Exhibit
99.2





Description: Bellatrix_Logo_Col



MANAGEMENT’S
DISCUSSION AND ANALYSIS



March 14,
2017 – The following Management’s Discussion and Analysis of financial results (“MD&A”) as provided
by the management of Bellatrix Exploration Ltd. (“Bellatrix” or the “Company”) should be read in conjunction
with the audited consolidated financial statements of the Company for the years ended December 31, 2016 and 2015 as well as Bellatrix’s
Annual Information Form (“AIF”) that is filed on SEDAR at www.sedar.com and on the Company’s website
at www.bellatrixexploration.com. The Company’s EDGAR filings and forms are available through the U.S. Securities
and Exchange Commission at www.sec.gov. This commentary is based on information available to, and is dated as of, March
14, 2017. The financial data presented is in Canadian dollars, except where indicated otherwise.



CONVERSION:
The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion
ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 mcf/bbl) is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that
the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy
equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value. All boe conversions in
this report are derived from converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil.



NON-GAAP
MEASURES: Throughout Bellatrix’s MD&A, the Company uses terms that are commonly used in the oil and natural gas industry,
but do not have a standardized meaning presented by International Financial Reporting Standards (“IFRS”) and therefore
may not be comparable to the calculations of similar measures for other entities. Management believes that the presentation of
these non-GAAP measures provide useful information to investors and shareholders as the measure provide increased transparency
and the ability to better analyze performance against prior periods on a comparable basis.



Operating
netbacks are calculated by subtracting royalties, transportation, and operating expenses from total revenue. Management believes
this measure is a useful supplemental measure of the amount of total revenue received after transportation, royalties and operating
expenses. The Company’s calculation of total revenue includes petroleum and natural gas sales and other income, and excludes
commodity price risk management. Total capital expenditures – net includes the cash impact of capital expenditures and property
dispositions, as well as the non-cash capital impacts of corporate acquisitions, property acquisitions, adjustments to the Company’s
decommissioning liabilities, and share based compensation. Bellatrix’s method of calculating these measures may differ from
other entities, and accordingly, may not be comparable to measures used by other companies.



CAPITAL
PERFORMANCE MEASURES: In addition to the non-GAAP measures described above, there are also terms that have been reconciled in
the Company’s financial statements to the most comparable IFRS measures. These terms do not have any standardized meaning
prescribed by IFRS and therefore may not be comparable with the calculations of similar measures for other entities. These terms
have been referenced in the Company’s MD&A and financial statements. These terms are used by management to analyze operating
performance on a comparable basis with prior periods and to analyze the liquidity of the Company.



This MD&A
contains the term “funds flow from operations” which should not be considered an alternative to, or more meaningful
than “cash flow from operating activities” as determined in accordance with GAAP as an indicator of the Company’s
performance. Therefore reference to funds flow from operations or funds flow from operations per share may not be comparable with
the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance
and leverage and considers funds flow from operations to be a key measure as it demonstrates the Company’s ability to generate
the cash necessary to fund future capital investments and to repay debt. Funds flow from operations is calculated as cash flow
from operating activities, excluding decommissioning costs incurred, changes in non-cash working capital incurred, and transaction
costs. The reconciliation between cash flow from operating activities and funds flow from operations can be found in this MD&A.
Funds flow from operations per share is calculated using the weighted average number of shares for the period.



Bellatrix Exploration Ltd.1







This MD&A also contains the terms
“net debt”, “total net debt”, and “adjusted working capital deficiency”, which also are not
recognized measures under GAAP. Therefore reference to total net debt, net debt and adjusted working capital deficiency may not
be comparable with the calculation of similar measures for other entities. The Company’s calculation of total net debt excludes
other deferred liabilities, deferred capital obligations, long-term risk management contract liabilities, decommissioning liabilities,
and deferred tax liabilities. Total net debt includes the adjusted working capital deficiency, long term loans receivable, the
liability component of the Convertible Debentures (as defined below), current bank debt and long term bank debt. Net debt excludes
the liability component of the Convertible Debentures. The adjusted working capital deficiency is a non-GAAP measure calculated
as net working capital deficiency excluding current risk management contract assets and liabilities, current portion of other
deferred liabilities, current portion of deferred capital obligation and the current bank debt. Management believes these measures
are useful supplementary measures of the total amount of current and long-term debt.



JOINTARRANGEMENTS:
Bellatrix is a partner in the Grafton Joint Venture, the CNOR Joint Venture, and the Troika Joint Venture (all as defined below),
which have all been separately assessed and classified under IFRS as joint operations. This classification is on the basis that
the arrangement is not conducted through a separate legal entity and the partners are legally obligated to pay their share of
costs incurred and take their share of output produced from the various production areas, and all partners have rights to the
assets and obligations for the liabilities resulting from the joint operations. The Company considered these factors as well as
the terms of the individual agreements in determining the classification of a joint operation to be appropriate for each
arrangement. For purposes of disclosure throughout the MD&A and financial statements, Bellatrix has referred to these arrangements
by the common oil and gas industry term of joint ventures.



GRAFTON
JOINT VENTURE – During 2013 Bellatrix and Grafton Energy Co I Ltd.(“Grafton”) established a joint venture whereby
Grafton agreed to contribute 82%, or $200 million, to participate in a Notikewin/Falher and Cardium well program in the Willesden
Green and Brazeau areas of West-Central Alberta (the “Grafton Joint Venture”) with a two year funding period (expiring
June 26, 2015). Under the terms of the Grafton Joint Venture agreement, Grafton earns 54% of Bellatrix’s working interest
(“WI”) in each well drilled in the well program until payout (being recovery of Grafton's capital investment plus
an 8% internal rate of return) on the total program, which reverts to  33% of Bellatrix's pre-Grafton Joint Venture WI after
payout.  At any time after payout of the entire program, Grafton has the option to elect to convert all wells from the 33%
WI to a 17.5% Gross Overriding Royalty (“GORR”). During 2014, Bellatrix announced that Grafton elected to exercise
an option to increase committed capital investment to the Grafton Joint Venture by an additional $50 million on the same terms
and conditions, for a total commitment by Grafton of $250 million. For wells relating to the exercised option, the funding period
of the Grafton Joint Venture was extended to June 26, 2016. During the second quarter of 2015 the funding period for the initial
$200 million commitment was extended to December 31, 2015 (from June 26, 2015). The funding obligation was satisfied by Bellatrix
and Grafton by that date. In the first quarter of 2016,  the parties agreed to further extend the funding period for the
remaining $50 million commitment under the Grafton Joint Venture to December 31, 2016 (from June 26, 2016). In December 2016,
Bellatrix and Grafton terminated the remainder of the development program under the Grafton Joint Venture. As a result, Bellatrix
and Grafton have no further obligation to drill additional wells thereunder. The parties continue to have joint operations in
existing wells related to the executed capital program.



CNOR
JOINT VENTURE - During the third quarter of 2014, Bellatrix announced that the Company and Canadian Non-Operated Resources Corp.
("CNOR"), a non-operated oil and gas company managed by Grafton Asset Management Inc., had completed the formation of
a new multi-year joint venture arrangement (the “CNOR Joint Venture”), pursuant to which CNOR has committed $250 million
in capital towards future accelerated development of a portion of Bellatrix's extensive undeveloped land holdings. Under the terms
of the agreement, CNOR will pay 50% of the drilling, completion, equipping and tie-in capital expenditures associated with development
plans to be proposed by Bellatrix and approved by a management committee comprised of representatives of Bellatrix and CNOR in
order to earn 33% of Bellatrix's working interest before payout (being recovery of CNOR’s capital investment plus an 8%
return on investment) and automatically converting to a 10.67% GORR on Bellatrix's pre-joint venture working interest after payout.
On September 29, 2016, the parties amended the terms of the CNOR Joint Venture to extend the funding period to December 31, 2020,
as a result Bellatrix is now required to propose a joint development plan on or before October 1, 2017 with the expectation that
the funds will be primarily spent between 2018 through 2020.



Bellatrix Exploration Ltd.2







TROIKA
JOINT VENTURE – Bellatrix has a joint venture (the “Troika Joint Venture”) with TCA Energy Ltd. ("TCA")
in the Ferrier Cardium area of West-Central Alberta, whereby Troika contributed 50% towards a capital program for which they received
a 35% WI until payout (being recovery of TCA's capital investment plus a 15% internal rate of return) on the total program, and
thereafter reverting to 25% of Bellatrix's WI. During the fourth quarter of 2015, Bellatrix and TCA mutually agreed to discharge
the remainder of the drilling program under the Troika joint venture agreement. As a result, Bellatrix and TCA have no further
obligation to drill additional wells thereunder but continue to have ongoing joint operations under the joint venture arrangement.



FORWARD
LOOKING STATEMENTS: Certain information contained herein and in the accompanying report to shareholders may contain forward
looking statements within the meaning of applicable securities laws. The use of any of the words “position”,
“continue”, “opportunity”, “expect”, “plan”, “maintain”,
“estimate”, “assume”, “target”, “believe” “forecast”,
“intend”, “strategy”, “will”, “elect”, “anticipate”,
“enhance” and similar expressions are intended to identify forward-looking statements. More particularly and
without limitation, this document contains forward-looking statements concerning management's assessment of future plans,
Bellatrix’s intent to maintain focused on maintaining financial strength and liquidity and on profitable resource
development in 2017, details of Bellatrix's net 2017 capital budget including expectation to not exceed $105 million,
expectation that 2017 capital investment will focus on Phase 2 of the Alder Flats Plant (as defined below) and
Bellatrix's core areas, expectation that construction of Phase 2 of the Alder Flats Plant will be completed on time and on
budget, expected timing and costs associated with completing Phase 2 of the Alder Flats Plant, expected capacity of Phase 2
of the Alder Flats Plant, expected annual interest savings resulting from reduced bank debt, the intent to establish new
credit facility prior to maturity date of existing credit facilities, intent to continue to expand technical acumen to drive
sustainable efficiency gains and greater overall corporate profitability from our capital investment projects, expectation
that capital investment into near term infrastructure investments will deliver high value liquids extraction capability and
production expense reductions, expectation that capital expenditures will provide foundational support to execute on our
three year development plan, expected reductions in operating costs as a result of completion of Phase 2 of the Alder Flats
Plant, expectation of continued development focus in the Company’s core areas, expected drilling and other capital
expenditure plans in certain areas (including expected working interest in wells to be drilled), expected annual average 2017
production of approximately 33,500 boe/d, expectation of percentage of production hedged in 2017 and 2018, expected 2017
production expenditures, expectations of how Bellatrix will fund its 2017 capital expenditure budget, anticipated liquidity
of the Company and various matters that may impact such liquidity, the intent that the 2017 drilling program will optimize
capital investment, forecast rates of return, and long term net asset value and reserve growth potential, expectation that
approximately 50% of the total 2017 $105 million capital budget will be spent in the first half of 2017, expectation that
exit production volumes will grow over the course of 2017 by approximately 10% to 15%, and the intent that Bellatrix’s
hedging program will provide reduced commodity price volatility and greater assurance over future revenue and cash flows.,
may constitute forward-looking statements under applicable securities laws. To the extent that any
forward-looking information contained herein constitute a financial outlook, they were approved by management on March 14,
2017 and are included herein to provide readers with an understanding of the anticipated funds available to Bellatrix to fund
its operations and readers are cautioned that the information may not be appropriate for other purposes. Forward-looking
statements necessarily involve risks, including, without limitation, risks associated with oil and gas exploration,
development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices,
currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to
retain drilling rigs and other services, incorrect assessment of the value of acquisitions, failure to realize the
anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals, actions
taken by the Company's lenders that reduce the Company's available credit and ability to access sufficient capital from
internal and external sources. Events or circumstances may cause actual results to differ materially from those predicted, as
a result of the risk factors set out and other known and unknown risks, uncertainties, and other factors, many of which are
beyond the control of Bellatrix. In addition, forward looking statements or information are based on a number of factors and
assumptions which have been used to develop such statements and information but which may prove to be incorrect and which
have been used to develop such statements and information in order to provide shareholders with a more complete perspective
on Bellatrix’s future operations. Such information may prove to be incorrect and readers are cautioned that the
information may not be appropriate for other purposes. Although the Company believes that the expectations reflected in such
forward looking statements or information are reasonable, undue reliance should not be placed on forward looking
statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other
factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: the impact
of increasing competition; the general stability of the economic and political environment in which the Company operates; the
timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and
services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the
Company has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Company to
obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and
natural gas reserves through acquisition, development of exploration; the timing and costs of pipeline, storage and facility
construction and expansion and the ability of the Company to secure adequate product transportation; future commodity prices;
currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the
jurisdictions in which the Company operates; and the ability of the Company to successfully market its oil and natural gas
products. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been
used. As a consequence, actual results may differ materially from those anticipated in the forward-looking
statements. Additional information on these and other factors that could affect Bellatrix’s operations and financial
results are included in reports on file with Canadian and United States securities regulatory authorities and may be accessed
through the SEDAR website (www.sedar.com), through the SEC website (www.sec.gov),
and at Bellatrix’s website (www.bellatrixexploration.com). Furthermore, the
forward looking statements contained herein are made as at the date hereof and Bellatrix does not undertake any obligation to
update publicly or to revise any of the included forward looking statements, whether as a result of new information, future
events or otherwise, except as may be required by applicable securities laws.



Bellatrix Exploration Ltd.3







The reader
is further cautioned that the preparation of financial statements in accordance with GAAP requires management to make certain
judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is
also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical,
engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as further
information becomes available, and as the economic environment changes.



Bellatrix Exploration Ltd.4







Overview
and Description of the Business



Bellatrix
Exploration Ltd. (“Bellatrix” or the “Company”) is a publicly traded Western Canadian based growth oriented
oil and gas company engaged in the exploration for, and the acquisition, development and production of oil and natural gas reserves
in the provinces of Alberta, British Columbia and Saskatchewan.



Common shares
of Bellatrix trade on the Toronto Stock Exchange (“TSX”) and on the New York Stock Exchange (“NYSE”) under
the symbol “BXE”.



FOURTH
QUARTER AND ANNUAL 2016 HIGHLIGHTS



|                                              |  | Three months ended December 31, |  | Year ended December 31,
|--------------------------------------------- |  | ------------------------------- |  | -----------------------
|                                              |  | 2016                            |  | 2015                   
|SELECTED FINANCIAL RESULTS                    |  |                                 |  |                        
|(CDN$000s except share and per share amounts) |  |                                 |  |                        
|Cash flow from operating activities           |  | 17,114                          |  | 42,033                 
|Per basic share (1)                           |  | $0.07                           |  | $0.22                  
|Per diluted share (1)                         |  | $0.07                           |  | $0.22                  
|Funds flow from operations (2)                |  | 8,437                           |  | 29,653                 
|Per basic share (1)                           |  | $0.03                           |  | $0.15                  
|Per diluted share (1)                         |  | $0.03                           |  | $0.15                  
|Net profit (loss)                             |  | 23,085                          |  | (356,631)              
|Per basic share (1)                           |  | $0.09                           |  | ($1.86)                
|Per diluted share (1)                         |  | $0.09                           |  | ($1.86)                
|Capital – exploration and development         |  | 24,640                          |  | 16,775                 
|Capital – corporate assets                    |  | 172                             |  | 153                    
|Property acquisitions                         |  | (13)                            |  | 287                    
|Capital expenditures – cash                   |  | 24,799                          |  | 17,215                 
|Property dispositions – cash (4)              |  | (105,206)                       |  | (5,129)                
|Total net capital expenditures – cash         |  | (80,407)                        |  | 12,086                 
|Property acquisitions – non-cash              |  | -                               |  | -                      
|Property dispositions – non-cash              |  | (21,309)                        |  | -                      
|Other non-cash items                          |  | (36,224)                        |  | 2,594                  
|Total capital expenditures – net (3)          |  | (137,940)                       |  | 14,680                 
|Bank debt                                     |  | 19,143                          |  | 340,743                
|Senior Notes                                  |  | 324,691                         |  | 332,024                
|Convertible Debentures (liability component)  |  | 37,420                          |  | -                      
|Long term loan receivable                     |  | (8,775)                         |  | -                      
|Adjusted working capital deficiency (5)       |  | 23,716                          |  | 44,878                 
|Total net debt (5)                            |  | 396,195                         |  | 717,645                
|Total assets                                  |  | 1,453,730                       |  | 1,703,212              
|Total shareholders’ equity                    |  | 863,418                         |  | 810,572                



Bellatrix Exploration Ltd.5







|SELECTED OPERATING RESULTS                               |  |         |  | Three months ended December 31, |  | Year ended December 31,
|-------------------------------------------------------- |  | ------- |  | ------------------------------- |  | -----------------------
|                                                         |  |         |  | 2016                            |  | 2015                   
|Total revenue (6)                                        |  |         |  | 67,907                          |  | 72,125                 
|Average daily sales volumes                              |  |         |  |                                 |  |                        
|Crude oil, condensate and NGLs                           |  | (bbl/d) |  | 8,993                           |  | 11,884                 
|Natural gas                                              |  | (mcf/d) |  | 137,372                         |  | 172,923                
|Total oil equivalent                                     |  | (boe/d) |  | 31,888                          |  | 40,705                 
|Average realized prices                                  |  |         |  |                                 |  |                        
|Crude oil and condensate                                 |  | ($/bbl) |  | 58.12                           |  | 48.76                  
|Crude oil and condensate (including risk management (7)) |  | ($/bbl) |  | 57.46                           |  | 58.67                  
|NGLs (excluding condensate)                              |  | ($/bbl) |  | 18.87                           |  | 12.99                  
|Crude oil, condensate and NGLs                           |  | ($/bbl) |  | 31.08                           |  | 25.88                  
|Natural gas                                              |  | ($/mcf) |  | 3.29                            |  | 2.66                   
|Natural gas (including risk management(7))               |  | ($/mcf) |  | 3.13                            |  | 2.75                   
|Total oil equivalent                                     |  | ($/boe) |  | 22.95                           |  | 18.85                  
|Total oil equivalent (including risk management(7))      |  | ($/boe) |  | 22.19                           |  | 20.26                  
|                                                         |  |         |  |                                 |  |                        
|Net wells drilled                                        |  |         |  | 5.0                             |  | 2.3                    
|                                                         |  |         |  |                                 |  |                        
|Selected Key Operating Statistics                        |  |         |  |                                 |  |                        
|Operating netback (3)                                    |  | ($/boe) |  | 8.87                            |  | 10.80                  
|Operating netback (3)(including risk management(7))      |  | ($/boe) |  | 8.11                            |  | 12.21                  
|Transportation                                           |  | ($/boe) |  | 1.07                            |  | 0.72                   
|Production expenses                                      |  | ($/boe) |  | 10.57                           |  | 6.87                   
|General & administrative                                 |  | ($/boe) |  | 1.72                            |  | 1.18                   
|Royalties as a % of sales (after transportation)         |  |         |  | 12%                             |  | 5%                     
|COMMON SHARES                                            |  |         |  |                                 |  |                        
|Common shares outstanding (8)                            |  |         |  | 246,585,828                     |  | 191,963,910            
|Weighted average shares (1)                              |  |         |  | 243,582,436                     |  | 191,963,910            
|SHARE TRADING STATISTICS                                 |  |         |  |                                 |  |                        
|TSX and Other (9)                                        |  |         |  |                                 |  |                        
|(CDN$, except volumes) based on intra-day trading        |  |         |  |                                 |  |                        
|High                                                     |  |         |  | 1.40                            |  | 2.92                   
|Low                                                      |  |         |  | 0.96                            |  | 1.30                   
|Close                                                    |  |         |  | 1.28                            |  | 1.64                   
|Average daily volume                                     |  |         |  | 2,074,471                       |  | 1,233,615              
|NYSE                                                     |  |         |  |                                 |  |                        
|(US$, except volumes) based on intra-day trading         |  |         |  |                                 |  |                        
|High                                                     |  |         |  | 1.07                            |  | 2.25                   
|Low                                                      |  |         |  | 0.72                            |  | 0.94                   
|Close                                                    |  |         |  | 0.94                            |  | 1.21                   
|Average daily volume                                     |  |         |  | 524,253                         |  | 1,160,457              

(1)Basic weighted average shares for the three months and year ended December 31, 2016 were 243,582,436 (2015: 191,963,910)
and 214,105,063 (2015: 191,960,312), respectively.



In
computing weighted average diluted loss per share, weighted average diluted cash flow from operating activities per share, and
weighted average diluted funds flow from operations per share for the three months and year ended December 31, 2016, a total of
nil (2015: nil) and nil (2015: nil) common shares were added to the denominator as a consequence of applying the treasury stock
method to the Company’s outstanding share options, and a total of nil (2015: nil) and nil (2015: nil) common shares issuable
on conversion of the Convertible Debentures were added to the denominator for the three months and year resulting in diluted weighted
average common shares of 243,582,436 (2015: 191,963,910) and 214,105,063 (2015: 191,960,312), respectively.



Bellatrix Exploration Ltd.6







(2)The term funds flow from operations is a capital performance measure which should not be considered an alternative to,
or more meaningful than, cash flow from operating activities as determined in accordance with GAAP as an indicator of the Company’s
performance. Therefore reference to funds flow from operations or funds flow from operations per share may not be comparable with
the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance
and leverage and considers funds flow from operations to be a key measure as it demonstrates the Company’s ability to generate
the cash necessary to fund future capital investments and to repay debt. The reconciliation between cash flow from operating activities
and funds flow from operations can be found in the MD&A. Funds flow from operations per share is calculated using the weighted
average number of common shares for the period.



(3)Operating netbacks and total capital expenditures – net are considered non-GAAP measures. Operating netbacks are calculated
by subtracting royalties, transportation, and operating costs from total revenue. Total capital expenditures – net includes
the cash impact of capital expenditures and property dispositions, as well as the non-cash capital impacts of corporate acquisitions,
property acquisitions, adjustments to the Company’s decommissioning liabilities, and share based compensation. The detailed
calculations of operating netbacks are found in the MD&A.



(4)Property dispositions – cash does not include transaction costs.



(5)Total net debt is considered to be a capital performance measure and therefore may not be comparable with the calculation
of similar measures for other entities. The Company’s calculation of total net debt excludes other deferred liabilities,
deferred capital obligation, long-term risk management contract liabilities, decommissioning liabilities, and the deferred tax
liability. Total net debt includes the adjusted working capital deficiency, long term loans receivable, Convertible Debentures
(liability component), current bank debt, bank debt and Senior Notes (as defined below). The adjusted working capital deficiency
is calculated as net working capital deficiency excluding current risk management contract assets and liabilities, current portion
of other deferred liabilities, current portion of deferred capital obligation and the current bank debt. A reconciliation between
total liabilities under GAAP and total net debt as calculated by the Company is found in this MD&A.



(6)Total revenue is considered to be a non-GAAP measure. Therefore reference to the non-GAAP measure of total revenue may
not be comparable with the calculation of similar measures for other entities. The Company’s calculation of total revenue
includes petroleum and natural gas sales and other income, and excludes commodity price risk management. Management believes this
measure is a useful supplementary measure of the revenue generated by the Company.



(7)The Company has entered into various commodity price risk management contracts which are considered to be economic hedges.
Per unit metrics after risk management include only the realized portion of gains or losses on commodity contracts. The Company
does not apply hedge accounting to these contracts. As such, these contracts are revalued to fair value at the end of each reporting
date. This results in recognition of unrealized gains or losses over the term of these contracts which is reflected each reporting
period until these contracts are settled, at which time realized gains or losses are recorded. These unrealized gains or losses
on commodity contracts are not included for purposes of per unit metrics calculations disclosed.



(8)Fully diluted common shares outstanding for the three months and year ended December 31, 2016 were 290,315,127 (2015: 204,810,242).
This includes 12,865,099 (2015: 12,846,332) of share options outstanding and 30,864,200 (2015: nil) of shares issuable on conversion
of the Convertible Debentures. Shares issuable on conversion of the Convertible Debentures are calculated by dividing the $50
million principal amount of the Convertible Debentures by the conversion price of $1.62 per share.



(9)TSX and Other includes the trading statistics for the TSX and other Canadian trading markets.



2016 Fourth Quarter and Annual
2016 Financial and Operational Results





SALES
VOLUMES



Sales volumes
for the three months ended December 31, 2016 decreased by 22% to an average of 31,888 boe/d compared to 40,705 boe/d in the fourth
quarter of 2015. Total sales volumes between the three month periods ended December 31, 2015 and December 31, 2016 declined due
to non-core dispositions completed in the fourth quarter of 2016 in the Pembina and Harmattan areas that were producing on average
approximately 900 boe/d and 3,000 boe/d, respectively, at the conclusion of each transaction. The Company also experienced natural
production declines associated with reduced drilling activity through 2015 and 2016 in response to the volatile and challenging
commodity price environment as the Company focused on maintaining financial strength and liquidity as well as the optimization
of capital investments. Bellatrix drilled five gross (5.0 net) Spirit River liquids-rich natural gas wells in the fourth quarter
of 2016, placing four of the wells on production in the quarter with the fifth well placed on production in mid-January. Bellatrix
proactively mitigated the potential impact on production volumes from planned and unplanned maintenance and turnaround activities
at a number of third party natural gas processing plants. Additionally, Bellatrix’s active management of nominations during
periods of restricted firm capacity on the Nova Gas Transmission Ltd. (“NGTL”) system has optimized production volumes
during periods of overall constraint for industry producers.



Sales volumes
for the year ended December 31, 2016 decreased by 14% to an average of 35,667 boe/d compared to 41,441 boe/d in the 2015 year.
For the year ended December 31, 2016, Bellatrix drilled 19 gross (12.9 net) wells. Total crude oil, condensate and natural gas
liquids (“NGLs”) averaged approximately 28% of sales volumes for 2016, compared to 29% in 2015. Full year 2016 average
production levels met the Company’s guidance range notwithstanding system-wide curtailments of take-away capacity on the
NGTL system, third party plant constraints and unplanned downtime, and the impact from the Pembina and Harmattan area non-core
asset dispositions completed in fourth quarter of 2016. Bellatrix focused operational activity in 2016 on optimization of existing
assets, offsetting base declines, mitigate downtime and enhancing cash flow. By improving wellbore dynamics through optimization
projects, daily rates are maximized and base production declines have flattened. Gathering system optimization was achieved through
system modelling and subsequent redirection of hydrocarbon flows which have maximized deliverability throughout the Company’s
gathering system.



Bellatrix Exploration Ltd.7







Utilization
remained strong at the Bellatrix O’Chiese Nees-Ohpawganu’ck deep-cut gas plant at Alder Flats (the “Alder Flats
Plant”) in the fourth quarter of 2016, contributing to an average capacity utilization rate achieved both in the fourth
quarter 2016 and over the trailing 18 month period of 96%. The Alder Flats Plant continues to provide strategic benefits to Bellatrix
including reduced operating costs, improved deep-cut liquids extraction, and reliability of processing including the ability to
re-direct additional natural gas volumes during periods of third party facility constraints and unplanned downtime.



Sales
Volumes

|                                         |  | Three months ended
    December 31, |  |      | Year ended
    December 31, | 
|---------------------------------------- |  | ----------------------------------- |  | ---- | --------------------------- | 
|                                         |  |                                     |  | 2016 |                             | 
|Crude oil and condensate                 |  | (bbl/d)                             |  |      | 2,798                       | 
|NGLs (excluding
    condensate)          |  | (bbl/d)                             |  |      | 6,195                       | 
|Total crude oil, condensate and
    NGLs |  | (bbl/d)                             |  |      | 8,993                       | 
|Natural gas                              |  | (mcf/d)                             |  |      | 137,372                     | 
|Total sales volumes (6:1 conversion)     |  | (boe/d)                             |  |      | 31,888                      | 



Crude oil,
condensate and NGL sales volumes decreased by 24% in the fourth quarter of 2016, averaging 8,993 bbl/d compared to 11,884 bbl/d
in the same period in 2015. Crude oil, condensate and NGL sales volumes decreased by 17% in the year ended December 31, 2016,
averaging 9,935 bbl/d compared to 11,998 bbl/d in the same period of 2015. Sales of natural gas averaged 137.4 MMcf/d during the
three months ended December 31, 2016, compared to 172.9 MMcf/d in the same period in 2015, a decrease of 21%. Natural gas sales
volumes decreased 13% to 154.5 MMcf/d during the year ended December 31, 2016, compared to 176.7 MMcf/d in the same period in
2015. In 2016, the Company focused drilling activity on the Spirit River liquids-rich natural gas play, as well as capital investment
in optimization activities to mitigate natural declines associated with the overall reduced drilling activity due to the challenging
commodity price environment.



DRILLING ACTIVITY

|                                      |  | Three months ended December 31, 2016 |   | Three months ended December 31, 2015
|------------------------------------- |  | ------------------------------------ | - | ------------------------------------
|                                      |  | Gross                                |   |                                     
|Spirit River liquids-rich natural gas |  |                                      | 5 |                                     
|Total                                 |  |                                      | 5 |                                     



DRILLING ACTIVITY

|                                      |  | Year ended December 31, 2016 |    | Year ended December 31, 2015
|------------------------------------- |  | ---------------------------- | -- | ----------------------------
|                                      |  | Gross                        |    |                             
|Cardium oil                           |  |                              | -  |                             
|Spirit River liquids-rich natural gas |  |                              | 19 |                             
|Total                                 |  |                              | 19 |                             



During the
fourth quarter of 2016, Bellatrix drilled 5 gross (5.0 net) Spirit River liquids-rich gas wells. In the year ended December 31,
2016, Bellatrix achieved a 100% success rate, drilling and/or participating in 19 gross (12.9 net) Spirit River liquids-rich gas
wells. The Company continues to focus capital investment in its low-cost Spirit River natural gas play, which continues to deliver
strong returns at current natural gas and liquids prices, and to take advantage of processing capacity at the Alder Flats Plant.



By comparison,
during the fourth quarter of 2015, Bellatrix drilled and/or participated in 5 gross (2.3 net) Spirit River liquids-rich gas wells.
During the year ended December 31, 2015, Bellatrix drilled and/or participated in 27 gross (13.7 net) wells, consisting of 3 gross
(1.3 net) Cardium oil wells and 24 gross (12.4 net) Spirit River liquids-rich gas wells. Bellatrix’s drilling activity in
2015 was weighted 57% towards oil wells and 43% towards natural gas wells.



Bellatrix Exploration Ltd.8







COMMODITY
PRICES



Average
Commodity Prices

|                                                             |  | Three months ended
    December 31, |        |  | Year ended
    December 31, | 
|------------------------------------------------------------ |  | ----------------------------------- | ------ |  | --------------------------- | 
|                                                             |  | 2016                                |        |  | 2015                        | 
|                                                             |  |                                     |        |  |                             | 
|Exchange rate (CDN$/US$1.00)                                 |  |                                     | 1.3347 |  |                             | 
|                                                             |  |                                     |        |  |                             | 
|Crude oil:                                                   |  |                                     |        |  |                             | 
|WTI (US$/bbl)                                                |  |                                     | 49.29  |  |                             | 
|Canadian Light crude blend ($/bbl)                           |  |                                     | 60.76  |  |                             | 
|Bellatrix’s average realized prices ($/bbl)                  |  |                                     |        |  |                             | 
|Crude oil and condensate                                     |  |                                     | 58.12  |  |                             | 
|NGLs (excluding condensate)                                  |  |                                     | 18.87  |  |                             | 
|Total crude oil and NGLs                                     |  |                                     | 31.08  |  |                             | 
|Crude oil and condensate (including risk management
    (1)) |  |                                     | 57.46  |  |                             | 
|                                                             |  |                                     |        |  |                             | 
|Natural gas:                                                 |  |                                     |        |  |                             | 
|NYMEX (US$/mmbtu)                                            |  |                                     | 2.98   |  |                             | 
|AECO daily index (CDN$/mcf)                                  |  |                                     | 3.09   |  |                             | 
|AECO monthly index (CDN$/mcf)                                |  |                                     | 2.81   |  |                             | 
|Bellatrix’s average realized prices ($/mcf)                  |  |                                     |        |  |                             | 
|Natural gas                                                  |  |                                     | 3.29   |  |                             | 
|Natural gas
    (including risk management (1))              |  |                                     | 3.13   |  |                             | 



(1)Per unit metrics including risk management include realized gains or losses on commodity contracts and exclude unrealized
gains or losses on commodity contracts.





The average
CDN$/US$1.00 foreign exchange rate remained at 1.3347 for the quarter ended December 31, 2016, compared to an average rate of
1.3347 in the same period of 2015 and increased by 4% to 1.3241 for the year ended December 31, 2016 from an average rate of 1.2764
in 2015. The average foreign exchange rate remained relatively unchanged in the comparative fourth quarter 2016 and 2015 periods,
as the relative strength of the United States economy and increased U.S. interest rates has helped to further strengthen the United
States dollar as compared to the Canadian dollar, offset by higher crude prices in 2016 which tends to add strength to the Canadian
dollar.



Global crude
oil prices strengthened in the fourth quarter of 2016 as the Organization of the Petroleum Exporting Countries (“OPEC”)
members agreed to production cuts of up to 1.2 million barrels per day to support higher crude prices. Additionally, non-OPEC
countries including Russia, Kazakhstan and Oman collectively agreed to output cuts of over 550,000 barrels per day. This collaborative
effort between OPEC and non-OPEC producing countries provided support to oil prices with cuts aimed at stabilizing the global
supply/demand balance and reducing robust levels of global crude product inventories. The production cut announcements drove an
increase in WTI pricing to US$53.72/bbl at December 31, 2016, up from the low point in the fourth quarter 2016 of US$42.20/bbl
experienced in November.



North American
natural gas prices firmed in the fourth quarter 2016 compared to the fourth quarter of 2015 and compared to the third quarter
2016, given a cold start to the winter heating season which helped to reduce natural gas storage levels after reaching record
levels in the fall of 2016. Total U.S. natural gas production waned through 2016 given weaker prices earlier in the year; lower
industry activity levels reflected a slower supply response given backwardation in the forward pricing market. Total U.S. natural
gas exports (excluding Canada) grew through 2016, reaching record levels of over 5.0 Bcf/d, mainly attributable to growing liquefied
natural gas (“LNG”) shipments and increased exports to Mexico over the period. Higher Alberta natural gas demand in
the fourth quarter helped to reduce provincial storage levels and provided support for an improved AECO daily price in the fourth
quarter of 2016.



Bellatrix Exploration Ltd.9







In the fourth
quarter of 2016 Bellatrix realized an average price of $58.12/bbl before commodity price risk management contracts for crude oil
and condensate, an increase of 19% from the average price of $48.76/bbl received in the fourth quarter of 2015. By comparison,
the Canadian Light crude blend price increased by 16% and the average WTI crude oil benchmark price increased by 17% between the
fourth quarters of 2016 and 2015. The WTI/Canadian Light sweet differential has remained in a historically tight range, averaging
-$3.12 US/bbl for the quarter. During the year ended December 31, 2016, Bellatrix realized an average price for crude oil and
condensate of $48.41/bbl before commodity price risk management contracts, a decrease of 11% from the average price of $54.34/bbl
received in the 2015 year. By comparison Bellatrix’s realized price decreased in line with industry, as the Canadian Light
price decreased by 8% and the average WTI crude oil benchmark price decreased by 11% between the 2016 and 2015 years.



Bellatrix’s
average realized price for NGLs (excluding condensate) increased by 45% to $18.87/bbl during the fourth quarter of 2016, compared
to $12.99/bbl received in the 2015 period. NGL pricing in Western Canada improved significantly through the fourth quarter given
stronger underlying light oil prices and improved individual market conditions for propane and butane products. Cold weather through
the fourth quarter kept North American propane demand firm, while exports helped materially reduce robust storage levels resulting
in much stronger propane prices through the fourth quarter 2016. Butane prices also firmed materially in the fourth quarter 2016,
both in absolute terms and as a percentage of light oil, given strong gasoline blending demand and export demand. Bellatrix’s
average realized price for NGLs (excluding condensate) decreased by 7% to $13.14/bbl during the 2016 year, compared to $14.16/bbl
received in the 2015 year.



Natural gas
prices increased during the fourth quarter of 2016 given strong demand and lower U.S. production which reduced high storage levels.
Bellatrix’s natural gas sales are priced with reference to the daily or monthly AECO indices. Bellatrix’s natural
gas sold has a higher heat content than the industry average, which results in slightly higher realized prices per mcf than the
AECO daily index. During the fourth quarter of 2016, the AECO daily reference price increased by 26% and the AECO monthly reference
price increased by approximately 6% compared to the fourth quarter of 2015. Bellatrix’s natural gas average sales price
before commodity price risk management contracts for the fourth quarter of 2016 increased by 24% to $3.29/mcf compared to $2.66/mcf
in the same period in 2015. Bellatrix’s natural gas average price after including commodity price risk management contracts
for the three months ended December 31, 2016 averaged $3.13/mcf compared to $2.75/mcf in the comparative 2015 period. During the
year ended December 31, 2016, the AECO daily reference price decreased by 20% and the AECO monthly reference price decreased by
approximately 25% compared to the 2015 year. Bellatrix’s natural gas average sales price before commodity price risk management
contracts for the 2016 year decreased by 23% to $2.27/mcf compared to $2.95/mcf in 2015. Bellatrix’s natural gas average
price after including commodity price risk management contracts for the year ended December 31, 2016 averaged $2.64/mcf compared
to $2.94/mcf in 2015.



Bellatrix
was active in the fourth quarter of 2016 increasing its 2017 risk management protection, subsequently adding additional commodity
price protection subsequent to quarter end. As a result, currently approximately 66% of gross 2017 projected natural gas volumes
are hedged at an average fixed price of approximately $3.36/mcf. In addition, Bellatrix added to its 2018 risk management protection
with a total of 65.6 MMcf/d of 2018 natural gas volumes hedged at an average fixed price of approximately $3.08/mcf; this represents
approximately 43% of volumes compared to the mid-point of 2017 full year average guidance. Finally, stronger propane prices in
2017 provided an attractive opportunity for Bellatrix to hedge 1,500 bbl/d of propane volumes at an average price of 51% of WTI
light oil prices, from February through December of 2017, and 1,000 bbl/d of propane volumes at an average price of 47% of WTI
light oil prices in 2018, both meaningfully above long term historical averages.



REVENUE



Total revenue
of $67.9 million for the three months ended December 31, 2016 decreased by 6% compared to $72.1 million realized in the fourth
quarter of 2015. The lower total revenue realized in the fourth quarter of 2016 compared to 2015 was primarily attributable to
the 22% decrease in sales volumes in the period, partially offset by improved realized average commodity prices resulting in lower
petroleum and natural gas sales. Other income decreased from the disposition of certain production facilities in 2016. Bellatrix’s
total revenue was $227.9 million for the year ended December 31, 2016, a decrease of 32% compared to $333.3 million realized in
the year ended December 31, 2015. In the 2016 year, Bellatrix realized lower light oil, condensate, natural gas, and NGL revenues
due primarily to decreased realized average commodity prices in the 2016 period compared to the same period in 2015.



Bellatrix Exploration Ltd.10







Crude oil
and NGL revenue before other income, royalties and commodity price risk management contracts for the three months ended December
31, 2016 decreased by 9% to $25.7 million from $28.3 million realized during the same period in 2015. The decrease in revenue
realized between the periods was the result of a 24% decrease in sales volumes from the disposition of the Pembina and Harmattan
properties that contained higher liquids weighted production volumes, partially offset by increased realized crude oil, condensate,
and NGL prices when compared to the fourth quarter of 2015. For the 2016 year, Bellatrix realized crude oil, condensate and NGL
revenue before other income, royalties and commodity price risk management contracts of $91.9 million, a 31% decrease from $133.2
million realized in 2015. The decrease in revenue realized between the years was the result of significantly weaker average crude
oil and NGL prices, when compared to 2015, and a 17% decrease in sales volumes as Bellatrix realized higher natural gas weighted
production volumes resulting from the shift in capital activity to the liquids-rich natural gas Spirit River play.



For the three
months and year ended December 31, 2016, total crude oil, condensate and NGL revenues contributed 38% and 42% of petroleum and
natural gas sales, respectively, compared to 40% and 41% in the comparable 2015 periods.



Natural gas
revenue before other income, royalties and commodity price risk management contracts decreased by 2% in the fourth quarter of
2016 to $41.6 million, from $42.3 million during the same period in 2015. This was a result of a 21% decrease in sales volumes
between periods, partially offset by a 24% increase in realized natural gas prices before risk management contracts. For the year
ended December 31, 2016, natural gas revenue before other income, royalties and commodity price risk management contracts was
$128.2 million, a decrease of 33% from $190.1 million realized in the 2015 year. The decrease in revenue realized was attributable
to a 23% decrease in realized natural gas prices before risk management and a 13% decrease in sales volumes between the 2016 and
2015 years, as drilling activity was decreased in 2016.



Revenue

|                                |  | Three months ended
    December 31, |        |  | Year ended
    December 31, | 
|------------------------------- |  | ----------------------------------- | ------ |  | --------------------------- | 
|($000s)                         |  | 2016                                |        |  | 2015                        | 
|Crude oil and condensate        |  |                                     | 14,960 |  |                             | 
|NGLs (excluding condensate)     |  |                                     | 10,752 |  |                             | 
|Crude oil and NGLs              |  |                                     | 25,712 |  |                             | 
|Natural gas                     |  |                                     | 41,614 |  |                             | 
|Petroleum and natural gas sales |  |                                     | 67,326 |  |                             | 
|Other income (1)                |  |                                     | 581    |  |                             | 
|Total revenue                   |  |                                     | 67,907 |  |                             | 

(1)Other income primarily consists of processing and other third party income.



COMMODITY PRICE RISK MANAGEMENT



The Company
has a formal commodity price risk management policy which permits management to use specified price risk management strategies
including fixed price contracts, collars, and the purchase of floor price options and other derivative financial instruments and
physical delivery sales contracts to reduce the impact of price volatility for a maximum of thirty six months beyond the transaction
date. The program is designed to provide price protection on a portion of the Company’s future production in the event of
adverse commodity price movement, while retaining significant exposure to upside price movements. By doing this, the Company seeks
to provide a measure of stability to funds flow from operations, as well as to ensure Bellatrix realizes positive economic returns
from its capital development and acquisition activities. The Company plans to continue its commodity price risk management strategies,
focusing on maintaining sufficient cash flow to fund Bellatrix’s capital expenditure program. Any remaining production is
realized at market prices.



Bellatrix Exploration Ltd.11







As at December
31, 2016, the Company has entered into commodity price risk management arrangements as follows:



Natural gas fixed price arrangements

|Type              |  | Period                                   |  | Volume       |  | Price Floor |                                                    |  | Price Ceiling |  |                                                    | Index
|----------------- |  | ---------------------------------------- |  | ------------ |  | ----------- | -------------------------------------------------- |  | ------------- |  | -------------------------------------------------- | -----
|Natural gas fixed |  | January 1, 2017 to December 31, 2017     |  | 115,995 GJ/d |  |             | $2.93
                                         CDN |  |               |  | $2.93
                                         CDN |      
|Natural gas fixed |  | January 1, 2018 to December
    31, 2018 |  | 60,000 GJ/d  |  |             | $2.72
                                         CDN |  |               |  | $2.72
                                         CDN |      



Subsequent
to December 31, 2016, the Company entered into the following fixed commodity price risk management contracts:



Natural
gas fixed price arrangements



|Type              |  | Period                                   |  | Volume      |  | Price
    Floor |           |  | Price
    Ceiling |  |           | Index
|----------------- |  | ---------------------------------------- |  | ----------- |  | --------------- | --------- |  | ----------------- |  | --------- | -----
|Natural gas fixed |  | January 1, 2018 to December 31,
    2018 |  | 15,000 GJ/d |  |                 | $2.58 CDN |  |                   |  | $2.58 CDN |      



NGL fixed
differential arrangements

|Type    |  | Period                                   |  | Volume      |  | Fixed Differential |  | Index              
|------- |  | ---------------------------------------- |  | ----------- |  | ------------------ |  | -------------------
|Propane |  | February 1, 2017 to December 31, 2017    |  | 1,500 bbl/d |  | 51% of NYMEX WTI   |  | OPIS Conway Propane
|Propane |  | January 1, 2018 to December
    31, 2018 |  | 1,000 bbl/d |  | 47% of NYMEX WTI   |  | OPIS Conway Propane



When the Company
has outstanding commodity price risk management contracts at a reporting date, the fair value, or mark-to-market value, of these
contracts is reflected in its financial statements as an unrealized asset or liability. Fair value is based on the estimated amount
that would have been received or paid to settle the contracts as at the reporting date and would differ from what would eventually
be realized. Changes in the fair value of the commodity contracts are recognized in the Company’s Consolidated Statements
of Comprehensive Income (Loss).



The following
are summaries of the gain (loss) on commodity price risk management contracts for the three months ended December 31, 2016 and
2015:



Commodity
contracts

|Three months ended December 31, 2016       
|-------------------------------------------
|($000s)                                    
|Realized cash gain (loss) on contracts     
|Unrealized gain (loss) on contracts
    (1)
|Total gain (loss) on commodity contracts   



Commodity
contracts

|Three months ended December 31, 2015       
|-------------------------------------------
|($000s)                                    
|Realized cash gain (loss) on contracts     
|Unrealized gain (loss) on contracts
    (1)
|Total gain (loss) on commodity contracts   



The following
are summaries of the gain (loss) on commodity price risk management contracts for years ended December 31, 2016 and 2015:



Commodity contracts

|Year ended December 31, 2016               
|-------------------------------------------
|($000s)                                    
|Realized cash gain (loss) on contracts     
|Unrealized gain (loss) on contracts
    (1)
|Total gain (loss) on commodity contracts   



Bellatrix Exploration Ltd.12







Commodity contracts

|Year ended December 31, 2015               
|-------------------------------------------
|($000s)                                    
|Realized cash gain (loss) on contracts     
|Unrealized gain (loss) on contracts
    (1)
|Total gain (loss) on commodity contracts   

(1)Unrealized gain (loss) on commodity contracts represents non-cash adjustments for changes in the fair value of these contracts
during the period.



ROYALTIES



Bellatrix
pays royalties to the respective provincial governments and landowners in British Columbia, Alberta and Saskatchewan in which
it operates. Each province that Bellatrix operates in has established a separate and distinct royalty regime which impacts Bellatrix’s
average corporate royalty rate. The Company’s royalties are primarily paid in the province of Alberta. In Alberta, crown
royalty rates are based on reference commodity prices, production levels and well depths, and are offset by certain incentive
programs, which usually have a finite period of time and are in place to promote drilling activity by reducing overall royalty
expense.



In 2016, the
Government of Alberta completed its oil and gas royalty review and announced a new Modernized Royalty Framework (“MRF”)
which included, for conventional activity, no changes to the royalty structure of wells drilled prior to 2017 for a 10-year period
from the MRF implementation date and improved transparency concerning disclosure of royalty information. The MRF includes the
replacement of royalty credits and holidays on conventional wells through a drilling and completion cost allowance based on a
revenue minus cost framework, a post-payout royalty rate based on commodity prices, and the reduction of royalty rates for mature
wells. Based on the Company’s completed internal assessment, the MRF is expected to have minimal impact on Bellatrix’s
funds flow from operations.



In the fourth
quarter of 2016, the Company incurred $7.7 million in royalties, compared to $3.2 million in the fourth quarter of 2015. As a
percentage of petroleum and natural gas sales revenue (after transportation costs), royalties were 12% in the three months ended
December 31, 2016, compared to 5% in the comparative 2015 period. Higher average corporate royalty rates period over period reflect
the impact from higher commodity prices, as well as decreased gas cost allowance (“GCA”) credits in the fourth quarter
of 2016 resulting from the infrastructure and facilities dispositions in 2016 and a one-time adjustment in fourth quarter of 2015
for Crown recoveries.



For the year
ended December 31, 2016, royalties incurred totaled $18.6 million compared to $33.5 million incurred in the 2015 year. Overall
royalties as a percentage of revenue (after transportation costs) in 2016 were 9% compared to 11% in 2015. Lower average corporate
royalty rates period over period include the impact of lower commodity prices, reflecting the “sliding scale” effect
included in the Alberta Royalty Framework.



Royalties
by Commodity Type

|                                                           |  | Three months ended
    December 31, |       |  | Year ended
    December 31, | 
|---------------------------------------------------------- |  | ----------------------------------- | ----- |  | --------------------------- | 
|($000s, except where noted)                                |  | 2016                                |       |  | 2015                        | 
|Crude oil, condensate, and NGLs                            |  |                                     | 5,716 |  |                             | 
|$/bbl                                                      |  |                                     | 6.91  |  |                             | 
|Average crude oil,
    condensate and NGL royalty rate (%) |  |                                     | 22    |  |                             | 
|                                                           |  |                                     |       |  |                             | 
|Natural Gas                                                |  |                                     | 2,023 |  |                             | 
|$/mcf                                                      |  |                                     | 0.16  |  |                             | 
|Average natural gas royalty
    rate (%)                   |  |                                     | 5     |  |                             | 
|                                                           |  |                                     |       |  |                             | 
|Total                                                      |  |                                     | 7,739 |  |                             | 
|Total $/boe                                                |  |                                     | 2.64  |  |                             | 
|Average total royalty rate (%)                             |  |                                     | 12    |  |                             | 



Bellatrix Exploration Ltd.13







Royalties
by Type

|                         |  | Three months ended
    December 31, |       |  | Year ended
    December 31, | 
|------------------------ |  | ----------------------------------- | ----- |  | --------------------------- | 
|($000s)                  |  | 2016                                |       |  | 2015                        | 
|Crown and IOGC royalties |  |                                     | 2,167 |  |                             | 
|Freehold & GORR          |  |                                     | 5,572 |  |                             | 
|Total                    |  |                                     | 7,739 |  |                             | 



The Company’s
crude oil, condensate, NGL, and natural gas royalties were impacted by lower royalties on more recent wells in their early years
of production under the Alberta New Well Royalty Rate program and the Natural Gas Deep Drilling royalty incentive program, offset
by wells drilled on lands with higher combined Indian Oil and Gas Canada (“IOGC”) royalty and gross overriding royalty
(“GORR”) rates.



EXPENSES

|                                  |  | Three months ended
    December 31, |        |  | Year ended
    December 31, | 
|--------------------------------- |  | ----------------------------------- | ------ |  | --------------------------- | 
|($000s)                           |  | 2016                                |        |  | 2015                        | 
|Production                        |  |                                     | 31,021 |  |                             | 
|Transportation                    |  |                                     | 3,143  |  |                             | 
|Royalties                         |  |                                     | 7,739  |  |                             | 
|General and administrative        |  |                                     | 5,038  |  |                             | 
|Interest and financing charges(1) |  |                                     | 11,201 |  |                             | 
|Share-based compensation          |  |                                     | 1,113  |  |                             | 

(1)Excludes financing charges in relation to the Company’s accretion of decommissioning liabilities, unrealized foreign
exchange gain (loss), and realized foreign exchange gain (loss).



EXPENSES
PER BOE

|                                  |  | Three months ended
    December 31, |       |  | Year ended
    December 31, | 
|--------------------------------- |  | ----------------------------------- | ----- |  | --------------------------- | 
|($/boe)                           |  | 2016                                |       |  | 2015                        | 
|Production                        |  |                                     | 10.57 |  |                             | 
|Transportation                    |  |                                     | 1.07  |  |                             | 
|Royalties                         |  |                                     | 2.64  |  |                             | 
|General and administrative        |  |                                     | 1.72  |  |                             | 
|Interest and financing charges(1) |  |                                     | 3.82  |  |                             | 
|Share-based compensation          |  |                                     | 0.38  |  |                             | 

(1)Excludes financing charges in relation to the Company’s accretion of decommissioning liabilities, unrealized foreign
exchange gain (loss), and realized foreign exchange gain (loss).



PRODUCTION EXPENSES



Production
expenses for the three months and year ended December 31, 2016 totaled $31.0 million ($10.57/boe) and $113.6 million ($8.70/boe)
compared to $25.7 million ($6.87/boe) and $118.9 million ($7.86/boe) in the comparative 2015 periods, respectively. The variance
in production expense on a per-boe basis between the fourth quarter and year ended December 31, 2016 and the comparative periods
in 2015, was primarily attributable to additional fixed costs associated with the facility monetization transactions (refer to
‘Dispositions’ under the heading ‘Capital Expenditures’), combined with a decrease in volumes over the
period. Fourth quarter 2016 production expenditures also included approximately $1.3 million ($0.46/boe) of one-time adjustments
related to maintenance and overhauls on facilities. The increase in fixed costs was partially mitigated by operational optimization
and cost suppression initiatives. The operations team focused on optimization initiatives including plunger lift installations,
wellbore cleanouts, and pipeline optimization efforts all directed towards growing volumes, attenuating base decline rates and
increasing value from every capital investment dollar spent.



Bellatrix
has set production expenditure guidance of approximately $9.00/boe in 2017, which represents a 3% increase on a per unit basis
compared to the $8.70/boe production expenses incurred in the 2016 year. The increased expenditures, on a per unit basis, includes
assumed 2017 average production volumes of approximately 33,500 boe/d and a full year impact from facility monetization transactions
completed by the Company in 2016, mitigated by continued cost containment efforts and further field optimization work. Planned
capital investment in Phase 2 of the Alder Flats Plant, a continued development focus in the Company’s core areas, and anticipated
growth in production volumes are expected to result in lower production expenses on a per unit basis into 2018.



Bellatrix Exploration Ltd.14







Production Expenses by Commodity
Type

|                               |  | Three
    months ended December 31, |        |  | Year
    ended December 31, | 
|------------------------------ |  | ----------------------------------- | ------ |  | --------------------------- | 
|($000s, except where noted)    |  | 2016                                |        |  | 2015                        | 
|Crude oil, condensate and NGLs |  |                                     | 8,545  |  |                             | 
|$/bbl                          |  |                                     | 10.33  |  |                             | 
|                               |  |                                     |        |  |                             | 
|Natural gas                    |  |                                     | 22,476 |  |                             | 
|$/mcf                          |  |                                     | 1.78   |  |                             | 
|                               |  |                                     |        |  |                             | 
|Total production expenses      |  |                                     | 31,021 |  |                             | 
|Total $/boe                    |  |                                     | 10.57  |  |                             | 



TRANSPORTATION



Transportation
expenses for the three months and year ended December 31, 2016 were $3.1 million ($1.07/boe) and $12.1 million ($0.93/boe) compared
to $2.7 million ($0.72/boe) and $17.1 million ($1.13/boe) in the same periods in 2015, respectively. The decrease in transportation
costs per boe in year ended December 31, 2016 year was primarily due to Bellatrix completing the construction of pipeline infrastructure
in the latter part of 2015 to transport liquids volumes from major compression facilities to processing facilities as opposed
to trucking the production volumes. Additionally, in 2015 and 2016, Bellatrix shifted capital activity towards the development
of Spirit River liquids-rich natural gas wells which have lower associated transportation costs than oil wells due to increased
utilization of Company owned pipeline infrastructure associated with these wells.



OPERATING NETBACK



Operating Netback – Corporate

|                                            |  | Three months ended
    December 31, |        |   | Year ended
    December 31, | 
|------------------------------------------- |  | ----------------------------------- | ------ | - | --------------------------- | 
|($/boe)                                     |  | 2016                                |        |   | 2015                        | 
|Total Revenue (1)                           |  |                                     | 23.15  |   |                             | 
|Production                                  |  |                                     | (10.57 | ) |                             | 
|Transportation                              |  |                                     | (1.07  | ) |                             | 
|Royalties                                   |  |                                     | (2.64  | ) |                             | 
|Operating netback(2)                        |  |                                     | 8.87   |   |                             | 
|Risk management gain (loss) (3)             |  |                                     | (0.76  | ) |                             | 
|Operating netback after risk
    management |  |                                     | 8.11   |   |                             | 

(1)Total Revenue includes petroleum and natural gas sales and other income.

(2)Operating netbacks is considered to be a non-GAAP measure. Operating netbacks
are calculated by subtracting royalties, transportation, and operating costs from total revenue.

(3)Risk management includes realized gains or losses on commodity contracts and
excludes unrealized gains or losses on commodity contracts.



During the
three months ended December 31, 2016, the Company’s corporate operating netback before commodity risk management contracts
decreased by 18% to $8.87/boe compared to $10.80/boe in the fourth quarter of 2015. The reduced netback realized in the fourth
quarter of 2016 was primarily the result of increased production and royalty expenses, partially offset by increased average realized
commodity prices. After including commodity risk management contracts, the corporate operating netback for the three months ended
December 31, 2016 was $8.11/boe compared to $12.21/boe in the fourth quarter of 2015. Per unit metrics including risk management
include realized gains or losses on commodity contracts and exclude unrealized gains or losses on commodity contracts.



For the year
ended December 31, 2016, the corporate operating netback (before commodity risk management contracts) was $6.39/boe a decrease
of 41% compared to $10.83/boe in the 2015 year. The decreased netback realized in 2016 was primarily the result of lower average
realized combined commodity prices and increased production expenses, partially offset by decreased transportation and royalty
expenses. After including commodity risk management contracts, the corporate operating netback for the year ended December 31,
2016 was $7.91/boe, compared to $11.30/boe in 2015.



Bellatrix Exploration Ltd.15







Operating
Netback – Crude Oil, Condensate, and NGLs

|                                            |  | Three months ended
    December 31, |        |   | Year ended
    December 31, | 
|------------------------------------------- |  | ----------------------------------- | ------ | - | --------------------------- | 
|($/bbl)                                     |  | 2016                                |        |   | 2015                        | 
|Sales                                       |  |                                     | 31.08  |   |                             | 
|Production                                  |  |                                     | (10.33 | ) |                             | 
|Transportation                              |  |                                     | (0.27  | ) |                             | 
|Royalties                                   |  |                                     | (6.91  | ) |                             | 
|Operating netback(1)                        |  |                                     | 13.57  |   |                             | 
|Risk management gain (loss) (2)             |  |                                     | (0.21  | ) |                             | 
|Operating netback after risk
    management |  |                                     | 13.36  |   |                             | 

(1)Operating netbacks is considered to be a non-GAAP measure. Operating netbacks
are calculated by subtracting royalties, transportation, and operating costs from total revenue.



(2)Risk management includes realized gains or losses on commodity contracts and
excludes unrealized gains or losses on commodity contracts.



The operating
netback before commodity price risk management contracts for crude oil, condensate and NGLs during the fourth quarter of 2016
averaged $13.57/bbl, a decrease of 16% from the $16.19/bbl realized during the same period in 2015. The decrease between the periods
was primarily a result of increased production and royalty expenses, partially offset by stronger crude oil, condensate and NGL
commodity prices. After including commodity price risk management contracts, operating netback for crude oil, condensate, and
NGLs for the three months ended December 31, 2016 was $13.36/bbl compared to $19.76/bbl in the same period in 2015.



The operating
netback for crude oil, condensate, and NGLs decreased by 29% to $11.09/bbl for the year ended December 31, 2016, from $15.69/bbl
realized in the 2015 year. The lower netback was primarily attributable to lower crude oil, condensate, and NGL commodity prices
and increased production expenses, partially offset by lower transportation and royalty expenses. After including commodity price
risk management contracts, operating netback for crude oil, condensate, and NGLs for the year ended December 31, 2016 was $10.88/bbl
compared to $17.48/bbl in 2015.



Operating Netback – Natural
Gas

|                                            |  | Three months ended
    December 31, |       |   | Year ended
    December 31, | 
|------------------------------------------- |  | ----------------------------------- | ----- | - | --------------------------- | 
|($/mcf)                                     |  | 2016                                |       |   | 2015                        | 
|Sales                                       |  |                                     | 3.29  |   |                             | 
|Production                                  |  |                                     | (1.78 | ) |                             | 
|Transportation                              |  |                                     | (0.23 | ) |                             | 
|Royalties                                   |  |                                     | (0.16 | ) |                             | 
|Operating netback (1)                       |  |                                     | 1.12  |   |                             | 
|Risk management gain (loss) (2)             |  |                                     | (0.16 | ) |                             | 
|Operating netback after risk
    management |  |                                     | 0.96  |   |                             | 

(1)Operating netbacks is considered to be a non-GAAP measure. Operating netbacks
are calculated by subtracting royalties, transportation, and operating costs from total revenue. The detailed calculations of
operating netbacks are found in the MD&A.



(2)Risk management includes realized gains or losses on commodity contracts and
excludes unrealized gains or losses on commodity contracts.



The operating
netback for natural gas before commodity price risk management contracts during the fourth quarter of 2016 of $1.12/mcf was 16%
lower than $1.34/mcf recorded in the same period in 2015. The reduction to the realized netback between the fourth quarters of
2016 and 2015 was driven by an increase in production, transportation and royalty expenses, partially offset by an increase in
natural gas prices. After including commodity risk management contracts, the operating netback for natural gas for the fourth
quarter of 2016 was $0.96/mcf compared to $1.42/mcf in the same period in 2015.



For the year
ended December 31, 2016, the operating netback for natural gas was $0.63/mcf, a decrease of 52% from $1.32/mcf realized in 2015.
The lower netback between the years reflected lower natural gas prices and increased production expenses, which was partially
offset by decreased transportation and royalty expenses. After including commodity risk management contracts, the operating netback
for natural gas for the year ended December 31, 2016 was $1.00/mcf compared to $1.31/mcf in the 2015 year.



Bellatrix Exploration Ltd.16









GENERAL
AND ADMINISTRATIVE



Bellatrix
incurred lower gross general and administrative (“G&A”) expenses (before capitalized G&A and recoveries) in
the fourth quarter and the year ended December 31, 2016 when compared to the same periods of 2015 by 16% and 23%, respectively.
Net G&A expenses (after capitalized costs and recoveries) for the three months and year ended December 31, 2016 were $5.0
million ($1.72/boe) and $19.9 million ($1.53/boe) compared to $4.4 million ($1.18/boe) and $23.4 million ($1.55/boe) in the comparative
2015 periods, an increase of 14% and decrease of 15%, respectively. The overall decrease to net G&A for the year ended December
31, 2016 compared to the same period in 2015 was primarily attributable to a decrease in gross G&A expenses as a result of
significant cost saving initiatives on discretionary G&A spending, workforce reductions and compensation expenses made through
2015 and 2016, which more than offset reduced recoveries from partners associated with lower capital spending in 2016 as compared
to 2015.



General and Administrative Expenses

|                                   |  | Three months ended
    December 31, |        |   | Year ended
    December 31, | 
|---------------------------------- |  | ----------------------------------- | ------ | - | --------------------------- | 
|($000s,
    except where noted)    |  | 2016                                |        |   | 2015                        | 
|Gross expenses                     |  |                                     | 8,428  |   |                             | 
|Capitalized                        |  |                                     | (1,577 | ) |                             | 
|Recoveries                         |  |                                     | (1,813 | ) |                             | 
|G&A expenses                       |  |                                     | 5,038  |   |                             | 
|G&A
    expenses, per unit ($/boe) |  |                                     | 1.72   |   |                             | 



INTEREST AND FINANCING CHARGES



For the three
months and year ended December 31, 2016, Bellatrix recorded $11.2 million ($3.82/boe) and $46.4 million ($3.55/boe) of interest
and financing charges related to the bank debt, the Convertible Debentures and the Senior Notes, compared to $12.0 million ($3.20/boe)
and $40.0 million ($2.65/boe) during the same periods in 2015.



The decrease
in interest and financing charges between the fourth quarters of 2015 and 2016 was primarily attributed to reduced interest expense
on bank debt given the material reduction in bank debt to $19.1 million at December 31, 2016 compared to year end 2015 bank debt
of $340.7 million. The increase in interest and financing charges between the years of 2015 and 2016 was primarily due to increased
expenses related to the Senior Notes which were issued in the second quarter of 2015 and interest on the Convertible Debentures
issued in the third quarter of 2016. This was partially offset by decreased interest on bank debt resulting from decreased borrowings
on the Credit Facilities (as defined below).



Interest
and Financing Charges (1)

|                                           |  | Three months ended
    December 31, |        |  | Year ended
    December 31, | 
|------------------------------------------ |  | ----------------------------------- | ------ |  | --------------------------- | 
|($000s,
    except where noted)            |  | 2016                                |        |  | 2015                        | 
|Interest on Bank debt                      |  |                                     | 2,124  |  |                             | 
|Interest on Convertible Debentures         |  |                                     | 1,313  |  |                             | 
|Interest on Senior Notes                   |  |                                     | 7,764  |  |                             | 
|Interest and financing charges             |  |                                     | 11,201 |  |                             | 
|Interest
    and financing charges ($/boe) |  |                                     | 3.82   |  |                             | 

(1)Excludes financing charges in relation to the Company’s accretion of decommissioning liabilities, unrealized foreign
exchange gain (loss), and realized foreign exchange gain (loss).



Bellatrix’s
total net debt at December 31, 2016 of $396.2 million represents a reduction of $321.4 million from the December 31, 2015 level
of $717.6 million. Total net debt at December 31, 2016 of $396.2 million included $19.1 million of bank debt, $37.4 million of
Convertible Debentures (liability component), $324.7 million of Senior Notes (includes $9.9 million of unrealized foreign exchange
gain recognized on the mark-to-market of the United States dollar denominated Senior Notes in the year ended December 31, 2016),
and an adjusted working capital deficiency of $23.7 million.



Bellatrix Exploration Ltd.17







Reconciliation of Total Liabilities
to Total Net Debt

|                                                          |  | As at December 31, |         
|--------------------------------------------------------- |  | ------------------ | --------
|($000s)                                                   |  | 2016               |         
|Total liabilities per financial statements                |  |                    | 590,312 
|Current liabilities (excluding current bank debt)         |  |                    | (118,695
|Decommissioning liabilities                               |  |                    | (62,844 
|Other deferred liabilities                                |  |                    | (21,148 
|Deferred capital obligation                               |  |                    | (3,725  
|Risk management contract liability                        |  |                    | (2,646  
|                                                          |  |                    |         
|Long term loans receivable                                |  |                    | (8,775  
|                                                          |  |                    |         
|Adjusted working capital                                  |  |                    |         
|Current assets                                            |  |                    | (54,979 
|Current liabilities                                       |  |                    | 137,838 
|Current bank debt                                         |  |                    | (19,143 
|Current portion of other deferred liabilities             |  |                    | (7,899  
|Current portion of deferred capital obligation            |  |                    | (18,165 
|Current portion of risk management contract asset         |  |                    | -       
|Current portion
    of risk management contract liability |  |                    | (13,936 
|                                                          |  |                    | 23,716  
|Total net
    debt (1)                                    |  |                    | 396,195 
|Convertible Debentures
    (liability component)          |  |                    | (37,420 
|Net debt (1)                                              |  |                    | 358,775 

(1)Total net debt is considered to be a capital performance measure and therefore
may not be comparable with the calculation of similar measures for other entities. The Company’s calculation of total net
debt excludes other deferred liabilities, deferred capital obligation, long-term risk management contract liabilities, decommissioning
liabilities, and the deferred tax liability. Total net debt includes the adjusted working capital deficiency, long term loans
receivable, Convertible Debentures (liability component), current bank debt, bank debt and Senior Notes. The adjusted working
capital deficiency is a non-GAAP measure calculated as net working capital deficiency excluding current risk management contract
assets and liabilities, current portion of other deferred liabilities, current portion of deferred capital obligation and the
current bank debt. Net debt excludes the liability component of the Convertible Debentures.



SHARE-BASED
COMPENSATION



Bellatrix
has an Award Incentive Plan (the “Award Plan”) where the Company may grant Restricted Awards (“RAs”) and
Performance Awards (“PAs”) to officers, employees, and other service providers. As at March 14, 2017, Bellatrix had
2,101,957 RAs and 1,516,676 PAs outstanding. During 2016, the shareholders and the TSX approved the issuance of common shares
on settlement of RAs and PAs under the Award Plan. As a result, awards under the Award Plan may be settled in cash, in common
shares of the Company, or a combination thereof. In the case of PAs, settlement is subject to a “payout multiplier”
(the payout multiplier shall be based on such corporate performance measures as determined by the Board of Directors (or the Compensation
Committee) of the Company) and may range between zero and two times.



For the three
months ended December 31, 2016, non-cash share-based compensation was an expense of $1.1 million ($0.38/boe) compared to an expense
of $0.6 million ($0.16/boe) in the same period in 2015. The non-cash share-based compensation expense realized in the three months
ended December 31, 2016 period was composed of an expense of $0.9 million (2015: $1.6 million expense) for the Company’s
outstanding share options, an expense of $0.1 million (2015: $0.6 million recovery) for Deferred Share Units (“DSUs”),
an expense of $0.4 million (2015: $0.2 million expense) for RAs, and expense of $0.2 million (2015: $0.1 million recovery) for
PAs. Share-based compensation expense was offset by capitalized share-based compensation. For the three months ended December
31, 2016, capitalized share-based compensation was $0.5 million compared to $0.5 million in the same period in 2015.



For the year
ended December 31, 2016, non-cash share-based compensation expense was $3.8 million ($0.29/boe) compared to $3.6 million ($0.24/boe)
in the same period of 2015. The non-cash share-based compensation expense was composed of a $3.7 million expense (2015: $6.2 million
expense) for the Company’s outstanding share options, $0.5 million expense (2015: $1.3 million expense) for RAs, $0.2 million
expense (2015: $0.1 million recovery) for PAs and a $0.8 million expense (2015: $1.2 million recovery) for DSUs. Share-based compensation
expense was offset by capitalized share-based compensation. For the year ended December 31, 2016, capitalized share-based compensation
was $1.4 million compared to $2.6 million in 2015.







Bellatrix Exploration Ltd.18









DEPLETION AND DEPRECIATION



Depletion
and Depreciation



Depletion
and depreciation expense for the three months and year ended December 31, 2016, was $26.9 million ($9.16/boe) and $136.5 million
($10.45/boe) compared to $49.3 million ($13.17/boe) and $185.7 million ($12.28/boe) recognized in the comparative 2015 periods.
The decrease in the Company’s depletion and depreciation expense, on a per boe basis between the periods, can be attributed
to the lower capital cost base stemming from the non-core asset dispositions and infrastructure monetization transactions completed
in 2016 (refer to ‘Dispositions’ under ‘Capital Expenditures’), increased reserves and a decline in the
associated future development costs attributable to the reserves in 2016.



For the year
ended December 31, 2016, Bellatrix has included a total of $0.95 billion (2015: $1.12 billion) for future development costs in
the depletion calculation and excluded from the depletion calculation a total of $46.0 million (2015: $75.9 million) for estimated
salvage.



Depletion and Depreciation

|                                                |  | Three months ended
    December 31, |        |  | Year ended
    December 31, | 
|----------------------------------------------- |  | ----------------------------------- | ------ |  | --------------------------- | 
|($000s,
    except where noted)                 |  | 2016                                |        |  | 2015                        | 
|Depletion and Depreciation                      |  |                                     | 26,886 |  |                             | 
|Depletion and
    Depreciation per unit ($/boe) |  |                                     | 9.16   |  |                             | 



IMPAIRMENT LOSS (REVERSAL) AND
(GAIN) LOSS ON DISPOSITIONS



Impairment Loss (Reversal) and
(Gain) Loss on Dispositions

|                                                               |  | Three months ended
    December 31, |          |   | Year ended
    December 31, | 
|-------------------------------------------------------------- |  | ----------------------------------- | -------- | - | --------------------------- | 
|($000s,
    except where noted)                                |  | 2016                                |          |   | 2015                        | 
|Impairment loss (reversal)
    - E&E and PP&E                  |  |                                     | (264,000 | ) |                             | 
|(Gain)
    loss on dispositions (1)                            |  |                                     | 171,584  |   |                             | 
|Impairment
    loss (reversal) and (gain) loss on dispositions |  |                                     | (92,416  | ) |                             | 

(1)Refer to the “Capital Expenditures”section in the MD&A for further discussion on (Gain) loss on
dispositions



Impairment Loss (Reversal)



Exploration
& Evaluation Assets



As at December
31, 2016, Bellatrix did not identify indicators of impairment or impairment reversal with respect to its Exploration and Evaluation
(“E&E”) assets. For the year ended December 31, 2015, Bellatrix recognized non-cash impairment loss of $4.5 million
on E&E assets, $3.2 million related to its Central Alberta CGU, $0.5 million related to its North Alberta cash generating
unit (“CGU”) and $0.8 million related to its South Alberta CGU where the carrying values exceeded the recoverable
amounts.



Property,
Plant and Equipment



Bellatrix
performed an assessment of possible indicators of impairment or impairment reversal on all of the Company’s CGUs. At December
31, 2016, impairment reversal indicators were identified for the Company’s core Central Alberta CGU, primarily as a result
of a significant increase in the reserves evaluation due to a combination of actual well performance exceeding previous estimates
resulting in strong positive technical revisions and infill drilling additions in 2016. Additionally, as a result of the dispositions
in the period and considering the Company’s focus of development, certain assets were moved from the core Central Alberta
CGU, into a new non-core South Central CGU. An impairment indicator was identified for this CGU given the Company is no longer
focused on actively developing these assets.



For the year
ended December 31, 2016, a non-cash impairment reversal of $307 million was recognized in the Company’s core Central Alberta
CGU, representing the maximum amount of impairment reversal able to be taken based on prior impairment loss less depletion and
dispositions. The estimated recoverable amount of the Central Alberta CGU as at December 31, 2016 was $1.3 billion. A non-cash
impairment loss of $43 million was recognized in the Company’s non-core South Central CGU. The estimated recoverable amount
of the South Central CGU was $64 million. No impairment was recognized in the Company’s non-core North Alberta and South
Alberta CGUs in 2016.



Bellatrix Exploration Ltd.19







The recoverable
amount of the Central Alberta and South Central CGUs as at December 31, 2016 was determined using a VIU approach, as Bellatrix
determined that VIU was greater than FVLCS, incorporating the following information:



| | a) | The
                                         net present value of the before-tax cash flows from proved plus probable oil and gas
                                         reserves of each CGU based on reserves estimated by Bellatrix’s independent reserve
                                         evaluator at December 31, 2016, adjusted for the net present value of the before-tax
                                         abandonment and reclamation costs on proved plus probable undeveloped oil and gas reserves
                                         (Level 3 of the fair value hierarchy). The reserve evaluation is based on an estimated
                                         remaining reserve life up to a maximum of 50 years.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Key input
estimates used to determine the present value of expected future net cash flows include:



| | a) | Reserves
                                         – An external reserve engineering report which incorporates a full evaluation of
                                         reserves is prepared on an annual basis with internal reserve updates completed at each
                                         quarterly period. Estimating reserves is highly complex, requiring many judgments including
                                         forward price estimates, production costs, and recovery rates based on available geological,
                                         geophysical, engineering and economic data. Changes in these judgments may have a material
                                         impact on the estimated reserves. These estimates may change, resulting in either negative
                                         or positive impacts to net earnings as further information becomes available and as the
                                         economic environment changes.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Commodity
                                         prices – Forward price estimates of crude oil and natural gas prices are incorporated
                                         into the determination of expected future net cash flows. Commodity prices have fluctuated
                                         significantly in recent years due to global and regional factors including supply and
                                         demand fundamentals, inventory levels, foreign exchange rates, economic, and geopolitical
                                         factors.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Discount
                                         rates – Discount rates used to calculate the present value of expected future cash
                                         flows are based on estimates of the recoverability of asset values in the current industry
                                         market conditions. Changes in the general economic environment could result in significant
                                         changes to these estimates.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The value
in use determination of estimated recoverable amounts of each CGU was based on before-tax discount rates ranging from 10-20%.



A 1% increase
to the discount rates applied in the impairment calculation for the South Central CGU would result in an increase in impairment
loss of approximately $5 million for the year ended December 31, 2016, whereas a 1% decrease to the discount rates applied would
result in a corresponding decrease to the impairment loss recognized. A 1% change in the discount rates applied in the impairment
reversal calculation for the Central Alberta CGU would have no impact the impairment reversal recorded at December 31, 2016.



For the year
ended December 31, 2015, the fair value less costs to sell impairment tests resulted in the recognition of non-cash impairment
of $507.4 million in the Company’s Central Alberta CGU. The estimated recoverable amount of the Central Alberta CGU as at
December 31, 2015 was $1.4 billion. No impairment was recognized in the Company’s North Alberta and South Alberta CGUs in
2015.



FOREIGN EXCHANGE



Bellatrix
incurs gains and losses in relation to the foreign currency translation of its United States dollar denominated Senior Notes.
The Senior Notes are translated from the United States dollar to Canadian dollar using the closing foreign exchange rate for the
period. Unrealized foreign exchange gains or losses are included in earnings in the period related to the translation of the outstanding
balance of the Senior Notes at the end of the period. Realized foreign exchange gains and losses are recognized as the Senior
Notes and other minor foreign currency based transactions are translated and settled during the period.



Bellatrix Exploration Ltd.20







|                                                         |  | Three months ended
    December 31, |        |   | Year ended
    December 31, | 
|-------------------------------------------------------- |  | ----------------------------------- | ------ | - | --------------------------- | 
|($000s)                                                  |  | 2016                                |        |   | 2015                        | 
|Realized gain (loss) on foreign exchange                 |  |                                     | (228   | ) |                             | 
|Realized gain on foreign
    exchange contracts          |  |                                     | -      |   |                             | 
|Unrealized gain (loss)
    on foreign exchange (1) (2)   |  |                                     | (7,411 | ) |                             | 
|Unrealized
    gain (loss) on foreign exchange contracts |  |                                     | 1,005  |   |                             | 
|Gain (loss) on
    foreign exchange                      |  |                                     | (6,634 | ) |                             | 

(1)Exchange rate (CDN$/US$1.00) at December 31, 2016 was 1.3427.

(2)Exchange rate (CDN$/US$1.00) at December 31, 2015 was 1.3840.



For the three
months and year ended December 31, 2016, Bellatrix recorded a foreign exchange loss of $6.6 million and a foreign exchange gain
of $8.2 million, respectively (2015: $8.8 million and $36.5 million losses, respectively). This was due to the impact of the change
over the three months and year ended December 31, 2016 in the value of the Canadian dollar relative to the United States dollar
on the Company’s United States dollar denominated Senior Notes which resulted in an unrealized loss of $7.4 million and
an unrealized gain of $9.9 million, respectively (2015: $10.4 million and $39.0 million losses, respectively). This was partially
offset by the change in the fair value of its United States foreign exchange forward contract which resulted in an unrealized
gain of $1.0 million and an unrealized loss of $2.0 million, respectively (2015: $1.6 million and $2.5 million losses, respectively).



The Company
may utilize foreign exchange derivative contracts to manage foreign exchange risks in order to maintain cash flow stability. Foreign
exchange derivative transactions are conducted in accordance with the risk management policy that has been approved by the Board
of Directors. The aggregate amount hedged under all foreign exchange derivate contracts is limited to the outstanding principal
amount of the Senior Notes and the term of foreign exchange contracts is limited to the remaining term of the related Senior Notes.



As at December
31, 2016, the Company had the following United States foreign exchange forward purchase contracts outstanding:



|Type  |  | Value Date   |  | Notional Amount ($000s USD) |  | Foreign Exchange
Rate |  | Settlement ($000s CDN)
|----- |  | ------------ |  | --------------------------- |  | --------------------- |  | ----------------------
|Fixed |  | May 14, 2020 |  | $32,500                     |  | $1.3076               |  | $42,497               
|Fixed |  | May 14, 2020 |  | $30,000                     |  | $1.3080               |  | $39,240               



INCOME TAXES



Deferred income
taxes arise from differences between the accounting and tax basis of the Company’s assets and liabilities. For the year
ended December 31, 2016, the Company recognized a deferred income tax recovery of $6.9 million, compared to a recovery of $140.8
million during 2015. The decrease in the deferred income tax recovery recognized in 2016 compared to the deferred tax recovery
recognized in 2015 was primarily attributable to the reduced net loss recognized in the 2016 period compared to 2015, after adjusting
for non-deductible tax items. At December 31, 2016 the Company had a total deferred tax asset balance of $63.7 million. The Company
recognized a net deferred tax asset based on the independently evaluated reserve report as cash flows are expected to be sufficient
to realize the deferred tax asset. The Company has not recognized a deferred tax asset for the deductible temporary difference
associated with the $14.6 million (2015: $18.2 million) unrealized allowable capital losses on marketable securities and USD denominated
Senior Notes.



Bellatrix Exploration Ltd.21







At December
31, 2016, Bellatrix had approximately $1.45 billion in tax pools available for deduction against future income as follows:



Tax Pools



|                                                                   |  |            |                                                           |  | December 31, |  |           | December 31, | 
|------------------------------------------------------------------ |  | ---------- | --------------------------------------------------------- |  | ------------ |  | --------- | ------------ | 
|($000s)                                                            |  | Rate
    % |                                                           |  | 2016         |  |           | 2015         | 
|Intangible resource pools:                                         |  |            |                                                           |  |              |  |           |              | 
|Canadian exploration expenses                                      |  |            | 100                                                       |  |              |  | 114,600   |              | 
|Canadian development expenses                                      |  |            | 30                                                        |  |              |  | 705,200   |              | 
|Canadian oil and gas property expenses                             |  |            | 10                                                        |  |              |  | 104,600   |              | 
|Foreign resource expenses                                          |  |            | 10                                                        |  |              |  | 600       |              | 
|Alberta non-capital losses greater than Federal non-capital losses |  |            | (Alberta)
                                         100    |  |              |  | 16,400    |              | 
|Undepreciated capital
    cost (1)                                 |  |            | 6
                                         – 100          |  |              |  | 344,500   |              | 
|Non-capital losses (expire through 2033)                           |  |            | 100                                                       |  |              |  | 144,100   |              | 
|Financing costs                                                    |  |            | 20
                                         Straight-Line |  |              |  | 21,900    |              | 
|                                                                   |  |            |                                                           |  |              |  | 1,451,900 |              | 

(1)Approximately $213 million of undepreciated capital cost pools are class 41, which is claimed at a 25% rate.



NET
PROFIT (LOSS)



For the three
months ended December 31, 2016, Bellatrix recognized a net profit of $23.1 million ($0.09 per basic share and diluted share),
compared to a net loss of $356.6 million ($1.86 per basic share and diluted share) in the fourth quarter of 2015. The increase
in net profit recorded in the fourth quarter of 2016 compared to the same period in 2015 was primarily the result of a non-cash
impairment reversal recognized in the fourth quarter of 2016.



For the year
ended December 31, 2016, Bellatrix recognized a net loss of $26.7 million ($0.12 per basic and diluted share), compared to a net
loss of $444.2 million ($2.31 per basic share and diluted share) in the same period in 2015. The decrease in net loss recorded
in 2016 compared to 2015 was primarily the result of a non-cash impairment reversal recognized in the 12 months ended December
31, 2016 as compared to a non-cash impairment loss recognized in the 2015 period and a reduction in cash costs in production,
transportation, royalties, and G&A expenses and offset by the decrease in revenues associated with the challenging commodity
price environment.



CASH
FLOW FROM OPERATING ACTIVITIES AND FUNDS FLOW FROM OPERATIONS



As detailed
previously in this MD&A, funds flow from operations is a capital performance measure that does not have any standardized meaning
under GAAP. Bellatrix’s method of calculating funds flow from operations may differ from that of other companies, and accordingly,
may not be comparable to measures used by other companies.



Reconciliation of Cash Flow
from Operating Activities to Funds Flow from Operations

|                                       |  | Three months ended
    December 31, |        |   | Year ended
    December 31, | 
|-------------------------------------- |  | ----------------------------------- | ------ | - | --------------------------- | 
|($000s)                                |  | 2016                                |        |   | 2015                        | 
|Cash flow from operating activities    |  |                                     | 17,114 |   |                             | 
|Decommissioning costs incurred         |  |                                     | 606    |   |                             | 
|Change in non-cash
    working capital |  |                                     | (9,283 | ) |                             | 
|Funds flow
    from operations         |  |                                     | 8,437  |   |                             | 



Bellatrix’s
cash flow from operating activities for the three months ended December 31, 2016 decreased by 59% to $17.1 million ($0.07 per
basic share and diluted share) from $42.0 million ($0.22 per basic share and diluted share) generated in the fourth quarter of
2015. Bellatrix generated funds flow from operations of $8.4 million ($0.03 per basic share and diluted share) in the fourth quarter
of 2016, a decrease of 72% from $29.7 million ($0.15 per basic share and diluted share) generated in the comparative 2015 period.
The decrease in funds flow from operations between the fourth quarters of 2015 and 2016 was mainly attributable to decreased revenues
and a realized loss on commodity risk management contracts in the quarter, as well as increased production, transportation, royalty
and G&A expenses.



Bellatrix’s
cash flow from operating activities for the year ended December 31, 2016 decreased by 64% to $37.5 million ($0.18 per basic and
diluted share) from $103.1 million ($0.54 per basic and diluted share) generated during the 2015 year. Bellatrix generated funds
flow from operations of $40.9 million ($0.19 per basic share and diluted share) in the year ended December 31, 2016, a decrease
of 63% from $109.5 million ($0.57 per basic and diluted share) generated in 2015. The decrease in funds flow from operations between
2015 and 2016 was principally due to a 21% decrease in realized commodity prices, a 14% decrease in sales volumes, and increased
interest and financing expense. This was in part offset by decreased production, transportation, royalties, and general and administrative
expenses.



Bellatrix Exploration Ltd.22







Bellatrix
maintains a commodity price risk management program to provide a measure of stability to funds flow from operations. Unrealized
mark–to–market gains or losses are non-cash adjustments to the fair market value of the contract over its entire term
and are included in the calculation of net profit (loss).



Cash Flow
from Operating Activities, Funds Flow from Operations, and Net Profit (Loss)

|                                      |  | Three months ended
    December 31, |        |  | Year ended
    December 31, | 
|------------------------------------- |  | ----------------------------------- | ------ |  | --------------------------- | 
|($000s,
    except per share amounts) |  | 2016                                |        |  | 2015                        | 
|Cash flow from operating activities   |  |                                     | 17,114 |  |                             | 
|Basic   ($/share)                     |  |                                     | 0.07   |  |                             | 
|Diluted ($/share)                     |  |                                     | 0.07   |  |                             | 
|Funds flow from operations            |  |                                     | 8,437  |  |                             | 
|Basic   ($/share)                     |  |                                     | 0.03   |  |                             | 
|Diluted ($/share)                     |  |                                     | 0.03   |  |                             | 
|Net profit (loss)                     |  |                                     | 23,085 |  |                             | 
|Basic   ($/share)                     |  |                                     | 0.09   |  |                             | 
|Diluted ($/share)                     |  |                                     | 0.09   |  |                             | 



CAPITAL EXPENDITURES



In 2016 Bellatrix’s
strategic priority was focused on maintaining financial strength and liquidity, as well as on profitable resource development.
During the three months ended December 31, 2016, Bellatrix invested $24.6 million in exploration and development projects, excluding
property acquisitions and dispositions, compared to $16.8 million in the same period in 2015. Bellatrix invested $78.7 million
in exploration and development projects, excluding property acquisitions and dispositions during the year ended December 31, 2016,
compared to $155.2 million in 2015.



Capital Expenditures

|                                          |  | Three months ended
    December 31, |          |   | Year ended
    December 31, | 
|----------------------------------------- |  | ----------------------------------- | -------- | - | --------------------------- | 
|($000s)                                   |  | 2016                                |          |   | 2015                        | 
|Lease acquisitions and retention          |  |                                     | 768      |   |                             | 
|Geological and geophysical                |  |                                     | 258      |   |                             | 
|Drilling and completion costs             |  |                                     | 22,994   |   |                             | 
|Facilities and equipment                  |  |                                     | 620      |   |                             | 
|Property transfers – cash                 |  |                                     | -        |   |                             | 
|Capital – exploration and development (1) |  |                                     | 24,640   |   |                             | 
|Capital – corporate assets (2)            |  |                                     | 172      |   |                             | 
|Property acquisitions                     |  |                                     | (13      | ) |                             | 
|Total capital expenditures – cash         |  |                                     | 24,799   |   |                             | 
|Property dispositions – cash
    (3)      |  |                                     | (105,206 | ) |                             | 
|Total net capital
    expenditures – cash |  |                                     | (80,407  | ) |                             | 
|Property acquisitions – non-cash          |  |                                     | -        |   |                             | 
|Property disposition – non-cash (4)       |  |                                     | (21,309  | ) |                             | 
|Other – non-cash (5)                      |  |                                     | (36,224  | ) |                             | 
|Total capital expenditures –
    net (6)  |  |                                     | (137,940 | ) |                             | 

| | (1) | Excludes capitalized
costs related to decommissioning liabilities expenditures incurred during the period.
| | --- | ----------------------------------------------------------------------------------------------------------



| | (2) | Capital - corporate assets
includes office leasehold improvements, furniture, fixtures and equipment before recoveries realized from landlord lease inducements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Property dispositions
– cash does not include transaction costs.
| | --- | ----------------------------------------------------------------



| | (4) | Property dispositions
– non-cash includes marketable securities and loans receivable received on the Pembina and Harmattan asset dispositions.
Pursuant to the Pembina asset sale, the Company received 2,171,667 common shares of InPlay Oil. Corp with a fair value of $5
million as at the date of the transaction. The loan receivable consists of the $15 million vendor take back loan (“VTB Loan”)
received pursuant to the Harmattan asset sale. The VTB Loan bears interest at 10% per annum and is secured by a first lien charge
against the sold assets.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Other includes non-cash
adjustments for the current period’s decommissioning liabilities and share based compensation.
| | --- | ----------------------------------------------------------------------------------------------------------------------



| | (6) | Total capital expenditures
– net is considered to be a non-GAAP measure. Total capital expenditures – net includes the cash impact of capital
expenditures and property dispositions, as well as the non-cash capital impacts of corporate acquisitions, property acquisitions
and dispositions, adjustments to the Company’s decommissioning liabilities, and share based compensation.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Bellatrix Exploration Ltd.23







In the fourth
quarter of 2016, capital spending on exploration and development activities of $24.6 million was focused primarily on drilling
and completing five gross (5.0 net) Spirit River liquids-rich natural gas wells. Average estimated capital costs for drill, complete,
equip, and tie-in activity for Spirit River wells drilled in 2016 was $3.8 million, representing a 2% decrease from the comparable
period in 2015.



In 2016, capital
spending on exploration and development activities of $78.7 million was focused primarily on drilling and completing 19 gross
(12.9 net) Spirit River liquids-rich natural gas wells. As well, Bellatrix continues to advance the Phase 2 expansion project
of the Alder Flats Plant which is expected to more than double the inlet capacity of the Plant from 110 MMcf/d currently to 230
MMcf/d. The project remains on time and budget, and is scheduled for completion in the first half 2018 at a remaining net estimated
cost to Bellatrix of approximately $37.5 million. A portion of these expenditures represent the prepayment made by Keyera Partnership
(“Keyera”) related to Phase 2, pursuant to the Alder Flats Plant Sale (as defined below).



Total net
capital expenditures in 2016 included non-core asset dispositions and infrastructure monetization asset transactions (detailed
below in Dispositions) resulting in net proceeds from dispositions being greater than capital expenditures in the year.



Bellatrix’s
Board of Directors has approved a net capital budget of $105 million in 2017. The 2017 capital is expected to be directed towards
drilling, completion and tie-in activity, primarily in the Spirit River formation and investment in strategic infrastructure projects,
including the Phase 2 expansion project of the Alder Flats Plant.



Business
Combination



In the second
quarter of 2016, Bellatrix completed a property acquisition of complementary assets within its core Ferrier area for total consideration
of $29.2 million, paid through the issuance of 20,547,576 common shares of Bellatrix. The acquired assets consisted of $29.7 million
of oil and natural gas properties, the value of which was determined using observable market metrics in addition to $0.5 million
of decommissioning liabilities assumed as a result of the acquisition. The acquired assets were originally
earned by Grafton under the $250 million joint venture between Bellatrix and Grafton, and consist of Grafton’s interest
in 18 gross wells (representing Grafton’s pre-payout interest in such wells) and related lands, rights and interests currently
operated by Bellatrix. The acquired assets produced an average of approximately 2,000 boe/d net to Grafton in the month prior
to acquisition (79% natural gas weighted). The transaction closed on June 22, 2016.



Dispositions



During the
second quarter of 2016, Bellatrix completed a facilities monetization transaction, pursuant to which it sold certain production
facilities to a third party midstream company for proceeds of $75 million effective May 3, 2016.



During the
third quarter of 2016, Bellatrix further monetized facilities with a $112.5 million disposition of a 35% working interest in the
Alder Flats Plant (“Alder Flats Plant Sale”) to Keyera, which includes prepayment by Keyera of 35% of the estimated
future construction costs of Phase 2 of the Alder Flats Plant. As part of the transaction, Bellatrix and Keyera entered into a
midstream services and governance agreement pursuant to which Bellatrix will have exclusive access to the purchased capacity (approximately
80.5 MMcf/d post commissioning of Phase 2) for a term of 10 years, and will remain the operator of the Alder Flats Plant.  In
exchange for exclusive access to the purchased capacity during the term, Keyera will be entitled to receive, on an annual basis,
a guaranteed fee calculated with reference to the capital fees that Keyera will otherwise receive in accordance with the terms
of the construction, ownership and operation agreement governing the Alder Flats Plant. Following completion of the transaction,
Bellatrix retains a 25% interest in the Alder Flats Plant, and has the option to reacquire a 5% interest in the Alder Flats Plant
near the end of the final year of the agreement at a cost of $8 million.



During the
fourth quarter of 2016, Bellatrix completed two asset dispositions. Firstly, Bellatrix completed the Pembina property sale for
total consideration of $47 million, consisting of approximately $42 million in cash and 2,171,667 common shares of the purchaser
with a fair value of $5 million at the time of sale. The common shares of the purchaser, InPlay Oil Corp., are listed on the TSX
under the symbol IPO. Bellatrix recorded a loss of $26.2 million on the disposition. Secondly, Bellatrix completed the Harmattan
property sale for total consideration of $80 million. Pursuant to the Harmattan asset sale, the Company received net cash proceeds
of approximately $65 million, and made a $15 million vendor take back loan (“VTB Loan”) to the purchaser. The VTB
Loan bears interest at 10% per annum and is secured by a first lien charge against the assets sold.  The terms of the VTB
Loan also provide that a minimum of 50% of the net operating income from the assets sold will be earmarked for principal repayment
on a quarterly basis, together with accrued interest. The VTB Loan has a 2 year maturity date and no prepayment penalties. The
VTB Loan is a loan receivable at December 31, 2016, with an estimate of the current portion of the loan receivable of $6.2 million
and $8.8 million as a long term loan receivable. Bellatrix recorded a loss of $147.7 million on the disposition. The net cash
proceeds from the Pembina and the Harmattan property sales were used to reduce the Company's outstanding bank debt.



Bellatrix Exploration Ltd.24







In the three
months and year ended December 31, 2016, the Company recognized total net gains on disposition of $2.5 million and $6.7 million,
respectively, relating to gains on wells drilled under the Grafton Joint Venture that was terminated in December 2016 (2015: $13.1
million and $33.9 million on wells drilled under the Grafton Joint Venture and the Troika Joint Venture that was terminated in
the fourth quarter of 2015) which were completed and tied-in during the quarter as well as adjustments for wells completed and
tied in during prior periods. A gain on disposition for each well is recognized to account for the disposal of the pre-payout
working interest earned by the joint venture partner on the well, which results from the difference between the percentage of
all capital costs contributed for the drilling, completion, equipping and tie-in of the well by the joint venture partner and
the pre-payout working interest allocated to the joint venture partner by the Company. The gain on disposition for a well is recognized
during the quarter in which the well was completed and tied-in. Under the Grafton Joint Venture, Grafton contributed 82% of the
total capital costs required for each well and in return earned 54% of Bellatrix’s WI in each well drilled in the well program
until payout.



DECOMMISSIONING
LIABILITIES



|($000s)                                    |  |  | 2016    |   |  |  | 2015   | 
|------------------------------------------ |  |  | ------- | - |  |  | ------ | 
|Balance, beginning
    of year             |  |  | 96,423  |   |  |  | 88,605 | 
|Incurred on development
    activities     |  |  | 911     |   |  |  | 2,556  | 
|Acquired through
    business combinations |  |  | 552     |   |  |  | -      | 
|Revisions on estimates                     |  |  | (5,219  | ) |  |  | 3,459  | 
|Reversed on dispositions                   |  |  | (31,536 | ) |  |  | -      | 
|Accretion
    expense                      |  |  | 1,713   |   |  |  | 1,803  | 
|Balance,
    end of year                   |  |  | 62,844  |   |  |  | 96,423 | 



At December
31, 2016, Bellatrix has recorded decommissioning liabilities of $62.8 million compared to $96.4 million at December 31, 2015,
for future abandonment and reclamation of the Company’s properties. During the year ended December 31, 2016, decommissioning
liabilities decreased by $31.5 million as a result of dispositions in the 2016 period and $5.2 million resulting from changes
in estimates, partially offset by an increase of $0.9 million as a result of $78.7 million incurred in relation to development
activities, $0.5 million as a result of acquisitions in the period and $1.7 million as a result of charges for the unwinding of
discount rates used for assessing liability fair values. The $5.2 million decrease in decommissioning liabilities between December
31, 2016 and December 31, 2015 resulting from revisions on estimates were primarily due to increased market interest rates which
increases the discount rates applied to the valuation of the liabilities. In addition, changes to estimates also resulted from
the revisions to timing and amounts of future decommissioning cash flows for certain wells and facilities made to better reflect
anticipated abandonment timelines and future cash outlays.



DEBT



Bank
Debt



At December
31, 2016, the Company had $19.1 million outstanding under the its syndicated revolving credit facilities (the “Credit Facilities”)
at a weighted average interest rate of 4.45%. The Company completed its November 30, 2016 semi-annual borrowing base redetermination
on November 7, 2016, concurrent with the closing of the Pembina property sale. Pursuant to the redetermination, the total commitments
under the Credit Facilities were set at $130 million. On December 21, 2016, following the completion of the $80 million Harmattan
property sale and the application of the net proceeds therefrom, the borrowing base under the Company’s Credit Facilities
was redetermined at $100 million. The Company’s Credit Facilities are available on an extendible revolving term basis and
consist of a $20 million operating facility provided by a Canadian bank and an $80 million syndicated facility provided by nine
financial institutions, subject to a borrowing base test.



Bellatrix Exploration Ltd.25







The Credit
Facilities have a maturity date, and are fully revolving until, October 1, 2017, which maturity date may be further extended for
a period of up to three years with the consent of the lenders. Should the Credit Facilities not be extended, the outstanding balance
is due upon maturity. The borrowing base is subject to redetermination on or before May 31, 2017 prior to maturity.



Amounts borrowed
under the Credit Facilities bear interest at a floating rate based on the applicable Canadian prime rate, U.S. base rate, CDOR
rate or LIBOR margin rate, plus between 0.8% and 4.75%, depending on the type of borrowing and the Company's consolidated Senior
Debt to consolidated EBITDA ratio (both as defined herein). A standby fee is charged between 0.405% to 1.06875% on the undrawn
portion of the Credit Facilities, depending on the Company's consolidated Senior Debt to consolidated EBITDA ratio. Amounts outstanding
under the Credit Facilities are secured by a $1.0 billion debenture containing a first ranking charge and security interest. Bellatrix
has provided a negative pledge and undertaking to provide fixed charges over its properties in certain circumstances.



The agreement
governing the Credit Facilities contains market standard terms and conditions, and includes, for instance, restrictions on asset
dispositions and hedging. Generally, dispositions of properties to which the Company is given lending value, in the determination
of the borrowing base, require lender approval if the net present value at 10% attributed to all properties sold in a fiscal year
exceeds 5% of the borrowing base in effect at the time of such disposition. However, the agreement governing the Credit Facilities
also provides that, at any time when there is a borrowing base shortfall, the value of the properties being sold or disposed cannot
exceed $5 million in aggregate in any fiscal year without approval of a majority of lenders. In addition, asset dispositions are
generally not permitted unless there would be no borrowing base shortfall as a result of such properties being sold. Commodity
risk management transactions must not be done for speculative purposes. The term of any contract for commodity swaps cannot exceed
3 years. The aggregate amount hedged under all oil and gas commodity swaps cannot exceed 70% of the Company’s average daily
sales volume for the first year of a rolling 3 year period, 60% for the second year of such period or 50% for the third year of
such period, with the average daily sales volume being based on the Company’s production for the previous fiscal quarter.
The aggregate amount hedged under all interest rate swaps, relating to unsecured note debt, cannot exceed the outstanding principal
amount of any unsecured note debt or have a term exceeding the remaining term of the unsecured note debt. For interest rate swaps,
unrelated to any unsecured note debt, the aggregate amount hedged cannot exceed 60% of the amount of the commitment under the
Credit Facilities or exceed a term of three years. The aggregate amount hedged under all exchange rate swaps, relating to unsecured
note debt, cannot exceed the outstanding principal amount of any unsecured note debt or have a term exceeding the remaining term
of the unsecured note debt.



As at December
31, 2016, total outstanding letters of credit were $13.1 million which reduced the amount otherwise available to be drawn under
the Credit Facilities.



A copy of
the agreement governing the Credit Facilities has been filed with Canadian and US securities regulatory authorities and may be
accessed through the SEDAR website (www.sedar.com), through the SEC website (www.sec.gov).



Bellatrix Exploration Ltd.26







Convertible
Debentures



At December
31, 2016 Bellatrix had outstanding $50 million principal amount of 6.75% convertible unsecured subordinated debentures (the “Convertible
Debentures”). The Convertible Debentures are governed by the terms of an indenture dated August 9, 2016 between the Company
and Computershare Trust Company of Canada (the “Debenture Indenture”), which has been filed with Canadian and US securities
regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) and the SEC website (www.sec.gov).
The Convertible Debentures bear interest at a rate of 6.75% per annum, payable semiannually in arrears on September 30 and March
31 of each year. The maturity date of the Convertible Debentures is September 30, 2021 (the “Maturity Date”). Each
$1,000 principal amount of Convertible Debenture is convertible at the option of the holder into approximately 617.2840 common
shares of Bellatrix (representing a conversion price of $1.62) prior to 5:00 p.m. (Calgary time) on the earlier of: (i) the last
business day immediately prior to the Maturity Date, (ii) the last business day immediately preceding any Redemption Date (as
defined in the Debenture Indenture), and (iii) if called for repurchase pursuant to a mandatory repurchase as a result of a Change
of Control (as defined in the Debenture Indenture) on the last business day preceding the date of payment. The Convertible Debentures
are not redeemable prior to September 30, 2019, except in limited circumstances following a Change of Control. On and after September
30, 2019 and up to and including September 30, 2020, the Convertible Debentures may be redeemed in whole or in part from time
to time at the Company’s option, on not more than 60 days’ and not less than 30 days’ prior written notice,
at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading
price of the common shares on the TSX for the 20 consecutive trading days preceding the date on which the notice of redemption
is given is not less than 125% of the conversion price. On or after September 30, 2020 and prior to the Maturity Date, the Convertible
Debentures may be redeemed in whole or in part from time to time at the Company’s option, on not more than 60 days notice,
at a price equal to their principal amount plus accrued and unpaid interest. The Convertible Debentures are direct, subordinated
unsecured obligations of the Company, subordinated to the Credit Facilities, the Senior Notes and any other senior indebtedness.



On a redemption
date or on the Maturity Date, as applicable, subject to required regulatory approvals and provided that no Event of Default (as
defined in the Debenture Indenture) has occurred and is continuing, Bellatrix may, at its option, on not more than 60 days' and
not less than 40 days' prior notice, elect to satisfy its obligation to repay, in whole or in part, the principal amount of the
Convertible Debentures which are to be redeemed or which will mature by issuing and delivering freely tradable common shares of
the Company to the holders of the Convertible Debentures. Payment for such Convertible Debentures subject to the election would
be satisfied by delivering that number of common shares obtained by dividing the principal amount of the Convertible Debentures
subject to the election which are to be redeemed or which will mature by 95% of the current market price of the common shares
on such redemption date or Maturity Date, as applicable. Any accrued and unpaid interest will be paid in cash.



Senior
Notes



The Company
has US$250 million of 8.50% senior unsecured notes maturing May 15, 2020 (the “Senior Notes”) all of which remained
outstanding as at December 31, 2016. Interest is payable on the Senior Notes semi-annually and the Senior Notes are redeemable
at the Company's option, in whole or in part, commencing on May 15, 2017 at specified redemption prices. The Senior Notes are
redeemable at the following redemption prices (expressed as a percentage of the principal amount of the Senior Notes): May 15,
2017 to May 14, 2018 at 104.250%, May 15, 2018 to May 14, 2019 at 102.125%, May 15, 2019 and thereafter at 100.000%.  Prior
to May 15, 2017, some or all of the Senior Notes may be redeemed at a price equal to 100% of the principal amount plus a make-whole
premium. Additionally, up to 35% of the Senior Notes may be redeemed prior to May 15, 2017 at a redemption price equal to 108.500%,
with an amount of cash not greater than the net cash proceeds of certain equity offerings. The Senior Notes are carried at amortized
cost, net of debt issuance costs of $7.7 million, which accrete up to the principal balance at maturity using the effective interest
rate of 9.6%. The Senior Notes were initially recognized at fair value, net of debt issue costs, and have subsequently been carried
at amortized cost.



Bellatrix Exploration Ltd.27







|($000s)                                           |  |  | Amount  |  
|------------------------------------------------- |  |  | ------- | -
|Balance, December 31, 2014                        |  |  | -       |  
|Issuance of Senior Notes                          |  |  | 299,308 |  
|Unrealized foreign exchange loss                  |  |  | 38,940  |  
|Amortization of discount and debt
    issue costs |  |  | 1,442   |  
|                                                  |  |  | 339,690 |  
|Debt issue costs                                  |  |  | (7,666  | )
|Balance, December 31, 2015                        |  |  | 332,024 |  
|Unrealized foreign exchange gain (1) (2)          |  |  | (9,879  | )
|Amortization of discount and debt
    issue costs |  |  | 2,601   |  
|                                                  |  |  | 324,746 |  
|Debt issue costs                                  |  |  | (55     | )
|Balance, December 31, 2016                        |  |  | 324,691 |  

(1)Exchange rate (CDN$/US$1.00) at December 31, 2016 was 1.3427.

(2)Amount does not include unrealized loss on foreign exchange contracts of $2.0 million.



Covenants



The agreement
governing the Credit Facilities contains one financial covenant (referred to above as the Senior Debt Covenant), which requires
that the Company will not permit its ratio of outstanding Senior Debt to EBITDA, as defined by the terms of the agreement governing
the Credit Facilities and adjusted for non-cash charges, for a trailing 12-month period to exceed a specified amount. Specifically,
the Senior Debt Covenant requires that the Company maintain a Senior Debt to EBITDA ratio of not more than 3.5 times for the fiscal
quarters ending on or before March 31, 2017. Commencing with the second quarter of 2017, the maximum Senior Debt to EBITDA ratio
reduces to 3.0 times (3.5 times for the two fiscal quarters immediately following a material acquisition). Senior Debt is defined
as all debt of the borrower, including outstanding letters of credit, bank debt, finance lease obligations, deferred lease inducements,
deferred financing obligations, deferred capital obligations and net working capital deficiency. Excluded from the calculation
of Senior Debt is subordinated debt such as the Senior Notes, Convertible Debentures (liability component), decommissioning liabilities
and deferred tax liability. EBITDA is defined as consolidated earnings before interest, taxes, depletion, depreciation and amortization.
As at December 31, 2016, the Company was in compliance with the Senior Debt Covenant with a Senior Debt to EBITDA ratio of 1.57
times.



The indenture
governing the Senior Notes (the “Note Indenture”) does not contain any maintenance financial covenants but does contain
an incurrence-based minimum fixed charge coverage ratio covenant which, if not met, limits the Company’s ability to incur
additional indebtedness beyond its existing Senior Notes and its Credit Facilities.



The following
table lists the covenant under the Credit Facilities and Senior Notes and the Company’s compliance therewith, as at December
31, 2016:

|                                                                      |  | Covenants as at
    December 31, 2016 |  | Position at
    December 31, 2016
|--------------------------------------------------------------------- |  | ------------------------------------- |  | ---------------------------------
|Credit Facilities – Senior Debt Covenant                              |  | Maximum Ratio                         |  |                                  
|Senior
    Debt(1)to EBITDA
    (2) for the last four fiscal quarters |  | 3.50x                                 |  | 1.57x                            
|                                                                      |  |                                       |  |                                  
|Senior Notes – Incurrence Covenant                                    |  | Minimum Ratio                         |  |                                  
|Fixed
    charge coverage (3)                                         |  | 2.25x                                 |  | 1.65x                            

(1)“Senior Debt” is defined as Consolidated Total Debt, excluding any unsecured or subordinated debt (Senior Notes
and Convertible Debentures (liability component)). “Consolidated Total Debt” is defined as determined on a consolidated
basis in accordance with GAAP and without duplication, all Debt of the Borrower. The Company’s calculation of Consolidated
Total Debt excludes decommissioning liabilities and deferred tax liability. The calculation includes outstanding letters of credit,
bank debt, finance lease obligations, deferred lease inducements, deferred capital obligations, deferred financing obligations
and net working capital deficiency, calculated as working capital deficiency excluding current risk management contract assets
and liabilities. Senior Debt at December 31, 2016 was $96.1 million.



(2)“EBITDA” refers to earnings before interest, taxes, depletion, depreciation and amortization. EBITDA is calculated
based on terms and definitions set out in the Credit Agreement which adjusts net income (loss) for financing costs, certain specific
unrealized and non-cash transactions, and acquisition and disposition activity and is calculated based on a trailing twelve month
basis. EBITDA for the trailing twelve months ended December 31, 2016 was $61.1 million.







Bellatrix Exploration Ltd.28







(3)Fixed charge coverage
is computed as the ratio of fixed charges (as defined in the indenture governing the Senior Notes fixed charges generally includes
interest expense plus paid or accrued dividends, if any) to trailing twelve month consolidated cash flow (as defined in the indenture
governing the Senior Notes, consolidated cash flow includes the consolidated net profit (loss) and adds back unrealized foreign
exchange, provision for taxes, fixed charges, depletion, and various other non-recurring expenses and charges).  For the
trailing twelve months ended December 31, 2016, fixed charges were $41.2 million and consolidated cash flow was $67.9 million.



Bellatrix
currently has commitments associated with the Credit Facilities outlined above and the commitments outlined under the “Commitments”
section.



LIQUIDITY AND CAPITAL RESOURCES



As an oil
and gas company, Bellatrix has a declining asset base and therefore relies on ongoing development and acquisitions to replace
production and add additional reserves. Future oil and natural gas production and reserves are highly dependent on the success
of exploiting the Company’s existing asset base and in identifying or acquiring additional reserves. To the extent Bellatrix
is successful or unsuccessful in these activities, cash flow could be increased or decreased. In addition, the Company’s
cash flow depends on a number of factors, including commodity prices, production and sales volumes, production expenses, taxes,
and royalties.



Bellatrix
remains highly focused on key business objectives of maintaining financial strength and liquidity, and optimizing capital investments
in the current low commodity price environment. Bellatrix expects to be able to fund its 2017 capital program by reinvesting cash
flow. In January 2017, Bellatrix’s Board of Directors approved a 2017 net capital budget of $105 million. Bellatrix continually
monitors its capital spending program in light of prevailing commodity prices and the United States/Canadian dollar exchange rate
with the aim of ensuring the Company will be able to meet future anticipated obligations incurred from normal ongoing operations
with funds flow from operations and borrowings under its Credit Facilities, as necessary.



In addition
to cash flow from operations, the Company’s other main source of liquidity is its Credit Facilities. At December 31, 2016,
the Company had $19.1 million outstanding under the Company’s Credit Facilities (excluding letters of credit) at a weighted
average interest rate of 4.45%.



At December
31, 2016, the borrowing base under the Company’s Credit Facilities was $100 million, comprised of a $20 million operating
facility and an $80 million syndicated facility, providing the Company with approximately $80 million of available liquidity (excluding
outstanding letters of credit). The revolving reserves based Credit Facilities are reviewed semi-annually by the lenders thereunder,
as outlined in ‘Bank Debt’ above.



In addition
to the semi-annual borrowing base redeterminations, the Credit Facilities incorporate the Senior Debt Covenant (as discussed above)
which also has the ability to effectively limit the Company’s maximum drawings permitted under the Credit Facilities. As
at December 31, 2016, the Company’s trailing twelve-month EBITDA was $61.1 million and Senior Debt was $96.1 million, resulting
in a Senior Debt to EBITDA ratio of 1.57 times.



In October
2016, Bellatrix issued 8,474,576 common shares on a “flow-through” basis in respect of Canadian Development Expenses
(“CDE”) at a price of $1.18 per share resulting in gross proceeds of $10 million. Proceeds were used to partially
finance the Company’s drilling and complete expenditures during the remainder of 2016.



Total net
debt at December 31, 2016 includes bank debt, long term loans receivable, Convertible Debentures (liability component), Senior
Notes, and the net balance of an adjusted working capital deficiency of $23.7 million. Total net debt excludes unrealized risk
management contract assets and liabilities, deferred taxes, other deferred liabilities, deferred capital obligation and decommissioning
liabilities.



Total net
debt levels of $396.2 million at December 31, 2016 decreased by $321.4 million from $717.6 million at December 31, 2015. The reduction
in total net debt reflects a decrease of $7.3 million to the Senior Notes, resulting from an unrealized foreign exchange gain
in the year ended 2016, and a decrease of $351.5 million to the bank debt and adjusted working capital deficiency mainly attributable
to the $187.5 million in proceeds on the disposition of certain production facilities and the Alder Flats Plant Sale, the issuance
of common shares and Convertible Debentures in August 2016 for a combined gross proceeds of $80.0 million, and $107.0 million
in cash proceeds ($127.0 million total proceeds including VTB loans and marketable securities) on non-core asset dispositions
in the fourth quarter of 2016. The total net debt was partially offset by the issuance of Convertible Debentures in the third
quarter of 2016 which have a liability component of $37.4 million.



Bellatrix Exploration Ltd.29







|Debt to Funds Flow from
    Operations Ratio                                    |  |                         |        
|------------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                                |  | Year ended December 31, |        
|($000s, except where noted)                                                     |  | 2016                    |        
|                                                                                |  |                         |        
|Shareholders’ equity                                                            |  |                         | 863,418
|                                                                                |  |                         |        
|Current bank debt                                                               |  |                         | 19,143 
|Bank debt                                                                       |  |                         | -      
|Loans receivable (long term)                                                    |  |                         | (8,775 
|Adjusted working capital deficiency (1)                                         |  |                         | 23,716 
|Subtotal                                                                        |  |                         | 34,084 
|Senior Notes (mature May 15, 2020) (2)                                          |  |                         | 324,691
|Net debt (1)                                                                    |  |                         | 358,775
|Convertible Debentures (liability component)                                    |  |                         | 37,420 
|Total net debt (1) at year end                                                  |  |                         | 396,195
|                                                                                |  |                         |        
|Debt to funds flow from operations ratio (annualized)(3) (4)                    |  |                         |        
|Funds flow from operations (4) (annualized)                                     |  |                         | 33,748 
|Net debt (1) to periods funds flow from operations ratio
    (annualized) (3)   |  |                         | 10.6x  
|Total net debt to periods funds flow from operations ratio (annualized)
    (3) |  |                         | 11.7x  
|                                                                                |  |                         |        
|Debt to funds flow from operations ratio(4)                                     |  |                         |        
|Funds flow from operations for the year (4)                                     |  |                         | 40,916 
|Net debt (1) to funds flow from operations ratio (4)for the year                |  |                         | 8.8x   
|Total net debt (1)to
    funds flow from operations ratio (4) for the year      |  |                         | 9.7x   

(1)Net debt and total net debt as presented do not have a standardized meaning prescribed
by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. The Company’s calculation
of total net debt excludes other deferred liabilities, deferred capital obligation, long-term risk management contract liabilities,
decommissioning liabilities, and the deferred tax liability. Total net debt includes the adjusted working capital deficiency,
Convertible Debentures (liability component), current bank debt, long term loan receivable and Senior Notes. The adjusted working
capital deficiency as presented does not have a standardized meaning prescribed by IFRS and therefore may not be comparable with
the calculation of similar measures for other entities. The Company calculated adjusted working capital deficiency as net working
capital deficiency excluding current risk management contract assets and liabilities, current portion of other deferred liabilities,
current portion of deferred capital obligation and the current portion of bank debt. Net debt excludes the liability component
of Convertible Debentures that is included in total net debt.



(2)For the year ended December 31, 2016, includes unrealized foreign exchange gain of $9.9 million (2015: $38.9 million) and
does not include an unrealized gain of $2.0 million (2015: $2.5 million) on foreign exchange contracts.

(3)For the years ended December 31, 2016 and 2015, total net debt to period’s funds flow from operations ratio (annualized)
is calculated based upon fourth quarter funds flow from operations annualized.

(4)Funds flow from operations as presented do not have a standardized meaning prescribed by IFRS and therefore may not be comparable
with the calculation of similar measures for other entities. Funds flow from operations is calculated as cash flow from operating
activities, excluding decommissioning costs incurred, changes in non-cash working capital incurred, and transaction costs.



As at December
31, 2016 the Company’s ratio of total net debt to annualized funds flow from operations (based on fourth quarter funds flow
from operations) was 11.7 times. The total net debt to annualized funds flow from operations ratio as at December 31, 2016 increased
from that at December 31, 2015 of 6.1 times primarily due to a decrease in funds flow from operations resulting due to the continued
decline in commodity prices and decreased sales volumes in the period. The Company continues to preserve liquidity through the
priority use of funds flow from operations.



On
August 5, 2016 Bellatrix received a continued listing standards notice from the NYSE because the average closing price of Bellatrix's
common shares had been less than US$1.00 per share over a period of 30 consecutive trading days. In accordance with NYSE rules,
and because the Company would be required to obtain shareholder approval for a potential corporate action to cure the price deficiency
(specifically a reverse stock split), the cure period has been extended to the Company’s upcoming annual shareholder meeting
(the “2017 AGM”), currently scheduled for May 17, 2017. Bellatrix can regain compliance with the minimum share price
requirement if the Company's common shares have a closing share price of at least US$1.00 on the last trading day of any calendar
month and also have an average closing share price of at least US$1.00 over the 30 trading-day period ending on the last trading
day of that month. At Bellatrix's 2017 AGM, shareholders may be asked to consider a potential reverse stock split as a means of
curing the NYSE price deficiency. As is customary, Bellatrix's Board of Directors will provide notice of the 2017 AGM including
matters proposed and put forth for consideration in advance of such meeting. There can be no assurance that Bellatrix’s
Board of Directors will recommend a reverse stock split in connection with the 2017 AGM, or if recommended, that such proposal
will receive the requisite number of votes at the 2017 AGM. Bellatrix's common shares are expected to continue to trade, unaffected,
on the NYSE during this cure period, but if the Bellatrix Board of Directors does not recommend a reverse stock split in connection
with the 2017 AGM, or if such a recommended is made but not approved by the requisite shareholder vote, it is likely that Bellatrix’s
common shares will be delisted from the NYSE unless Bellatrix otherwise cures the price deficiency as described above.



Bellatrix Exploration Ltd.30







Liquidity Risk



Liquidity risk is the risk that Bellatrix
will not be able to meet its financial obligations as they become due. Bellatrix actively manages its liquidity through daily and
longer-term cash, debt, and equity management strategies. Such strategies encompass, among other factors: having adequate sources
of financing available through its Credit Facilities, estimating future cash generated from operations based on reasonable production
and pricing assumptions, analysis of economic risk management opportunities, and maintaining sufficient cash flows to ensure compliance
with the Credit Facilities Senior Debt Covenant described above and the ability to repay the Credit Facilities at maturity on October
1, 2017. The borrowing base under the Company’s Credit Facilities is $100 million providing the Company with approximately
$80 million of available liquidity (excluding outstanding letters of credit). Should the Credit Facilities not be extended, Bellatrix
would be required to repay the outstanding balance on October 1, 2017. Bellatrix holds $4.3 million in marketable securities and
$15 million in loans receivable that could be liquidated in order to repay all or a portion of bank indebtedness. Capital spending
could be reduced in order to use cash flow from operations to repay the bank debt or the Company could seek other sources of capital
including, but not limited to, obtaining a new bank credit facility.



Future liquidity
depends primarily on cash flow generated from operations, availability under the Credit Facilities and Bellatrix’s ability
to comply with the Senior Debt Covenant and other covenants contained therein, and the ability to access debt and equity markets.



Bellatrix also
has Senior Notes and Convertible Debentures outstanding with fixed interest rates (as outlined in above in ‘Senior Notes’
and ‘Convertible Debentures’), which mature on May 15, 2020 and September 30, 2021, respectively. The Company also
mitigates liquidity risk by maintaining an insurance program to minimize exposure to insurable losses.



From time to time,
the Company accesses capital markets to meet its additional financing needs and to maintain flexibility in funding its capital
programs. As at December 31, 2016, the Company has the ability to offer to sell up to an additional $470.8 million in securities
under its $500 million Shelf Prospectus, which expires on June 30, 2018.



There can be no
assurance that future debt or equity financing, additional credit under the Credit Facilities, or cash generated by operations
will be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available,
that it will be on terms acceptable to Bellatrix.



As at March 14, 2017, Bellatrix had outstanding
a total of 10,355,433 options at an average exercise price of $3.71 per share and had 246,585,828 common shares outstanding. During
the year, the shareholders and the TSX approved the issuance of common shares on settlement of RAs and PAs under the Award Plan.
As a result, awards under the Award Plan may be settled in cash, in common shares of the Company, or a combination thereof. In
the case of PAs, settlement is subject to a “payout multiplier” (the payout multiplier shall be based on such corporate
performance measures as determined by the Board of Directors (or the Compensation Committee) of the Company and may range between
zero and two times.



In addition, as at March 14, 2017, there
was $50 million principal amount of Convertible Debentures outstanding which are convertible into common shares of the Company
at a price of $1.62 per share (representing a conversion rate of approximately 617.2840 Common Shares per $1,000 principal amount
of Convertible Debentures and subject to certain adjustments as set out in the Debenture Indenture (as defined above) at the option
of the holder. If the full principal amount of Convertible Debentures was converted it would result in the issuance of approximately
30,864,200 common shares. In addition, the Company may elect to issue common shares of the Company to satisfy the obligation to
repay, in whole or in part, the principal amount of the Convertible Debentures upon redemption or maturity of the Convertible Debentures
(any accrued and unpaid interest on such redemption or maturity will be paid in cash). The exact number of common shares of the
Company that may be issuable on redemption or maturity is not readily determinable as such number will be determined by dividing
the principal amount of the Convertible Debentures subject to the election which are to be redeemed or will mature by 95% of the
current market price of the common shares on the redemption date or maturity date, as applicable.



Bellatrix Exploration Ltd.31







Credit Risk



Credit risk is
the risk of financial loss to Bellatrix if a customer or counterparty to a financial instrument fails to meet its contractual obligations,
and arises principally from Bellatrix’s trade receivables from joint venture partners, petroleum and natural gas marketers,
and financial derivative counterparties.



A substantial portion
of Bellatrix’s accounts receivable are with customers and joint venture partners in the petroleum and natural gas industry
and are subject to normal industry credit risks.Bellatrix currently sells substantially all of its production to ten primary
purchasers under standard industry sale and payment terms. The most significant 60 day exposure to a single counterparty is approximately
$13.5 million. Purchasers of Bellatrix’s natural gas, crude oil and natural gas liquids are subject to a periodic
internal credit review to minimize the risk of non-payment. Bellatrix has continued to closely monitor and reassess the creditworthiness
of its counterparties, including financial institutions. This has resulted in Bellatrix mitigating its exposures to certain counterparties
by obtaining financial assurances or reducing credit where it is deemed warranted and permitted under contractual terms.



Bellatrix may be exposed to third party
credit risk through its contractual arrangements with its current or future partners and joint venture partners, marketers of its
petroleum and natural gas production, derivative counterparties and other parties. In the event such entities fail to meet their
contractual obligations to Bellatrix, such failures may have a material adverse effect on the Company’s business, financial
condition, results of operations and prospects. In addition, poor credit conditions in the industry and of joint venture partners
may impact a joint venture partner’s willingness to participate in Bellatrix’s ongoing capital program, potentially
delaying the program and the results of such program until Bellatrix finds a suitable alternative partner.



COMMITMENTS



In December 2016, Bellatrix and Grafton
terminated the remainder of the development program under the Grafton Joint Venture. As a result, Bellatrix and Grafton have no
further obligation to drill additional wells thereunder. The parties continue to have working interest ownership in existing wells
related to the executed capital program.



Bellatrix and CNOR, a non-operated oil and
gas company managed by Grafton Asset Management Inc., formed the CNOR Joint Venture in 2014. Through the joint venture, CNOR has
committed $250 million in capital towards future accelerated development of a portion of Bellatrix's undeveloped land holdings.
On September 29, 2016, the parties amended the terms of the CNOR Joint venture to extend the funding period to December 31, 2020,
and as a result Bellatrix is now required to propose a joint development plan on or before October 1, 2017, with the expectation
that the funds will be primarily spent between the years 2018 through 2020. Bellatrix is not currently subject to any formal well
or cost commitments in relation to the CNOR Joint Venture.



Bellatrix Exploration Ltd.32







The Company had the following liabilities
as at December 31, 2016:



|Liabilities
    ($000s)                      |  | Total |         |  | <
    1 Year |  |         | 1-3
    Years |  |  | 3-5
    Years |  |  | More
    than 5 years |        
|-------------------------------------------- |  | ----- | ------- |  | ------------ |  | ------- | ------------- |  |  | ------------- |  |  | --------------------- | -------
|Accounts payable and accrued liabilities (1) |  |       | 77,334  |  |              |  | 77,334  |               |  |  | -             |  |  |                       | -      
|Advances from joint venture partners         |  |       | 1,361   |  |              |  | 1,361   |               |  |  | -             |  |  |                       | -      
|Bank debt – principal (2)                    |  |       | 19,143  |  |              |  | 19,143  |               |  |  | -             |  |  |                       | -      
|Convertible Debentures (liability component) |  |       | 37,420  |  |              |  | -       |               |  |  | -             |  |  |                       | 37,420 
|Senior Notes (3)                             |  |       | 324,691 |  |              |  | -       |               |  |  | -             |  |  |                       | 324,691
|Decommissioning liabilities (4)              |  |       | 62,844  |  |              |  | -       |               |  |  | 2,357         |  |  |                       | 7,109  
|Deferred capital obligation (5)              |  |       | 21,890  |  |              |  | 18,165  |               |  |  | 3,725         |  |  |                       | -      
|Deferred financing obligation (5)            |  |       | 7,525   |  |              |  | 6,020   |               |  |  | 1,505         |  |  |                       | -      
|Finance lease obligation                     |  |       | 8,429   |  |              |  | 1,538   |               |  |  | 1,645         |  |  |                       | 938    
|Total                                        |  |       | 560,637 |  |              |  | 123,561 |               |  |  | 9,232         |  |  |                       | 370,158



(1)Includes $1.1 million of accrued interest payable in relation to the Credit Facilities and $3.6 million related
to interest on the Senior Notes is included in Accounts Payable and Accrued Liabilities.

(2)Bank debt is based on a three year facility, fully revolving until maturity, and extendable annually at the
Company’s option (subject to lender approval), provided that the term after any extension would not be more than three years.
Interest due on the Credit Facilities is calculated based upon floating rates. At December 31, 2016, the borrowing base under
the Company’s Credit Facilities was $100 million comprised of a $20 million operating facility provided by a Canadian bank
and an $80 million syndicated facility provided by nine financial institutions, subject to a borrowing base test. The maturity
date of the Credit Facilities is October 1, 2017, and may be further extended for a period not to exceed 3 years (subject to lender
approval).

(3)Senior Notes mature on May 15, 2020, but may be redeemed by Bellatrix at any time on or after May 15, 2017
at specific redemption prices.

(4)Amounts represent the inflated, discounted future abandonment and reclamation expenditures anticipated to
be incurred over the life of the Company’s properties (between 2017 and 2065).

(5)Pursuant to the Alder Flats Plant Sale, Bellatrix recognized a deferred capital obligation and a deferred
financing obligation as part of the disposition.



Off-Balance Sheet Arrangements



The Company has certain fixed-term lease
agreements, primarily compressor and office space leases, which were entered into in the normal course of operations. During 2016,
Bellatrix completed a sale and leaseback of certain production facilities to a third party midstream company. Bellatrix maintains
operatorship and preferential access to the facilities for its operated production volumes and retains, at its sole discretion,
the option to repurchase the facilities at any time during the agreement period. Pursuant to the agreement, Bellatrix will pay
an annual rental fee over the duration of the eight year term of the agreement.



All leases have been treated as operating
leases whereby the lease payments are included in operating expenses or G&A expenses, depending on the nature of the lease.
The lease agreements for office space do not currently provide for early termination. No asset or liability value has been assigned
to these leases in the balance sheet as of December 31, 2016.



The Company’s contractual obligations
and commitments as at December 31, 2016 were as follows:



|($000s)             |  |   | 1 Year |  |  |   | 2-3 Years |  |  |   | 4-5 Years |  |  |   | More than 5 years |  |  |   | Total  | 
|------------------- |  | - | ------ |  |  | - | --------- |  |  | - | --------- |  |  | - | ----------------- |  |  | - | ------ | 
|Operating leases(1) |  | $ | 14,090 |  |  | $ | 25,142    |  |  | $ | 18,185    |  |  | $ | 12,055            |  |  | $ | 69,472 | 



(1) Operating leases
is comprised of the Company’s commitment for office space, net of recoveries and gross operating leases for field equipment
and vehicles. The Company is committed to payments under fixed term operating leases for office space which do not currently provide
for early termination.



During 2016, Bellatrix completed the Alder
Flats Plant Sale transaction. As part of the transaction, Bellatrix and Keyera entered into a midstream services and governance
agreement pursuant to which Bellatrix will have exclusive access to the purchased capacity (approximately 80.5 MMcf/d post commissioning
of Phase 2) for a term of 10 years, and will remain the operator of the Alder Flats Plant.  In exchange for exclusive access
to the purchased capacity during the term, Keyera will be entitled to receive, on an annual basis, a guaranteed fee calculated
with reference to the capital fees that Keyera will otherwise receive in accordance with the terms of the construction, ownership
and operation agreement governing the Alder Flats Plant.



Bellatrix Exploration Ltd.33







2016 OPERATIONAL
PERFORMANCE



Bellatrix delivered strong operational momentum
and performance in 2016. Full year average annual production of 35,677 boe/d (72% natural gas weighted) was in line with the Company’s
guidance range notwithstanding weather related delays to field operations in the fourth quarter and the impact to volumes associated
with the non-core Harmattan and Pembina asset dispositions completed in the fourth quarter. Bellatrix’s production and marketing
groups actively mitigated system wide curtailments of take away capacity on the NGTL system and the impact of unplanned third party
plant downtime during the year. Full year exploration and development net capital spending of $78.7 million was within 2% of guidance
of $77 million.



Full year production expenses averaged $8.70/boe,
slightly above guidance of $8.50/boe. The modest increase in production expenses was primarily attributable to the fixed cost structure
associated with the facilities monetization transactions combined with a decrease in volumes over the period but was mitigated
by cash cost savings delivered through operational optimization and cost suppression initiatives.



2016 Actual Performance versus Guidance



|                                     |  | 2016 Results |        |  | 2016 Guidance |  |        | Actual Versus Guidance | 
|------------------------------------ |  | ------------ | ------ |  | ------------- |  | ------ | ---------------------- | 
|Average daily production (boe/d)     |  |              |        |  |               |  |        |                        | 
|Low range                            |  |              | 35,677 |  |               |  | 35,500 |                        | 
|High range                           |  |              | 35,677 |  |               |  | 36,500 |                        | 
|Average product mix                  |  |              |        |  |               |  |        |                        | 
|Crude oil, condensate and NGLs (%)   |  |              | 28     |  |               |  | 27     |                        | 
|Natural gas (%)                      |  |              | 72     |  |               |  | 73     |                        | 
|Net capital spending ($ millions)(1) |  |              | 79     |  |               |  | 77     |                        | 
|Expenses ($/boe)                     |  |              |        |  |               |  |        |                        | 
|Production                           |  |              | 8.70   |  |               |  | 8.50   |                        | 

(1)Capital spending includes exploration and development capital projects and corporate assets, and excludes property acquisitions
and dispositions.

(2)Production expenses before net processing revenue/fees.



BUSINESS
PROSPECTS AND 2017 OUTLOOK



In January 2017, Bellatrix announced a three
year strategic outlook and development plan, including a return to profitable growth. The Company’s plans are supported by
an active risk management program designed to mitigate the impact of commodity price volatility. Our focused capital investment
into high rate of return drilling projects and near term infrastructure investments that deliver high value liquids extraction
capability and production expense reductions, provide the foundational support to execute on our three year development plan.



In 2017, Bellatrix plans to expand its drilling
efforts across our core west central Alberta acreage including expanded development of the Spirit River formation in the Willesden
Green area, following on our success in the Ferrier area. With the improvement in oil and natural gas liquids pricing relative
to 2016, a number of Cardium opportunities begin to compete for capital investment. Our first half capital program includes one
gas weighted Cardium well in the Ferrier area, and one oil weighted Cardium well in the Alder Flats area. With the completion of
joint venture programs, Bellatrix has strategically reviewed its drilling program to optimize capital investment, forecast rates
of return, and long term net asset value and reserve growth potential. Bellatrix maintains a balanced portfolio of natural gas
and oil weighted investment opportunities and at current commodity prices remains focused on development of the Spirit River liquids-rich
natural gas play which is expected to provide the value enhancing growth platform for the Company in its three year development
plan, with the Cardium oil weighted opportunities providing additional value as we move through the commodity price cycle.



With two rigs currently operating, Bellatrix
remains well positioned to execute on its 2017 budget with approximately 50% of the total $105 million capital budget allocated
to the first half of 2017. Production volumes are expected to grow over the course of the year, resulting in exit 2016 to exit
2017 growth of 10% to 15%. Following the conclusion of the joint venture programs in 2015 and 2016, Bellatrix intends on honing
in on organic, high working interest, and highly profitable development drilling opportunities. In 2017, the Company plans to drill
approximately 19 net wells at an average working interest of approximately 80%, which is up significantly from the average working
interest of 68% completed in the 2016 drill program.



Bellatrix Exploration Ltd.34







Bellatrix continues to protect its long
term strategic plan through an active hedging program, with approximately 66% of forecast gross natural gas volumes in 2017 hedged
at an average fixed price of approximately $3.36/mcf (based on the mid-point of 2017 average gross production guidance of 33,500
boe/d; 76% natural gas weighted). In addition, Bellatrix has secured meaningful 2018 risk management protection with a total of
65.6 MMcf/d of 2018 natural gas volumes hedged at an average fixed price of approximately $3.08/mcf; this represents approximately
43% of volumes compared to the mid-point of 2017 full year average guidance. Finally, stronger propane prices in early 2017 provided
an attractive opportunity for Bellatrix to hedge 1,500 bbl/d of propane volumes at an average price of 51% of WTI light oil prices
from February through December of 2017, and 1,000 bbl/d of propane volumes at an average price of 47% of WTI light oil prices in
2018, both meaningfully above long term historical averages. Bellatrix’s hedging program is part of its overall risk management
strategy focused on providing reduced commodity price volatility and greater assurance over future revenue and cash flows which
help drive the capital and reinvestment decisions within our business.



Reaffirmed 2017 Guidance



Operational execution remains paramount
as the Company embarks on delivering its 2017 objectives including 10% to 15% forecast production growth. The 2017 guidance table
below is unchanged from the initial guidance metrics announced January 5, 2017.



|                                         |  | 2017 Guidance |       
|---------------------------------------- |  | ------------- | ------
|Production (boe/d)                       |  |               |       
|2017 Exit production                     |  |               | 35,000
|2017 Average daily production            |  |               | 33,500
|Average product mix                      |  |               |       
|Natural gas (%)                          |  |               | 76    
|Crude oil, condensate and NGLs (%)       |  |               | 24    
|Net capital expenditures ($ millions)(1) |  |               | $105  
|Production expense ($/boe) (2)           |  |               | $9.00 

(1)Net capital spending includes exploration and development capital projects and corporate assets, and excludes property acquisitions
and dispositions. Net capital spending also excludes the previously received prepayment portion of Bellatrix’s partners
35% share of the cost of construction of Phase 2 of the Alder Flats Plant during calendar 2017.

(2)Production expenses before net processing revenue/fees



The culmination of transactions and deleveraging
activities in 2016 has strategically repositioned the Company to grow production, cash flow, and value in 2017 and beyond. Management
is focused on executing on our sustainable growth strategy and delivering enhanced value for our shareholders.



FINANCIAL
REPORTING UPDATE



Future Accounting Pronouncements



The following pronouncements from the International
Accounting Standards Board (“IASB”) are applicable to Bellatrix and will become effective for future reporting periods,
but have not yet been adopted:



IFRS 9 - “Financial Instruments”,
which is the result of the first phase of the IASB’s project to replace IAS 39, “Financial Instruments: Recognition
and Measurement”. The new standard replaces the current multiple classification and measurement models for financial assets
and liabilities with a single model that has only two classification categories: amortized cost and fair value. This standard is
effective for annual periods beginning on or after January 1, 2018 with different transitional arrangements depending on the date
of initial application. Bellatrix does not currently apply hedge accounting to its financial instrument contacts and does not currently
intend to apply hedge accounting to any of its financial instrument contracts upon adoption of IFRS 9.



Bellatrix Exploration Ltd.35







IFRS 15 - “Revenue from Contracts
with Customers”, which provides a five-step model to be applied to all contracts formed with customers. The standard specifies
when an entity will recognize revenue and provides guidance regarding disclosures relating to revenue recognition. IFRS 15 is required
to be adopted either retrospectively or using a modified transition approach for fiscal years beginning on or after January 1,
2018. Bellatrix intends to adopt IFRS 15 on a retrospective basis on January 1, 2018. Bellatrix is currently in the process of
identifying underlying revenue contracts with customers to determine the impact, if any, that the adoption of IFRS 15 will have
on its financial statements.



IFRS 16 - "Leases”, replaces
IAS 17 Leases. For lessees applying IFRS 16, a single recognition and measurement model for leases would apply, with required
recognition of assets and liabilities for most leases. The standard will come into effect for annual periods beginning on or after
January 1, 2019, with earlier adoption permitted if the entity is also applying IFRS 15 Revenue from Contracts with Customers.
The extent of the impact of the adoption of IFRS 16 has not yet been determined.



BUSINESS
RISKS AND UNCERTAINTIES



Bellatrix's production and exploration activities
are concentrated in the Western Canadian Sedimentary Basin, where activity is highly competitive and includes a variety of different
sized companies ranging from smaller junior producers to the much larger integrated petroleum companies.



Bellatrix is subject to the various types
of business risks and uncertainties including:



| | · | financial risks, which includes commodity price risk, counterparty risks and risks related to the
Company's financing arrangements;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | · | finding and developing oil and natural gas reserves at economic costs; and
| | - | --------------------------------------------------------------------------



| | · | operational risks such as risks related to health and safety, transportation and processing restrictions,
project execution and the environment.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



A description of the risk factors and uncertainties
affecting Bellatrix can be found under the heading "Forward Looking Statements" and a full discussion of the material
risk factors affecting Bellatrix can be found in the Company’s annual information form and Form 40-F for the year ended
December 31, 2016, which may be accessed through the SEDAR website (www.sedar.com), through the SEC website (www.sec.gov),
and at Bellatrix's website (www.bellatrixexploration.com).



The following explains how material risks
and uncertainties impact Bellatrix’s business:



Prices, Markets and Marketing



Numerous factors beyond the Company's control
do, and will continue to affect the marketability and price of oil and natural gas acquired or discovered by the Company. The Company's
ability to market its oil and natural gas may depend upon its ability to acquire space on pipelines that deliver natural gas to
commercial markets or contract for the delivery of crude oil by rail. Deliverability uncertainties related to the distance the
Company's reserves are from pipelines, railway lines, processing and storage facilities, operational problems affecting pipelines,
and facilities as well as government regulation relating to prices, taxes, royalties, land tenure, allowable production, the export
of oil and natural gas and many other aspects of the oil and natural gas business may also affect the Company.



Prices for oil and natural gas are subject
to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty
and a variety of additional factors beyond the control of the Company. These factors include economic conditions, in the United
States, Canada, Europe, China and emerging markets, the actions of OPEC, governmental regulation, political stability in the Middle
East, Northern Africa and elsewhere, the foreign supply and demand of oil and natural gas, risks of supply disruption, the price
of foreign imports and the availability of alternative fuel sources. Prices for oil and natural gas are also subject to the availability
of foreign markets and the Company's ability to access such markets. Oil prices are expected to remain volatile and may decline
in the near future as a result of global excess supply due to the increased growth of shale oil production in the United States,
the decline in global demand for exported crude oil commodities, and OPEC's recent decisions pertaining to the oil production of
OPEC member countries, among other factors. A material decline in prices could result in a reduction of the Company's net production
revenue. The economics of producing from some wells may change because of lower prices, which could result in reduced production
of oil or natural gas and a reduction in the volumes and the value of the Company's reserves. The Company might also elect not
to produce from certain wells at lower prices.



Bellatrix Exploration Ltd.36







All these factors could result in a material
decrease in the Company's expected net production revenue and a reduction in its oil and natural gas acquisition, development and
exploration activities. Any substantial and extended decline in the price of oil and natural gas would have an adverse effect on
the Company's carrying value of its reserves, borrowing capacity, revenues, profitability and cash flows from operations and may
have a material adverse effect on the Company's business, financial condition, results of operations and prospects.



Oil and natural gas prices are expected
to remain volatile for the near future because of market uncertainties over the supply and the demand of these commodities due
to the current state of the world economies, OPEC actions, sanctions imposed on certain oil producing nations by other countries
and ongoing credit and liquidity concerns. Volatile oil and natural gas prices make it difficult to estimate the value of producing
properties for acquisitions and often cause disruption in the market for oil and natural gas producing properties, as buyers and
sellers have difficulty agreeing on such value. Price volatility also makes it difficult to budget for and project the return on
acquisitions and development and exploitation projects.



Reliance on Joint Venture Partners



The Company relies on joint venture partners
with respect to the evaluation, acquisition and development of, and future production from, certain of its properties and a failure
or inability to perform or a differing development objective by such partners, including, without limitation, companies controlled
by the O’Chiese First Nation, could materially affect the development of such properties.



Credit Facility Arrangements



The Company currently has Credit Facilities
and the amount authorized thereunder is dependent on the borrowing base determined by its lenders. The Company is required to comply
with covenants under its Credit Facilities, which includes a single financial ratio covenant, which from time to time either affect
the availability, or price, of additional funding. In the event that the Company is not able to comply with the covenants, including
the financial covenant, the banking syndicate may not be willing to agree to a further amendment to the financial covenant and
as a result the Company's access to capital could be restricted or repayment could be required.



Even if the Company is able to obtain new
financing, it may not be on commercially reasonable terms or terms that are acceptable to the Company. If the Company is unable
to repay amounts owing under the Credit Facilities, the lenders under the Credit Facilities could proceed to foreclose or otherwise
realize upon the collateral granted to them to secure the indebtedness. The acceleration of the Company's indebtedness under one
agreement may permit acceleration of indebtedness under other agreements that contain cross default or cross-acceleration provisions.
In addition, the Company's Credit Facilities may impose operating and financial restrictions on the Company that could include
restrictions on, the payment of dividends, repurchase or making of other distributions with respect to the Company's securities,
incurring of additional indebtedness, the provision of guarantees, the assumption of loans, making of capital expenditures, entering
into of amalgamations, mergers, take-over bids or disposition of assets, among others.



The Company's lenders use the Company's
reserves, commodity prices, applicable discount rate and other factors, to periodically determine the Company's borrowing base.
Commodity prices continue to be depressed and have fallen dramatically since 2014. While there has been a moderate improvement
in commodity prices recently, there remains a substantial amount of uncertainty as to when and if commodity prices will materially
recover. Depressed commodity prices could reduce the Company's borrowing base, reducing the funds available to the Company under
the credit facility. This could result in the requirement to repay a portion, or all, of the Company's indebtedness.



Variations in Interest Rates and Foreign
Exchange Rates



World oil and natural gas prices are quoted
in United States dollars. The Canadian/United States dollar exchange rate, which fluctuates over time, consequently affects the
price received by Canadian producers of oil and natural gas. Material increases in the value of the Canadian dollar relative to
the United States dollar may negatively affect the Company's production revenues. Accordingly, Canadian/United States exchange
rates could affect the future value of the Company's reserves as determined by independent evaluators.



Bellatrix Exploration Ltd.37







To the extent that the Company engages in
risk management activities related to foreign exchange rates, there is a credit risk associated with counterparties with which
the Company may contract.



An increase in interest rates could result
in a significant increase in the amount the Company pays to service debt, resulting in a reduced amount available to fund its exploration
and development activities and could negatively impact the market price of the Common Shares.



Exploration, Development and Production
Risks



Oil and natural gas operations involve many
risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. The long-term commercial
success of the Company depends on its ability to find, acquire, develop and commercially produce oil and natural gas reserves.
Without the continual addition of new reserves, the Company's existing reserves, and the production from them, will decline over
time as the Company produces from such reserves. A future increase in the Company's reserves will depend on both the ability of
the Company to explore and develop its existing properties and its ability to select and acquire suitable producing properties
or prospects. There is no assurance that the Company will be able to continue to find satisfactory properties to acquire or participate
in. Moreover, management of the Company may determine that current markets, terms of acquisition, participation or pricing conditions
make potential acquisitions or participations uneconomic. There is also no assurance that the Company will discover or acquire
further commercial quantities of oil and natural gas.



Future oil and natural gas exploration may
involve unprofitable efforts from dry wells as well as from wells that are productive but do not produce sufficient petroleum substances
to return a profit after drilling, completing (including hydraulic fracturing), operating and other costs. Completion of a well
does not assure a profit on the investment or recovery of drilling, completion and operating costs.



Drilling hazards, environmental damage and
various field operating conditions could greatly increase the cost of operations and adversely affect the production from successful
wells. Field operating conditions include, but are not limited to, delays in obtaining governmental approvals or consents, and
shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity or other
geological and mechanical conditions. While diligent well supervision and effective maintenance operations can contribute to maximizing
production rates over time, it is not possible to eliminate production delays and declines from normal field operating conditions,
which can negatively affect revenue and cash flow levels to varying degrees.



Oil and natural gas exploration, development
and production operations are subject to all the risks and hazards typically associated with such operations, including, but not
limited to, fire, explosion, blowouts, cratering, sour gas releases, spills and other environmental hazards. These typical risks
and hazards could result in substantial damage to oil and natural gas wells, production facilities, other property, the environment
and personal injury. Particularly, the Company may explore for and produce sour natural gas in certain areas. An unintentional
leak of sour natural gas could result in personal injury, loss of life or damage to property and may necessitate an evacuation
of populated areas, all of which could result in liability to the Company.



Oil and natural gas production operations
are also subject to all the risks typically associated with such operations, including encountering unexpected formations or pressures,
premature decline of reservoirs and the invasion of water into producing formations. Losses resulting from the occurrence of any
of these risks may have a material adverse effect on the Company's business, financial condition, results of operations and prospects.



Bellatrix Exploration Ltd.38







Gathering and Processing Facilities and
Pipeline Systems



The Company delivers its products through
gathering and processing facilities and pipeline systems, some of which it does not own. The amount of oil and natural gas that
the Company can produce and sell is subject to the accessibility, availability, proximity and capacity of these gathering and processing
facilities, and pipeline systems. The lack of availability of capacity in any of the gathering and processing facilities or pipeline
systems, and in particular the processing facilities, could result in the Company's inability to realize the full economic potential
of its production or in a reduction of the price offered for the Company's production. The lack of firm pipeline capacity continues
to affect the oil and natural gas industry and limit the ability to produce and market oil and natural gas production. In addition,
the pro-rationing of capacity on inter-provincial pipeline systems continues to affect the ability to export oil and natural gas.
Unexpected shut downs or curtailment of capacity of pipelines for maintenance or integrity work or because of actions taken by
regulators could also affect the Company's production, operations and financial results. Any significant change in market factors
or other conditions affecting these infrastructure systems and facilities, as well as any delays in constructing new infrastructure
systems and facilities could harm the Company's business and, in turn, the Company's financial condition, results of operations
and cash flows. The federal government has signaled that it plans to review the National Energy Board approval process for large
projects. This may cause the timeframe for project approvals to increase for current and future applications.



A portion of the Company's production may,
from time to time, be processed through facilities owned by third parties and over which the Company does not have control. From
time to time these facilities may discontinue or decrease operations either as a result of normal servicing requirements or as
a result of unexpected events. A discontinuation or decrease of operations could have a materially adverse effect on the Company's
ability to process its production and deliver the same for sale.



Additional Funding Requirements



The Company's cash flow from its reserves
may not be sufficient to fund its ongoing activities at all times and from time to time, the Company may require additional financing
in order to carry out its oil and natural gas acquisition, exploration and development activities. Failure to obtain financing
on a timely basis could cause the Company to forfeit its interest in certain properties, miss certain acquisition opportunities
and reduce or terminate its operations. Due to the conditions in the oil and gas industry and/or global economic volatility, the
Company may from time to time have restricted access to capital and increased borrowing costs. The current conditions in the oil
and gas industry have negatively impacted the ability of oil and gas companies to access additional financing.



Continued depressed oil and natural gas
prices have caused decreases, and may cause further decreases, in the Company's revenues from its reserves, which may affect the
Company's ability to expend the necessary capital to replace its reserves or to maintain its production. To the extent that external
sources of capital become limited, unavailable or available on onerous terms, the Company's ability to make capital investments
and maintain existing assets may be impaired, and its assets, liabilities, business, financial condition and results of operations
may be affected materially and adversely as a result. In addition, the future development of the Company's petroleum properties
may require additional financing and there are no assurances that such financing will be available or, if available, will be available
upon acceptable terms. Alternatively, any available financing may be dilutive to existing shareholders. Failure to obtain any financing
necessary for the Company's capital expenditure plans may result in a delay in development or production on the Company's properties.



Environmental



All phases of the oil and natural gas business
present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of federal, provincial
and local laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on the
spill, release or emission of various substances produced in association with certain oil and gas industry operations. In addition,
such legislation sets out the requirements with respect to oilfield waste handling and storage, habitat protection and the satisfactory
operation, maintenance, abandonment and reclamation of well and facility sites.



Compliance with environmental legislation
can require significant expenditures and a breach of applicable environmental legislation may result in the imposition of fines
and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter
standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The discharge
of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties
and may require the Company to incur costs to remedy such discharge. Although the Company believes that it will be in material
compliance with current applicable environmental legislation, no assurance can be given that environmental laws will not result
in a curtailment of production or a material increase in the costs of production, development or exploration activities or otherwise
have a material adverse effect on the Company's business, financial condition, results of operations and prospects.



Bellatrix Exploration Ltd.39







Changes in Government Royalty Regulation



Provincial and federal programs related
to the crude oil and natural gas industry may change in a manner that adversely impacts shareholders. The Company currently operates
in British Columbia, Alberta and Saskatchewan, all of which have different royalty programs that would be revised at any time.
Future amendments to royalty programs in any of the Company’s operating jurisdictions could result in reduced cash flow.
In 2016 the Government of Alberta announced the key highlights of the proposed MRF came into effect on January 1, 2017. The MRF
is discussed in this MD&A under the heading “Royalties”. The changes are not expected to have a material impact
on the economics of the Company’s projects and the Company will continue to evaluate the impact of the MRF on such projects.



Income Taxes



The Company files all required income tax
returns and believes that it is in full compliance with the provisions of the Income Tax Act (Canada) and all other applicable
provincial tax legislation. However, such returns are subject to reassessment by the applicable taxation authority. In the event
of a successful reassessment of the Company, whether by re-characterization of exploration and development expenditures or otherwise,
such reassessment may have an impact on current and future taxes payable. In addition, increases in income taxes could have a material
adverse effect on the Company's financial condition.



Income tax laws relating to the oil and
natural gas industry, such as the treatment of resource taxation or dividends, may in the future be changed or interpreted in a
manner that adversely affects the Company. Furthermore, tax authorities having jurisdiction over the Company may disagree with
how the Company calculates its income for tax purposes or could change administrative practices to the Company's detriment.



Hedging



From time to time, the Company may enter
into agreements to receive fixed prices on its oil and natural gas production to offset the risk of revenue losses if commodity
prices decline. However, to the extent that the Company engages in price risk management activities to protect itself from commodity
price declines, it may also be prevented from realizing the full benefits of price increases above the levels of the derivative
instruments used to manage price risk. In addition, the Company's hedging arrangements may expose it to the risk of financial loss
in certain circumstances, including instances in which:



| | · | production falls short of the hedged volumes or prices fall significantly lower than projected;
| | - | -----------------------------------------------------------------------------------------------



| | · | there is a widening of price-basis differentials between delivery points for production and the
delivery point assumed in the hedge arrangement;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the counterparties to the hedging arrangements or other price risk management contracts fail to
perform under those arrangements; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | · | a sudden unexpected event materially impacts oil and natural gas prices.
| | - | ------------------------------------------------------------------------



Similarly, from time to time the Company
may enter into agreements to fix the exchange rate of Canadian to United States dollars or other currencies in order to offset
the risk of revenue losses if the Canadian dollar increases in value compared to other currencies. However, if the Canadian dollar
declines in value compared to such fixed currencies, the Company will not benefit from the fluctuating exchange rate.



Security Threats and Other Disruptions



As an oil
and gas producer, the Company faces various security threats, including cybersecurity threats to gain unauthorized access to sensitive
information or to render data or systems unusable, threats to the security of the Company’s facilities and infrastructure
or third party facilities and infrastructure, such as processing plants and pipelines, and threats from terrorist acts. The potential
for such security threats has subjected the Company’s operations to increased risks that could have a material adverse effect
on the Company’s business. In particular, the implementation of various procedures and controls to monitor and mitigate security
threats and to increase security for our information, facilities and infrastructure may result in increased capital and operating
costs. Moreover, there can be no assurance that such procedures and controls will be sufficient to prevent security breaches from
occurring. If any of these security breaches were to occur, they could lead to losses of sensitive information, critical infrastructure
or capabilities essential to the Company’s operations and could have a material adverse effect on the Company’s reputation,
financial position, results of operations or cash flows. Cybersecurity attacks in particular are becoming more sophisticated and
include, but are not limited to, malicious software, attempts to gain unauthorized access to data and systems, and other electronic
security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected
information, and corruption of data. These events could damage the Company’s reputation and lead to financial losses from
remedial actions, loss of business or potential liability. In response to these increased
cybersecurity risks, the Audit Committee of the Board of Directors has made cybersecurity risk assessment and governance a standing
agenda item, and management is actively investing additional resources in cybersecurity risk identification and mitigation measures
as they pertain to the Company’s business.



Bellatrix Exploration Ltd.40







CRITICAL
ACCOUNTING ESTIMATES AND ACCOUNTING POLICIES



The reader is advised that the critical
accounting estimates, policies, and practices as described herein continue to be critical in determining Bellatrix’s financial
results.



The reader is cautioned that the preparation
of financial statements in accordance with GAAP requires management to make certain judgments and estimates that affect the reported
amounts of assets, liabilities, revenues and expenses. The following discussion outlines accounting policies and practices that
are critical to determining Bellatrix’s financial results.



Critical Accounting Judgments



Oil and gas reserves



Reserves and resources are used in the units
of production calculation for depletion, depreciation and amortization, and the impairment analysis which affect net profit or
loss. There are numerous uncertainties inherent in estimating oil and gas reserves. Estimating reserves is very complex, requiring
many judgments based on geological, geophysical, engineering and economic data. Changes in these judgments could have a material
impact on the estimated reserves. These estimates may change, having either a negative or positive effect on net profit as further
information becomes available and as the economic environment changes.



Identification of CGUs



Bellatrix’s assets are aggregated
into CGUs, for the purpose of calculating impairment, based on their ability to generate largely independent cash flows, geography,
geology, production profile and infrastructure of its assets.



Impairment Indicators and Impairment
Reversal



Judgment is required to assess when impairment
indicators exist and impairment testing is required. In determining the recoverable amount of assets, in the absence of quoted
market prices, impairment tests are based on estimate of reserves, production rates, future oil and natural gas prices, future
costs, discount rates, market value of land and other relevant assumptions.



Joint Arrangements



Judgment is required to determine when the
Company has joint control over an arrangement. In establishing joint control, the Company considers whether unanimous consent is
required to direct the activities that significantly affect the returns of the arrangement, such as the capital and operating activities
of the arrangement. Additionally, the Company assesses the rights and obligations arising from the arrangement by considering its
governance structure, legal form, and terms agreed upon by the parties sharing control, including the contractual rights of each
partner, dispute resolution procedures, termination provisions, and procedures for subsequent transactions in its determination
of joint control.



Bellatrix Exploration Ltd.41







Once joint control has been established,
judgment is also required to classify the joint arrangement. The type of joint arrangement is determined through analysis of the
rights and obligations arising from the arrangement by considering its legal structure, legal form. And terms agreed upon by the
parties sharing control. An arrangement that is not structured through a separate vehicle in which the controlling parties have
rights to the assets, revenues and substantially all of the economic benefits generated through the arrangement, in addition to
obligations for the liabilities and expenses, is classified as a joint operation. An arrangement in which these criteria are not
met is classified as a joint venture.



Critical Estimates and Assumptions



Recoverability of asset carrying values



The Company assesses its oil and gas properties,
including exploration and evaluation assets, for possible impairment if there are events or changes in circumstances that indicate
that carrying values of the assets may not be recoverable, or at least at every reporting date.



The assessment of any impairment of property,
plant and equipment is dependent upon estimates of recoverable amount that take into account factors such as reserves, economic
and market conditions, timing of cash flows, the useful lives of assets and their related salvage values. By their nature, these
estimates and assumptions are subject to measurement uncertainty and may impact the carrying value of the Company’s assets
in future periods.



Decommissioning obligations



Provisions for decommissioning obligations
associated with the Company’s drilling operations are based on current legal and constructive requirements, technology, price
levels and expected plans for remediation. Actual costs and cash outflows can differ from estimates because of changes in laws
and regulations, public expectations, prices, discovery and analysis of site conditions and changes in clean up technology.



Income taxes



Related assets and liabilities are recognized
for the estimated tax consequences between amounts included in the financial statements and their tax base using substantively
enacted future income tax rates. Timing of future revenue streams and future capital spending changes can affect the timing of
any temporary differences, and accordingly affect the amount of the deferred tax asset or liability calculated at a point in time.
These differences could materially impact earnings.



Business combinations



Business combinations are accounted for
using the acquisition method of accounting. The determination of fair value often requires management to make assumptions and estimates
about future events. The assumptions and estimates with respect to determining the fair value of property, plant, and equipment,
and exploration and evaluation assets acquired generally require the most judgment and include estimates of reserves acquired,
forecast benchmark commodity prices, and discount rates. Changes in any of the assumptions or estimates used in determining the
fair value of acquired assets and liabilities could impact the amounts assigned to assets, liabilities in the purchase price allocation,
and any resulting gain or goodwill. Future net earnings can be affected as a result of changes in future depletion, depreciation
and accretion, and asset impairments.



LEGAL,
ENVIRONMENTAL REMEDIATION AND OTHER CONTINGENT MATTERS



The Company is involved in various claims
and litigation arising in the normal course of business. While the outcome of these matters is uncertain and there can be no assurance
that such matters will be resolved in the Company’s favor, the Company does not currently believe that the outcome of adverse
decisions in any pending or threatened proceeding related to these and other matters or any amount which it may be required to
pay by reason thereof would have a material adverse impact on its financial position or results of operations.



The Company reviews legal, environmental
remediation and other contingent matters to both determine whether a loss is probable based on judgment and interpretation of laws
and regulations and determine that the loss can reasonably be estimated. When the loss is determined, it is charged to earnings.
The Company’s management monitors known and potential contingent matters and make appropriate provisions by charges to earnings
when warranted by the circumstances.



Bellatrix Exploration Ltd.42







With the above risks and uncertainties the
reader is cautioned that future events and results may vary substantially from that which Bellatrix currently foresees.



CONTROLS
AND PROCEDURES



Disclosure Controls and Procedures



The Company’s President and Chief
Executive Officer (“CEO”) and Executive Vice President, Finance and Chief Financial Officer (“CFO”) have
designed, or caused to be designed under their supervision, disclosure controls and procedures (as defined in Rules 13(a) - 15(e)
and 15d – 15(e) under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”)
and National Instrument 52-109, Certification of Disclosure in Issuer’s Annual and Interim Filings (“NI 52-109”))
to provide reasonable assurance that: (i) material information relating to the Company is made known to the Company’s Chief
Executive Officer and Chief Financial Officer by others, particularly during the period in which the annual and interim filings
are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings (as these
terms are defined in NI 52-109) or other reports filed or submitted by it under securities legislation is recorded, processed,
summarized and reported within the time period specified in securities legislation. Such officers have evaluated, or caused to
be evaluated under their supervision the effectiveness of the Company’s disclosure controls and procedures at the financial
year end of the Company. Based on the evaluation, the officers concluded that Bellatrix’s disclosure controls and procedures
were effective as at December 31, 2016.



Management’s Annual Report on Internal Control over
Financial Reporting



Management is responsible for establishing
and maintaining adequate internal control over the Company’s financial reporting (as defined in Rules 13(a) – 15(f)
and 15(d) – 15(f) under the Exchange Act and NI 52-109). Internal control over the Company’s financial reporting is
a process designed by, or designed under the supervision of, our President and CEO and our Executive Vice President, Finance and
CFO, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for the external purposes in accordance with GAAP.



Under the supervision and with the participation
of management, including our CEO and our CFO, an evaluation of the effectiveness of the Company’s internal control over financial
reporting was conducted as of December 31, 2016 based on the criteria described in “Internal Control – Integrated
Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management determined that, as of December 31, 2016, the Company’s internal control over financial reporting was effective.



The Company is required to disclose herein
any change in the Company’s internal control over financial reporting that occurred during the commencing on October 1, 2016
and ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting. There has been no change in the Company’s internal control over financial reporting that
occurred during the period commencing October 1, 2016 and ended December 31, 2016 that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial reporting.



The effectiveness of internal control over
financial reporting as of December 31, 2016 was audited by KPMG LLP, an independent registered public accounting firm, as stated
in their Independent Auditors’ Report of Registered Public Accounting Firm, which is included with the consolidated financial
statements for the year ended December 31, 2016.



Limitations of the Effectiveness of Controls



It should be noted that a control system,
no matter how well conceived, can provide only reasonable, but not absolute, assurance that the objectives of the control system
will be met and it should not be expected that the disclosure controls and procedures and internal controls over financial reporting
will prevent all errors or fraud.



CEO AND
CFO CERTIFICATIONS



The Company’s President and CEO and
the Executive Vice President, Finance and CFO have attested to the quality of the public disclosure in our fiscal 2016 reports
filed with the Canadian securities regulators and the SEC, and have filed certifications with them.



Bellatrix Exploration Ltd.43







SENSITIVITY
ANALYSIS



The table below shows sensitivities to funds
flow from operations as a result of product price, exchange rate, and interest rate changes. This determination is based on actual
average prices received for the fourth quarter of 2016 and average production volumes of 31,888 boe/d during that period, as well
as the same level of debt outstanding as at December 31, 2016. Diluted weighted average shares are based upon the fourth quarter
of 2016. These sensitivities are approximations only, and not necessarily valid under other significantly different production
levels or product mixes. Commodity price risk management activities can significantly affect these sensitivities. Changes in any
of these parameters will affect funds flow as shown in the table below:





|                                             |  | Funds
    Flow from Operations (1) |        |   | Funds
    Flow from Operations(1) | 
|-------------------------------------------- |  | ---------------------------------- | ------ | - | --------------------------------- | 
|                                             |  | (Annualized)                       |        |   | (Per
    Diluted Share)           | 
|Sensitivity
    Analysis                     |  |                                    | ($000s | ) |                                   | 
|Change of US $1/bbl (2)                      |  |                                    | 3,400  |   |                                   | 
|Change of $0.10/ mcf (2)                     |  |                                    | 4,800  |   |                                   | 
|Change in prime of 1%                        |  |                                    | 200    |   |                                   | 
|Change of US $0.01 CDN/ US exchange
    rate |  |                                    | 600    |   |                                   | 

(1)The term “funds flow from operations” should not be considered an alternative to, or more meaningful
than cash flow from operating activities as determined in accordance with GAAP as an indicator of the Company’s performance.
Therefore reference to non-GAAP measures of funds flow from operations or funds flow from operations per diluted share may not
be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze
operating performance and leverage and considers funds flow from operations to be a key measure as it demonstrates the Company’s
ability to generate the cash necessary to fund future capital investments and to repay debt. The reconciliation between cash flow
from operating activities and funds flow from operations can be found elsewhere herein. Funds flow from operations per share is
calculated using the weighted average number of common shares for the period.

(2)Commodity price risk management activities are excluded from funds flow from operations sensitivity calculations.



SELECTED
QUARTERLY CONSOLIDATED INFORMATION



The following table sets forth selected
consolidated financial information of the Company for the quarters in 2016 and 2015.



|2016 – Quarter ended (unaudited)($000s, except per share amounts) |  | March 31 |  | June 30  |  | Sept. 30 |  | Dec. 31 
|----------------------------------------------------------------- |  | -------- |  | -------- |  | -------- |  | --------
|Total revenue (1)                                                 |  | 55,158   |  | 48,285   |  | 56,524   |  | 67,907  
|Cash flow from operating activities                               |  | 10,333   |  | 7,675    |  | 2,425    |  | 17,114  
|Cash flow from operating activities per share                     |  |          |  |          |  |          |  |         
|Basic                                                             |  | $0.05    |  | $0.04    |  | $0.01    |  | $0.07   
|Diluted                                                           |  | $0.05    |  | $0.04    |  | $0.01    |  | $0.07   
|Funds flow from operations (1)                                    |  | 12,876   |  | 9,048    |  | 10,556   |  | 8,437   
|Funds flow from operations per share (1)                          |  |          |  |          |  |          |  |         
|Basic                                                             |  | $0.07    |  | $0.05    |  | $0.05    |  | $0.03   
|Diluted                                                           |  | $0.07    |  | $0.05    |  | $0.05    |  | $0.03   
|Net profit (loss)                                                 |  | 19,347   |  | (55,193) |  | (13,907) |  | 23,085  
|Net profit (loss) per share                                       |  |          |  |          |  |          |  |         
|Basic                                                             |  | $0.10    |  | $(0.28)  |  | $(0.06)  |  | $0.09   
|Diluted                                                           |  | $0.10    |  | $(0.28)  |  | $(0.06)  |  | $0.09   
|Total net capital expenditures - cash                             |  | 28,927   |  | (69,917) |  | (98,781) |  | (80,407)



Bellatrix Exploration Ltd.44







|2015 – Quarter ended (unaudited) ($000s, except per share amounts) |  | March 31 |  | June 30  |  | Sept. 30 |  | Dec. 31  
|------------------------------------------------------------------ |  | -------- |  | -------- |  | -------- |  | ---------
|Total revenue (1)                                                  |  | 90,186   |  | 88,941   |  | 82,066   |  | 72,125   
|Cash flow from operating activities                                |  | 22,553   |  | 16,475   |  | 22,015   |  | 42,033   
|Cash flow from operating activities per share                      |  |          |  |          |  |          |  |          
|Basic                                                              |  | $0.12    |  | $0.09    |  | $0.11    |  | $0.22    
|Diluted                                                            |  | $0.12    |  | $0.09    |  | $0.11    |  | $0.22    
|Funds flow from operations (1)                                     |  | 24,858   |  | 28,378   |  | 26,598   |  | 29,653   
|Funds flow from operations per share (1)                           |  |          |  |          |  |          |  |          
|Basic                                                              |  | $0.13    |  | $0.15    |  | $0.14    |  | $0.15    
|Diluted                                                            |  | $0.13    |  | $0.15    |  | $0.14    |  | $0.15    
|Net profit (loss)                                                  |  | (12,688) |  | (24,427) |  | (50,460) |  | (356,631)
|Net profit (loss) per share                                        |  |          |  |          |  |          |  |          
|Basic                                                              |  | ($0.07)  |  | ($0.13)  |  | ($0.26)  |  | ($1.86)  
|Diluted                                                            |  | ($0.07)  |  | ($0.13)  |  | ($0.26)  |  | ($1.86)  
|Total net capital expenditures - cash                              |  | 83,179   |  | 37,669   |  | 11,259   |  | 12,086   

(1)Refer to “Capital performance measures” and “Non-GAAP measures” in respect of the
terms “funds flow from operations”, “funds flow from operations per share”, and “total revenue.”



In the fourth quarter of 2016, Bellatrix
reduced its outstanding bank debt and working capital deficiency by approximately $102 million (or 70%) from the third quarter
of 2016 through the use of proceeds from the non-core Pembina and Harmattan asset dispositions. In the three months ended December
31, 2016, the Company’s net cash capital expenditures were negative $80.4 million, compared to expenditures of $12.1 million
in the fourth quarter of 2015, primarily as a result of the asset dispositions in the fourth quarter 2016. Sales volumes decreased
22% to 31,888 boe/d from 40,705 boe/d realized in the fourth quarter of 2015, further reflecting the impact from the Pembina and
Harmattan asset dispositions. The Company’s total revenue generated in the quarter ending December 31, 2016, decreased 6%
to $67.9 million from $72.1 million in the fourth quarter of 2014 as a result of decreased sales volumes in the 2016 period compared
to the 2015 period.



In the third quarter of 2016 Bellatrix further
reduced outstanding bank debt and working capital by approximately $180.2 million (or 55%) from the second quarter of 2016 through
the use of net proceeds from the $112.5 million Alder Flats Plant Sale and the issuance of common shares and Convertible Debentures
of combined gross proceeds of $80 million, which were completed in the period. Bellatrix incurred $17.2 million of total cash capital
expenditures in the third quarter of 2016 compared to $54.1 million in the comparative 2015 period. Bellatrix focused its capital
activity in the third quarter primarily on drilling and completion projects and on expenditures related to the development of Phase
2 of the Alder Flats Plant. The Company drilled four gross (2.3 net) wells, compared to 12 gross (5.4 net) wells in the same period
of 2015. The continued low levels of capital activity for the three months ended September 30, 2016, has resulted in a 15% decrease
in sales volumes to 34,409 boe/d from 40,277 boe/d realized in the third quarter of 2015.



In the second quarter of 2016 Bellatrix
reduced outstanding bank debt and working capital by approximately $77.3 million (or 19%) from the first quarter of 2016 through
the use of proceeds of approximately $75 million from a facilities monetization transaction. The Company incurred $7.8 million
of total cash capital expenditures in the three months ended June 30, 2016, compared to $37.5 million in the comparative 2015 period.
Bellatrix focused its capital activity in the second quarter primarily on facilities and equipment expenditures related to the
development of Phase 2 of the Alder Flats Plant. The decrease in capital expenditures was due to Bellatrix proactively curtailing
development drilling activity in the quarter in response to significantly depressed natural gas prices. The decrease in capital
activity for the three months ended June 30, 2016, coincided with a 6% decrease in sales volumes to 38,000 boe/d from 40,426 boe/d
realized in the second quarter of 2015.



Bellatrix’s first quarter 2016 results
were impacted by a weak global commodity price environment which continued from the fourth quarter of 2015 through the first quarter
of 2016. Total net debt was reduced in the quarter by $3.8 million. In the three months ended March 31, 2016, the Company incurred
$28.9 million of net cash capital expenditures, compared to $83.2 million in the first quarter of 2015. The decrease in capital
expenditures is primarily attributable to the decrease in facilities and equipment spending period over period in relation to the
Alder Flats Plant which was commissioned in the second quarter of 2015. The Company drilled 10 gross (5.7 net) wells, compared
to 6 gross (3.2 net) wells in the same period of 2015. Sales volumes decreased 13% to 38,467 boe/d from 44,408 boe/d realized in
the first quarter of 2015, the decrease was due to a significant number of wells being tied-in during the first quarter of 2015
relating to the fourth quarter 2014 drilling program and a decrease in drilling activity throughout 2015 and into 2016 due to continued
depressed commodity prices. The Company’s total revenue generated in the quarter ending March 31, 2016, decreased 39% to
$55.2 million from $90.2 million in the first quarter of 2015 as a result of the continued, weak global commodity price environment.



Bellatrix Exploration Ltd.45







SELECTED ANNUAL CONSOLIDATED
INFORMATION



The following table sets forth selected
consolidated financial information of the Company for the most recently completed year ending December 31, 2016 and for comparative
2015 and 2014 years.



|Years
                                         ended December 31, ($000s,
                                         except per share amounts) |  | 2016 |           |   | 2015 |   |           | 2014 | 
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- | 
|Total
    revenue (1)                                                                                                                        |  |      | 227,874   |   |      |   | 333,318   |      | 
|Cash flow from operating activities                                                                                                          |  |      | 37,546    |   |      |   | 103,075   |      | 
|Cash flow from operating activities per share                                                                                                |  |      |           |   |      |   |           |      | 
|Basic                                                                                                                                        |  | $    | 0.18      |   |      | $ | 0.54      |      | 
|Diluted                                                                                                                                      |  | $    | 0.18      |   |      | $ | 0.54      |      | 
|Funds flow from operations
    (1)                                                                                                           |  |      | 40,916    |   |      |   | 109,485   |      | 
|Funds
    flow from operations per share (1)                                                                                                 |  |      |           |   |      |   |           |      | 
|Basic                                                                                                                                        |  | $    | 0.19      |   |      | $ | 0.57      |      | 
|Diluted                                                                                                                                      |  | $    | 0.19      |   |      | $ | 0.57      |      | 
|Net profit (loss)                                                                                                                            |  |      | (26,668   | ) |      |   | (444,208  | )    | 
|Net profit (loss) per
    share                                                                                                              |  |      |           |   |      |   |           |      | 
|Basic                                                                                                                                        |  | $    | (0.12     | ) |      | $ | (2.31     | )    | 
|Diluted                                                                                                                                      |  | $    | (0.12     | ) |      | $ | (2.31     | )    | 
|Total net capital expenditures – cash                                                                                                        |  |      | (220,178  | ) |      |   | 144,191   |      | 
|Total assets                                                                                                                                 |  |      | 1,453,730 |   |      |   | 1,703,212 |      | 
|Total net debt (1)                                                                                                                           |  |      | 396,195   |   |      |   | 717,645   |      | 
|Non-current financial (assets) liabilities                                                                                                   |  |      |           |   |      |   |           |      | 
|Future income taxes                                                                                                                          |  |      | (63,713   | ) |      |   | (59,255   | )    | 
|Decommissioning liabilities                                                                                                                  |  |      | 62,844    |   |      |   | 96,423    |      | 
|Sales volumes (boe/d)                                                                                                                        |  |      | 35,677    |   |      |   | 41,441    |      | 

(1)Refer to “Capital performance measures” and “Non-GAAP measures” in respect of the terms “funds
flow from operations”, “funds flow from operations per share”, “total net debt” and
“total revenue.”



Detailed discussions of 2016 annual results
by comparison to 2015 annual results are contained throughout this MD&A.



Bellatrix increased sales volumes between
2014 and 2015 through continued success of its internal drilling program, proactive management of firm service agreements and Bellatrix’s
infrastructure providing flexibility to maintain production levels during periods of industry-wide constraints. Impacting these
operational achievements in 2015 was the significant reduction in global commodity prices which resulted in decreases in cash flow,
funds flow, and net profit.



Bellatrix’s net cash capital expenditures
decreased to $144.2 million during 2015 compared to $682.2 million in 2014. During 2015, Bellatrix drilled or participated in 27
gross (13.7 net) wells, compared to 110 gross (59.1 net) wells in 2014. Sales volumes increased by 9% between the years to 41,441
boe/d in 2015 from 38,065 boe/d in 2014 due to Bellatrix’s ongoing successful drilling activity in the Spirit River play.
Total revenue decrease to $333.3 million in 2015, compared to $583.5 million realized in 2014 as a result of decreased realized
prices, offset in part by increased production year over year.



Bellatrix Exploration Ltd.46