     |  
|Commodity collars, swaps and assignments                |  |                        | 51  |   |      |   | (94 | )
|Electricity swaps                                       |  |                        | (2  | ) |      |   |    |  
|Interest rate swaps                                     |  |                        | 1   |   |      |   | 9   |  
|Foreign exchange forwards                               |  |                        | 48  |   |      |   | 27  |  
|Cross currency swaps                                    |  |                        | 4   |   |      |   | 12  |  
|                                                        |  |                        |     |   |      |   |     |  
|Total fair value, end of year                           |  | $                      | 114 |   |      | $ | 12  |  
|                                                        |  |                        |     |   |      |   |     |  
|                                                        |  |                       
|Total fair value consists of the following:             |  |                        |     |   |      |   |     |  
|Fair value, end of year  current asset portion         |  | $                      | 31  |   |      | $ | 2   |  
|Fair value, end of year  current liability portion     |  |                        | (9  | ) |      |   | (24 | )
|Fair value, end of year  non-current asset portion     |  |                        | 102 |   |      |   | 50  |  
|Fair value, end of year  non-current liability portion |  |                        | (10 | ) |      |   | (16 | )
|                                                        |  |                        |     |   |      |   |     |  
|Total fair value, end of year                           |  | $                      | 114 |   |      | $ | 12  |  
|                                                        |  |                        |     |   |      |   |     |  



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  25



---

Based on December 31, 2014 pricing, a $0.10 change in the price per mcf of natural gas would change pre-tax
unrealized risk management by an insignificant amount.

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 |    
|                      |  | 2014              |     |   | 2013 |  
|Risk management       |  |                   |     |   |      |   |     |  
|Current asset         |  | $                 | 31  |   |      | $ | 3   |  
|Non-current asset     |  |                   | 102 |   |      |   | 51  |  
|Current liability     |  |                   | (9  | ) |      |   | (25 | )
|Non-current liability |  | $                 | (10 | ) |      | $ | (17 | )

Penn West had the following financial instruments outstanding as at December 31, 2014. 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 Collars                              |  | 70,000 mcf/d    |  | Jan/15  Dec/15  |  | $3.69 to $4.52/mcf                    |  | $                    | 23  |  
|                                          |  |                 |  |                 
|Electricity swaps                         |  |                 |  |                  |  |                                       |  |                      |     |  
|Alberta Power Pool                        |  | 10 MW           |  | Jan/15  Dec/15  |  | $58.50/MWh                            |  |                      | (1  | )
|Alberta Power Pool                        |  | 70 MW           |  | Jan/15  Dec/15  |  | $55.17/MWh                            |  |                      | (8  | )
|Alberta Power Pool                        |  | 25 MW           |  | Jan/16  Dec/16  |  | $49.90/MWh                            |  |                      | (1  | )
|                                          |  |                 |  |                 
|Crude oil assignment                      |  |                 |  |                  |  |                                       |  |                      |     |  
|18  month term                           |  | 10,000 boe/d    |  | Jan/15  July/16 |  | Differential WCS (Edm)
vs. WCS (USGC) |  |                      | 11  |  
|                                          |  |                 |  |                 
|Foreign exchange forwards on senior notes |  |                 |  |                  |  |                                       |  |                      |     |  
|3 to 15-year initial term                 |  | US$621          |  | 2015  2022      |  | 0.9986 CAD/USD                        |  |                      | 98  |  
|                                          |  |                 |  |                 
|Cross currency swaps                      |  |                 |  |                  |  |                                       |  |                      |     |  
|10-year initial term                      |  | £57             |  | 2018             |  | 2.0075 CAD/GBP, 6.95%                 |  |                      | (9  | )
|10-year initial term                      |  | £20             |  | 2019             |  | 1.8051 CAD/GBP, 9.15%                 |  |                      | 2   |  
|10-year initial term                      |  | 10             |  | 2019             |  | 1.5870 CAD/EUR, 9.22%                 |  |                      | (1  | )
|                                          |  |                 |  |                  |  |                                       |  |                      |     |  
|Total                                     |  |                 |  |                  |  |                                       |  | $                    | 114 |  
|                                          |  |                 |  |                  |  |                                       |  |                      |     |  

A realized loss of $6 million (2013 - $11 million gain) on electricity contracts has been included in operating expenses for
2014.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  26



---

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.

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. At December 31, 2014, the following foreign currency forward contracts were outstanding:



|               |  |                 |  |               |                 | 
|-------------- |  | --------------- |  | ------------- | --------------- | 
|Nominal Amount |  | Settlement date |  | Exchange rate |                
|Buy US$76      |  | 2015            |  |               | 1.00705 CAD/USD | 
|Buy US$76      |  | 2016            |  |               | 0.99885 CAD/USD | 
|Buy US$104     |  | 2017            |  |               | 0.99895 CAD/USD | 
|Buy US$113     |  | 2018            |  |               | 0.99885 CAD/USD | 
|Buy US$98      |  | 2019            |  |               | 0.99339 CAD/USD | 
|Buy US$134     |  | 2020            |  |               | 0.99885 CAD/USD | 
|Buy US$20      |  | 2022            |  |               | 0.98740 CAD/USD | 

At December 31, 2014, Penn West had US dollar denominated debt with a face value of US$1.0 billion (2013 - 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.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  27



---

As at December 31, 2014, the maximum exposure to credit risk was $315 million (2013  $317 million)
which comprised of $182 million (2013 - $265 million) being the carrying value of the accounts receivable and $133 million (2013  $52 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, 2014, none of the Companys long-term debt instruments
were exposed to changes in short-term interest rates (2013  none).

As at December 31, 2014, a total of $2.1 billion (2013  $2.1 billion)
of fixed interest rate debt instruments was outstanding with an average remaining term of 3.7 years (2013  4.5 years) and an average interest rate of 6.0 percent (2013  5.8 percent).

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 collars and other financial instruments to increase the predictability of cash flow from operating activities.

The following table outlines estimated future obligations for non-derivative financial liabilities as at December 31, 2014:



|                                         |  |      |     |  |      |   |     |      |  |   |      |  |  |      |     |  |            |   |     |  |  |   |     | 
|---------------------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  | ---------- | - | --- |  |  | - | --- | 
|                                         |  | 2015 |     |  | 2016 |   |     | 2017 |  |   | 2018 |  |  | 2019 |     |  | Thereafter |  
|Senior unsecured notes                   |  | $    | 283 |  |      | $ | 252 |      |  | $ | 282  |  |  | $    | 505 |  |            | $ | 258 |  |  | $ | 569 | 
|Accounts payable and accrued liabilities |  |      | 524 |  |      |   |    |      |  |   |     |  |  |      |    |  |            |   |    |  |  |   |    | 
|Dividends payable                        |  |      | 70  |  |      |   |    |      |  |   |     |  |  |      |    |  |            |   |    |  |  |   |    | 
|Share-based compensation accrual         |  |      | 5   |  |      |   | 4   |      |  |   |     |  |  |      |    |  |            |   |    |  |  |   |    | 
|                                         |  |      |     |  |      |   |     |      |  |   |      |  |  |      |     |  |            |   |     |  |  |   |     | 
|Total                                    |  | $    | 882 |  |      | $ | 256 |      |  | $ | 282  |  |  | $    | 505 |  |            | $ | 258 |  |  | $ | 569 | 
|                                         |  |      |     |  |      |   |     |      |  |   |      |  |  |      |     |  |            |   |     |  |  |   |     | 



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  28



---

12. Income taxes

The provision for income taxes is as follows:



|                                 |  |                        |      |   |      |   |      |  
|-------------------------------- |  | ---------------------- | ---- | - | ---- | - | ---- | -
|                                 |  | Year ended December 31 |     
|Deferred tax recovery            |  | 2014                   |      |   | 2013 |  
|Changes in temporary differences |  | $                      | (118 | ) |      | $ | (233 | )

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 |       
|                                    |  | 2014                   |        |   | 2013 |  
|Loss before taxes                   |  | $                      | (1,851 | ) |      | $ | (1,042 | )
|Combined statutory tax rate (1)     |  |                        | 25.4   | % |      |   | 25.3   | %
|Computed income tax recovery        |  | $                      | (470   | ) |      | $ | (264   | )
|Increase (decrease) resulting from: |  |                        |        |   |      |   |        |  
|Share-based compensation            |  |                        | 2      |   |      |   | 4      |  
|Unrealized foreign exchange         |  |                        | 39     |   |      |   | 21     |  
|Disposition of goodwill             |  |                        | 20     |   |      |   |       |  
|Non-deductible impairment           |  |                        | 279    |   |      |   | 14     |  
|Other                               |  |                        | 12     |   |      |   | (8     | )
|                                    |  |                        |        |   |      |   |        |  
|Deferred tax recovery               |  | $                      | (118   | ) |      | $ | (233   | )
|                                    |  |                        |        |   |      |   |        |  



|(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, 2014 and December 31, 2013.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

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



|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  
|--------------------------------- |  | ---------------------- | ----- | - | ---------------------------- | - | ---- | ----------------------------------------- |  | - | ------------------------ | - |  | - | ----- | -
|                                  |  | BalanceJanuary 1, 2013 |       |   | Provision(Recovery)in Income |   |      | Recognized inProperty, Plantand Equipment |  |   | BalanceDecember 31, 2013 |  
|Deferred tax liabilities (assets) |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  
|PP&E                              |  | $                      | 1,966 |   |                              | $ | (14  | )                                         |  | $ | (12                      | ) |  | $ | 1,940 |  
|Risk management                   |  |                        | 26    |   |                              |   | (23  | )                                         |  |   |                         |   |  |   | 3     |  
|Decommissioning liability         |  |                        | (161  | ) |                              |   | 8    |                                           |  |   |                         |   |  |   | (153  | )
|Share-based compensation          |  |                        | (7    | ) |                              |   | 2    |                                           |  |   |                         |   |  |   | (5    | )
|Non-capital losses                |  |                        | (546  | ) |                              |   | (199 | )                                         |  |   |                         |   |  |   | (745  | )
|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  
|Net deferred tax liability        |  | $                      | 1,278 |   |                              | $ | (226 | )                                         |  | $ | (12                      | ) |  | $ | 1,040 |  
|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  29



---

|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  
|--------------------------------- |  | ---------------------- | ----- | - | ---------------------------- | - | ---- | ----------------------------------------- |  | - | ------------------------ | - |  | - | ----- | -
|                                  |  | 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   |  
|                                  |  |                        |       |   |                              |   |      |                                           |  |   |                          |   |  |   |       |  

13. Shareholders equity

a) Authorized

i) An unlimited number of Common Shares.

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

Penn West has a Dividend Reinvestment and Optional Share Purchase Plan (the DRIP) that provides eligible shareholders the opportunity to reinvest
quarterly cash dividends into additional common shares at a potential discount. Common shares are issued from Treasury at 95 percent of the 10-day volume-weighted average market price when available. When common shares are not available from
Treasury they are acquired in the open market at prevailing market prices. In December 2014, Penn West suspended the DRIP until further notice effective for the first quarter of 2015 dividend payment in April.

Eligible shareholders who participate in the DRIP may also purchase additional common shares, subject to a quarterly maximum of $15,000 and a minimum of $500.
Optional cash purchase common shares are acquired in the open market at prevailing market prices or issued from Treasury, without a discount at the 10-day volume-weighted average market price.

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                               |  | Common Shares |             |   | Amount |  
|Balance, January 1, 2013                            |  |               | 479,258,670 |   |        | $ | 8,774 | 
|Issued on exercise of equity compensation plans (1) |  |               | 1,239,181   |   |        |   | 44    | 
|Issued to dividend reinvestment plan                |  |               | 9,275,996   |   |        |   | 95    | 
|Cancellations (2)                                   |  |               | (696,563    | ) |        |   |      | 
|                                                    |  |               |             |   |        |   |       | 
|Balance, January 1, 2014                            |  |               | 489,077,284 |   |        | $ | 8,913 | 
|Issued on exercise of equity compensation plans(1)  |  |               | 1,067,000   |   |        |   | 12    | 
|Issued to dividend reinvestment plan                |  |               | 7,175,803   |   |        |   | 58    | 
|                                                    |  |               |             |   |        |   |       | 
|Balance, December 31, 2014                          |  |               | 497,320,087 |   |        | $ | 8,983 | 
|                                                    |  |               |             |   |        |   |       | 



|(1) | Upon exercise of options, the net benefit is recorded as a reduction of other reserves and an increase to shareholders capital. In 2014, no shares (2013 - 102,793) were issued from Treasury due to individuals
settling restricted rights in exchange for common shares.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents shares cancelled pursuant to sunset clauses contained in prior plans of arrangement.
|--- | -----------------------------------------------------------------------------------------------



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  30



---

|                                    |  |                        |    |   |      |   |     |  
|----------------------------------- |  | ---------------------- | -- | - | ---- | - | --- | -
|                                    |  | Year ended December 31 |   
|Other Reserves                      |  | 2014                   |    |   | 2013 |  
|Balance, beginning of year          |  | $                      | 80 |   |      | $ | 97  |  
|Share-based compensation expense    |  |                        | 10 |   |      |   | 15  |  
|Net benefit on options exercised(1) |  |                        | (1 | ) |      |   | (32 | )
|                                    |  |                        |    |   |      |   |     |  
|Balance, end of year                |  | $                      | 89 |   |      | $ | 80  |  
|                                    |  |                        |    |   |      |   |     |  



|(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, 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. 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.



|                               |  |                        |            |   |                               |   |       |                  |  |  |                               |   |  |   |       | 
|------------------------------ |  | ---------------------- | ---------- | - | ----------------------------- | - | ----- | ---------------- |  |  | ----------------------------- | - |  | - | ----- | 
|                               |  | Year ended December 31 |           
|                               |  | 2014                   |            |   | 2013                          |  
|Options                        |  | Number ofOptions       |            |   | WeightedAverageExercise Price |   |       | Number ofOptions |  |  | WeightedAverageExercise Price |  
|Outstanding, beginning of year |  |                        | 14,951,830 |   |                               | $ | 17.63 |                  |  |  | 15,737,400                    |   |  | $ | 22.54 | 
|Granted                        |  |                        | 8,332,400  |   |                               |   | 8.84  |                  |  |  | 8,937,200                     |   |  |   | 10.32 | 
|Exercised                      |  |                        | (1,067,000 | ) |                               |   | 9.80  |                  |  |  | (1,000,000                    | ) |  |   | 10.24 | 
|Forfeited                      |  |                        | (7,757,072 | ) |                               |   | 16.20 |                  |  |  | (8,722,770                    | ) |  |   | 19.85 | 
|                               |  |                        |            |   |                               |   |       |                  |  |  |                               |   |  |   |       | 
|Outstanding, end of year       |  |                        | 14,460,158 |   |                               | $ | 13.91 |                  |  |  | 14,951,830                    |   |  | $ | 17.63 | 
|                               |  |                        |            |   |                               |   |       |                  |  |  |                               |   |  |   |       | 
|Exercisable, end of year       |  |                        | 4,162,904  |   |                               | $ | 20.14 |                  |  |  | 3,419,818                     |   |  | $ | 23.46 | 
|                               |  |                        |            |   |                               |   |       |                  |  |  |                               |   |  |   |       | 



|                      |  |                     |            |  |                              |   |       |                                          |  |  |                   |  |  |                              |           |  |  |   |       | 
|--------------------- |  | ------------------- | ---------- |  | ---------------------------- | - | ----- | ---------------------------------------- |  |  | ----------------- |  |  | ---------------------------- | --------- |  |  | - | ----- | 
|                      |  | Options Outstanding |            |  | Options Exercisable          |  
|Range of Grant Prices |  | NumberOutstanding   |            |  | WeightedAverageExercisePrice |   |       | WeightedRemainingContractualLife (years) |  |  | NumberExercisable |  |  | WeightedAverageExercisePrice |          
|$3.00 - $8.99         |  |                     | 917,500    |  |                              | $ | 4.76  |                                          |  |  | 5.0               |  |  |                              |          |  |  | $ |      | 
|$9.00 - $14.99        |  |                     | 9,062,125  |  |                              |   | 10.10 |                                          |  |  | 3.7               |  |  |                              | 1,287,400 |  |  |   | 11.43 | 
|$15.00 - $20.99       |  |                     | 548,900    |  |                              |   | 18.99 |                                          |  |  | 2.0               |  |  |                              | 388,200   |  |  |   | 19.01 | 
|$21.00 - $27.99       |  |                     | 3,931,633  |  |                              |   | 24.12 |                                          |  |  | 1.7               |  |  |                              | 2,487,304 |  |  |   | 24.83 | 
|                      |  |                     |            |  |                              |   |       |                                          |  |  |                   |  |  |                              |           |  |  |   |       | 
|                      |  |                     | 14,460,158 |  |                              | $ | 13.91 |                                          |  |  | 2.7               |  |  |                              | 4,162,904 |  |  | $ | 20.14 | 
|                      |  |                     |            |  |                              |   |       |                                          |  |  |                   |  |  |                              |           |  |  |   |       | 



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  31



---

Common Share Rights Incentive Plan (CSRIP)

The CSRIP included Restricted Options, Restricted Rights and Share Rights, all of which expired by December 31, 2014.



|                               |  |                            |            |   |                               |   |       |                            |  |  |                               |   |  |   |       | 
|------------------------------ |  | -------------------------- | ---------- | - | ----------------------------- | - | ----- | -------------------------- |  |  | ----------------------------- | - |  | - | ----- | 
|                               |  | Year ended December 31     |           
|                               |  | 2014                       |            |   | 2013                          |  
|Restricted Options             |  | Number ofRestrictedOptions |            |   | WeightedAverageExercise Price |   |       | Number ofRestrictedOptions |  |  | WeightedAverageExercise Price |  
|Outstanding, beginning of year |  |                            | 3,055,414  |   |                               | $ | 23.84 |                            |  |  | 10,535,361                    |   |  | $ | 23.84 | 
|Forfeited                      |  |                            | (3,055,414 | ) |                               |   | 23.84 |                            |  |  | (7,479,947                    | ) |  |   | 23.84 | 
|                               |  |                            |            |   |                               |   |       |                            |  |  |                               |   |  |   |       | 
|Outstanding, end of year       |  |                            |           |   |                               | $ |      |                            |  |  | 3,055,414                     |   |  | $ | 23.84 | 
|                               |  |                            |            |   |                               |   |       |                            |  |  |                               |   |  |   |       | 
|Exercisable, end of year       |  |                            |           |   |                               | $ |      |                            |  |  | 3,055,414                     |   |  | $ | 23.84 | 
|                               |  |                            |            |   |                               |   |       |                            |  |  |                               |   |  |   |       | 



|                               |  |                           |            |   |                               |   |       |                           |  |  |                               |   |  |   |       | 
|------------------------------ |  | ------------------------- | ---------- | - | ----------------------------- | - | ----- | ------------------------- |  |  | ----------------------------- | - |  | - | ----- | 
|                               |  | Year ended December 31    |           
|                               |  | 2014                      |            |   | 2013                          |  
|Restricted Rights              |  | Number ofRestrictedRights |            |   | WeightedAverageExercise Price |   |       | Number ofRestrictedRights |  |  | WeightedAverageExercise Price |  
|Outstanding, beginning of year |  |                           | 3,055,414  |   |                               | $ | 16.91 |                           |  |  | 10,535,361                    |   |  | $ | 13.32 | 
|Exercised (1)                  |  |                           |           |   |                               |   |      |                           |  |  | (4,528,893                    | ) |  |   | 6.65  | 
|Forfeited                      |  |                           | (3,055,414 | ) |                               |   | 16.36 |                           |  |  | (2,951,054                    | ) |  |   | 16.45 | 
|                               |  |                           |            |   |                               |   |       |                           |  |  |                               |   |  |   |       | 
|Outstanding, end of year (2)   |  |                           |           |   |                               | $ |      |                           |  |  | 3,055,414                     |   |  | $ | 16.91 | 
|                               |  |                           |            |   |                               |   |       |                           |  |  |                               |   |  |   |       | 
|Exercisable, end of year       |  |                           |           |   |                               | $ |      |                           |  |  | 3,055,414                     |   |  | $ | 16.91 | 
|                               |  |                           |            |   |                               |   |       |                           |  |  |                               |   |  |   |       | 



|(1) | The weighted average share price of restricted rights exercised in 2014 was $nil per share (2013 - $10.67 per share).
|--- | ---------------------------------------------------------------------------------------------------------------------

|(2) | Weighted average exercise price includes reductions of the exercise price for dividends paid.
|--- | ---------------------------------------------------------------------------------------------



|                               |  |                        |         |   |                               |   |       |                      |  |  |                               |   |  |   |       | 
|------------------------------ |  | ---------------------- | ------- | - | ----------------------------- | - | ----- | -------------------- |  |  | ----------------------------- | - |  | - | ----- | 
|                               |  | Year ended December 31 |        
|                               |  | 2014                   |         |   | 2013                          |  
|Share Rights                   |  | Number ofShareRights   |         |   | WeightedAverageExercise Price |   |       | Number ofShareRights |  |  | WeightedAverageExercise Price |  
|Outstanding, beginning of year |  |                        | 40,310  |   |                               | $ | 15.94 |                      |  |  | 291,638                       |   |  | $ | 11.99 | 
|Exercised (1)                  |  |                        |        |   |                               |   |      |                      |  |  | (136,388                      | ) |  |   | 6.23  | 
|Forfeited                      |  |                        | (40,310 | ) |                               |   | 15.66 |                      |  |  | (114,940                      | ) |  |   | 15.03 | 
|                               |  |                        |         |   |                               |   |       |                      |  |  |                               |   |  |   |       | 
|Outstanding, end of year (2)   |  |                        |        |   |                               | $ |      |                      |  |  | 40,310                        |   |  | $ | 15.94 | 
|                               |  |                        |         |   |                               |   |       |                      |  |  |                               |   |  |   |       | 
|Exercisable, end of year       |  |                        |        |   |                               | $ |      |                      |  |  | 40,310                        |   |  | $ | 15.94 | 
|                               |  |                        |         |   |                               |   |       |                      |  |  |                               |   |  |   |       | 



|(1) | The weighted average share price on share rights exercised in 2014 was $nil per share (2013 - $10.56 per share).
|--- | ----------------------------------------------------------------------------------------------------------------

|(2) | Weighted average exercise price includes reductions of the exercise price for dividends/ distributions paid.
|--- | ------------------------------------------------------------------------------------------------------------



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  32



---

Long-term retention and incentive plan (LTRIP)

Under the LTRIP, Penn West employees receive cash consideration, that fluctuates based on Penn Wests share price on the TSX. Eligible employees receive a
grant of a specific number of LTRIP awards (each of which notionally represents a common share) that vest over a three-year period with the cash value paid to the employee on each vesting date. If the service requirements are met, the cash
consideration paid is based on the number of LTRIP awards 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 |           
|LTRIP awards (number of shares equivalent) |  | 2014                   |            |   | 2013 | 
|Outstanding, beginning of year             |  |                        | 2,813,769  |   |      |  | 1,951,655  |  
|Granted                                    |  |                        | 2,749,440  |   |      |  | 3,102,225  |  
|Vested and paid                            |  |                        | (1,132,029 | ) |      |  | (780,228   | )
|Forfeited                                  |  |                        | (1,264,704 | ) |      |  | (1,459,883 | )
|                                           |  |                        |            |   |      |  |            |  
|Outstanding, end of year                   |  |                        | 3,166,476  |   |      |  | 2,813,769  |  
|                                           |  |                        |            |   |      |  |            |  

At December 31, 2014, LTRIP obligations of $4 million were classified as a current liability (2013 - $10 million)
included in accounts payable and accrued liabilities and $3 million were classified as a non-current liability (2013 - $7 million) included in other non-current liabilities.

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, 2014, 181,873 DSUs (2013  104,663) were outstanding and $1 million
was recorded as a current liability (2013  $1 million).

Performance Share Unit plan (PSU)

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) |  | 2014                   |          |   | 2013 | 
|Outstanding, beginning of year           |  |                        | 969,723  |   |      |  |          |  
|Granted                                  |  |                        | 620,000  |   |      |  | 1,544,429 |  
|Vested                                   |  |                        | (570,770 | ) |      |  | (494,140  | )
|Forfeited                                |  |                        | (247,933 | ) |      |  | (80,566   | )
|                                         |  |                        |          |   |      |  |           |  
|Outstanding, end of year                 |  |                        | 771,020  |   |      |  | 969,723   |  
|                                         |  |                        |          |   |      |  |           |  

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, 2014, nil
(December 31, 2013  $1 million) was classified as a current liability included in accounts payable and accrued liabilities and $1 million was classified as a non-current liability (December 31, 2013  $2 million) and included in other
non-current liabilities.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  33



---

Share-based compensation

Share-based compensation is based on the fair value of the options at the time of grant under the Option Plan and the CSRIP, which is amortized over the
remaining vesting period on a graded vesting schedule. Share-based compensation under the LTRIP, 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 |   
|                         |  | 2014                   |    |  | 2013 |  
|Options                  |  | $                      | 10 |  |      | $ | 15 | 
|LTRIP                    |  |                        | 2  |  |      |   | 13 | 
|DSU                      |  |                        |   |  |      |   | 1  | 
|PSU                      |  |                        |   |  |      |   | 3  | 
|                         |  |                        |    |  |      |   |    | 
|Share-based compensation |  | $                      | 12 |  |      | $ | 32 | 
|                         |  |                        |    |  |      |   |    | 

Share-based compensation related to the CSRIP was insignificant in 2014 and 2013.

During 2014, $1 million of PSU expense was 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 LTRIP, Restricted Rights,
PSU and DSU obligations at December 31, 2014 was $2.43 (2013  $8.87).

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 |     
|                                                  |  | 2014                   |      |   | 2013 |  
|Average fair value of options granted (per share) |  | $                      | 1.14 |   |      | $ | 1.03 |  
|Expected life of options (years)                  |  |                        | 4.0  |   |      |   | 4.0  |  
|Expected volatility (average)                     |  |                        | 35.3 | % |      |   | 32.4 | %
|Risk-free rate of return (average)                |  |                        | 1.4  | % |      |   | 1.5  | %
|Dividend yield                                    |  |                        | 5.5  | % |      |   | 6.5  | %

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

In 2014, Penn West paid dividends of $275 million or $0.56 per share (2013 - $458 million or $0.95 per share). In December 2014, Penn West announced its
intention to further reduce its quarterly dividend commencing in the first quarter of 2015 to $0.03 per share from $0.14 per share. In March 2015, subsequent to year-end and in connection with the amendments to its financial covenants, the Company
announced a further reduction to its dividend commencing in the first quarter to $0.01 per share. Further information is provided in Note 18.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  34



---

Penn West paid its fourth quarter 2014 dividend of $0.14 per share totaling $70 million on January 15, 2015.

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 |       
|                             |  | 2014                   |        |   | 2013 |  
|Net loss  basic and diluted |  | $                      | (1,733 | ) |      | $ | (809 | )

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



|                  |  |                        |             |  |      |  |             | 
|----------------- |  | ---------------------- | ----------- |  | ---- |  | ----------- | 
|                  |  | Year ended December 31 |            
|                  |  | 2014                   |             |  | 2013 | 
|Basic and Diluted |  |                        | 493,668,553 |  |      |  | 485,814,089 | 

For 2014, 14.5 million shares (2013  18.0 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.

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



|                                         |  |                        |     |   |      |   |      |  
|---------------------------------------- |  | ---------------------- | --- | - | ---- | - | ---- | -
|                                         |  | Year ended December 31 |    
|                                         |  | 2014                   |     |   | 2013 |  
|Accounts receivable                      |  | $                      | 83  |   |      | $ | 99   |  
|Other current assets                     |  |                        | 11  |   |      |   | 7    |  
|Deferred funding obligation              |  |                        | 15  |   |      |   | 19   |  
|Accounts payable and accrued liabilities |  |                        | (82 | ) |      |   | (176 | )
|                                         |  |                        |     |   |      |   |      |  
|                                         |  | $                      | 27  |   |      | $ | (51  | )
|                                         |  |                        |     |   |      |   |      |  
|Operating activities                     |  | $                      | (32 | ) |      | $ | 49   |  
|Investing activities                     |  |                        | 59  |   |      |   | (100 | )
|                                         |  |                        |     |   |      |   |      |  
|                                         |  | $                      | 27  |   |      | $ | (51  | )
|                                         |  |                        |     |   |      |   |      |  
|Interest paid                            |  | $                      | 158 |   |      | $ | 177  |  
|Income taxes recovered                   |  | $                      |    |   |      | $ | 7    |  

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 shareholder return through a combination of growth and yield.

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 unsecured notes.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  35



---

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.

The Company is subject to certain quarterly financial
covenants under its unsecured, syndicated credit facility and the senior unsecured notes. These financial covenants are typical for senior unsecured 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, 2014, the Company was in compliance with all of its financial covenants under such lending agreements.



|                                                  |  |                        |       |   |      |   |       |  
|------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | -
|                                                  |  | Year ended December 31 |      
|(millions, except ratio amounts)                  |  | 2014                   |       |   | 2013 |  
|Components of capital                             |  |                        |       |   |      |   |       |  
|Shareholders equity                              |  | $                      | 5,582 |   |      | $ | 7,513 |  
|Long-term debt                                    |  | $                      | 2,149 |   |      | $ | 2,458 |  
|Ratios                                            |  |                        |       |   |      |   |       |  
|Senior debt to EBITDA (1)                         |  |                        | 2.1   |   |      |   | 2.3   |  
|Total debt to EBITDA (2)                          |  |                        | 2.1   |   |      |   | 2.3   |  
|Senior debt to capitalization (3)                 |  |                        | 28    | % |      |   | 25    | %
|Total debt to capitalization (4)                  |  |                        | 28    | % |      |   | 25    | %
|Priority debt to consolidated tangible assets (5) |  |                        |      |   |      |   |      |  
|                                                  |  |                        |       |   |      |   |       |  
|EBITDA (6)                                        |  | $                      | 1,022 |   |      | $ | 1,066 |  
|                                                  |  |                       
|Credit facility debt and senior notes             |  | $                      | 2,149 |   |      | $ | 2,458 |  
|Letters of credit (7)                             |  |                        | 5     |   |      |   | 7     |  
|                                                  |  |                        |       |   |      |   |       |  
|Senior debt and total debt                        |  |                        | 2,154 |   |      |   | 2,465 |  
|Total shareholders equity                        |  |                        | 5,582 |   |      |   | 7,513 |  
|                                                  |  |                        |       |   |      |   |       |  
|Total capitalization                              |  | $                      | 7,736 |   |      | $ | 9,978 |  
|                                                  |  |                        |       |   |      |   |       |  



|(1) | Less than 3:1 and not to exceed 3.5:1 in the event of a material acquisition.
|--- | -----------------------------------------------------------------------------

|(2) | Less than 4:1.
|--- | --------------

|(3) | Not to exceed 50 percent except in the event of a material acquisition when the ratio is not to exceed 55 percent.
|--- | ------------------------------------------------------------------------------------------------------------------

|(4) | Not to exceed 55 percent except in the event of a material acquisition when the ratio is not to exceed 60 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.
|--- | --------------------------------------------------------------------------------------------------------------

As a result of the current low commodity price environment, Penn West has actively been in negotiations with the lenders under its revolving, syndicated bank
facility and with the holders of its senior, unsecured notes to ensure its financial flexibility. Effective March 10, 2015, the Company reached agreements in principle with the lenders and the noteholders 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 December 31, 2016.
| | - |  | ----------------------------------------------------------------------------------------------------------------



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  36



---

The Company also agreed as follows:



| |  |  | 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 unsecured 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 revolving 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 from its previously announced $0.03 per share to $0.01 per share 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 offer aggregate net proceeds up to $650 million received from all sales, exchanges, lease transfers or other dispositions of its property to prepay at par any outstanding principal amounts
owing to the noteholders, with corresponding pro rata amounts from such dispositions to be used by the Company to prepay any outstanding amounts drawn under its syndicated bank facility.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

The amendments described above are expected to become effective on or before April 15, 2015
and are subject to the execution and delivery of definitive amending agreements in forms mutually satisfactory to the parties thereto and to the satisfaction of conditions customary in transactions of this nature.

19. Commitments and contingencies

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



|                          |  |      |     |  |      |   |     |      |  |   |      |  |  |      |     |  |            |   |     |  |  |   |     | 
|------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  | ---------- | - | --- |  |  | - | --- | 
|                          |  | 2015 |     |  | 2016 |   |     | 2017 |  |   | 2018 |  |  | 2019 |     |  | Thereafter |  
|Long-term debt            |  | $    | 283 |  |      | $ | 252 |      |  | $ | 282  |  |  | $    | 505 |  |            | $ | 258 |  |  | $ | 569 | 
|Transportation            |  |      | 22  |  |      |   | 17  |      |  |   | 48   |  |  |      | 58  |  |            |   | 56  |  |  |   | 280 | 
|Power infrastructure      |  |      | 21  |  |      |   | 10  |      |  |   | 10   |  |  |      | 10  |  |            |   | 10  |  |  |   | 8   | 
|Drilling rigs             |  |      | 15  |  |      |   | 17  |      |  |   | 12   |  |  |      |    |  |            |   |    |  |  |   |    | 
|Purchase obligations      |  |      | 5   |  |      |   | 1   |      |  |   | 1    |  |  |      | 1   |  |            |   | 1   |  |  |   |    | 
|Interest obligations      |  |      | 120 |  |      |   | 106 |      |  |   | 90   |  |  |      | 67  |  |            |   | 39  |  |  |   | 52  | 
|Office lease              |  |      | 58  |  |      |   | 57  |      |  |   | 54   |  |  |      | 54  |  |            |   | 54  |  |  |   | 294 | 
|Decommissioning liability |  | $    | 52  |  |      | $ | 67  |      |  | $ | 77   |  |  | $    | 76  |  |            | $ | 72  |  |  | $ | 241 | 

Penn Wests syndicated bank facility has $1.2 billion due for renewal on May 6, 2019 and $500 million due for
renewal on June 30, 2016. In addition, Penn West has an aggregate of $2.1 billion in senior notes maturing between 2015 and 2025.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  37



---

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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Purchase obligations relate to Penn Wests commitments for CO2 purchases and processing fees related to Penn Wests interests in the Weyburn CO2 miscible flood property in S.E. Saskatchewan. These amounts
represent estimated commitments of $4 million for CO2 purchases and $4 million for processing fees related to Penn Wests interest in the Weyburn Unit.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 $355 million. For 2014, lease costs, net of recoveries totaled $27 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Penn West is involved in various litigation and claims in the normal course of business and records provisions for claims as required. In the third quarter of
2014, Penn West became aware of a number of putative securities class action claims having been filed or threatened to be filed in both Canada and the United States relating 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 the third quarter of 2014, Penn West was served with statements of claim against the Company and certain of its present and
former directors and officers relating to such types of securities class actions in the Provinces of Alberta, Ontario and Quebec and in the United States. To date, none of these proceedings has been certified under applicable class proceedings
legislation. In the United States, the Court has consolidated the various actions, appointed lead plaintiffs, and set a scheduling for the parties to brief a motion to dismiss. Amounts claimed in the Canadian and United States proceedings are
significant, but at this stage in the process, any estimate of the Companys potential exposure or liability, if any, are premature and cannot be meaningfully determined. The Company intends to vigorously defend against any such actions.

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



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  38



---

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 |   
|                             |  | 2014                   |    |  | 2013 |  
|Salary and employee benefits |  | $                      | 4  |  |      | $ | 4  | 
|Termination benefits         |  |                        | 6  |  |      |   | 8  | 
|Share-based payments (1)     |  |                        | 2  |  |      |   | 11 | 
|                             |  |                        |    |  |      |   |    | 
|                             |  | $                      | 12 |  |      | $ | 23 | 
|                             |  |                        |    |  |      |   |    | 



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

21. Supplemental Items

In the consolidated financial
statements, compensation costs are included in both operating and general and administrative expenses. For 2014, employee compensation costs of $70 million (2013 - $114 million) were included in operating expenses and $91 million (2013 - $132
million) were included in general and administrative expenses.



|               |  |                                               
|-------------- |  | ----------------------------------------------
|PENN WEST 2014 |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  39