Exhibit 99.2



Consolidated Financial
Statements



Management’s Responsibility for Financial Statements



The
Management of Advantage Oil & Gas Ltd. (the “Corporation”) is responsible for the preparation and presentation
of the consolidated financial statements together with all operational and other financial information contained in the annual
report. The consolidated financial statements have been prepared by Management in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board and utilize the best estimates and careful judgments of Management,
where appropriate. Operational and other financial information
contained throughout the annual report is consistent with that provided in the consolidated financial statements.



Management has developed and maintains
a system of internal controls designed to provide reasonable assurance that all transactions are accurately and reliably recorded,
that the consolidated financial statements accurately report the Corporation’s operating and financial results within acceptable
limits of materiality, that all other operational and financial information presented is accurate, and that the Corporation’s
assets are properly safeguarded.



The Audit Committee, comprised of non-management
directors, acts on behalf of the Board of Directors to ensure that Management fulfills its financial reporting and internal control
responsibilities. The Audit Committee is responsible for meeting regularly with Management, the external auditors, and the internal
auditors to discuss internal controls over financial reporting processes, auditing matters and various aspects of financial reporting.
The Audit Committee reviewed the consolidated financial statements with Management and the external auditors, and recommended approval
to the Board of Directors. The Board of Directors has approved these consolidated financial statements.



PricewaterhouseCoopers LLP, an independent
firm of Chartered Accountants, appointed by the shareholders as the external auditor of the Corporation, has audited the consolidated
statement of financial position as at December 31, 2014 and 2013, and the consolidated statements of comprehensive income (loss),
changes in shareholders’ equity and cash flows for the years ended December 31, 2014 and 2013. The external auditors conducted
their audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States) and have unlimited and unrestricted access to the Audit Committee.



|                                      |                                                   
|------------------------------------- | --------------------------------------------------
|                                      |                                                   
|Andy J. Mah                           | Craig Blackwood                                   
|President and Chief Executive Officer | Vice President Finance and Chief Financial Officer
|March 25, 2015                        |                                                   



Advantage Oil & Gas Ltd. - 1







Management’s Report on Internal Control over Financial
Reporting



The Management of Advantage Oil & Gas
Ltd. (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting
for the Corporation as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended. Under the supervision
of our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on our assessment, we have concluded that as of December 31,
2014, our internal control over financial reporting was effective.



Because of inherent limitations, internal
control over financial reporting may not prevent or detect misstatements and even those systems determined to be effective can
provide only reasonable assurance with respect to the financial statement preparation and presentation. Further, 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.



PricewaterhouseCoopers LLP, the Corporation’s
independent firm of Chartered Accountants, was appointed by the shareholders to audit and provide an independent opinion on both
the consolidated financial statements and the Corporation’s internal control over financial reporting as at December 31,
2014, as stated in their Auditor’s Report. PricewaterhouseCoopers LLP has provided such opinion.



|                                      |                                                   
|------------------------------------- | --------------------------------------------------
|                                      |                                                   
|Andy J. Mah                           | Craig Blackwood                                   
|President and Chief Executive Officer | Vice President Finance and Chief Financial Officer
|March 25, 2015                        |                                                   



Advantage Oil & Gas Ltd. - 2











March 25, 2015



Independent Auditor’s Report



To the Shareholders of Advantage Oil & Gas Ltd.



We have completed integrated audits of Advantage Oil & Gas
Ltd.’s 2014 and 2013 consolidated financial statements and its internal control over financial reporting as at December 31,
2014. Our opinions, based on our audits are presented below.



Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements
of Advantage Oil & Gas Ltd., which comprise the consolidated statement of financial position as at December 31, 2014 and December
31, 2013 and the consolidated statements of comprehensive income (loss), changes in shareholders’ equity, and cash flows
for the years then ended, and the related notes, which comprise 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.



Auditor’s 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 plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
Canadian generally accepted auditing standards also require that we comply with ethical requirements.



An audit involves performing procedures to obtain audit evidence,
on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on
the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’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 principles and 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 on the consolidated financial statements.



Advantage Oil & Gas Ltd. - 3











Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Advantage Oil & Gas Ltd. as at December 31, 2014 and December 31,
2013 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.



Report on internal control over financial reporting

We have also audited Advantage Oil & Gas Ltd.’s internal
control over financial reporting as at December 31, 2014, based on criteria established in Internal Control - Integrated Framework
(2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).



Management’s responsibility for internal control over
financial reporting

Management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included
in the accompanying Management’s Report on Internal Control over Financial Reporting.



Auditor’s responsibility

Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting
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.



An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other
procedures as we consider necessary in the circumstances.



We believe that our audit provides a reasonable basis for our
audit opinion on the company’s internal control over financial reporting.



Definition of internal control over financial reporting

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: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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.



Advantage Oil & Gas Ltd. - 4











Inherent limitations

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.



Opinion

In our opinion, Advantage Oil & Gas Ltd. maintained, in
all material respects, effective internal control over financial reporting as at December 31, 2014, based on criteria established
in Internal Control - Integrated Framework (2013) issued by COSO.







Chartered Accountants



Advantage Oil & Gas Ltd. - 5







|Consolidated Statement of Financial Position                      |  |       |  |                   |            |   |                   |  
|----------------------------------------------------------------- |  | ----- |  | ----------------- | ---------- | - | ----------------- | -
|(thousands of Canadian dollars)                                   |  | Notes |  | December 31, 2014 |            |   | December 31, 2013 |  
|                                                                  |  |       |  |                   |            |   |                   |  
|ASSETS                                                            |  |       |  |                   |            |   |                   |  
|Current assets                                                    |  |       |  |                   |            |   |                   |  
|Trade and other receivables                                       |  | 5     |  | $                 | 21,974     |   |                   | $
|Prepaid expenses and deposits                                     |  |       |  |                   | 2,503      |   |                   |  
|Derivative asset                                                  |  | 10    |  |                   | 31,595     |   |                   |  
|Total current assets                                              |  |       |  |                   | 56,072     |   |                   |  
|                                                                  |  |       |  |                   |            |   |                   |  
|Non-current assets                                                |  |       |  |                   |            |   |                   |  
|Derivative asset                                                  |  | 10    |  |                   | 14,961     |   |                   |  
|Investments                                                       |  | 6     |  |                   | -          |   |                   |  
|Exploration and evaluation assets                                 |  | 7     |  |                   | 9,803      |   |                   |  
|Property, plant and equipment                                     |  | 8     |  |                   | 1,373,931  |   |                   |  
|Deferred income tax asset                                         |  | 14    |  |                   | -          |   |                   |  
|Total non-current assets                                          |  |       |  |                   | 1,398,695  |   |                   |  
|Total assets                                                      |  |       |  | $                 | 1,454,767  |   |                   | $
|                                                                  |  |       |  |                   |            |   |                   |  
|LIABILITIES                                                       |  |       |  |                   |            |   |                   |  
|Current liabilities                                               |  |       |  |                   |            |   |                   |  
|Trade and other accrued liabilities                               |  |       |  | $                 | 81,741     |   |                   | $
|Derivative liability                                              |  | 10    |  |                   | -          |   |                   |  
|Convertible debenture                                             |  | 12    |  |                   | 85,941     |   |                   |  
|Total current liabilities                                         |  |       |  |                   | 167,682    |   |                   |  
|                                                                  |  |       |  |                   |            |   |                   |  
|Non-current liabilities                                           |  |       |  |                   |            |   |                   |  
|Derivative liability                                              |  | 10    |  |                   | -          |   |                   |  
|Performance incentive plan                                        |  | 17(b) |  |                   | 512        |   |                   |  
|Bank indebtedness                                                 |  | 11    |  |                   | 109,970    |   |                   |  
|Convertible debenture                                             |  | 12    |  |                   | -          |   |                   |  
|Decommissioning liability                                         |  | 13    |  |                   | 48,878     |   |                   |  
|Deferred income tax liability                                     |  | 14    |  |                   | 33,399     |   |                   |  
|Total non-current liabilities                                     |  |       |  |                   | 192,759    |   |                   |  
|Total liabilities                                                 |  |       |  |                   | 360,441    |   |                   |  
|                                                                  |  |       |  |                   |            |   |                   |  
|SHAREHOLDERS' EQUITY                                              |  |       |  |                   |            |   |                   |  
|Share capital                                                     |  | 15    |  |                   | 2,234,959  |   |                   |  
|Convertible debenture equity component                            |  | 12    |  |                   | 8,348      |   |                   |  
|Contributed surplus                                               |  |       |  |                   | 90,904     |   |                   |  
|Deficit                                                           |  |       |  |                   | (1,239,885 | ) |                   |  
|Total shareholders' equity attributable to Advantage shareholders |  |       |  |                   | 1,094,326  |   |                   |  
|Non-controlling interest                                          |  |       |  |                   | -          |   |                   |  
|Total shareholders' equity                                        |  |       |  |                   | 1,094,326  |   |                   |  
|Total liabilities and shareholders' equity                        |  |       |  | $                 | 1,454,767  |   |                   | $



Commitments(note 23)

See accompanying Notes to the Consolidated Financial Statements



On behalf of the Board of Directors of Advantage Oil & Gas
Ltd.:



|                         |  |                       | 
|------------------------ |  | --------------------- | 
|Paul G. Haggis, Director |  | Andy J. Mah, Director | 



Advantage Oil & Gas Ltd. - 6







Consolidated Statement of Comprehensive Income (Loss)



|                                                                             |  |       |  | Year ended  |        
|---------------------------------------------------------------------------- |  | ----- |  | ----------- | -------
|                                                                             |  |       |  | December 31 |        
|(thousands of Canadian dollars, except for per share amounts)                |  | Notes |  | 2014        |        
|                                                                             |  |       |  |             |        
|Continuing operations                                                        |  |       |  |             |        
|Natural gas and liquids sales                                                |  | 18    |  | $           | 215,653
|Less: royalties                                                              |  |       |  |             | (10,076
|Natural gas and liquids revenue                                              |  |       |  |             | 205,577
|                                                                             |  |       |  |             |        
|Operating expense                                                            |  |       |  |             | (15,412
|General and administrative expense                                           |  | 19    |  |             | (9,579 
|Depreciation expense                                                         |  | 8     |  |             | (85,460
|Exploration and evaluation expense                                           |  | 7     |  |             | (53    
|Finance expense                                                              |  | 20    |  |             | (14,792
|Gains (losses) on derivatives                                                |  | 10    |  |             | 35,236 
|Other income (expenses)                                                      |  | 21    |  |             | (10,527
|Income (loss) before taxes from continuing operations                        |  |       |  |             | 104,990
|Income tax recovery (expense)                                                |  | 14    |  |             | (30,393
|Net income (loss) and comprehensive income (loss) from continuing operations |  |       |  |             | 74,597 
|                                                                             |  |       |  |             |        
|Discontinued operations                                                      |  |       |  |             |        
|Net income (loss) from discontinued operations                               |  | 24    |  |             | (58,894
|Net income (loss) and comprehensive income (loss)                            |  |       |  | $           | 15,703 
|                                                                             |  |       |  |             |        
|Net income (loss) per share                                                  |  | 16    |  |             |        
|Basic and diluted - from continuing operations                               |  |       |  | $           | 0.44   
|Basic and diluted - from discontinued operations                             |  |       |  |             | (0.35  
|Basic and diluted                                                            |  |       |  | $           | 0.09   



See accompanying Notes to the Consolidated Financial Statements



Advantage Oil & Gas Ltd. - 7







Consolidated Statement of Changes in Shareholders' Equity



|(thousands of Canadian dollars)                               |  | Notes  |  | Share
    capital |           |  | Convertible
    debenture equity component |   |       | Contributed
    surplus |  |   | Deficit |   |  | Total
    shareholders' equity attributable to Advantage shareholders |            |   | Non-
    controlling interest |   |           | Total
    shareholders' equity | 
|------------------------------------------------------------- |  | ------ |  | ----------------- | --------- |  | ------------------------------------------ | - | ----- | ----------------------- |  | - | ------- | - |  | --------------------------------------------------------------------- | ---------- | - | ----------------------------- | - | --------- | ------------------------------ | 
|                                                              |  |        |  |                   |           |  |                                            |   |       |                         |  |   |         |   |  |                                                                       |            |   |                               |   |           |                                | 
|Balance, December 31, 2013                                    |  |        |  | $                 | 2,229,598 |  |                                            | $ | 8,348 |                         |  | $ | 92,276  |   |  | $                                                                     | (1,255,588 | ) |                               | $ | 1,074,634 |                                | 
|Net income (loss) and comprehensive income (loss)             |  |        |  |                   |           |  |                                            |   |       |                         |  |   |         |   |  |                                                                       | 15,703     |   |                               |   | 15,703    |                                | 
|Share based compensation                                      |  | 15, 17 |  |                   | 5,361     |  |                                            |   | -     |                         |  |   | (1,372  | ) |  |                                                                       | -          |   |                               |   | 3,989     |                                | 
|Change in ownership interest, share based compensation        |  |        |  |                   | -         |  |                                            |   | -     |                         |  |   | -       |   |  |                                                                       | -          |   |                               |   | -         |                                | 
|Dividends declared by Longview ($0.04 per Longview share)     |  |        |  |                   | -         |  |                                            |   | -     |                         |  |   | -       |   |  |                                                                       | -          |   |                               |   | -         |                                | 
|Disposition of Longview                                       |  | 3b, 24 |  |                   | -         |  |                                            |   | -     |                         |  |   | -       |   |  |                                                                       | -          |   |                               |   | -         |                                | 
|Balance, December 31, 2014                                    |  |        |  | $                 | 2,234,959 |  |                                            | $ | 8,348 |                         |  | $ | 90,904  |   |  | $                                                                     | (1,239,885 | ) |                               | $ | 1,094,326 |                                | 
|                                                              |  |        |  |                   |           |  |                                            |   |       |                         |  |   |         |   |  |                                                                       |            |   |                               |   |           |                                | 
|Balance, December 31, 2012                                    |  |        |  | $                 | 2,229,598 |  |                                            | $ | 8,348 |                         |  | $ | 84,962  |   |  | $                                                                     | (1,252,206 | ) |                               | $ | 1,070,702 |                                | 
|Net loss and comprehensive loss                               |  |        |  |                   | -         |  |                                            |   | -     |                         |  |   | -       |   |  |                                                                       | (3,382     | ) |                               |   | (3,382    | )                              | 
|Share based compensation                                      |  | 15, 17 |  |                   | -         |  |                                            |   | -     |                         |  |   | 7,314   |   |  |                                                                       | -          |   |                               |   | 7,314     |                                | 
|Change in ownership interest, share based compensation        |  |        |  |                   | -         |  |                                            |   | -     |                         |  |   | -       |   |  |                                                                       | -          |   |                               |   | -         |                                | 
|Dividends declared by Longview ($0.59 per Longview
    share) |  |        |  |                   | -         |  |                                            |   | -     |                         |  |   | -       |   |  |                                                                       | -          |   |                               |   | -         |                                | 
|Balance, December 31, 2013                                    |  |        |  | $                 | 2,229,598 |  |                                            | $ | 8,348 |                         |  | $ | 92,276  |   |  | $                                                                     | (1,255,588 | ) |                               | $ | 1,074,634 |                                | 



See accompanying Notes to the Consolidated Financial Statements



Advantage Oil & Gas Ltd. - 8









Consolidated Statement of Cash Flows





|                                                                          |  |        |  | Year ended  |         
|------------------------------------------------------------------------- |  | ------ |  | ----------- | --------
|                                                                          |  |        |  | December 31 |         
|(thousands of Canadian dollars)                                           |  | Notes  |  | 2014        |         
|                                                                          |  |        |  |             |         
|Operating Activities                                                      |  |        |  |             |         
|Income (loss) before taxes from continuing operations                     |  |        |  | $           | 104,990 
|Add (deduct) items not requiring cash:                                    |  |        |  |             |         
|Share based compensation                                                  |  | 15, 17 |  |             | 2,153   
|Depreciation expense                                                      |  | 8      |  |             | 85,460  
|Exploration and evaluation expense                                        |  | 7      |  |             | 53      
|Unrealized loss (gain) on derivatives                                     |  | 10     |  |             | (47,786 
|Loss on sale of assets                                                    |  | 21     |  |             | 1,489   
|Accretion income - Questfire Debenture                                    |  | 6, 21  |  |             | (557    
|Loss on disposition of Questfire Debenture                                |  | 6      |  |             | 13,833  
|Unrealized loss (gain) - Questfire Class B Shares                         |  | 6      |  |             | (150    
|Finance expense                                                           |  | 20     |  |             | 14,792  
|Expenditures on decommissioning liability                                 |  | 13     |  |             | (446    
|Changes in non-cash working capital                                       |  | 22     |  |             | (3,924  
|Cash provided by operating activities - continuing operations             |  |        |  |             | 169,907 
|Cash provided by operating activities - discontinued operations           |  | 24     |  |             | 12,434  
|Cash provided by operating activities                                     |  |        |  |             | 182,341 
|                                                                          |  |        |  |             |         
|Financing Activities                                                      |  |        |  |             |         
|Decrease in bank indebtedness                                             |  | 11     |  |             | (44,038 
|Interest paid                                                             |  |        |  |             | (9,956  
|Cash used in financing activities - continuing operations                 |  |        |  |             | (53,994 
|Cash provided by (used in) financing activities - discontinued operations |  | 24     |  |             | 435     
|Cash used in financing activities                                         |  |        |  |             | (53,559 
|                                                                          |  |        |  |             |         
|Investing Activities                                                      |  |        |  |             |         
|Expenditures on property, plant and equipment                             |  | 8, 22  |  |             | (221,810
|Expenditures on exploration and evaluation assets                         |  | 7      |  |             | (3,237  
|Disposition of investments                                                |  | 6      |  |             | 17,500  
|Property dispositions                                                     |  |        |  |             | (211    
|Cash used in investing activities - continuing operations                 |  |        |  |             | (207,758
|Cash provided by (used in) investing activities - discontinued operations |  | 24     |  |             | 78,976  
|Cash used in investing activities                                         |  |        |  |             | (128,782
|Net change in cash                                                        |  |        |  |             | -       
|Cash, beginning of year                                                   |  |        |  |             | -       
|Cash, end of year                                                         |  |        |  | $           | -       





See accompanying Notes to the Consolidated Financial Statements



Advantage Oil & Gas Ltd. - 9







Notes
to The Consolidated Financial Statements



For the years ended December 31, 2014 and
2013



All tabular amounts are in thousands of
Canadian dollars except as otherwise indicated.



| | 1. | Business and structure of Advantage Oil & Gas Ltd.
| | -- | --------------------------------------------------



Advantage Oil & Gas Ltd.
and its subsidiaries (together “Advantage” or the “Corporation”) is an intermediate natural gas and liquids
development and production corporation with a significant position in the Montney resource play located in Western Canada.



Advantage is domiciled and incorporated
in Canada under the Business Corporations Act (Alberta). Advantage’s head office address is 300, 440 – 2nd
Avenue SW, Calgary, Alberta, Canada. The Corporation’s primary listing is on the Toronto Stock Exchange and is also traded
on the New York Stock Exchange as a Foreign Private Issuer, under the symbol “AAV”.



| | 2. | Basis of preparation
| | -- | --------------------



| | (a) | Statement of compliance
| | --- | -----------------------



The Corporation prepares its
consolidated financial statements in accordance with Canadian generally accepted accounting principles (“GAAP”) as
defined in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”). The CICA Handbook incorporates
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Publicly
accountable enterprises, such as the Corporation, are required to apply these standards. Accordingly, these consolidated financial
statements are prepared and issued under IFRS.



The accounting policies applied
in these consolidated financial statements are based on IFRS issued and outstanding as of March 25, 2015, the date the Board of
Directors approved the statements.



| | (b) | Basis of measurement
| | --- | --------------------



The consolidated financial statements
have been prepared on the historical cost basis, except as detailed in the Corporation’s accounting policies in note 3.



The methods used to measure fair
values of derivative instruments are discussed in note 10.



| | (c) | Functional and presentation currency
| | --- | ------------------------------------



These consolidated financial
statements are presented in Canadian dollars, which is the Corporation’s functional currency.



| | 3. | Significant accounting policies
| | -- | -------------------------------



The accounting
policies set out below have been applied consistently to all years presented in these financial statements.



| | (a) | Cash and cash equivalents
| | --- | -------------------------



Cash consists of balances held
with banks, and other short-term highly liquid investments with original maturities of three months or less from inception.



Advantage Oil & Gas Ltd. - 10







| | 3. | Significant accounting policies (continued)
| | -- | -------------------------------------------



| | (b) | Basis of consolidation
| | --- | ----------------------



| | (i) | Subsidiaries
| | --- | ------------



Subsidiaries are entities controlled
by the Corporation. Control exists when the Corporation is exposed, or has rights to variable returns from its involvement with
the entity and has the ability to affect those returns through its power over the entity. In assessing control, potential voting
rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases. The only significant operating subsidiary
was Longview Oil Corp. (“Longview”), a public Canadian corporation that was a junior oil-focused development and production
company with properties located in Western Canada. At December 31, 2013, Advantage owned 45.1% of the common shares of Longview.
Because the remaining ownership was dispersed, Advantage was considered to control Longview. Therefore, Longview was accounted
for on a consolidated basis in these financial statements. The remaining 54.9% ownership was disclosed as non-controlling interest.
All inter-corporate balances, income and expenses resulting from inter-corporate transactions were eliminated.



On February 28, 2014, the Corporation
closed an offering (the “Offering”) to sell the 21.15 million Longview common shares for net proceeds of $90.2 million.
The results of operations of Longview from January 1, 2014 to February 28, 2014 are consolidated into the results of operations
of the Corporation. Because Longview was an operating segment, its results are presented as “discontinued operations”
for the periods January 1, 2014 to February 28, 2014 and the year ended December 31, 2013 as required by IFRS 5, non-current
assets held for sale and discontinued operations (see note 24). On February 28, 2014, Advantage derecognized all assets,
liabilities and the non-controlling interest of Longview from the consolidated statement of financial position as it had lost control
of Longview as defined in IFRS 10, consolidated financial statements.



| | (ii) | Joint arrangements
| | ---- | ------------------



A significant portion of the
Corporation’s natural gas and liquids activities involve joint operations. The consolidated financial statements include
the Corporation’s share of these joint operations and a proportionate share of the relevant revenue and related costs.



| | (c) | Financial instruments
| | --- | ---------------------



All
financial instruments are initially recognized at fair value on the Consolidated Statement of Financial Position. Measurement of
financial instruments subsequent to the initial recognition, as well as resulting gains and losses, is based on how each financial
instrument was initially classified. The Corporation has classified each identified financial instrument into the following categories:
fair value through profit or loss, loans and receivables, held to maturity investments, available for sale financial assets, and
financial assets and liabilities at amortized cost. Fair value through profit or loss financial instruments are measured at fair
value with gains and losses recognized in income immediately. Available for sale financial assets are measured at fair value with
gains and losses, other than impairment losses, recognized in other comprehensive income and transferred to income when the asset
is derecognized. Loans and receivables, held to maturity investments and financial liabilities at amortized cost, are recognized
at amortized cost using the effective interest method and impairment losses are recorded in income when incurred.



Derivative instruments executed
by the Corporation to manage market risk associated with volatile commodity prices are classified as fair value through profit
or loss and recorded on the Consolidated Statement of Financial Position at fair value as derivative assets and liabilities. Gains
and losses on these instruments are recorded as gains and losses on derivatives in the Consolidated Statement of Comprehensive
Income (Loss) in the period they occur. Gains and losses on derivative instruments are comprised of cash receipts and payments
associated with periodic settlement that occurs over the life of the instrument, and non-cash gains and losses associated with
changes in the fair values of the instruments, which are remeasured at each reporting date and recorded on the Consolidated Statement
of Financial Position.



On April 30, 2013, Advantage
completed the sale of substantially all non-core assets. Proceeds received consisted of cash and non-cash consideration. The Questfire
Class B Shares were classified as financial assets at fair value through profit or loss. The Questfire Debenture was classified
as a financial asset at amortized cost. Questfire repurchased these assets by way of agreement on March 26, 2014, and their balance
is $Nil at December 31, 2014. (see note 6).

Advantage Oil & Gas Ltd. - 11







| | 3. | Significant accounting policies (continued)
| | -- | -------------------------------------------



| | (d) | Property, plant and equipment and exploration and evaluation assets
| | --- | -------------------------------------------------------------------



| | (i) | Recognition and measurement
| | --- | ---------------------------



Exploration and evaluation
costs



Pre-license costs are recognized
in the Consolidated Statement of Comprehensive Income (Loss) as incurred.



All exploratory costs incurred
subsequent to acquiring the right to explore for natural gas and liquids before technical feasibility and commercial viability
of the area have been established are capitalized. Such costs can typically include costs to acquire land rights, geological and
geophysical costs and exploration well costs.



Exploration and evaluation costs
are not depreciated and are accumulated in cost centers by well, field or exploration area and carried forward pending determination
of technical feasibility and commercial viability.



The technical feasibility and
commercial viability of extracting a mineral resource from exploration and evaluation assets is considered to be generally determinable
when proved or probable reserves are determined to exist. Upon determination of proved or probable reserves, exploration and evaluation
assets attributable to those reserves are first tested for impairment and then reclassified from exploration and evaluation assets
to development and production assets, net of any impairment loss.



Management reviews and assesses
exploration and evaluation assets to determine if technical feasibility and commercial viability exist. If Management decides not
to continue the exploration and evaluation activity, the unrecoverable costs are charged to exploration and evaluation expense
in the period in which the determination occurs.



Development and production
costs



Items of property, plant and
equipment, which include natural gas and liquids properties, are measured at cost less accumulated depreciation and accumulated
impairment losses. Costs include lease acquisition, drilling and completion, production facilities, decommissioning costs, geological
and geophysical costs and directly attributable general and administrative costs related to development and production activities,
net of any government incentive programs.



When significant parts of an
item of property, plant and equipment, including natural gas and liquids properties, have different useful lives, they are accounted
for as separate items (major components).



| | (ii) | Subsequent costs
| | ---- | ----------------



Costs incurred subsequent to
development and production that are significant are recognized as natural gas and liquids property only when they increase the
future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in comprehensive
income as incurred. Such capitalized natural gas and liquids costs generally represent costs incurred in developing proved and
probable reserves and bringing in or enhancing production from such reserves, and are accumulated on a field or area basis. The
carrying amount of any replaced or sold component is derecognized in accordance with our policies. The costs of the day-to-day
servicing of property, plant and equipment are recognized in the Consolidated Statement of Comprehensive Income (Loss) as incurred.



| | (iii) | Depreciation
| | ----- | ------------



The net carrying value of natural
gas and liquids properties is depreciated using the units-of-production (“UOP”) method by reference to the ratio of
production in the period to the related proved and probable reserves, taking into account estimated future development costs necessary
to bring those reserves into production. Future development costs are estimated taking into account the level of development required
to produce the reserves. These estimates are reviewed by independent reserve engineers at least annually.



Advantage Oil & Gas Ltd. - 12







| | 3. | Significant accounting policies (continued)
| | -- | -------------------------------------------



| | (d) | Property, plant and equipment and exploration and evaluation assets (continued)
| | --- | -------------------------------------------------------------------------------



| | (iv) | Dispositions
| | ---- | ------------



Gains and losses on disposal
of an item of property, plant and equipment, including natural gas and liquids properties, are determined by comparing the proceeds
from disposition with the carrying amount of property, plant and equipment and are recognized net within other income (expenses)
in the Consolidated Statement of Comprehensive Income (Loss).



| | (v) | Impairment
| | --- | ----------



The carrying amounts of the
Corporation’s property, plant and equipment are reviewed at each reporting date to determine whether there is any indication
of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For the purpose of impairment
testing of property, plant and equipment, assets are grouped together into the smallest group of assets that generates cash inflows
from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating
unit” or “CGU”).



Exploration and evaluation assets
are assessed for impairment if sufficient data exists to determine technical feasibility and commercial viability, and facts and
circumstances suggest that the carrying amount exceeds the recoverable amount. Exploration and evaluation assets are allocated
to CGU’s or groups of CGU’s for the purposes of assessing such assets for impairment.



The recoverable amount of an
asset or a CGU is the greater of its value in use and its fair value less costs of disposition. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. Value in use is generally computed by reference to the present
value of the future cash flows expected to be derived from production of proved and probable reserves. Fair value less costs of
disposition is assessed utilizing market valuation based on an arm’s length transaction between active participants. In the
absence of any such transactions, fair value less costs of disposition is estimated by discounting the expected after-tax cash
flows of the cash generating unit at an after-tax discount rate that reflects the risk of the properties in the cash generating
unit. The discounted cash flow calculation is then increased by a tax-shield calculation, which is an estimate of the amount that
a prospective buyer of the cash generating unit would be entitled. The carrying value of the cash generating unit is reduced by
the deferred tax liability associated with its property, plant and equipment.



Impairment losses on property,
plant and equipment are recognized in the Consolidated Statement of Comprehensive Income (Loss) as impairment of natural gas and
liquids properties and are separately disclosed. An impairment of exploration and evaluation assets is recognized as exploration
and evaluation expense in the Consolidated Statement of Comprehensive Income (Loss).



| | (e) | Decommissioning liability
| | --- | -------------------------



A decommissioning liability is
recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Decommissioning liabilities
are determined by discounting the expected future cash flows at a risk-free rate.



Advantage Oil & Gas Ltd. - 13







| | 3. | Significant accounting policies (continued)
| | -- | -------------------------------------------



| | (f) | Share based compensation
| | --- | ------------------------



Advantage accounts for share
based compensation expense based on the fair value of rights granted under its share based compensation plans.



Advantage’s Stock Option
Plan (“Stock Option Plan”) authorizes the Board of Directors to grant stock options to service providers, including
directors, officers, employees and consultants of Advantage. Compensation cost related to the Stock Option Plan is recognized as
share based compensation expense within general and administrative expense over the vesting period at fair value.



On April 14, 2014, the Board
of Directors approved a Restricted and Performance Award Incentive Plan to provide share based compensation for service providers.
Awards granted under this plan are presently expected to be settled in cash, as the Corporation has not sought the approval of
shareholders required to settle the awards in shares. In accordance with the requirements of IFRS 2, Share Based Payments,
a liability is recorded as compensation expense is recognized. The liability is revalued at each reporting date and at the date
of settlement. These changes in fair value are recognized in profit or loss for the period. The types and timing of awards under
this plan are described in further detail in note 0.



As compensation expense is recognized,
contributed surplus is recorded until the restricted shares vest or stock options are exercised, at which time the appropriate
common shares are then issued to the service providers and the contributed surplus is transferred to share capital.



| | (g) | Revenue
| | --- | -------



Revenue from the sale of natural
gas and liquids is recorded when the significant risks and rewards of ownership of the product is substantially transferred to
the buyer.



| | (h) | Finance expense
| | --- | ---------------



Finance expense comprises interest
expense on bank indebtedness and the convertible debenture, and accretion of the discount on the decommissioning liability and
convertible debenture.



| | (i) | Income tax
| | --- | ----------



Income tax expense or recovery
comprises current and deferred income tax. Income tax expense or recovery is recognized in income or loss except to the extent
that it relates to items recognized directly in shareholders’ equity.



Current income tax is the expected
tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any
adjustment to income tax payable in respect of previous years.



Deferred income tax is recognized
using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred income tax is not recognized on the initial recognition
of assets or liabilities in a transaction that is not a business combination, and at the time of the transaction, affects neither
accounting income nor taxable income. Deferred income tax is measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.



A deferred income tax asset is
recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference
can be utilized. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized. Deferred income tax assets and liabilities are only offset when they are
within the same legal entity and same tax jurisdiction. Deferred income tax assets and liabilities are presented as non-current.



| | (j) | Net income (loss) per share
| | --- | ---------------------------



Basic net income (loss) per share
is calculated by dividing the net income (loss) attributable to common shareholders of the Corporation by the weighted average
number of common shares outstanding during the period. Diluted net income (loss) per share is determined by adjusting the net income
(loss) attributable to common shareholders and the weighted average number of common shares outstanding for the effects of dilutive
instruments such as restricted shares and stock options granted to service providers and convertible debentures, using the treasury
stock method.



Advantage Oil & Gas Ltd. - 14







| | 4. | Significant accounting judgments, estimates and assumptions
| | -- | -----------------------------------------------------------



The preparation of consolidated
financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates, and differences could be material. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected. Significant
estimates and judgments made in the preparation of the consolidated financial statements are outlined below.



| | (a) | Reserves base
| | --- | -------------



The natural gas and liquids development
and production properties are depreciated on a units-of-production (“UOP”) basis at a rate calculated by reference
to proved and probable reserves determined in accordance with National Instrument 51-101 “Standards of Disclosure for Oil
and Gas Activities” and incorporating the estimated future cost of developing and extracting those reserves. Proved plus
probable reserves are determined using estimates of natural gas and liquids in place, recovery factors and future natural gas and
liquids prices. Future development costs are estimated using assumptions as to number of wells required to produce the reserves,
the cost of such wells and associated production facilities and other capital costs.



| | (b) | Determination of cash generating unit
| | --- | -------------------------------------



Management has determined there
to be a single cash generating unit (“Glacier”) on the basis of its ability to generate independent cash flows, similar
reserve characteristics, geographical location, and shared infrastructure, namely a single processing plant owned by Advantage.



| | (c) | Impairment indicators and calculation of impairment
| | --- | ---------------------------------------------------



At each reporting date, Advantage
assesses whether or not there are circumstances that indicate a possibility that the carrying values of exploration and evaluation
assets and property, plant and equipment are not recoverable, or impaired. Such circumstances include incidents of physical damage,
deterioration of commodity prices, changes in the regulatory environment, or a reduction in estimates of proved and probable reserves.



When management judges that circumstances
indicate potential impairment, property, plant and equipment are tested for impairment by comparing the carrying values to their
recoverable amounts. The recoverable amounts of cash generating units are determined based on the higher of value-in-use calculations
and fair values less costs of disposition. These calculations require the use of estimates and assumptions, that are subject to
change as new information becomes available including information on future commodity prices, expected production volumes, quantities
of reserves, discount rates, future development costs and operating costs (note 7 & 8).



| | (d) | Decommissioning liability
| | --- | -------------------------



Decommissioning costs will be
incurred by the Corporation at the end of the operating life of some of the Corporation’s facilities and properties. The
ultimate decommissioning liability is uncertain and can vary in response to many factors including changes to relevant legal requirements,
the emergence of new restoration techniques, experience at other production sites, or changes in the risk-free discount rate. The
expected timing and amount of expenditure can also change in response to changes in reserves or changes in laws and regulations
or their interpretation. As a result, there could be significant adjustments to the provisions established which would affect future
financial results.



| | (e) | Income taxes
| | --- | ------------



Income tax laws and regulations
are subject to change. Deferred tax liabilities that arise from temporary differences between recorded amounts on the statement
of financial position and their respective tax bases will be payable in future periods. The amount of a deferred tax liability
is subject to management’s best estimate of when a temporary difference will reverse and expected changes in income tax rates.
These estimates by nature involve significant measurement uncertainty.



Advantage Oil & Gas Ltd. - 15







| | 5. | Trade and other receivables
| | -- | ---------------------------



|                                        |  | December 31, 2014 |        |  | December 31, 2013 |  
|--------------------------------------- |  | ----------------- | ------ |  | ----------------- | -
|Trade receivables                       |  | $                 | 19,607 |  |                   | $
|Receivables from joint venture partners |  |                   | 1,386  |  |                   |  
|Other                                   |  |                   | 981    |  |                   |  
|                                        |  | $                 | 21,974 |  |                   | $



| | 6. | Investments
| | -- | -----------



|                                               |  | December 31, 2014 |   |  | December 31, 2013 |  
|---------------------------------------------- |  | ----------------- | - |  | ----------------- | -
|Questfire Class B Shares                       |  | $                 | - |  |                   | $
|Questfire Convertible Senior Secured Debenture |  |                   | - |  |                   |  
|                                               |  | $                 | - |  |                   | $



On March 26, 2014, Advantage
entered into agreements whereby Questfire purchased both the Class B Shares and the Convertible Senior Secured Debenture for proceeds
of $3.9 million and $13.6 million, respectively.



| | 7. | Exploration and evaluation assets
| | -- | ---------------------------------



|Balance at December 31, 2012                          |  | $ | 2,381  |  
|----------------------------------------------------- |  | - | ------ | -
|Additions                                             |  |   | 6,977  |  
|Exploration and evaluation expense                    |  |   | (195   | )
|Transferred to property, plant and equipment (note 8) |  |   | (146   | )
|Transferred from assets held for sale                 |  |   | 1,253  |  
|Balance at December 31, 2013                          |  | $ | 10,270 |  
|Additions                                             |  |   | 3,237  |  
|Disposition of Longview (notes 3b and 24)             |  |   | (2,335 | )
|Exploration and evaluation expense                    |  |   | (53    | )
|Transferred to property, plant and equipment (note 8) |  |   | (1,316 | )
|Balance at December 31, 2014                          |  | $ | 9,803  |  



Advantage Oil & Gas Ltd. - 16







| | 8. | Property, plant and equipment
| | -- | -----------------------------



|Cost                                                        |  | Natural gas and
    liquids properties |           |   | Furniture
 and equipment |   |       | Total      | 
|----------------------------------------------------------- |  | -------------------------------------- | --------- | - | ------------------------ | - | ----- | ---------- | 
|Balance at December 31, 2012                                |  | $1,952,063                             |           |   | $5,240                   |   |       | $1,957,303 | 
|Additions                                                   |  |                                        | 188,451   |   |                          |   | -     |            | 
|Change in decommissioning liability (note 13)               |  |                                        | (30,387   | ) |                          |   | -     |            | 
|Disposals                                                   |  |                                        | (5,876    | ) |                          |   | -     |            | 
|Transferred from exploration and evaluation assets (note 7) |  |                                        | 146       |   |                          |   | -     |            | 
|Balance at December 31, 2013                                |  | $                                      | 2,104,397 |   |                          | $ | 5,240 |            | 
|Additions                                                   |  |                                        | 252,556   |   |                          |   | -     |            | 
|Change in decommissioning liability (note 13)               |  |                                        | 19,938    |   |                          |   | -     |            | 
|Disposition of Longview (notes 3b and 24)                   |  |                                        | (664,090  | ) |                          |   | -     |            | 
|Transferred from exploration and evaluation assets (note 7) |  |                                        | 1,316     |   |                          |   | -     |            | 
|Balance at December 31, 2014                                |  | $                                      | 1,714,117 |   |                          | $ | 5,240 |            | 



|Accumulated depreciation                  |  | Natural gas and liquids properties |          |   | Furniture and equipment |   |       | Total | 
|----------------------------------------- |  | ---------------------------------- | -------- | - | ----------------------- | - | ----- | ----- | 
|Balance at December 31, 2012              |  | $                                  | 349,092  |   |                         | $ | 2,552 |       | 
|Depreciation                              |  |                                    | 110,650  |   |                         |   | 538   |       | 
|Disposals                                 |  |                                    | (629     | ) |                         |   | -     |       | 
|Balance at December 31, 2013              |  | $                                  | 459,113  |   |                         | $ | 3,090 |       | 
|Depreciation                              |  |                                    | 91,168   |   |                         |   | 430   |       | 
|Disposition of Longview (notes 3b and 24) |  |                                    | (208,375 | ) |                         |   | -     |       | 
|Balance at December 31, 2014              |  | $                                  | 341,906  |   |                         | $ | 3,520 |       | 



|Net book value       |  | Natural gas and liquids properties |           |  | Furniture and equipment |   |       | Total | 
|-------------------- |  | ---------------------------------- | --------- |  | ----------------------- | - | ----- | ----- | 
|At December 31, 2013 |  | $                                  | 1,645,284 |  |                         | $ | 2,150 |       | 
|At December 31, 2014 |  | $                                  | 1,372,211 |  |                         | $ | 1,720 |       | 



During the year ended December
31, 2014, Advantage capitalized general and administrative expenditures directly related to development activities of $7.5 million
(December 31, 2013 - $11.7 million).



Advantage included future development
costs of $1.7 billion (December 31, 2013 – $2.1 billion) in property, plant and equipment costs subject to depreciation.



| | 9. | Related party transactions
| | -- | --------------------------



Transactions between Advantage
and Longview



Up until February 28, 2014,
Advantage and Longview were bound by a Technical Services Agreement (“TSA”). Under the TSA, Advantage provided the
necessary personnel and technical services to manage Longview’s business and Longview reimbursed Advantage on a monthly basis
for its share of administrative charges based on respective levels of production. All amounts paid were recorded as general and
administrative expenses and measured at the fair value, which was the amount agreed upon by the transacting parties.



Advantage charged Longview $0.1
million during the period from January 1, 2014 to February 28, 2014 (year ended December 31, 2013 - $5.2 million) under the TSA.
Dividends declared and paid or payable from Longview to Advantage during the period from January 1, 2014 to February 28, 2014 totaled
$0.8 million (year ended December 31, 2013 - $12.5 million). All amounts due to Advantage from Longview were non-interest bearing
in nature, and were incurred within the normal course of business. Upon closing of the Offering (note 3(b)), the TSA was terminated,
and all intercompany balances were settled.



Advantage Oil & Gas Ltd. - 17







| | 9. | Related party transactions (continued)
| | -- | --------------------------------------



Key management compensation



The compensation paid or payable
to officers and directors is as follows:



|                                                |  | December 31, 2014 |       |  | December 31, 2013 |  
|----------------------------------------------- |  | ----------------- | ----- |  | ----------------- | -
|Salaries, director fees and short-term benefits |  | $                 | 2,297 |  |                   | $
|Share based compensation(1)                     |  |                   | 2,669 |  |                   |  
|                                                |  | $                 | 4,966 |  |                   | $



(1) Represents the grant date
fair value of restricted shares and stock options granted for the respective years.



As at December 31, 2014, there
is a $2.3 million commitment (December 31, 2013 - $1.9 million) related to change of control or termination of employment of officers.



| | 10. | Financial risk management
| | --- | -------------------------



Financial instruments of the
Corporation include trade and other receivables, deposits, trade and other accrued liabilities, bank indebtedness, convertible
debenture, derivative assets and liabilities, and performance incentive plan liability.



Trade and other receivables
and deposits are classified as loans and receivables and measured at amortized cost. Trade and other accrued liabilities and bank
indebtedness are all classified as financial liabilities at amortized cost. As at December 31, 2014, there were no significant
differences between the carrying amounts reported on the Consolidated Statement of Financial Position and the estimated fair values
of these financial instruments due to the short terms to maturity and the floating interest rate on the bank indebtedness.



The Corporation has a convertible
debenture obligation outstanding, of which the liability component has been classified as a financial liability at amortized cost.
The convertible debenture has fixed terms and interest rates resulting in fair values that will vary over time as market conditions
change. As at December 31, 2014, the estimated fair value of the outstanding convertible debenture obligation was $86.3 million
(December 31, 2013 - $86.7 million). The fair value of the liability component of the convertible debenture was determined based
on the current public trading activity of the debenture.



Fair value is determined following
a three level hierarchy:



Level 1: Quoted prices in active
markets for identical assets and liabilities. The Corporation does not have any financial assets or liabilities that require level
1 inputs.



Level 2: Inputs other than quoted
prices included within Level 1 that are observable, either directly or indirectly. Such inputs can be corroborated with other observable
inputs for substantially the complete term of the contract. Derivative assets and liabilities and the performance incentive plan
liability are measured at fair value on a recurring basis. For derivative assets and liabilities, pricing inputs include quoted
forward prices for commodities, foreign exchange rates, volatility and risk-free rate discounting, all of which can be observed
or corroborated in the marketplace. For the performance incentive plan liability, pricing inputs include estimates of forfeitures
and risk-free rate discounting. The actual gains and losses realized on eventual cash settlement can vary materially due to subsequent
fluctuations in commodity prices and share price as compared to the valuation assumptions.



Level 3: Under this level, fair
value is determined using inputs that are not observable. Advantage has no assets or liabilities that use level 3 inputs.



Advantage Oil & Gas Ltd. - 18







| | 10. | Financial risk management (continued)
| | --- | -------------------------------------



The Corporation’s activities
expose it to a variety of financial risks that arise as a result of its exploration, development, production, and financing activities
such as:



| | · | credit risk;
| | - | ------------



| | · | liquidity risk;
| | - | ---------------



| | · | price and currency risk; and
| | - | ----------------------------



| | · | interest rate risk.
| | - | -------------------



| | (a) | Credit risk
| | --- | -----------



Credit risk is the risk of financial
loss to the Corporation if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and
arises principally from the Corporation’s receivables from joint venture partners, natural gas and liquids marketers and
companies with whom we enter into hedging contracts. The maximum exposure to credit risk is as follows:



|                            |  | December 31, 2014 |        |  | December 31, 2013 |  
|--------------------------- |  | ----------------- | ------ |  | ----------------- | -
|Trade and other receivables |  | $                 | 21,974 |  |                   | $
|Deposits                    |  |                   | 1,210  |  |                   |  
|Derivative asset            |  |                   | 46,556 |  |                   |  
|Questfire debenture         |  |                   | -      |  |                   |  
|                            |  | $                 | 69,740 |  |                   | $



Trade and other receivables,
deposits, and derivative assets are subject to credit risk exposure and the carrying values reflect Management’s assessment
of the associated maximum exposure to such credit risk. Advantage mitigates such credit risk by closely monitoring significant
counterparties and dealing with a broad selection of partners that diversify risk within the sector. The Corporation’s deposits
are due from the Alberta Provincial government and are viewed by Management as having minimal associated credit risk. To the extent
that Advantage enters derivatives to manage commodity price risk, it may be subject to credit risk associated with counterparties
with which it contracts. Credit risk is mitigated by entering into contracts with only stable, creditworthy parties and through
frequent reviews of exposures to individual entities. In addition, the Corporation only enters into derivative contracts with major
banks and international energy firms to further mitigate associated credit risk.



Substantially all of the Corporation’s
trade and other receivables are due from customers and joint operation partners concentrated in the Canadian oil and gas industry.
As such, trade and other receivables are subject to normal industry credit risks. As at December 31, 2014, $0.6 million or 2.6%
of trade and other receivables are outstanding for 90 days or more (December 31, 2013 - $0.9 million or 2.9% of trade and other
receivables). The Corporation believes the entire balance is collectible, and in some instances has the ability to mitigate risk
through withholding production or offsetting payables with the same parties. Management has
not provided an allowance for doubtful accounts at December 31, 2014 or 2013.



The Corporation’s most
significant customer, a Canadian oil and natural gas marketer, accounts for $14.7 million of the trade and other receivables at
December 31, 2014 (December 31, 2013 - $13.0 million).



Advantage Oil & Gas Ltd. - 19









| | 10. | Financial risk management (continued)
| | --- | -------------------------------------



| | (b) | Liquidity risk
| | --- | --------------



The Corporation is subject to
liquidity risk attributed from trade and other accrued liabilities, bank indebtedness, convertible debentures, and derivative liabilities.
Trade and other accrued liabilities and derivative liabilities are primarily due within one year of the Consolidated Statement
of Financial Position date and Advantage does not anticipate any problems in satisfying the obligations from cash provided by operating
activities and the existing credit facilities. The Corporation’s bank indebtedness is subject to $400 million credit facility
agreements. Although the credit facilities are a source of liquidity risk, the facilities also mitigates liquidity risk by enabling
Advantage to manage interim cash flow fluctuations. The terms of the credit facilities are such that they provide Advantage adequate
flexibility to evaluate and assess liquidity issues if and when they arise. Additionally, the Corporation regularly monitors liquidity
related to obligations by evaluating forecasted cash flows, optimal debt levels, capital spending activity, working capital requirements,
and other potential cash expenditures. This continual financial assessment process further enables the Corporation to mitigate
liquidity risk.



Advantage has a convertible debenture
outstanding that matured on January 30, 2015 (note 12). Interest payments are made semi-annually with excess cash provided by operating
activities. As the debenture becomes due, the Corporation can satisfy the obligation in cash or issue shares at a price determined
in the applicable debenture agreement. This settlement alternative allows the Corporation to adequately manage liquidity, plan
available cash resources and implement an optimal capital structure.



To the extent that Advantage
enters derivatives to manage commodity price risk, it may be subject to liquidity risk as derivative liabilities become due. While
the Corporation has elected not to follow hedge accounting, derivative instruments are not entered for speculative purposes and
Management closely monitors existing commodity risk exposures. As such, liquidity risk is mitigated since any losses actually realized
are subsidized by increased cash flows realized from the higher commodity price environment.



The timing of cash outflows relating
to financial liabilities as at December 31, 2014 and 2013 are as follows:



|December 31, 2014                   |  | Less than one year |        |   | One to three years |   |   | Three to five years |         |   | Thereafter |   |   | Total |  
|----------------------------------- |  | ------------------ | ------ | - | ------------------ | - | - | ------------------- | ------- | - | ---------- | - | - | ----- | -
|Trade and other accrued liabilities |  | $                  | 81,741 |   |                    | $ | - |                     |         | $ | -          |   |   | $     | -
|Bank indebtedness                   |  | - principal        |        |   | -                  |   |   |                     | 110,332 |   |            |   | - |       |  
|                                    |  | - interest (1)     |        |   | 6,847              |   |   |                     | 3,283   |   |            |   | - |       |  
|Convertible debenture               |  | - principal        |        |   | 86,250             |   |   |                     | -       |   |            |   | - |       |  
|                                    |  | - interest         |        |   | 2,144              |   |   |                     | -       |   |            |   | - |       |  
|                                    |  |                    |        | $ | 176,982            |   |   | $                   | 113,615 |   |            | $ | - |       |  



(1)Interest on bank indebtedness was calculated
assuming conversion of the revolving credit facility to a one-year term facility.



|December 31, 2013                   |  | Less than one year |        |   | One to three years |   |       | Three to five years |         |   | Thereafter |   |   | Total |  
|----------------------------------- |  | ------------------ | ------ | - | ------------------ | - | ----- | ------------------- | ------- | - | ---------- | - | - | ----- | -
|Trade and other accrued liabilities |  | $                  | 93,893 |   |                    | $ | -     |                     |         | $ | -          |   |   | $     | -
|Derivative liability                |  |                    | 8,340  |   |                    |   | 1,183 |                     |         |   | -          |   |   |       | -
|Bank indebtedness                   |  | - principal        |        |   | -                  |   |       |                     | 272,521 |   |            |   | - |       |  
|                                    |  | - interest (1)     |        |   | 13,626             |   |       |                     | 6,496   |   |            |   | - |       |  
|Convertible debenture               |  | - principal        |        |   | -                  |   |       |                     | 86,250  |   |            |   | - |       |  
|                                    |  | - interest         |        |   | 4,313              |   |       |                     | 2,156   |   |            |   | - |       |  
|                                    |  |                    |        | $ | 120,172            |   |       | $                   | 368,606 |   |            | $ | - |       |  



(1)Interest on bank indebtedness was calculated
assuming conversion of the revolving credit facility to a one-year term facility.



Advantage Oil & Gas Ltd. - 20







| | 10. | Financial risk management (continued)
| | --- | -------------------------------------



The Corporation’s bank
indebtedness does not have specific maturity dates. It is governed by credit facility agreements with a syndicate of financial
institutions (note 11). Under the terms of the agreements, the facilities are reviewed annually, with the next review scheduled
in June 2015. The facilities are revolving and are extendible at each annual review for a further 364 day period at the option
of the syndicate. If not extended, the credit facilities are converted at that time into one year term facilities, with the principal
payable at the end of such one year terms. Management fully expects that the facilities will be extended at each annual review.



| | (c) | Price and currency risk
| | --- | -----------------------



Advantage’s derivative
assets and liabilities are subject to both price and currency risks as their fair values are based on assumptions including forward
commodity prices and foreign exchange rates. The Corporation enters into non-financial derivatives to manage commodity price risk
exposure relative to actual commodity production and does not utilize derivative instruments for speculative purposes. Changes
in the price assumptions can have a significant effect on the fair value of the derivative assets and liabilities and thereby impact
earnings. It is estimated that a 10% change in the forward natural gas prices used to calculate
the fair value of the natural gas derivatives at December 31, 2014 would result in a $12.1 million change in net income
for the year ended December 31, 2014.



As at December 31, 2014, the
Corporation’s natural gas hedging positions are summarized as follows:



|                   |  | Average           |  | Average Price
|------------------ |  | ----------------- |  | -------------
|Period             |  | Production Hedged |  | AECO ($Cdn.) 
|Q1 2015 to Q4 2015 |  | 78.2 mmcf/d       |  | $3.90/mcf    
|Q1 2016 to Q4 2016 |  | 56.9 mmcf/d       |  | $3.93/mcf    
|Q1 2017            |  | 47.4 mmcf/d       |  | $3.95/mcf    



As at December 31, 2014, the
fair value of the derivatives outstanding resulted in an asset of $46.6 million (December 31, 2013 – $2.5 million) and a
liability of $Nil (December 31, 2013 – $9.5 million). The fair value of the commodity risk management derivatives have been
allocated to current assets and liabilities on the basis of expected timing of cash settlement.



For the year ended December 31,
2014, $30.9 million was recognized in net income as a derivative gain (December 31, 2013 - $14.7 million derivative loss). The
table below summarizes the realized and unrealized gains (losses) on derivatives recognized in net income (loss).



|                                      |  | Year ended        |         |   | Year ended        |  
|------------------------------------- |  | ----------------- | ------- | - | ----------------- | -
|                                      |  | December 31, 2014 |         |   | December 31, 2013 |  
|Realized loss on derivatives          |  | $                 | (14,028 | ) |                   | $
|Unrealized gain (loss) on derivatives |  |                   | 44,941  |   |                   |  
|                                      |  | $                 | 30,913  |   |                   | $
|                                      |  |                   |         |   |                   |  
|From continuing operations            |  | $                 | 35,236  |   |                   | $
|From discontinued operations          |  |                   | (4,323  | ) |                   |  
|                                      |  | $                 | 30,913  |   |                   | $



| | (d) | Interest rate risk
| | --- | ------------------



Interest rate risk is the risk
that future cash flows will fluctuate as a result of changes in market interest rates. The interest charged on the outstanding
bank indebtedness fluctuates with the interest rates posted by the lenders. The Corporation is exposed to interest rate risk and
has not entered into any mitigating interest rate hedges or swaps. Had the borrowing rate been different by 100 basis points throughout
the year ended December 31, 2014, net income (loss) and comprehensive income (loss) would have changed by $0.7 million (December
31, 2013 - $2.0 million) based on the average debt balance outstanding during the year.



Advantage Oil & Gas Ltd. - 21







| | 10. | Financial risk management (continued)
| | --- | -------------------------------------



| | (e) | Capital management
| | --- | ------------------



The Corporation manages its capital
with the following objectives:



| | · | To ensure sufficient financial flexibility
to achieve the ongoing business objectives including replacement of production, funding of future growth opportunities, and pursuit
of accretive acquisitions; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | To maximize shareholder return through
enhancing the share value.
| | - | -----------------------------------------------------------------



Advantage monitors its capital
structure and makes adjustments according to market conditions in an effort to meet its objectives given the current outlook of
the business and industry in general. The capital structure of the Corporation is composed of working capital (excluding derivative
assets and liabilities), bank indebtedness, convertible debentures, and share capital. Advantage may manage its capital structure
by issuing new shares, repurchasing outstanding shares, obtaining additional financing either through bank indebtedness or convertible
debenture issuances, refinancing current debt, issuing other financial or equity-based instruments, declaring a dividend, adjusting
capital spending, or disposing of assets. The capital structure is reviewed by Management and the Board of Directors on an ongoing
basis.



Advantage’s capital structure
as at December 31, 2014 and December 31, 2013 is as follows:



|                                                |  | December 31, 2014 |             |  | December 31, 2013 |  
|----------------------------------------------- |  | ----------------- | ----------- |  | ----------------- | -
|Bank indebtedness (non-current) (note 11)       |  | $                 | 109,970     |  |                   | $
|Working capital deficit (1)                     |  |                   | 57,264      |  |                   |  
|Net debt                                        |  |                   | 167,234     |  |                   |  
|Convertible debentures maturity value (current) |  |                   | 86,250      |  |                   |  
|Total debt                                      |  | $                 | 253,484     |  |                   | $
|Shares outstanding (note 15)                    |  |                   | 170,067,650 |  |                   |  
|Share closing market price ($/share)            |  | $                 | 5.56        |  |                   | $
|Market capitalization (2)                       |  |                   | 945,576     |  |                   |  
|Total capitalization                            |  | $                 | 1,199,060   |  |                   | $



(1) Working capital deficit is a non-GAAP measure that includes
trade and other receivables, prepaid expenses and deposits and trade and other accrued liabilities.



(2) Market capitalization is a non-GAAP measure calculated by
multiplying shares outstanding by the closing market share price on the applicable date.



Advantage Oil & Gas Ltd. - 22









| | 11. | Bank indebtedness
| | --- | -----------------



|                                               |  | December 31, 2014 |         |   | December 31, 2013 |  
|---------------------------------------------- |  | ----------------- | ------- | - | ----------------- | -
|Revolving credit facility:                     |  |                   |         |   |                   |  
|Advantage                                      |  | $                 | 110,332 |   |                   | $
|Longview                                       |  |                   | -       |   |                   |  
|Discount on Bankers Acceptances and other fees |  |                   | (362    | ) |                   |  
|Balance, end of year                           |  | $                 | 109,970 |   |                   | $



As at December 31, 2014, the
Corporation had credit facilities (the "Credit Facilities") of $400 million. The Credit Facilities are comprised of a
$20 million extendible revolving operating loan facility from one financial institution and $380 million of extendible revolving
loan facilities from a syndicate of financial institutions. Amounts borrowed under the Credit Facilities bear interest at a floating
rate based on the applicable Canadian prime rate, US base rate, LIBOR rate or bankers' acceptance rate plus between 1.00% and 3.50%
depending on the type of borrowing and the Corporation’s debt to cash flow ratio. The Credit Facilities are collateralized
by a $1 billion floating charge demand debenture covering all assets. The amounts available to the Corporation from time to time
under the Credit Facilities are based upon the borrowing base determined semi-annually by the lenders. The revolving period for
the Credit Facilities will end in June 2015 unless extended at the option of the syndicate for a further 364 day period. If the
Credit Facilities are not extended, they will convert to a non-revolving term facility due 365 days after the last day of the revolving
period. The Credit Facilities prohibit the Corporation from entering into any derivative contract where the term of such contract
exceeds four years. Further, the aggregate of such contracts cannot hedge greater than 65% of total estimated natural gas and liquids
production over three years and 50% over the fourth year. The Credit Facilities contain standard commercial covenants for credit
facilities of this nature. The only financial covenant is a requirement for the Corporation to maintain a minimum cash flow to
interest expense ratio of 3.5:1, determined on a rolling four-quarter basis. These covenants were met at December 31, 2014 and
2013. Breach of any covenant will result in an event of default in which case the Corporation has 20 days to remedy such default.
If the default is not remedied or waived, and if required by the lenders, the administrative agent of the lenders has the option
to declare all obligations under the credit facilities to be immediately due and payable without further demand, presentation,
protest, days of grace, or notice of any kind. Interest payments under the debentures are subordinated to the repayment of any
amounts owing under the Credit Facilities and are not permitted if the Corporation is in default of such Credit Facilities or if
the amount of outstanding indebtedness under such facilities exceeds the then existing current borrowing base. For the year ended
December 31, 2014, the average effective interest rate on the outstanding amounts under the facilities was approximately 3.8% (December
31, 2013 – 5.0%). Advantage has $2.5 million letters of credit issued and outstanding at December 31, 2014 (December 31,
2013 - $Nil).



Advantage Oil & Gas Ltd. - 23







| | 12. | Convertible debenture
| | --- | ---------------------



The convertible unsecured subordinated
debenture pays an annual coupon of 5%, paid semi-annually on January 31st and July 31st of each year and is convertible at the
option of the holder into shares of Advantage at the applicable conversion price per share plus accrued and unpaid interest. The
details of the convertible debenture including fair market values initially assigned and issuance costs are as follows:



|Trading symbol      |  | AAV.DBH       |       
|------------------- |  | ------------- | ------
|Issue date          |  | Dec. 31, 2009 |       
|Maturity date       |  | Jan. 30, 2015 |       
|Conversion price    |  | $             | 8.60  
|                    |  |               |       
|Liability component |  | $             | 73,019
|Equity component    |  |               | 13,231
|                    |  |               |       
|Gross proceeds      |  |               | 86,250
|Issuance costs      |  |               | (3,735
|                    |  |               |       
|Net proceeds        |  | $             | 82,515



The convertible debenture is
redeemable at the option of the Corporation, upon providing appropriate advance notification as per the debenture indenture. Redemption
can only occur during the period after January 31, 2013 and on or before January 30, 2015, provided that the Current Market Price
exceeds 125% of the Conversion Price. The redemption price is $1,000 per debenture, plus accrued and unpaid interest.



The balance of the convertible
debenture outstanding at December 31, 2014 and changes in the liability and equity components during the years ended December 31,
2014 and 2013 are as follows:



|                             |  | 5.00    | %     
|---------------------------- |  | ------- | ------
|Trading symbol               |  | AAV.DBH |       
|Debentures outstanding       |  | $       | 86,250
|Liability component:         |  |         |       
|Balance at December 31, 2012 |  |         | 79,108
|Accretion of discount        |  |         | 3,346 
|Balance at December 31, 2013 |  | $       | 82,454
|Accretion of discount        |  |         | 3,487 
|Balance at December 31, 2014 |  | $       | 85,941
|                             |  |         |       
|Equity component:            |  |         |       
|Balance at December 31, 2013 |  | $       | 8,348 
|Balance at December 31, 2014 |  | $       | 8,348 



There were no convertible debenture
conversions during the years ended December 31, 2014 and 2013. On January 30, 2015, both the principal and final interest payment
were settled with cash drawn from the credit facility, with the exception of $0.01 million, which was converted to 1,162 common
shares.



Advantage Oil & Gas Ltd. - 24







| | 13. | Decommissioning liability
| | --- | -------------------------



The Corporation’s decommissioning
liability results from net ownership interests in natural gas and liquids assets including well sites, gathering systems and processing
facilities, all of which will require future costs of decommissioning under environmental legislation. These costs are expected
to be incurred between 2015 and 2074. A risk-free rate of 2.33% (December 31, 2013 – 3.20%) and an inflation factor of 2%
(December 31, 2013 – 2%) were used to calculate the fair value of the decommissioning liability at December 31, 2014. A reconciliation
of the decommissioning liability is provided below:



|                                         |  | Year ended        |         |   | Year ended        |  
|---------------------------------------- |  | ----------------- | ------- | - | ----------------- | -
|                                         |  | December 31, 2014 |         |   | December 31, 2013 |  
|Balance, beginning of year               |  | $                 | 100,616 |   |                   | $
|Accretion expense                        |  |                   | 1,364   |   |                   |  
|Liabilities incurred                     |  |                   | 4,218   |   |                   |  
|Change in estimates                      |  |                   | 683     |   |                   |  
|Effect of change in risk-free rate       |  |                   | 15,037  |   |                   |  
|Property dispositions                    |  |                   | -       |   |                   |  
|Liabilities settled                      |  |                   | (482    | ) |                   |  
|Disposition of Longview (note 3b and 24) |  |                   | (72,558 | ) |                   |  
|                                         |  |                   | 48,878  |   |                   |  
|Transferred from assets held for sale    |  |                   | -       |   |                   |  
|Balance, end of year                     |  | $                 | 48,878  |   |                   | $



Advantage Oil & Gas Ltd. - 25











| | 14. | Income taxes
| | --- | ------------



The provision for income taxes
is as follows:



|                                       |  | Year ended        |        |  | Year ended        |  
|-------------------------------------- |  | ----------------- | ------ |  | ----------------- | -
|                                       |  | December 31, 2014 |        |  | December 31, 2013 |  
|Current income tax expense             |  | $                 | -      |  |                   | $
|Deferred income tax expense (recovery) |  |                   | 30,393 |  |                   |  
|Income tax expense (recovery)          |  | $                 | 30,393 |  |                   | $



The provision for income taxes
varies from the amount that would be computed by applying the combined federal and provincial income tax rates for the following
reasons:



|                                                               |  | Year ended        |         |   | Year ended        |  
|-------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | -
|                                                               |  | December 31, 2014 |         |   | December 31, 2013 |  
|Income (loss) before taxes from continuing operations          |  | $                 | 104,990 |   |                   | $
|Combined federal and provincial income tax rates               |  |                   | 25.00   | % |                   |  
|Expected income tax expense (recovery)                         |  |                   | 26,248  |   |                   |  
|Increase (decrease) in income taxes resulting from:            |  |                   |         |   |                   |  
|Non-deductible share based compensation                        |  |                   | 823     |   |                   |  
|Change in estimated pool balances                              |  |                   | -       |   |                   |  
|Unrecognized deferred tax asset on sale of Questfire Debenture |  |                   | 3,458   |   |                   |  
|Difference between current and expected tax rates              |  |                   | (136    | ) |                   |  
|                                                               |  | $                 | 30,393  |   |                   | $
|Effective tax rate                                             |  |                   | 28.95   | % |                   |  



The movement in deferred income tax liabilities and
assets without taking into consideration the offsetting of balances within the same tax jurisdiction is as follows:



|Deferred income tax liability |  | Property, plant and equipment |         |   | Derivative
                                                                                asset/liability |   |        | Total | 
|----------------------------- |  | ----------------------------- | ------- | - | ---------------------------------------------------------------------------------------------------------- | - | ------ | ----- | 
|Balance at December 31, 2012  |  | $                             | 237,246 |   |                                                                                                            | $ | 267    |       | 
|Charged (credited) to income  |  |                               | (18,807 | ) |                                                                                                            |   | (2,058 | )     | 
|Balance at December 31, 2013  |  |                               | 218,439 |   |                                                                                                            |   | (1,791 | )     | 
|Charged (credited) to income  |  |                               | 10,586  |   |                                                                                                            |   | 13,430 |       | 
|Balance at December 31, 2014  |  | $                             | 229,025 |   |                                                                                                            | $ | 11,639 |       | 





|Deferred income tax asset    |  | Decommissioning liability |         |   | Non-capital losses |   |          | Other |  |   | Total   |  
|---------------------------- |  | ------------------------- | ------- | - | ------------------ | - | -------- | ----- |  | - | ------- | -
|Balance at December 31, 2012 |  | $                         | (66,217 | ) |                    | $ | (204,147 | )     |  | $ | (5,414  | )
|Charged (credited) to income |  |                           | 40,594  |   |                    |   | (11,422  | )     |  |   | (6,105  | )
|Balance at December 31, 2013 |  |                           | (25,623 | ) |                    |   | (215,569 | )     |  |   | (11,519 | )
|Charged (credited) to income |  |                           | 13,320  |   |                    |   | 31,956   |       |  |   | 170     |  
|Balance at December 31, 2014 |  | $                         | (12,303 | ) |                    | $ | (183,613 | )     |  | $ | (11,349 | )





|Net deferred income tax liability (asset) |  | Longview |         |   | Advantage |   |        | Total | 
|----------------------------------------- |  | -------- | ------- | - | --------- | - | ------ | ----- | 
|Balance at December 31, 2012              |  | $        | (42,893 | ) |           | $ | 4,628  |       | 
|Charged (credited) to income              |  |          | 3,824   |   |           |   | (1,622 | )     | 
|Balance at December 31, 2013              |  |          | (39,069 | ) |           |   | 3,006  |       | 
|Charged (credited) to income              |  |          | 39,069  |   |           |   | 30,393 |       | 
|Balance at December 31, 2014              |  | $        | -       |   |           | $ | 33,399 |       | 



Advantage Oil & Gas Ltd. - 26







The estimated tax pools available
at December 31, 2014 are as follows:



|Canadian development expenses          |  | $ | 219,133   | 
|-------------------------------------- |  | - | --------- | 
|Canadian exploration expenses          |  |   | 65,944    | 
|Canadian oil and gas property expenses |  |   | 2,907     | 
|Non-capital losses                     |  |   | 734,455   | 
|Capital losses                         |  |   | 157,869   | 
|Undepreciated capital cost             |  |   | 168,869   | 
|Other                                  |  |   | 10,122    | 
|                                       |  | $ | 1,359,299 | 



The non-capital loss carry forward balances above
expire no earlier than 2023.



A deferred tax asset has not been recognized for
capital losses realized in the amount of $158 million (December 31, 2013 – $11 million). Recognition is dependent on the
realization of future taxable capital gains.



| | 15. | Share capital
| | --- | -------------



| | (a) | Authorized
| | --- | ----------



The Corporation is authorized to issue an
unlimited number of shares without nominal or par value.



| | (b) | Issued
| | --- | ------



|                                                   |  | Common Shares |             |  | Amount |  
|-------------------------------------------------- |  | ------------- | ----------- |  | ------ | -
|Balance at December 31, 2012 and December 31, 2013 |  |               | 168,382,838 |  |        | $
|Share based compensation (note 17)                 |  |               | 1,684,812   |  |        |  
|Balance at December 31, 2014                       |  |               | 170,067,650 |  |        | $



| | 16. | Net income (loss) per share attributable to Advantage shareholders
| | --- | ------------------------------------------------------------------



The calculations of basic and
diluted net income (loss) per share are derived from both net income (loss) attributable to Advantage common shareholders and weighted
average shares outstanding, calculated as follows:



|                                                         |  | Year ended        |             |   | Year ended        |  
|-------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | -
|                                                         |  | December 31, 2014 |             |   | December 31, 2013 |  
|Net income (loss) attributable to Advantage shareholders |  |                   |             |   |                   |  
|Basic and diluted - continuing operations                |  | $                 | 74,597      |   |                   | $
|Basic and diluted - discontinued operations              |  |                   | (58,894     | ) |                   |  
|Basic and diluted                                        |  | $                 | 15,703      |   |                   | $
|                                                         |  |                   |             |   |                   |  
|Weighted average shares outstanding                      |  |                   |             |   |                   |  
|Basic                                                    |  |                   | 169,482,394 |   |                   |  
|Stock Option Plan                                        |  |                   | 1,317,671   |   |                   |  
|Diluted                                                  |  |                   | 170,800,065 |   |                   |  



The calculation of diluted net
income (loss) per share for the years ended December 31, 2014 and 2013 excludes the convertible debenture, as its impact would
be anti-dilutive. Total weighted average shares issuable in exchange for the convertible debenture excluded from the diluted net
income (loss) per share calculation for the years ended December 31, 2014 and 2013 was 10,029,070 shares. As at December 31, 2014
and 2013, the total convertible debenture outstanding was convertible to 10,029,070 shares.



Advantage Oil & Gas Ltd. - 27







| | 17. | Share based compensation
| | --- | ------------------------



| | (a) | Stock option plan
| | --- | -----------------



Under the Stock Option Plan,
service providers are granted options with exercise prices that approximate the market price of common shares at the date of grant.
Share based compensation costs of the Stock Option Plan are determined using a Black-Scholes valuation model, using weighted average
assumptions as follows:



|Volatility               |  |  | 41   | %
|------------------------ |  |  | ---- | -
|                         |  |  |      |  
|Expected forfeiture rate |  |  | 0.85 | %
|                         |  |  |      |  
|Dividend rate            |  |  | 0    | %
|                         |  |  |      |  
|Risk-free rate           |  |  | 1.07 | %



Volatility is based on historical
stock prices at the close-of-trade-day over a historical time period.



The following tables summarize
information about changes in stock options outstanding at December 31, 2014:



|                             |  | Stock Options |            |   | Weighted-Average Exercise Price |  
|---------------------------- |  | ------------- | ---------- | - | ------------------------------- | -
|Balance at December 31, 2012 |  |               | 15,977,883 |   |                                 | $
|Expired                      |  |               | (1,994,658 | ) |                                 |  
|Exercised                    |  |               | (1,994,641 | ) |                                 |  
|Granted                      |  |               | 3,804,675  |   |                                 |  
|Forfeited/cancelled          |  |               | (2,732,416 | ) |                                 |  
|Balance at December 31, 2013 |  |               | 13,060,843 |   |                                 | $
|Exercised                    |  |               | (7,435,115 | ) |                                 |  
|Granted                      |  |               | 3,777,255  |   |                                 |  
|Forfeited/cancelled          |  |               | (4,258,307 | ) |                                 |  
|Balance at December 31, 2014 |  |               | 5,144,676  |   |                                 | $



|                        |  | Stock Options Outstanding           |           |  |                                                     |  |      | Stock Options Exercisable       | 
|----------------------- |  | ----------------------------------- | --------- |  | --------------------------------------------------- |  | ---- | ------------------------------- | 
|Range of Exercise Price |  | Number of Stock Options Outstanding |           |  | Weighted Average Remaining Contractual Life - Years |  |      | Weighted Average Exercise Price | 
|$3.69 - $4.43           |  |                                     | 3,674,727 |  |                                                     |  | 1.35 |                                 | 
|$4.44 - $6.34           |  |                                     | 1,469,949 |  |                                                     |  | 4.29 |                                 | 
|$3.69 - $6.34           |  |                                     | 5,144,676 |  |                                                     |  | 2.19 |                                 | 



Advantage Oil & Gas Ltd. - 28







| | 17. | Share based compensation (continued)
| | --- | ------------------------------------



| | (b) | Performance Incentive Plan
| | --- | --------------------------



Under the Performance Incentive
Plan, service providers can be granted two types of Incentive Awards: Restricted Awards and Performance Awards. A Restricted Award
is a grant denominated in a fixed number of common shares which generally vests 1/3 on the first anniversary of the grant date,
1/3 on the second anniversary, and 1/3 on the third anniversary. A Performance Award is a grant denominated in a fixed number of
common shares which vests on the third anniversary of the grant date. Performance Award grants are multiplied by a Payout Multiplier.
The Payout Multiplier is a number between zero (0) and two (2), and is determined based on an equal weighting of three Corporate
Performance Measures: Relative Total Shareholder Return, Annual Cash Flow Per Share and Relative Cost Structure.



As at December 31, 2014, no Restricted
Awards have been granted.



The following table is a continuity
of Performance Awards:



|Balance at December 31, 2012 and 2013 |  |  | -       |  
|------------------------------------- |  |  | ------- | -
|Granted                               |  |  | 409,702 |  
|Forfeited                             |  |  | (3,560  | )
|Balance at December 31, 2014          |  |  | 406,142 |  



Share based compensation recognized
by plan for the years ended December 31, 2014 and 2013 are as follows:



|                                     |  | Year ended  |       
|------------------------------------ |  | ----------- | ------
|                                     |  | December 31 |       
|                                     |  | 2014        |       
|RSPIP (1)                            |  | $           | 1,058 
|Stock Option Plan                    |  |             | 3,265 
|Performance Incentive Plan           |  |             | 512   
|Total share based compensation       |  |             | 4,835 
|Capitalized                          |  |             | (2,016
|Net share based compensation expense |  | $           | 2,819 
|                                     |  |             |       
|From continuing operations           |  | $           | 2,153 
|From discontinued operations         |  |             | 666   
|                                     |  | $           | 2,819 



(1)Relates solely to discontinued operations



| | 18. | Natural gas and liquids sales
| | --- | -----------------------------



|                                        |  | Year ended  |        
|--------------------------------------- |  | ----------- | -------
|                                        |  | December 31 |        
|                                        |  | 2014        |        
|Natural gas sales                       |  | $           | 212,579
|Crude oil and natural gas liquids sales |  |             | 27,789 
|Total natural gas and liquids sales     |  | $           | 240,368
|                                        |  |             |        
|From continuing operations              |  | $           | 215,653
|From discontinued operations            |  |             | 24,715 
|                                        |  | $           | 240,368



Advantage Oil & Gas Ltd. - 29







| | 19. | General and administrative expense (“G&A”)
| | --- | ------------------------------------------



|                                   |  | Year ended  |       
|---------------------------------- |  | ----------- | ------
|                                   |  | December 31 |       
|                                   |  | 2014        |       
|Salaries and benefits              |  | $           | 8,786 
|Share based compensation (note 17) |  |             | 4,835 
|Office rent                        |  |             | 1,173 
|Other                              |  |             | 4,126 
|Total G&A                          |  |             | 18,920
|Capitalized (note 8)               |  |             | (7,450
|Net G&A                            |  | $           | 11,470
|                                   |  |             |       
|From continuing operations         |  | $           | 9,579 
|From discontinued operations       |  |             | 1,891 
|                                   |  | $           | 11,470



| | 20. | Finance expense
| | --- | ---------------



|                                                |  | Year ended  |       
|----------------------------------------------- |  | ----------- | ------
|                                                |  | December 31 |       
|                                                |  | 2014        |       
|Interest on bank indebtedness (note 11)         |  | $           | 6,817 
|Interest on convertible debenture (note 12)     |  |             | 4,313 
|Accretion on convertible debenture (note 12)    |  |             | 3,487 
|Accretion of decomissioning liability (note 13) |  |             | 1,364 
|Total finance expense                           |  | $           | 15,981
|                                                |  |             |       
|From continuing operations                      |  | $           | 14,792
|From discontinued operations                    |  |             | 1,189 
|                                                |  | $           | 15,981



| | 21. | Other income (expenses)
| | --- | -----------------------



|                                                    |  | Year ended  |        
|--------------------------------------------------- |  | ----------- | -------
|                                                    |  | December 31 |        
|                                                    |  | 2014        |        
|Interest income - Questfire Debenture (note 6)      |  | $           | 455    
|Accretion income - Questfire Debenture (note 6)     |  |             | 557    
|Loss on disposition of Questfire Debenture (note 6) |  |             | (13,833
|Unrealized gain (loss) - Questfire Class B Shares   |  |             | 150    
|Loss on sale of assets                              |  |             | (1,489 
|Miscellaneous income                                |  |             | 3,633  
|Total other income (expenses)                       |  | $           | (10,527
|                                                    |  |             |        
|From continuing operations                          |  | $           | (10,527
|From discontinued operations                        |  |             | -      
|                                                    |  | $           | (10,527



Advantage Oil & Gas Ltd. - 30







| | 22. | Supplementary cash flow information – continuing operations
| | --- | -----------------------------------------------------------



Changes in non-cash
working capital is comprised of:



|                                    |  | Year ended  |       
|----------------------------------- |  | ----------- | ------
|                                    |  | December 31 |       
|                                    |  | 2014        |       
|Source (use) of cash:               |  |             |       
|Trade and other receivables         |  | $           | (4,876
|Prepaid expenses and deposits       |  |             | 159   
|Trade and other accrued liabilities |  |             | 11,525
|                                    |  | $           | 6,808 
|                                    |  |             |       
|Related to operating activities     |  | $           | (3,924
|Related to financing activities     |  |             | 1,311 
|Related to investing activities     |  |             | 9,421 
|                                    |  | $           | 6,808 



| | 23. | Commitments
| | --- | -----------



Advantage has several lease
commitments relating to office buildings and transportation commitments. The estimated remaining annual minimum operating lease
payments are as follows:



|                    |  | December 31 |        
|------------------- |  | ----------- | -------
|                    |  | 2014        |        
|2014                |  |             | -      
|2015                |  |             | 18,220 
|2016                |  |             | 20,485 
|2017                |  |             | 19,511 
|2018                |  |             | 17,414 
|2019                |  |             | 15,677 
|2020 and thereafter |  |             | 33,386 
|Total commitments   |  | $           | 124,693



Advantage Oil & Gas Ltd. - 31







| | 24. | Discontinued operations
| | --- | -----------------------



The Corporation was previously
comprised of two operating segments: Advantage Oil & Gas Ltd. (“Advantage”) and Longview Oil Corp. (“Longview”).
Advantage develops and operates a natural gas focused property in Alberta. Longview developed and operated primarily conventional
oil and natural gas liquids focused properties in Alberta and Saskatchewan. On February 28, 2014, the Corporation discontinued
the Longview segment by selling its investment in Longview pursuant to the Offering (note 3(b)).



Results of the discontinued
Longview segment are as follows:



|                                                 |  | Year ended  |        
|------------------------------------------------ |  | ----------- | -------
|                                                 |  | December 31 |        
|                                                 |  | 2014 (1)    |        
|(thousands of Canadian dollars)                 
|                                                 |  |             |        
|Petroleum and natural gas sales                  |  | $           | 24,715 
|Less: royalties                                  |  |             | (4,108 
|Petroleum and natural gas revenue                |  |             | 20,607 
|                                                 |  |             |        
|Operating expense                                |  |             | (7,022 
|General and administrative expense               |  |             | (1,891 
|Depreciation expense                             |  |             | (6,138 
|Finance expense                                  |  |             | (1,189 
|Losses on derivatives                            |  |             | (4,323 
|Exploration and evaluation expense               |  |             | -      
|Other income (expenses)                          |  |             | -      
|Non-controlling interest                         |  |             | 85     
|Income before taxes from discontinued operations |  |             | 129    
|Income tax expense                               |  |             | (198   
|Income (loss) from discontinued operations       |  |             | (69    
|Loss on disposition of Longview                  |  |             | (58,825
|Net income (loss) from discontinued operations   |  | $           | (58,894



(1)Results from January 1, 2014 to February
28, 2014



Cash flows of the discontinued Longview segment are
as follows:



|                                              |  | Year ended  |       
|--------------------------------------------- |  | ----------- | ------
|                                              |  | December 31 |       
|                                              |  | 2014        |       
|(thousands of Canadian dollars)               |  |             |       
|Cash flow from operating activities           |  | $           | 12,434
|Cash flow from (used in) financing activities |  |             | 435   
|Cash flow from (used in) investing activities |  |             | 78,976



Advantage Oil & Gas Ltd. - 32