Mr. Derek Evans reports

PENGROWTH DELIVERS TRANSFORMATIONAL DEBT REDUCTION IN FIRST QUARTER DRIVEN BY ASSET SALES

Pengrowth Energy Corp. has released its first quarter 2017 operating results, has substantially reduced outstanding debt, has made significant asset sales and has further reduced its cost structures.

Since the start of 2017, Pengrowth has closed or expects to close $707-million of asset sales, which, when combined with the $287-million of cash on hand at year-end 2016, represents a net debt reduction of nearly $1.0-billion or approximately 60 per cent of Dec. 31, 2016, debt, while only reducing the company's proven and probable reserves as of Dec. 31, 2016, by approximately 11 per cent. This significant level of debt reduction should enable Pengrowth to either replace existing debt with new debt that has fewer restrictive covenants or renegotiate the terms of the remaining existing debt, which would allow Pengrowth to pursue the expansion of Lindbergh.

Derek Evans, president and chief executive officer of Pengrowth, commented: "We are delighted by the progress that we have made on reducing our debt and strengthening our balance sheet. Our efforts and results to date have been transformational for Pengrowth and have put us on a path to either renegotiate or refinance our remaining term debt into a new structure that should allow for the flexibility to develop the second phase of our world-class Lindbergh thermal asset."

Highlights:

• Reduced total debt before working capital by $535-million through the prepayment of $300-million (U.S.) of the $400-million (U.S.) 6.35 per cent senior notes due July 26, 2017, and the payment on maturity of $126.6-million of outstanding convertible debentures on March 31, 2017;
• Entered into an agreement to sell a portion of its Swan Hills assets in north-central Alberta for total cash consideration of $180-million, before customary adjustments;
• Sold its non-producing Montney lands at Bernadet in northeast British Columbia for cash consideration of $92-million, with the transaction closing on April 11, 2017;
• Subsequent to quarter-end, entered into an agreement to sell the rest of its Swan Hills assets in north-central Alberta for total cash consideration of $185-million, before customary adjustments;
• Achieved additional expense reductions in the quarter with operating and general and administrative expenses down $9.5-million and $3.1-million, respectively, from the first quarter of 2016;
• Reduced expected interest expense, on an annualized basis, by more than $65-million per year with the debt payments completed in the quarter, coupled with the expected additional debt reduction resulting from the closing of the Swan Hills dispositions;
• Achieved average daily production of 52,957 barrels of oil equivalent per day during the quarter;
• Realized a 256-per-cent increase in combined operating netbacks before commodity risk management, of $17.18 per boe compared with $4.82 per boe in the same period last year.

Operations

Pengrowth achieved first quarter average daily production of 52,957 boe per day, compared with average daily production of 62,056 boe per day in the first quarter of 2016. The decrease in production year over year can be attributed to the absence of volumes from property divestments and additional shut-in natural gas volumes and natural declines, as well as the absence of a condensate shipment from the Sable offshore energy project in the quarter.

Performance from the company's Lindbergh thermal project continues to exceed nameplate capacity with production in the quarter averaging 14,865 barrels per day at an average steam oil ratio of 2.57 times. Production in the quarter was impacted by the phase 1 well pairs commencing their expected natural decline after having been on production for over 24 months. Pengrowth has not drilled any new well pairs into the project in the last two years, and the company expects production will decline over the year until the new well pairs associated with the phase 1 optimization program begin steaming later this year.

During the quarter, the phase 1 optimization program commenced with $13.7-million of capital being put to work drilling infill and observation wells, as well as related surface and facility construction. It is anticipated that a total of seven new SAGD (steam-assisted gravity drainage) well pairs will be drilled over the next two quarters, with first production expected by the end of the year.

In addition to phase 1 optimization expenditures and activities, continuing engineering and design work relating to the second expansion phase were carried out in the quarter. Pengrowth anticipates having 70 per cent of the engineering and design work complete by the end of year and to be ready to execute on phase 2 as funds become available.

Financial results

The company delivered first quarter funds flow from operations of $26.9-million (five cents per share), compared with funds flow of $106.2-million (20 cents per share) for the same period in 2016. The decrease in funds flow year over year was primarily due to the absence of significant hedging gains realized in the first quarter of 2016 coupled with lower production volumes year over year and a realized hedging loss in the first quarter of 2017. Pengrowth realized $127.0-million of hedging gains in the first quarter of 2016 from its risk management program, which had a higher fixed volume and higher fixed price point on the contracts compared with the first quarter of 2017. Offsetting this were higher realized prices during the first quarter of 2017 compared with the same period in 2016 due to material improvements in both crude oil and natural gas benchmark prices. The result led to a 256-per-cent increase in operating netbacks, before the impacts of commodity risk management, of $17.18 per boe in the first quarter of 2017 compared with $4.82 per boe in the first quarter of 2016.

Financial resources and liquidity

A key focus for Pengrowth in 2017 continues to be on improving the health and strength of its balance sheet. The company reduced its total debt by $535-million through the prepayment of $300-million (U.S.) of its 6.35 per cent notes and the redemption of $126.6-million of convertible debentures at maturity. Following these payments, Pengrowth's total debt at March 31, 2017, amounted to $1.15-billion compared with $1.68-billion at Dec. 31, 2016. On April 26, 2017, the company gave notice of prepayment to the holders of its remaining 6.35 per cent notes that it intends to prepay the $100-million (U.S.) of notes on June 2, 2017.

Following the debt repayments by March 31, 2017, Pengrowth's ratio of trailing 12-month senior debt to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased to 2.5 times from 3.1 times at Dec. 31, 2016. Pengrowth projects it will remain onside of its financial covenants through 2017 and 2018 using certain assumptions. The key assumptions used in the projection include an improvement in West Texas crude oil to $60 (U.S.) per barrel by the third quarter of 2017, closing of the two announced Swan Hills dispositions by May 31, 2017, and using the cash proceeds to prepay the 2017 and 2018 unsecured notes. To provide additional financial flexibility, Pengrowth is considering accessing the capital markets before the end of third quarter of 2017 to replace existing debt with less restrictive high yield debt, or renegotiating the terms of the remaining existing debt. This financial flexibility together with proceeds from any additional asset dispositions could be used toward the financing of the Lindbergh expansion and other capital projects.

The vast majority of Pengrowth's long-term debt and interest payments is denominated in U.S. dollars and, as such, is subject to fluctuations in the exchange rate between the Canadian and U.S. dollars. Pengrowth manages this foreign exchange exposure through swap contracts on the majority of its outstanding foreign-denominated notes. At March 31, 2017, Pengrowth held $620-million (U.S.) of swap contracts at a weighted-average exchange rate of 75 Canadian cents to $1 (U.S.).

Risk management

At the end of the quarter, Pengrowth elected to close out its 2017 oil risk management contracts at a cost of $12.7-million and, at this time, has no oil risk management contracts in place. The liquidated contracts had an average hedge value that was below current prices and resulted in a loss to Pengrowth in the first quarter. The company also entered into new natural gas risk management contracts in the quarter to provide downside protection against potential declines in natural gas prices. A complete summary of Pengrowth's commodity risk management contracts in place as at March 31, 2017, for the rest of 2017 is provided in the attached commodity risk management contracts table.

                  COMMODITY RISK MANAGEMENT CONTRACTS

Natural gas                        Q2 2017       Q3 2017       Q4 2017

Volumes (MMcf/d)                      58.3          58.3          22.8
Fixed AECO price (Cdn$/Mcf)          $2.72         $2.72         $2.82

Dispositions

Since late 2016, the company has announced a number of transactions, including the recent agreements to sell its Swan Hills assets in north-central Alberta and its non-producing Montney lands at Bernadet in northeast British Columbia. The total cash proceeds from the announced dispositions amount to $707-million, and Pengrowth anticipates using the proceeds from these sales toward debt reduction. When combined with the $287-million of cash on hand that the company had at Dec. 31, 2016, the company's total debt will be reduced by approximately $1.0-billion since year-end 2016. A summary of the asset disposition transactions entered into or closed since year-end is provided in the attached asset disposition transactions table.

                                    ASSET DISPOSITION TRANSACTIONS

                              Announcement date      Proceeds ($ million)     Expected or actual closing date

Lindbergh GORR                    Dec. 14, 2016                     $250                         Jan. 6, 2017
First Swan Hills package         March 20, 2017                     $180                         May 31, 2017
Bernadet lands                   March 23, 2017                      $92                       April 11, 2017
Second Swan Hills package        April 25, 2017                     $185                         May 31, 2017
Total gross proceeds                                                $707

Outlook

In 2017, the company has achieved substantial success in selling assets, substantially reducing debt and improving the strength of the balance sheet. The announced asset sales and associated delevering of the balance sheet will allow Pengrowth to focus on its key core assets at Lindbergh and Groundbirch.

The company remains in discussions with lenders of its syndicated bank facility and with the holders of its senior term notes to achieve the financial flexibility it needs to move forward with the development of the next expansion phase of its Lindbergh thermal project.

Analyst call

Pengrowth will host an analyst call and listen-only audio webcast beginning at 6:30 a.m. Mountain Daylight Time on May 3, 2017, 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:  844-358-9179

International:  478-219-0186

Pengrowth's unaudited financial statements for the three months ended March 31, 2017, and related management's discussion and analysis can be viewed on Pengrowth's website. They have also been filed on SEDAR and on EDGAR.

About Pengrowth Energy Corp.

Pengrowth Energy is a Canadian intermediate energy company focused on the sustainable development and production of oil and natural gas in Western Canada. The company is headquartered in Calgary, Alta., Canada, and has been operating in the Western basin for over 28 years.

We seek Safe Harbor.