Mr. Derek Evans reports

PENGROWTH ANNOUNCES STRONG FIRST QUARTER OPERATIONAL AND FINANCIAL RESULTS

Pengrowth Energy Corp. has released its financial and operating results for the three months ended March 31, 2016. Pengrowth delivered strong first quarter operating and financial results, driven by its substantial hedge book and the low-decline nature of its asset base. During the quarter, Pengrowth continued to curtail spending, manage costs, and direct excess funds flow and net proceeds from its continuing asset disposition program to reduce its outstanding debt.

Consistent with its strategy to prudently manage its business in the current low commodity price environment, the company invested very little development capital in the quarter, instead allocating the bulk of the capital to maintenance and enhancement activities to its continuing operations. Despite the lack of development capital, Pengrowth delivered average production of 62,056 barrels of oil equivalent per day in the quarter compared with fourth quarter 2015 average production of 67,934 boe per day. The primary reason for the decline is 5,000 boe per day of asset dispositions in the fourth quarter, with the underlying base decline being offset by increasing Lindbergh production and a partial Sable condensate shipment. Production from Pengrowth's Lindbergh thermal oil project continued to ramp up, averaging 15,256 barrels per day at an average steam oil ratio (SOR) of 2.3 in the first quarter. With the growth in Lindbergh production, Pengrowth's liquid volumes have increased 6 per cent year over year, in keeping with the company's long-term objective of moving production toward a higher liquids weighting.

Pengrowth continues to benefit from its robust commodity hedging program, which has been providing strength and stability to its operating netbacks and resulting funds flow despite continued weak commodity prices. Realized first quarter pricing for crude oil and natural gas, after the impacts of hedging, was $66.98 per bbl and $3.33 per thousand cubic feet, respectively, resulting in hedging gains of $127.0-million compared with $97.7-million of gains in the fourth quarter of 2015. The hedging program allowed the company to generate funds flow of $106.2-million in the quarter, despite commodity prices declining by an average of 16 per cent from the fourth quarter of 2015. Pengrowth remains well hedged for the rest of 2016 with approximately 79 per cent of its oil production hedged at $85.01 per bbl and 97 per cent of its natural gas production locked in at $3.25 per thousand cubic feet and enjoys a hedge book valued at $321-million as at April 29, 2016, including foreign exchange hedges.

At the end of the first quarter, Pengrowth's outstanding debt declined by approximately $173-million to $1.68-billion from $1.86-billion at Dec. 31, 2015, and the company's $1.0-billion term credit facility was essentially undrawn. The company was able to reduce its debt through a combination of funds flow from operations, supported by a significant hedging program, disposition proceeds, continuing cost-reduction initiatives and favourable movements in Canadian foreign exchange rates. In addition, Pengrowth was successful in repurchasing approximately $9.7-million principal amount of its convertible debentures at a significant discount to face value during the quarter. Further debt reduction initiatives remain in place, including the continuing asset disposition program.

Financial and operating highlights:

• Lindbergh production continued to ramp up, increasing approximately 7 per cent in the quarter, averaging 15,256 bbl per day at an average SOR of 2.3 compared with 14,274 bbl per day in the fourth quarter 2015.
• Achieved first quarter average production of 62,056 boe per day, a decline of 9 per cent compared with 67,934 boe per day in the fourth quarter 2015 primarily due to 5,000 boe per day of asset dispositions closed in the fourth quarter.
• Generated first quarter funds flow from operations of $106.2-million (20 cents per share), down approximately 7 per cent from the fourth quarter 2015 funds flow of $114.2-million (21 cents per share), despite a 16-per-cent decline in commodity prices quarter over quarter.
• First quarter operating netback of $27.31 per boe, including hedging gains, increased approximately 9 per cent compared with $25.07 per boe in the fourth quarter 2015.
• Realized commodity risk management gains of $127.0-million during the quarter. As at April 29, 2016, the unrealized value of Pengrowth's outstanding foreign exchange, power and commodity price hedges was $321-million.
• Reduced total debt by approximately $173-million to $1.68-billion from $1.86-billion at Dec. 31, 2015.
• Increased oil hedge contracts in 2017 to 15,000 bbl per day or approximately 50 per cent of estimated 2016 oil production at an average price of $67.03 per bbl.

"We are proud of the strong, consistent operating and financial results that we have been delivering, notwithstanding the difficult environment in which we have been operating. Our assets have been performing well, and our significant hedge book has been providing strength and stability to our cash flows," said Derek Evans, president and chief executive officer of Pengrowth. "This strong performance has allowed us to make significant strides on our debt reduction efforts as we further reduced our debt by $173-million in the quarter, in addition to the $280-million reduction we posted in 2015. We remain on course with our debt reduction plans and will continue to take the steps within our control to ensure that we efficiently manage our business while working to reduce our corporate indebtedness further."

               SUMMARY OF FINANCIAL AND OPERATING RESULTS
   (monetary amounts in millions except per boe and per-share amounts)           

                                             Three months ended                 
                                  March 31,         Dec. 31,        March 31,  
                                      2016             2015          2015 (1)
Production
Average daily production
(boe/d)                             62,056           67,934           69,334

Financial
Funds flow from
operations (2) (3)              $    106.2       $    114.2       $    113.0
Funds flow from
operations per share
(2) (3)                         $     0.20       $     0.21       $     0.21
Oil and gas sales               $    114.2       $    169.1       $    199.9
Oil and gas sales per
boe                             $    20.22       $    27.06       $    32.03
Realized commodity risk
management gains
(losses)                        $    127.0       $     97.7       $     85.7
Realized commodity risk
management gains
(losses) per boe                $    22.49       $    15.63       $    13.74
Operating expenses              $     70.1       $     81.4       $     92.9
Operating expenses per
boe                             $    12.41       $    13.02       $    14.89
Royalty expenses                $      8.1       $     19.1       $     24.8
Royalty expenses per boe        $     1.43       $     3.06       $     3.97
Royalty expenses as a
per cent of sales                      7.1%            11.3%            12.4%
Operating netback per
boe (2)                         $    27.31       $    25.07       $    25.37
Total cash G&A expenses
(2)                             $     18.8       $     15.8       $     24.9
Total cash G&A expenses
per boe (2)                     $     3.33       $     2.53       $     3.99
Capital expenditures            $      8.7       $     19.1       $     98.4
Cash dispositions (4)           $     12.8       $    183.4       $      0.5
Dividends paid                  $        -       $      5.5       $     53.4
Dividends paid per share        $        -       $     0.01       $     0.10

Statement of income
(loss)
Adjusted net income
(loss) (2)                      $      0.5      $    (463.4)      $     64.8
Net income (loss)               $     25.0      $    (468.6)      $   (160.5)
Net income (loss) per
share                           $     0.05      $     (0.86)      $    (0.30)

Contribution based on
operating netbacks (2)
Light oil                               88%              52%              57%
Heavy oil                               11%              42%              14%
Natural gas liquids                      -%               4%               3%
Natural gas                              1%               2%              26%
                                                                            
(1) First quarter of 2015 contains only Lindbergh pilot project production  
and related revenue and expenses. The expenses, net of revenue, from the    
first commercial phase of the Lindbergh thermal project, were capitalized 
and hence excluded from the operating results until April 1, 2015, when 
commerciality of the project was declared.               
(2) A non-generally accepted accounting principle and operational measure.
(3) Funds flow from operations for the three and 12 months ended        
Dec. 31, 2015, excludes $200,000 and $94.1-million, respectively, of 
gains related to the 2015 settlement of foreign exchange swap contracts.    
(4) Percentage changes in excess of 500 are excluded.                                              

Funds flow from operations

Pengrowth's first quarter 2016 funds flow from operations of $106.2-million (20 cents per share) decreased 7 per cent compared with fourth quarter 2015 funds flow of $114.2-million (21 cents per share). The decrease in funds flow quarter over quarter was primarily driven by lower volumes and lower commodity prices, which were mostly offset by higher realized commodity risk management gains combined with lower royalties and operating expenses.

Production

Average daily production of 62,056 boe per day in the quarter decreased compared with the fourth quarter 2015 average daily production of 67,934 boe per day. The primary reason for the decline is 5,000 boe per day of asset dispositions in the fourth quarter, with the underlying base decline being offset by increasing Lindbergh production and a partial Sable condensate shipment.

Pengrowth is updating its full-year 2016 production guidance to account for the 2,000 boe per day of asset sales and swaps in the quarter, the shut-in of the Judy Creek miscible flood (approximately 300 boe per day), and the reduction in the rate of ramp-up on a portion of the Lindbergh phase 1 wells (approximately 700 boe per day).

Pengrowth now expects full-year average daily production to be within a range of 56,000 to 58,000 boe per day, down from the previous guidance of 59,000 to 61,000 boe per day.

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 annual production of 40,000 to 50,000 bbl per day, starting with the initial 12,500-barrel-per-day commercial phase, which came on stream in 2015.

Lindbergh thermal production continued to ramp up during the quarter, averaging 15,256 bbl per day at an average SOR of 2.3. This is an increase of 7 per cent from the average fourth quarter production of 14,274 bbl per day at an average SOR of 2.1.

The original two pilot well pairs that have been on production for 48 months have recovered approximately 2.3 million barrels of the 2.4 million barrels that were originally estimated to be recovered. Performance from the pilot wells continues to be robust with the current combined production rate being approximately 1,300 bbl per day at an average SOR of 3.3. The stronger production performance and shallower declines from the pilot wells are pointing to higher recovery factors than originally modelled.

Production from the 20 well pairs on the Lindbergh phase 1 well pads continues to ramp up. These pads are exhibiting a slower ramp-up compared with the pilot wells due to their average shorter well lengths and the decision to place the wells deeper in the Lloydminster reservoir to allow heating of more bitumen resource. Pengrowth expects to see a reduced peak production rate and an extended plateau period but no changes to the estimated ultimate recovery of the wells. As a result, Lindbergh production is expected to average 15,700 bbl per day for the year.

Capital expenditures

Pengrowth continued with its strategy of deferring significant development capital expenditures until a sustained recovery in commodity prices is present. First quarter of 2016 capital expenditures were limited to $8.7-million with approximately 24 per cent of the capital being spent at Lindbergh on expansion-phase engineering and development and 59 per cent being spent on turnaround, safety, integrity, and maintenance and enhancement activities.

Operating expenses

Operating expenses of $70.1-million ($12.41 per boe) in the quarter decreased $11.3-million or 14 per cent compared with the fourth quarter 2015 operating expenses of $81.4-million ($13.02 per boe). The lower expenses in the current quarter were primarily due to the absence of operating expenses related to the divested properties. This was in addition to reduced activity and a reduction in third party service rates, which further highlighted Pengrowth's continuing focus on cost-control efforts. Pengrowth expects to generate additional savings in 2016 of approximately $24-million to aggregate operating expenses relating to the disposed properties and curtailed activity.

On a per boe basis, first quarter of 2016 operating expenses decreased 61 cents per boe compared with the fourth quarter primarily due to divestment of higher operating cost properties and continuing cost-control efforts. While first quarter per boe costs were below full-year guidance, Pengrowth has scheduled two major planned turnarounds in the conventional business segment, one at Olds, which will be carried out in the second quarter, and one at Swan Hills, to be carried out later in the year. These turnarounds are expected to result in higher unit operating costs and, when coupled with the lower expected production volumes in 2016 due to first quarter dispositions, the per boe estimates remain within original guidance of $15.25 to $16.25 per boe.

General and administrative expenses

First quarter 2016 cash G&A expenses of $18.8-million ($3.33 per boe) increased by approximately $3.0-million or 19 per cent compared with fourth quarter 2015 cash G&A of $15.8-million ($2.53 per boe). The higher expenses in the quarter were mainly driven by an increase in the mark-to-market value of the cash-settled share-based compensation expense resulting from a 67-per-cent increase in the March 31, 2016, closing share price relative to Dec. 31, 2015.

Cash G&A expenses are expected to remain within original guidance of $2.75 to $3.25 per boe.

Adjusted net income (loss)

Pengrowth reports adjusted net income to remove the effect of unrealized gains and losses on its earnings. In the first quarter, Pengrowth reported adjusted net income of $500,000 compared with an adjusted net loss of $463.4-million in the fourth quarter of 2015. The significant improvement in the reported net loss was primarily due to the absence of the non-cash impairment charges recorded in the fourth quarter of 2015.

Financial flexibility and liquidity

Pengrowth is committed to ensuring its financial flexibility in 2016. The company has a $1.0-billion committed revolving credit facility, which is covenant based and is not subject to review until March 31, 2019. The company has no scheduled debt maturities in 2016 and has been working to reduce its outstanding debt position through a combination of funds flow from operations, supported by a significant hedging program, disposition proceeds and its continuing cost-reduction initiatives in 2016. During the quarter, approximately $9.7-million principal amount of convertible debentures was repurchased at a significant discount to face value. At the end of the quarter, the $1.0-billion committed revolving credit facility was essentially undrawn.

Pengrowth's total debt before working capital at March, 31, 2016, was $1.68-billion, a reduction of $173-million or approximately 9 per cent from the Dec. 31, 2015, value of $1.86-billion. The reduction in debt was through a combination of the debt repayment efforts mentioned earlier combined with a favourable movement in the Canadian foreign exchange rates in the quarter. As the majority of Pengrowth's debt is denominated in U.S. dollars and British pound sterling, the strengthening of the Canadian dollar relative to these currencies since Dec. 31, 2015, drove the Canadian-dollar-equivalent debt balance down by approximately $98-million.

Commodity risk management

Pengrowth has extensive oil and natural gas hedges in place through the end of 2016 that are expected to provide a significant degree of cash flow certainty notwithstanding the current low commodity price environment. For the rest of 2016, the company has approximately 22,505 bbl per day of 2016 crude oil production (79 per cent of 2016 estimated oil production) hedged at $85.01 per bbl and approximately 125 million cubic feet per day of 2016 natural gas production (97 per cent of 2016 estimated gas production) hedged at $3.25 per thousand cubic feet. The company also has significant natural gas hedges in place for 2017 and 2018 and continues to target opportunities to add additional crude oil hedges for 2017 and 2018, should the commodity price opportunity present itself. The mark-to-market value of Pengrowth's hedge book, including foreign exchange hedges, was approximately $321-million as at April 29, 2016.

Outlook

As the first quarter progressed, global crude oil prices staged a modest recovery from their January lows, and subsequent to the end of the quarter, prices have continued to strengthen with West Texas crude trading above $45 (U.S.) per bbl. This has resulted in an improving tone in the asset disposition market, which is expected to benefit Pengrowth as it continues with its asset disposition program in 2016. Despite the strengthening in crude oil prices, Pengrowth continues with its cost-management efforts, which, to date, have allowed the company to generate significant cost savings across all segments of its business. The company remains committed to ensuring its financial flexibility in 2016 and expects to direct all excess cash flow from its hedging program, disposition proceeds and funds flow from operations toward reducing its outstanding debt position.

New York Stock Exchange continued listing standard notification

Pengrowth is pleased to announce that it received notification on May 2, 2016, from the NYSE that it is in compliance with the continued listing standards of the NYSE as of April 29, 2016. Pengrowth's average closing price of its common shares for the 30 trading days ended April 29, 2016, and the closing price of its common shares on April 29, 2016, both exceeded $1 (U.S.). On Oct. 29, 2015, Pengrowth received notice from the NYSE that it was no longer in compliance with the NYSE's continued listing standard in relation to the trading value of its common stock. The continued listing standard requires a minimum average closing price of $1 (U.S.) over a consecutive 30-day trading period.

Pengrowth's unaudited financial statements for the three months ended March 31, 2016, and related management's discussion and analysis can be viewed on Pengrowth's website. They have also been filed on SEDAR and on EDGAR.

Annual meeting

Pengrowth's 2016 annual meeting of shareholders will be held on June 28, 2016, at 3 p.m. Mountain Time at the Metropolitan Conference Centre, located at 333 Fourth Ave. Southwest, Calgary, Alta. Information circulars and proxy forms pertaining to this meeting are expected to be mailed in late May to shareholders of record as of May 16, 2016. Two of Pengrowth's incumbent directors, John B. Zaozirny, chairman of the board, and Michael S. Parrett will be retiring at the meeting and are not standing for re-election, reducing Pengrowth's board size to eight members. Mr. Zaozirny and Mr. Parrett have served as directors of Pengrowth and its predecessors since 1988 and 2004, respectively. Given that the chairman of the board will be retiring, it will be necessary for the board to appoint a new chair. The board has determined that, assuming all members are re-elected at the meeting, Kelvin B. Johnston will assume the chair position following the meeting.

Analyst call

Pengrowth will host an analyst call and listen-only audio webcast beginning at 6:15 a.m. Mountain Time (MT) on May 4, 2016, during which management will review Pengrowth's first quarter results and respond to questions from the analyst community.

To ensure timely participation in the teleconference, callers are encouraged to dial in 10 minutes prior to the start of the call to register.

Dial-in numbers:

Toll-free:  800-396-7098

Toronto local:  416-340-8530

We seek Safe Harbor.