Mr. Derek Evans reports

PENGROWTH CONTINUES TO DELIVER POSITIVE CARDIUM AND LINDBERGH RESULTS. LINDBERGH CONSTRUCTION IS CLOSE TO COMPLETION

Pengrowth Energy Corp. has released its financial and operating results for the three- and six-month periods ended June 30, 2014.

"The second quarter marks another milestone in Pengrowth's transition to sustainable growth with excellent progress on our Lindbergh and Cardium projects. We continue to consistently deliver on what we said we would do," said Derek Evans, president and chief executive officer of Pengrowth. "Construction of the Lindbergh commercial facilities is almost complete, and we look forward to commissioning and first steam in the fourth quarter. The Lindbergh pilot performance continues to exceed expectations and the successful completion of the Lindbergh commercial project is expected to generate a significant increase in production and cash flow starting in 2015."

In preparation for the anticipated Lindbergh production growth, Pengrowth has entered into a transportation agreement with Husky Energy for delivery of production from the initial commercial phase of Lindbergh to Hardisty, Alta., with options to nominate future volumes as Lindbergh expands. Pengrowth will retain maximum flexibility in regards to transportation options at Lindbergh by utilizing both rail and pipeline to move production to markets and maximize netbacks.

During the quarter, Pengrowth announced an update of the bitumen reserves and contingent resources for its Lindbergh project. The update resulted in 19.6 million barrels (MMbbl) of probable reserves being reclassified to the proved (1P) category and an increase of 87.4 MMbbl in proved plus probable (2P) reserves. Total 1P and 2P reserves were 101 MMbbl and 230 MMbbl, respectively, as at May 31, 2014.

The Lindbergh 2P reserve value reported at 2013 year-end represented approximately 20 per cent of Pengrowth's total 2P 2013 year-end reserve value of $5,148-million (BTAX NPV10) and equated to $1.95 per share (based on 522,031,117 shares outstanding at Dec. 31, 2013). The 2P reserve value in the May 31, 2014, Lindbergh update more than doubled compared with the 2013 year-end estimate, and equated to $4.20 per share (based on 527,470,168 shares outstanding as at May 31, 2014).

Pengrowth's Cardium development projects in the greater Olds/Garrington area continue to demonstrate industry leading well results and costs. Drilling and completion times continue to be reduced and frac stages increased, contributing to better performance and have enabled Pengrowth to generate improved capital efficiencies of approximately $28,000 per flowing barrel. Pad drilling has decreased capital costs on a per-well basis as well as allowing Pengrowth to drill through breakup, resulting in continuous production additions that will support strong volume performance through year-end.

Highlights:

• Achieved average daily production for the quarter of 73,823 barrels of oil equivalent per day (boe/d), primarily driven by strong oil production from wells targeting the Cardium formation in the greater Olds/Garrington area. Pengrowth is on track to achieve its full year guidance of 71,000 to 73,000 boe/d;
• Delivered funds flow from operations for the quarter of approximately $121-million (23 cents per share);
• Continued to show strong results from the Lindbergh pilot, with combined production from the two well pairs averaging 1,640 barrels per day during the quarter and 1,730 bbl/d in the month of June. The average instantaneous steam oil ratio (ISOR) for the pilot in the quarter was 2.4, representing one of the best ISORs in the industry;
• Spent or committed over 90 per cent of budgeted capital for Lindbergh's first commercial phase as of July 31, 2014. The project remains on track for commissioning and first steam in the fourth quarter;
• Invested total capital expenditures in the quarter of approximately $220-million, with 90 per cent spent on drilling, completions and facilities. In the quarter, Pengrowth drilled 28 gross (20.7 net) non-thermal wells, with 100-per-cent success, and 18 gross (18.0 net) thermal wells at Lindbergh;
• Reported continued financial strength, with approximately $133-million of cash on hand as at June 30, 2014, and an undrawn $1.0-billion credit facility.

            SUMMARY OF FINANCIAL AND OPERATING RESULTS                                    
         (In millions, except per share and where noted)  
                                                                          
                       Three months ended        Six months ended     
                                  June 30,                June 30,
                           2014      2013          2014      2013    
Production
Average daily
production (boe/d)       73,823    87,909        74,459    88,801
Financial
Funds flow from
operations             $  121.4  $  146.0      $  260.9  $  293.5
Funds flow from
operations per share   $   0.23  $   0.28      $   0.50  $   0.57
Oil and gas sales      $  407.1  $  416.6      $  836.3  $  810.1
Oil and gas sales per
boe                    $  60.60  $  52.08      $  62.05  $  50.40
Realized commodity
risk management gains
(losses)               $  (46.9) $  (11.3)     $  (89.2) $  (13.9)
Realized commodity
risk management gains
(losses) per boe       $  (6.98) $  (1.41)     $  (6.62) $  (0.87)
Operating expense      $  114.5  $  129.8      $  218.5  $  247.7
Operating expense per
boe                    $  17.05  $  16.23      $  16.21  $  15.41
Royalty expense        $   78.2  $   72.7      $  151.9  $  139.7
Royalty expense per
boe                    $  11.64  $   9.09      $  11.27  $   8.69
Royalty expense as a
% of sales                 19.2%     17.5%         18.2%     17.2%
Operating netback per
boe                    $  23.86  $  24.44      $  26.79  $  24.61
Cash GA  expense       $   19.4  $   22.2      $   42.5  $   46.1
Cash GA  expense per
boe                    $   2.89  $   2.78      $   3.15  $   2.87
Capital expenditures   $  219.6  $  113.9      $  453.3  $  279.9
Capital expenditures
per share              $   0.42  $   0.22      $   0.86  $   0.54
Net cash acquisitions
(dispositions)         $  (21.0) $   (9.4)     $  (18.4) $ (325.1)
Net cash acquisitions
(dispositions) per
share                  $  (0.04) $  (0.02)     $  (0.04) $  (0.63)
Dividends paid         $   63.2  $   62.0      $  125.9  $  123.5
Dividends paid per
share                  $   0.12  $   0.12      $   0.24  $   0.24
Adjusted net income
(loss)                 $  (24.8) $  (37.1)     $  (27.6) $  (38.3)
Net income (loss)      $   (8.8) $  (53.4)     $ (125.0) $ (118.5)
Net income (loss) per
share                  $  (0.02) $  (0.10)     $  (0.24) $  (0.23)
Cash and cash
equivalents            $  133.2  $   36.4      $  133.2  $   36.4

Production

Average daily production of 73,823 boe/d in the second quarter of 2014 represents a decrease of 2 per cent compared with the first quarter of 2014 production of 75,102 boe/d. Planned maintenance and turnaround activities completed during the quarter reduced production by approximately 1,500 boe/d compared with the first quarter.

Average daily production for the second quarter of 2014 decreased 16 per cent compared with the same period last year due to property dispositions and natural gas production declines, partly offset by production additions from the Cardium development program.

Pengrowth continues to maintain full year production guidance of 71,000 to 73,000 boe/d. This range incorporates additional minor light oil asset dispositions, which are expected to close in the second half of 2014, offset by continued strength in Pengrowth's Cardium development program.

Capital expenditures

Second quarter of 2014 capital expenditures were approximately $220-million following the strategy of selecting and executing projects that maximize cash flow and provide the highest rates of return while continuing to invest in the first commercial phase of the Lindbergh thermal project. Approximately 90 per cent of capital expenditures were invested in drilling, completions and facilities, with the remaining 10 per cent spent on maintenance, land and seismic capital.

Pengrowth invested approximately 57 per cent, or $124-million, of second quarter 2014 capital toward the continuing construction of the first commercial phase of Lindbergh, where Pengrowth drilled 18 wells (six horizontal producers and 12 horizontal injectors).

Approximately $73-million was spent on development activities in the non-thermal business, resulting in the drilling of 28 gross (20.7 net) wells, with 100-per-cent success, including 16 gross (10.4 net) Cardium wells in the greater Olds/Garrington area, with initial well results continuing to perform at or above expectations.

Full year 2014 capital expenditures are expected to remain on track with previous guidance of between $740-million and $770-million.

Operations

Lindbergh

Lindbergh, Pengrowth's 100-per-cent-owned-and-operated thermal project, is located in the Cold Lake area of eastern Alberta. The project offers Pengrowth the potential to develop annual production of up to 50,000 barrels per day of bitumen within five years. Lindbergh's expected strong netbacks, low decline rates, long reserve life and low sustaining capital requirements are expected to be the foundation of Pengrowth's sustainable total return model, supporting future growth in cash flow per share and an attractive dividend.

Civil, mechanical, electrical and building construction continued for the first 12,500 bbl/d commercial phase and is progressing as planned. Central processing, surface pipeline and well pad facility assembly is continuing, all major equipment has been set in place and central processing facility structures are nearing completion. Over 90 per cent of budgeted capital for Lindbergh's first commercial phase has been spent or committed as of July 31, 2014. The project remains on track for commissioning and first steam in the fourth quarter. Pengrowth has completed the planned drilling program for 2014 at Lindbergh.

Operations at the pilot project continued to show strong results during the second quarter of 2014 with combined field production from the two well pairs averaging approximately 1,640 bbl/d of bitumen. The average ISOR for the second quarter of 2014 was 2.4. Cumulative production from the two well pairs exceeded 1.3 million bbl of bitumen by June 30, 2014, with a cumulative steam oil ratio (CSOR) of 2.0. After two years of higher-than-expected production rates and reserves recovered to date, the pilot continues to exceed expectations.

As part of its strategy to maximize transportation optionality at Lindbergh, Pengrowth has entered into a 10-year take-or-pay transportation agreement with Husky Energy for access to its Alberta gathering system. To facilitate the tie-in, Pengrowth will develop a 15-kilometre pipeline and meter station from the Lindbergh facilities, which are expected to be completed in the second quarter of 2015. This infrastructure spending was included in the original expected project design. Access to the gathering system is anticipated to allow Pengrowth to maximize pricing for its Lindbergh bitumen, which is expected to receive Western Canadian Select (WCS) prices. Pengrowth will have several options to ramp up volumes to 50,000 bbl/d on the system as additional production phases at Lindbergh come on-line.

The Husky gathering system delivers into the Hardisty hub, where Pengrowth anticipates having connectivity to export pipelines through Enbridge's Mainline, Spectra's Express pipeline, both the existing Keystone pipeline and future Keystone XL pipeline and TCPL's Energy East project. In addition, Hardisty is the home of several current and future rail sites as well as major merchant and operational storage facilities. This provides Pengrowth with the option to move product by rail when it is more economic to do so.

Non-thermal oil and gas

Pengrowth's significant non-thermal oil and gas portfolio includes a large contiguous land base in the greater Olds/Garrington area encompassing over 500 gross (250 net) sections of land, with stacked opportunities in the Cardium and Mannville sands, as well as in the Mississippian carbonate section. An extensive gathering and processing infrastructure provides an efficient platform for continued development in this area. Pengrowth also controls large oil accumulations in the Swan Hills area of Northern Alberta providing continuing development projects with low-decline production and strong cash flow.

During the second quarter of 2014, Pengrowth achieved strong drilling and completion results in its non-thermal business, with 16 gross (10.4 net) wells drilled in the Cardium formation with 100-per-cent success. Based on initial test data and early production results, the Cardium wells appear to be meeting or exceeding expectations.

In addition to the activity in the Cardium formation, Pengrowth also executed a development program in the Elkton and Ellerslie formations at Caroline and Garrington, as well in the Glauconitic and Lloydminster formations at Jenner, with 12 gross (10.3 net) wells being drilled with 100-per-cent success.

Operating expenses

Second quarter of 2014 operating expenses of approximately $115-million, represented an increase of $11-million, or 10 per cent, compared with the first quarter of 2014. On a per-boe basis, second quarter of 2014 operating costs increased by $1.66 per boe to $17.05 per boe, mostly as a result of scheduled turnaround activities and lower production as compared with the first quarter of 2014.

Second quarter of 2014 operating expenses decreased approximately $15-million, or 12 per cent, compared with the second quarter of 2013 due to lower utility costs coupled with the absence of operating expenses from properties that were sold in 2013. On a per-boe basis, second quarter of 2014 operating expenses increased 82 cents per boe compared with the second quarter of 2013, due to an increased amount of turnaround activity in 2014 and production declines particularly in natural gas properties as capital investment continues to be directed primarily to oil development programs.

Full year 2014 operating expenses are expected to remain on track with previous guidance of between $15.20 and $15.80 per boe.

Funds flow from operations

Second quarter of 2014 funds flow from operations of $121-million (23 cents per share) decreased 13 per cent compared with the first quarter of 2014 mainly due to lower natural gas prices and an increase in operating costs associated with planned maintenance turnaround activities during the quarter.

Second quarter of 2014 funds flow from operations decreased 17 per cent compared with the same period last year, due to a decrease in volumes, mainly from property dispositions and higher realized commodity risk management losses. Partly offsetting these decreases were higher realized commodity prices for all products and lower operating costs.

Adjusted net income and loss

During the second quarter of 2014, Pengrowth reported an adjusted net loss of $24.8-million, an increase of $22.0-million compared with the first quarter 2014 adjusted net loss of $2.8-million. This change is primarily due to a decrease in funds flow from operations.

In contrast, the second quarter adjusted net loss of $24.8-million decreased by $12.3-million compared with the second quarter of 2013 adjusted net loss of $37.1-million. This was primarily due to lower non-cash losses on disposition of properties, lower depletion, depreciation and amortization expense, partly offset by a decrease in funds flow from operations.

General and administrative expenses

Second quarter of 2014 cash G&A expense of approximately $19-million declined by $4.0-million compared with the first quarter of 2014, mainly due to lower personnel costs and the absence of a cash-settled deferred share units expense recorded in the first quarter of 2014. On a per-boe basis, second quarter of 2014 cash G&A expenses decreased 53 cents per boe to $2.89 per boe compared with the first quarter of 2014 due to lower costs as discussed above.

Pengrowth is revising its full year 2014 cash G&A expense guidance from $2.70 to $2.90 per boe to a range of $3.15 to $3.25 per boe. The revised guidance reflects higher professional and personnel costs than forecast.

Financial flexibility

Pengrowth remains on sound financial footing with approximately $133-million of cash on hand and an undrawn $1.0-billion committed credit facility as at June 30, 2014. The cash on hand will continue to be used in conjunction with internally generated cash flow, to provide the capital for the completion of the first 12,500 bbl/d commercial phase of Lindbergh. Pengrowth expects to maintain a balanced cash flow profile through 2014, where cash outflows, including capital spending, will equal cash inflows plus cash on hand.

Pengrowth continues to use hedging to mitigate commodity price risk, foreign exchange risk and power costs, and to provide a measure of stability and predictability to cash flows. Pengrowth has 77 per cent of its remaining expected 2014 oil production hedged at $94.51 per barrel and 63 per cent of 2015 expected oil production hedged at $93.99 per barrel. Natural gas hedges account for 59 per cent of remaining expected 2014 gas production at $3.81 per thousand cubic feet and 47 per cent of 2015 expected production hedged at $3.85 per thousand cubic feet. Pengrowth also hedges portions of its power consumption in order to mitigate volatility in operating expenses. Pengrowth has hedged 78 per cent of remaining expected 2014 power consumption at $55.63 per megawatt-hour and 79 per cent of expected 2015 power consumption at $49.53 per mwh.

Additional details of Pengrowth's risk management contracts are outlined in the management's discussion and analysis and accompanying notes to the June 30, 2014, unaudited financial statements.

Pengrowth's total long-term debt was approximately $1.6-billion as at June 30, 2014, comprising $1.4-billion of fixed-rate term notes and $200-million of convertible debentures.

Outlook

Pengrowth continues to make excellent progress on its Cardium and Lindbergh projects as it executes its 2014 business plan. Pengrowth's non-thermal development program continues to deliver very strong operational results, especially in the Cardium, where costs and results have exceeded expectations. Execution on the commercial development of the Lindbergh thermal project remains on schedule. With greater than 90 per cent of the initial commercial phase capital committed or spent, the Lindbergh project is close to the finish line. Commissioning and first steam at Lindbergh are expected to commence in the fourth quarter. These results are key stepping stones in Pengrowth's strategy of delivering significant cash flow growth in 2015 and ultimately to becoming a sustainable, low-decline, dividend-paying energy producer.

Pengrowth's unaudited financial statements for the three and six months ended June 30, 2014, and related management's discussion and analysis can be viewed on Pengrowth's website. They have also been filed on SEDAR and EDGAR.

We seek Safe Harbor.