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 Professional Accountants, appointed by the shareholders as the external auditor of the Corporation, has audited
the consolidated statement of financial position as at December 31, 2015 and 2014, and the consolidated statements of comprehensive
income (loss), changes in shareholders’ equity and cash flows for the years ended December 31, 2015 and 2014. 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 3, 2016                         |                                                   



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,
2015, 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 Professional 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, 2015, 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 3, 2016                         |                                                   



Advantage Oil & Gas Ltd. - 2











March 3, 2016



Independent Auditor’s Report



To the Shareholders of Advantage Oil &
Gas Ltd.



We have completed integrated audits of Advantage
Oil & Gas Ltd.’s 2015 and 2014 consolidated financial statements and its internal control over financial reporting as
at December 31, 2015. 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, 2015 and December 31, 2014 and the consolidated statements of comprehensive income, 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.



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, 2015
and December 31, 2014 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.



Advantage Oil & Gas Ltd. - 3











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, 2015, 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.



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, 2015, based on criteria
established in Internal Control - Integrated Framework (2013) issued by COSO.







Chartered Professional Accountants

Calgary, Alberta



Advantage Oil & Gas Ltd. - 4







|Consolidated Statement of Financial Position |  |       |        |                   |   |            |                   | 
|-------------------------------------------- |  | ----- | ------ | ----------------- | - | ---------- | ----------------- | 
|(thousands of Canadian dollars)              |  | Notes |        | December 31, 2015 |   |            | December 31, 2014 | 
|                                             |  |       |        |                   |   |            |                   | 
|ASSETS                                       |  |       |        |                   |   |            |                   | 
|Current assets                               |  |       |        |                   |   |            |                   | 
|Trade and other receivables                  |  |       | 5      |                   | $ | 13,888     |                   | 
|Prepaid expenses and deposits                |  |       |        |                   |   | 1,966      |                   | 
|Derivative asset                             |  |       | 9      |                   |   | 37,009     |                   | 
|Total current assets                         |  |       |        |                   |   | 52,863     |                   | 
|                                             |  |       |        |                   |   |            |                   | 
|Non-current assets                           |  |       |        |                   |   |            |                   | 
|Derivative asset                             |  |       | 9      |                   |   | 7,426      |                   | 
|Exploration and evaluation assets            |  |       | 6      |                   |   | 10,071     |                   | 
|Property, plant and equipment                |  |       | 7      |                   |   | 1,447,083  |                   | 
|Total non-current assets                     |  |       |        |                   |   | 1,464,580  |                   | 
|Total assets                                 |  |       |        |                   | $ | 1,517,443  |                   | 
|                                             |  |       |        |                   |   |            |                   | 
|LIABILITIES                                  |  |       |        |                   |   |            |                   | 
|Current liabilities                          |  |       |        |                   |   |            |                   | 
|Trade and other accrued liabilities          |  |       |        |                   | $ | 23,050     |                   | 
|Convertible debenture                        |  |       | 11     |                   |   | -          |                   | 
|Total current liabilities                    |  |       |        |                   |   | 23,050     |                   | 
|                                             |  |       |        |                   |   |            |                   | 
|Non-current liabilities                      |  |       |        |                   |   |            |                   | 
|Derivative liability                         |  |       | 9      |                   |   | 200        |                   | 
|Performance incentive plan                   |  |       | 16 (b) |                   |   | -          |                   | 
|Bank indebtedness                            |  |       | 10     |                   |   | 286,519    |                   | 
|Decommissioning liability                    |  |       | 12     |                   |   | 44,575     |                   | 
|Deferred income tax liability                |  |       | 13     |                   |   | 41,152     |                   | 
|Total non-current liabilities                |  |       |        |                   |   | 372,446    |                   | 
|Total liabilities                            |  |       |        |                   |   | 395,496    |                   | 
|                                             |  |       |        |                   |   |            |                   | 
|SHAREHOLDERS' EQUITY                         |  |       |        |                   |   |            |                   | 
|Share capital                                |  |       | 14     |                   |   | 2,236,728  |                   | 
|Convertible debenture equity component       |  |       | 11     |                   |   | -          |                   | 
|Contributed surplus                          |  |       |        |                   |   | 103,726    |                   | 
|Deficit                                      |  |       |        |                   |   | (1,218,507 | )                 | 
|Total shareholders' equity                   |  |       |        |                   |   | 1,121,947  |                   | 
|Total liabilities and shareholders' equity   |  |       |        |                   | $ | 1,517,443  |                   | 



Commitments(note 22)

Subsequent event(note 24)



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. - 5







Consolidated Statement of Comprehensive Income



|                                                               |  |       |    |  | Year ended  |  
|-------------------------------------------------------------- |  | ----- | -- |  | ----------- | -
|                                                               |  |       |    |  | December 31 |  
|(thousands of Canadian dollars, except for per share amounts)  |  | Notes |    |  | 2015        |  
|                                                               |  |       |    |  |             |  
|Continuing operations                                          |  |       |    |  |             |  
|Natural gas and liquids sales                                  |  |       | 17 |  |             | $
|Less: royalties                                                |  |       |    |  |             |  
|Natural gas and liquids revenue                                |  |       |    |  |             |  
|                                                               |  |       |    |  |             |  
|Operating expense                                              |  |       |    |  |             |  
|General and administrative expense                             |  |       | 18 |  |             |  
|Depreciation expense                                           |  |       | 7  |  |             |  
|Exploration and evaluation expense                             |  |       | 6  |  |             |  
|Finance expense                                                |  |       | 19 |  |             |  
|Gains on derivatives                                           |  |       | 9  |  |             |  
|Other income (expenses)                                        |  |       | 20 |  |             |  
|Income before taxes from continuing operations                 |  |       |    |  |             |  
|Income tax expense                                             |  |       | 13 |  |             |  
|Net income and comprehensive income from continuing operations |  |       |    |  |             |  
|                                                               |  |       |    |  |             |  
|Discontinued operations                                        |  |       |    |  |             |  
|Net loss from discontinued operations                          |  |       | 23 |  |             |  
|Net income and comprehensive income                            |  |       |    |  |             | $
|                                                               |  |       |    |  |             |  
|Net income (loss) per share                                    |  |       | 15 |  |             |  
|Basic - from continuing operations                             |  |       |    |  |             | $
|Basic - from discontinued operations                           |  |       |    |  |             |  
|Basic                                                          |  |       |    |  |             | $
|Diluted - from continuing operations                           |  |       |    |  |             | $
|Diluted - from discontinued operations                         |  |       |    |  |             |  
|Diluted                                                        |  |       |    |  |             | $



See accompanying Notes to the Consolidated Financial Statements



Advantage Oil & Gas Ltd. - 6







Consolidated Statement of Changes in Shareholders'
Equity



|(thousands of Canadian dollars)     |  | Notes  |  | Share capital |           |  | Convertible 
debenture 
equity
 component |   |        | Contributed
 surplus |  |   | Deficit |  |  | Total 
shareholders'
 equity |           
|----------------------------------- |  | ------ |  | ------------- | --------- |  | ----------------------------------------- | - | ------ | -------------------- |  | - | ------- |  |  | ---------------------------- | ----------
|Balance, December 31, 2014          |  |        |  | $             | 2,234,959 |  |                                           | $ | 8,348  |                      |  | $ | 90,904  |  |  | $                            | (1,239,885
|Net income and comprehensive income |  |        |  |               |           |  |                                           |   | -      |                      |  |   | -       |  |  |                              | 21,378    
|Share based compensation            |  | 14, 16 |  |               | 1,759     |  |                                           |   | -      |                      |  |   | 4,474   |  |  |                              | -         
|Conversion of Convertible Debenture |  |        |  |               | 10        |  |                                           |   | -      |                      |  |   | -       |  |  |                              | -         
|Maturity of Convertible Debenture   |  |        |  |               | -         |  |                                           |   | (8,348 | )                    |  |   | 8,348   |  |  |                              | -         
|Balance, December 31, 2015          |  |        |  | $             | 2,236,728 |  |                                           | $ | -      |                      |  | $ | 103,726 |  |  | $                            | (1,218,507



|(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                                  |  |       | 14,
                                         16 |  |                   |   | 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,
                                         23 |  |                   |   | -         |                                                          |  |   | -                       |  |  |         | -      |   |                                                                                               |   | -          |                                   |  |   | -                                       | 
|Balance, December 31, 2014                                |  |       |                                                 |  |                   | $ | 2,234,959 |                                                          |  | $ | 8,348                   |  |  | $       | 90,904 |   |                                                                                               | $ | (1,239,885 | )                                 |  | $ | 1,094,326                               | 



See accompanying Notes to the Consolidated Financial Statements



Advantage Oil & Gas Ltd. - 7







Consolidated Statement of Cash Flows



|                                                                        |  |        |  | Year ended  |         
|----------------------------------------------------------------------- |  | ------ |  | ----------- | --------
|                                                                        |  |        |  | December 31 |         
|(thousands of Canadian dollars)                                         |  | Notes  |  | 2015        |         
|                                                                        |  |        |  |             |         
|Operating Activities                                                    |  |        |  |             |         
|Income before taxes from continuing operations                          |  |        |  | $           | 29,131  
|Add (deduct) items not requiring cash:                                  |  |        |  |             |         
|Share based compensation                                                |  | 14, 16 |  |             | 3,347   
|Depreciation expense                                                    |  | 7      |  |             | 87,391  
|Exploration and evaluation expense                                      |  | 6      |  |             | -       
|Unrealized loss (gain) on derivatives                                   |  | 9      |  |             | 2,321   
|Loss on sale of assets                                                  |  | 20     |  |             | -       
|Accretion income - Questfire Debenture                                  |  | 20     |  |             | -       
|Loss on disposition of Questfire Debenture                              |  | 20     |  |             | -       
|Unrealized gain - Questfire Class B Shares                              |  | 20     |  |             | -       
|Finance expense                                                         |  | 19     |  |             | 11,812  
|Expenditures on decommissioning liability                               |  | 12     |  |             | (1,262  
|Changes in non-cash working capital                                     |  | 21     |  |             | (19,376 
|Cash provided by operating activities - continuing operations           |  |        |  |             | 113,364 
|Cash provided by operating activities - discontinued operations         |  | 23     |  |             | -       
|Cash provided by operating activities                                   |  |        |  |             | 113,364 
|                                                                        |  |        |  |             |         
|Financing Activities                                                    |  |        |  |             |         
|Increase (decrease) in bank indebtedness                                |  | 10     |  |             | 177,197 
|Maturity of convertible debenture                                       |  | 11     |  |             | (86,240 
|Interest paid                                                           |  |        |  |             | (12,828 
|Cash provided by (used in) financing activities - continuing operations |  |        |  |             | 78,129  
|Cash provided by financing activities - discontinued operations         |  | 23     |  |             | -       
|Cash provided by (used in) financing activities                         |  |        |  |             | 78,129  
|                                                                        |  |        |  |             |         
|Investing Activities                                                    |  |        |  |             |         
|Payments on property, plant and equipment                               |  | 7, 21  |  |             | (190,301
|Payments on exploration and evaluation assets                           |  | 6      |  |             | (1,192  
|Disposition of investments                                              |  |        |  |             | -       
|Property dispositions                                                   |  |        |  |             | -       
|Cash used in investing activities - continuing operations               |  |        |  |             | (191,493
|Cash provided by investing activities - discontinued operations         |  | 23     |  |             | -       
|Cash used in investing activities                                       |  |        |  |             | (191,493
|Net change in cash                                                      |  |        |  |             | -       
|Cash, beginning of year                                                 |  |        |  |             | -       
|Cash, end of year                                                       |  |        |  | $           | -       



See accompanying Notes to the Consolidated Financial Statements



Advantage Oil & Gas Ltd. - 8







Notes
to The Consolidated Financial Statements



For the years ended
December 31, 2015 and 2014



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 3, 2016, 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 9.



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



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



Advantage Oil & Gas Ltd. - 9







| | 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.



| | (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 as required by IFRS 5, non-current assets held for sale and discontinued
operations (see note 23). 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 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.





Advantage Oil & Gas Ltd. - 10







| | 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.



Property, plant and equipment



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. - 11







| | 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. - 12







| | 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 were originally expected to be settled in cash, as the Corporation had 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 was recorded as compensation expense was recognized. The liability was revalued at each reporting date and at the date
of settlement. These changes in fair value were recognized in profit or loss for the period.



On May 27, 2015, shareholders of
the Corporation voted in favor of a resolution to approve the Restricted and Performance Award Incentive Plan as described in the
management information circular dated April 24, 2015. The effect of this vote was to give shareholder approval to the existing
plan approved by the Board of Directors on April 14, 2014 described above, and in so doing, enable the Corporation to settle awards
under the plan with shares, which is the intention of the Corporation. As such, the plan is no longer “cash-settled,”
but “equity-settled” as defined in IFRS 2, Share Based Payments. In accordance with the requirements of IFRS
2, the liability on the statement of financial position at May 27, 2015 relating to awards granted under this plan was transferred
to equity (contributed surplus), and revaluation will no longer occur at each reporting date. The types and timing of awards under
this plan are described in further detail in note 16(b).



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.



Advantage Oil & Gas Ltd. - 13







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



| | (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 performance awards and stock options granted to service providers and convertible debentures, using the treasury
stock method.



| | (k) | Investment tax credits
| | --- | ----------------------



Investment tax credits relating to Scientific Research and Experimental
Development claims are considered an income tax credit and are offset against our income tax expense when they become probable
of realization.



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 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 the 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 CGU (“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. For purposes of assessment
of impairment, management has allocated all exploration and evaluation assets to the Glacier CGU, on the basis of their geographic
proximity to Glacier.



| | (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.



The downturn in the energy sector
that commenced in late 2014 continued and worsened through 2015. In the judgment of management, this trend constituted an indicator
of impairment of our Glacier CGU. Therefore, in accordance with IAS 36, impairment of assets, management performed an impairment
test, as per the Corporation’s accounting policy described in note 3(d)(v). The test demonstrated that there was no impairment,
as the recoverable amount was well in excess of the total carrying amount of the CGU. Assumptions used in the calculation of recoverable
amount are disclosed in Note 7.



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



Decommissioning costs will be incurred
by the Corporation at the end of the operating life 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.



Advantage Oil & Gas Ltd. - 15







| | 4. | Significant accounting judgments, estimates and assumptions (continued)
| | -- | -----------------------------------------------------------------------



| | (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.



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



|                                        |  | December 31, 2015 |        |  | December 31, 2014 |  
|--------------------------------------- |  | ----------------- | ------ |  | ----------------- | -
|Trade receivables                       |  | $                 | 12,544 |  |                   | $
|Receivables from joint venture partners |  |                   | 716    |  |                   |  
|Other                                   |  |                   | 628    |  |                   |  
|                                        |  | $                 | 13,888 |  |                   | $



| | 6. | Exploration and evaluation assets
| | -- | ---------------------------------



|Balance at December 31, 2013                          |  | $ | 10,270 |  
|----------------------------------------------------- |  | - | ------ | -
|Additions                                             |  |   | 3,237  |  
|Disposition of Longview (notes 3b and 23)             |  |   | (2,335 | )
|Exploration and evaluation expense                    |  |   | (53    | )
|Transferred to property, plant and equipment (note 7) |  |   | (1,316 | )
|Balance at December 31, 2014                          |  | $ | 9,803  |  
|Additions                                             |  |   | 1,192  |  
|Transferred to property, plant and equipment (note 7) |  |   | (924   | )
|Balance at December 31, 2015                          |  | $ | 10,071 |  



Advantage Oil & Gas Ltd. - 16







| | 7. | Property, plant and equipment
| | -- | -----------------------------



|Cost                                                        |  | Natural gas and 
liquids properties |           |   | Furniture 
and 
equipment |   |       | Total | 
|----------------------------------------------------------- |  | ----------------------------------- | --------- | - | ------------------------- | - | ----- | ----- | 
|Balance at December 31, 2013                                |  | $                                   | 2,104,397 |   |                           | $ | 5,240 |       | 
|Additions                                                   |  |                                     | 252,556   |   |                           |   | -     |       | 
|Change in decommissioning liability (note 12)               |  |                                     | 19,938    |   |                           |   | -     |       | 
|Disposition of Longview (notes 3b and 23)                   |  |                                     | (664,090  | ) |                           |   | -     |       | 
|Transferred from exploration and evaluation assets (note 6) |  |                                     | 1,316     |   |                           |   | -     |       | 
|Balance at December 31, 2014                                |  | $                                   | 1,714,117 |   |                           | $ | 5,240 |       | 
|Additions                                                   |  |                                     | 163,549   |   |                           |   | 242   |       | 
|Change in decommissioning liability (note 12)               |  |                                     | (4,172    | ) |                           |   | -     |       | 
|Transferred from exploration and evaluation assets (note 6) |  |                                     | 924       |   |                           |   | -     |       | 
|Balance at December 31, 2015                                |  | $                                   | 1,874,418 |   |                           | $ | 5,482 |       | 



|Accumulated depreciation                  |  | Natural gas and 
    liquids properties |          |   | Furniture 
and 
equipment |   |       | Total | 
|----------------------------------------- |  | --------------------------------------- | -------- | - | ------------------------- | - | ----- | ----- | 
|Balance at December 31, 2013              |  | $                                       | 459,113  |   |                           | $ | 3,090 |       | 
|Depreciation                              |  |                                         | 91,168   |   |                           |   | 430   |       | 
|Disposition of Longview (notes 3b and 23) |  |                                         | (208,375 | ) |                           |   | -     |       | 
|Balance at December 31, 2014              |  | $                                       | 341,906  |   |                           | $ | 3,520 |       | 
|Depreciation                              |  |                                         | 86,999   |   |                           |   | 392   |       | 
|Balance at December 31, 2015              |  | $                                       | 428,905  |   |                           | $ | 3,912 |       | 
|                                          |  |                                         |          |   |                           |   |       |       | 



|Net book value       |  | Natural gas and 
liquids properties |           |  | Furniture
 and
 equipment |   |       | Total | 
|-------------------- |  | ----------------------------------- | --------- |  | ------------------------- | - | ----- | ----- | 
|At December 31, 2014 |  | $                                   | 1,372,211 |  |                           | $ | 1,720 |       | 
|At December 31, 2015 |  | $                                   | 1,445,513 |  |                           | $ | 1,570 |       | 



During the year ended December
31, 2015, Advantage capitalized general and administrative expenditures directly related to development activities of $6.2 million
(December 31, 2014 - $7.5 million).



Advantage included future
development costs of $1.7 billion (December 31, 2014 – $1.7 billion) in property, plant and equipment costs subject to depreciation.



Advantage Oil & Gas Ltd. - 17







| | 7. | Property, plant and equipment (continued)
| | -- | -----------------------------------------



For the year ended December 31, 2015,
Advantage did not recognize an impairment of property, plant and equipment as the recoverable amount of our single Glacier CGU
was well in excess of its carrying amount and that of exploration and evaluation assets allocated thereto. Recoverable amount was
based on a fair value less cost to sell determination, being the after-tax future net cash flows of proved and probable reserves
using forecast prices and costs, discounted at 10%.



Forecast natural gas prices used
in the calculation of recoverable amount at December 31, 2015 are as follows:



|Year     |  | AECO ($Cdn/MMBtu) |     
|-------- |  | ----------------- | ----
|2016     |  |                   | 2.25
|2017     |  |                   | 2.95
|2018     |  |                   | 3.42
|2019     |  |                   | 3.91
|2020     |  |                   | 4.20
|2021     |  |                   | 4.28
|2022     |  |                   | 4.35
|2023     |  |                   | 4.43
|2024     |  |                   | 4.51
|2025     |  |                   | 4.59
|2026 (1) |  |                   | 4.67



(1)Escalation of 1.5% thereafter



| | 8. | Related party transactions
| | -- | --------------------------



Key management compensation



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



|                                                |  | December 31, 2015 |       |  | December 31, 2014 |  
|----------------------------------------------- |  | ----------------- | ----- |  | ----------------- | -
|Salaries, director fees and short-term benefits |  | $                 | 2,684 |  |                   | $
|Share based compensation(1)                     |  |                   | 2,903 |  |                   |  
|                                                |  | $                 | 5,587 |  |                   | $



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



As at December 31, 2015, there is
a $2.3 million commitment (December 31, 2014 - $2.3 million) related to change of control or termination of employment of officers.



Advantage Oil & Gas Ltd. - 18







| | 9. | Financial risk management
| | -- | -------------------------



Financial instruments of the Corporation
include trade and other receivables, deposits, trade and other accrued liabilities, bank indebtedness, and derivative assets and
liabilities.



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, 2015, 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.



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 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. The actual gains and
losses realized on eventual cash settlement can vary materially due to subsequent fluctuations in commodity prices 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. - 19











| | 9. | 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 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 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, 2015 |        |  | December 31, 2014 |  
|--------------------------- |  | ----------------- | ------ |  | ----------------- | -
|Trade and other receivables |  | $                 | 13,888 |  |                   | $
|Deposits                    |  |                   | 1,371  |  |                   |  
|Derivative asset            |  |                   | 44,435 |  |                   |  
|                            |  | $                 | 59,694 |  |                   | $



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 counterparties 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 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, 2015, $0.3 million or 2.2% of trade and other receivables
are outstanding for 90 days or more (December 31, 2014 - $0.6 million or 2.6% 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, 2015 or 2014.



The Corporation’s most
significant customer, a Canadian oil and natural gas marketer, accounts for $11.9 million of the trade and other receivables at
December 31, 2015 (December 31, 2014 - $14.7 million).



Advantage Oil & Gas Ltd. - 20







| | 9. | Financial risk management (continued)
| | -- | -------------------------------------



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



The Corporation is subject to
liquidity risk attributed from trade and other accrued liabilities and bank indebtedness. Trade and other accrued 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 $450 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.



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, 2015 and 2014 are as follows:



|December 31, 2015                   |  | Less than one year |        |  | One to three years |   |         | Three to five years |  |   | Thereafter |  |  | Total |  
|----------------------------------- |  | ------------------ | ------ |  | ------------------ | - | ------- | ------------------- |  | - | ---------- |  |  | ----- | -
|Trade and other accrued liabilities |  | $                  | 23,050 |  |                    | $ | -       |                     |  | $ | -          |  |  | $     | -
|Bank indebtedness     - principal   |  |                    | -      |  |                    |   | 287,529 |                     |  |   | -          |  |  |       | -
|- interest (1)                      |  |                    | 11,106 |  |                    |   | 5,280   |                     |  |   | -          |  |  |       | -
|                                    |  | $                  | 34,156 |  |                    | $ | 292,809 |                     |  | $ | -          |  |  | $     | -



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



|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.



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 10). Under the terms of the agreements, the facilities are reviewed annually, with the next review scheduled
in June 2016. 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.



Advantage Oil & Gas Ltd. - 21







| | 9. | Financial risk management (continued)
| | -- | -------------------------------------



| | (c) | Price risk
| | --- | ----------



Advantage’s derivative
assets and liabilities are subject to price risk as their fair values are based on assumptions regarding forward commodity prices.
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, 2015 would result in a $10.6 million change in net income for the year ended December 31, 2015.



As at December 31, 2015, the
Corporation’s natural gas hedging positions are summarized as follows:



|                   |  | Average           |  | Average Price
|------------------ |  | ----------------- |  | -------------
|Period             |  | Production Hedged |  | AECO ($Cdn.) 
|Q1 2016 to Q4 2016 |  | 94.8 mmcf/d       |  | $3.62/mcf    
|Q1 2017 to Q4 2017 |  | 39.9 mmcf/d       |  | $3.44/mcf    
|Q1 2018            |  | 42.7 mmcf/d       |  | $3.22/mcf    



As at December 31, 2015, the
fair value of the derivatives outstanding resulted in an asset of $44.5 million (December 31, 2014 – $46.6 million) and
a liability of $0.2 million (December 31, 2014 – $Nil). 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, 2015, $30.4 million was recognized in net income as a derivative gain (December 31, 2014 - $30.9 million). The table below
summarizes the realized and unrealized gains (losses) on derivatives recognized in net income.



|                                      |  | Year ended        |        |   | Year ended        |  
|------------------------------------- |  | ----------------- | ------ | - | ----------------- | -
|                                      |  | December 31, 2015 |        |   | December 31, 2014 |  
|Realized gain (loss) on derivatives   |  | $                 | 32,743 |   |                   | $
|Unrealized gain (loss) on derivatives |  |                   | (2,321 | ) |                   |  
|                                      |  | $                 | 30,422 |   |                   | $
|                                      |  |                   |        |   |                   |  
|From continuing operations            |  | $                 | 30,422 |   |                   | $
|From discontinued operations          |  |                   | -      |   |                   |  
|                                      |  | $                 | 30,422 |   |                   | $



| | (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, 2015, net income and comprehensive income would have changed by $1.9 million (December 31, 2014 - $0.7
million) based on the average debt balance outstanding during the year.



Advantage Oil & Gas Ltd. - 22







| | 9. | 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, 2015 and December 31, 2014 is as follows:



|                                               |  | December 31, 2015 |             |  | December 31, 2014 |  
|---------------------------------------------- |  | ----------------- | ----------- |  | ----------------- | -
|Bank indebtedness (non-current) (note 10)      |  | $                 | 286,519     |  |                   | $
|Working capital deficit (1)                    |  |                   | 7,196       |  |                   |  
|Net debt                                       |  |                   | 293,715     |  |                   |  
|Convertible debenture maturity value (current) |  |                   | -           |  |                   |  
|Total debt                                     |  | $                 | 293,715     |  |                   | $
|Shares outstanding (note 14)                   |  |                   | 170,827,158 |  |                   |  
|Share closing market price ($/share)           |  | $                 | 7.03        |  |                   | $
|Market capitalization (2)                      |  |                   | 1,200,915   |  |                   |  
|Total capitalization                           |  | $                 | 1,494,630   |  |                   | $



(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. - 23







| | 10. | Bank indebtedness
| | --- | -----------------



|                                               |  | December 31, 2015 |         |   | December 31, 2014 |  
|---------------------------------------------- |  | ----------------- | ------- | - | ----------------- | -
|Revolving credit facility                      |  | $                 | 287,529 |   |                   | $
|Discount on Bankers Acceptances and other fees |  |                   | (1,010  | ) |                   |  
|Balance, end of year                           |  | $                 | 286,519 |   |                   | $



As at December 31, 2015, the
Corporation had reserve-based credit facilities (the "Credit Facilities") with a borrowing base of $450 million. The
Credit Facilities are comprised of a $20 million extendible revolving operating loan facility from one financial institution and
a $430 million extendible revolving credit facility from a syndicate of financial institutions. The revolving period of the Credit
Facilities will end on June 10, 2016 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 credit facility due 365 days after the last day of the revolving
period. The Credit Facilities are subject to re-determination of the borrowing base semi-annually in October and June of each year,
with the next annual review scheduled to occur in June 2016. There can be no assurance that the Credit Facilities will be renewed
at the current borrowing base level at that time. The borrowing base is determined based on, among other things, a thorough evaluation
of Advantage's reserve estimates based upon the lenders commodity price expectations. Revisions or changes in the reserve estimates
and commodity prices can have either a positive or a negative impact on the borrowing base. In the event that the lenders reduce
the borrowing base below the amount drawn at the time of redetermination, the Corporation has 60 days to eliminate any shortfall
by repaying amounts in excess of the new re-determined borrowing base. Amounts borrowed under the Credit Facilities bear interest
at rates ranging from LIBOR plus 2% to 3.25% per annum, and Canadian prime or US base rate plus 1% to 2.25% per annum, in each
case, depending on the type of borrowing and the Corporation’s debt to Earnings Before Interest, Taxes, Depreciation and
Amortization (“EBITDA”) ratio. Undrawn amounts under the Credit Facilities bear a standby fee ranging from 0.5%
to 0.8125% per annum, dependent on the Corporation’s debt to EBITDA ratio. Repayments of principal are not required prior
to maturity provided that the borrowings under the Credit Facilities do not exceed the authorized borrowing amount and the Corporation
is in compliance with all covenants, representations and warranties. 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, 2015 and 2014. 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. The Credit Facilities are
collateralized by a $1 billion floating charge demand debenture covering all assets. For the year ended December 31, 2015, the
average effective interest rate on the outstanding amounts under the facilities was approximately 3.2% (December 31, 2014 –
3.8%). Advantage has no letters of credit issued and outstanding at December 31, 2015 (December 31, 2014 - $2.5 million).



Advantage Oil & Gas Ltd. - 24







| | 11. | Convertible debenture
| | --- | ---------------------



The balance of the convertible
debenture outstanding at December 31, 2015 and changes in the liability and equity components during the years ended December 31,
2015 and 2014 are as follows:



|                             |  |   | 5.00    | %
|---------------------------- |  | - | ------- | -
|Trading symbol               |  |   | AAV.DBH |  
|Debenture outstanding        |  | $ | 86,250  |  
|Liability component:         |  |   |         |  
|Balance at December 31, 2013 |  | $ | 82,454  |  
|Accretion of discount        |  |   | 3,487   |  
|Balance at December 31, 2014 |  | $ | 85,941  |  
|Accretion of discount        |  |   | 309     |  
|Matured                      |  |   | (86,240 | )
|Conversion                   |  |   | (10     | )
|Balance at December 31, 2015 |  | $ | -       |  
|                             |  |   |         |  
|Equity component:            |  |   |         |  
|Balance at December 31, 2014 |  | $ | 8,348   |  
|Balance at December 31, 2015 |  | $ | -       |  



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



| | 12. | 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 2016 and 2075. A risk-free rate of 2.16% (December 31, 2014 – 2.33%) and an inflation factor of 1.5%
(December 31, 2014 – 2%) were used to calculate the fair value of the decommissioning liability at December 31, 2015. A reconciliation
of the decommissioning liability is provided below:



|                                                             |  | Year ended        |        |   | Year ended        |  
|------------------------------------------------------------ |  | ----------------- | ------ | - | ----------------- | -
|                                                             |  | December 31, 2015 |        |   | December 31, 2014 |  
|Balance, beginning of year                                   |  | $                 | 48,878 |   |                   | $
|Accretion expense                                            |  |                   | 1,131  |   |                   |  
|Liabilities incurred                                         |  |                   | 1,767  |   |                   |  
|Change in estimates                                          |  |                   | (2,011 | ) |                   |  
|Effect of change in risk-free rate and inflation rate factor |  |                   | (3,928 | ) |                   |  
|Liabilities settled                                          |  |                   | (1,262 | ) |                   |  
|Disposition of Longview (notes 3b and 23)                    |  |                   | -      |   |                   |  
|Balance, end of year                                         |  | $                 | 44,575 |   |                   | $



Advantage Oil & Gas Ltd. - 25







| | 13. | Income taxes
| | --- | ------------



The provision for income taxes
is as follows:



|                                       |  | Year ended        |       |  | Year ended        |  
|-------------------------------------- |  | ----------------- | ----- |  | ----------------- | -
|                                       |  | December 31, 2015 |       |  | December 31, 2014 |  
|Current income tax expense             |  | $                 | -     |  |                   | $
|Deferred income tax expense (recovery) |  |                   | 7,753 |  |                   |  
|Income tax expense (recovery)          |  | $                 | 7,753 |  |                   | $



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, 2015 |        |   | December 31, 2014 |  
|Income before taxes from continuing operations                 |  | $                 | 29,131 |   |                   | $
|Combined federal and provincial income tax rates               |  |                   | 26.00  | % |                   |  
|Expected income tax expense                                    |  |                   | 7,574  |   |                   |  
|Increase (decrease) in income taxes resulting from:            |  |                   |        |   |                   |  
|Non-deductible share based compensation                        |  |                   | 1,487  |   |                   |  
|Alberta tax rate increase                                      |  |                   | 1,778  |   |                   |  
|Scientific Research and Experimental Development claim         |  |                   | (3,688 | ) |                   |  
|Unrecognized deferred tax asset on sale of Questfire Debenture |  |                   | -      |   |                   |  
|Difference between current and expected tax rates              |  |                   | 602    |   |                   |  
|                                                               |  | $                 | 7,753  |   |                   | $
|Effective tax rate                                             |  |                   | 26.61  | % |                   |  



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, 2013  |  | $                             | 218,439 |  |                            | $ | (1,791 | )     | 
|Charged (credited) to income  |  |                               | 10,586  |  |                            |   | 13,430 |       | 
|Balance at December 31, 2014  |  | $                             | 229,025 |  |                            | $ | 11,639 |       | 
|Charged (credited) to income  |  |                               | 33,972  |  |                            |   | 304    |       | 
|Balance at December 31, 2015  |  | $                             | 262,997 |  |                            | $ | 11,943 |       | 



|Deferred income tax asset    |  | Decommissioning liability |         |   | Non-capital losses |   |          | Other |  |   | Total   |  
|---------------------------- |  | ------------------------- | ------- | - | ------------------ | - | -------- | ----- |  | - | ------- | -
|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 | )
|Charged (credited) to income |  |                           | 239     |   |                    |   | (15,036  | )     |  |   | (11,726 | )
|Balance at December 31, 2015 |  | $                         | (12,064 | ) |                    | $ | (198,649 | )     |  | $ | (23,075 | )





|Net deferred income tax liability (asset) |  | Longview |         |   | Advantage |   |        | Total | 
|----------------------------------------- |  | -------- | ------- | - | --------- | - | ------ | ----- | 
|Balance at December 31, 2013              |  |          | (39,069 | ) |           |   | 3,006  |       | 
|Charged (credited) to income              |  |          | 39,069  |   |           |   | 30,393 |       | 
|Balance at December 31, 2014              |  | $        | -       |   |           | $ | 33,399 |       | 
|Charged (credited) to income              |  |          |         |   |           |   | 7,753  |       | 
|Balance at December 31, 2015              |  | $        | -       |   |           | $ | 41,152 |       | 





Advantage Oil & Gas Ltd. - 26







| | 13. | Income taxes (continued)
| | --- | ------------------------



The estimated tax pools available
at December 31, 2015 are as follows:



|Canadian development expenses                                 |  | $ | 194,195   | 
|------------------------------------------------------------- |  | - | --------- | 
|Canadian exploration expenses                                 |  |   | 65,994    | 
|Canadian oil and gas property expenses                        |  |   | 4,049     | 
|Non-capital losses                                            |  |   | 735,738   | 
|Undepreciated capital cost                                    |  |   | 206,057   | 
|Capital losses                                                |  |   | 157,869   | 
|Scientific research and experimental development expenditures |  |   | 32,506    | 
|Other                                                         |  |   | 8,196     | 
|                                                              |  | $ | 1,404,604 | 



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



No deferred tax asset has been
recognized for capital losses of $158 million (December 31, 2014 – $158 million). Recognition is dependent on the realization
of future taxable capital gains.



| | 14. | 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, 2013        |  |               | 168,382,838 |  |        | $
|Share based compensation (note 16)  |  |               | 1,684,812   |  |        |  
|Balance at December 31, 2014        |  |               | 170,067,650 |  |        | $
|Share based compensation (note 16)  |  |               | 758,346     |  |        |  
|Conversion of convertible debenture |  |               | 1,162       |  |        |  
|Balance at December 31, 2015        |  |               | 170,827,158 |  |        | $



Advantage Oil & Gas Ltd. - 27







| | 15. | 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  |            
|-------------------------------------------------------- |  | ----------- | -----------
|                                                         |  | December 31 |            
|                                                         |  | 2015        |            
|Net income (loss) attributable to Advantage shareholders |  |             |            
|Basic and diluted - continuing operations                |  | $           | 21,378     
|Basic and diluted - discontinued operations              |  |             | -          
|Basic and diluted                                        |  | $           | 21,378     
|                                                         |  |             |            
|Weighted average shares outstanding                      |  |             |            
|Basic                                                    |  |             | 170,607,873
|Stock Option Plan                                        |  |             | 891,621    
|Performance Incentive Plan                               |  |             | 211,926    
|Diluted                                                  |  |             | 171,711,420



The
calculation of diluted net income (loss) per share for the years ended December 31, 2015 and 2014 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 per share calculation for the year ended December 31, 2015 was 796,830 shares (December 31, 2014 –
10,029,070 shares). As at December 31, 2014, the total convertible debenture outstanding was convertible to 10,029,070 shares.
As the convertible debenture matured on January 30, 2015 (note 11), it had no dilutive effect on periods beginning on dates thereafter.



The
calculation of diluted net income (loss) per share for the year ended December 31, 2014 excluded the effects of the Performance
Incentive Plan, as this plan was cash-settled until May 27, 2015 (note 3(f)).



Advantage Oil & Gas Ltd. - 28







| | 16. | 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 |  |  | 0.98 | %
|                         |  |  |      |  
|Dividend rate            |  |  | 0    | %
|                         |  |  |      |  
|Risk-free rate           |  |  | 1.05 | %



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, 2015:



|                             |  | Stock Options |            |   | Weighted-Average Exercise Price |  
|---------------------------- |  | ------------- | ---------- | - | ------------------------------- | -
|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  |   |                                 | $
|Exercised                    |  |               | (2,081,538 | ) |                                 |  
|Granted                      |  |               | 987,928    |   |                                 |  
|Forfeited/cancelled          |  |               | (19,764    | ) |                                 |  
|Balance at December 31, 2015 |  |               | 4,031,302  |   |                                 | $



|                            |  | Stock Options Outstanding           |           |  | Stock Options Exercisable                           | 
|--------------------------- |  | ----------------------------------- | --------- |  | --------------------------------------------------- | 
|Range of Exercise
    Price |  | Number of Stock Options Outstanding |           |  | Weighted Average Remaining Contractual Life - Years | 
|$4.43 - $5.87               |  |                                     | 3,032,300 |  |                                                     | 
|$5.88 - $6.82               |  |                                     | 999,002   |  |                                                     | 
|$4.43 - $6.82               |  |                                     | 4,031,302 |  |                                                     | 



Advantage Oil & Gas Ltd. - 29







| | 16. | 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,
that is determined based on Corporate Performance Measures, as approved by the Board of Directors.



As at December 31, 2015, no
Restricted Awards have been granted.



The following table is a continuity
of Performance Awards:



|                             |  | Performance Awards |        
|---------------------------- |  | ------------------ | -------
|Balance at December 31, 2013 |  |                    | -      
|Granted                      |  |                    | 409,702
|Forfeited                    |  |                    | (3,560 
|Balance at December 31, 2014 |  |                    | 406,142
|Granted                      |  |                    | 263,510
|Forfeited                    |  |                    | (3,560 
|Balance at December 31, 2015 |  |                    | 666,092



Share based
compensation recognized by plan for the years ended December 31, 2015 and 2014 are as follows:



|                                     |  | Year ended  |       
|------------------------------------ |  | ----------- | ------
|                                     |  | December 31 |       
|                                     |  | 2015        |       
|Stock Option Plan                    |  | $           | 3,101 
|Performance Incentive Plan           |  |             | 2,620 
|RSPIP(1)                             |  |             | -     
|Total share based compensation       |  |             | 5,721 
|Capitalized                          |  |             | (2,374
|Net share based compensation expense |  | $           | 3,347 
|                                     |  |             |       
|From continuing operations           |  | $           | 3,347 
|From discontinued operations         |  |             | -     
|                                     |  | $           | 3,347 



(1)Relates solely to discontinued operations



Advantage Oil & Gas Ltd. - 30







| | 17. | Natural gas and liquids sales
| | --- | -----------------------------



|                                        |  | Year ended  |        
|--------------------------------------- |  | ----------- | -------
|                                        |  | December 31 |        
|                                        |  | 2015        |        
|Natural gas sales                       |  | $           | 129,802
|Crude oil and natural gas liquids sales |  |             | 2,509  
|Total natural gas and liquids sales     |  | $           | 132,311
|                                        |  |             |        
|From continuing operations              |  | $           | 132,311
|From discontinued operations            |  |             | -      
|                                        |  | $           | 132,311



| | 18. | General and administrative expense (“G&A”)
| | --- | ------------------------------------------



|                                   |  | Year ended  |       
|---------------------------------- |  | ----------- | ------
|                                   |  | December 31 |       
|                                   |  | 2015        |       
|Salaries and benefits              |  | $           | 7,026 
|Share based compensation (note 16) |  |             | 5,721 
|Office rent                        |  |             | 1,146 
|Other                              |  |             | 2,869 
|Total G&A                          |  |             | 16,762
|Capitalized (note 7)               |  |             | (6,193
|Net G&A                            |  | $           | 10,569
|                                   |  |             |       
|From continuing operations         |  | $           | 10,569
|From discontinued operations       |  |             | -     
|                                   |  | $           | 10,569



| | 19. | Finance expense
| | --- | ---------------



|                                                |  | Year ended  |       
|----------------------------------------------- |  | ----------- | ------
|                                                |  | December 31 |       
|                                                |  | 2015        |       
|Interest on bank indebtedness (note 10)         |  | $           | 10,035
|Interest on convertible debenture (note 11)     |  |             | 337   
|Accretion on convertible debenture (note 11)    |  |             | 309   
|Accretion of decomissioning liability (note 12) |  |             | 1,131 
|Total finance expense                           |  | $           | 11,812
|                                                |  |             |       
|From continuing operations                      |  | $           | 11,812
|From discontinued operations                    |  |             | -     
|                                                |  | $           | 11,812



Advantage Oil & Gas Ltd. - 31







| | 20. | Other income (expenses)
| | --- | -----------------------



|                                                                          |  | Year ended  |    
|------------------------------------------------------------------------- |  | ----------- | ---
|                                                                          |  | December 31 |    
|                                                                          |  | 2015        |    
|Interest income - Questfire Debenture                                     |  | $           | -  
|Accretion income - Questfire Debenture                                    |  |             | -  
|Loss on disposition of Questfire Debenture                                |  |             | -  
|Unrealized gain - Questfire Class B Shares                                |  |             | -  
|Loss on sale of assets                                                    |  |             | -  
|Miscellaneous income                                                      |  |             | 364
|Total other income (expenses) from continuing and discontinued operations |  | $           | 364



| | 21. | Supplementary cash flow information – continuing
operations
| | --- | -----------------------------------------------------------



Changes
in non-cash working capital is comprised of:



|                                    |  | Year ended  |        
|----------------------------------- |  | ----------- | -------
|                                    |  | December 31 |        
|                                    |  | 2015        |        
|Source (use) of cash:               |  |             |        
|Trade and other receivables         |  | $           | 8,086  
|Prepaid expenses and deposits       |  |             | 537    
|Trade and other accrued liabilities |  |             | (58,691
|                                    |  | $           | (50,068
|                                    |  |             |        
|Related to operating activities     |  | $           | (19,376
|Related to financing activities     |  |             | (1,808 
|Related to investing activities     |  |             | (28,884
|                                    |  | $           | (50,068



| | 22. | 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 |        
|------------------- |  | ----------- | -------
|                    |  | 2015        |        
|2015                |  |             | -      
|2016                |  |             | 21,397 
|2017                |  |             | 21,174 
|2018                |  |             | 24,544 
|2019                |  |             | 24,602 
|2020 and thereafter |  |             | 80,500 
|Total commitments   |  | $           | 172,217



Advantage Oil & Gas Ltd. - 32







| | 23. | 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 an Offering (note 3(b)).



Results of the discontinued Longview
segment are as follows:



|                                                 |  | Year ended  |  
|------------------------------------------------ |  | ----------- | -
|                                                 |  | December 31 |  
|(thousands of Canadian dollars)                  |  | 2015        |  
|                                                 |  |             |  
|Petroleum and natural gas sales                  |  | $           | -
|Less: royalties                                  |  |             | -
|Petroleum and natural gas revenue                |  |             | -
|                                                 |  |             |  
|Operating expense                                |  |             | -
|General and administrative expense               |  |             | -
|Depreciation expense                             |  |             | -
|Finance expense                                  |  |             | -
|Losses on derivatives                            |  |             | -
|Non-controlling interest                         |  |             | -
|Income before taxes from discontinued operations |  |             | -
|Income tax expense                               |  |             | -
|Loss from discontinued operations                |  |             | -
|Loss on disposition of Longview                  |  |             | -
|Net loss from discontinued operations            |  | $           | -



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



Cash flows of the discontinued Longview segment are as follows:



|                                    |  | Year ended  |  
|----------------------------------- |  | ----------- | -
|                                    |  | December 31 |  
|(thousands of Canadian dollars)     |  | 2015        |  
|                                    |  |             |  
|Cash flow from operating activities |  | $           | -
|Cash flow from financing activities |  |             | -
|Cash flow from investing activities |  |             | -



| | 24. | Subsequent event
| | --- | ----------------



On February 18, 2016, the Corporation
announced that it had entered into an agreement with a syndicate of underwriters pursuant to which the underwriters have agreed
to purchase, on a bought deal basis, 11,750,000 common shares of Advantage (“Common Shares”) at a price of $7.45 per
Common Share, for gross proceeds of $87.5 million (the “Offering”). The Corporation has also granted the underwriters
an option to purchase an additional 15% of the Common Shares issued under the Offering at a price of $7.45 per Common Share to
cover over-allotments, if any. The Offering is expected to close on March 8, 2016.



Advantage Oil & Gas Ltd. - 33









|Directors                                              | Legal Counsel                           
|------------------------------------------------------ | ----------------------------------------
|                                                       |                                         
|Jill Angevine (1)(3)                                   | Burnet, Duckworth and Palmer LLP        
|Stephen E. Balog (1)(2)(3)                             |                                         
|Grant Fagerheim (2)(3)                                 | Transfer Agent                          
|Paul G. Haggis (1)(2)(3)                               |                                         
|Andy J. Mah                                            | Computershare Trust Company of Canada   
|Ronald A. McIntosh(2)(3)                               |                                         
|                                                       | Abbreviations                           
|(1)Member of Audit Committee                           |                                         
|(2)Member of Reserve Evaluation Committee              | bbls                                    
|(3)Member of Human Resources, Compensation & Corporate | bbls/d                                  
|Governance Committee                                   | boe                                     
|                                                       | boe/d                                   
|Officers                                               | mcf                                     
|                                                       | mcf/d                                   
|Andy J. Mah, President and CEO                         | mmcf                                    
|Craig Blackwood, Vice President, Finance and CFO       | mmcf/d                                  
|Neil Bokenfohr, Senior Vice President                  | bcf                                     
|                                                       | tcf                                     
|Corporate Secretary                                    | gj                                      
|                                                       | NGLs                                    
|Jay P. Reid, Partner                                   | WTI                                     
|Burnet, Duckworth and Palmer LLP                       |                                         
|                                                       |                                         
|Auditors                                               | Corporate Office                        
|                                                       |                                         
|PricewaterhouseCoopers LLP                             | 300, 440 – 2nd Avenue SW                
|                                                       | Calgary, Alberta T2P 5E9                
|Bankers                                                | (403) 718-8000                          
|                                                       |                                         
|The Bank of Nova Scotia                                | Contact Us                              
|National Bank of Canada                                |                                         
|Royal Bank of Canada                                   | Toll free: 1-866-393-0393               
|Canadian Imperial Bank of Commerce                     | Email: ir@advantageog.com               
|Union Bank, Canada Branch                              | Visit our website at www.advantageog.com
|Alberta Treasury Branches                              |                                         
|Wells Fargo Bank N.A., /Canada Branch                  | Toronto Stock Exchange Trading Symbols  
|                                                       |                                         
|Independent Reserve Evaluators                         | Shares: AAV                             
|                                                       |                                         
|Sproule Associates Limited                             | New York Stock Exchange Trading Symbol  
|                                                       |                                         
|                                                       | Shares: AAV                             



Advantage Oil & Gas Ltd. - 34