Exhibit 99.3







MANAGEMENT'S REPORT TO SHAREHOLDERS



Management’s Responsibility on
Financial Statements



The management of Bellatrix Exploration
Ltd. (“Bellatrix” or the “Company”) is responsible for the preparation and integrity of the accompanying
consolidated financial statements and all other information contained in this report. The consolidated financial statements have
been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board and include amounts that are based on management's informed judgments and estimates where necessary.



The Company has established internal accounting
control systems which are designed to safeguard assets from loss or unauthorized use and ensure the accuracy of the Company’s
accounting records. The Board of Directors, through its Audit Committee, monitors management's financial and accounting policies
and practices and the preparation of these consolidated financial statements. The Audit Committee meets periodically with the
external auditors and management to review the work of each and the propriety of the discharge of their responsibilities.



The Audit Committee reviews the consolidated
financial statements of the Company with management and the external auditors prior to submission to the Board of Directors for
final approval. The external auditors have full and free access to the Audit Committee to discuss auditing and financial reporting
matters. The Audit Committee reviews the independence of the external auditors and pre-approves audit and permitted non-audit
services. The Shareholders have appointed KPMG LLP as the external auditors of the Company. The Independent Auditors’ Report
of Registered Public Accounting Firm to the Board of Directors and Shareholders, which describes the scope of their examination
and express their opinion, are included with the consolidated financial statements for the year ended December 31, 2016.



Management’s Report on Internal
Control over Financial Reporting



Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Rules 13(a) – 15(f) and 15(d) –
15(f) under both the Securities Exchange Act of 1934 and NI 52-109, as amended. Internal control over financial reporting is 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 preparation of financial statements for external purposes in accordance with generally accepted accounting principles.



Under the supervision and with the participation
of our management, including our President and CEO and our Executive Vice President, Finance and CFO, an evaluation of the design
and effectiveness of our internal control over financial reporting was conducted as of December 31, 2016 based on the framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control –
Integrated Framework (2013). Based on this evaluation, management concluded that as of December 31, 2016 the Company did maintain
effective 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 Report of Independent Registered Public Accounting Firm, which is included with the consolidated financial statements
for the year ended December 31, 2016.



|(signed) “Brent A. Eshleman” | (signed) “Edward J. Brown”               
|---------------------------- | -----------------------------------------
|                             |                                          
|Brent A. Eshleman, P.Eng.    | Edward J. Brown, CPA, CA                 
|President and CEO            | Executive Vice President, Finance and CFO



March 14, 2017



Bellatrix Exploration Ltd.1







INDEPENDENT
AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM



To the Shareholders of Bellatrix Exploration Ltd.



We have audited the accompanying consolidated
financial statements of Bellatrix Exploration Ltd., which comprise the Consolidated Balance Sheets as at December 31, 2016 and
December 31, 2015, the Consolidated Statements of Comprehensive Income (Loss), Shareholders’ Equity and Cash Flows
for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.



Management’s Responsibility for the Consolidated Financial
Statements



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



Auditors’ Responsibility



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



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



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



Opinion



In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of Bellatrix Exploration Ltd. as at December
31, 2016 and December 31, 2015, and its consolidated financial performance and its consolidated cash flows for the years then
ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.



Other Matter



We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States), Bellatrix Exploration Ltd.’s internal control
over financial reporting as of December 31, 2016, based on the criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
March 14, 2017 expressed an unmodified (unqualified) opinion on the effectiveness of Bellatrix Exploration Ltd.’s internal
control over financial reporting.



(signed) “KPMG LLP”



Chartered Professional Accountants

March 14, 2017
Calgary,Canada



Bellatrix Exploration Ltd.2







Report
of Independent Registered Public Accounting Firm



To the Board of Directors and Shareholders
of Bellatrix Exploration Ltd.



We have audited Bellatrix Exploration Ltd.
(“the Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.



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



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



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



In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).



We also have audited, in accordance with
Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States),
the Consolidated Balance Sheets of the Company as at December 31, 2016 and December 31, 2015, and the related Consolidated Statements
of Comprehensive Income (Loss), Shareholders’ Equity and Cash Flows for the years then ended, and our report dated March
14, 2017 expressed an unmodified (unqualified) opinion on those consolidated financial statements.



(signed) “KPMG LLP”



Chartered Professional Accountants

March 14, 2017
Calgary,Canada



Bellatrix Exploration Ltd.3







|BELLATRIX EXPLORATION LTD.                                                                           |  |      |           |   |      |  
|---------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | -
|CONSOLIDATED BALANCE SHEETS (expressed
                                         in Canadian dollars) |  |      |           |   |      |  
|As at December 31,                                                                                   |  |      |           |   |      |  
|                                                                                                     |  |      |           |   |      |  
|($000s)                                                                                              |  | 2016 |           |   | 2015 |  
|                                                                                                     |  |      |           |   |      |  
|ASSETS                                                                                               |  |      |           |   |      |  
|Current assets                                                                                       |  |      |           |   |      |  
|Accounts receivable (note 17)                                                                        |  | $    | 39,227    |   |      | $
|Current portion of loans receivable (note 7)                                                         |  |      | 6,225     |   |      |  
|Deposits and prepaid expenses                                                                        |  |      | 5,205     |   |      |  
|Marketable securities                                                                                |  |      | 4,322     |   |      |  
|Current portion of risk management asset (note 17)                                                   |  |      | -         |   |      |  
|                                                                                                     |  |      | 54,979    |   |      |  
|                                                                                                     |  |      |           |   |      |  
|Risk management asset (note 17)                                                                      |  |      | 445       |   |      |  
|Loans receivable (note 7)                                                                            |  |      | 8,775     |   |      |  
|Deferred taxes (note 13)                                                                             |  |      | 63,713    |   |      |  
|Exploration and evaluation assets (note 6)                                                           |  |      | 29,246    |   |      |  
|Property, plant and equipment (note 7)                                                               |  |      | 1,296,572 |   |      |  
|Total assets                                                                                         |  | $    | 1,453,730 |   |      | $
|                                                                                                     |  |      |           |   |      |  
|LIABILITIES                                                                                          |  |      |           |   |      |  
|Current liabilities                                                                                  |  |      |           |   |      |  
|Accounts payable and accrued liabilities                                                             |  | $    | 77,334    |   |      | $
|Advances from joint venture partners                                                                 |  |      | 1,361     |   |      |  
|Current portion of other deferred liabilities (note 10)                                              |  |      | 7,899     |   |      |  
|Current portion of deferred capital obligation (note 17)                                             |  |      | 18,165    |   |      |  
|Current portion of risk management liability (note 17)                                               |  |      | 13,936    |   |      |  
|Current portion of bank debt (note 8)                                                                |  |      | 19,143    |   |      |  
|                                                                                                     |  |      | 137,838   |   |      |  
|                                                                                                     |  |      |           |   |      |  
|Bank debt (note 8)                                                                                   |  |      | -         |   |      |  
|Convertible Debentures (liability component) (note 8)                                                |  |      | 37,420    |   |      |  
|Senior Notes (note 8)                                                                                |  |      | 324,691   |   |      |  
|Risk management liability (note 17)                                                                  |  |      | 2,646     |   |      |  
|Other deferred liabilities (note 10)                                                                 |  |      | 21,148    |   |      |  
|Deferred capital obligation (note 17)                                                                |  |      | 3,725     |   |      |  
|Decommissioning liabilities (note 9)                                                                 |  |      | 62,844    |   |      |  
|Total liabilities                                                                                    |  |      | 590,312   |   |      |  
|                                                                                                     |  |      |           |   |      |  
|SHAREHOLDERS’ EQUITY                                                                                 |  |      |           |   |      |  
|Shareholders’ capital (note 11)                                                                      |  |      | 1,068,084 |   |      |  
|Convertible Debentures (equity component) (note 8)                                                   |  |      | 7,818     |   |      |  
|Contributed surplus                                                                                  |  |      | 54,418    |   |      |  
|Retained earnings (deficit)                                                                          |  |      | (266,902  | ) |      |  
|Total shareholders’ equity                                                                           |  |      | 863,418   |   |      |  
|Total liabilities and shareholders’ equity                                                           |  | $    | 1,453,730 |   |      | $



COMMITMENTS (note 18)



See accompanying notes to the consolidated financial statements.



On behalf of the Board of Directors



|(signed)“Keith S. Turnbull”         | (signed)“W.C. (Mickey) Dunn”   
|----------------------------------- | -------------------------------
|                                    |                                
|Keith S. Turnbull, B.Sc., CPA, CA   | W.C. (Mickey) Dunn             
|Director, Chairman, Audit Committee | Director, Chairman of the Board



Bellatrix Exploration Ltd.4







BELLATRIX EXPLORATION
LTD.

CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)

(expressed in Canadian
dollars)

For the years ended
December 31,



|($000s, except per share amounts)                                      |  | 2016 |         |   | 2015 |  
|---------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|                                                                       |  |      |         |   |      |  
|REVENUES                                                               |  |      |         |   |      |  
|Petroleum and natural gas sales                                        |  | $    | 220,124 |   |      | $
|Royalties                                                              |  |      | (18,636 | ) |      |  
|Other income                                                           |  |      | 7,750   |   |      |  
|Total revenues net of royalties                                        |  |      | 209,238 |   |      |  
|                                                                       |  |      |         |   |      |  
|Realized gain on commodity contracts                                   |  |      | 19,892  |   |      |  
|Unrealized gain (loss) on commodity contracts                          |  |      | (29,525 | ) |      |  
|Revenues net of royalties and financial instrument commodity contracts |  |      | 199,605 |   |      |  
|                                                                       |  |      |         |   |      |  
|EXPENSES                                                               |  |      |         |   |      |  
|Production                                                             |  |      | 113,589 |   |      |  
|Transportation                                                         |  |      | 12,108  |   |      |  
|General and administrative                                             |  |      | 19,919  |   |      |  
|Loss on marketable securities                                          |  |      | 678     |   |      |  
|Share-based compensation (note 12)                                     |  |      | 3,784   |   |      |  
|Depletion and depreciation (note 7)                                    |  |      | 136,518 |   |      |  
|Impairment (reversal) and (gain) loss on dispositions
    (note 7)     |  |      | (93,333 | ) |      |  
|                                                                       |  |      | 193,263 |   |      |  
|                                                                       |  |      |         |   |      |  
|NET PROFIT (LOSS) BEFORE FINANCE AND TAXES                             |  |      | 6,342   |   |      |  
|                                                                       |  |      |         |   |      |  
|Finance expenses (note 14)                                             |  |      | 48,063  |   |      |  
|Realized gain on foreign exchange (note 15)                            |  |      | (277    | ) |      |  
|Unrealized (gain) loss on foreign exchange (note 15)                   |  |      | (7,918  | ) |      |  
|                                                                       |  |      |         |   |      |  
|NET PROFIT (LOSS) BEFORE TAXES                                         |  |      | (33,526 | ) |      |  
|                                                                       |  |      |         |   |      |  
|TAXES                                                                  |  |      |         |   |      |  
|Deferred tax expense (recovery) (note 13)                              |  |      | (6,858  | ) |      |  
|                                                                       |  |      |         |   |      |  
|NET PROFIT (LOSS) AND COMPREHENSIVE
    INCOME (LOSS)                  |  | $    | (26,668 | ) |      | $
|                                                                       |  |      |         |   |      |  
|                                                                       |  |      |         |   |      |  
|Net profit (loss) per share (note 16)                                  |  |      |         |   |      |  
|Basic                                                                  |  |      | ($0.12  | ) |      |  
|Diluted                                                                |  |      | ($0.12  | ) |      |  



|See accompanying notes to
    the consolidated financial statements.
|--------------------------------------------------------------------



Bellatrix Exploration Ltd.5







BELLATRIX EXPLORATION LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(expressed in Canadian dollars)

For the year ended December 31,



|($000s)                                                                                      |  |   | 2016      |   |  |   | 2015      |  
|-------------------------------------------------------------------------------------------- |  | - | --------- | - |  | - | --------- | -
|                                                                                             |  |   |           |   |  |   |           |  
|SHAREHOLDERS’ CAPITAL (note
    11)                                                          |  |   |           |   |  |   |           |  
|Common shares (note
    11)                                                                  |  |   |           |   |  |   |           |  
|Balance, beginning of year                                                                   |  | $ | 1,000,100 |   |  | $ | 1,000,041 |  
|Issued for property acquisition                                                              |  |   | 29,178    |   |  |   | -         |  
|Share issue costs on property acquisition, net of tax effect                                 |  |   | (98       | ) |  |   | -         |  
|Issued for cash on equity issue                                                              |  |   | 40,400    |   |  |   | -         |  
|Share issue costs on equity issue, net of tax effect                                         |  |   | (1,781    | ) |  |   | -         |  
|Share-based compensation awards                                                              |  |   | 285       |   |  |   | -         |  
|Issued for cash on exercise of share options                                                 |  |   | -         |   |  |   | 45        |  
|Contributed surplus transferred on exercised options                                         |  |   | -         |   |  |   | 14        |  
|Balance, end of year                                                                         |  |   | 1,068,084 |   |  |   | 1,000,100 |  
|                                                                                             |  |   |           |   |  |   |           |  
|                                                                                             |  |   |           |   |  |   |           |  
|CONVERTIBLE DEBENTURES (EQUITY COMPONENT) (note
    8)                                       |  |   |           |   |  |   |           |  
|Balance, beginning of year                                                                   |  |   | -         |   |  |   | -         |  
|Conversion feature of Convertible Debentures issued,
    net of tax effect                   |  |   | 7,818     |   |  |   | -         |  
|Balance, end of year                                                                         |  |   | 7,818     |   |  |   | -         |  
|                                                                                             |  |   |           |   |  |   |           |  
|                                                                                             |  |   |           |   |  |   |           |  
|CONTRIBUTED SURPLUS                                                                          |  |   |           |   |  |   |           |  
|Balance, beginning of year                                                                   |  |   | 50,706    |   |  |   | 44,302    |  
|Share-based compensation expense                                                             |  |   | 4,463     |   |  |   | 7,091     |  
|Adjustment of share-based compensation expense for
    forfeitures of unvested share options |  |   | (751      | ) |  |   | (673      | )
|Transfer to share capital for exercised options                                              |  |   | -         |   |  |   | (14       | )
|Balance, end of year                                                                         |  |   | 54,418    |   |  |   | 50,706    |  
|                                                                                             |  |   |           |   |  |   |           |  
|                                                                                             |  |   |           |   |  |   |           |  
|RETAINED EARNINGS (DEFICIT)                                                                  |  |   |           |   |  |   |           |  
|Balance, beginning of year                                                                   |  |   | (240,234  | ) |  |   | 203,974   |  
|Net profit (loss)                                                                            |  |   | (26,668   | ) |  |   | (444,208  | )
|Balance, end of year                                                                         |  |   | (266,902  | ) |  |   | (240,234  | )
|                                                                                             |  |   |           |   |  |   |           |  
|TOTAL SHAREHOLDERS’ EQUITY                                                                   |  | $ | 863,418   |   |  | $ | 810,572   |  



See accompanying notes to the consolidated financial statements.



Bellatrix Exploration Ltd.6







BELLATRIX EXPLORATION LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(expressed in Canadian dollars)

For the year ended December 31,



|($000s)                                                         |  |   | 2016       |   |  |   | 2015       |  
|--------------------------------------------------------------- |  | - | ---------- | - |  | - | ---------- | -
|                                                                |  |   |            |   |  |   |            |  
|Cash provided from (used in):                                   |  |   |            |   |  |   |            |  
|                                                                |  |   |            |   |  |   |            |  
|CASH FLOW FROM (USED IN) OPERATING ACTIVITIES                   |  |   |            |   |  |   |            |  
|Net profit (loss)                                               |  | $ | (26,668    | ) |  | $ | (444,208   | )
|Adjustments for:                                                |  |   |            |   |  |   |            |  
|Depletion and depreciation (note 7)                             |  |   | 136,518    |   |  |   | 185,679    |  
|Impairment (reversal) and (gain) loss on dispositions (note 7)  |  |   | (93,333    | ) |  |   | 478,022    |  
|Accretion on decommissioning obligations (note 9)               |  |   | 1,713      |   |  |   | 1,803      |  
|Effective interest on Senior Notes                              |  |   | 2,601      |   |  |   | 1,442      |  
|Effective interest on Convertible Debentures                    |  |   | 722        |   |  |   | -          |  
|Share-based compensation (note 12)                              |  |   | 3,936      |   |  |   | 3,974      |  
|Unrealized (gain) loss on commodity contracts                   |  |   | 29,525     |   |  |   | (12,942    | )
|Unrealized foreign exchange (gain) loss (note 15)               |  |   | (7,918     | ) |  |   | 36,556     |  
|Loss on marketable securities                                   |  |   | 678        |   |  |   | -          |  
|Deferred tax expense (recovery) (note 13)                       |  |   | (6,858     | ) |  |   | (140,841   | )
|Decommissioning costs incurred                                  |  |   | (2,927     | ) |  |   | (2,725     | )
|Change in non-cash working capital (note 20)                    |  |   | (443       | ) |  |   | (3,685     | )
|                                                                |  |   | 37,546     |   |  |   | 103,075    |  
|                                                                |  |   |            |   |  |   |            |  
|CASH FLOW FROM (USED IN) FINANCING ACTIVITIES                   |  |   |            |   |  |   |            |  
|Issuance of share capital, net of issue costs (note 11)         |  |   | 37,825     |   |  |   | 45         |  
|Issuance of Convertible Debentures, net of issue costs (note 8) |  |   | 47,610     |   |  |   | -          |  
|Issuance of Senior Notes, net of issue costs (note 8)           |  |   | (55        | ) |  |   | 291,642    |  
|Settlement of share based payments                              |  |   | (730       | ) |  |   | (1,037     | )
|Advances from loans and borrowings                              |  |   | 1,481,308  |   |  |   | 3,381,665  |  
|Repayment of loans and borrowings                               |  |   | (1,802,909 | ) |  |   | (3,590,713 | )
|Financing obligations                                           |  |   | (3,997     | ) |  |   | (1,574     | )
|Deferred lease inducements                                      |  |   | (340       | ) |  |   | (340       | )
|Deferred capital obligations                                    |  |   | (3,291     | ) |  |   | -          |  
|Change in non-cash working capital (note 20)                    |  |   | 601        |   |  |   | 4,248      |  
|                                                                |  |   | (243,978   | ) |  |   | 83,936     |  
|                                                                |  |   |            |   |  |   |            |  
|CASH FLOW FROM (USED IN) INVESTING ACTIVITIES                   |  |   |            |   |  |   |            |  
|Expenditure on exploration and evaluation assets (note 6)       |  |   | (2,349     | ) |  |   | (4,102     | )
|Additions to property, plant and equipment (note 7)             |  |   | (76,531    | ) |  |   | (155,526   | )
|Proceeds on sale of property, plant and equipment               |  |   | 296,638    |   |  |   | 15,436     |  
|Change in non-cash working capital (note 20)                    |  |   | (11,326    | ) |  |   | (42,819    | )
|                                                                |  |   | 206,432    |   |  |   | (187,011   | )
|                                                                |  |   |            |   |  |   |            |  
|Change in cash                                                  |  |   | -          |   |  |   | -          |  
|                                                                |  |   |            |   |  |   |            |  
|Cash, beginning of year                                         |  |   | -          |   |  |   | -          |  
|                                                                |  |   |            |   |  |   |            |  
|Cash, end of year                                               |  | $ | -          |   |  | $ | -          |  
|                                                                |  |   |            |   |  |   |            |  
|Cash paid:                                                      |  |   |            |   |  |   |            |  
|Interest                                                        |  | $ | 40,464     |   |  | $ | 33,212     |  
|Taxes                                                           |  |   | -          |   |  |   | -          |  



See accompanying notes to the consolidated financial statements.



Bellatrix Exploration Ltd.7







NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

(expressed in Canadian dollars)



| | 1. | CORPORATE INFORMATION
| | -- | ---------------------



Bellatrix Exploration Ltd. (the
“Company” or “Bellatrix”) 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”.



Bellatrix was incorporated in
Alberta, Canada and the Company’s registered office and principal place of business is located at 1920, 800 – 5thAvenue SW, Calgary, Alberta, Canada, T2P 3T6.



| | 2. | BASIS OF PREPARATION
| | -- | --------------------



| | a. | Statement of compliance
| | -- | -----------------------



These consolidated financial
statements (“financial statements”) were authorized by the Board of Directors on March 14, 2017. The Company prepared
these financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IFRS”).



| | b. | Basis of measurement
| | -- | --------------------



The consolidated financial statements
are presented in Canadian dollars, the Company’s functional currency, and have been prepared on the historical cost basis
except for derivative financial instruments, marketable securities and liabilities for cash-settled share-based payment arrangements
measured at fair value. The consolidated financial statements have, in management’s opinion, been properly prepared using
careful judgment and reasonable limits of materiality, and within the framework of the significant policies summarized in note
3. The preparation of the financial statements requires the use of judgments, estimates and assumptions that affect the reported
amounts of assets, liabilities and the disclosure of contingencies at the date of the financial statements and revenues and expenses
during the reporting period. Accordingly, the actual results could differ from those estimated. Significant estimates and judgments
used in the preparation of the financial statements are detailed in note 4.



| | 3. | SIGNIFICANT ACCOUNTING POLICIES
| | -- | -------------------------------



| | a. | Principles of Consolidation
| | -- | ---------------------------



The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary. Any reference to the “Company” throughout these
consolidated financial statements refers to the Company and its subsidiary. All inter-entity transactions have been eliminated.



| | b. | Revenue Recognition
| | -- | -------------------



Revenues from the sale of petroleum
and natural gas are recorded when title to the products transfers to the purchasers based on volumes delivered and contracted
delivery points and prices. Revenue is measured at the fair value of the consideration received or receivable. Revenue from the
sale of crude oil, natural gas, condensate and natural gas liquids (“NGLs”) (prior to deduction of transportation
costs) is recognized when all of the following conditions have been satisfied:



·Bellatrix has transferred
the significant risks and rewards of ownership of the goods to the purchaser;



·Bellatrix retains no continuing managerial involvement to the degree usually associated with
ownership or effective control over the goods sold;



·the amount of revenue can be measured reliably;



·it is probable that the economic benefits associated with the transaction will flow to Bellatrix;
and



·the costs incurred or to be incurred in respect of the transaction can be measured reliably.



Bellatrix Exploration Ltd.8









Royalty income is recognized
as it accrues in accordance with the terms of the overriding royalty agreements and is included with petroleum and natural gas
sales.



Capital processing charges to
other entities for use of facilities owned by the Company are recognized as revenue as they accrue in accordance with the terms
of the service agreements and are presented as other income.



| | c. | Transportation
| | -- | --------------



Costs paid by Bellatrix for the
transportation of crude oil, natural gas, condensate and NGLs to the point of title transfer are recognized when the transportation
is provided.



| | d. | Joint Interests
| | -- | ---------------



A significant portion of the
Company’s exploration and development activities are conducted jointly with others. The joint interests are accounted for
on a proportionate consolidation basis and as a result, the financial statements reflect only the Company’s proportionate
share of the assets, liabilities, revenues, expenses and cash flows from these activities.



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, 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 financial statements, Bellatrix has referred to these arrangements by the common oil and gas industry term of joint
ventures.



Grafton Joint Venture –
Bellatrix has a joint venture (the “Grafton Joint Venture”) with Grafton Energy Co I Ltd. (“Grafton”)
in the Willesden Green and Brazeau areas of West-Central Alberta. Under the agreement, Grafton contributed 82% to the joint venture
to earn 54% of Bellatrix’s working interest (“WI”) in each well drilled in the well program until payout on
the total program (being recovery of Grafton's capital investment plus an 8% internal rate of return), reverting to 33% of Bellatrix's
WI after payout. At any time after payout of the entire program, Grafton shall have the option to elect to convert all wells from
the 33% WI to a 17.5% Gross Overriding Royalty (“GORR”) on Bellatrix’s pre-Grafton Joint Venture WI. 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 – Bellatrix
and Canadian Non-Operated Resources Corp. ("CNOR"), a non-operated oil and gas company managed by Grafton Asset Management
Inc., have a multi-year joint venture arrangement (the “CNOR Joint Venture”).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 WI before payout
and automatically converting to a 10.67% GORR on Bellatrix's pre-joint venture WI after payout (being recovery of CNOR’s
capital investment plus an 8% return on investment).



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 and 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.



Bellatrix Exploration Ltd.9







| | e. | Property, Plant and
                                         Equipment and Exploration and Evaluation Assets
| | -- | ------------------------------------------------------------------------------------------------------------



| | I. | Pre-exploration expenditures
| | -- | ----------------------------



Expenditures made by the Company
before acquiring the legal right to explore in a specific area do not meet the definition of an asset and therefore are expensed
by the Company as incurred.



| | II. | Exploration and evaluation expenditures
| | --- | ---------------------------------------



Once the legal right to explore
has been acquired, costs incurred are capitalized as intangible exploration and evaluation assets (“E&E). These costs
include, but are not limited to, exploration license expenditures, leasehold property acquisition costs, evaluation costs, including
drilling costs directly attributable to an identifiable well and directly attributable general and administrative costs. These
costs are accumulated in cost centres by property and are not subject to depletion, until technical feasibility and commercial
viability have been determined.



E&E assets are assessed
for impairment if sufficient data exists to determine technical feasibility and commercial viability, or if facts and circumstances
suggest that the carrying amount is unlikely to be recovered.



| | III. | Developing and production costs
| | ---- | -------------------------------



Items of property, plant and
equipment (“PP&E”), which include oil and gas development and production assets, are measured at cost less accumulated
depletion, depreciation and accumulated impairment losses net of recoveries.



Gains and losses on disposal
of an item of PP&E, including oil and natural gas interests, are determined by comparing the proceeds from disposal with the
carrying amount of PP&E, and are recognized within the Consolidated Statements of Comprehensive Income (Loss).



| | IV. | Joint arrangements
| | --- | ------------------



The Company has entered into
certain joint arrangements whereby the joint arrangement partner (“partner”) will earn a working interest on certain
properties through the payment of a pre-determined portion of the costs of drilling, completing and equipping. A gain on disposition
for each well is recognized to account for the disposal of the pre-payout working interest earned by the partner on the well,
refer to ‘Dispositions’ below for further discussion. Bellatrix has both exploration and evaluation assets and property,
plant and equipment assets that are subject to these arrangements.



| | V. | Subsequent
                                         costs
| | -- | ---------------------------------------------------------



Costs incurred subsequent to
the determination of technical feasibility and commercial viability and the costs of replacing parts of PP&E are recognized
as oil and natural gas interests only when they increase the future economic benefits embodied in the specific asset to which
they relate. All other expenditures are recognized in profit or loss as incurred. Such capitalized oil and natural gas interests
generally represent costs incurred in developing proved and/or probable reserves and bringing in or enhancing production from
such reserves, and are accumulated on a well, field or geotechnical area basis. The carrying amount of any replaced or sold component
is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.



| | VI. | Depletion and depreciation
| | --- | --------------------------



Depletion of petroleum and natural
gas properties is provided using the unit-of-production method based on production volumes in relation to total estimated proven
and probable reserves as determined annually by independent engineers and determined in accordance with National Instrument 51-101
Standards of Disclosure of Oil and Gas Activities. Natural gas reserves and production are converted at the energy equivalent
of six thousand cubic feet to one barrel of oil.



Calculations for depletion and
depreciation of production equipment are based on total capitalized costs plus estimated future development costs of proven and
probable undeveloped reserves less the estimated net realizable value of production equipment and facilities after the proved
and probable reserves are fully produced.



Bellatrix Exploration Ltd.10







Depreciation is recognized to
expense the cost of significant components of assets less their residual values over their useful lives.



The Phase 1 of the Alder Flats
Plant and associated equipment are depreciated using the straight-line method over estimated useful lives as follows:



| | · | General
                                         plant and processing equipment - 40 years
| | - | ------------------------------------------------------------------------------------------



| | · | Other
                                         properties and equipment - 10 years
| | - | ----------------------------------------------------------------------------------



| | · | Turnarounds
                                         - 5 years
| | - | --------------------------------------------------------------



Depreciation of office furniture
and equipment is provided for on a 20% declining balance basis.



Depreciation methods, useful
lives and residual values are reviewed at each reporting date and, if necessary, any changes would be accounted for prospectively.



| | VII. | Dispositions
| | ---- | ------------



Gains on disposal of an item
of PP&E or E&E are determined by comparing the proceeds from disposal with the carrying amount of PP&E or E&E
and are recognized separately in the Consolidated Statements of Comprehensive Income (Loss). Exchanges of properties are measured
at fair value, unless the transaction lacks commercial substance or fair value cannot be reasonably measured. Where the exchange
is measured at fair value, a gain or loss is recognized in the Consolidated Statements of Comprehensive Income (Loss). A gain
on disposition is recognized for each well drilled under the Grafton Joint Venture and the Troika Joint Venture 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
Agreement, Grafton contributed 82% of the total capital costs required for each well under the Grafton Joint Venture Agreement,
and in return earned 54% of Bellatrix’s WI in each well drilled until payout.



Under the Troika Joint Venture
Agreement, Troika contributed 50% of the total capital costs required for each well under the Troika Joint Venture Agreement,
and in return earned 35% of Bellatrix’s WI in each well until payout.



| | f. | Impairment and Impairment
                                         Reversal
| | -- | ---------------------------------------------------------------------------



| | I. | Financial assets
| | -- | ----------------



A financial asset is assessed at
each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered
to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash
flows of that asset.



An impairment loss in respect of
a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value
of the estimated future cash flows discounted at the original effective interest rate. All impairment losses are recognized in
profit or loss.



| | II. | Non-financial assets
| | --- | --------------------



For the purpose of impairment testing,
assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”).
The Company regularly reviews the composition and determination of its CGUs. The composition of each CGU is determined based on
factors such as common processing facilities, sales points, and commonalities in the geological and geophysical structure of individual
assets.



Bellatrix Exploration Ltd.11







Developing and producing assets
are assessed for impairment if facts and circumstances suggest that the carrying amount exceeds the recoverable amount. The impairment
test is performed at the asset or CGU level.



The recoverable amount of an asset
or a CGU is the greater of its value in use (“VIU”) and its fair value less costs to sell (“FVLCS”). FVLCS
is determined to be the amount for which the asset could be sold in an arm’s length transaction. FVLCS can be determined
by using an observable market metric or by using discounted future net cash flows of proved and probable reserves using forecasted
prices and costs. VIU is determined by estimating the present value of the future net cash flows expected to be derived from the
continued use of the asset or CGU.



An impairment loss is recognized
if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in the
Company’s Consolidated Statement of Comprehensive Income (Loss) in the period in which it occurs.



Impairment losses recognized in
prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depletion and depreciation, if no impairment loss had been recognized.



E&E assets are grouped together
with the Company’s CGU’s when they are assessed for impairment, both at the time of any triggering facts and circumstances
as well as upon their eventual reclassification to producing assets (oil and natural gas interests in PP&E).



| | g. | Provisions
| | -- | ----------



Provisions are recognized when
the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic
benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions
are determined by discounting the expected cash flows at a pre-tax rate that reflects current market assessments of the time value
of money and the risks specific to the liability, if the risks have not been incorporated into the estimate of cash flows. The
increase in the provision due to the passage of time is recognized within finance expense.



| | I. | Decommissioning liabilities
| | -- | ---------------------------



The Company’s activities
give rise to dismantling, decommissioning and site disturbance remediation activities. A provision is made for the estimated cost
of site restoration and capitalized in the relevant asset category.



Decommissioning obligations are
measured at the present value of management’s best estimate of the expenditure required to settle the present obligation
at the balance sheet date. Changes in the present value of the estimated expenditure are reflected as an adjustment to the liability
and the relevant asset. The accretion or unwinding of the discount on the decommissioning provision is recognized as a finance
expense. Actual costs incurred upon settlement of the decommissioning liabilities are charged against the provision to the extent
the provision was recognized.



| | II. | Environmental liabilities
| | --- | -------------------------



The Company records liabilities
on an undiscounted basis for environmental remediation efforts that are likely to occur and where the cost can be reasonably estimated.
The estimates, including associated legal costs, are based on available information using existing technology and enacted laws
and regulations. The estimates are subject to revision in future periods based on actual costs incurred or new circumstances.
Any amounts expected to be recovered from other parties, including insurers, are recorded as an asset separate from the associated
liability.



Bellatrix Exploration Ltd.12







| | h. | Share-based Payments
| | -- | --------------------



| | I. | Equity-settled transactions
| | -- | ---------------------------



Bellatrix accounts for options
issued under the Company’s share option plan by reference to the fair value of the equity instruments granted. The fair
value of each share option is estimated on the date of the grant using the Black-Scholes options pricing model and charged to
earnings over the vesting period with a corresponding increase to contributed surplus. The Company estimates a forfeiture rate
on the grant date and the rate is adjusted to reflect the actual number of options that actually vest. The expected life of the
options granted is adjusted, based on the Company’s best estimate, for the effects of non-transferability, exercise restrictions
and behavioural considerations.



| | II. | Cash-settled transactions
| | --- | -------------------------



The Company’s Deferred Share
Unit Plan (the “DSU Plan”) is accounted for as a cash settled share based payment plan in which the fair value of
the amount payable under the DSU Plan is recognized as an expense with a corresponding increase in liabilities. The liability
is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognized in
profit or loss.



In 2016, the shareholders and the
TSX approved the issuance of common shares on settlement of Restricted Awards and Performance Awards (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. The
Company’s Restricted and Performance Award Plan is accounted for as a cash settled share based payment plan in which the
fair value of the amounts payable under the Award Plan are recognized incrementally as an expense over the term of the corresponding
grant, with a corresponding change in liabilities.



| | i. | Income Taxes
| | -- | ------------



Income tax expense is comprised
of current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items
recognized directly in equity, in which case it is recognized in equity.



| | I. | Current tax
| | -- | -----------



Current tax assets and liabilities
for the current and prior periods are measured at the amount expected to be recovered from, or paid, to the taxation authorities.
The tax rates and tax laws used to compute the amount are those that are enacted, or substantively enacted, by the date of the
statement of financial position.



| | II. | Deferred tax
| | --- | ------------



Deferred tax is recognized using
the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets
or liabilities in a transaction that is not a business combination. Deferred tax is measured at the tax rates that are expected
to be applied to temporary differences when they reverse, based on the laws that have been enacted, or substantively enacted,
by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they
relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend
to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.



A deferred tax asset is recognized
to the extent that it is probable that future taxable profits will be available against which the temporary difference can be
utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realized.



Bellatrix Exploration Ltd.13







| | j. | Financial Instruments
| | -- | ---------------------



All financial instruments, including
all derivatives, are recognized on the balance sheet initially at fair value. Subsequent measurement of all financial assets and
liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective
interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in income.
Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income and
reclassified to income when derecognized or impaired. The Company has the following classifications:



|Financial Assets and Liabilities               | Category              | Subsequent
    Measurement                    
|---------------------------------------------- | --------------------- | ----------------------------------------------
|Accounts
    receivable                        | Loans and receivables | Amortized cost                                
|Loans
    receivable                           | Loans and receivables | Amortized cost                                
|Deposits
    and prepaid expenses              | Other assets          | Amortized cost                                
|Marketable
    securities                      | Held-for-trading      | Fair value through
    profit or loss; Level 1
|Commodity
    risk management contracts        | Held-for-trading      | Fair value through
    profit or loss; Level 2
|Foreign
    exchange risk management contracts | Held-for-trading      | Fair value through
    profit or loss; Level 2
|Accounts
    payable and accrued liabilities   | Other liabilities     | Amortized cost                                
|Deferred
    share units                       | Other liabilities     | Fair value through
    profit or loss; Level 1
|Restricted
    awards                          | Other liabilities     | Fair value through
    profit or loss; Level 1
|Performance
    awards                         | Other liabilities     | Fair value through
    profit or loss; Level 2
|Advances
    from joint venture partners       | Other liabilities     | Amortized cost                                
|Bank
    debt                                  | Other liabilities     | Amortized cost                                
|Senior
    Notes                               | Other liabilities     | Amortized cost                                
|Convertible
    Debentures                     | Other Liabilities     | Amortized cost                                
|Deferred
    capital obligation                | Other Liabilities     | Amortized cost                                
|Finance
    lease obligation                   | Other liabilities     | Amortized cost                                



Transaction costs attributable
to financial instruments classified as other than held-for-trading are included in the recognized amount of the related financial
instrument and recognized over the life of the resulting financial instrument using the effective interest rate method.



The Company utilizes financial
derivatives and commodity sales contracts requiring physical delivery to manage the price risk attributable to anticipated sale
of petroleum and natural gas production and foreign exchange exposures. The Company does not enter into derivative financial instruments
for trading or speculative purposes. The Company has not designated its financial derivative contracts as effective accounting
hedges, and thus not applied hedge accounting, even though the Company considers all commodity contracts to be economic hedges.
As a result, financial derivatives are classified as fair value through profit or loss and are recorded on the balance sheet at
fair value.



The derivative financial instruments
are initiated within the guidelines of the Company’s corporate hedging policy. This includes linking all derivatives to
specific assets and liabilities on the balance sheet, to specific firm commitments, or forecasted transactions.



The Company accounts for its
commodity sales and purchase contracts, which were entered into and continue to be held for the purpose of receipt or delivery
of non-financial items, in accordance with its expected purchase, sale or usage requirements as executory contracts. As such,
physical sales and purchase contracts are not recorded at fair value on the balance sheet. Settlements on these physical sales
contracts are recognized in petroleum and natural gas sales.



Financial instruments measured
at fair value on the balance sheet require classification into one of the following levels of the fair value hierarchy:



| | § | Level
                                         1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
| | - | ------------------------------------------------------------------------------------------------------------------------------------



Bellatrix Exploration Ltd.14







| | § | Level
                                         2 – Inputs other than quoted prices included in level 1 that are observable for
                                         the asset or liability, either directly or indirectly.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | Level
                                         3 – inputs for the asset or liability that are not based on observable market data.
| | - | ----------------------------------------------------------------------------------------------------------------------------------



The fair value hierarchy level
at which a fair value measurement is categorized is determined on the basis of the lowest level input that is significant to the
fair value measurement in its entirety. The Company has categorized its financial instruments that are fair valued on the balance
sheet according to the fair value hierarchy.



| | k. | Compound Financial Instruments
| | -- | ------------------------------



The Company's compound financial
instruments are comprised of its Convertible Debentures that can be converted to common shares at the option of the holder. The
number of shares to be issued does not vary with changes in fair value.



The liability component of the
Convertible Debentures is recognized initially at the fair value of a similar liability that does not have an equity conversion
option. The equity component is recognized initially as the difference between the fair value of the Convertible Debenture and
the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity
components in proportion to their initial carrying amounts.



Subsequent to initial recognition,
the liability component of the Convertible Debentures is measured at amortized cost using the effective interest method. The equity
component of the Convertible Debentures is not re-measured subsequent to initial recognition



| | l. | Lease Obligations
| | -- | -----------------



Leases which effectively transfer
substantially all of the risks and rewards of ownership to the Company are classified as finance leases and are accounted for
as an acquisition of an asset and an assumption of an obligation at the inception of the lease, measured as the present value
of minimum lease payments to a maximum of the asset’s fair value. The asset is amortized in accordance with the Company’s
depletion and depreciation policy. The obligations recorded under finance lease payments are reduced by the lease payments made.



Assets held under other leases
are classified as operating leases and are not recognized in the balance sheet. Payments made under operating leases are recognized
in profit or loss on a straight-line basis over the term of the lease. Lease incentives received from landlords are deferred and
recognized as an integral part of the total lease expense, over the term of the lease.



| | m. | Basic and Diluted per
                                         Share Calculations
| | -- | ---------------------------------------------------------------------------------



Basic per share amounts are calculated
using the weighted average number of shares outstanding during the period. The Company uses the treasury share method to determine
the dilutive effect of share options. Under the treasury share method, only “in the money” dilutive instruments impact
the diluted calculations in computing diluted per share amounts.



| | n. | Finance Income and Expenses
| | -- | ---------------------------



Finance income is recognized
as it accrues in profit or loss, using the effective interest method. Finance expense comprises interest expense on borrowings,
amortization of deferred charges, accretion of the discount rate on provisions and impairment losses recognized on financial assets.



| | o. | Borrowing Costs
| | -- | ---------------



Borrowing costs incurred for
the construction of qualifying assets are capitalized during the period of time that is required to complete and prepare the assets
for their intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for
their intended use. All other borrowing costs are recognized in profit or loss using the effective interest method. The capitalization
rate used to determine the amount of borrowing costs to be capitalized is the weighted average interest rate applicable to the
Company’s outstanding borrowings during the period.



Bellatrix Exploration Ltd.15







| | p. | Cash and Cash Equivalents
| | -- | -------------------------



Cash and cash equivalents include
cash and short-term investments with original maturities of three months or less.



| | q. | Business Combinations
| | -- | ---------------------



Business combinations are accounted
for using the acquisition method. The identifiable assets acquired and liabilities and contingent liabilities assumed are measured
at their fair values at the acquisition date. The cost of an acquisition is measured as the aggregate consideration transferred,
measured at the acquisition date fair value. If the cost of the acquisition is less than the fair value of the net assets acquired,
the difference is recognized immediately in profit or loss. If the cost of the acquisition is more than the fair value of the
net assets acquired, the difference is recognized on the balance sheet as goodwill. Acquisition costs incurred are expensed.



| | r. | Foreign Currency Translation
| | -- | ----------------------------



Monetary assets and liabilities
denominated in a foreign currency are translated at the rate of exchange in effect at the balance sheet date. Revenues and expenses
are translated at the period average rates of exchange. Translation gains and losses are included in earnings in the period in
which they arise.



Bellatrix’s functional
and presentation currency is Canadian dollars.



| | 4. | CRITICAL JUDGMENTS AND ACCOUNTING ESTIMATES
| | -- | -------------------------------------------



The consolidated financial statements
of the Company have been prepared by management in accordance with IFRS. The preparation of consolidated financial statements
in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets,
liabilities, and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues
and expenses during the reporting period and accompanying notes. By their nature, these estimates are subject to measurement uncertainty
and the effect on the financial statements of changes in such estimates in future periods could be material. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future periods affected.



| | a. | Critical Accounting
                                         Judgments
| | -- | ----------------------------------------------------------------------



| | I. | 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.



| | II. | 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.



| | III. | 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.



Bellatrix Exploration Ltd.16







| | IV. | 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.



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.



| | b. | Critical Estimates and
                                         Assumptions
| | -- | ---------------------------------------------------------------------------



| | I. | 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.



| | II. | 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.



| | III. | 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.



| | IV. | Business combinations
| | --- | ---------------------



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.



Bellatrix Exploration Ltd.17







| | 5. | NEW STANDARDS AND INTERPRETATIONS
                                         NOT YET ADOPTED
| | -- | ------------------------------------------------------------------------------------------



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.



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.



| | 6. | EXPLORATION AND EVALUATION
                                         ASSETS
| | -- | --------------------------------------------------------------------------



|($000s)                                    |  |   |         |  
|------------------------------------------ |  | - | ------- | -
|Cost                                       |  |   |         |  
|Balance, December 31, 2014                 |  | $ | 123,639 |  
|Additions                                  |  |   | 4,102   |  
|Impairment loss                            |  |   | (4,542  | )
|Transfer to oil and natural gas properties |  |   | (35,280 | )
|Balance, December 31, 2015                 |  |   | 87,919  |  
|Additions                                  |  |   | 2,349   |  
|Dispositions                               |  |   | (31,176 | )
|Transfer to oil and natural gas properties |  |   | (29,846 | )
|Balance, December 31, 2016                 |  | $ | 29,246  |  



Exploration and evaluation (“E&E”)
assets consist of Bellatrix’s exploration projects which are pending the determination of proved or probable reserves and
production. Additions represent Bellatrix’s share of costs incurred on E&E assets during the year.



Impairment



As at December 31, 2016, Bellatrix
did not identify indicators of impairment or impairment reversal with respect to its E&E assets. For the year ended December
31, 2015, indicators of impairment were identified based on industry fundamentals and capital allocation decisions in the prior
year. The recoverable amounts of E&E assets were determined using internal estimates of the fair value of undeveloped land
based principally on recent and relevant land sales. Bellatrix recognized non-cash impairment of $4.5 million on E&E assets,
where the carrying values exceeded the recoverable amounts. Impairment is recognized as an expense included in the Company’s
consolidated statement of comprehensive income (loss) in the period in which it occurs. The impairment recorded at December 31,
2015 may be reversed at such time that the fair value of the impaired E&E assets increases.



Bellatrix Exploration Ltd.18







| | 7. | PROPERTY, PLANT AND EQUIPMENT
| | -- | -----------------------------



|($000s)                                                       |  |   | Oil
                                         and naturalgas properties |   |  |   | OperatedFacilities |   |  |   | Officefurnitureandequipment |  |  |   | Total     |  
|------------------------------------------------------------- |  | - | ---------------------------------------------------------------------- | - |  | - | ------------------ | - |  | - | --------------------------- |  |  | - | --------- | -
|Cost                                                          |  |   |                                                                        |   |  |   |                    |   |  |   |                             |  |  |   |           |  
|Balance, December 31, 2014                                    |  | $ | 2,411,772                                                              |   |  | $ | 41,760             |   |  | $ | 22,749                      |  |  | $ | 2,476,281 |  
|Additions                                                     |  |   | 100,009                                                                |   |  |   | 71,914             |   |  |   | 3,441                       |  |  |   | 175,364   |  
|Transfer from exploration and evaluation assets               |  |   | 35,280                                                                 |   |  |   | -                  |   |  |   | -                           |  |  |   | 35,280    |  
|Joint venture wells                                           |  |   | 29,493                                                                 |   |  |   | -                  |   |  |   | -                           |  |  |   | 29,493    |  
|Transfers                                                     |  |   | -                                                                      |   |  |   | (8,639             | ) |  |   | -                           |  |  |   | (8,639    | )
|Disposals                                                     |  |   | (10,856                                                                | ) |  |   | -                  |   |  |   | -                           |  |  |   | (10,856   | )
|Balance, December 31, 2015                                    |  |   | 2,565,698                                                              |   |  |   | 105,035            |   |  |   | 26,190                      |  |  |   | 2,696,923 |  
|Additions                                                     |  |   | 61,002                                                                 |   |  |   | 9,590              |   |  |   | 230                         |  |  |   | 70,822    |  
|Acquisition                                                   |  |   | 29,735                                                                 |   |  |   | -                  |   |  |   | -                           |  |  |   | 29,735    |  
|Transfer from exploration and evaluation assets               |  |   | 29,846                                                                 |   |  |   | -                  |   |  |   | -                           |  |  |   | 29,846    |  
|Joint venture wells                                           |  |   | 6,687                                                                  |   |  |   | -                  |   |  |   | -                           |  |  |   | 6,687     |  
|Disposals                                                     |  |   | (658,014                                                               | ) |  |   | (58,565            | ) |  |   | -                           |  |  |   | (716,579  | )
|Balance, December 31, 2016                                    |  | $ | 2,034,954                                                              |   |  | $ | 56,060             |   |  | $ | 26,420                      |  |  | $ | 2,117,434 |  
|                                                              |  |   |                                                                        |   |  |   |                    |   |  |   |                             |  |  |   |           |  
|Accumulated
    Depletion, Depreciation and Impairment losses |  |   |                                                                        |   |  |   |                    |   |  |   |                             |  | 
|Balance, December 31, 2014                                    |  | $ | 523,689                                                                |   |  | $ | -                  |   |  | $ | 5,294                       |  |  | $ | 528,983   |  
|Charge for time period                                        |  |   | 180,113                                                                |   |  |   | 1,829              |   |  |   | 3,737                       |  |  |   | 185,679   |  
|Impairment loss                                               |  |   | 507,412                                                                |   |  |   | -                  |   |  |   | -                           |  |  |   | 507,412   |  
|Balance, December 31, 2015                                    |  |   | 1,211,214                                                              |   |  |   | 1,829              |   |  |   | 9,031                       |  |  |   | 1,222,074 |  
|Charge for time period                                        |  |   | 131,468                                                                |   |  |   | 1,862              |   |  |   | 3,188                       |  |  |   | 136,518   |  
|Disposals                                                     |  |   | (272,026                                                               | ) |  |   | (1,704             | ) |  |   | -                           |  |  |   | (273,730  | )
|Impairment (reversal)                                         |  |   | (264,000                                                               | ) |  |   | -                  |   |  |   | -                           |  |  |   | (264,000  | )
|Balance, December 31, 2016                                    |  | $ | 806,656                                                                |   |  | $ | 1,987              |   |  | $ | 12,219                      |  |  | $ | 820,862   |  
|                                                              |  |   |                                                                        |   |  |   |                    |   |  |   |                             |  |  |   |           |  
|                                                              |  |   |                                                                        |   |  |   |                    |   |  |   |                             |  |  |   |           |  
|Carrying
    amounts                                          |  |   |                                                                        |   |  |   |                    |   |  |   |                             |  |  |   |           |  
|At December 31, 2015                                          |  | $ | 1,354,484                                                              |   |  | $ | 103,206            |   |  | $ | 17,159                      |  |  | $ | 1,474,849 |  
|At December 31, 2016                                          |  | $ | 1,228,298                                                              |   |  | $ | 54,073             |   |  | $ | 14,201                      |  |  | $ | 1,296,572 |  



|Impairment
    loss (reversal) and (gain) loss on dispositions |  |   |          |   |  |   |         |  
|-------------------------------------------------------------- |  | - | -------- | - |  | - | ------- | -
|($000s)                                                        |  |   | 2016     |   |  |   | 2015    |  
|Impairment loss (reversal) – PP&E                              |  | $ | (264,000 | ) |  | $ | 507,412 |  
|Impairment loss – E&E (note 6)                                 |  |   | -        |   |  |   | 4,542   |  
|(Gain) loss on dispositions                                    |  |   | 170,667  |   |  |   | (33,932 | )
|Impairment
    (reversal) and (gain) loss on dispositions      |  | $ | (93,333  | ) |  | $ | 478,022 |  



Bellatrix has included $0.95
billion (2015: $1.12 billion) for future development costs and excluded $46.0 million (2015: $75.9 million) for estimated salvage
from the depletion calculation for the three months ended December 31, 2016. Operated facilities includes capital associated with
Phase I of the Alder Flats Plant, as well as capital associated with Phase II and related infrastructure. Costs of facilities
under construction of $27.7 million related to Phase II of the Alder Flats Plant were excluded from depreciation calculations
for the three months ended December 31, 2016.



Business Combination



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. In accordance with IFRS, a property acquisition is accounted for as a business combination
when certain criteria are met, such as the acquisition of inputs and processes to convert those inputs into beneficial outputs.
Bellatrix assessed the property acquisition and determined it to constitute a business combination under IFRS.



Bellatrix Exploration Ltd.19







The estimated fair value of
the property, plant and equipment acquired was determined using observable market metrics. The decommissioning liabilities assumed
were determined using the timing and estimated costs associated with the abandonment, restoration and reclamation of the wells
and facilities acquired. The fair value of identifiable assets acquired and liabilities assumed is final. 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 closing date of the transaction was June 22,
2016.



Dispositions



During the second quarter of
2016, Bellatrix sold certain production facilities to a third party midstream company for proceeds of $75 million effective May
3, 2016. Pursuant to the agreement, Bellatrix maintains operatorship and preferential access to the facilities for its operated
production volumes and will pay an annual rental fee over the eight year duration of the agreement. In addition, Bellatrix retains,
at its sole discretion, the option to repurchase the facilities at any time during the agreement period. Payments for use of the
facilities are treated as an operating lease and included in Bellatrix’s corporate commitments.



During the third quarter of
2016, Bellatrix completed a $112.5 million disposition of a 35% working interest in the Alder Flats Plant (“Alder Flats
Plant Sale”). 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.



Bellatrix recorded a gain on
disposition of $9.8 million in relation to the Company’s disposed working interest in Phase 1 of the Alder Flats Plant and
a deferred gain of $10.7 million related to the prepayment for the working interest in Phase 2 of the Alder Flats Plant which
is currently under construction. Bellatrix recorded a deferred capital obligation of $25.2 million for the remaining Phase 2 costs
to be incurred to construct and commission Phase 2, related to Keyera’s 35% working interest, and a deferred financing obligation
of $9.9 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. 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.



For the year ended December
31, 2016, the Company recognized total net gains on disposition of $6.7 million, relating to gains on wells drilled under the
Grafton Joint Venture that was terminated in December 2016 (2015: $39.9 million on wells drilled under the Grafton Joint Venture
and the joint venture between Bellatrix and TCA Energy Ltd. 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.



Bellatrix Exploration Ltd.20







For the year ended December
31, 2016, the Company capitalized $7.0 million (2015: $9.5 million) of general and administrative expenses and $1.4 million (2015:
$2.6 million) of share-based compensation expense directly related to exploration and development activities.



Impairment Loss (Reversal)



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.



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



Bellatrix Exploration Ltd.21







The VIU determination of estimated
recoverable amounts of each CGU was based on before-tax discount rates ranging from 10-20% and the following forward commodity
price estimates:





|Year |            |  | EdmontonCrude Ref Oil($/bbl) (1) |  |                                                       | AECO
    NaturalGas($/MMBtu) (1) |  |  | Butane ($/bbl)
                                         (1) |  |  | Propane($/bbl) (1) |                                                       |  | Condensate($/bbl) (1) |  |                                                       | CDN$/US$ExchangeRates(1) | 
|---- | ---------- |  | -------------------------------- |  | ----------------------------------------------------- | -------------------------------- |  |  | ----------------------------------------------------------- |  |  | ------------------ | ----------------------------------------------------- |  | --------------------- |  | ----------------------------------------------------- | ------------------------ | 
|     | 2017       |  |                                  |  | 68.33                                                 |                                  |  |  | 3.47                                                        |  |  |                    | 47.83                                                 |  |                       |  | 23.92                                                 |                          | 
|     | 2018       |  |                                  |  | 72.32                                                 |                                  |  |  | 3.42                                                        |  |  |                    | 52.07                                                 |  |                       |  | 25.31                                                 |                          | 
|     | 2019       |  |                                  |  | 76.05                                                 |                                  |  |  | 3.59                                                        |  |  |                    | 54.75                                                 |  |                       |  | 26.62                                                 |                          | 
|     | 2020       |  |                                  |  | 79.54                                                 |                                  |  |  | 3.93                                                        |  |  |                    | 57.27                                                 |  |                       |  | 27.84                                                 |                          | 
|     | 2021       |  |                                  |  | 82.82                                                 |                                  |  |  | 4.01                                                        |  |  |                    | 59.63                                                 |  |                       |  | 28.99                                                 |                          | 
|     | 2022       |  |                                  |  | 88.60                                                 |                                  |  |  | 4.17                                                        |  |  |                    | 63.79                                                 |  |                       |  | 31.01                                                 |                          | 
|     | 2023       |  |                                  |  | 90.37                                                 |                                  |  |  | 4.27                                                        |  |  |                    | 65.07                                                 |  |                       |  | 31.63                                                 |                          | 
|     | 2024       |  |                                  |  | 92.18                                                 |                                  |  |  | 4.43                                                        |  |  |                    | 66.37                                                 |  |                       |  | 32.26                                                 |                          | 
|     | 2025       |  |                                  |  | 94.02                                                 |                                  |  |  | 4.52                                                        |  |  |                    | 67.69                                                 |  |                       |  | 32.91                                                 |                          | 
|     | 2026       |  |                                  |  | 95.90                                                 |                                  |  |  | 4.61                                                        |  |  |                    | 69.05                                                 |  |                       |  | 33.57                                                 |                          | 
|     | Thereafter |  |                                  |  | +2% per
                                         year |                                  |  |  | +2% per
                                         year       |  |  |                    | +2% per
                                         year |  |                       |  | +2% per
                                         year |                          | 

(1)The InSite price forecasts, effective January 1, 2017.



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.



At December 31, 2015, impairments
indicators were identified and impairment tests were completed for each of the Company’s CGUs primarily as a result of depressed
crude oil and natural gas forecasts of forward commodity prices.



For the year ended December
31, 2015, the 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. The FVLCS determination of estimated recoverable
amounts of each CGU was based on before-tax discount rates ranging from 10-14% and the following forward commodity price estimates:





|Year |            |  | Canadian
    LightSweet Crude($/bbl)(1) |  |                                                         | AECO
    Gas($/MMBtu)(1) |  |  | Butane($/bbl)(1)                                        |  |  | Propane($/bbl)(1) |                                                         |  | Condensate($/bbl)(1) |  |                                                         | CDN$/US$ExchangeRates(1) | 
|---- | ---------- |  | --------------------------------------- |  | ------------------------------------------------------- | ------------------------ |  |  | ------------------------------------------------------- |  |  | ----------------- | ------------------------------------------------------- |  | -------------------- |  | ------------------------------------------------------- | ------------------------ | 
|     | 2016       |  |                                         |  | 55.89                                                   |                          |  |  | 2.57                                                    |  |  |                   | 38.73                                                   |  |                      |  | 9.76                                                    |                          | 
|     | 2017       |  |                                         |  | 66.47                                                   |                          |  |  | 3.14                                                    |  |  |                   | 46.91                                                   |  |                      |  | 15.88                                                   |                          | 
|     | 2018       |  |                                         |  | 73.21                                                   |                          |  |  | 3.47                                                    |  |  |                   | 52.58                                                   |  |                      |  | 24.09                                                   |                          | 
|     | 2019       |  |                                         |  | 81.35                                                   |                          |  |  | 3.80                                                    |  |  |                   | 59.42                                                   |  |                      |  | 30.49                                                   |                          | 
|     | 2020       |  |                                         |  | 84.57                                                   |                          |  |  | 3.99                                                    |  |  |                   | 62.81                                                   |  |                      |  | 33.69                                                   |                          | 
|     | 2021       |  |                                         |  | 87.88                                                   |                          |  |  | 4.13                                                    |  |  |                   | 62.25                                                   |  |                      |  | 34.95                                                   |                          | 
|     | 2022       |  |                                         |  | 92.01                                                   |                          |  |  | 4.30                                                    |  |  |                   | 68.33                                                   |  |                      |  | 36.45                                                   |                          | 
|     | 2023       |  |                                         |  | 96.24                                                   |                          |  |  | 4.48                                                    |  |  |                   | 71.46                                                   |  |                      |  | 38.06                                                   |                          | 
|     | 2024       |  |                                         |  | 98.17                                                   |                          |  |  | 4.60                                                    |  |  |                   | 72.90                                                   |  |                      |  | 38.79                                                   |                          | 
|     | 2025       |  |                                         |  | 99.94                                                   |                          |  |  | 4.70                                                    |  |  |                   | 74.22                                                   |  |                      |  | 39.50                                                   |                          | 
|     | Thereafter |  |                                         |  | +1.8% per
                                         year |                          |  |  | +1.8% per
                                         year |  |  |                   | +1.8% per
                                         year |  |                      |  | +1.8% per
                                         year |                          | 

(1)The average of GLJ Petroleum Consultants, McDaniel & Associates Consultants,
and Sproule price forecasts, effective January 1, 2016.



Bellatrix Exploration Ltd.22







| | 8. | DEBT
| | -- | ----



|($000s)                                      |  |   | 2016    |  |  |   | 2015    | 
|-------------------------------------------- |  | - | ------- |  |  | - | ------- | 
|Current bank debt                            |  | $ | 19,143  |  |  | $ | -       | 
|Bank debt                                    |  |   | -       |  |  |   | 340,743 | 
|Convertible Debentures (liability component) |  |   | 37,420  |  |  |   | -       | 
|Senior Notes (mature on May 15, 2020)        |  |   | 324,691 |  |  |   | 332,024 | 
|Debt                                         |  | $ | 381,254 |  |  | $ | 672,767 | 



Bank Debt



At December 31, 2016, the Company
had $19.1 million outstanding under 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 consists 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 Credit Facilities have a
maturity date of, and are fully revolving until, October 1, 2017. The 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.



For the year ended December
31, 2016, the 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% to 4.75%, depending on the type of borrowing and the Company’s
Senior Debt to EBITDA ratio (defined below). A standby fee is charged between 0.405% and 1.06875% on the undrawn portion of the
Credit Facilities, depending on the Company’s Senior Debt to EBITDA ratio (defined below). The Credit Facilities are secured
by a $1.0 billion debenture containing a first ranking charge and security interest. The Company has provided a negative pledge
and undertaking to provide fixed charges over its properties in certain circumstances.



Convertible Debentures



At December 31, 2016 Bellatrix
had outstanding $50 million 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 “Indenture”). 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 prior to the Maturity Date, (ii) the last business day
immediately preceding any Redemption Date (as defined in the Indenture), and (iii) if called for repurchase pursuant to a mandatory
repurchase as a result of a Change of Control (as defined in the 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, 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.



Bellatrix Exploration Ltd.23







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
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 our 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.



|($000s)                                      |  |   | Liability Component |   |  |   | Equity Component |  
|-------------------------------------------- |  | - | ------------------- | - |  | - | ---------------- | -
|Balance, December 31, 2015                   |  | $ | -                   |   |  | $ | -                |  
|Issuance of Convertible Debentures           |  |   | 38,540              |   |  |   | 11,460           |  
|Issue costs                                  |  |   | (1,842              | ) |  |   | (548             | )
|Deferred income tax liability                |  |   | -                   |   |  |   | (3,094           | )
|Effective interest on Convertible Debentures |  |   | 722                 |   |  |   | -                |  
|Balance, December 31, 2016                   |  | $ | 37,420              |   |  | $ | 7,818            |  



Senior Notes



At December 31, 2016, the Company
had outstanding US$250 million of 8.50% senior unsecured notes maturing on May 15, 2020 (the “Senior Notes”). 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.



|($000s)                                       |  |   | Amount  |  
|--------------------------------------------- |  | - | ------- | -
|Balance, December 31, 2014                    |  | $ | -       |  
|Issuance of Senior Notes                      |  |   | 299,308 |  
|Unrealized foreign exchange loss(1) (2)       |  |   | 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 (3) (4)      |  |   | (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, 2015 was 1.3840.
| | --- | ------------------------------------------------------------------------------------------------------

| | (2) | Amount
                                         does not include unrealized gain on foreign exchange contracts of $2.5 million.
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (3) | Exchange
                                         rate (CDN$/US$1.00) at December 31, 2016 was 1.3427.
| | --- | ------------------------------------------------------------------------------------------------------

| | (4) | Amount
                                         does not include unrealized loss on foreign exchange contracts of $2.0 million.
| | --- | -------------------------------------------------------------------------------------------------------------------------------



Bellatrix Exploration Ltd.24







Covenants



At December 31, 2016, the Credit
Facilities contain a single financial covenant, which requires that the Company will not permit its ratio of outstanding Senior
Debt to consolidated earnings before interest, taxes, depletion, depreciation and amortization (“EBITDA”), as defined
by the terms of the agreement governing the Credit Facilities (“Credit Agreement”) and adjusted for non-cash charges,
for a trailing twelve month period to exceed a specified amount (the “Senior Debt Covenant”). 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 and Convertible Debentures (liability component), decommissioning
liabilities and deferred tax liability. 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).



The Senior Notes do not contain
any financial covenants but 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 the Senior Notes, and the Company’s compliance therewith as at December 31, 2016:





|                                                                   |  | Covenant
    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 |  |                                      | 3.50                                                   | x |                                   | 
|                                                                   |  |                                      |                                                        |   |                                   | 
|Senior Notes – Incurrence Covenant                                 |  |                                      | Minimum
                                         Ratio |   |                                   | 
|Fixed
    charge coverage (3)                                      |  |                                      | 2.25                                                   | x |                                   | 



(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 (excess), 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 agreement governing the credit facilities
which adjusts net income 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.

(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 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.



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.
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.



| | 9. | DECOMMISSIONING LIABILITIES
| | -- | ---------------------------



The Company’s decommissioning
liabilities result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and
processing facilities. At December 31, 2016, the Company estimated the total undiscounted amount of cash flows required to settle
its decommissioning liabilities to be approximately $97.9 million (2015: $140.0 million) which will be incurred between 2018 and
2066. A risk-free rate between 0.83% and 2.34% (2015: 0.49% and 2.16%) and an inflation rate of 2.0% (2015: 2.0%) were used to
calculate the fair value of the decommissioning liabilities as at December 31, 2016.



Bellatrix Exploration Ltd.25







|($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 | 



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.



| | 10. | OTHER DEFERRED LIABILITIES
| | --- | --------------------------



|($000s)                                               |  |   | December 31, 
2016 |  |  |   | December 31,
 2015 | 
|----------------------------------------------------- |  | - | ------------------ |  |  | - | ------------------ | 
|Deferred liabilities (current)                        |  |   |                    |  |  |   |                    | 
|Current portion of finance lease obligation           |  | $ | 1,539              |  |  | $ | 1,634              | 
|Current portion of deferred lease inducements         |  |   | 340                |  |  |   | 340                | 
|Current portion of deferred financing obligations (1) |  |   | 6,020              |  |  |   | -                  | 
|Current portion of other deferred liabilities         |  | $ | 7,899              |  |  | $ | 1,974              | 
|                                                      |  |   |                    |  |  |   |                    | 
|Deferred liabilities (long term)                      |  |   |                    |  |  |   |                    | 
|Finance lease obligation                              |  | $ | 6,890              |  |  | $ | 8,429              | 
|Deferred lease inducements                            |  |   | 2,047              |  |  |   | 2,387              | 
|Deferred financing obligations (1)                    |  |   | 1,505              |  |  |   | -                  | 
|Deferred gain (1)                                     |  |   | 10,706             |  |  |   | -                  | 
|Other deferred liabilities                            |  | $ | 21,148             |  |  | $ | 10,816             | 

(1)Pursuant to the Alder Flats Plant Sale Bellatrix recognized a deferred gain and a deferred financing obligation as part
of the disposition. Refer to financial statement note 7 for additional information



Finance Lease Obligations



The Company entered into separate
agreements in 2010, 2011 and 2012 to raise $15.3 million for the Company’s proportionate share of the construction of certain
facilities.



The agreements resulted in the
recognition of finance leases for the use of the constructed facilities. The agreements will expire in years 2030 to 2032, or
earlier if certain circumstances are met. At the end of the term of each agreement, the ownership of the facilities is transferred
to the Company. Assets under these finance leases at December 31, 2016 totaled $15.3 million (2015: $15.3 million) with accumulated
depreciation of $3.7 million (2015: $3.0 million).



Bellatrix Exploration Ltd.26







The following is a schedule
of future minimum lease payments under the finance lease obligations:



|Year ending December 31,                                         |  |   | ($000s)
|---------------------------------------------------------------- |  | - | -------
|2017                                                             |  | $ | 2,718  
|2018                                                             |  |   | 2,138  
|2019                                                             |  |   | 1,317  
|2020                                                             |  |   | 1,240  
|2021                                                             |  |   | 1,164  
|Thereafter                                                       |  |   | 7,614  
|Total lease payments                                             |  |   | 16,191 
|Amount representing implicit interest at 15.28%                  |  |   | (7,762 
|Total lease obligation at December 31, 2016                      |  | $ | 8,429  
|                                                                 |  |   |        
|Current portion of finance lease obligation at December 31, 2016 |  | $ | (1,539 
|Long term finance lease obligation at December 31, 2016          |  | $ | (6,890 



| | 11. | SHAREHOLDERS’ CAPITAL
| | --- | ---------------------



Bellatrix is authorized to issue
an unlimited number of common shares and 95,978,621 preferred shares. At December 31, 2016, no preferred shares have been issued.
All shares issued are fully paid and have no par value. The common shareholders are entitled to dividends as may be declared by
the Board of Directors from time to time; no dividends were declared by the Board of Directors during the years ended December
31, 2016 or 2015.



|                                                             |  | 2016   |             |  | 2015          |  
|------------------------------------------------------------ |  | ------ | ----------- |  | ------------- | -
|                                                             |  | Number |             |  | Amount($000s) |  
|Common shares, opening balance                               |  |        | 191,963,910 |  |               | $
|Shares issued for property acquisition                       |  |        | 20,547,576  |  |               |  
|Share issue costs on property acquisition, net of tax effect |  |        | -           |  |               |  
|Issued for cash on equity issue (1)                          |  |        | 33,794,576  |  |               |  
|Share issue costs on equity issue, net of tax effect         |  |        | -           |  |               |  
|Share based compensation awards                              |  |        | 279,766     |  |               |  
|Shares issued for cash on exercise of options                |  |        | -           |  |               |  
|Contributed surplus transferred on exercised options         |  |        | -           |  |               |  
|Balance, end of year                                         |  |        | 246,585,828 |  |               | $



(1)In August 2016, Bellatrix issued 25,000,000 subscription receipts at a price
of $1.20 per subscription receipt for total gross proceeds of $30 million. Proceeds were used to reduce indebtedness under the
Company’s credit facilities. Additionally, 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.



| | 12. | SHARE-BASED COMPENSATION
                                         PLANS
| | --- | -----------------------------------------------------------------------



The following table provides
a summary of the Company’s share-based compensation plans for the year ended December 31, 2016:



|($000s)                                                     |  |   | Share 
Options |  |  |   | Deferred
 Share Units |  |  |   | Restricted 
Awards(2) |  |  |   | Performance 
Awards(2) |  |  |   | Total | 
|----------------------------------------------------------- |  | - | -------------- |  |  | - | --------------------- |  |  | - | --------------------- |  |  | - | ---------------------- |  |  | - | ----- | 
|Expense (recovery) for the year ended December 31, 2016 (1) |  | $ | 2,565          |  |  | $ | 834                   |  |  | $ | 241                   |  |  | $ | 144                    |  |  | $ | 3,784 | 
|Liability balance, December 31, 2016                        |  | $ | -              |  |  | $ | 2,360                 |  |  | $ | 1,038                 |  |  | $ | 751                    |  |  | $ | 4,149 | 



(1)The expense for share options is net of adjustments for forfeitures of $0.8 million,
and capitalization of $1.1 million. The expense for restricted awards is net of adjustments for forfeitures of $0.2 million and
capitalization of $0.2 million. The expense for performance awards is net of adjustments for forfeitures of $0.1 million and capitalization
of $0.1 million. $0.2 million of share-based compensation expense has been recorded in operating expenses in the year.



(2)During 2016, the Company settled $0.6 million of restricted awards and $0.4 million
of performance awards; this was more than offset by issuance of restricted awards and performance awards in the year which resulted
in an increase to the outstanding liability balances related to restricted awards and performance awards as at December 31, 2016.



Bellatrix Exploration Ltd.27







The following table provides
a summary of the Company’s share-based compensation plans for the year ended December 31, 2015:



|($000s)                                                     |  |   | Share
                                         Options |  |  |   | Deferred
                                         Share Units |   |  |   | Restricted
                                         Awards(2) |  |  |   | Performance
                                         Awards |   |  |   | Total | 
|----------------------------------------------------------- |  | - | ------------------------------------------------------ |  |  | - | ------------------------------------------------------------- | - |  | - | ------------------------------------------------------------- |  |  | - | ----------------------------------------------------------- | - |  | - | ----- | 
|Expense (recovery) for the year ended December 31, 2015 (1) |  | $ | 4,095                                                  |  |  | $ | (1,167                                                        | ) |  | $ | 740                                                           |  |  | $ | (87                                                         | ) |  | $ | 3,581 | 
|Liability balance, December 31, 2015                        |  | $ | -                                                      |  |  | $ | 1,591                                                         |   |  | $ | 1,024                                                         |  |  | $ | 919                                                         |   |  | $ | 3,534 | 

(1)The expense for share options is net of adjustments for reclassifications to
operating expenses for $0.2 million, forfeitures of $0.7 million, and capitalization of $2.1 million. The expense for restricted
awards is net of adjustments for forfeitures of $0.1 million and capitalization of $0.5 million. $0.4 million of share-based compensation
expense has been recorded in operating expenses in the year.

(2)During 2015, the Company settled $1.0 million of restricted awards; this was
more than offset by issuance of restricted awards in the year which resulted in an increase to the outstanding liability balance
related to restricted awards as at December 31, 2015.



| | a. | Share Option Plan
| | -- | -----------------



Bellatrix has a share option
plan where the Company may grant share options to its officers, employees, consultants, and other service providers. Under this
plan, the exercise price of each share option is not less than the volume weighted average trading price of the Company’s
share price for the five trading days immediately preceding the date of grant. The maximum term of an option grant is five years.
Option grants are non-transferable or assignable except in accordance with the share option plan and the holding of share options
shall not entitle a holder to any rights as a shareholder of Bellatrix. Share options, entitling the holder to purchase common
shares of the Company, have been granted to officers, employees, consultants, and other service providers of Bellatrix. One third
of the initial grant of share options normally vests on each of the first, second, and third anniversary from the date of grant.



During the year ended December
31, 2016, Bellatrix granted 2,909,100 (2015: 4,432,500) share options. The fair values of all share options granted are estimated
on the date of grant using the Black-Scholes option-pricing model. The weighted average fair market value of share options granted
during the years ended December 31, 2016 and 2015, and the weighted average assumptions used in their determination are as noted
below:



|                                                         |  | 2016 |      |  | 2015 |  
|-------------------------------------------------------- |  | ---- | ---- |  | ---- | -
|Inputs:                                                  |  |      |      |  |      |  
|Share price                                              |  | $    | 1.02 |  |      | $
|Exercise price                                           |  | $    | 1.02 |  |      | $
|Risk free interest rate (%)                              |  |      | 0.6  |  |      |  
|Option life (years)                                      |  |      | 2.8  |  |      |  
|Option volatility (%)                                    |  |      | 73   |  |      |  
|Results:                                                 |  |      |      |  |      |  
|Weighted average fair value of each share option granted |  | $    | 0.47 |  |      | $



Bellatrix calculates volatility
based on historical share price. Bellatrix incorporates an estimated forfeiture rate between 3% and 10% (2015: 3% to 10%) for
stock options that will not vest, and adjusts for actual forfeitures as they occur.



The weighted average trading
price of the Company’s common shares on the Toronto Stock Exchange for the year ended December 31, 2016 was $1.29 (2015:
$2.92).



Bellatrix Exploration Ltd.28







The following tables summarize
information regarding Bellatrix’s Share Option Plan:



Share Options Continuity

|                               |  | Weighted
    Average  Exercise Price |      |  | Number | 
|------------------------------ |  | ------------------------------------ | ---- |  | ------ | 
|Balance, December 31, 2014     |  | $                                    | 6.30 |  |        | 
|Granted                        |  | $                                    | 3.73 |  |        | 
|Exercised                      |  | $                                    | 3.39 |  |        | 
|Forfeited                      |  | $                                    | 5.87 |  |        | 
|Expired                        |  | $                                    | 3.89 |  |        | 
|Balance, December 31, 2015     |  | $                                    | 5.69 |  |        | 
|Granted                        |  | $                                    | 1.02 |  |        | 
|Forfeited                      |  | $                                    | 6.09 |  |        | 
|Expired                        |  | $                                    | 5.21 |  |        | 
|Balance, December
    31, 2016 |  | $                                    | 4.64 |  |        | 



As of December 31, 2016, a
total of 24,658,583 common shares were reserved for issuance on exercise of share options, leaving an additional 11,793,484 available
for future share option grants.



Share Options Outstanding,
December 31, 2016

|                    |  | Outstanding                                                   |            |  |                                       |   |      | Exercisable                                     | 
|------------------- |  | ------------------------------------------------------------- | ---------- |  | ------------------------------------- | - | ---- | ----------------------------------------------- | 
|Exercise Price      |  | At December
                                         31, 2016 |            |  | Weighted
     Average  Exercise Price |   |      | Weighted
    Average Remaining Contractual Life | 
|$ 1.02 - $ 1.57     |  |                                                               | 2,909,100  |  |                                       | $ | 1.02 |                                                 | 
|$ 1.58 - $ 3.74     |  |                                                               | 1,220,667  |  |                                       | $ | 3.28 |                                                 | 
|$ 3.75 - $ 3.84     |  |                                                               | 3,662,500  |  |                                       | $ | 3.75 |                                                 | 
|$ 3.85 - $ 7.24     |  |                                                               | 1,160,334  |  |                                       | $ | 4.83 |                                                 | 
|$ 7.25 - $ 7.87     |  |                                                               | 653,999    |  |                                       | $ | 7.59 |                                                 | 
|$ 7.88 - $ 8.42     |  |                                                               | 1,300,000  |  |                                       | $ | 8.00 |                                                 | 
|$ 8.43 - $ 9.16     |  |                                                               | 132,500    |  |                                       | $ | 8.86 |                                                 | 
|$ 9.17 - $10.04     |  |                                                               | 1,825,999  |  |                                       | $ | 9.24 |                                                 | 
|$
    1.02 - $10.04 |  |                                                               | 12,865,099 |  |                                       | $ | 4.64 |                                                 | 



Share Options Outstanding,
December 31, 2015

|                |  | Outstanding                                                   |            |  |                                        |   |      | Exercisable                                        | 
|--------------- |  | ------------------------------------------------------------- | ---------- |  | -------------------------------------- | - | ---- | -------------------------------------------------- | 
|Exercise Price  |  | At December
                                         31, 2015 |            |  | Weighted
     Average  Exercise  Price |   |      | Weighted 
    Average  Remaining  Contractual Life | 
|$ 2.12 - $ 3.06 |  |                                                               | 30,000     |  |                                        | $ | 2.12 |                                                    | 
|$ 3.07 - $ 3.74 |  |                                                               | 1,474,668  |  |                                        | $ | 3.33 |                                                    | 
|$ 3.75 - $ 3.84 |  |                                                               | 3,992,500  |  |                                        | $ | 3.75 |                                                    | 
|$ 3.85 - $ 5.22 |  |                                                               | 1,060,501  |  |                                        | $ | 4.19 |                                                    | 
|$ 5.23 - $ 7.24 |  |                                                               | 1,785,000  |  |                                        | $ | 5.68 |                                                    | 
|$ 7.25 - $ 7.87 |  |                                                               | 774,332    |  |                                        | $ | 7.59 |                                                    | 
|$ 7.88 - $ 9.16 |  |                                                               | 1,534,833  |  |                                        | $ | 8.08 |                                                    | 
|$ 9.17 - $10.04 |  |                                                               | 2,194,498  |  |                                        | $ | 9.25 |                                                    | 
|$ 2.12 - $10.04 |  |                                                               | 12,846,332 |  |                                        | $ | 5.69 |                                                    | 



| | b. | Deferred Share Unit
                                         Plan
| | -- | -----------------------------------------------------------------



Under Bellatrix’s Deferred
Share Unit Plan, the Company may grant to non-employee directors, deferred share units (“DSUs”). Each DSU is a right
to receive, on a deferred payment basis, a cash payment equivalent to the volume weighted average trading price of the Company’s
common shares for the five trading days immediately preceding the redemption date of such DSU. Participants of the DSU Plan may
also elect to receive their annual remuneration in the form of DSUs. Subject to TSX and shareholder approval, Bellatrix may elect
to deliver common shares from treasury in satisfaction, in whole or in part, of any payment to be made upon the redemption of
the DSUs. The DSUs vest immediately and must be redeemed by December 1st of the calendar year immediately following
the year in which the participant ceases to hold all positions with Bellatrix or earlier if the participant elects to have the
DSUs redeemed at an earlier date (provided that the DSUs may not be redeemed prior to the date that the participant ceases to
hold all positions with Bellatrix). It is intended that in the event of a share based award, non-employee directors would receive
DSU grants instead of share option grants.



Bellatrix Exploration Ltd.29







During the year ended December
31, 2016, the Company granted 912,489 (2015: 372,753) DSUs, and had 1,888,341 DSUs outstanding as at December 31, 2016 (2015:
1,026,271). A total of $2.4 million (December 31, 2015: $1.6 million) was included in accounts payable and accrued liabilities
as at December 31, 2016 in relation to the DSUs.



| | c. | Award Plan
| | -- | ----------



Bellatrix has an Award Incentive
Plan (“Award Plan”) where the Company may grant Restricted Awards (“RAs”) and Performance Awards (“PAs”)
to officers, employees, and other service providers. 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.



RAs granted to employees vest
in equal annual amounts over the course of three years. Each RA entitles its holder to receive a cash payment equal to the weighted
average trading price of the Company’s shares trading on the TSX for the five trading days preceding its vesting date. Unvested
RAs are forfeited at the time the holder’s employment with the Company ends, except on death in which case they vest immediately.
Bellatrix incorporates an estimated forfeiture rate between 3% and 10% for RAs that will not vest, and adjusts for actual forfeitures
as they occur. Outstanding RAs are revalued at each financial reporting date to their fair market value at that time, determined
by the weighted average trading price of the Company’s shares on the TSX for the five trading days preceding period end.
The revaluation is captured as part of share-based compensation expense included in the Company’s Statements of Comprehensive
Income (Loss). The fair value of the outstanding RAs is recognized as a liability included as part of accounts payable on the
Company’s Balance Sheet.



During the year ended December
31, 2016, the Company granted 1,423,860 (2015: 1,403,350) RAs, settled 567,411 (2015: 295,192) RAs, and had 2,131,625 RAs outstanding
as at December 31, 2016 (2015: 1,593,537). A total of 318,361 RAs were forfeited during 2016 (2015: 277,672). A total of $1.0
million (December 31, 2015: $1.0 million) was included in accounts payable and accrued liabilities as at December 31, 2016 in
relation to the RAs.



PAs vest on the third anniversary
date of their issuance. Each PA entitles its holder to receive a cash payment equal to the weighted average trading price of the
Company’s shares trading on the TSX for the five trading days preceding its vesting date, multiplied by a payout multiplier
determined by the Company’s Board of Directors based on determined corporate performance measures. Unvested PAs are forfeited
at the time the holder’s employment with the Company ends. Bellatrix incorporates an estimated forfeiture rate of 5% for
PAs that will not vest, and adjusts for actual forfeitures as they occur. Outstanding PAs are revalued at each financial reporting
date to their fair market value at that time, determined by the weighted average trading price of the Company’s shares on
the TSX for the five trading days preceding period end. The revaluation is captured as part of share-based compensation expense
included in the Company’s Statements of Comprehensive Income (Loss). The fair value of the outstanding PAs is recognized
as a liability included in accounts payable on the Company’s Balance Sheet.



During the year ended December
31, 2016, the Company granted 725,426 (2015: 530,650) PAs, settled 352,150 (2015: nil) PAs and had 1,516,676 PAs outstanding as
at December 31, 2016 (2015: 1,246,200). A total of 102,800 PAs were forfeited during 2016 (2015: 35,900). A total of $0.8 million
(2015: $0.9 million) was included in accounts payable and accrued liabilities as at December 31, 2016 in relation to the PAs.



Bellatrix Exploration Ltd.30







| | 13. | INCOME TAXES
| | --- | ------------



Bellatrix is a corporation as
defined under the Income Tax Act (Canada) and is subject to Canadian federal and provincial taxes. Bellatrix is subject
to provincial taxes in Alberta, British Columbia, and Saskatchewan as the Company operates in those jurisdictions.



Deferred taxes reflect the tax
effects of differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
reported for tax purposes. As at December 31, 2016, Bellatrix had approximately $1.45 billion in tax pools available for deduction
against future income. Included in this tax basis are estimated non-capital loss carry forwards of approximately $144.1 million
that expire in years through 2033.



The provision for income taxes
differs from the expected amount calculated by applying the combined 2016 federal and provincial corporate income tax rate of
27.0% (2015: 26.0%) to net profit (loss) before taxes. This difference results from the following items:



|                                        |  |   |        |   |  |   |          |  
|--------------------------------------- |  | - | ------ | - |  | - | -------- | -
|($000s)                                 |  |   | 2016   |   |  |   | 2015     |  
|Expected income tax expense (recovery)  |  | $ | (9,052 | ) |  | $ | (152,171 | )
|Unrealized foreign exchange (gain) loss |  |   | (1,938 | ) |  |   | 9,849    |  
|Share based compensation expense        |  |   | 856    |   |  |   | 1,161    |  
|Flow through share issuance             |  |   | 2,700  |   |  |   | -        |  
|Other                                   |  |   | 576    |   |  |   | 320      |  
|Deferred tax expense (recovery)         |  | $ | (6,858 | ) |  | $ | (140,841 | )



The components of the net deferred
tax asset at December 31, 2016 are as follows:



|                                                                    |  |   |         |   |  |   |         |  
|------------------------------------------------------------------- |  | - | ------- | - |  | - | ------- | -
|($000s)                                                             |  |   | 2016    |   |  |   | 2015    |  
|Deferred tax liabilities:                                           |  |   |         |   |  |   |         |  
|Property, plant and equipment and exploration and evaluation assets |  | $ | (12,555 | ) |  | $ | (12,142 | )
|Risk management contract asset                                      |  |   | -       |   |  |   | (3,600  | )
|Convertible Debentures                                              |  |   | (3,028  | ) |  |   | -       |  
|Deferred tax assets:                                                |  |   |         |   |  |   |         |  
|Senior Notes                                                        |  |   | 418     |   |  |   | (65     | )
|Finance lease obligation                                            |  |   | 2,276   |   |  |   | 2,717   |  
|Deferred capital obligation                                         |  |   | 5,910   |   |  |   | -       |  
|Deferred financing obligation                                       |  |   | 2,032   |   |  |   | -       |  
|Deferred gain on sale                                               |  |   | 2,890   |   |  |   | -       |  
|Risk management contract liability                                  |  |   | 4,477   |   |  |   | 105     |  
|Decommissioning liabilities                                         |  |   | 16,967  |   |  |   | 26,034  |  
|Share issue costs                                                   |  |   | 1,950   |   |  |   | 2,520   |  
|Non-capital losses                                                  |  |   | 38,895  |   |  |   | 40,766  |  
|Alberta non-capital losses greater than Federal non-capital losses  |  |   | 1,935   |   |  |   | 1,935   |  
|Other                                                               |  |   | 1,546   |   |  |   | 985     |  
|Deferred tax asset (liability)                                      |  | $ | 63,713  |   |  | $ | 59,255  |  



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.31







A continuity of the net deferred
income tax asset (liability) for 2016 and 2015 is provided below:



|($000s)                                                                 |  |   | Balance, Jan.
                                         1, 2016 |   |  |   | Recognized
                                         inprofit (loss) |   |  |   | Recognizedin equity |   |  |   | Balance, Dec.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   31, 2016 |  
|----------------------------------------------------------------------- |  | - | -------------------------------------------------------------- | - |  | - | ------------------------------------------------------------------- | - |  | - | ------------------- | - |  | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|Property, plant and equipment
    and exploration and evaluation assets |  | $ | (12,142                                                        | ) |  | $ | (413                                                                | ) |  | $ | -                   |   |  | $ | (12,555                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | )
|Decommissioning liabilities                                             |  |   | 26,034                                                         |   |  |   | (9,067                                                              | ) |  |   | -                   |   |  |   | 16,967                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  
|Risk management contract
    asset                                      |  |   | (3,600                                                         | ) |  |   | 3,600                                                               |   |  |   | -                   |   |  |   | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  
|Risk management contract
    liability                                  |  |   | 105                                                            |   |  |   | 4,372                                                               |   |  |   | -                   |   |  |   | 4,477                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  
|Share issue costs                                                       |  |   | 2,520                                                          |   |  |   | (1,264                                                              | ) |  |   | 694                 |   |  |   | 1,950                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  
|Non-capital losses                                                      |  |   | 40,766                                                         |   |  |   | (1,871                                                              | ) |  |   | -                   |   |  |   | 38,895                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  
|Finance lease obligation                                                |  |   | 2,717                                                          |   |  |   | (441                                                                | ) |  |   | -                   |   |  |   | 2,276                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  
|Deferred capital obligation                                             |  |   | -                                                              |   |  |   | 5,910                                                               |   |  |   | -                   |   |  |   | 5,910                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  
|Deferred financing
    obligation                                       |  |   | -                                                              |   |  |   | 2,032                                                               |   |  |   | -                   |   |  |   | 2,032                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  
|Deferred gain on sale                                                   |  |   | -                                                              |   |  |   | 2,890                                                               |   |  |   | -                   |   |  |   | 2,890                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  
|Alberta non-capital losses
    greater than Federal non-capital losses  |  |   | 1,935                                                          |   |  |   | -                                                                   |   |  |   | -                   |   |  |   | 1,935                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  
|Senior Notes                                                            |  |   | (65                                                            | ) |  |   | 483                                                                 |   |  |   | -                   |   |  |   | 418                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  
|Convertible Debentures                                                  |  |   | -                                                              |   |  |   | 66                                                                  |   |  |   | (3,094              | ) |  |   | (3,028                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | )
|Other                                                                   |  |   | 985                                                            |   |  |   | 561                                                                 |   |  |   | -                   |   |  |   | 1,546                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  
|Total                                                                   |  | $ | 59,255                                                         |   |  | $ | 6,858                                                               |   |  | $ | (2,400              | ) |  | $ | 63,713                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  



|($000s)                                                                 |  |   | Balance,Jan. 1, 2015 |   |  |   | Recognized
                                         inprofit (loss) |   |  |   | Recognizedin equity |  |  |   | Balance,Dec. 31, 2015 |  
|----------------------------------------------------------------------- |  | - | -------------------- | - |  | - | ------------------------------------------------------------------- | - |  | - | ------------------- |  |  | - | --------------------- | -
|Property, plant and equipment
    and exploration and evaluation assets |  | $ | (153,087             | ) |  | $ | 140,945                                                             |   |  | $ | -                   |  |  | $ | (12,142               | )
|Decommissioning liabilities                                             |  |   | 22,151               |   |  |   | 3,883                                                               |   |  |   | -                   |  |  |   | 26,034                |  
|Risk management contract
    asset                                      |  |   | -                    |   |  |   | (3,600                                                              | ) |  |   | -                   |  |  |   | (3,600                | )
|Risk management contract
    liability                                  |  |   | -                    |   |  |   | 105                                                                 |   |  |   | -                   |  |  |   | 105                   |  
|Share issue costs                                                       |  |   | 3,529                |   |  |   | (1,009                                                              | ) |  |   | -                   |  |  |   | 2,520                 |  
|Non-capital losses                                                      |  |   | 40,574               |   |  |   | 192                                                                 |   |  |   | -                   |  |  |   | 40,766                |  
|Finance lease obligation                                                |  |   | 2,909                |   |  |   | (192                                                                | ) |  |   | -                   |  |  |   | 2,717                 |  
|Alberta non-capital losses
    greater than Federal non-capital losses  |  |   | 1,209                |   |  |   | 726                                                                 |   |  |   | -                   |  |  |   | 1,935                 |  
|Senior Notes                                                            |  |   | -                    |   |  |   | (65                                                                 | ) |  |   | -                   |  |  |   | (65                   | )
|Other                                                                   |  |   | 1,130                |   |  |   | (144                                                                | ) |  |   | -                   |  |  |   | 985                   |  
|Total                                                                   |  | $ | (81,585              | ) |  | $ | 140,841                                                             |   |  | $ | -                   |  |  | $ | 59,255                |  



| | 14. | FINANCE INCOME AND EXPENSES
| | --- | ---------------------------



|                                                    |  |   |        |  |  |   |        | 
|--------------------------------------------------- |  | - | ------ |  |  | - | ------ | 
|($000s)                                             |  |   | 2016   |  |  |   | 2015   | 
|Interest on Bank debt (1)                           |  | $ | 13,516 |  |  | $ | 21,633 | 
|Interest on Convertible Debentures (2)              |  |   | 2,063  |  |  |   | -      | 
|Interest on Senior Notes (2)                        |  |   | 30,771 |  |  |   | 18,400 | 
|Accretion on decommissioning liabilities (non-cash) |  |   | 1,713  |  |  |   | 1,803  | 
|Finance expense                                     |  | $ | 48,063 |  |  | $ | 41,836 | 



| | (1) | Includes
                                         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% to 4.75%, depending on the type of
                                         borrowing and the Company’s Senior Debt to EBITDA ratio. A standby fee is charged
                                         between 0.405% and 1.06875% on the undrawn portion of the Credit Facilities, depending
                                         on the Company’s Senior Debt to EBITDA ratio.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Includes
                                         amortized costs related to the issuance of the Senior Notes and Convertible Debentures
                                         (detailed in note 8).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Bellatrix Exploration Ltd.32







| | 15. | FOREIGN EXCHANGE
| | --- | ----------------



Bellatrix incurs gains and losses
in relation to the foreign currency translation of its Senior Notes. The Senior Notes are translated from United States dollars
to Canadian dollars using the closing foreign exchange rate for the period. An unrealized foreign exchange gain or loss is 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 Senior Notes and other minor foreign currency based transactions
are translated and settled during the period.



|($000s)                                              |  |   | 2016   |   |  |   | 2015    |  
|---------------------------------------------------- |  | - | ------ | - |  | - | ------- | -
|Realized gain (loss) on foreign exchange             |  | $ | 277    |   |  | $ | (315    | )
|Realized gain on foreign exchange contracts          |  |   | -      |   |  |   | 349     |  
|Unrealized gain (loss) on foreign exchange           |  |   | 9,939  |   |  |   | (39,022 | )
|Unrealized gain (loss) on foreign exchange contracts |  |   | (2,021 | ) |  |   | 2,466   |  
|Gain (loss) on foreign exchange                      |  | $ | 8,195  |   |  | $ | (36,522 | )



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



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



| | 16. | PER SHARE AMOUNTS
| | --- | -----------------



The calculation of basic earnings
per share for the year ended December 31, 2016 was based on a net loss of $26.7 million (2015: net loss of $444.2 million).



|                                                        |  | 2016 |             |  | 2015 | 
|------------------------------------------------------- |  | ---- | ----------- |  | ---- | 
|Basic common shares outstanding                         |  |      | 246,585,828 |  |      | 
|Fully dilutive effect of:                               |  |      |             |  |      | 
|Share options outstanding                               |  |      | 12,865,099  |  |      | 
|Shares issuable on conversion of Convertible Debentures |  |      | 30,864,200  |  |      | 
|Fully diluted common shares outstanding                 |  |      | 290,315,127 |  |      | 
|Weighted average shares outstanding                     |  |      | 214,105,063 |  |      | 
|Dilutive effect of share options (1)                    |  |      | -           |  |      | 
|Diluted weighted average shares outstanding             |  |      | 214,105,063 |  |      | 



| | (1) | For
                                         the year ended December 31, 2016, a total of 12,865,099 (2015: 12,846,332) share options
                                         and 30,864,200 shares issuable on conversion of Convertible Debentures were excluded
                                         from the calculation as they were anti-dilutive.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 17. | FINANCIAL RISK MANAGEMENT
| | --- | -------------------------



| | a. | Overview
| | -- | --------



The Company has exposure to
the following risks from its use of financial instruments:



| | § | Credit
                                         risk
| | - | ----------------------------------------------------

| | § | Liquidity
                                         risk
| | - | -------------------------------------------------------

| | § | Market
                                         risk
| | - | ----------------------------------------------------

| | § | Foreign
                                         exchange risk
| | - | --------------------------------------------------------------

| | § | Commodity
                                         price risk
| | - | -------------------------------------------------------------

| | § | Interest
                                         rate risk
| | - | -----------------------------------------------------------



Bellatrix Exploration Ltd.33







This note presents information
about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring
and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these
financial statements.



The Board of Directors has overall
responsibility for the establishment and oversight of the Company’s risk management framework. The Board has implemented
and monitors compliance with risk management policies.



The Company’s
risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits
and controls, and to monitor risks and adherence to market conditions and the Company’s activities.



| | b. | Capital Management
| | -- | ------------------



The Company's policy is to maintain
a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the
business. The Company manages its capital structure and makes adjustments to it based on changes in economic conditions and the
risk characteristics of the underlying petroleum and natural gas assets. The Company considers its capital structure to include
shareholders’ equity, Senior Notes, bank debt, Convertible Debentures (liability component), and working capital. In order
to maintain or adjust the capital structure, the Company may from time to time issue common shares, senior notes, convertible
debentures or other debt instruments, adjust its capital spending, and/or dispose of certain assets to manage current and forecasted
debt levels. Bellatrix does not pay dividends.



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. In order to preserve liquidity and capital resources, in January 2017, Bellatrix’s Board
of Directors approved a 2017 net capital budget of up to $105 million. Bellatrix expects to be able to fund its 2017 capital program
by reinvesting cash flow. 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. Please refer to note 8 and ‘Liquidity Risk’ below for further discussion.



The Company monitors its capital
structure based on the ratio of total net debt to annualized funds flow from operations (defined below). This ratio is calculated
as total net debt, defined as outstanding bank debt, Convertible Debentures (liability component), and Senior Notes, long term
loan receivable and plus or minus adjusted working capital (defined below), divided by funds flow from operations (defined below)
for the most recent calendar quarter, annualized (multiplied by four). The total net debt to annualized funds flow from operations
ratio may increase at certain times as a result of acquisitions, fluctuations in commodity prices, timing of capital expenditures
and other factors. In order to facilitate the management of this ratio, the Company prepares capital expenditure budgets which
are reviewed and updated as necessary depending on varying factors including current and forecast prices, successful capital deployment
and general industry conditions. The budgets are approved by the Board of Directors.



The Company’s capital
structure and its calculation of total net debt and the total net debt to funds flow ratio as defined by the Company is as follows:



Bellatrix Exploration Ltd.34







|Debt to Funds Flow from Operations Ratio                                    |  |                         |         |   |      | 
|--------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | 
|                                                                            |  | Year ended December 31, |        
|($000s, except where noted)                                                 |  | 2016                    |         |   | 2015 | 
|                                                                            |  |                         |         |   |      | 
|Shareholders’ equity                                                        |  |                         | 863,418 |   |      | 
|                                                                            |  |                         |         |   |      | 
|Bank debt                                                                   |  |                         | 19,143  |   |      | 
|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)   |  |                         | 10.6    | x |      | 
|Total net debt to periods funds flow from operations ratio (annualized) (3) |  |                         | 11.7    | x |      | 
|                                                                            |  |                         |         |   |      | 
|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           |  |                         | 8.8     | x |      | 
|Total net debt (1)to funds flow from operations ratio (4) for the year      |  |                         | 9.7     | x |      | 

(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, Senior Notes 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, net debt and 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 2016 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 due to the significant
and continued decline in commodity prices, combined with the decrease in sales volumes in 2016. Total net debt at December 31,
2016 was $396.2 million, a decrease of $321.4 million compared to total net debt of $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, 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 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.



| | c. | 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.



Bellatrix Exploration Ltd.35







A substantial portion of Bellatrix’s
accounts receivable are with customers and joint interest partners in the petroleum and natural gas industry and are subject to
normal industry credit risks.Receivables from petroleum and natural gas marketers are normally collected on the 25thday of the month following production. 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.



As at December 31, 2016, accounts
receivable was comprised of the following:



|Aging ($000s)                                     |  | Not past due (less  than 90 days) |        |  | Past due (90 days  or more) |   |       | Total | 
|------------------------------------------------- |  | --------------------------------- | ------ |  | --------------------------- | - | ----- | ----- | 
|Joint venture and other trade accounts receivable |  | $                                 | 7,351  |  |                             | $ | 5,421 |       | 
|Revenue and other accruals                        |  |                                   | 26,220 |  |                             |   | 524   |       | 
|Less: Allowance for doubtful accounts             |  |                                   | -      |  |                             |   | (289  | )     | 
|Total accounts receivable                         |  | $                                 | 33,571 |  |                             | $ | 5,656 |       | 



In order to determine the allowance
for doubtful accounts, the Company conducts a qualitative analysis of each account comprising the individual balances within its
accounts receivable, including the counterparty’s identity, customary pay practices, and the terms of the contract under
which the obligation arose. Based on the review of the individual balances within the accounts receivable balance at December
31, 2016 and specifically the balances greater than 90 days, a provision of $0.3 million was made.



The carrying
amount of accounts receivable and derivative assets represent the maximum credit exposure.



| | d. | 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
for compliance with the Senior Debt Covenant described in note 8 and the ability to repay the Credit Facilities.



The Company prepares annual
capital expenditure budgets which are regularly monitored and updated as necessary. Further, the Company utilizes authorizations
for expenditures on both operated and non-operated projects to further manage capital expenditures. To facilitate the capital
expenditure program, the Company has revolving reserve based Credit Facilities, as outlined in note 8, which are reviewed semi-annually
by the lenders thereunder. 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). The Credit Facilities outline
limitations based on percentages of the prior quarter’s sale volumes, which may be hedged through financial commodity price
risk management contracts. Bellatrix also has Senior Notes and Convertible Debentures outstanding with fixed interest rates, as
outlined in note 8, 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.



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. 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.



Bellatrix Exploration Ltd.36







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.



The following are the contractual
maturities of 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.

(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. Refer to financial statement note 8 for additional
information.



| | e. | Market Risk
| | -- | -----------



Market risk is the risk that
changes in market prices, such as foreign exchange rates, commodity prices, and interest rates will affect the Company’s
net profit or the value of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable limits, while maximizing returns.



| | f. | Foreign Exchange
                                         Risk
| | -- | --------------------------------------------------------------



Foreign exchange risk is the
risk that fluctuations in the Canadian / United States dollar foreign exchange rate may impact the Company’s cash flows
and net profit (loss). The Company’s realized commodity prices for crude oil and natural gas are based upon United States
dollar denominated commodity prices. Fluctuations in the Canadian/United States dollar foreign exchange rate may thus impact commodity
prices received by the Company. In addition, the Company has United States dollar denominated Senior Notes and related interest
obligations of which future cash payments are directly impacted by the exchange rate in effect on the payment date.



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 in accordance with the risk management policy that has been approved by the Board of Directors. The aggregate
amount hedged under all foreign exchange derivative contracts is limited to the outstanding principal amount of the Senior Notes
or 60% of the Company’s United States dollar revenues over the previous three months. Additionally, the term of foreign
exchange contracts is limited to the remaining term of the related Senior Notes or three years. See note 15 for the foreign exchange
risk management contacts that the Company has entered at December 31, 2016.



Bellatrix Exploration Ltd.37







| | g. | Commodity Price
                                         Risk
| | -- | -------------------------------------------------------------



Commodity price risk is the
risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for
petroleum and natural gas are impacted by not only the relationship between the Canadian and United States dollar, as outlined
above, but also global economic events that dictate the levels of supply and demand.



The Company utilizes both financial
derivatives and physical delivery sales contracts to manage commodity price risks. All such transactions are conducted in accordance
with the commodity price risk management policy that has been approved by the Board of Directors.



The Company’s formal commodity
price risk management policy permits management to use specified price risk management strategies including fixed price contracts,
costless collars and the purchase of floor price options, other derivative financial instruments, and physical delivery sales
contracts to reduce the impact of price volatility and ensure minimum prices for a maximum of thirty months beyond the current
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 cash flows from operating activities, as well as, to ensure Bellatrix realizes positive economic
returns from its capital developments and acquisition activities.



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                                          |  |  | AECO 
|Natural gas fixed |  | January 1, 2018 to December 31,
    2018 |  | 60,000 GJ/d  |  | $ | 2.72
                                         CDN |  |  | $ | 2.72
                                         CDN |  |  | AECO 



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



| | h. | Interest Rate
                                         Risk
| | -- | -----------------------------------------------------------



Interest rate risk is the risk
that future cash flows will fluctuate as a result of changes in the market interest rates. The Company is exposed to interest
rate fluctuations on its bank debt which bears a floating rate of interest. As at December 31, 2016, if interest rates had been
1% lower with all other variables held constant, net loss for the three months ended December 31, 2016 would have been approximately
$0.2 million lower, due to lower interest expense. An equal and opposite impact would have occurred to net earnings had interest
rates been 1% higher.



| | i. | Fair Value
| | -- | ----------



The Company’s financial
instruments as at December 31, 2016 include accounts receivable, loans receivable, deposits and prepaid expenses, marketable securities,
risk management assets and liabilities, accounts payable and accrued liabilities, advances from joint venture partners, finance
lease obligations, bank debt, Convertible Debentures and Senior Notes. The fair value of accounts receivable, deposits, accounts
payable and accrued liabilities approximate their carrying amounts due to their short-terms to maturity.



Bellatrix Exploration Ltd.38







The loans receivable was determined
to bear interest at a market rate and accordingly the fair market value approximates the carrying value. Marketable securities
are fair valued based on the market price at each reporting date, with changes in fair value recognized in profit or loss. The
marketable securities are classified as level 1 within the fair value hierarchy.



The Company enters into risk
management contracts under master netting arrangements. Under these arrangements, the amounts owed by each counterparty for commodity
or foreign exchange contracts outstanding in the same currency or commodity are aggregated into a single net amount receivable
or payable. If a default occurs, the net amount subject to a master netting arrangement is receivable or payable for settlement
purposes. The carrying amounts of commodity and foreign exchange contracts held under master netting arrangements are recorded
on a net basis. The impact of netting gross amounts is negligible.



The risk management assets and
liabilities at December 31, 2016 include both commodity contracts and foreign exchange contracts. The fair value of commodity
contracts is determined by discounting the difference between the contracted price and published forward price curves as at the
balance sheet date, using the remaining contracted petroleum and natural gas volumes. The fair value of foreign exchange contracts
is determined based on the difference between the contracted forward rate and current forward rates, using the remaining settlement
amount. The risk management contracts are classified as level 2 within the fair value hierarchy.



Bank debt bears interest at
a floating market rate and the credit and market premiums therein are indicative of current rates; accordingly the fair market
value approximates the carrying value.



|($000s)                                      |  |   | 2016    |   |  |   | 2015   |  
|-------------------------------------------- |  | - | ------- | - |  | - | ------ | -
|Current portion commodity contract asset     |  | $ | -       |   |  | $ | 8,845  |  
|Commodity contract asset (long term)         |  |   | -       |   |  |   | 4,487  |  
|Foreign exchange contract asset (long term)  |  |   | 445     |   |  |   | 2,466  |  
|Current portion commodity contract liability |  |   | (13,936 | ) |  |   | (390   | )
|Commodity contract liability (long term)     |  |   | (2,646  | ) |  |   | -      |  
|Net risk management asset (liability)        |  | $ | (16,137 | ) |  | $ | 15,408 |  



| | 18. | 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 joint operations 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 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.



The following is a summary of
Bellatrix’s contractual obligations and commitments as at December 31, 2016:



|($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. The Company is committed to payments under fixed term operating leases for office space which do not
currently provide for early termination.



Bellatrix Exploration Ltd.39







| | 19. | RELATED PARTY TRANSACTIONS
| | --- | --------------------------



Key Management Compensation



Key management includes officers
and directors (executive and non-executive) of the Company. The compensation paid or payable to key management for employee services
is shown below:



|($000s)                                    |  |   | 2016 (2) |  |  |   | 2015 (3) | 
|------------------------------------------ |  | - | -------- |  |  | - | -------- | 
|Short-term and long-term employee benefits |  | $ | 3,933    |  |  | $ | 4,108    | 
|Share-based compensation(1)                |  |   | 2,509    |  |  |   | 613      | 
|                                           |  | $ | 6,442    |  |  | $ | 4,721    | 

(1)Share-based compensation includes share options, RAs, PAs, and DSUs.

(2)In 2016, the Company’s key management was comprised of 5 officers (including one executive director), and 9 non-executive
directors.

(3)In 2015, the Company’s key management was comprised of 5 officers (including one executive director), and 11 non-executive
directors.



| | 20. | SUPPLEMENTAL DISCLOSURES
| | --- | ------------------------



Changes in Non-cash Working
Capital

|                                           |  |      |        
|------------------------------------------ |  | ---- | -------
|($000s)                                    |  | 2016 |        
|Changes in non-cash working capital items: |  |      |        
|Accounts receivable                        |  | $    | 18,034 
|Deposits and prepaid expenses              |  |      | 2,925  
|Accounts payable and accrued liabilities   |  |      | (10,530
|Advances from joint venture partners       |  |      | (21,597
|                                           |  | $    | (11,168
|Changes related to:                        |  |      |        
|Operating activities                       |  | $    | (443   
|Financing activities                       |  |      | 601    
|Investing activities                       |  |      | (11,326
|                                           |  | $    | (11,168



Consolidated Statement of
Comprehensive Income (Loss) Presentation



A mixed presentation of nature
and function was used for the Company’s presentation of operating expenses in the Consolidated Statement of Comprehensive
Income (Loss) for the current and comparative years. General and administrative expenses are presented by their function. Other
expenses, including production, transportation, depletion and dispositions are presented by their nature. Such presentation is
in accordance with industry practice.



Total employee compensation
costs included in total production and general administrative expenses in the Consolidated Statements of Comprehensive Income
(Loss) for the years ended December 31, 2016 and 2015 are detailed in the following table:



|($000s)                       |  |   | 2016   |  |  |   | 2015   | 
|----------------------------- |  | - | ------ |  |  | - | ------ | 
|Production                    |  | $ | 8,360  |  |  | $ | 9,273  | 
|General and administrative(1) |  |   | 11,616 |  |  |   | 15,247 | 
|Employee compensation         |  | $ | 19,976 |  |  | $ | 24,520 | 

(1)Amount shown is net of capitalization.



Bellatrix Exploration Ltd.40