Exhibit 99.3



























MANAGEMENT'S REPORT TO SHAREHOLDERS



The management of Bellatrix Exploration
Ltd. 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 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 provide reasonable assurance regarding the reliability of the Company’s
financial reporting and the preparation of the consolidated financial statements together with the other financial information
for external purposes in accordance with International Financial Reporting Standards.

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 and the Board of Directors also review the Financial Report before it is finalized. 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, and, in that capacity, they have examined the consolidated financial
statements for the years ended December 31, 2013 and 2012.









|(signed) “Raymond
    G. Smith” | (signed) “Edward J.
    Brown”           
|------------------------------- | -----------------------------------------
|                                |                                          
|Raymond G. Smith, P.Eng.        | Edward J. Brown, C.A.                    
|President and CEO               | Executive Vice President, Finance and CFO
|                                |                                          
|March 12, 2014                  |                                          













1







INDEPENDENT AUDITORS’
REPORT

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, 2013 and December 31, 2012, the consolidated statements of comprehensive income, shareholders’ equity and cash flows
for the years ended December 31, 2013 and December 31, 2012, 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. 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, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
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, 2013 and December 31, 2012 and its consolidated financial performance and its consolidated cash flows for the
years ended December 31, 2013 and December 31, 2012 in accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board.



(signed) “KPMG LLP”





Chartered Accountants

Calgary, Canada



March 12, 2014









2









|BELLATRIX EXPLORATION
    LTD.                                                                          |  | 
|------------------------------------------------------------------------------------------------------- |  | 
|CONSOLIDATED BALANCE SHEETS
        (expressed in Canadian dollars)
        
        As at December 31, |  | 



|($000s)                                               |  |   | 2013      |  |  |   | 2012    |  
|----------------------------------------------------- |  | - | --------- |  |  | - | ------- | -
|                                                      |  |   |           |  |  |   |         |  
|ASSETS                                                |  |   |           |  |  |   |         |  
|Current assets                                        |  |   |           |  |  |   |         |  
|Restricted cash                                       |  | $ | 38,148    |  |  | $ | —       |  
|Accounts receivable (note 22)                         |  |   | 80,306    |  |  |   | 40,792  |  
|Deposits and prepaid expenses                         |  |   | 10,001    |  |  |   | 4,136   |  
|Commodity contract asset (note 22)                    |  |   | 345       |  |  |   | 7,519   |  
|                                                      |  |   | 128,800   |  |  |   | 52,447  |  
|Exploration and evaluation assets (note 7)            |  |   | 132,971   |  |  |   | 38,177  |  
|Property, plant and equipment (note 8)                |  |   | 1,293,409 |  |  |   | 589,759 |  
|Deferred taxes (note 16)                              |  |   | —         |  |  |   | 1,038   |  
|Total assets                                          |  | $ | 1,555,180 |  |  | $ | 681,421 |  
|                                                      |  |   |           |  |  |   |         |  
|LIABILITIES                                           |  |   |           |  |  |   |         |  
|Current liabilities                                   |  |   |           |  |  |   |         |  
|Accounts payable and accrued liabilities              |  | $ | 137,465   |  |  | $ | 44,223  |  
|Advances from joint venture partners                  |  |   | 99,380    |  |  |   | 6,548   |  
|Current portion of finance lease obligation (note 11) |  |   | 1,495     |  |  |   | 1,425   |  
|Current portion of deferred lease inducements         |  |   | 285       |  |  |   | —       |  
|Commodity contract liability (note 22)                |  |   | 17,278    |  |  |   | 1,131   |  
|                                                      |  |   | 255,903   |  |  |   | 53,327  |  
|                                                      |  |   |           |  |  |   |         |  
|Commodity contract liability (note 22)                |  |   | —         |  |  |   | 6,214   |  
|Long-term debt (note 9)                               |  |   | 287,092   |  |  |   | 133,047 |  
|Convertible debentures (note 10)                      |  |   | —         |  |  |   | 50,687  |  
|Finance lease obligation (note 11)                    |  |   | 11,637    |  |  |   | 13,131  |  
|Deferred lease inducements                            |  |   | 2,565     |  |  |   | —       |  
|Decommissioning liabilities (note 12)                 |  |   | 67,075    |  |  |   | 43,909  |  
|Deferred taxes (note 16)                              |  |   | 27,034    |  |  |   | —       |  
|Total liabilities                                     |  |   | 651,306   |  |  |   | 300,315 |  
|                                                      |  |   |           |  |  |   |         |  
|SHAREHOLDERS’ EQUITY                                  |  |   |           |  |  |   |         |  
|Shareholders’ capital (note 13)                       |  |   | 824,065   |  |  |   | 371,576 |  
|Equity component of convertible debentures (note 10)  |  |   | —         |  |  |   | 4,378   |  
|Contributed surplus                                   |  |   | 38,958    |  |  |   | 37,284  |  
|Retained earnings (deficit)                           |  |   | 40,851    |  |  |   | (32,132 | )
|Total shareholders’ equity                            |  |   | 903,874   |  |  |   | 381,106 |  
|Total liabilities and
    shareholders’ equity        |  | $ | 1,555,180 |  |  | $ | 681,421 |  



|                                                                    
|--------------------------------------------------------------------
|COMMITMENTS (note 21)                                               
|See accompanying notes to the consolidated
    financial statements.



3









|BELLATRIX
    EXPLORATION LTD.                     
|---------------------------------------------------
|CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
|(expressed in Canadian dollars)                    







|For the years ended December 31,                              |  |      |         |     
|------------------------------------------------------------- |  | ---- | ------- | ----
|($000s, except per share amounts)                             |  | 2013 |         | 2012
|                                                              |  |      |         |     
|REVENUES                                                      |  |      |         |     
|Petroleum and natural gas sales                               |  | $    | 288,310 |     
|Other income                                                  |  |      | 3,581   |     
|Royalties                                                     |  |      | (46,217 | )   
|Total revenues                                                |  |      | 245,674 |     
|                                                              |  |      |         |     
|Realized gain on commodity contracts                          |  |      | 1,859   |     
|Unrealized gain (loss) on commodity contracts                 |  |      | (17,127 | )   
|                                                              |  |      | 230,406 |     
|                                                              |  |      |         |     
|EXPENSES                                                      |  |      |         |     
|Production                                                    |  |      | 69,668  |     
|Transportation                                                |  |      | 7,014   |     
|General and administrative (note 18)                          |  |      | 16,214  |     
|Transaction costs (note 6)                                    |  |      | 5,344   |     
|Share-based compensation (note 14)                            |  |      | 4,960   |     
|Depletion and depreciation (note 8)                           |  |      | 85,829  |     
|Gain on property acquisition (note 6)                         |  |      | —       |     
|Loss (gain) on property dispositions and swaps (note 8)       |  |      | (42,494 | )   
|Gain on corporate acquisition (note 6)                        |  |      | (20,630 | )   
|Impairment loss on property, plant and equipment (note
    8) |  |      | —       |     
|                                                              |  |      | 125,905 |     
|                                                              |  |      |         |     
|                                                              |  |      |         |     
|NET PROFIT BEFORE FINANCE AND TAXES                           |  |      | 104,501 |     
|                                                              |  |      |         |     
|Finance expenses (note 17)                                    |  |      | 13,343  |     
|                                                              |  |      |         |     
|NET PROFIT BEFORE TAXES                                       |  |      | 91,158  |     
|                                                              |  |      |         |     
|TAXES                                                         |  |      |         |     
|Deferred tax expense (note 16)                                |  |      | 19,483  |     
|                                                              |  |      |         |     
|NET PROFIT AND COMPREHENSIVE INCOME                           |  | $    | 71,675  |     
|                                                              |  |      |         |     
|                                                              |  |      |         |     
|                                                              |  |      |         |     
|Net profit per share (note 20)                                |  |      |         |     
|Basic                                                         |  | $    | 0.63    |     
|Diluted                                                       |  | $    | 0.62    |     





See accompanying notes to the consolidated financial statements.





4









|BELLATRIX
    EXPLORATION LTD.                     
|---------------------------------------------------
|CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS' EQUITY
|(expressed in Canadian dollars)                    



|For the years ended December 31,                                                              |  |   |         |  
|--------------------------------------------------------------------------------------------- |  | - | ------- | -
|($000s)                                                                                       |  |   | 2013    |  
|                                                                                              |  |   |         |  
|SHAREHOLDERS’ CAPITAL (note
    13)                                                           |  |   |         |  
|Common shares                                                                                 |  |   |         |  
|Balance, beginning of year                                                                    |  | $ | 371,576 |  
|Issued for cash on equity issue                                                               |  |   | 175,000 |  
|Share issue costs on equity issue, net of tax                                                 |  |   | (7,020  | )
|Issued for the Angle acquisition (note 6)                                                     |  |   | 225,221 |  
|Share issue costs on the Angle acquisition, net of tax                                        |  |   | (576    | )
|Issued on settlement of convertible debentures (note
    10)                                  |  |   | 55,568  |  
|Issued for cash on exercise of share options                                                  |  |   | 3,088   |  
|Contributed surplus transferred on exercised options                                          |  |   | 1,208   |  
|Balance, end of year                                                                          |  |   | 824,065 |  
|                                                                                              |  |   |         |  
|                                                                                              |  |   |         |  
|EQUITY COMPONENT OF CONVERTIBLE
    DEBENTURES (note 10)                                      |  |   |         |  
|Balance, beginning of year                                                                    |  |   | 4,378   |  
|Adjustment for settlement of convertible debentures
    (note 10)                             |  |   | (4,378  | )
|Balance, end of year                                                                          |  |   | —       |  
|                                                                                              |  |   |         |  
|CONTRIBUTED SURPLUS (note 14)                                                                 |  |   |         |  
|Balance, beginning of year                                                                    |  |   | 37,284  |  
|Share-based compensation expense                                                              |  |   | 3,045   |  
|Adjustment of share-based compensation
    expense  for forfeitures of unvested share options |  |   | (163    | )
|Transfer to share capital for exercised options                                               |  |   | (1,208  | )
|Balance, end of year                                                                          |  |   | 38,958  |  
|                                                                                              |  |   |         |  
|                                                                                              |  |   |         |  
|RETAINED EARNINGS (DEFICIT)                                                                   |  |   |         |  
|Balance, beginning of year                                                                    |  |   | (32,132 | )
|Adjustment for settlement of convertible
    debentures (note 10)                             |  |   | 1,308   |  
|Net profit                                                                                    |  |   | 71,675  |  
|Balance, end of year                                                                          |  |   | 40,851  |  
|                                                                                              |  |   |         |  
|                                                                                              |  |   |         |  
|                                                                                              |  |   |         |  
|TOTAL
    SHAREHOLDERS’ EQUITY                                                                |  | $ | 903,874 |  





See accompanying notes to the consolidated financial statements.



5







|BELLATRIX
    EXPLORATION LTD.                                               
|-----------------------------------------------------------------------------
|CONSOLIDATED
                                         STATEMENT OF CASH FLOWS
|(expressed in Canadian dollars)                                              





|For the years ended December 31,                               |  |   |            |  
|-------------------------------------------------------------- |  | - | ---------- | -
|($000s)                                                        |  |   | 2013       |  
|                                                               |  |   |            |  
|Cash provided by (used in):                                    |  |   |            |  
|                                                               |  |   |            |  
|Cash
    flow from (USED IN) operating activities              |  |   |            |  
|Net profit                                                     |  | $ | 71,675     |  
|Adjustments for:                                               |  |   |            |  
|Depletion and depreciation                                     |  |   | 85,829     |  
|Finance expenses (note 17)                                     |  |   | 2,151      |  
|Interest paid on redemption of convertible debentures          |  |   | 14         |  
|Share-based compensation (note 14)                             |  |   | 4,960      |  
|Unrealized (gain) loss on commodity contracts                  |  |   | 17,127     |  
|Gain on property acquisitions (note 8)                         |  |   | —          |  
|Loss (gain) on property dispositions and swaps (note
    8)    |  |   | (42,494    | )
|Gain on corporate acquisition (note 6)                         |  |   | (20,630    | )
|Impairment loss on property, plant and equipment (note
    8)  |  |   | —          |  
|Deferred tax expense (note 16)                                 |  |   | 19,483     |  
|Decommissioning costs incurred                                 |  |   | (1,057     | )
|Change in non-cash working capital (note 15)                   |  |   | (8,600     | )
|                                                               |  |   | 128,458    |  
|                                                               |  |   |            |  
|CASH FLOW FROM (USED IN) FINANCING
    ACTIVITIES              |  |   |            |  
|Issuance of share capital (note 13)                            |  |   | 178,088    |  
|Issue costs on share capital                                   |  |   | (10,128    | )
|Advances from loans and borrowings                             |  |   | 1,022,835  |  
|Repayment of loans and borrowings                              |  |   | (1,051,917 | )
|Repayment of Angle convertible debentures (note 6)             |  |   | (62,400    | )
|Obligations under finance lease (note 11)                      |  |   | (1,425     | )
|Deferred lease inducements                                     |  |   | 2,565      |  
|Change in non-cash working capital (note 15)                   |  |   | (960       | )
|                                                               |  |   | 76,658     |  
|                                                               |  |   |            |  
|                                                               |  |   |            |  
|CASH FLOW FROM (USED IN) investingACTIVITIES                   |  |   |            |  
|Expenditure on exploration and evaluation assets               |  |   | (10,391    | )
|Additions to property, plant and equipment                     |  |   | (293,268   | )
|Proceeds on sale of property, plant and equipment (note
    8) |  |   | 70,936     |  
|Cash portion of Angle Energy acquisition                       |  |   | (69,701    | )
|Change in non-cash working capital (note 15)                   |  |   | 97,308     |  
|                                                               |  |   | (205,116   | )
|                                                               |  |   |            |  
|Change in cash                                                 |  |   | —          |  
|                                                               |  |   |            |  
|Cash, beginning of year                                        |  |   | —          |  
|                                                               |  |   |            |  
|Cash, end of year                                              |  | $ | —          |  
|                                                               |  |   |            |  
|Cash paid:                                                     |  |   |            |  
|Interest                                                       |  | $ | 7,609      |  
|Taxes                                                          |  |   | —          |  



See accompanying notes to the consolidated financial statements.

6









NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(expressed in Canadian dollars)



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

Bellatrix Exploration Ltd.
(the “Company” or “Bellatrix”) is a growth oriented, public exploration and production oil and gas company.

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

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

These consolidated
financial statements (“financial statements”) were authorized by the Board of Directors on March 12, 2014. The Company
prepared these financial statements in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (“IFRS”).

| | b. | Change
                                         in accounting policies
| | -- | ----------------------------------------------------------------------

On January 1, 2013, the Company
adopted new standards with respect to consolidations (IFRS 10), joint arrangements (IFRS 11), disclosure of interests in other
entities (IFRS 12), fair value measurements (IFRS 13), and amendments to financial instrument disclosures (IFRS 7). The adoption
of these standards had no impact on the amounts recorded in the consolidated financial statements as at January 1, 2013 or on
the comparative periods.

| | c. | 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 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 areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to
the financial statements are disclosed in note 4.



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

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

The consolidated financial
statements include the accounts of the Company and its 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. 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.

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

A significant portion of the
Company’s exploration and development activities are conducted jointly with others. The financial statements reflect only
the Company’s proportionate share of the assets, liabilities, revenues, expenses and cash flows from these activities.

7









Bellatrix is a partner of the
following joint arrangements, which have been classified under IFRS as joint operations. This classification is on the basis that
the arrangement is not conducted through a separate legal entity and the partners are legally obligated to pay their share of
costs incurred and take their share of output produced from the various production areas. 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, whereby Grafton will contribute 82% or $200 million to the joint
venture to participate in an expected 58 Notikewin/Falher and Cardium well program. Under the agreement, Grafton will earn 54%
of Bellatrix’s working interest in each well drilled in the well program until payout (being recovery of Grafton's capital
investment plus an 8% internal rate of return) on the total program, reverting to 33% of Bellatrix's working interest ("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.

Daewoo and Devonian Partnership
– Bellatrix has a joint venture arrangement (the “Daewoo and Devonian Partnership”) with Canadian subsidiaries
of two Korean entities, Daewoo International Corporation (“Daewoo”) and Devonian Natural Resources Private Equity
Fund (“Devonian”) in the Baptiste area of West-Central Alberta, whereby Daewoo and Devonian own a combined 50% working
interest share of producing assets, an operated compressor station and gathering system and related land acreage.

Troika Joint Venture –
Bellatrix has a joint venture (the “Troika Joint Venture”) with TCA Energy Ltd. ("Troika") in the Ferrier
Cardium area of West-Central Alberta, whereby Troika will contribute 50% or $120 million towards a capital program for drilling
of an expected 63 gross wells and will receive a 35% working interest 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 working interest.

| | d. | 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
| | --- | --------------------------------------------------------------------------------

| |  | Costs incurred once
                                         the legal right to explore has been acquired are capitalized as exploration and evaluation
                                         assets. 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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Exploration and evaluation
                                         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, which include oil and gas development and production assets, are
                                         measured at cost less accumulated depletion and depreciation and accumulated impairment
                                         losses.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Gains and losses on
                                         disposal of an item of property, plant and equipment, including oil and natural gas interests,
                                         are determined by comparing the proceeds from disposal with the carrying amount of property,
                                         plant and equipment, and are recognized within the Consolidated Statements of Comprehensive
                                         Income.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8











| | 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. Bellatrix recognizes a disposal
                                         of the partner’s working interest once the commitment has been met and the difference
                                         between the proceeds received and the carrying amount of the asset are recognized as
                                         a gain or loss in the Consolidated Statements of Comprehensive Income. The assessment
                                         of when the partner has earned the working interest and subsequent recognition of the
                                         gain or loss is determined on an individual well basis. 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 property, plant and equipment 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.
                                         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.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | e. | Impairment
| | -- | ----------

| | 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”).
                                         Developing and producing assets are assessed for impairment if facts and circumstances
                                         suggest that the carrying amount exceeds the recoverable amount.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9









| |  | The recoverable amount
                                         of an asset or a CGU is the greater of its value in use and its fair value less costs
                                         to sell. Fair value less costs to sell is determined to be the amount for which the asset
                                         could be sold in an arm’s length transaction. Fair value less costs to sell 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. Value in
                                         use 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 cash generating unit.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 profit or loss. Impairment losses recognized
                                         in respect of CGU’s are allocated first to reduce the carrying amount of goodwill,
                                         if any, allocated to the units and then to reduce the carrying amounts of the other assets
                                         in the unit (group of units) on a pro rata basis.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | Exploration and evaluation
                                         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 property, plant and equipment).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | 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 re-mediation
                                         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 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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10









| | g. | Share-based
                                         Payments
| | -- | -------------------------------------------------------------

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

| |  | Bellatrix accounts
                                         for options issued under the Company’s share option plan to employees, directors,
                                         officers, consultants and other service providers 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 accordance with IFRS 2 – “Share-based Payments”
                                         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 re-measured at
                                         each reporting date and at settlement date. Any changes in the fair value of the liability
                                         are recognized in profit or loss.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Company’s
                                         Restricted and Performance Award Plan (the “Incentive Plan”) is accounted
                                         for as a cash settled share based payment plan in accordance with IFRS 2 – “Share-based
                                         Payments” in which the fair value of the amounts payable under the Incentive Plan
                                         are recognized incrementally as an expense over the term of the corresponding grant,
                                         with a corresponding change in liabilities.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | 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. In addition, deferred
                                         tax is not recognized for taxable temporary differences arising on the initial recognition
                                         of goodwill. 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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11









| | i. | 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           
|-------------------------------------------- | ------------------------- | -------------------------------------
|Cash
    and cash equivalents                | Held-for-trading          | Fair
    value through profit or loss
|Restricted
    cash                          | Held-for-trading          | Fair
    value through profit or loss
|Accounts
    receivable                      | Loans
    and receivables | Amortized
    cost                   
|Deposits
    and prepaid expenses            | Other
    assets          | Amortized
    cost                   
|Commodity
    risk management contracts      | Held-for-trading          | Fair
    value through profit or loss
|Accounts
    payable and accrued liabilities | Other
    liabilities     | Amortized
    cost                   
|Advances
    from joint venture partners     | Other
    liabilities     | Amortized
    cost                   
|Long-term
    debt                           | Other
    liabilities     | Amortized
    cost                   
|Convertible
    debentures                   | Other
    liabilities     | Amortized
    cost                   
|Deferred
    lease inducements               | 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 commodity price risk management policy. This includes linking all derivatives
to specific assets and liabilities on the balance sheet or 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

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.

12









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.

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

The Company fully settled its
convertible debentures by October 21, 2013. As at December 31, 2013, the Company did not have any outstanding convertible debentures.
The Company’s compound financial instruments as at December 31, 2012 were comprised of its convertible debentures that can
be converted to common shares at the option of the holder, and 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.

| | k. | 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.

| | l. | 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. The Company uses the “if-converted” method
to determine the dilutive effect of convertible debentures.

| | m. | 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, accretion of the liability component of the convertible
debentures and impairment losses recognized on financial assets.

| | n. | 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.

13









| | o. | Cash
                                         and Cash Equivalents
| | -- | ------------------------------------------------------------------

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

| | p. | Restricted
                                         Cash
| | -- | --------------------------------------------------------

Restricted cash represents
funds advanced by a certain joint venture partner for specific future drilling projects. These funds are released for general
purposes as each project reaches a predetermined progress point.

| | 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 net profit. 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.



| | 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 judgment, 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 depreciation, depletion 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
| | ---- | --------------------------------------------------------------

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

14









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

| |  | Once joint control
                                         has been established, judgment is also required to classify as a joint arrangement. The
                                         type of joint arrangement is determined through analysis of the rights and obligations
                                         arising from the arrangement by considering its structure, legal form, and terms agreed
                                         upon by the parties sharing control. An arrangement where the controlling parties have
                                         rights to the assets and revenues and obligations for the liabilities and expenses is
                                         classified as a joint operation.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

15











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

The following pronouncements
from the 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, 2015 with different transitional arrangements depending on the
date of initial application. The extent of the impact of the adoption of IFRS 9 has not yet been determined.

Amendments to “Offsetting
Financial Assets and Financial Liabilities” addressed within IAS 32 - “Financial Instruments: Presentation”,
which provides guidance regarding when it is appropriate and permissible for an entity to disclose offsetting financial assets
and financial liabilities on a net basis. The amendment to this standard are effective for annual periods beginning on or after
January 1, 2014. The extent of the impact of the adoption of IAS 32 amendments has not yet been determined.

IFRIC 21 - “Levies”,
which establishes guidelines for the recognition and accounting treatment of a liability relating to a levy imposed by a government.
This standard is effective for annual periods beginning on or after January 1, 2014. The extent of the impact of the adoption
of IFRIC 21 has not yet been determined.



| | 6. | ACQUISITIONS
| | -- | ------------

| | a) | Corporate
                                         acquisition of Angle Energy Inc.
| | -- | -----------------------------------------------------------------------------------

On December 11, 2013, Bellatrix
acquired all issued and outstanding shares of Angle Energy Inc. (“Angle”) for the issuance of 30,230,998 Bellatrix
common shares with a total value of $225.2 million, and cash consideration of $69.7 million. The estimated fair value of the property,
plant and equipment acquired was determined using both internal estimates and an independent reserve evaluation. The decommissioning
liabilities were determined using internal estimates of the timing and estimated costs associated with the abandonment, restoration
and reclamation of the wells and facilities acquired. The strategic combination was considered by Bellatrix to be highly complementary
and accretive to Bellatrix’s current operations. A summary of the acquired assets and liabilities is provided below:

|                                            |  |  | ($000s)  |  
|------------------------------------------- |  |  | -------- | -
|Estimated fair value of acquisition:        |  |  |          |  
|Accounts receivable                         |  |  | 25,181   |  
|Deposits and prepaid expenses               |  |  | 3,526    |  
|Commodity contract asset                    |  |  | 20       |  
|Exploration and evaluation assets           |  |  | 97,520   |  
|Property, plant and equipment               |  |  | 498,371  |  
|Accounts payable and accrued liabilities    |  |  | (40,046  | )
|Long-term debt                              |  |  | (183,127 | )
|Convertible debentures                      |  |  | (62,400  | )
|Decommissioning liabilities                 |  |  | (11,817  | )
|Deferred taxes                              |  |  | (11,676  | )
|                                            |  |  | 315,552  |  
|Cost of acquisition:                        |  |  |          |  
|Bellatrix shares issued (30,226,413 shares) |  |  | 225,221  |  
|Cash consideration                          |  |  | 69,701   |  
|                                            |  |  | 294,922  |  
|Gain on corporate
    acquisition           |  |  | 20,630   |  



16









A gain on corporate acquisition
of $20.6 million was recognized for the Angle acquisition. The gain was primarily due to a decrease in Bellatrix’s share
trading price between the announcement of the acquisition on October 15, 2013, and the closing of the acquisition on December
11, 2013.

Concurrent with the acquisition,
on December 11, 2013 Bellatrix acquired for cancellation all the issued and outstanding 5.75% convertible unsecured subordinated
debentures of Angle (the “Angle Debentures”) with a maturity date of January 31, 2016 in the aggregate principal amount
of $60.0 million on the basis of $1,040 in cash per $1,000 principal amount of the Angle Debentures, plus accrued and unpaid interest.
Subsequent to closing, Bellatrix also extinguished Angle’s long-term debt through the concurrent increase to its credit
facility.

The fair value of identifiable
assets acquired and liabilities assumed are preliminary, pending the finalization of the analysis of the deductibility of certain
amounts for tax purposes. Angle’s results of operations are included in Bellatrix’s consolidated results of operations
beginning December 11, 2013. If the acquisition had been effective January 1, 2013, the Company would have realized an estimated
$165.2 million (unaudited) of production revenue and an estimated additional $19.3 million (unaudited) of profit before tax. The
Company’s financial and operating results for the year ended December 31, 2013 include financial and operating results from
Angle Energy Inc. for the period from December 11, 2013 to December 31, 2013. Between the acquisition date and December 31, 2013,
approximately $10.1 million of production revenue and $1.7 million of profit before tax was recognized relating to the acquired
properties.

In the year ended December
31, 2013, Bellatrix incurred approximately $5.3 million of transaction costs related to the corporate acquisition that are expensed
on the Consolidated Statements of Comprehensive Income.

| | b) | Property
                                         acquisition
| | -- | -------------------------------------------------------------

Effective November 1, 2012,
Bellatrix acquired production and working interest in certain facilities, as well as undeveloped land in the Willesden Green area
of Alberta for a cash purchase price of $20.9 million after adjustments. 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 that it constitutes a business combination
under IFRS. In a business combination, acquired assets and liabilities are recognized by the acquirer at their fair market value
at the time of purchase. Any variance between the determined fair value of the assets and liabilities and the purchase price is
recognized as either goodwill or a gain in the statement of comprehensive income in the period of acquisition.

The estimated fair value of
the property, plant and equipment acquired was determined using both internal estimates and an independent reserve evaluation.
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. A summary of the acquired property is provided below:



|Year
    ended December 31, 2012             |  |  | ($000s) |  
|-------------------------------------------- |  |  | ------- | -
|Estimated fair value of acquired properties: |  |  |         |  
|Oil and natural gas properties               |  |  | 29,530  |  
|Exploration and evaluation assets            |  |  | 8,525   |  
|Decommissioning liabilities                  |  |  | (973    | )
|                                             |  |  | 37,082  |  
|                                             |  |  |         |  
|Cash consideration                           |  |  | 20,922  |  
|                                             |  |  |         |  
|Gain on property
    acquisition             |  |  | 16,160  |  



17









Included in the Company’s
deferred tax expense for the 2012 year was a $4.0 million expense relating to the gain recognized on the property acquisition.
If the acquisition had been effective January 1, 2012, the Company would have realized an estimated additional $5.6 million (unaudited)
of production revenue and an estimated additional $2.1 million (unaudited) of profit before tax. Between the acquisition date
and December 31, 2012, approximately $0.6 million of production revenue and $0.1 million of profit before tax was recognized relating
to the acquired properties.



| | 7. | EXPLORATION
                                         AND EVALUATION ASSETS
| | -- | --------------------------------------------------------------------------



|($000s)                                         |  |   |         |  
|----------------------------------------------- |  | - | ------- | -
|                                                |  |   |         |  
|Cost                                            |  |   |         |  
|Balance, December 31, 2011                      |  | $ | 33,089  |  
|Acquisitions through business combinations, net |  |   | 8,525   |  
|Additions                                       |  |   | 8,593   |  
|Transfer to oil and natural gas properties      |  |   | (10,301 | )
|Disposals(1)                                    |  |   | (1,729  | )
|Balance, December 31, 2012                      |  |   | 38,177  |  
|Acquisitions through business combinations, net |  |   | 97,520  |  
|Additions                                       |  |   | 10,391  |  
|Transfer to oil and natural gas properties      |  |   | (7,424  | )
|Disposals
    (1)                               |  |   | (5,693  | )
|Balance, December 31, 2013                      |  | $ | 132,971 |  

| | (1) | Disposals
                                         include swaps.
| | --- | -----------------------------------------------------------------



| | 8. | PROPERTY,
                                         PLANT AND EQUIPMENT
| | -- | ----------------------------------------------------------------------

($000s)

|                                                          |  |   | Oil and 
natural gas 
properties |   |  |   | Office furniture
 and
 equipment |   |  |   | Total     |  
|--------------------------------------------------------- |  | - | -------------------------------- | - |  | - | -------------------------------- | - |  | - | --------- | -
|Cost                                                      |  |   |                                  |   |  |   |                                  |   |  |   |           |  
|Balance, December 31, 2011                                |  | $ | 657,315                          |   |  | $ | 2,503                            |   |  | $ | 659,818   |  
|Acquisitions through business combinations, net           |  |   | 29,530                           |   |  |   | —                                |   |  |   | 29,530    |  
|Additions                                                 |  |   | 164,912                          |   |  |   | 299                              |   |  |   | 165,211   |  
|Transfer from exploration and evaluation assets           |  |   | 10,301                           |   |  |   | —                                |   |  |   | 10,301    |  
|Disposals(1)                                              |  |   | (10,950                          | ) |  |   | —                                |   |  |   | (10,950   | )
|Balance, December 31, 2012                                |  |   | 851,108                          |   |  |   | 2,802                            |   |  |   | 853,910   |  
|Acquisitions through business combinations, net           |  |   | 498,371                          |   |  |   | —                                |   |  |   | 498,371   |  
|Additions                                                 |  |   | 298,288                          |   |  |   | 9,270                            |   |  |   | 307,558   |  
|Transfer from exploration and evaluation assets           |  |   | 7,424                            |   |  |   | —                                |   |  |   | 7,424     |  
|Farmout wells                                             |  |   | 11,244                           |   |  |   | —                                |   |  |   | 11,244    |  
|Disposals
    (1)                                         |  |   | (37,408                          | ) |  |   | (487                             | ) |  |   | (37,895   | )
|Balance, December 31, 2013                                |  | $ | 1,629,027                        |   |  | $ | 11,585                           |   |  | $ | 1,640,612 |  
|                                                          |  |   |                                  |   |  |   |                                  |   |  |   |           |  
|Accumulated Depletion, Depreciation and Impairment losses |  |   |                                  |   |  |   |                                  |  
|Balance, December 31, 2011                                |  | $ | 174,250                          |   |  | $ | 1,267                            |   |  | $ | 175,517   |  
|Charge for time period                                    |  |   | 75,466                           |   |  |   | 254                              |   |  |   | 75,720    |  
|Impairment loss                                           |  |   | 14,760                           |   |  |   | 60                               |   |  |   | 14,820    |  
|Disposals(1)                                              |  |   | (1,906                           | ) |  |   | —                                |   |  |   | (1,906    | )
|Balance, December 31, 2012                                |  | $ | 262,570                          |   |  | $ | 1,581                            |   |  | $ | 264,151   |  
|Charge for time period                                    |  |   | 84,902                           |   |  |   | 927                              |   |  |   | 85,829    |  
|Disposals
    (1)                                         |  |   | (2,510                           | ) |  |   | (267                             | ) |  |   | (2,777    | )
|Balance, December 31, 2013                                |  | $ | 344,962                          |   |  | $ | 2,241                            |   |  | $ | 347,203   |  
|(1) Disposals include swaps.                              |  |   |                                  |   |  |   |                                  |   |  |   |           |  
|                                                          |  |   |                                  |   |  |   |                                  |   |  |   |           |  
|Carrying amounts                                          |  |   |                                  |   |  |   |                                  |   |  |   |           |  
|At December 31, 2012                                      |  | $ | 588,538                          |   |  | $ | 1,221                            |   |  | $ | 589,759   |  
|At December 31, 2013                                      |  | $ | 1,284,065                        |   |  | $ | 9,344                            |   |  | $ | 1,293,409 |  



18







During the year ended December
31, 2013, Bellatrix realized cash proceeds on dispositions of $70.9 million. Of these proceeds, $51.2 million were related to
the disposition of properties in the Baptiste area of West Central Alberta to Daewoo and Devonian. A total net gain on dispositions
of $42.5 million was recognized for the year ended December 31, 2013, of which $29.1 million was related to an asset sale to Daewoo
and Devonian. The remainder of the net gain on dispositions was related to gains on wells drilled under the Grafton Joint Venture
and the Troika Joint Venture which were completed during the year ended December 31, 2013, as well as other minor dispositions
and swaps which occurred during the year.

Bellatrix has included $1.3
billion (2012: $524.6 million) for future development costs and excluded $69.0 million (2012: $37.2 million) for estimated salvage
from the depletion calculation for the three months ended December 31, 2013.

For the year ended December
31, 2013, the Company capitalized $5.3 million (2012: $4.3 million) of general and administrative expenses, and $1.7 million (2012:
$1.6 million) of share-based compensation expense directly related to exploration and development activities.

Bellatrix’s credit facilities
are secured against all of the assets of the Corporation by a $1 billion debenture containing a first ranking floating charge
and security interest. The Corporation has provided a negative pledge and undertaking to provide fixed charges over major petroleum
and natural gas reserves in certain circumstances.

Impairment

Bellatrix assesses the recoverability
of the carrying values of its oil and natural gas properties on a CGU basis. 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
areas.

In accordance with IFRS, the
recoverability of a CGU’s carrying value is determined by calculating and using the greater of its Value in Use (“VIU”)
or Fair Value Less Costs to Sell (“FVLCS”). VIU is determined by estimating the present value of the future net cash
flows expected to be derived from the continued use of the assets in the CGU. FVLCS is determined to be the amount for which the
assets in the CGU could be sold in an arm’s length transaction. 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. The per-boe value for each CGU is applied
to the estimated boe proved plus probable reserves remaining in that CGU as determined at least annually by independent reserve
engineers. The recoverable amount is compared to the carrying value of that CGU in order to determine if impairment exists. Impairment
is recognized as an expense included in the Company’s consolidated statement of comprehensive income in the period in which
it occurs.

2013 Impairment

As at December 31, 2013, Bellatrix
determined there were no impairment indicators requiring an impairment test to be performed.

2012 Impairment

During the year ended December
31, 2012, Bellatrix performed an impairment test in accordance with IAS 36 resulting in an excess of the carrying value of three
CGUs over their recoverable amount, resulting in a non-cash $14.8 million impairment loss.

When performed, the impairment
test is based upon the higher of value-in-use and estimated fair market values for the Company’s properties, including but
not limited to an updated external reserve engineering report. This report incorporates a full evaluation of reserves on an annual
basis or internal reserve updates at quarterly periods, and the latest commodity pricing deck. Estimating reserves is very complex,
requiring many judgments based on available 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 earnings as further information becomes available and as the economic environment changes.

19











| | 9. | LONG-TERM
                                         DEBT
| | -- | -------------------------------------------------------

As of December 31, 2013, the
Company’s credit facilities are available on an extendible revolving term basis and consist of a $50 million operating facility
provided by a Canadian bank and a $450 million syndicated facility provided by nine financial institutions.

Amounts
borrowed under the credit facilities will 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 1.00% to 3.50%, depending on the type of borrowing and the Company’s
debt to cash ratio. A standby fee is charged of between 0.50% and 0.875% on the undrawn portion of the credit facilities, depending
on the Company’s debt to cash flow ratio. The credit facilities are secured by a $1 billion debenture containing a first
ranking charge and security interest. Bellatrix has provided a negative pledge and undertaking to provide fixed charges over its
properties in certain circumstances.

The revolving period for the
revolving term credit facility will end on June 24, 2014, unless extended for a further 364 day period. Should the facility not
be extended it will convert to a non-revolving term facility with the full amount outstanding due 366 days after the last day
of the revolving period of June 24, 2014. The borrowing base will be subject to re-determination on May 31 and November 30 in
each year prior to maturity, with the next semi-annual redetermination occurring on May 31, 2014.

As principal payment will
not be required under the revolving term facility for more than 365 days from December 31, 2013 the entire amounts owing on the
credit facilities have been classified as long-term.

As at December 31, 2013, the
Company had outstanding letters of credit totaling $0.5 million that reduce the amount otherwise available to be drawn on the
syndicated facility.

As at December 31, 2013, the
Company had approximately $212.4 million, or 42% of unused and available bank credit under its credit facilities. Bellatrix was
fully compliant with all of its operating debt covenants.





| | 10. | CONVERTIBLE
                                         DEBENTURES
| | --- | ---------------------------------------------------------------



The following table sets forth
a reconciliation of the convertible debentures:

Convertible debentures

|($000s except number of debentures) |  |   | 4.75%   |  
|----------------------------------- |  | - | ------- | -
|Number of Debentures                |  |   |         |  
|Balance, December 31, 2012          |  |   | 55,000  |  
|Debentures converted or redeemed    |  |   | (55,000 | )
|Balance, December 31, 2013          |  |   | —       |  
|Debt Component                      |  |   |         |  
|Balance, December 31, 2012          |  | $ | 50,687  |  
|Accretion                           |  |   | 1,296   |  
|Debentures converted or redeemed    |  |   | (51,983 | )
|Balance, December 31, 2013          |  | $ | —       |  
|Equity Component                    |  |   |         |  
|Balance, December 31, 2012          |  | $ | 4,378   |  
|Debentures converted or redeemed    |  |   | (4,378  | )
|Balance, December 31, 2013          |  | $ | —       |  

On September 4, 2013, the
Company announced issued a notice of redemption to holders of its then outstanding $55.0 million convertible debentures, with
the redemption date set as October 21, 2013. During September and October 2013, the $55.0 million principal amount of convertible
debentures was converted or redeemed for an aggregate of 9,794,848 common shares of the Company. A reduction to the deficit of
$1.3 million was recognized in connection with the settlement of the convertible debentures during the year ended December 31,
2013.

20











| | 11. | FINANCE
                                         LEASE OBLIGATION
| | --- | -----------------------------------------------------------------

The Company entered into separate
agreements in December 2012, 2011, and 2010 to raise $10 million, $3.7 million, and $1.6 million, respectively, for the Company’s
proportionate share of the construction of certain facilities in each of the years.

The agreements resulted in
the recognition of finance leases in 2012, 2011, and 2010 for the use of the constructed facilities. The agreements will expire
in years 2030 to 2032, respectively, 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, 2013 totaled $15.3
million (2012: $15.3 million) with accumulated depreciation of $3.0 million (2012: $1.4 million).

Multiple participants of the
joint ventures were involved in the 2012, 2011, and 2010 agreements. Although the majority of participants were fully external
to the Company, some related parties were involved in the 2011 and 2010 agreements. See note 19.



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

|Year
    ending December 31,                        |  |   | ($000   | s)
|--------------------------------------------------- |  | - | ------- | --
|2014                                                |  | $ | 3,399   |   
|2015                                                |  |   | 3,244   |   
|2016                                                |  |   | 3,059   |   
|2017                                                |  |   | 2,719   |   
|2018                                                |  |   | 2,138   |   
|Thereafter                                          |  |   | 11,334  |   
|Total lease payments                                |  |   | 25,893  |   
|Amount representing
    implicit interest at 15.28% |  |   | (12,761 | ) 
|                                                    |  |   | 13,132  |   
|Current portion of
    finance lease obligation     |  |   | (1,495  | ) 
|Finance
    lease obligation                        |  | $ | 11,637  |   



| | 12. | 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. The Company estimates the total undiscounted amount of cash flows required to settle its decommissioning
liabilities is approximately $122.7 million which will be incurred between 2016 and 2063. A risk-free rate between 1.13% and 3.24%
(2012: 1.14% and 2.36%) and an inflation rate of 2.0% (2012: 2.4%) were used to calculate the fair value of the decommissioning
liabilities as at December 31, 2013.



|($000s)                                |  |   | 2013   |   |  |   | 2012   |  
|-------------------------------------- |  | - | ------ | - |  | - | ------ | -
|Balance, beginning of year             |  | $ | 43,909 |   |  | $ | 45,091 |  
|Incurred on development activities     |  |   | 3,423  |   |  |   | 1,400  |  
|Acquired through business combinations |  |   | 12,071 |   |  |   | 973    |  
|Revisions on estimates                 |  |   | 8,493  |   |  |   | (648   | )
|Reversed on dispositions               |  |   | (619   | ) |  |   | (2,955 | )
|Settled during the year                |  |   | (1,057 | ) |  |   | (635   | )
|Accretion expense                      |  |   | 855    |   |  |   | 683    |  
|Balance,
    end of year               |  | $ | 67,075 |   |  | $ | 43,909 |  



21









The revisions on estimates in
2013 was related to increased cost estimates for abandonment and reclamation of the Company’s core and non-core operating
areas as a result of actual abandonment costs incurred and revised industry guidance. In addition, the Company revised the timing
of future decommissioning cash flows to better reflect the anticipated abandonment timelines.



| | 13. | SHAREHOLDERS’
                                         CAPITAL
| | --- | --------------------------------------------------------------

Bellatrix is authorized to
issue an unlimited number of common shares. All shares issued are fully paid and have no par value. The common shareholders are
entitled to dividends declared by the Board of Directors; no dividends were declared by the Board of Directors for the year ended
December 31, 2013 or 2012.

|                                                                                  | 2013        | 2012        
|--------------------------------------------------------------------------------- | ----------- | ------------
|                                                                                  |             | Number      
|Common shares,
    opening balance                                                | 107,868,774 | $    371,576
|Issued for
    cash on equity issue                                               | 21,875,000  | 175,000     
|Share issue
    costs on equity issue, net of tax effect of $2.3 million          | -           | (7,020)     
|Issued for
    the Angle acquisition                                              | 30,230,998  | 225,221     
|Share issue
    costs on the Angle acquisition, net of tax effect of $0.2 million | -           | (576)       
|Issued on
    settlement of convertible debentures                                | 9,794,848   | 55,568      
|Shares issued
    for cash on exercise of options                                 | 1,220,985   | 3,088       
|Contributed surplus transferred on exercised options                              | -           | 1,208       
|Balance,
    end of year                                                          | 170,990,605 | $   824,065 
|                                                                                  |             |             

On November 5, 2013, Bellatrix
closed a bought deal financing of 21,875,000 Bellatrix Shares at a price of $8.00 per Bellatrix Share for aggregate gross proceeds
of $175.0 million (net proceeds of $165.6 million after transaction costs).

On December
11, 2013, Bellatrix acquired all issued and outstanding shares of Angle in exchange for the issuance of 30,230,998 Bellatrix common
shares with a total value of $225.2 million and cash consideration of $69.7 million (note 6).

On September
4, 2013, the Company announced issued a notice of redemption to holders of its then outstanding $55.0 million convertible debentures,
with the redemption date set as October 21, 2013. During September and October 2013, the $55.0 million principal amount of convertible
debentures was converted or redeemed for an aggregate of 9,794,848 common shares of the Company (note 10).



| | 14. | SHARE-BASED
                                         COMPENSATION PLANS
| | --- | -----------------------------------------------------------------------



The following table provides
a summary of the Company’s share-based compensation plans for the year ended December 31, 2013:



|($000s)                                  |                   |                          |                            |                             |           
|---------------------------------------- | ----------------- | ------------------------ | -------------------------- | --------------------------- | ----------
|                                         | Share
    Options | Deferred
    Share Units | Restricted
    Share Units | Performance
    Share Units | Total     
|Expense
    for the year (1)             | $   1,699         | $    2,317               | $
          658            | $      286                  | $    4,960
|Liability
    balance, December 31, 2013 | $           -     | $    4,045               | $       983                | $      445                  | $    5,473



| | (1) | The
                                         expense for share options is net of adjustments for forfeitures of $0.2 million, and
                                         capitalization of $1.2 million. The expense for restricted share units is net of capitalization
                                         of $0.3 million. The expense for performance share units is net of capitalization of
                                         $0.2 million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------











22









The following table provides
a summary of the Company’s share-based compensation plans for the year ended December 31, 2012:



|($000s)                                  |                   |                          |                            |                             |          
|---------------------------------------- | ----------------- | ------------------------ | -------------------------- | --------------------------- | ---------
|                                         | Share
    Options | Deferred
    Share Units | Restricted
    Share Units | Performance
    Share Units | Total    
|Expense for the year (1)                 | $   2,255         | $     964                | $        -                 | $        -                  | $   3,219
|Liability
    balance, December 31, 2012 | $           -     | $  1,728                 | $        -                 | $        -                  | $  1,728 

| | (1) | The
                                         expense for share options is net of adjustments for forfeitures of $0.2 million, and
                                         capitalization of $1.6 million.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Bellatrix has a share option
plan where the Company may grant share options to its directors, officers, employees and 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 directors, officers, employees and 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, 2013, Bellatrix granted 3,281,500 (2012: 2,648,000) 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, 2013 and 2012, and the weighted average assumptions used in their determination are as noted
below:



|                                                             |          |          | 2013     | 2012
|------------------------------------------------------------ | -------- | -------- | -------- | ----
|Inputs:                                                      |          |          |         
|Share
    price                                              |          | $   7.68 | $   3.60
|Exercise
    price                                           |          | $   7.68 | $   3.60
|Risk
    free interest rate (%)                              |          | 1.3      | 1.1     
|Option
    life (years)                                      |          | 2.8      | 2.8     
|Option
    volatility (%)                                    |          | 46       | 53      
|Results:                                                     |          |          |         
|Weighted
    average fair value of each share option granted | $   2.39 | $   1.28
|                                                             |          |          |          |     

Bellatrix calculates volatility
based on historical share price. Bellatrix incorporates an estimated forfeiture rate between 3% and 10% (2012: 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 (“TSX”) for the year ended December 31, 2013
was $6.97 (2012: $4.31).



23











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





|Share Options Continuity   |  |                                 |      |       
|-------------------------- |  | ------------------------------- | ---- | ------
|                           |  | Weighted Average Exercise Price |      | Number
|Balance, December 31, 2011 |  | $                               | 3.44 |       
|Granted                    |  | $                               | 3.61 |       
|Exercised                  |  | $                               | 2.37 |       
|Forfeited                  |  | $                               | 4.50 |       
|Balance, December 31, 2012 |  | $                               | 3.46 |       
|Granted                    |  | $                               | 7.68 |       
|Exercised                  |  | $                               | 2.53 |       
|Forfeited                  |  | $                               | 5.19 |       
|Balance, December 31, 2013 |  | $                               | 4.75 |       





As of December 31, 2013, a total
of 14,067,450 common shares were reserved for issuance on exercise of share options, leaving an additional 2,884,487 available
for future share option grants.





|Share
    Options Outstanding, December 31, 2013 |                       |                     
|------------------------------------------------ | --------------------- | --------------------
|                                                 | Outstanding           |                     
|                                                 | At                    | Weighted
    Average
|Exercise
    Price                               | December
    31, 2013 | Exercise
    Price  
|$  0.65
    - $  1.45                            | 462,946               | $    1.03           
|$  1.46
    - $  1.99                            | 830,671               | $    1.63           
|$  2.00
    - $  3.36                            | 1,137,776             | $    2.43           
|$  3.37
    - $  3.84                            | 1,479,000             | $    3.42           
|$  3.85
    - $  4.72                            | 1,918,901             | $    3.93           
|$  4.73
    - $  5.50                            | 2,157,169             | $    5.28           
|$  5.51
    - $  8.00                            | 3,196,500             | $    7.69           
|$  0.65
    - $  8.00                            | 11,182,963            | $    4.75           



|Share
    Options Outstanding, December 31, 2012 |                       |                     
|------------------------------------------------ | --------------------- | --------------------
|                                                 | Outstanding           |                     
|                                                 | At                    | Weighted
    Average
|Exercise
    Price                               | December
    31, 2012 | Exercise
    Price  
|$  0.65
    - $  1.45                            | 682,949               | $    1.02           
|$  1.46
    - $  1.99                            | 1,177,449             | $    1.65           
|$  2.00
    - $  3.36                            | 1,407,052             | $    2.41           
|$  3.37
    - $  3.84                            | 1,575,000             | $    3.42           
|$  3.85
    - $  4.72                            | 2,271,001             | $    3.95           
|$  4.73
    - $  5.50                            | 2,307,000             | $    5.28           
|$  0.65
    - $  5.50                            | 9,420,451             | $    3.46           



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

Bellatrix has a Directors’
Deferred Share Unit Plan (“the DSU Plan”) where the Company may grant to non-employee directors Deferred Share Units
(“DSUs”), each DSU being 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 1stof 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). On a go forward basis, it is intended that
in the event of a share based award, non-employee directors would receive DSU grants instead of share option grants.

24









During the year ended December
31, 2013, the Company granted 124,382 (2012: 249,298) DSUs, and had 532,906 DSUs outstanding as at December 31, 2013 (2012: 408,524).

| | c. | Incentive
                                         Plan
| | -- | -------------------------------------------------------

On August 7, 2013, the Directors
of Bellatrix approved an Incentive Plan where the Company may grant Restricted Share Units (“RSUs”) and Performance
Share Units (“PSUs”) to officers, employees, and service providers.

RSUs granted to employees
vest in equal annual amounts over the course of three years. Each RSU 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 or, if and once approved by the TSX and shareholders of the Company, at the Company's discretion, common shares of the Company
equal to the nominal number of Common Shares represented by the RSUs. It is the Company’s intention that the RSUs will be
settled in cash. Unvested RSUs are forfeited at the time the holder’s employment with the Company ends, except on death
in which case they vest. Bellatrix incorporates an estimated forfeiture rate between 3% and 10% for RSUs that will not vest, and
adjusts for actual forfeitures as they occur. Outstanding RSUs 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. The fair value of the outstanding RSUs is recognized as a liability included as part of accounts
payable on the Company’s Balance Sheet.

During the year ended December
31, 2013, the Company granted 508,300 (2012: nil) RSUs, and had 508,300 RSUs outstanding as at December 31, 2013 (2012: nil).

PSUs vest on the third anniversary
date. Each PSU 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 or, if and once approved by the TSX and shareholders
of the Company, at the Company's discretion, common shares of the Company equal to the nominal number of Common Shares represented
by the PSUs, in each case multiplied by a payout multiplier determined by the Company’s Board of Directors based on determined
corporate performance measures. It is the Company’s intention that the PSUs will be settled in cash. Unvested PSUs are forfeited
at the time the holder’s employment with the Company ends. Bellatrix incorporates an estimated forfeiture rate of 5% for
PSUs that will not vest, and adjusts for actual forfeitures as they occur. Outstanding PSUs 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. The fair value of the outstanding PSUs is recognized as a
liability included in accounts payable on the Company’s Balance Sheet.

During the year ended December
31, 2013, the Company granted 470,700 (2012: nil) PSUs, and had 470,700 PSUs outstanding as at December 31, 2013 (2012: nil).

25











| | 15. | SUPPLEMENTAL
                                         CASH FLOW INFORMATION
| | --- | ---------------------------------------------------------------------------



|Change
    in Non-cash Working Capital     |  |   |         |   |  |   |         |  
|------------------------------------------ |  | - | ------- | - |  | - | ------- | -
|($000s)                                    |  |   | 2013    |   |  |   | 2012    |  
|Changes in non-cash working capital items: |  |   |         |   |  |   |         |  
|Restricted cash                            |  | $ | (38,148 | ) |  | $ | —       |  
|Accounts receivable                        |  |   | (14,333 | ) |  |   | 4,530   |  
|Deposits and prepaid expenses              |  |   | (2,339  | ) |  |   | (510    | )
|Accounts payable and accrued liabilities   |  |   | 49,451  |   |  |   | (11,500 | )
|Advances from joint venture partners       |  |   | 92,832  |   |  |   | (1,114  | )
|Deferred lease inducements                 |  |   | 285     |   |  |   | —       |  
|                                           |  | $ | 87,748  |   |  | $ | (8,594  | )
|Changes related to:                        |  |   |         |   |  |   |         |  
|Operating activities                       |  | $ | (8,600  | ) |  | $ | (1,075  | )
|Financing activities                       |  |   | (960    | ) |  |   | (55     | )
|Investing activities                       |  |   | 97,308  |   |  |   | (7,464  | )
|                                           |  | $ | 87,748  |   |  | $ | (8,594  | )





| | 16. | 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, 2013, Bellatrix had approximately $1.2 billion in tax pools available for deduction
against future income. Included in this tax basis are estimated non-capital loss carry forwards of approximately $94.4 million
that expire in years through 2030.

The provision for income taxes
differs from the expected amount calculated by applying the combined Federal and Provincial corporate income tax rate of 25.0%
(2012: 25.0%) to loss before taxes. This difference results from the following items:



|($000s)                          |  |   | 2013   |   |  |   | 2012   | 
|-------------------------------- |  | - | ------ | - |  | - | ------ | 
|Expected income tax expense      |  | $ | 22,789 |   |  | $ | 9,459  | 
|Share based compensation expense |  |   | 446    |   |  |   | 564    | 
|Angle acquisition                |  |   | (3,923 | ) |  |   | —      | 
|Other                            |  |   | 171    |   |  |   | 44     | 
|Deferred tax expense             |  | $ | 19,483 |   |  | $ | 10,067 | 
|                                 |  |   |        |   |  |   |        | 



26











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

| |  | 
| |  | 

|($000s)                                                             |  |   | 2013    |   |  |   | 2012    |  
|------------------------------------------------------------------- |  | - | ------- | - |  | - | ------- | -
|Deferred tax liabilities:                                           |  |   |         |   |  |   |         |  
|Equity component of 4.75% Debentures                                |  | $ | —       |   |  | $ | (799    | )
|Property, plant and equipment and exploration and evaluation assets |  |   | (81,453 | ) |  |   | (17,737 | )
|Commodity contract asset                                            |  |   | (86     | ) |  |   | (43     | )
|Deferred tax assets:                                                |  |   |         |   |  |   |         |  
|Finance lease obligation                                            |  |   | 3,283   |   |  |   | 3,639   |  
|Commodity contract liability                                        |  |   | 4,319   |   |  |   | —       |  
|Decommissioning liabilities                                         |  |   | 16,769  |   |  |   | 10,977  |  
|Share issue costs                                                   |  |   | 3,910   |   |  |   | 834     |  
|Non-capital losses                                                  |  |   | 23,621  |   |  |   | 2,500   |  
|Attributed Canadian Royalty Income                                  |  |   | —       |   |  |   | 1,209   |  
|Alberta non-capital losses greater than Federal non-capital losses  |  |   | 1,209   |   |  |   | —       |  
|Other                                                               |  |   | 1,394   |   |  |   | 458     |  
|Deferred tax asset (liability)                                      |  | $ | (27,034 | ) |  | $ | 1,038   |  



A continuity of the net deferred
income tax asset (liability) for 2013 and 2012 is provided below:

|($000s)                                                                 |  |   | Balance, Jan.
                                         1, 2013 |   |  |   | Recognized
                                         in profit or loss |   |  |   | Recognized
                                         in equity |  |  |   | Recognized
                                         in business combinations |   |  |   | Balance, Dec.
                                         31, 2013 |  
|----------------------------------------------------------------------- |  | - | -------------------------------------------------------------- | - |  | - | --------------------------------------------------------------------- | - |  | - | ------------------------------------------------------------- |  |  | - | ---------------------------------------------------------------------------- | - |  | - | --------------------------------------------------------------- | -
|Property, plant and equipment and exploration and
    evaluation assets |  | $ | (17,737                                                        | ) |  | $ | (32,962                                                               | ) |  | $ | —                                                             |  |  | $ | (30,754                                                                      | ) |  | $ | (81,453                                                         | )
|Decommissioning liabilities                                             |  |   | 10,977                                                         |   |  |   | 2,838                                                                 |   |  |   | —                                                             |  |  |   | 2,954                                                                        |   |  |   | 16,769                                                          |  
|Commodity contract liability                                            |  |   | (43                                                            | ) |  |   | 3,961                                                                 |   |  |   | —                                                             |  |  |   | 315                                                                          |   |  |   | 4,233                                                           |  
|Share issue costs                                                       |  |   | 834                                                            |   |  |   | (340                                                                  | ) |  |   | 2,532                                                         |  |  |   | 884                                                                          |   |  |   | 3,910                                                           |  
|Non-capital losses                                                      |  |   | 2,500                                                          |   |  |   | 6,196                                                                 |   |  |   | —                                                             |  |  |   | 14,925                                                                       |   |  |   | 23,621                                                          |  
|Equity component of 4.75% debentures                                    |  |   | (799                                                           | ) |  |   | 244                                                                   |   |  |   | 555                                                           |  |  |   | —                                                                            |   |  |   | —                                                               |  
|Finance lease obligation                                                |  |   | 3,639                                                          |   |  |   | (356                                                                  | ) |  |   | —                                                             |  |  |   | —                                                                            |   |  |   | 3,283                                                           |  
|Attributed Canadian Royalty Income                                      |  |   | 1,209                                                          |   |  |   | (1,209                                                                | ) |  |   | —                                                             |  |  |   | —                                                                            |   |  |   | —                                                               |  
|Alberta non-capital losses greater than Federal
    non-capital losses  |  |   | —                                                              |   |  |   | 1,209                                                                 |   |  |   | —                                                             |  |  |   | —                                                                            |   |  |   | 1,209                                                           |  
|Other                                                                   |  |   | 458                                                            |   |  |   | 936                                                                   |   |  |   | —                                                             |  |  |   | —                                                                            |   |  |   | 1,394                                                           |  
|                                                                        |  | $ | 1,038                                                          |   |  | $ | (19,483                                                               | ) |  | $ | 3,087                                                         |  |  | $ | (11,676                                                                      | ) |  | $ | (27,034                                                         | )
|                                                                        |  |   |                                                                |   |  |   |                                                                       |   |  |   |                                                               |  |  |   |                                                                              |   |  |   |                                                                 |  



27











|($000s)                                                                 |  |   | Balance, Jan.
                                         1, 2012 |   |  |   | Recognized
                                         in profit or loss |   |  |   | Recognized
                                         in equity |  |  |   | Balance, Dec.
                                         31, 2012 |  
|----------------------------------------------------------------------- |  | - | -------------------------------------------------------------- | - |  | - | --------------------------------------------------------------------- | - |  | - | ------------------------------------------------------------- |  |  | - | --------------------------------------------------------------- | -
|Property, plant and equipment and exploration
    and evaluation assets |  | $ | (8,126                                                         | ) |  | $ | (9,611                                                                | ) |  | $ | —                                                             |  |  | $ | (17,737                                                         | )
|Decommissioning liabilities                                             |  |   | 11,273                                                         |   |  |   | (296                                                                  | ) |  |   | —                                                             |  |  |   | 10,977                                                          |  
|Commodity contract liability                                            |  |   | 2,658                                                          |   |  |   | (2,701                                                                | ) |  |   | —                                                             |  |  |   | (43                                                             | )
|Share issue costs                                                       |  |   | 1,174                                                          |   |  |   | (340                                                                  | ) |  |   | —                                                             |  |  |   | 834                                                             |  
|Non-capital losses                                                      |  |   | 2,500                                                          |   |  |   | —                                                                     |   |  |   | —                                                             |  |  |   | 2,500                                                           |  
|Equity component of 4.75% debentures                                    |  |   | (1,078                                                         | ) |  |   | 279                                                                   |   |  |   | —                                                             |  |  |   | (799                                                            | )
|Finance lease obligation                                                |  |   | 1,279                                                          |   |  |   | 2,360                                                                 |   |  |   | —                                                             |  |  |   | 3,639                                                           |  
|Attributed Canadian Royalty Income                                      |  |   | 1,209                                                          |   |  |   | —                                                                     |   |  |   | —                                                             |  |  |   | 1,209                                                           |  
|Other                                                                   |  |   | 216                                                            |   |  |   | 242                                                                   |   |  |   | —                                                             |  |  |   | 458                                                             |  
|                                                                        |  | $ | 11,105                                                         |   |  | $ | (10,067                                                               | ) |  | $ | —                                                             |  |  | $ | 1,038                                                           |  



| | 17. | FINANCE
                                         INCOME AND EXPENSES
| | --- | --------------------------------------------------------------------



|                                             |  |  
|-------------------------------------------- |  | -
|($000s)                                      |  |  
|Finance expense                              |  |  
|Interest on long-term debt                   |  | $
|Interest on convertible debentures           |  |  
|                                             |  |  
|Accretion on convertible debentures          |  |  
|Accretion
    on decommissioning liabilities |  |  
|                                             |  |  
|Finance
    expense                          |  | $



| | 18. | CONSOLIDATED
                                         STATEMENT OF COMPREHENSIVE INCOME 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 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
are detailed in the following table:



|($000s)                            |  |   | 2013   |  |  |   | 2012  | 
|---------------------------------- |  | - | ------ |  |  | - | ----- | 
|Production                         |  |   | 2,107  |  |  |   | 885   | 
|General
    and administrative (1) |  |   | 11,606 |  |  |   | 8,292 | 
|Employee
    compensation          |  | $ | 13,713 |  |  | $ | 9,177 | 

| | (1) | Amount
                                         shown is net of capitalization
| | --- | ------------------------------------------------------------------------------





28











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



| | a. | Finance
                                         lease agreements
| | -- | -----------------------------------------------------------------

Previous to
2013, the Company entered into agreements to obtain financing in the amount of $5.3 million for the construction of certain facilities.
Members of the Company’s management team and entities affiliated with them provided $900,000 of the total. The terms of
the transactions with those related parties were the same as those with arms-length participants.



| | b. | 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)                                             |  | 2013
|Salaries and other short-term employee
    benefits |  | $   
|Long-term incentive compensation                    |  |     
|Share-based
    compensation(1)                     |  |     
|                                                    |  | $   

| | (1) | Share-based
                                         compensation includes share options, RSUs, PSUs, and DSUs.
| | --- | ---------------------------------------------------------------------------------------------------------------





| | 20. | PER
                                         SHARE AMOUNTS
| | --- | ----------------------------------------------------------

The calculation of basic earnings
per share for the year ended December 31, 2013 was based on a net profit of $71.7 million (2012: net profit of $27.8 million).



|                                                                    | 2013 |  | 2012       
|------------------------------------------------------------------- | ---- |  | -----------
|Basic common shares outstanding                                     |      |  | 170,990,605
|Fully dilutive effect of:                                           |      |  |            
|Share options outstanding                                           |      |  | 11,182,963 
|Shares issuable for convertible debentures                          |      |  | —          
|Fully diluted common shares outstanding                             |      |  | 182,173,568
|Weighted average shares outstanding                                 |      |  | 112,927,251
|Dilutive effect of share options
    and convertible debentures (1) |      |  | 2,841,185  
|Diluted weighted average shares outstanding                         |      |  | 115,768,436



| | (1) | For
                                         the year ended December 31, 2013, a total of 2,841,185 (2012: 1,581,283) share options
                                         were included in the calculation as they were dilutive, and nil (2012: 9,821,429) common
                                         shares issuable pursuant to the conversion of the convertible debentures were excluded
                                         from the calculation as they were not dilutive.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29











| | 21. | COMMITMENTS
| | --- | -----------

The Company
is committed to payments under fixed term operating leases which do not currently provide for early termination. The Company’s
commitment for office space as at December 31, 2013 is as follows:



|($000s)Year           |           | Gross
    Amount | Recoveries | Net
    amount
|--------------------- | --------- | ---------------- | ---------- | --------------
|2014                  | $   4,562 | $  (1,014)       | $   3,548 
|2015                  | 3,094     | -                | 3,094     
|2016                  | 3,094     | -                | 3,094     
|2017                  | 3,094     | -                | 3,094     
|2018                  | 2,911     | -                | 2,911     
|More
    than 5 years | 12,206    | -                | 12,206    

As at December 31, 2013, Bellatrix
committed to drill 10 gross (5.7 net) wells pursuant to farm-in agreements. Bellatrix expects to satisfy these drilling commitments
at an estimated cost of approximately $20.1 million.

In addition, Bellatrix entered
into two joint operating agreements during the 2011 year and an additional joint operation agreement during 2012. The agreements
include a minimum commitment for the Company to drill a specified number of wells each year over the term of the individual agreements.
The details of these agreements are provided in the table below:



|Joint
    Operating Agreement                 | Feb.
    1, 2011 | Aug.
    4, 2011 | Dec.
    14, 2012
|--------------------------------------------- | ---------------- | ---------------- | -----------------
|Commitment
    Term                           | 2011
    to 2015 | 2011 to 2016     | 2014
    to 2018 
|Minimum wells per year (gross and net)        | 3                | 5 to 10          | 2                
|Minimum total wells (gross and net)           | 15               | 40               | 10               
|Estimated total cost  ($000s)                 | $ 52.5           | $ 140.0          | $  35.0          
|Remaining wells to drill at December 31, 2013 | -                | 12               | 7                
|Remaining estimated
    total cost ($000s)    | $      -         | $   42.0         | $  24.5          

Bellatrix also has certain
drilling commitments relating to the Grafton Joint Venture, the Daewoo and Devonian Joint Venture, and the Troika Joint Venture.
In meeting the drilling commitments under these joint venture agreements, Bellatrix will also satisfy some of the drilling commitments
under the joint operating agreements described above.

30







|Joint Venture Agreement                               | Grafton      | Daewoo and Devonian | Troika      
|----------------------------------------------------- | ------------ | ------------------- | ------------
|Commitment Term                                       | 2013 to 2015 | 2013 to 2016        | 2013 to 2014
|Minimum total wells (gross) (1)                       | 58           | 70                  | 63          
|Minimum total wells (net) (1)                         | 10.44        | 35.0                | 31.5        
|Estimated total cost  ($000s) (gross)(1)              | $ 244.0      | $ 200.0             | $ 240.0     
|Estimated total cost  ($000s) (net)(1)                | $   44.0     | $ 100.0             | $ 120.0     
|Remaining wells to drill at December 31, 2013 (gross) | 46           | 51                  | 42          
|Remaining wells to drill at December 31, 2013 (net)   | 8.2          | 25.6                | 21.0        
|Remaining estimated total cost ($000s) (gross)        | $ 192.3      | $ 198.3             | $ 160.0     
|Remaining estimated total cost ($000s) (net)          | $   34.6     | $   99.2            | $   80.0    



| | (1) | Gross and net estimated total cost values and gross and net minimum
total wells for the Troika and Grafton Joint Ventures represent Bellatrix’s total capital and well commitments pursuant to
the Troika and Grafton Joint Venture agreements. Gross and net minimum total wells for the Daewoo and Devonian Partnership represent
Bellatrix’s total well commitments pursuant to the Daewoo and Devonian Partnership agreement. Gross and net estimated total
cost values for the Daewoo and Devonian Partnership represent Bellatrix’s estimated cost associated with its well commitments
under the Daewoo and Devonian Partnership agreement.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







| | 22. | 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
| | - | ----------------------------------------------------

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. | Credit
                                         Risk
| | -- | ----------------------------------------------------

As at December 31, 2013,
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 |  |                                  | 25,488 |                            |  |      
|Amounts due from government agencies              |  |                                  | 75     |                            |  |      
|Revenue and other accruals                        |  |                                  | 46,432 |                            |  |      
|Cash call receivables                             |  |                                  | —      |                            |  |      
|Less:  Allowance for doubtful accounts            |  |                                  | —      |                            |  |      
|Total accounts receivable                         |  |                                  | 71,995 |                            |  |      



31







Amounts due from government
agencies include GST and royalty adjustments. Accounts payable due to same partners includes amounts which may be available for
offset against certain receivables.

Cash calls receivables consist
of advances paid to joint interest partners for capital projects.

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

| | c. | Liquidity
                                         Risk
| | -- | -------------------------------------------------------

Liquidity risk is the risk
that the Company will not be able to meet its financial obligations as they become due. The Company’s approach to managing
liquidity is to make reasonable efforts to sustain sufficient liquidity to meet its liabilities when they become due, under both
normal and stressed conditions, without incurring unacceptable losses or risking harm to the Company’s reputation.

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 a revolving reserve-based credit facility, as outlined in note 9, which is reviewed at least
annually by the lender. The Company attempts to match its payment cycle with the collection of petroleum and natural gas revenues
on the 25th of each month. The Company also mitigates liquidity risk by maintaining an insurance program to minimize
exposure to insurable losses.

The following are the contractual
maturities of liabilities as at December 31, 2013:



|Liabilities
    ($000s)                      | Total      | <
    1 Year | 1-3
    Years   | 3-5
    Years  | More
                                         than 5 years
|-------------------------------------------- | ---------- | ------------ | --------------- | -------------- | ----------------------------------------------------------
|Accounts payable and accrued liabilities (1) | $  137,465 | $   137,465  | $             - | $            - | $            -                                            
|Advances from joint venture partners         | 99,380     | 99,380       | -               | -              | -                                                         
|Long-term debt – principal (2)               | 287,092    | -            | 287,092         | -              | -                                                         
|Commodity contract liability                 | 17,278     | 17,278       | -               | -              | -                                                         
|Decommissioning liabilities (3)              | 67,075     | -            | 2,198           | 3,361          | 61,516                                                    
|Finance lease obligation                     | 13,132     | 1,495        | 3,208           | 2,708          | 5,721                                                     
|Deferred lease
    inducements               | 2,850      | 285          | 570             | 570            | 1,425                                                     
|Total                                        | $  624,272 | $  255,903   | $  293,068      | $    6,639     | $  68,662                                                 

| |  | 
| |  | 

| | (1) | Includes
                                         $0.7 million of accrued interest payable in relation to the credit facilities is included
                                         in Accounts Payable and Accrued 	Liabilities.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Bank
                                         debt is based on a revolving term which is reviewed annually and converts to a 366 day
                                         non-revolving facility if not renewed. Interest due on the bank credit facility is calculated
                                         based upon floating rates.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Amounts
                                         represent the inflated, discounted future abandonment and reclamation expenditures anticipated
                                         to be incurred over the life of the Company’s properties (between 2016 and 2063).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | 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.

Foreign Currency Exchange
Rate Risk

Foreign currency exchange rate
risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. Although
substantially all of the Company’s petroleum and natural gas sales are denominated in Canadian dollars, the underlying market
prices in Canada for petroleum and natural gas are impacted by changes in the exchange rate between the Canadian and United States
dollar. As at December 31, 2013, if the Canadian/US dollar exchange rate had decreased by US$0.01 with all other variables held
constant, after tax net profit for the year ended December 31, 2013 would have been approximately $1.1 million higher. An equal
and opposite impact would have occurred to net profit had the Canadian/US dollar exchange rate increased by US$0.01.

32









The Company had no forward
exchange rate contracts in place as at or during the year ended December 31, 2013.

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 world 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 eighteen 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, 2013,
the Company has entered into commodity price risk management arrangements as follows:

|Type                         | Period                               | Volume          | Price
    Floor      | Price
    Ceiling    | Index
|---------------------------- | ------------------------------------ | --------------- | -------------------- | -------------------- | -----
|Crude
    oil fixed          | January
    1, 2014 to Dec. 31, 2014 | 500
    bbl/d   | $     93.30    US    | $     93.30    US    | WTI  
|Crude
    oil fixed          | January
    1, 2014 to Dec. 31, 2014 | 1,500
    bbl/d | $     94.00
    CDN  | $     94.00
    CDN  | WTI  
|Crude
    oil fixed          | January
    1, 2014 to Dec. 31, 2014 | 500
    bbl/d   | $     95.00    US    | $     95.00    US    | WTI  
|Crude
    oil fixed          | January
    1, 2014 to Dec. 31, 2014 | 1,500
    bbl/d | $     95.22
    CDN  | $     95.22
    CDN  | WTI  
|Crude
    oil fixed          | January
    1, 2014 to Dec. 31, 2014 | 500
    bbl/d   | $     98.30
    CDN  | $     98.30
    CDN  | WTI  
|Crude
    oil fixed          | January
    1, 2014 to Dec. 31, 2014 | 1,000
    bbl/d | $     99.50
    CDN  | $     99.50
    CDN  | WTI  
|Crude
    oil fixed          | January
    1, 2014 to Dec. 31, 2014 | 500
    bbl/d   | $     99.60
    CDN  | $     99.60
    CDN  | WTI  
|Crude
    oil call option(1) | January
    1, 2014 to Dec. 31, 2014 | 1,500
    bbl/d | -                    | $   105.00   US      | WTI  
|Natural
    gas fixed        | January
    1, 2014 to June 30, 2014 | 15,000
    GJ/d | $       3.05
    CDN | $       3.05
    CDN | AECO 
|Natural
    gas fixed        | January
    1, 2014 to Dec. 31, 2014 | 20,000
    GJ/d | $       3.30
    CDN | $       3.30
    CDN | AECO 
|Natural
    gas fixed        | January
    1, 2014 to Dec. 31, 2014 | 20,000
    GJ/d | $       3.60
    CDN | $       3.60
    CDN | AECO 
|Natural
    gas fixed        | July
    1, 2014 to Dec. 31, 2014    | 15,000
    GJ/d | $       3.71
    CDN | $
          3.71 CDN | AECO 

| | (1) | Subsequent
                                         to December 31, 2013, the Company settled the crude oil call options for the term of
                                         February to December 31, 2014 for US $0.5 million.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Subsequent to December 31,
2013, the Company has entered into commodity price risk management arrangements as follows:

|Type                  | Period                                    | Volume          | Price
    Floor     | Price
    Ceiling    | Index
|--------------------- | ----------------------------------------- | --------------- | ------------------- | -------------------- | -----
|Natural
    gas fixed | February
    1, 2014 to Dec. 31, 2014     | 10,000
    GJ/d | $      3.79
    CDN | $       3.79
    CDN | AECO 
|Natural
    gas fixed | February
    1, 2014 to Dec. 31, 2014     | 10,000
    GJ/d | $      3.80
    CDN | $       3.80
    CDN | AECO 
|Natural
    gas fixed | February
    1, 2014 to Dec. 31, 2014     | 15,000
    GJ/d | $      3.85
    CDN | $       3.85
    CDN | AECO 
|Natural
    gas fixed | February
    1, 2014 to Dec. 31, 2014     | 10,000
    GJ/d | $      3.84
    CDN | $       3.84
    CDN | AECO 
|Natural
    gas fixed | February
    1, 2014 to February 28, 2014 | 10,000
    GJ/d | $      4.66
    CDN | $       4.66
    CDN | AECO 
|Natural
    gas fixed | March
    1, 2014 to Dec. 31, 2014        | 10,000
    GJ/d | $      4.14
    CDN | $
          4.14 CDN | AECO 



33







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, 2013, if interest rates had been
1% lower with all other variables held constant, after tax net profit for the year ended December 31, 2013 would have been approximately
$2.2 million higher, due to lower interest expense. An equal and opposite impact would have occurred to net earnings had interest
rates been 1% higher.

The Company had no interest
rate swap or financial contracts in place as at or during the year ended December 31, 2013.

| | e. | 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 in the light of 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, bank debt, and working capital. In order to maintain or adjust the capital structure, the
Company may from time to time issue common shares, issue convertible debentures, adjust its capital spending, and/or dispose of
certain assets to manage current and projected debt levels.

The Company monitors capital
based on the ratio of total net debt to annualized funds flow from operations (the “ratio”). This ratio is calculated
as total net debt, defined as outstanding bank debt, plus the liability component of any outstanding convertible debentures, plus
or minus working capital (excluding commodity contract assets and liabilities, the current portion of finance lease obligations
and deferred lease inducements, and deferred tax assets or liabilities), divided by funds flow from operations (cash flow from
operating activities before changes in non-cash working capital and deductions for decommissioning costs) 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 annual 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 annual and updated budgets are approved by the Board of Directors. Bellatrix does not pay dividends.

As at December 31, 2013 the
Company’s ratio of total net debt to annualized funds flow from operations (based on fourth quarter funds flow from operations)
was 2.5 times. The total net debt to annualized funds flow from operations ratio as at December 31, 2013 increased from that at
December 31, 2012 of 1.6 times primarily due to an increase in total net debt resulting from the timing and expansion of the Company’s
2013 capital expenditure program, and the acquisition of Angle in the fourth quarter of 2013. As at December 31, 2013 the Company’s
ratio of total net debt to annualized funds flow from operations (based on fourth quarter funds flow from operations, including
funds flow from operations from Angle had the acquisition occurred effective October 1, 2013) was 1.9 times. The Company continues
to take a balanced approach to the priority use of funds flows.

34







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



|Debt to Funds Flow from Operations Ratio                                                                                                                                                                                                                                                                    |  |                          |         |     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | ----
|                                                                                                                                                                                                                                                                                                            |  | Years ended December 31,
|($000s, except where noted)                                                                                                                                                                                                                                                                                 |  | 2013                     |         | 2012
|                                                                                                                                                                                                                                                                                                            |  |                          |         |     
|Shareholders’ equity                                                                                                                                                                                                                                                                                        |  |                          | 903,874 |     
|                                                                                                                                                                                                                                                                                                            |  |                          |         |     
|Long-term debt                                                                                                                                                                                                                                                                                              |  |                          | 287,092 |     
|Convertible debentures (liability component)                                                                                                                                                                                                                                                                |  |                          | —       |     
|Working capital (excess) deficiency (2)                                                                                                                                                                                                                                                                     |  |                          | 108,390 |     
|Total net debt (2) at year end                                                                                                                                                                                                                                                                              |  |                          | 395,482 |     
|                                                                                                                                                                                                                                                                                                            |  |                          |         |     
|Debt
    to funds flow from operations(1)ratio
    (annualized)(3)                                                                                                                                                                                                                                          |  |                          |         |     
|Funds flow from operations
    (1)(annualized)                                                                                                                                                                                                                                                              |  |                          | 157,396 |     
|Funds flow from operations
    (1)(annualized, including Angle funds
    flow from operations for the full October 1 to December 31, 2013 period - unaudited)                                                                                                                                               |  |                          | 203,985 |     
|Total net debt (2) at year end                                                                                                                                                                                                                                                                              |  |                          | 395,482 |     
|Total net debt to periods
    funds flow from operationsratio (annualized) (3)                                                                                                                                                                                                                              |  |                          | 2.5     | x   
|Total net debt to periods
    funds flow from operationsratio (annualized,  including
    Angle funds flow from operations for the full October 1 to December 31, 2013 period - unaudited) (3)                                                                                                              |  |                          | 1.9     | x   
|                                                                                                                                                                                                                                                                                                            |  |                          |         |     
|Net debt (2)(excluding convertible
    debentures)at year end                                                                                                                                                                                                                                               |  |                          | 395,482 |     
|Net
                                         debt to periods funds flow from operations ratio
                                         (annualized) (3)                                                                                                                                                     |  |                          | 2.5     | x   
|Net
                                         debt to periods funds flow from operations ratio
                                         (annualized, including Angle funds flow from operations for the full October 1 to December
                                         31, 2013 period - unaudited) (3) |  |                          | 1.9     | x   
|                                                                                                                                                                                                                                                                                                            |  |                          |         |     
|Debt
    to funds flow from operations(1)ratio                                                                                                                                                                                                                                                              |  |                          |         |     
|Funds flow from operations (1) for
    the year                                                                                                                                                                                                                                                             |  |                          | 143,459 |     
|Funds flow from operations (1) for
    the year (including Angle funds flow from operations for the full October 1 to December 31, 2013 period - unaudited)                                                                                                                                                 |  |                          | 155,106 |     
|Funds flow from operations (1) for
    the year (including Angle funds flow from operations for the full January 1 to December 31, 2013 period - unaudited)                                                                                                                                                 |  |                          | 219,240 |     
|Total net debt (2)to
    funds flow from operations for the year                                                                                                                                                                                                                                            |  |                          | 2.8     | x   
|Total net debt (2)to
    funds flow from operations for the year (including Angle funds flow from operations for the full October 1 to December 31,
    2013 period - unaudited)                                                                                                                            |  |                          | 2.5     | x   
|                                                                                                                                                                                                                                                                                                            |  |                          |         |     
|Net debt (2)(excluding convertible
    debentures) to funds flow from operations for the year                                                                                                                                                                                                               |  |                          | 2.8     | x   
|Net debt (2)(excluding convertible
    debentures) to funds flow from operations for the year (including Angle funds flow from operations for the full January 1
    to December 31, 2013 period - unaudited)                                                                                               |  |                          | 1.8     | x   
|                                                                                                                                                                                                                                                                                                            |  |                          |         |     
|                                                                                                                                                                                                                                                                                                            |  |                          |         |     

| | (1) | Funds
                                         flow from operations is a term that does not have any standardized meaning under GAAP.
                                         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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Net
                                         debt and total net debt are considered additional GAAP measures. Therefore reference
                                         to the additional GAAP measures of net debt or total net debt may not be comparable with
                                         the calculation of similar measures for other entities. The Company’s 2013 calculation
                                         of total net debt excludes deferred lease inducements, long-term commodity contract liabilities,
                                         decommissioning liabilities, the long-term finance lease obligation, deferred lease inducements,
                                         and the deferred tax liability. Net debt and total net debt include the adjusted working
                                         capital deficiency (excess). The adjusted working capital deficiency (excess) is a non-GAAP
                                         measure calculated as net working capital deficiency (excess) excluding short-term commodity
                                         contract assets and liabilities, current finance lease obligation, and deferred lease
                                         inducements. For the comparative 2012 calculation, net debt also excludes the liability
                                         component of convertible debentures.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Total
                                         net debt and net debt to periods funds flow from operations ratio (annualized) is calculated
                                         based upon fourth quarter 	funds flow from operations, annualized.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company’s credit
facility is based on petroleum and natural gas reserves (see note 9). The credit facility outlines limitations on percentages
of forecasted production, from external reserve engineer data, which may be hedged through financial commodity price risk management
contracts.

35







| | f. | Fair
                                         Value of Financial Instruments
| | -- | ----------------------------------------------------------------------------

The Company’s financial
instruments as at December 31, 2013 include restricted cash, accounts receivable, deposits, commodity contract asset, accounts
payable and accrued liabilities, advances from joint venture partners, deferred lease inducements, finance lease obligations,
and long-term debt. The fair value of restricted cash, accounts receivable, deposits, accounts payable and accrued liabilities
approximate their carrying amounts due to their short-terms to maturity.

The Company enters into commodity
contracts under master netting arrangements. Under these arrangements, the amounts owed by each counterparty for all 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 contracts held under master netting arrangements are recorded on a net basis. The gross amounts netted are negligible.

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 commodity contracts as
at December 31, 2013 was a net liability of $16.9 million (2012: $0.2 million net asset). The commodity contracts are classified
as level 2 within the fair value hierarchy.



|($000s)                                      | December
    31, 2013 | December
    31, 2012
|-------------------------------------------- | --------------------- | ---------------------
|Commodity
    contract asset                 | $     345             | $        7,519       
|Commodity
    contract liability             | (17,278)              | (7,345)              
|Net
    commodity contract asset (liability) | $   (16,933)          | $           174      

Long-term 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.

36