Mr. Derek Evans reports

PENGROWTH REPORTS SOLID THIRD QUARTER RESULTS ANCHORED BY EIGHT PERCENT GROWTH IN FUNDS FLOW AND STABLE PRODUCTION

Pengrowth Energy Corp. has released its financial and operating results for the three and nine months ended Sept. 30, 2015.

Pengrowth delivered another strong quarter of results from operations highlighted by stable production and an 8-per-cent increase in funds flow over the second quarter of 2015, despite continued low commodity prices and minimal capital spending.

Third quarter 2015 average daily production of 74,239 barrels of oil equivalent per day remained essentially unchanged from the second quarter 2015 production of 74,113 boe per day and increased by 2 per cent compared with the same period in 2014. Underlying the stability in corporate production is the growth in volumes from the Lindbergh thermal project. Production from Lindbergh in the third quarter averaged 14,564 barrels per day at an average instantaneous steam oil ratio (ISOR) of 2.1. Lindbergh remains on track to achieve a 2015 exit production rate of approximately 16,000 bbl per day.

Consistency in funds flow was evident once again in the quarter, with funds flow from operations of $120.6-million (22 cents per share) representing an increase of 8 per cent compared with second quarter 2015 funds flow of $111.5-million (21 cents per share). The increase in funds flow relative to the second quarter is largely a result of the growth in heavy oil volumes from Lindbergh, supported by Pengrowth's commodity risk management (hedging) program. The strength of Pengrowth's hedging program continues to provide the company with cash flow stability in 2015 as evidenced by the fact that quarterly funds flows have remained robust while crude oil and natural gas prices declined by approximately 52 per cent and 31 per cent, respectively, compared with the same period last year. Pengrowth remains well hedged through the end of 2016 and the company continues to look for opportunities to layer in additional oil hedge contracts in 2017 and 2018.

To further enhance its debt retirement efforts, Pengrowth adopted measures intended to preserve capital and generate cash flow. Included in these measures is the goal of selling $600-million of non-core assets in the year and applying the proceeds to debt repayment. Subsequent to the end of the quarter, the company announced the sale of its Bodo asset for $95-million and its Jenner area assets for $80-million. When combined with letters of intent for additional assets and previously closed transactions, total divestment proceeds in 2015 amount to over $300-million. Pengrowth is continuing with its non-core asset sales process and negotiating to reach binding agreements on $450-million of additional cash offers received on outstanding assets. These sales are expected to allow the company to materially reduce its outstanding indebtedness by the end of the year.

In the third quarter, the company reported an adjusted net loss of $374.0-million compared with an adjusted net loss of $38.9-million in the second quarter of 2015. The reported net loss was primarily due to a non-cash, aftertax impairment charge of $375.0-million. The impairment charge relates to property, plant and equipment, as well as goodwill, and resulted from a downward revision in future commodity prices from Pengrowth's external reserve evaluators.

"We have delivered another strong quarter of operating and financial results in a very challenging environment and these results speak to the effectiveness of the actions that we have taken to safeguard the financial health and stability of the company," said Derek Evans, president and chief executive officer of Pengrowth. "Living within cash flow in 2015 while reducing our debt remains our primary goal and with the planned sale of $600-million of non-core assets, we expect to materially accelerate our debt-reduction efforts."

Financial and operating highlights:

• Continued growth in Lindbergh production, which averaged 14,564 bbl per day at an average ISOR of 2.1 in the third quarter;
• Generated strong funds flow from operations of $120.6-million (22 cents per share), an increase of 8 per cent versus second quarter 2015 funds flow of $111.5-million (21 cents per share). Funds flow increased despite crude oil prices declining by 20 per cent in the quarter;
• Realized commodity hedging gains of $84.5-million during the quarter. Year to date, Pengrowth's risk management program has generated $229.3-million in realized gains;
• Achieved third quarter average production of 74,239 barrels of oil equivalent per day, essentially unchanged from second quarter 2015 average production of 74,113 boe per day, despite very little development capital spending;
• Recognized an aftertax non-cash impairment charge to property, plant and equipment assets, and goodwill of $375.0-million, primarily due to lower estimated future commodity prices from Pengrowth's external reserve evaluators;
• Reported an adjusted net loss of $374.0-million in the third quarter of 2015 compared with an adjusted net loss of $38.9-million in the second quarter of 2015. The net loss resulted from the $375.0-million aftertax non-cash impairment charge.

             SUMMARY OF FINANCIAL AND OPERATING RESULTS
             (In millions, except per boe and per share)

                        Three months ended         Nine months ended
                        Sept. 30, Sept. 30,       Sept. 30, Sept. 30,
                            2015      2014            2015      2014
Production
Average daily
production (boe per
day)                      74,239    72,472          72,580    73,789
Funds flow from
operations              $  120.6  $  129.0        $  345.1  $  389.9
Funds flow from
operations per share    $   0.22  $   0.24        $   0.64  $   0.74
Oil and gas sales       $  211.9  $  369.1        $  661.7  $1,205.4
Oil and gas sales per
boe                     $  31.02  $  55.36        $  33.40  $  59.84
Realized commodity
risk management gains
(losses)                $   84.5  $  (28.6)       $  229.3  $ (117.8)
Realized commodity
risk management gains
(losses) per boe        $  12.38  $  (4.29)       $  11.57  $  (5.85)
Operating expenses      $   91.0  $  102.4        $  290.7  $  320.9
Operating expenses per
boe                     $  13.32  $  15.36        $  14.67  $  15.93
Royalty expenses        $   19.1  $   65.5        $   70.4  $  217.4
Royalty expenses per
boe                     $   2.80  $   9.83        $   3.55  $  10.79
Royalty expenses as a
percentage of sales         9.0%     17.7%           10.6%     18.0%
Operating netback per
boe                     $  25.48  $  24.91        $  24.93  $  26.17
Cash G&A expenses       $   24.2  $   20.6        $   71.2  $   63.1
Cash G&A expenses per
boe                     $   3.54  $   3.09        $   3.59  $   3.13
Capital expenditures    $   15.5  $  191.9        $  164.7  $  645.2
Capital expenditures
per share               $   0.03  $   0.36        $   0.31  $   1.23
Net cash acquisitions
(dispositions)          $   (2.2) $  (29.3)       $  (26.2) $  (47.7)
Net cash acquisitions
(dispositions) per
share                   $      -  $  (0.06)       $  (0.05) $  (0.09)
Dividends paid          $   32.6  $   63.5        $  116.8  $  189.4
Dividends paid per
share                   $   0.06  $   0.12        $   0.22  $   0.36
Adjusted net income
(loss)                  $ (374.0) $    3.4        $ (348.1) $  (24.2)
Net income (loss)       $ (329.6) $   52.2        $ (624.5) $  (72.8)
Net income (loss) per
share                   $  (0.61) $   0.10        $  (1.16) $  (0.14)

Funds flow from operations

The company continues to generate stable funds flow despite the volatility in commodity prices, due to its extensive commodity hedge program. Pengrowth's third quarter 2015 funds flow from operations of $120.6-million (22 cents per share) increased 8 per cent compared with the second quarter 2015 funds flow of $111.5-million (21 cents per share). The increase in funds flow was driven by greater realized commodity risk management gains and higher heavy oil sales volumes combined with lower operating expenses and royalties, which more than offset lower commodity prices during the quarter.

Despite a 44-per-cent decrease in realized prices year over year, third quarter 2015 funds flow from operations decreased approximately 7 per cent to $120.6-million (22 cents per share) compared with $129.0-million (24 cents per share) in the same period last year. Pengrowth's third quarter 2015 operating netback of $25.48 per boe increased by 2 per cent compared with the third quarter 2014 netback of $24.91 per boe. Lower royalties, operating expenses and higher realized hedging gains in the quarter more than offset the lower prices year over year.

Increased Lindbergh production in the quarter contributed to operating costs below $10.00 per bbl and provided a strong operating netback for the property of $21.69 per bbl based on an average West Texas Intermediate crude oil price of $47.00 (U.S.) per bbl and contributed to the stable funds flow in the quarter.

Production

Production continues to be robust despite a significant reduction in development capital in the quarter. Third quarter average daily production of 74,239 boe per day remained unchanged compared with the second quarter 2015 production of 74,113 boe per day. Increased production from Lindbergh more than offset the impacts of third party turnaround, maintenance activities, natural declines and 2015 property dispositions.

Capital expenditures

Pengrowth continued with its strategy of deferring significant development capital expenditures until a sustained recovery in commodity prices coupled with a more economic cost structure is present, limiting third quarter of 2015 capital expenditures to $15.5-million. Approximately 23 per cent of the capital was spent at Lindbergh, 74 per cent was spent on turnaround, maintenance and enhancement activities at Pengrowth's conventional properties, and the remainder was spent on minor partner-operated development and other capital.

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 ultimately develop bitumen production of 40,000 to 50,000 bbl per day, starting with the initial 12,500 bbl per day nameplate commercial phase brought on stream early in 2015. Lindbergh's robust economics make it a strong, viable project even in the current low-commodity-price environment, with positive operating netbacks at crude oil prices as low as $30 (U.S.) WTI, at current heavy oil differentials and foreign exchange rates.

Production volumes from Lindbergh continued to ramp up in the quarter, resulting in average daily production of 14,564 bbl per day at an ISOR of 2.1. The project recycles on-site in excess of 95 per cent of water used in operations. Despite the current low-commodity-price environment, Lindbergh generated a strong operating netback of $21.69 per bbl in the third quarter of 2015. The netback excludes realized commodity risk management gains. Lindbergh operating expenses are expected to be higher in the fourth quarter of 2015 due to a scheduled turnaround as required to meet Alberta pressure equipment safety regulations for the facilities. Lindbergh remains on track to achieve an exit production rate of approximately 16,000 bbl per day by the end of the year.

Conventional oil and gas

Pengrowth's significant conventional 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 opportunities in the Cardium, Viking and Mannville sands, as well as in the Mississippian carbonate section. The existing, extensive gathering and processing infrastructure provides an efficient platform for continued development in this area. Pengrowth also controls large light oil accumulations with low production decline rates and strong cash flow in the Swan Hills area of Northern Alberta, as well as Montney natural gas opportunities with anticipated significant liquid yields in northeast British Columbia.

Conventional development was curtailed in 2015, with the third quarter of 2015 capital spending of $11.7-million focused on maintenance and enhancement activities, and minor partner-operated development.

Operating expenses

Third quarter 2015 operating expenses of $91.0-million ($13.32 per boe) decreased $15.8-million, or 15 per cent, compared with the second quarter 2015 operating expenses of $106.8-million ($15.83 per boe). The decrease in expenses was due to lower power costs during the quarter and the absence of costs related to turnaround activities completed in the second quarter of 2015. On a per-boe basis, third quarter of 2015 operating expenses decreased approximately 16 per cent, or $2.51 per boe, compared with the second quarter of 2015 primarily due to the lower costs mentioned earlier as production volumes remained relatively unchanged.

General and administrative expenses

Third quarter 2015 cash G&A expenses of $24.2-million ($3.54 per boe) were $2.1-million, or approximately 10 per cent higher compared with second quarter 2015 cash G&A expenses of $22.1-million ($3.28 per boe). The increase in cash G&A costs was primarily due to severance costs related to staff reductions that were carried out in the third quarter of 2015.

Adjusted net income (loss)

Pengrowth reported an adjusted net loss of $374.0-million in the third quarter of 2015 compared with an adjusted net loss of $38.9-million in the second quarter of 2015. The reported net loss resulted from the company incurring a non-cash impairment charge of $375.0-million, after tax, during the quarter. Under financial reporting standards, Pengrowth is required to determine possible impairments due to declines in commodity prices. The impairment charge recorded in the quarter reflects the low commodity price for both crude oil and natural gas in the third quarter, as well as reflecting the lower estimated future commodity prices from Pengrowth's external reserve evaluators.

Financial resources and liquidity

Pengrowth pro-actively utilizes financial instruments to manage its exposure to commodity, power price fluctuations and foreign currency exposure. Pengrowth continues to benefit from its extensive commodity hedging program, generating strong funds flow in spite of the low-commodity-price environment. During the third quarter, Pengrowth's commodity risk management program generated a realized gain of $84.5-million, or $12.38 per boe, as the company's contract prices exceeded the average benchmark prices. The estimated fair value of the remaining commodity and foreign exchange hedges in place at Oct. 31, 2015, was $387-million and excludes $31-million of realized gains in October.

After accounting for the impacts of the announced asset dispositions, Pengrowth has approximately 85 per cent, or 26,000 bbl per day, of crude oil production hedged at $93.68 per bbl for the fourth quarter of 2015 and approximately 71 per cent, or 22,000 bbl per day, of 2016 crude oil production hedged at $88.57 per bbl. The company has also been actively layering in additional oil hedges for 2017 and 2018 to provide additional cash flow stability. For natural gas, Pengrowth has approximately 73 per cent, or 106 million cubic feet per day, of natural gas production hedged at $3.69 per thousand cubic feet for the fourth quarter of 2015 and approximately 99 per cent, or 126 million cubic feet per day, of 2016 natural gas production hedged at $3.28 per thousand cubic feet. Pengrowth is also significantly hedged in 2017 and 2018 with natural gas production hedged at prices in excess of $3.45 per thousand cubic feet.

Pengrowth's commodity risk management contracts in place as at Oct. 31, 2015, are summarized in the table.

               SUMMARY OF COMMODITY RISK MANAGEMENT CONTRACTS

                                                Percentage of(1)               
                                        Volume         volume  
                                        hedged         hedged  Average price      
Crude oil (bbl per day)                                                     
Oct. 1 to Dec. 31, 2015                 26,000             85%    $93.68/bbl
2016                                    22,239             71%    $88.57/bbl
2017                                     5,000             18%    $79.19/bbl
2018                                     5,500             22%    $80.49/bbl
Natural gas (MMcf per day)                                                  
Oct. 1 to Dec. 31, 2015                  105.6             73%     $3.69/Mcf
2016                                     126.8             99%     $3.28/Mcf
2017                                      90.6             88%     $3.47/Mcf
2018                                      66.3             73%     $3.59/Mcf

1. Percentages net of disposition volumes announced subsequent to the end of 
the third quarter.

During the quarter, Pengrowth repaid $30-million on its credit facilities, leaving the company with $275-million drawn on its $1.0-billion credit facility as at Sept. 30, 2015. Subsequent to the end of the quarter, and taking into account the funds received for the Bodo disposition, the balance on the company's credit facility was $169-million. Pengrowth's long-term debt is primarily in U.S. dollars and converted to Canadian dollars using the foreign exchange rate at quarter-end. Total reported debt in Canadian dollars increased by $67-million to $2.07-billion in the quarter, all due to a weakening of the Canadian dollar against the U.S. dollar. With the closing of the Bodo disposition, combined with the appreciation of the Canadian dollar relative to the U.S. dollar, as at Oct. 31, 2015, Pengrowth's total reported debt decreased by $130-million to $1.94-billion.

Outlook

Pengrowth achieved solid operational results in the third quarter, highlighted by an 8-per-cent increase in funds flow and stable production, despite continued deterioration in commodity prices and minimal capital spending. Lindbergh's performance is on track and is expected to continue ramping up through the remainder of the year with exit production rates expected to reach 16,000 bbl per day by year-end. A priority for the company in 2015 is the reduction in overall corporate indebtedness, to which Pengrowth has targeted the sale of $600-million of non-core assets. With the sale of Jenner and Bodo, and including LOIs as well as previously closed dispositions, total expected disposition proceeds are now in excess of $300-million in 2015. In addition, Pengrowth has asset disposition packages in the market that have generated over $450-million of additional cash offers. The company remains confident that it will successfully achieve its $600-million disposition target in 2015. The expected proceeds from these non-core asset sales will be directed toward reducing Pengrowth's outstanding debt as part of the company's goal to strengthening its balance sheet. As this process evolves, the company will continue to focus on its core properties and position for a recovery in commodity prices.

Pengrowth's unaudited financial statements for the three and nine months ended Sept. 30, 2015, and related management's discussion and analysis can be viewed on Pengrowth's website. They have also been filed on SEDAR and EDGAR.

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